R (Principled Offsite Logistics Limited) – v - Trafford Council [2018] EWHC 1687 (Admin)

In a decision which will be welcomed by corporate occupiers nationwide, the High Court has ruled that the storage model employed by Principled Offsite Logistics Limited in order to mitigate rating liability for its clients is sufficient to constitute beneficial occupation. This is a ground-breaking case where the judge was invited to review the well-known Makro decision and a raft of older authorities in order to determine whether storage for the purposes of rates mitigation could establish rateable occupation or whether there had to be an independent business purpose. 

Principled enters into leases with landlords of vacant commercial properties. Principled stores goods in these properties for a period of at least six weeks, which triggers empty rates relief of three or six months for the landlord upon termination of the lease. Principled then charges a fee depending on the level of rates saved by the landlord.

In more recent years, Principled and its clients have been subject to interrogation from a handful of local authorities who challenged whether Principled was in rateable occupation of the properties, applying the four stage Laing test of (1) actual occupation (2) beneficial occupation (3) exclusive occupation (4) occupation which is not too transient.

Although the facts in this case were not agreed and there was fluctuation in Trafford Council’s position during the course of the litigation, the principal point of contention was whether Principled could be said to be in beneficial occupation when the purpose of the occupation was rates mitigation. Trafford considered that there was no ‘value’ to the occupation when the placing of goods within a property was secondary to the objective of rates mitigation; the tax relief was received after the occupation had ceased.

Trafford elected to issue various summonses against Principled and Principled had already been involved in lengthy Magistrates’ Court proceedings with this particular council. However, the Magistrates’ Court hears every claim on a case by case basis and could not have set a binding precedent in terms of the substantive dispute between the parties over beneficial occupation. Principled therefore decided to take the initiative and launch a judicial review action against Trafford’s decision not to recognise Principled’s occupation, focusing on an individual summons. Although the Council was initially agreeable to the point of law being determined by the High Court and the summonses were stayed, as the litigation progressed the Council raised various procedural arguments and shifted away from their original position, contending that the Magistrates’ Court and not the High Court was the appropriate forum for this type of dispute.

The Hon Mr Justice Kerr appreciated that the parties had been locked in expensive and time-consuming litigation for some time and there was a need for the substantive issue to be determined. He also identified that there was a lack of clarity over this issue from the earlier authorities.

By interpreting the words “occupation” and “occupy” in the context of their ordinary English meaning, the Court found that the beneficial occupation test could be satisfied where the value or benefit to the occupier was the occupation itself. There is no requirement for an additional purpose or motive beyond the occupation itself. So long as there is sufficient intention to occupy for a reward, the consideration of any further commercial or other purpose is irrelevant.

The Court concluded that Principled’s procedure specifically constitutes beneficial occupation as it is “genuine and produce the legal results for which, by the wording of the documents, they provide”. The Court did not quash the summons which formed the basis of the claim as it considered that there were still factual differences over Principled’s occupation which would need to be resolved by the Magistrates’ Court in the absence of agreement. However, the Magistrates’ Court would now have clarity on the beneficial occupation issue and should adopt the approach in this decision. 

Local authorities are becoming more aggressive in their interrogation of rates mitigation schemes and we are seeing the number of challenges steadily rising, even though the practices adopted by corporate occupiers to mitigate rates have remained relatively constant in their methodology. Although this judgment greatly assists occupiers in its interpretation of beneficial occupation and has wide-ranging ramifications, it also shows that there is a need for a robust approach to rates mitigation. Councils can challenge each occupation on its facts and it is essential that correct procedures are followed in line with legislative requirements.