Who pays the business rates when a company enters a CVA? 

When a commercial unit sits empty, the financial consequences do not stop at lost rent. Business rates continue to accrue, and in a distressed retail environment that liability can be substantial. Where a tenant enters into a Company Voluntary Arrangement (CVA), the question of who ultimately bears that cost can quickly become contentious.  

A recent High Court case, involving Robinson Webster (Holdings) Ltd, the company behind the Jigsaw clothing brand, has provided welcome clarity on one of the most disputed aspects of this scenario: who is responsible for business rates on empty premises when a CVA company walks away from a leasehold property? The decision has practical implications for landlords, tenants and anyone involved in a business restructuring. 

The Background to the case 

Jigsaw held a 10-year lease on a retail unit in Bow Lane in the City of London. The store had closed during the Covid-19 pandemic and was sitting empty when, in 2020, the company proposed a CVA to restructure its store portfolio. 

CVAs frequently categorise leasehold properties depending on whether the company intends to keep trading from them. In Jigsaw’s case, the Bow Lane store fell into the category of premises the company planned to exit almost immediately. The rent arrears were compromised at around 8 pence in the pound, and the company handed the keys back to the landlord, CBRE, indicating it had relinquished any right of occupation. An “exit” label signals commercial withdrawal. It does not necessarily terminate the lease. 

The City of London Corporation, as the billing authority responsible for collecting business rates, initially pursued CBRE for payment. CBRE pushed back, arguing that it had not accepted a surrender of the lease and that the lease remained in force. The Corporation then turned to Jigsaw’s parent company, which disputed liability. The dispute ended up before the courts. 

The legal question 

Business rates on unoccupied commercial premises fall on the “owner” of the property under section 45 of the Local Government Finance Act 1988. The owner is defined as the person entitled to possession, which, where a lease exists, means the tenant rather than the freeholder. 

Companies in administration or liquidation benefit from a specific exemption under the Non-Domestic Rating (Unoccupied) Regulations 2008. Companies in a CVA do not. Jigsaw argued this was unfair: the CVA had stripped it of any practical ability to use or deal with the property, so it should no longer be treated as the owner. The landlord, it argued, was the party with the real ability to re-let or otherwise deal with the premises. 

A district judge initially agreed with Jigsaw, applying a principle from an earlier Supreme Court case, Rossendale, which allowed courts to look beyond strict legal entitlement to possession where the arrangement appeared designed primarily to avoid rates liability. 

The City of London Corporation appealed. 

What the High Court decided 

The High Court overturned the district judge’s decision. The Rossendale principle, it clarified, applies narrowly, only in cases where arrangements have been specifically constructed to avoid rates liability. A CVA is a restructuring tool with a legitimate commercial purpose, not a device to dodge a rates bill. The two situations are not comparable. 

The court confirmed that Jigsaw remained the legal tenant, remained entitled to possession under the lease, and therefore remained the owner for rating purposes. The fact that it had handed back the keys, that the landlord was marketing the property, and that Jigsaw had little practical ability to do anything with the premises made no difference. The lease had not been surrendered, and until it was, liability stayed with the tenant. Practical disengagement is not the same as legal divestment. 

What this means in practice 

For landlords, the decision is a useful reminder that accepting keys from a CVA company, or even marketing a property for re-letting, does not amount to accepting a surrender of the lease. A surrender must be consensual and clearly agreed. Until that point, the lease subsists and the tenant remains liable for rates. Landlords should be cautious about taking steps that could be interpreted as accepting a surrender when they do not intend to do so, and equally cautious about sitting on their hands if they want to bring a lease to a clean end. 

That may appear straightforwardly advantageous from a landlord’s perspective, but the position is not without its complexities. A landlord who declines to accept a surrender must still weigh vacancy risk, asset management and the practical prospects of recovering rates from a financially distressed tenant. Legal leverage does not always translate into commercial return. 

For tenants and companies in financial difficulty, the judgment underlines that walking away from a property under the terms of a CVA does not extinguish rates liability. If the property remains empty and the lease is still in place, the rates bill will keep accruing. That can be a significant cost for a business already under financial pressure. 

There is, however, a partial solution. While the court confirmed liability on the facts before it, the judgment also serves as a reminder that rates liabilities can themselves be compromised as part of a CVA. Paperchase did this in 2019, and it remains a legitimate option where properly proposed and approved. Getting this right at the outset, rather than discovering a mounting rates liability later, is clearly preferable. 

For those drafting CVAs, the case also flags a useful drafting point. The High Court observed that the word “exit,” commonly used in CVAs to describe a company’s departure from premises, is ambiguous. Clearer language around what is and is not being relinquished could reduce the scope for dispute between landlords, billing authorities and insolvency practitioners further down the line. 

The broader picture 

CVAs can be an effective rescue mechanism, but they work within a legal framework that does not always align neatly with commercial reality. A company might have no practical use for a property and no realistic prospect of subletting it, yet still find itself carrying a rates liability it cannot easily shed. 

The decision brings helpful clarity to a question that had genuine uncertainty around it. For landlords deciding whether to accept a surrender, and for companies negotiating the terms of a CVA, the allocation of rates liability should now be addressed expressly and strategically. The assumption that practical departure equates to legal disengagement is one neither side can afford to make. 

About the Author: Kayleigh Whitman heads the Commercial Dispute Resolution team at Coodes Solicitors, leading one of the largest commercial litigation teams in Cornwall. She advises businesses across the county and beyond on a wide range of disputes, including commercial property, contract and construction matters, insolvency litigation, and shareholder, director and partnership disputes. 

Get in touch: kayleigh.whitman@coodes.co.uk  01579 324019