Corporate insolvency and rate liability

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Liability for business rates is complex, and the question of who is liable if occupants become insolvent is a question that often arises during times of economic uncertainty, such as the pandemic.

Corporate rate liability for insolvent companies

Responsibility for corporate rates attaches to specific units of ownership called “inheritances”.

The person liable for professional tariffs is generally the holder of the inheritance. If the heritage is not occupied, the “owner” will be responsible. The “owner” is the person entitled to possession of the property. The tenant will normally be entitled to possession and therefore generally will be liable for professional rates even if he is not occupied. In multi-tenant buildings, landlords sometimes agree to pay business rates themselves and will then compensate themselves from tenants through service fees or other specific provisions in leases.

When a tenant has become insolvent, this does not necessarily relieve him of the obligation to pay professional rates. This will depend on a number of factors, the most important of which is whether he occupies the premises.

Liability when premises are occupied

If they continue to occupy, the insolvent tenants will remain liable for the professional rates which will be treated as a charge of the company in receivership or in liquidation (whether it is a judicial or voluntary liquidation).

Administration

Once a company in administration has ceased to use the premises for the purposes of administration, the directors will normally write to the owner to say that they have left and will not pay any further costs (including rent, utilities and business rates) in relation to the premises. They can also contact the local authority to inform them that they have left and are no longer responsible for business rates (whether technically correct or not). Landlords would be well advised to review their options regarding professional rate liability as soon as it is clear that the tenant is in financial difficulty to be well prepared for this scenario.

Liquidation

When a company in liquidation ceases to use the premises for the purpose of liquidation and vacates them, the liquidator will often terminate the lease. As long as the premises are used for the purposes of the liquidation, the company remains liable for the professional fees which are due as liquidation costs. Following the disclaimer, responsibility for professional rates rests with the owner.

Sequestration

For companies in receivership except in exceptional cases, the responsibility for professional rates will remain the responsibility of the tenant.

Responsibility when the premises are empty

There are certain temporary exemptions from liability for business rates for empty premises. For businesses, total exemption from liability for a period of three months,[1] while for industrial and storage goods it is six months.[2] This is commonly referred to as “empty rate relief” and applies regardless of the tenant’s insolvency status.

As indicated above, when the premises are unoccupied, it is to the “owner” that the community will turn for professional rates. The “owner” is the party who is entitled to possession and does not necessarily need to be actually occupied. Other, permanent exemptions may be available to insolvent companies when the premises are empty and the insolvent tenant does not actually occupy the inheritance.

There are a number of situations in which a waiver of liability for business rates will apply. These include:

  • Companies in liquidation: an exemption applies to unoccupied inheritances where the owner is a company which is subject to a winding-up order under the Insolvency Act 1986 or which is voluntarily wound up.[3]

  • Companies under administration: an exemption applies to unoccupied inheritances where the owner is a company which is under administration in accordance with the relevant provisions of the Insolvency Act 1986 or which is the subject of an administration order under the law of 2003 on enterprises.[4]

For businesses that are in receivership, the company will be entitled to the “empty rate relief” mentioned above, but thereafter commercial rate liability will continue to accrue. The corporation, rather than the receiver, will be liable.

Comment

Liability for business rates can be a significant expense for occupants of commercial property. Landlords of insolvent tenants often want leases to continue. Once the lease is over, the lessor will have the right of possession but will therefore also be liable for professional rates. The exemptions which the insolvent lessee could benefit from will not apply to the owner.

The availability of insolvency-related exemptions will depend on the facts, including whether the premises are occupied or unoccupied – which can be a more complex matter than it seems. Following a recent Supreme Court judgment, the landlords could still be considered the “owner” of the premises even though they have granted a lease to a company which is then liquidated under a reduction of professional rates. The decision in Rossendale BC v Hurstwood Properties (2021) was considered in one of our previous Law-Nows.

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