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Freeholder Faces £590,000 Rates Bill After Tenant Goes Bust

Following a High Court ruling, commercial property freeholders have been landed with a stinging £590,000 non-domestic rates bill in respect of an office block which had stood empty for more than two years after their tenants went bust.

Under the terms of the lease, the corporate tenant had been liable to pay the rates. However, after the tenant went into liquidation and was subsequently wound up, its liquidators promptly disclaimed all interest in the property. The freeholders had, however, continued to collect rent from a guarantor under the lease.

In those circumstances, the local authority argued that the rates liability fell on the freeholders and obtained a £590,000 liability order from a district judge. In challenging that order, the freeholders argued that, notwithstanding the liquidators’ disclaimer, the lease had not been terminated for all purposes.

However, in dismissing the appeal, the Court found that the disclaimer had brought the lease entirely to an end and that, from that point onwards, the freeholders had been entitled to take immediate possession of the building. The fact that they had refrained from doing so, and had continued to receive rent from the guarantor, did not change that position.