The British Property Federation (BPF) has labelled business rates for empty property a “tax on business failure” which is only exacerbating the impact of the recession on commercial landlords and small and medium sized businesses. 

Does the recent case of Makro Properties Ltd v Nuneaton and Bedworth Borough Council [2012] EWHC 2250 change the empty rates position for landlords or is total reform of the Rating (Empty Properties) Act 2007 required?


The impact of the 2007 Act (which was implemented by the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008) restricted the reliefs previously available to landlords for unoccupied commercial property so that 100% relief from empty rates is only available to landlords:

  • Within the first three months in which an office or retail property falls vacant, or in the case of warehouse or industrial property within the first six months of falling vacant; and
  • If on expiry of the initial relief, the property is re-let for six or more weeks, then a further period of 100% relief is available with the same three and six month limits applicable to office/retail and warehouses/industrial respectively.

It is important to note that the further period of the reliefs is only claimable if the occupation meets the requirements for rateable occupation which are: 

  • actual occupation/possession; 
  • exclusive occupation/possession; 
  • that there is a benefit or value to the occupier/possessor; and 
  • that the occupation/possession has sufficient permanency.

The six week or more rule was included to stop landlords attempting to roll over the relief by using very short term licences or leases.

The heady rationale for the 2007 Act was threefold: 

  • to incentivise landlords to re-let or redevelop their empty property in order to improve the competitiveness of the UK; 
  • to encourage landlords to re-let or redevelop empty property in order to preserve the Green Belt by increasing the efficiency of existing commercial space; and 
  • to create a more level playing field for commercial landlords by removing reliefs previously available to only some (with some exceptions).

Reality check

2007 was the last of the boom years and the fear of landlords having un-let commercial property, where tenants could not be found, was comparatively rare. In 2012 the real consequences of the legislation are, in fact, producing a result which is the opposite of the stated intention of the legislation. We are in a double dip recession, the market is clearly not rising, tenants are hard to come by, and landlords are burdened with the extra liability of empty rates. In many instances landlords are resorting to demolishing empty commercial property to avoid empty rates. This is stymieing any redevelopment envisaged by the 2007 Act.

The BPF continues to lobby Government to introduce specific reliefs, which may help small and medium sized business, such as full rate relief for low rateable value properties (which was withdrawn by Government in 2011) and relief from rates for buildings that are unoccupied for the purposes of refurbishment and regeneration, as well as for new developments. With the realisation that the Government spent £50 million on empty rates last year and is looking at a bill of £70 million for 2012-2013, the Chancellor has agreed to a review of the current legislation, with Alan Sturdy MP leading a parliamentary working group. In early September the BPF, RICS and others will present their findings to the working group and it is thought that the specific reliefs, mentioned above, will be raised.

Avoiding empty rates – Makro 2012?

The Makro case concerned, to all intents and purposes, a scheme for a landlord to avoid paying empty rates by letting and reletting for periods of just over six weeks, thereby realising the applicable 100% relief more than once.

The facts were that Makro Properties Limited (MPL) had let a retail warehouse to a group company, Makro Self Service Wholesalers Limited (MSSW). While MSSW vacated in mid-2009, it did not surrender its lease to MPL until the end of 2009. After vacating, but prior to and after surrendering its lease, MSSW stored papers (which were required by law to be held) at the retail warehouse for a period of just over six weeks. From the date of the surrender until early 2010 MSSW had informal permission from MPL to store the papers. The papers were then removed (in order for MPL to attempt to sell the property) for just over six months and then further papers belonging to MSSW were stored at the retail warehouse (as the sale did not occur).

What is important to appreciate is that on both occasions the stored papers occupied just 0.2% of the floor space of the entire retail warehouse.

Nuneaton and Bedworth Borough Council as rating authority took MPL to court over its non-payment of empty rates arguing that neither was the occupation beneficial to MSSW, nor did its storing of the pallets give rise to actual occupation.  Indeed, the Council argued the storing of the papers by MSSW had only occurred to start a fresh period of relief for MPL. 

At first instance the Council successfully argued their case, but MPL appealed.

On appeal, the High Court considered the four requirements for rateable occupation, with specific analysis of whether there was actual occupation and whether there was a benefit or value to the occupier/possessor. 

Actual occupation – intention: the court’s view was that while the intention of MSSW was to incur rates on a short term basis, (ultimately for the long term benefit of MPL with regard to the more substantial empty rates relief) the storage of the papers was therefore an intention to occupy.

Actual occupation – use: MSSW was legally obliged to retain the papers and despite the very small area occupied, the use ‘cannot be said to be trifling’.

Did the occupation/possession benefit or give value to MSSW:  While there is a lot of caselaw showing that trivial and inexpensive goods did not give a benefit to a tenant with regard to liability for rates, the fact that in this instance MSSW had a legal obligation to retain the papers (and despite the fact that the papers could have been stored somewhere else) led the High Court judge to state that there therefore had to be a benefit to MSSW in storing these papers.

The court considered also whether occupation was by MSSW or MPL.  On the facts the court decided that while MPL had requested MSSW to occupy the retail warehouse, it did not exercise control of MSSW’s occupation or fetter MSSW’s enjoyment of the retail warehouse. 


The courts may legitimise an empty rates avoidance scheme on the facts in each instance, but the four conditions of rateable occupation must be fulfilled and the landlord should be very wary over the ‘degree of control’ that it may exercise over its tenant’s occupation.

It is clear that the 2007 Act and the 2008 Regulations are in need of reform and that incentivising by way of increasing taxation does not work in all economic weathers.