Reclaiming Motion in the cause Heptagon Portfolio Arbroath LTD against Angus Council (Court of Session)

Factual and Procedural Background

The Petitioner and Reclaimer, Company A, owned a shopping centre (Property A) in The Town. Several units became unoccupied and Company A granted leases of those units to Company B, which in turn sub‑let them to Company C. The stated rent was £1 per annum for each unit. The Local Authority considered these arrangements to be an artificial non‑domestic rates avoidance arrangement and, relying on Regulation 4 of the Non‑Domestic Rates (Miscellaneous Anti‑Avoidance Measures) (Scotland) Regulations 2023, advised Company A on 22 November 2023 that it would treat Company A as liable for non‑domestic rates from 22 December 2023. Company A appealed; the Local Authority's Non‑Domestic Rates Appeal Sub‑Committee refused the appeal on 4 July 2024. Company A sought judicial review and the Lord Ordinary refused the petition by Opinion dated 12 August 2025. Company A now pursues a reclaiming motion to the Inner House. The decision under appeal concerns whether the sub‑committee was entitled, on the evidence, to treat Company A as liable under the 2023 Regulations.

Legal Issues Presented

1. Whether the Lord Ordinary erred in law in holding that the Local Authority correctly applied Regulation 4(6)(d) of the 2023 Regulations when determining whether the rent charged was "significantly below" the open market level.
2. Whether the Local Authority was required to ascertain and find the precise level of rent which could reasonably have been obtained for each unit on the open market before concluding Regulation 4(6)(d) was met.
3. Whether the Local Authority failed to take into account a relevant factor — namely evidence that specialist letting agents had been unable to let the premises for two years — when assessing what rent could reasonably have been obtained.
4. Whether the Local Authority's reasons were legally adequate (i.e. intelligible and sufficient) for its conclusions under Regulation 4(6)(d) and sections 38–40 of the Non‑Domestic Rates (Scotland) Act 2020.
5. Whether, on the evidence, the arrangement could properly be characterised as an "artificial non‑domestic rates avoidance arrangement" within the meaning of sections 39–40 of the 2020 Act.

Arguments of the Parties

Company A's Arguments

• The Local Authority addressed the wrong question by asking simply whether a higher rent could have been obtained rather than whether £1 was "significantly below" the level that could reasonably have been obtained on the open market.
• The sub‑committee failed to engage with Company A's evidence that specialist letting agents had been unable to secure tenants over two years; accordingly it ought to have concluded that no higher rent was reasonably obtainable.
• Alternatively, if the sub‑committee considered that a higher rent was possible, it failed to explain why any significantly higher rent could reasonably have been obtained in light of Company A's evidence.
• The decision amounted to mere recital of statutory tests and indicia without factual findings; reasons were therefore inadequate and unintelligible.
• Relief sought: allow the reclaiming motion, recall the Lord Ordinary's interlocutor, reduce the Local Authority's decision and remit the matter for reconsideration by a differently constituted sub‑committee.

The Local Authority's Arguments

• The reclaiming motion should be refused and the Lord Ordinary's interlocutor adhered to.
• The sub‑committee had the statutory tests, a detailed officer report, and written and oral submissions; it was not required to provide quasi‑judicial levels of detail.
• Where the rent is nominal (£1), relatively little detailed analysis is required to conclude it is "significantly below" market; the sub‑committee's comparative exercise was sufficient.
• The decision narrated that submissions were considered and identified the comparative evidence and pros/cons; that sufficed to leave no real and substantial doubt as to why Company A lost.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the statutory framework: the 2020 Act and the 2023 Regulations require (i) a tenancy, (ii) that the tenancy have the purpose of gaining an "advantage" as defined, and (iii) that the tenancy be artificial (condition B: lack of economic or commercial substance). Regulation 4(6)(d) permits consideration that rent charged is "significantly below" what could reasonably have been obtained on the open market.

The court accepted that the sub‑committee had the relevant statutory provisions, the Director of Finance's report, and full written and oral submissions before it and expressly stated it applied Regulation 4(6)(d). The sub‑committee used comparative rental figures for four High Street properties and assessed pros and cons (accessibility, service charge, visibility) against the shopping centre units. The court held it was not necessary for the sub‑committee to fix a precise open‑market rent for each of the six units; comparative evidence and sensible inference were permissible ways to determine whether the £1 rent was significantly below market.

On the evidence, including the comparative gulf between £1 and the High Street rents and the sub‑committee's acceptance of the director's evidence, the court found the sub‑committee was entitled to infer that a materially higher rent could reasonably have been obtained. The court also held that the sub‑committee had properly considered Company A's evidence about unsuccessful marketing efforts and was entitled to treat that evidence as not negating the inference that rents materially above £1 were obtainable. Finally, the court found that the reasons given, when read in context with the materials before the sub‑committee, were adequate under established authorities and not a mere recital of statutory language.

Holding and Implications

RECLAIMING MOTION REFUSED

Holding: The Inner House refused the reclaiming motion and adhered to the Lord Ordinary's interlocutor. The court found that the Local Authority lawfully concluded that the tenancies met the requirements of Regulation 4(2) and 4(6)(d) and that the arrangement could properly be characterised as an artificial non‑domestic rates avoidance arrangement.

Implications: The direct effect is that Company A remains treated as liable to the Local Authority for the non‑domestic rates in question and Company A is liable in expenses of the reclaiming motion. The opinion did not purport to establish a new legal principle beyond the application of the statutory scheme and existing authorities to the facts of this case.