Occupation of only a small portion of an otherwise-empty industrial property for six weeks following the first six-month rate-free period has been held to be sufficient to entitle the ratepayer to a second six-month rate-free period. Empty rates have been a controversial and extremely unpopular additional burden for landowners since the changes introduced in April 2008. Numerous schemes have been developed claiming to enable landowners to benefit from additional rate-free periods but there has been concern that these could be challenged. This recent High Court decision confirms that, where there is genuine occupation which benefits the occupier, empty rates mitigation schemes are likely to be successful. It will give confidence to ratepayers who are currently using or considering the use of such schemes.

The background

The Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008/386  (the "2008 Regulations") came into force on 1 April 2008 and removed the relief that had previously been granted to landowners who were faced with empty properties.  After an exemption period of three months for most properties, but six months for industrial properties, after the property becomes unoccupied, landowners face the burden not only of receiving no rent for their unlet property but also of having to pay business rates at the same rate as if the property is occupied.  Regulation 5 of the 2008 Regulations provides that occupation of at least six weeks is required to break the period during which the property is considered to be continuously unoccupied, at the expiry of which a further rate-free period of three/six months arises.     

The facts

Makro Properties Limited ("Makro") had been the tenant of industrial property.  It ceased to occupy the property and surrendered its lease in June 2009 but agreed with its former landlord that it would store pallets of documents at the property for a period from November 2009 until January 2010. This was intended to create a period of rateable occupation of at least six weeks which, after the occupation ceased, entitled its former landlord to a further six-month exemption from rates. However, the council considered that empty rates were payable because the storage of documents did not amount to rateable occupation as the actual portion of the property in use was only 0.2%.

The decision

The court disagreed with the council.  It concluded that the use did amount to rateable occupation. In reaching this decision the court returned to the four principles set out in the leading case of John Laing & Sons Ltd v Kingswood Area Assessment Committee [1949] 1 KB 344: the requirements for there to be actual occupation by the ratepayer, exclusive or paramount occupation by the ratepayer, occupation that is of benefit to the ratepayer and which is not for too transient a period.   The court concluded that there was an intention to occupy the property by Makro and that the occupation was of benefit to it as the documents needed to be retained and, therefore, had to be stored somewhere.  It was irrelevant that the occupation was deliberately intended to break the period during which the property was continuously unoccupied and trigger a new period of exemption.

Comment

This decision comes just a matter of weeks after the Government announced that it was to review the legislation on empty rates and George Osborne asked Julian Sturdy, Conservative Member of Parliament for York Outer, to form a working group to propose changes.  Mr Sturdy MP has been a vociferous opponent of the current empty rates regime, securing a debate on the subject in Westminster Hall in January 2012 and, on his website, referring to the current system as "an unfair, regressive taxation policy inherited from the previous administration".   

Makro Properties Limited and another v Nuneaton and Bedworth Borough Council [2012] PLSCS 150