In a decision that will be welcomed by property owners, a recent case has considered the meaning of 'occupation' in the context of business rates and has decided that the motivation for occupation is not relevant.

Background

Principled Offsite Logistics Ltd (POLL) applied for judicial review to challenge a local authority's decision to seek a rates liability order for non-payment of business rates - national non-domestic rates - in respect of various properties.

POLL's main business is to occupy properties for the sole purpose of reducing the property owners' liability for business rates. POLL typically does this by storing goods at the property for a short period of time. The goods are not there to be sold or to fulfil any purpose other than being present to show occupation of the premises to avoid rates liability.

Once a property is vacant, the owner will benefit from a 3 month rate-free period before it becomes obliged to pay rates as a non-occupier owner. Once a tenant moves in and occupies the property, it becomes fully rateable once more and, depending on the terms of its private relationship with the property owner, the tenant will typically become responsible for the rates due. If the arrangement with the tenant lasts for 6 weeks or more, the landlord will have a further 3 months' rate-free period once the arrangement ends.

Facts

In this recent case, POLL was granted a lease at a peppercorn rent for a term of 6 months. Other usual lease terms applied, such as the obligation on POLL to keep the property in repair. Under a separate arrangement, the landlord agreed to pay POLL a sum equivalent to 20% of the cost of the rates it saved by virtue of POLL's occupation. There was no mention of any activity to be undertaken at the property and it was described as 'empty'.

A dispute arose when Trafford Council issued a summons seeking a rates liability order from the magistrates court against POLL. It claimed that POLL's arrangement with its landlord was an unlawful rates avoidance scheme and that occupation for its own sake is not occupation in law and fact: there must be some additional purpose for using the premises. Its case was that the existence of a lease, alone, was insufficient and it had doubts over whether the lease arrangement between POLL and the landlord was genuine. It sought to "determine if any rates scheme designed to reduce liability does actually involve occupation that is actual, beneficial, exclusive and not too transient".

POLL applied to court for permission to bring a judicial review challenge against the decision to issue the summons. POLL would only be liable for rates (instead of the landlord) if it was in occupation. It argued that the purpose of the occupation was irrelevant, what mattered was the occupation itself.

The court scheduled a hearing to consider both the application for permission and the challenge. Central to that hearing was the question of what constitutes occupation of premises for the purposes of business rates legislation?

Decision

The court found that the lease created a genuine relationship of landlord and tenant between POLL and the landlord. It explained that there were four necessary ingredients that needed to exist to establish rateable occupation. These are:

  • actual occupation
  • exclusivity for the possessor's purposes
  • possession for some value or benefit to the possessor, and
  • occupation that was not transient.

The first, second and fourth elements of occupation all being present, the real question was whether the third element existed. Here, the court found that the purpose of the occupation was not to store goods, it was to populate the premises to whatever extent was required to occupy it in law and fact. The fact that this was done for the sole purpose of rates avoidance on the part of the landlord was not relevant.

The court could see no good reason why, if ethics and morality were excluded, the 'value to the possessor' should not be the occupancy itself. The verb 'occupy' and the nouns 'occupancy' and 'occupation' were ordinary English words. Their meaning had developed in case law to give them a sensible construction, but they had not been given technical statutory definitions. There was no concept within the meaning of the word occupation that required a purpose or motive beyond that of mere occupation.

So the court found that the third element of its test was sufficiently present where the possessor's intention was to occupy for reward, without any further commercial or other purpose.

POLL was successful and its business that relies on short term occupation in return for some part of a landlord's business rates exemption was vindicated.

This is a landmark case for property owners and its impact will be felt nationwide. The case confirmed that several other claims for unpaid rates had been put on hold pending this decision - indeed he Lancaster City Council and Basildon Borough Council were joined as interested parties to the proceedings.

This will be particularly welcome result for property owners struggling to find long-term tenants in the current climate.

The Queen on the Application of Principled Offsite Logistics Limited and Trafford Council and (1) Lancaster City Council and (2) Basildon Borough Council [2018] EWHC 1687 (Admin)