In England and Wales, where a hereditament is rateably unoccupied, liability to pay any business rates (national non-domestic rates), in respect to any given day(s), falls on the 'owner' under s.45(1) of the Local Government Finance Act 1988 ('LGFA 1988'). Section 65(1) of LGFA 1988 provides:

'The owner of a hereditament or land is the person entitled to possession of it.'

Who is '...entitled to possession...' was recently (14.5.21) considered by the Supreme Court in Rossendale Borough Council v Hurstwood Properties (A) Limited [2021] UKSC 16; [2022] AC 690 ("Rossendale"), where, amongst other things, the '...Supreme Court applied the "Ramsay principle" (WT Ramsay Limited v Inland Revenue Commissioners [1982] AC 300) to certain rate mitigation schemes for avoiding liability to non-domestic rates ("NDR") in respect of unoccupied hereditaments.' (Emeraldshaw, citation below, at paragraph 1).

('the Ramsay principle is a principle of statutory interpretation based on the identification of the purpose of the legislation in question (Emeraldshaw, citation below, at paragraph 81))

Well, now, about 4.5 years later, the Court of Appeal in The King (on the application of Emeraldshaw Limited) v Sheffield Magistrates' Court v Sheffield City Council [2025] EWCA Civ 1601 ('Emeraldshaw'), have had cause to consider '...the legal basis and scope of the decision in [Rossendale]...' (paragraph 1). The main issue in Emeraldshaw was:

'...whether the decision in Rossendale is limited to the types of rate mitigation schemes considered in that case and/or the reasons why those particular schemes did not result in the tenant being treated as the "owner" under s.65(1) and liable for NDR on the unoccupied hereditaments, or whether the Supreme Court laid down a broader principle not restricted to schemes of that kind.' (paragraph 30) (spoiler alert: it is the latter)

Rossendale aspects addressed 

In Emeraldshaw, only Holgate LJ gives a reasoned judgment (with whom Sir Andrew McFarlane (President of the Family Division) and Falk LJ agreed). Amongst other things, Holgate LJ's judgment:

(a) provides a summary of the Rossendale decision; and

(b) disapproves of 3 wrong interpretations of the Rossendale decision;

It also gives a summary of business rates law, under the heading 'statutory framework' (provided in a footnote[1]). Turning to (a) and (b) respectively. 

The Rossendale decision 

Holgate LJ in Emeraldshaw, set out the key elements of the Rossendale decision (judgment in Rossendale was given by Lord Briggs and Lord Leggatt (with whom Lord Reed, Lord Hodge and Lord Kitchin agreed), in paragraphs 32 to 43:

'32. The case concerned two schemes for the avoidance of NDR in respect of unoccupied hereditaments. Both involved the registered owner of premises setting up a company as a special purpose vehicle ("SPV") without any assets or business. The owner granted a short lease of each property to the SPV intending that that company would become the owner of the property and liable for NDR. Under one scheme the SPV was immediately put into members' voluntary liquidation so that the company could rely upon an exemption from rates during the winding up. The period until the lease was disclaimed by the liquidator was deliberately prolonged. Under the second scheme the SPV was dissolved, whereupon the lease, along with the accompanying liability for rates, vested in the Crown as bona vacantia. There might then be a considerable delay before the billing authority discovered the dissolution and prompted the Crown to disclaim the lease. Under either scheme disclaimer of the lease would result in the registered owner becoming entitled to possession again, whereupon it could set up another SPV and repeat the process. If the registered owner found a tenant to occupy the premises, it would terminate the lease to the SPV and that new tenant would pay NDR on the occupied hereditament.

33. It was common ground that the schemes were not shams. As a matter of property law they did genuinely confer an entitlement to possession upon the SPVs. It was also common ground that the sole purpose of the leases was to avoid liability to pay NDR and that they had no business or other "real world" purpose [5].

34. The Supreme Court dealt with the Ramsay principle at [9] to [17]. The principle is based upon the modern purposive approach to the interpretation of all legislation, a matter of central importance. The court's task is to give effect to Parliament's purpose as revealed by the language of the provision in question read in the context of the statute as a whole including its scheme ([9] to [10]).

35. A transaction which is otherwise effective to achieve a tax advantage is not to be treated as ineffective, simply because it was undertaken to avoid tax. But the general expectation is that Parliament does not intend to exempt from tax a transaction "which has no purpose other than tax avoidance". So the Ramsay principle may result in the whole or part of a transaction being disregarded which has no business purpose and is solely aimed at the avoidance of tax [11].

36. Sometimes the Ramsay principle is applied to a scheme aimed at tax avoidance which involves a series of steps planned in advance. It is necessary to consider not just the steps individually, but the scheme as a whole. Although the issue may be whether a statutory provision applied to a transaction which occurred, or a state of affairs which existed, at a particular point in time, the fact that it formed part of a preconceived plan which includes other steps may well be relevant to whether that transaction or state of affairs "falls within the statutory description, construed in the light of its purpose". The Ramsay principle does not require that the other steps were bound to happen, only that they were planned to happen at the time when the first step in the sequence took place and did in fact happen [12].

37. The essence of the approach is that the court gives the statutory provision a purposive interpretation to determine the "nature of the transaction to which it was intended to apply" and then decides whether the actual transaction, which may involve considering the overall effect of a number of elements intended to operate together, "answered to the statutory description" [13]. The House of Lords and the Supreme Court have approved the following helpful statement by Ribeiro PJ in Collector of Stamp Revenue v Arrowtown Assets Limited [2003] HKCFA 52; 6 HKCFAR 517:

"the driving principle in the Ramsay line of cases continues to involve a general rule of statutory construction and an unblinkered approach to the analysis of the facts. The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically. " (emphasis added)

38. In deciding whether a statutory provision imposes a charge, or grants an exemption from a charge, the Ramsay principle involves two components: ascertaining (1) the class of facts (including transactions) intended to be affected by that provision and (2) whether the facts of the case fall within that class, or whether they answer to the "statutory description" [15].

39. The purpose of the rating of unoccupied hereditaments is to stop owners leaving their property vacant to suit their own convenience or financial advantage; it is to encourage owners to bring empty property back into use ([23] to [24]). The aim of deterring owners from leaving property unoccupied for their own advantage and encouraging them to bring empty property back into use for the benefit of the community at large is also reflected in the exceptions to liability and in the zero-rating schemes for charities and certain amateur sports clubs. The rationale for those exceptions is that "the owner" (i) may be unable to bring the property back into occupation, or (ii) has a reasonable excuse for not doing so, or (iii) is making some other valuable contribution to society ([25] to [27]).

40. Although, as a matter of title, the person entitled to possession of real property has the legal right to enjoy the property, whether through personal occupation or by putting others into possession or occupation as tenants or licensees [28], the relevant question is who really has control of the property, including its letting [29]. On the question why is the liability to pay NDR on unoccupied property imposed on the person entitled to possession, the Supreme Court gave this answer at [30]:

"But in relation to the central purpose of providing an incentive to bring unoccupied property back into use, the intention is clear. It focuses the burden of the rate precisely on the person who has the ability, in the real world, to achieve that objective."

The emphasis again is on the court looking at the circumstances of a case with realism.

41. The Supreme Court accepted that in "a normal case" the person who, as a matter of the law of real property, has the immediate legal right to "actual physical possession" of the property is the "owner" for the purposes of ss. 45(1) and 65(1) of the LGFA 1988. That accords with the legislative purpose of imposing the liability for NDR on the person who controls whether the property is left unoccupied as an incentive to bring the property back into use for the benefit of the community [47].

42. At [49] the Supreme Court stated:

"In our view, Parliament cannot sensibly be taken to have intended that "the person entitled to possession" of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates. Still less can Parliament rationally be taken to have intended that an entitlement created with the aim of acting unlawfully and abusing procedures provided by company and insolvency law should fall within the statutory description." (emphasis added)

43. Thus, the ratio of Rossendale is that the "owner" of a hereditament for the purposes of s.65(1) of the LGFA 1988 is the person who has the immediate legal right to actual physical possession of that property, unless, in the circumstances of the case, he or she has no real or practical ability to exercise that right, so as to bring the property back into use, and has only been granted that right for the purpose of avoiding liability for NDR (see also [60] and [61]).'

3 wrong interpretations of the Rossendale decision 

Holgate LJ disapproved/deprecated 3 wrong interpretations of Rossendale, which had apparently surfaced. The wrong interpretations were, that Rossendale:

(1) identified a pre-condition to the principles in Rossendale are to be applied. That pre-condition - a filter - was that the case was 'unusual'. 

Holgate LJ said, at paragraph 44:

'Counsel told us that some advocates and courts read Rossendale as applying the Ramsay principle in circumstances which are "unusual" and not in "ordinary" cases. The concept of an "unusual" case has therefore been treated as a filter which must be satisfied before the principles in Rossendale may be applied. As a result there have been arid debates about what may constitute "ordinary" or "unusual" circumstances. All this involves a misreading of the Supreme Court's decision (including [61]). The correct principle is that stated in [43] above. It is self-evident that (i) a person with the legal right to possession of property will ordinarily have the real and practical ability to exercise that right and to bring a property back into use and (ii) it will be unusual for such a person to lack that ability. The Supreme Court's use of the words "ordinary" and "unusual" went no further than that.'

Later, at paragraph 72, Holgate LJ said:

'There is no requirement for the court to be satisfied that the circumstances of a case are unusual before it is permissible to apply the Rossendale test referred to in [43] above.'

(2) held that a person granted the legal right to possession (e.g. a tenant), will be the person '...entitled to possession...', unless the arrangement involves acting unlawfully and abusing company and insolvency law procedures.

As to this, and following on from this past point, Holgate LJ said, at paragraph 45

'Similarly, it is wrong to treat the last sentence of [49] of Rossendale as deciding that a grant of legal right to possession (e.g. to a tenant) will only be treated as falling outside s.65(1) where the arrangement involves acting unlawfully and abusing company and insolvency law procedures. The last sentence of [49] simply emphasises a fortiori that the SPV schemes in Rossendale fell outside the proper scope of an entitlement to possession for the purposes of ss.45(1) and 65(1) of the LGFA 1988. That is clear from the opening words "Still less…".'

Later, an argument that 'The "real and practical" test in Rossendale is limited to "extreme cases" where, for example, landlords seek to abuse procedures provided by company and insolvency law.' (paragraph 68) was rejected.

(3) held that, unless the six features of the SPV schemes identified in [46] are present, a person granted a legal right to possession of property does not lack the real and practical ability to bring it back into use.

(Rossendale, paragraph 46 is in a footnote[2])

Holgate LJ said, at paragraphs 46 and 47:

'We were also told that some practitioners and courts read Rossendale as deciding that a person granted a legal right to possession of property does not lack the real and practical ability to bring it back into use unless the six features of the SPV schemes identified in [46] are present. That is wrong. Those six matters are not a checklist or a set of criteria for determining in any case coming before the courts whether the principle in Rossendale applies. This goes back to the straightforward distinction drawn in [15] between the interpretation of the statutory provision in question and its application to the facts of a particular case. In [43] above, I set out the legal principle laid down in Rossendale for the correct interpretation of the legislation. Rossendale at [46] simply summarises an analysis of the circumstances of the two schemes in that case to which s.65(1), as interpreted by the court, was applied (see e.g. [48]).

This is also made clear in the judgment at [59]:

"In a similar way in the present case we consider that the words "entitled to possession" in section 65(1) of the 1988 Act as the badge of ownership triggering liability for business rates are properly construed as being concerned with a real and practical entitlement which carries with it in particular the ability either to occupy the property in question, or to confer a right to its occupation on someone else, and thereby to decide whether or not to bring it back into occupation. The fact that the property is by definition unoccupied means, as Henderson LJ said, that there is no scope for identifying as the owner anyone in actual occupation. But it does not preclude asking the question whether a lease granted as part of a scheme for tax avoidance having the characteristics set out in para 46 above confers an entitlement to possession in the relevant real and practical sense, so as to identify the lessee as the owner for the purposes of the liability for business rates. If it does not do so, in particular because, under the scheme, there is no question of the SPV being able to exercise any of the attributes of a person with an entitlement to possession, and in particular to bring the premises back into occupation by itself or by anyone else, then the lessee under that lease will not be the owner. The landlord, as grantor of the lease, will be the owner, because the landlord will not by the grant of the lease have transferred to the lessee a real entitlement to possession."

The beginning of that paragraph restated the court's interpretation of the legislation. The judgment then referred to the characteristics of the SPV schemes in [46] simply for the purposes of deciding whether the circumstances of those cases satisfied the test in ss.45(1) and 65(1) (see also [62]).'

Ramsay principle not about morality 

A further point made by Holgate LJ in Emeraldshaw, was that it would be wrong to think the application of the Ramsay principle, somehow involved, in the name of morality, distorting or manipulating the meaning or effect of a transaction or arrangement (distorting or manipulating the meaning or effect of a transaction or arrangement in the name of morality was deprecated by Kerr J in the R (Principled Offsite Logistics Ltd) v Trafford Council [2018] EWHC 1687 (Admin) at paragraph 118)

Holgate LJ in Emeraldshaw said, at paragraph 81:

'...the Ramsay principle is a principle of statutory interpretation based on the identification of the purpose of the legislation in question. The application of that principle does not in any way involve the court distorting or manipulating the meaning and effect of a transaction or arrangement "in the name of morality".'

Emeraldshaw - the facts.

On the facts in Emeraldshaw, at first instance, the DJ (MC) had held that: (a) the freeholder (Emeraldshaw), rather than the leaseholder (tenant at will to 2 leases, STHY) had been the 'owner' (under s.45(1) LGFA 1988) of the land within 2 hereditaments, as the entity which, during the relevant period (8.6.21 to 2.11.22), had been '...entitled to possession...' (s.65(1) LGFA 1988); because (b) Emeraldshaw (rather than STHY) had had the '...real and practical ability to exercise a right to actual physical possession of the property.' (paragraph 78). Consequently, Holgate LJ held that Emeraldshaw's challenge to the imposition on Emeraldshaw, of business rates liability orders, failed. Indeed, Holgate LJ said 'On the material before the judge, and in these circumstances, I find it difficult to see how a judge could rationally have concluded that STHY did have a real and practical ability to exercise a right to actual physical possession of the property.'.

The 2 hereditaments had been in a commercial property called Minit House 1 (paragraph 4). Upon Emeraldshaw purchasing the freehold (7.6.21)(paragraph 7), Emeraldshaw demised to STHY x 2 tenancies at will, respectively (7.6.21 and 9.11.21), in respect to the land within each respective hereditament. Each was determinable on notice. Each contained clause 3.7, which read 'The tenant shall allow the Landlord (and all others authorised by the Landlord) to enter the Property at any reasonable time for the purpose of ascertaining whether the terms of this agreement are being complied with and for any other purposes connected with the Landlord's interest in the Property.' (paragraph 53). Emeraldshaw applied for planning permission to demolish and redevelop the site (17.8.21). A steel fence went around the site (14.9.21), demolish started (20.9.21), with the demolish complete (9.11.21). A succession of planning applications were made. Redevelopment into 4 hereditaments was complete (3.11.22). Emeraldshaw contended that clause 3.7 enabled it to do this. STHY was not consulted by Emeraldshaw about the work (paragraph 60). The DJ asked himself a relevant question: 'in reality did STHY have the practical ability to determine what happened to the property and could therefore be regarded as "the owner"; did it have control over the letting of the property? In doing so the judge paid careful attention to the terms of the tenancies.' (paragraph 73). Amongst other things, Holgate LJ said, at paragraph 76:

'The evidence before the district judge on the redevelopment project and on what occurred during the period of unpaid NDR provided an ample basis for the judge to conclude that STHY had no real and practical ability to exercise the right to actual physical possession of the property or to bring that property back into use. That was a matter of judgment for the district judge on the material before him. It cannot be argued that he made any public law error in reaching that conclusion. His conclusion was not irrational. His reasoning was not "bare and conclusory".'

Emeraldshaw's challenge in the Court of Appeal failed (paragraph 87) (it was an appeal against a refusal by a High Court Judge, to grant Emeraldshaw, permission to bring judicial review proceedings, against the first instance judge's decision). 

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