The Upper Tribunal (Lands Chamber) (‘UT’) has given judgment in the case of Ludgate House v Ricketts (1) LB Southwark (2) [2019] UKUT 278 (LC), reversing the original decision of the Valuation Tribunal (‘VT’) (Our note here).
It may be recalled that the VT found that Ludgate House consisted of a single ‘hereditament’ and that the use was non-domestic for rating purposes because the guardians had insufficient interests to render the over-all occupation ‘domestic’. The VT said: “The question is one of fact and it is clear to me, with regard to the position and rights of the parties, that the occupation of LHL is paramount. VPS are specifically engaged to provide security services, and grant licences in order to do that, but are not given possession or occupation of the premises, and the guardians are not granted exclusive occupation of any part, nor is the extent of areas which may be occupied clearly defined. As such LHL are in possession of the whole building.”
The VT decision made clear that this is was case which turned on its very specific facts. It is notable, therefore, that the UT hearing is a “rehearing” and new and further evidence was provided to the UT with the result that a completely different picture of the facts emerged. As the UT explains at para 94: “Although the VT had the advantage of visiting the building, which we have not, [It] did so after the licensees had vacated. [It] was not given access to the most highly partitioned floors, the eighth and ninth, on which two of the first four licensees took up residence on 1 July 2015; nor do the parties appear at that stage to have agreed that four separate rooms were allocated to the first settlers on the material day. This appeal is a rehearing, to be determined on the agreed facts and the evidence adduced before us.”
So whereas the VT decision had been influenced by the “vast scale of the floors and the enormity of the open space”, the UT decision by contrast focuses on the fact that “on 1 July 2015 there were four sufficiently distinct units of occupation capable of being recognised as separate hereditaments, namely rooms 30a and 31 on the second floor, 16 on the eighth floor, and 4 on the ninth floor.”
In the light of this starkly different factual analysis, the UT went on to draw the opposite conclusions to the VT on the legal effect. The UT states, at para 83, “The critical question on this issue is whether, on the material day, the four licensees who were the first settlers in the building occupied one or more separate hereditaments of which they, and not LHL, were the rateable occupiers.”
To answer this question “it is immaterial whether the title to occupy is attributable to a lease, a licence, or an easement. Nor does it depend on the subjective intention of the parties to the licences, or LHL. The legal rights of occupation conferred on the licensees are a relevant consideration, but more important is the manner in which the arrangements were operated in practice, and the quality of the occupation actually enjoyed by the licensees.” The UT found that in the case of the 4 original guardians, they each occupied “a specific room, the location of which was shown to us on a plan, neatly edged in red … the individual room which they occupied was never in doubt, and it was kept under lock and key by them and recorded in the official VPS register as theirs.”
The UT went on to find that each of the four guardians was (i) in actual occupation of their respective rooms and (ii) their occupation was (from their perspective) exclusively for the purpose of providing themselves with somewhere to live. This was clearly (iii) to their benefit and, given the 22 month period of their occupation, (iv) not ‘transient’. Accordingly the guardians use of the hereditament was ‘paramount’ and that use was ‘domestic’.
Accordingly the UT found that, on the relevant date, there were four separate hereditaments. The use of each of these was domestic and, therefore, Ludgate House fell to be taxed under the Council Tax regime and not Non-Domestic Rates.
What does this decision mean for Guardian Schemes in the future?
It must be emphasised that this case was decided on very particular facts arising from the particular configuration of the building and the arrangements for the guardians within it. It is dangerous, therefore, to draw too many general principles from it. That having been said, there are a number of points which may be of general applicability:
In respect of the NDR issue that was central to the case, it should now be clearer as to how guardian-protected buildings may be excluded from NDR. In order to achieve this end, it will be necessary to show that the Guardians (some or all of them) occupy some part of the building with sufficient autonomy/exclusivity to be deemed the ‘paramount’ occupier and that there is no non-domestic use of any part of the building. However, the Tribunal made it clear at para 93 that “if the occupation of the building had taken the form of individuals camping out in the middle or at the undivided ends of the floor plate, with nothing to segregate or define any unit of occupation as theirs, apart perhaps from some items of furniture or fabric hangings, we would have agreed with the VTE that no smaller separate hereditaments would have been readily ascertainable.”
The issue for Guardian Providers here is that their usual model requires that the guardian is granted a license and not a tenancy, however, an occupier with sufficient rights to be deemed the paramount user is likely to share many, if not all, of the hallmarks of a tenant and, accordingly, would be deemed to be occupying under an Assured Shorthold Tenancy.
The question of whether the guardians in this case occupied under a licence or a tenancy was not relevant to the issues but it is conceivable that a County Court Judge, applying the same logic as the UT in this case, may well come to the conclusion that these guardians were, as a matter of law, Assured Shorthold Tenants and not licensees at all.
It is clear, therefore, that for a Guardian Scheme to benefit from a NDR exemption and at the same time to grant no more than licenses to the guardians, there is a very difficult balance to be made between, on the one hand, insuring that the guardians have sufficient rights of occupation to be deemed the ‘paramount’ users of exclusively domestic parts of the building and, on the other hand, not going so far as to inadvertently grant rights of occupation that amount to a tenancy (see Street v Mountford [1985] UKHL 4].
Another notable feature of this case is that, notwithstanding the carefully drafted license agreements which were intended to avoid the ‘tenancy trap’ by not conferring any sort of exclusive occupation on the tenant, in practice, the Manager acted in a way that was entirely inconsistent with the agreement (see para 86). In all these types of case it is the reality that is determinative and not the description of the arrangement given in the contract, so it is worth emphasising that staff need to understand what they are doing, and why, if the difficult balance referred to above is to be obtained.
A further side-issue in this case is that it is clear that the owners assumed that at no time was Ludgate House an HMO as defined by s254(2) Housing Act 2004. However, the UT was in no doubt that, contrary to this view, Ludgate House was indeed an HMO the moment the Guardians moved in. Again, this was not a relevant issue in this case and, accordingly, the UT does not give detailed reasons for its finding however this decision may very well be taken into account by both Local Authorities and the relevant courts/tribunals when deciding similar cases where HMO status is the relevant issue.
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