R3 Products Ltd v James R Salt (Valuation Officer)  UKUT 0333 (LC)
Tenants who go into possession of premises to begin fitting out works may assume that they will not be liable to pay business rates until such time as the premises are ready to trade. This case demonstrates that that is not necessarily correct.
Subject to certain exceptions, business rates are payable even if a building is vacant, unless the building is not capable of “beneficial occupation”.
In this case, R3 Products operated a business which transformed waste plastic into goods for the construction sector. The process requires a high-voltage electricity supply, which was not available at the premises. The landlord therefore gave R3 Products a rent-free period whilst it installed this high-voltage cabling.
The Valuation Office then demanded business rates for the period of the fitting out works. R3 Products argued that the premises were incapable of being occupied due to their need for high-voltage cabling, and that the carrying out of these fitting out works did not itself constitute beneficial occupation.
Those arguments were rejected and it was held that the building was ready for beneficial occupation. The key question is whether the building is capable for occupation by anytenant, not whether a specific tenant had to carry out essential works in order to enable it to use and occupy those premises for their purposes.
It clearly would not be right for a hairdresser, say, to argue that a shop was not capable of beneficial occupation because no hairdryers had been installed. This case reflects that principle, though there will inevitably be situations in which it will be very hard to know where the line should be drawn. Tenants should bear the potential liability in mind when investigating potential premises or when negotiating leases, particularly any letting inducements. Advice should be sought to distinguish whether beneficial occupation is possible based on the facts of the individual matter.