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Gorvins Solicitors has announced that its clients have won a case brought by the Government in relation to a scheme for the mitigation of National Non-Domestic Rates (or business rates) on vacant industrial and commercial property. Acting on behalf of MB Vacant Property Solutions Limited and a previous operator of the scheme, Gorvins won the legal challenge, with the High Court in Manchester ruling that the scheme in question is valid and lawful.

HHJ Davies QC also refused to grant permission to appeal against his judgment on the basis that an appeal would have no reasonable prospect of success.

This judgment will bring certainty to commercial property owners who use the scheme. Following the withdrawal back in 2008 of exemptions from liability for rates on empty properties, landlords are fully liable for business rates on non-income producing assets. The decision to withdraw the exemption has been the subject of widespread criticism for many years and been described as counter-productive as it can inhibit the ability of landlords to invest in and develop properties. It has resulted in various mitigation schemes being introduced, of which the scheme in question is just one.

The scheme involves the grant of a lease on unoccupied property to a special purpose vehicle (SPV) company which enters into a Members Voluntary Liquidation. The SPV becomes liable for the rates but as it is a company in liquidation it is exempt from payment. The landlord is entitled to terminate the lease on payment of a premium to the liquidator. The scheme allows landlords to reinvest in their empty properties and return them to commercial use with rates then becoming payable.

Previous legal challenges to this type of scheme by local authorities have failed. However, the Secretary of State for Business, Energy and Industrial Strategy sought to argue that the scheme was nonetheless an abuse of the insolvency legislation permitting the avoidance of business rates and that the scheme operators should therefore be wound up. That argument was rejected by the Court which held that the scheme was transparent and legally valid and did not misuse the insolvency regime. The Court commented that it was not a matter for the Court to make a decision either way as to whether the scheme was in the public interest and noted that there were competing arguments on this.

Commenting on the judgment, Nick Gough, director of MB Vacant Property Solutions, said:

“We are delighted with the High Court’s decision, we were always confident that our process does not misuse any legislation and was operating fully within the law.

“Our clients who range from owners of a single property to some of the largest FTSE listed landlords and developers in the country see vacant busi¬ness rates as a substantial and unfair financial burden. They often restrict investment resulting in properties lying dormant unable to capitalise on other opportunities that would return them to income-production sooner. We would like to thank our whole legal team for their exemplary work in winning this case.”

Jonathon Crook, a Consultant in the litigation team at Gorvins who acted for the companies said:

“This is an important case for owners of empty commercial properties. Busi¬ness rates on unoccupied properties are a huge burden for landlords. They restrict investment, can result in properties being left undeveloped and in some instances have resulted in the demolition of otherwise viable properties.

“Most commercial landlords use schemes to mitigate their rates on empty properties, some of which are far from transparent. The scheme operated by the companies is entirely clear and transparent as to its purpose and effect. It has directly facilitated the redevelopment of properties that would otherwise have been demolished, creating employment opportunities in the process, and returning properties to commercial use with rates then being payable”.

“It has always been our clients’ position that if the Government objects to a scheme of this type then the correct course is to change the legislation under which the scheme can operate. However, that should only be done as part of a wholesale review of the business rates regime, which many regard as unfair and not fit for purpose.”