Nominal-rent lettings and Scotland’s 2023 NDR anti-avoidance rules: comparator evidence can satisfy “significantly below open market rent” without precise valuation

1) Introduction

This reclaiming motion concerned the operation of the Non-Domestic Rates (Miscellaneous Anti-Avoidance Measures) (Scotland) Regulations 2023 (“the 2023 Regulations”), made under the Non-Domestic Rates (Scotland) Act 2020 (“the 2020 Act”). The petitioner/reclaimer (a corporate owner of a shopping centre) let several vacant units at an annual rent of £1 per unit to a tenant, which sub-let to another entity said to facilitate worship. The practical effect asserted by the owner was that liability for rates moved from the owner (liable when unoccupied) to an occupier benefiting from a worship-related exemption.

Angus Council treated the leases as an artificial non-domestic rates avoidance arrangement and, using Regulation 4, treated the owner as liable for rates. A council appeal sub-committee rejected the owner’s appeal. The Lord Ordinary refused judicial review, and the owner reclaimed to the Inner House.

Key legal issues

• Whether the council misdirected itself on Regulation 4(6)(d) (rent “significantly below” open-market rent) by asking merely whether a higher rent was possible.
• Whether the council required to identify a specific open-market rent figure for each unit before applying Regulation 4(6)(d).
• Whether the council failed to consider relevant evidence that the owner had struggled to let the units commercially.
• Whether the council gave adequate reasons (including for “artificiality” / lack of commercial substance).

2) Summary of the Judgment

3) Legal framework (statutes and regulations)

4) Analysis

4.1 Precedents cited and how they were used

(a) Wordie Property Co Ltd v Secretary of State for Scotland 1984 SLT 345

The Inner House treated Wordie as stating the classic Scottish standard for adequacy of reasons: the decision must leave the informed reader in no “real and substantial doubt” as to what the decision-maker decided and why. Here, the court held that—given the parties’ knowledge of the material before the sub-committee—the decision letter’s explanation (including the “gulf” between £1 rent and comparator rents, and the “pros and cons” analysis) met the Wordie standard.

(b) South Bucks DC v Porter (No 2) [2004] 1 WLR 1953; [2004] UKHL 33

Cited for the proposition that reasons must be read in context and are not required to be elaborate; what is required is a broadly intelligible explanation sufficient for the reader to understand why the matter was decided as it was. The Inner House applied this directly: a local authority appeal sub-committee is not expected to produce a judicial-style determination, particularly where the recipients already know the factual and procedural background.

(c) Lanark County Council v Frank Doonin Ltd 1974 SLT (Sh Ct) 13

Invoked by the reclaimer to frame the complaint as a “wrong question” case (i.e., misdirection in law). The Inner House rejected that characterisation on the facts: the sub-committee had the statutory text, expressly applied Regulation 4(6)(d), and its reasoning showed it was addressing whether the £1 rent was “significantly below” open market levels.

(d) Bridgeport Estates v Highland Council [2025] CSOH 69, 2025 SLT 1120

The Inner House used Bridgeport Estates to support the proposition that, when assessing “the level of rent which could reasonably have been obtained”, decision-makers are not confined to the rent actually achieved for the premises. Comparator evidence (including nearby properties of broadly similar type) can be relevant. This case therefore reinforces a developing line of authority that the 2023 anti-avoidance regime permits practical, evidence-based inference rather than requiring formal valuation.

(e) De Smith’s Judicial Review (9th ed., paras 9.136–9.142)

While not a precedent, the court treated the text as a reliable statement of public law principle: reasons should explain in broad terms why a party won or lost and should dispel genuine (not forensic) doubt. This framed the court’s response to the complaint that the sub-committee did not undertake a “systematic analysis” or address every contention.

4.2 The court’s legal reasoning

(i) Correct question under Regulation 4(6)(d)

The Inner House focused on what the sub-committee actually did: it had the full statutory scheme in front of it, expressly concluded that Regulation 4(6)(d) applied, and explained its core factual basis (the “gulf” between £1 and comparator rents, adjusted by a stated appreciation of relative advantages/disadvantages). That was sufficient to show proper self-direction.

(ii) No requirement to determine a precise open-market rent for each unit

A central holding is that Regulation 4(6)(d) does not impose a duty to:

• calculate a definitive market rent for each separate unit; or
• conduct a valuation exercise akin to expert evidence in civil litigation.

Instead, the statutory wording (“could reasonably have been obtained”) allows inference from other appropriate evidence. The sub-committee’s use of nearby High Street comparator rents, coupled with an explicit recognition of “pros and cons” differentiating the properties, was treated as an acceptably analytic method to reach the conclusion that £1 was significantly below market.

(iii) Treatment of the owner’s marketing difficulties evidence

The owner argued that two years of unsuccessful marketing demonstrated that open-market rent was effectively nominal. The court rejected that logic on the evidence as presented: the offers described were “at cost” and “all-inclusive” (service charge, insurance, and business rates liability). Failure to secure tenants on that composite basis did not prove that no materially higher rent than £1 could reasonably have been obtained on a different structure (for example, separating rent from other liabilities, or pitching at a lower yet still substantial rent). Accordingly, the sub-committee was entitled to infer that a rent “still much more than £1 per annum” could reasonably have been obtained.

(iv) Adequacy of reasons and “artificiality” / lack of commercial substance

On reasons, the Inner House stressed contextual reading: the decision letter was addressed to parties who had the reports, submissions, and evidence. It accepted that the sub-committee’s statement that the Director of Finance’s evidence was preferred, alongside enumerated factual findings (including the rent level and comparator gulf), was enough to explain why:

• an “advantage” was being obtained (avoidance of rates liability); and
• Condition B under s 40 (lack of economic or commercial substance) was met, including the indicium that the arrangement was carried out in a manner not normally employed in reasonable business conduct.

4.3 Impact

(a) Practical enforceability of the 2023 Regulations

This decision supports a workable enforcement model for Regulation 4: local authorities can proceed by assembling a coherent evidential picture (inspection, rent level, local comparators, and contextual evaluation) without needing to commission or produce a unit-by-unit market valuation. That lowers the procedural and evidential burden in anti-avoidance determinations, which is likely to increase the regime’s practical effectiveness.

(b) Evidential demands on owners challenging “nominal rent” findings

Owners seeking to resist Regulation 4(6)(d) on “depressed market” grounds may need evidence that:

• even a materially higher rent than nominal could not reasonably have been obtained at the relevant time; and
• marketing efforts were directed to establishing the realistic rent for the property itself, not merely a bundled “all-in” price incorporating rates exposure.

In other words, this case indicates that “we could not let at an all-in package” may be insufficient to show that £1 is not significantly below open-market rent.

(c) Reasons challenges against non-judicial decision-makers

The Inner House’s approach reinforces that reasons challenges are sensitive to forum and context. For local authority sub-committees applying specialised regulatory schemes, courts are reluctant to impose overly exacting, judicial-style reasoning requirements, provided the decision is intelligible and anchored in identified material.

5) Complex concepts simplified

• Non-domestic rates: a property tax on non-residential premises (shops, offices, etc.), typically paid by the occupier.
• “Lands and heritages”: Scots law term broadly meaning heritable property (land/buildings) for rating purposes.
• Unoccupied rates liability: where premises are empty, legislation can shift liability from occupier to owner.
• Rates “advantage” (2020 Act, s 38): includes avoiding assessment or securing relief/exemption; the statute expressly allows comparison to what would have been payable without the arrangement.
• “Artificial” arrangement (2020 Act, s 40): includes arrangements lacking economic/commercial substance; an indicator is doing something not normally done in reasonable business conduct.
• Regulation 4(6)(d): a sign that an arrangement is “not on a commercial basis” is where rent is significantly below what could reasonably have been obtained on the open market.
• Judicial review vs appeal on the merits: the court scrutinises legality, rationality, and procedural fairness; it does not re-make the decision simply because it might have taken a different view on the facts.
• Reclaiming motion: an appeal to the Inner House against a Lord Ordinary’s decision.

6) Conclusion

Heptagon Portfolio Arbroath LTD against Angus Council [2026] CSIH 22 confirms that, under Scotland’s 2023 non-domestic rates anti-avoidance regime, a local authority may conclude that nominal rent is “significantly below” open-market rent without fixing a precise market rent figure for each unit, provided it uses relevant evidence (including comparators) and explains its conclusion in a way that is intelligible in context. The judgment also underscores a restrained approach to reasons challenges: administrative decision-makers need not produce judicial-style reasoning where the basis of decision is clear to the informed reader.