Who is Legally Liable for Business Rates in a Commercial Lease?

The general legal principle is that the party in rateable occupation of the property is liable for business rates. In most leasehold arrangements, that will be the tenant in occupation.

Commercial leases usually reinforce this position. They typically require the tenant to:

• Pay all non-domestic rates and similar outgoings; and
• Indemnify the landlord if the landlord becomes liable.

In straightforward cases, the occupier receives the demand directly from the local authority and pays it.

However, the position becomes more complicated when occupation ends, when the property becomes vacant, or where a tenant fails to pay.

 

Reliefs and Exemptions

The headline rates bill is not always the final amount payable. A range of reliefs may apply, including Small Business Rates Relief, Retail, Hospitality and Leisure relief, charitable relief and empty property exemptions. Eligibility depends on factors such as rateable value, property use and the occupier’s wider holdings. Relief is not always applied automatically, so both landlords and tenants should check their position carefully.

 

2026 Update: New Support for Retail, Hospitality, and Leisure

It is important to note recent government measures designed to support high-street occupiers.

From April 2026, the business rates system is undergoing a significant shift. The previous temporary 40% Retail, Hospitality and Leisure (RHL) relief is being replaced by a what is being described as ‘a permanently lower tax rate (multiplier)’ for properties with a rateable value under £500,000. This aims to provide long-term certainty for shops, restaurants, and cafes.

Furthermore, in a boost for the night-time economy, the government recently announced:

• A 15% Business Rates Relief specifically for eligible pubs and live music venues for the 2026/27 financial year.
• A 2-year freeze in real terms for these venues, protecting them from inflationary hikes through to 2028.

While these reliefs are welcome, they are often subject to strict eligibility criteria regarding how the property is “wholly or mainly” used. Landlords and tenants should verify their status now to ensure these savings are reflected in their 2026/27 billing.

 

Rateable Value and Challenges

The amount of business rates payable is based on the property’s rateable value, which is set by the Valuation Office Agency (VOA). The rateable value reflects the VOA’s assessment of the property’s rental value at a specified valuation date. If the figure appears incorrect, it may be challenged through the formal “Check, Challenge, Appeal” process, although strict procedures and time limits apply.

 

What Happens If a Tenant Stops Paying and Disappears?

A common concern for landlords is whether the local authority can pursue them for unpaid rates where a tenant has been in occupation but has failed to pay and has effectively “disappeared”.

In principle, liability rests with the party in rateable occupation during the relevant period. If the tenant was genuinely in occupation, the tenant is primarily liable.

However, in practice:

• The local authority will pursue whoever it considers legally liable based on the rating list and available information.
• If occupation is unclear, disputed or difficult to prove, the authority may look to the landlord.
• If the tenant has become insolvent or cannot be traced, recovery may prove commercially unrealistic.

Once the tenant’s occupation ends, liability will usually revert to the landlord (subject to any empty property relief). That can happen quickly if a tenant vacates unexpectedly.

Landlords therefore need to monitor occupation carefully and act promptly if premises are abandoned.

 

The Void Rates Issue

Empty commercial properties benefit from only a short exemption period (generally three months, or six months for industrial premises). After that, full rates become payable.

This creates a key commercial tension:
who bears the risk of rates during periods of vacancy?

• If a tenant ceases trading but the lease continues, liability will usually remain with the tenant.
• Simply handing back the keys does not end responsibility.
• A break clause that is not exercised strictly in accordance with its terms may leave a tenant liable for ongoing rent and rates.

From a landlord’s perspective, the risk is exposure to rates during void periods between lettings. From a tenant’s perspective, the concern is being tied to liability for premises that are no longer generating income.

Market conditions and bargaining strength will often determine how this risk is allocated.

 

Where Rates Are “Included in the Rent”

Some leases — particularly serviced or short-term arrangements — provide that business rates are included within the rent.

While this can simplify budgeting, it does not necessarily remove risk.

If the landlord fails to pay the local authority, the council may still pursue the party in rateable occupation. In other words, the tenant may remain “on the hook” despite having paid an inclusive rent.

Clear drafting and proper administration are critical to avoid disputes.

 

Additional Risks to Consider

Tenants should be aware of:

• Continuing liability if vacant possession is not properly given at lease expiry.
• Service charge provisions recovering rates on common parts.
• Rating revaluations increasing liability mid-term.
• Exposure if a break clause fails technically.

Landlords should consider:

• Recovery risk where a tenant becomes insolvent.
• The evidential burden of proving occupation for rating purposes.
• Immediate rates exposure once a property becomes vacant.

 

Why Early Advice Matters

Business rates can represent a substantial financial liability. The most significant exposure often arises not during stable occupation, but during transition — insolvency, abandonment, relocation or lease expiry.

When negotiating or reviewing a lease, it is important to understand:

• When liability begins and ends;
• How void risk is allocated;
• What happens if a tenant fails to pay; and
• Whether inclusive rent arrangements genuinely protect the parties.

Clear advice at the outset can prevent unexpected and costly outcomes later.

 

Find out more with our Commercial Property Team

Business rates are a significant and often fluctuating liability. Whether you are negotiating a new lease, managing a vacancy, or navigating the new 2026 relief schemes, early legal advice is essential to protecting your position.

To discuss how we can assist with your property portfolio, please contact a member of our Commercial Property Team.

 

The project involved seven historical buildings at Camden Stables Market, just by Regent’s Canal, a complex site requiring tight coordination. The Sherrards team worked closely with Live Odyssey and other stakeholders to secure vacant possession across all buildings, negotiate and complete the new lease, assist with planning permission and new operating licence, and navigate a range of practical and legal complexities, all within a very limited timeframe to support an immovable launch date.

The buildings’ location, heritage status and the innovative nature of the venue meant that every piece of the puzzle had to fit precisely and quickly. There were plenty of moving parts, but our team handled the negotiations and legal frameworks with clarity and speed, ensuring Live Odyssey could open its doors as planned.

Live Odyssey is an immersive and interactive tribute to six decades of British music, combining live performances, holograms, 3D visuals, and themed bars in a high-tech, multi-room venue. It’s a bold and exciting new addition to London’s live entertainment scene, offering visitors a two-and-a-half-hour journey through the UK’s most iconic musical moments, from The Clash to Queen.

The transaction was led by Senior Associate Christopher Piggott, and the Sherrards team also included Terry Fendt, Partner and Head of the Commercial Property team. Their deep experience with complex, multi-party property transactions – and their calm, practical approach under pressure, helped guide the project through to a successful conclusion.

We’re proud to support such an innovative and culturally significant venue, and we love supporting innovative businesses like Live Odyssey as they redefine what’s possible in live entertainment.

Live Odyssey is now open, click here to see what the fuss is all about!

Sherrards are thrilled to be working with Lovisa, a leading global jewellery and accessories brand with over 1000 stores across more than 45 countries. Known for delivering affordable, on-trend pieces, Lovisa continues to grow its international footprint—including further expansion in the UK retail market.

Partners Terry Fendt and Stephanie Kierans are advising Lovisa on a range of UK commercial property matters as part of this rollout. Their support has included lease negotiations, acquisitions, and ongoing legal advice to help secure prime high street and shopping centre locations. To date, Sherrards has assisted Lovisa in acquiring new outlets in key retail destinations including Colchester, York, and Castleford, with many further sites in the pipeline.

We’re delighted to support such a dynamic and fast-growing brand as they broaden their UK presence.

Click here to view your nearest Lovisa store.

This ambitious expansion was flawlessly orchestrated through a strategic alliance with the Commercial Property team at Sherrards, under the guidance of Terry Fendt.

PLAYGROUND Brand’s Dance Legacy Broadens Its Horizon. Boasting acclaimed studios in LA, Playground London stands as the newest addition to the illustrious PLAYGROUND Brand, gearing up to offer master classes and dynamic daily sessions helmed by industry-leading choreographers.

Seamless Expansion: Thanks to the diligence and expertise of the Commercial Property team, Playground LA Limited secured a smooth lease agreement, culminating in a mid-July completion. With eager anticipation, PLAYGROUND LONDON is poised to swing its doors open on Oct 2nd!

Frequented by stars like Jennifer Lopez and Justin Bieber, and associated with brands such as Nike and Adidas, Playground LA’s legacy is set to continue in London. Dive into the PLAYGROUND brand and check out PLAYGROUND LONDON.

Leading food manufacturer, Around Noon, has acquired the Soho Sandwich Company to create an enlarged group with 800 employees.

Partner in the Corporate & Commercial department at Sherrards Solicitors, Leigh Head, supported the Soho Sandwich Company through the acquisition alongside Senior Associate Emma O’Meara from our Employment department who dealt with the Employment aspects.

They worked alongside WMT Chartered Accountants, ensuring a smooth deal.  

Around Noon was created over 30 years ago in Northern Ireland, and is now one of the major food producers and distributors in the UK.

The company will remain to be overseen by its current Managing Director, Daniel Silverston, as the company will continue to operate under its own brand inside the Around Noon group.

Daniel Silverston announced the deal in London on the 7^th of June 2023, where the story has now been released on BBC news and other various food article websites.

Click here to read the press release from The Food Manufacture. 

Click here to read the press release from Just Food

Another successful result for Real Estate Litigation team as they had victory in a two-day trial for a leading firm of City Surveyors against Spink (the international auction house) at Central London County Court. It was a most interesting case as to when an agent was the “effective cause” of a negotiated rent for a lease renewal. 

Full copy of Judgment delivered can be viewed here.

Counsel on the case George Woodhead, Selborne Chambers stated:

“Mike and George managed the case superbly from pre-action letters to trial.  They looked after our client’s interests throughout by giving astute advice and ultimately, ensuring that the necessary evidence was available and effectively presented at trial.  A deserved result reflecting both our client’s hard work and Sherrards’ well-known litigation prowess.”

Mathew Bailey, Partner at Angerman Goddard Lloyd Surveyors:

 “This was a fantastic result exceeding our expectations and fully justifying our decision to pursue the claim. Mike and his team provided expert advice throughout the process and George, our barrister, argued our case with the upmost skill. A great team and a great victory”

Sherrards Solicitors, Partner:

“It was great to work with our long-standing client surveyors AGL and achieve such a fantastic result for them. The Judge accepted the significant levels of work that they had undertaken in assisting with lease negotiations and awarded the maximum remuneration. Working with Mathew Bailey at AGL was a pleasure. I have worked with Counsel George Woodhead on numerous cases and once again his support and input throughout the case was excellent and his performance at trial was outstanding.”

 

A huge congratulations to Esquires Coffee who have recently celebrated the opening of their newest store in Brackley.

Esquires Coffee is an ethical coffee chain with a community spirit, and have over 50 stores across the UK and Ireland.

Our team, led by Terry Fendt, assisted the Esquires team with their new commercial lease.

To find out more about Esquires, click here: https://esquirescoffee.co.uk/

As detailed in our previous article, as a result of the Covid-19 pandemic the Government implemented The Coronavirus Act 2020 which, amongst other things, offered protection to Tenants of commercial premises by imposing a moratorium preventing Landlords exercising most of the usual remedies for the recovery of rent arrears. A lot has happened since then, but where we are now?

The Commercial Rent (Coronavirus) Act 2022 (“the Act”)

The moratorium imposed by the Government expired at the end of March 2022.

To prevent Landlords taking immediate action in relation to outstanding arrears, the Government implemented the Act, which offered a further period of protection to Tenants, preventing Landlords from exercising their usual remedies in relation to ‘Protected Rent Debts’, those being rents due under a tenancy between 21 March 2020 and 18 July 2021 when the business in question was subject to a closure requirement.

The Act implemented an arbitration scheme which entitled both Landlords and Tenants to refer matters to an Arbitrator to decide whether the Tenant was entitled to relief in relation to their protected rent arrears, but the deadline for the matter to be referred to arbitration was 25 September 2022.

Beyond 25 September 2022

In the event either Landlord or Tenant did not refer the matter to arbitration by 25 September 2022, all protection offered by the Act in relation to the rent arrears is lost.

The result being that a Landlord could exercise their usual remedies (as set out below) and, irrespective of the financial position that the Tenant is in as a result of the Covid-19 pandemic, it could not use is it as a defence to any claim or remedy exercised by the Landlord.

This will be welcome news for Landlords of Tenants who, despite being in strong financial positions, have refused to settle arrears on the basis that the Act afforded them protection.

Tenants still in arrears who were reliant upon the protection of the Act and did not refer matters to arbitration should be conscious of their vulnerability to any of the remedies available to the Landlord.

Options for Landlords

Now that it is “open season” in relation to commercial rent arrears, Landlords should ensure they seek advice as soon as possible in relation to the outstanding arrears. Taking steps to recover the debt sooner, rather than later, will improve the likelihood of recovery and avoid further arrears accruing which may see the Landlord recover pence on the pound in the event of the Tenant becoming insolvent.

As a brief reminder, some of the options open to Landlords are:

 

• Forfeiture of the Lease – however, Landlord’s will need to ensure that they have not waived their right of forfeiture in respect of the previously protected arrears before forfeiting the lease;
• Issuing Court proceedings for the recovery of the debt;
• Commercial rent arrears recovery (CRAR);
• The service of a statutory demand and the subsequent presentation of a winding-up petition; and
• Pursuing former tenants that are subject to an Authorised Guarantee Agreement and/or pursuant guarantors

If you would like any assistance in relation to issues relating to commercial rent arrears, please contact Paul Marmor. 

 

 

It’s no surprise the COVID-19 pandemic has had a significant impact on retailers and the sector as a whole. As many retailers were forced to close during both lockdowns, they have been unable to keep up with their rental payments, and as customers continue to self-isolate and stay at home footfall has been significantly lower.

On the flip side, landlords have struggled too with some not receiving payments from tenants, and the loss of protection following the implementation of the Coronavirus Act 2020 (the CA 2020) means they are unable to rely on contractual rights to forfeit commercial leases by peaceable entry, or by issuing court proceedings.

Click here for the full article in The Retailer (page 42) for an overview of the changes applied to the law due to Covid-19.

To find out more, please speak to Paul Marmor.