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Judge rejects appeal in 'snails in crates' business rates dispute

The High Court has rejected an appeal over a business rates avoidance scheme which purportedly involved a snail farm in an office building.

Mr Justice Fordham also criticised the losing party in the case for asking him to alter his judgment when it was circulated in draft form.

Leeds City Council was awarded almost £40,000 in costs.

The judge said the case of Isle Investments Ltd v Leeds City Council (Rev 1) [2021] EWHC 345 (Admin) involved the approach to identifying 'sham leases' in the context of avoiding business rates for unoccupied premises.

District Judge Holland had at Leeds Magistrates' Court made a liability order against Isle for £105,728.70 for three units at premises in Beeston.

The case stated that she supplied to Isle said: “On the facts as I found them to be, was I right to conclude that the sole purpose of these leases was for [Isle] to seek to avoid the liability to pay business rates in circumstances where the tenant had no intention of paying the business rates, as opposed to a lease intended to provide exclusive possession to the tenants for the conduct of the tenants' businesses. In short, was I right to conclude that the leases were shams?”

Judge Holland had referred to an express restriction on permitted use found in leases at the properties limiting this to "the purpose of heliciculture [ie. snail farming] by the Tenant of persons authorised by the Tenant”.

She said a genuine lease would have created an exclusive right of occupation, but the lessees entered into allowed no legitimate business to take place as the units were offices and a snail farm could not have operated there.

Isle argued that Judge Holland found nothing that “makes a finding of illegality as opposed to practical impossibility and illegitimacy”.

Fordham J said: “In my judgment, what the judge was expressing…was a finding of practical impossibility rather than a finding of illegality.

“Snail farming was a practical impossibility in the units and in that sense 'could not have operated there'. A use other than snail farming would not have been legitimate because it would have breached the Snail Farming Restriction. Thus, the lease allowed no legitimate business to take place.”

Fordham J dismissed all Isle's six grounds of appeal, noting among them that Judge Holland had not “treated artificiality as sufficient to find sham”.

He said: “No passage in the judgment nor in the case stated treated artificiality and sham as the same thing, nor did the substance of the reasoning do so.

“There was no legal error, there is no basis and no need to remit the case, and the appeal is dismissed.”

Fordham J said he received emails after the draft judgement was circulated from counsel for Isle “which were attempts to 'critique the judgment' and persuade me to change 'the outcome'.

“These were unsuccessful and the kindest thing is to say nothing further.”

He ordered Isle to pay Leeds’  £23,107.36 costs of the appeal and £15,772.62 for the original hearing.

Mark Smulian

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