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Business rates - ignore at your peril

Napthens - January 23rd 2018

Commercial landlords are often left with business rate liabilities following the expiry of a lease or a tenant absconding with the landlord taking back possession of the property.

As a starting point a landlord should think tactically to avoid liabilities when a tenant absconds. If you are notified that your tenant has vacated the property you should seek preliminary advice from us to limit your liabilities in respect of business rates, council tax and utilities and to preserve your right to pursue your tenant for losses (and to avoid liability being transferred to the landlord without agreement).

Councils will often pursue the easiest target when attempting to collect business rates and with their enforcement powers that is often the landlord, as the landlord is easy to trace and usually has the funds to satisfy the demand, or in the alternative a property on which a charging order can be placed.

Even if you think that the business rates are not your responsibility you should not ignore the issue.

If, without its agreement the liability for business rates is transferred into the landlord’s name the council will send demands for payment followed by a final reminder. They may then apply to the Magistrates court to issue a summons for you to appear in court. It is vital that evidence is presented at that hearing to avoid a liability order being made.

If an order is made against you the court has decided that the business rates are your responsibility. The council then has a number of enforcement options which include attachment of earnings orders, removing your goods to sell to satisfy the debt, statutory demands or in some cases committal to prison.

To set aside an order there is an onerous 3 stage test that the court will consider when deciding whether to set aside the order and each of the 3 limbs of the test must be met:

  1. There must be a genuine dispute as to whether the rates are your responsibility
  2. There has been some form of substantial procedural error or mishap
  3. The application must be made promptly after you have learnt that the order has been made or have notice that it may have been made

If the application is not made within days or weeks of the order coming to your attention (or your being on notice that an order MAY have been made) the application to set aside the order will probably be unsuccessful.

The council are then at liberty to enforce the Order. It is likely that an initial step will be to instruct an Enforcement Agent to remove goods and if that is unsuccessful, it is probable that you will be served with a statutory demand which can lead to an application for your bankruptcy (or in the case of a Company a winding up order).

As a court has ordered that the debt is owed to the council it is unlikely that a bankruptcy petition/winding up order would be successfully opposed on the basis that the debt is not yours. Therefore, an application must be made to address the underlying issue of the liability order immediately.

Due to the 3 stage test - prompt action is vital. It may be that you can prove without doubt that the debt is not yours (mainly if the lease is still technically in existence) but if an application to set aside the order is not made promptly the court will not take that evidence into account.

For further information on the above, do not hesitate to contact David Bailey or Chris Addison.