This is an interesting decision of the Valuation Tribunal on the effect of the occupation by property guardians of a commercial building. Some (though not all) property guardian companies have made a sales feature of the alleged freedom from non-domestic (commercial) rates for a building occupied by guardians, on the basis that it is occupied for residential use. This Valuation Tribunal decision rather dents that position, as well as illustrating the complications that arise when you operate on the edges of landlord and tenant law.
Valuation Tribunal. Appeal 584026075915/537N 10 Ludgate House (Inc Part 2nd Flr South) 245 Blackfriars Road London SE1 8NW (5 July 2018)
Ludgate House is a purpose built, 9 storey office building, due for redevelopment. In June 2015, the owner, LHL, entered an agreement with VPS (UK) Ltd to put in property guardians in parts of the property. Other parts remained unoccupied and secured. Some 40 to 50 guardians were placed, and LHL applied to have the property removed from the non-domestic rates register. This was initially successful, but in 2017 Southwark then disputed and re-registered and a further appeal by LHL in 2017 gave rise to this case.
At issue was Section 64 Local Government Finance Act 1988, which states (so far as relevant):
(8) A hereditament is non-domestic if either –
(a) it consists entirely of property which is not domestic, or
(b) is a composite hereditament.
(9) A hereditament is composite if part only of it consists of domestic property.
Section 66(1) defines ‘domestic’ as used “wholly for the purposes of living accommodation”.
So, was the building, in whole or in part used “wholly for the purposes of living accommodation”.
The Tribunal notes the terms of VPS contract:
The contract expressly provided that LHL retained control, possession and management of Ludgate House and that VPS would not occupy, or allow a guardian (or other person) to take possession. The preamble to the agreement sets out the main purpose of the arrangement, namely that “…services are provided with a view to securing premises against trespassers and protecting them from damage.” It also expressly stated that VPS was not LHL’s agent.
Temporary cookers and showers had been installed, but were easily removable.
The guardians’ licences were considered:
The placement of guardians involved VPS granting licences to persons who would undertake obligations, in particular, the requirement to “live in, and not without[VPS’s] prior written consent sleep away from [Ludgate House] for more than 2 nights out of any 7.” The licences also imposed positive duties on the guardians to report to VPS the presence of any persons whom they suspected did not have permission to be within Ludgate House and to “politely but firmly challenge” any such person to “determine their identity and purpose.” These were specific security obligations which went beyond any traditional licence to occupy residential premises. The licences did not grant the right to occupy any specific room, and there was a requirement to move to different rooms as requested.
The licence provided that VPS had no authority to grant, and did not grant, any right of possession or exclusive possession of Ludgate House or any part of it. The guardian was not permitted to use any other part of the property other than the living space or designated communal areas. Further the licence provided that a guardian could not enter particular areas within Ludgate House as designated by VPS; although such areas were not identified in a document.
The licence explicitly stated that no tenancy was created. A guardian would be required to pay a licence fee to VPS, which was below market rates for accommodation which would provide greater security of tenure and which came without such obligations as existed in this case.
Guardians had in fact been moved from area to area within the building over the course of the occupation.
These are, it should be noted, all fairly common sorts of term, both for the Guardian Company’s agreement with the owner, and for the Guardians’ licences.
The Tribunal found that:
The fact that LHL intended to avoid liability for NDR by the use of guardians does not in itself have any impact on the legal issues arising. Despite Mr Forsdick’s arguments before me that the purpose of the guardian’s occupation was one of residential accommodation, the VPS agreement and licences make clear that their presence was to provide a security function. The provision of living accommodation was as an additional object was the means to achieve that purpose. These licenses were not ordinary residential licences. Both LHL and VPS were instituting a security function to Ludgate House and expressly provided that possession of any part was not given over to the guardians. Whilst the guardians may have been motivated by the attractiveness of this form of cheaper accommodation, it does not detract from their positive obligations to provide the security functions.
What was in place was described by Mr Forsdick a classic guardian scheme. Guardian schemes are common and apparently, until this case, had been accepted by the VOA and billing authorities for rate mitigation use, including by local authorities themselves. In my view at Ludgate House LHL has applied a guardianship scheme to a non-domestic building on a vast scale. I do not agree with Mr Forsdick’s characterisation that doing so simply meant that it was providing more housing to more people without creating any discernible downsides. Owing to the nature of the building and the arrangements, the legal framework it tried to impose in fact defied reality and logic. Each case must be determined on its facts, and the scale of the building and the nature of the occupational licences tipped the scales far away from LHL. I considered the circumstances as to the routes of passage used by the guardians to be contrived and counter-factual, unnatural in a domestic context.
The property was therefore subject to non-domestic rates (in full) back to 2015.
On the one hand, the Valuation Tribunal states that each judgment must be on its own facts, and cites the scale of this scheme (and the secured off, non-occupied parts) as factors.
On the other hand, the Tribunal clearly states that the nature of the Guardians’ licences and occupation (non-exclusive, with requirements to occupy at least 5 days out of 7, and to report and challenge trespassers), is decisive.
The Tribunal cites the Court of Appeal in John Laing & Son Ltd v Kingswood Area Assessment Committee  1 KB 344,  1 All ER 224 on rateable occupation:
“Firstly, there must be actual occupation; secondly that it must be exclusive for the particular purpose of the possessor; thirdly, that the possession must be of some value or benefit to the possessor and fourthly, the possession must not be for too transient a period.”
The finding on property guardian companies is (correctly, if following their own agreements with freeholders, and their guardian licence agreements), that there is no exclusive occupation for the purpose of the possessor.
Based on this, there would have to be the risk that any commercial building occupied by Guardians, even if they occupy the whole property, would not be ‘domestic’ use for rateable purposes.