Business Rates Liability for Receivers: Practical Guidance on Risk Management

Usually, a Fixed Charge Receiver will not be liable to pay business rates. However, there are some exceptions and in some important areas the law is unclear.

Occupied Property: Limited Exposure

To be liable for business rates a party must be in occupation of the Property. This is a matter of fact and degree. Generally, the position is clear although there can be issues for example where more than one party is entitled to occupation.

Normally, a Receiver will be acting as an agent of the property owner. Caselaw generally holds in these cases that the Borrower and not the Receiver remains in occupation, and therefore it is the Borrower who is liable for business rates. Where the Receiver’s agency is terminated (for example because the Borrower has entered liquidation), then the Receiver may in these circumstances be acting in their own capacity as a principal, or as an agent for the party which appointed them. Caselaw has established that even in these cases a Receiver is not usually liable for business rates as there is generally not a change in occupation and the Receiver’s actions in managing the business do not usually amount to rateable occupation in their own right.

Where a Receiver is in office for a long period of time and is not paying business rates, care should be taken regarding the relevant local authority’s position as a creditor of the Borrower. In particular, a Receiver should maintain open communications with the local authority and be alive to the risk of a winding up petition being issued against the Borrower.

Vacant Property: Heightened Risk

Unoccupied premises pose a greater risk. Under the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008, liability attaches to the party “entitled to possession.” Crucially, possession is assessed factually (not legally), meaning a Receiver may be deemed liable if leases are disclaimed or terminated, or where the underlying Borrower is struck off or dissolved. This risk intensifies following a Liquidator’s disclaimer, where liability may shift to landlords or, in some cases, a Receiver in possession.

On the other hand, Administrators and Liquidators benefit from a full exemption in these Regulations. This reinforces the importance of assessing each distressed real estate situation on its own particular facts when choosing which restructuring tool will work best.

Practical Risk Management

To reduce exposure, Fixed Charge Receivers should consider:

• Conducting thorough due diligence on the property status pre-appointment;
• Securing an indemnity from the appointing secured lender;
• Engaging specialist rating surveyors to assess local authority enforcement; and
• Monitoring occupation status and creditor pressure throughout the engagement.

If you would like to discuss your Real Estate enforcement strategy or require further advice on rates liability in distressed situations, please feel free to contact any member of our Corporate Restructuring and Insolvency team.