Changes to empty rates relief have prompted ratepayers to try out different schemes to mitigate liability for business rates. In Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16; [2021] PLSCS 90, the owners of empty property had granted leases to special purpose vehicles, which did not have any assets or liabilities and did not trade. In due course, the SPVs were put into voluntary liquidation or dissolved – leaving the council unable to recover the business rates due in respect of the properties. Meanwhile, the owners of the empty properties simply sat on their hands, although they had break rights that were exercisable if another tenant were to come forward.
The Supreme Court took a purposive approach to the interpretation of the relevant provisions in the rating legislation and ruled that, on the facts that the court had been asked to assume, the leases had not transferred the requisite “badge of ownership triggering liability for business rates” to the SPVs. So the landowners would remain liable for business rates.
The council also tried to persuade the Supreme Court to “pierce the corporate veils” of the SPVs on the ground that the schemes were an abuse of corporate personality. But the owners of the properties did not own the shares in the SPVs. On the agreed facts, each of the SPVs had a single director/shareholder, who was an individual. So the council claimed that the landowners had “acquired” the SPVs from the promoter of the rates avoidance scheme.
However, the Supreme Court was not satisfied that it could pierce the corporate veils, even if it were to assume that this were the case. In Prest v Petrodel Resources Ltd [2013] UKSC 34 Lord Sumption had indicated that it may be possible to pierce the veil of corporate personality in a small category of cases where someone under an existing legal obligation or liability, or who is subject to an existing legal restriction, uses a company to evade or frustrate the law. In these circumstances, the court can pierce the corporate veil, but only for the purpose of depriving the company or its controller of the advantage that they would otherwise have obtained by relying on the company’s separate legal personality.
But it is not an abuse to cause a legal liability to be incurred by a company in the first place and to rely on the fact that the liability is not the controller’s because it is the company’s. On the contrary, that is what incorporation is about.
The council was trying to force a square peg into a round hole and its reliance on the “evasion principle” was wholly misplaced. The plain fact was that the leases did not avoid, or even seek to avoid, liability for business rates incurred up to the dates on which the leases were granted. All that they sought to do was to transfer liability for business rates going forwards.
The abuse in this case lay in the way in which the SPVs’ liability for rates had been dealt with, by dissolving the SPVs or putting them into liquidation. And the law provides comprehensive remedies for such abusive behaviour, which do not require the piercing of any corporate veils.
Allyson Colby, property law consultant
