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Liability Order Application Dismissed

George Mackenzie

Following a 2-day trial at Highbury Corner Magistrates’ Court, District Judge McPhee has dismissed Camden LBC’s application for a liability order in respect of c. £60,000 of unpaid business rates from a BVI-registered and Hong Kong-based property investment company which is the freeholder of the old Met Office building on the Gray’s Inn Road in London.

The company had been unable to find a commercial tenant willing to pay the rack rent for the various hereditaments within the building, and so from 2017 had executed a series of peppercorn-rent leases in favour of a number of entities which purported to specialise in snail farming. These entities had been formed for use in providing and implementing rate mitigation schemes at empty properties around the UK.

Camden alleged that the leases to the snail farming entities were invalid because they were not executed in accordance with s. 44 of the Companies Act 2006 and were defective because the rent payable under them (a peppercorn payable on demand) was not the “best rent reasonably obtainable without taking a fine” for the purposes of s. 54 of the Law of Property Act 1925. Camden also contented that the leases were shams and were designed to give the outward appearance of the existence of a lease, but were not intended by the parties to have any real legal effect.

The judge rejected all of Camden’s arguments and criticised Camden’s business rates officers who, he found, had “turned its mind away from the presumption of regularity of a lease when there was nothing on the face of the lease which would have caused it to do so.” In cross-examination Camden’s witness accepted that she had approached the issue of sham from a lay, rather than from a legal or technical, perspective and had not properly understood the Pall Mall Investments case on which much reliance was placed.

The case had been treated and progressed by Camden as a test case and it is understood that the judgment will have far-reaching consequences for a number of similar cases in the borough. George Mackenzie acted for the successful respondent and was instructed directly by John D Wood who act for and on behalf of the freeholder in the UK.