Tip of the week: Disclaimer and business rates - DAC Beachcroft

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Tip of the week: Disclaimer and business rates

Published On: 2 February 2015

A recent High Court case serves to remind landlords to consider their options carefully when a tenant's lease is disclaimed.

In the case, the tenant’s liquidator disclaimed the tenant's lease and the landlord continued to demand payment of rent from the tenant’s guarantor, which the guarantor paid. The local authority then demanded £590,000 in business rates from the landlord for the period following disclaimer. The landlord refused to pay on the basis that it was not entitled to immediate possession of the property and so was not liable for business rates.

The High Court, however, found that the landlord was liable because, once the tenant’s liquidator had disclaimed the lease, the lease had ceased to exist. The result was that the landlord had become entitled to immediate possession of the property, even though it had chosen not to take back physical possession.

The guarantor was not liable for the business rates because it did not have a right to immediate possession of the property; it would have been entitled to possession only if it had exercised its statutory right to call for a vesting order, which it had not done in this case. Neither had the landlord applied for a vesting order in favour of the guarantor.

This serves as a reminder for a landlord to consider all its options and liabilities once a tenant's lease has been disclaimed, and to take early legal advice to avoid any unexpected liabilities following disclaimer of a lease.

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