The Local Government Finance Act 1988 (LGFA 1988) requires local authorities to collect National Non-Domestic Rates for hereditaments which are in rateable occupation and appear in the Local Non-Domestic Rating List (section 41 LGFA 1988). Various reliefs apply and the applicability of such reliefs remains a key area for potential disputes (read more about this in our article on rates reliefs here). There are, however, practical steps that ratepayers can take in order to maximise their ability to rely on applicable reliefs and reduce their liability for business rates. One such step is commonly referred to as a "Makro Scheme".
In short, rateable occupation is made up of the following ingredients:
- there must be actual occupation;
- the occupation must be exclusive to the occupier;
- the occupation must be of some benefit to the occupier; and
- the occupation must not be for too transient a period.
In R (Makro Properties Ltd) v. Nuneaton & Bedworth Borough Council  EWHC 2250 the court held that the storage of pallets of paperwork at warehouse premises for a period of six weeks was sufficient to amount to beneficial exclusive actual non-transient occupation and thereby rateable occupation. This was significant as, once the paperwork was removed, the premises benefited from a further six-month rate-free period as a qualifying industrial hereditament under the LGFA 1988. The storage pallets took up only 0.2 per cent of the 13,000 square-foot warehouse and could have been located at numerous alternative locations. Consequently the local authority brought proceedings on the basis that rateable occupation was not made out.
The court held that the small area taken up by the pallets did not prevent there being actual occupation of the warehouse. Moreover, the court specifically commented that "The fact that this storage could have been continued at other venues does not render storage at the warehouse of no practical benefit". This conclusion was reached notwithstanding the fact that it would actually have been cheaper to leave the pallets in their original location.
The decision in Makro was upheld in Sunderland City Council v. Stirling Investments  EWHC 1413 in the context of an even smaller occupation of a Bluetooth transmitter, which was also held to be more than de minimis and therefore amounted to rateable occupation. However, in that case the court issued a note of caution in suggesting that there may be scope for the Valuation Officer to rely on this temporary user to split the relevant area from the host warehouse in order to enter a separate hereditament in the list. This risk has not yet materialised but ratepayers should be aware of the potential for challenge on this basis in the future.
Evidencing beneficial occupation
Against this backdrop it is widely acknowledged that there is a relatively low threshold for a ratepayer to establish beneficial ownership in this type of storage scenario. Notwithstanding this we are seeing an increasingly forensic approach to try and challenge Makro Schemes wherever possible. Following Makro it cannot be argued that beneficial occupation is not possible where items are stored outside of their ultimate destination; however, the local authority may well put the ratepayer to proof in respect of the purpose of the occupation and practical benefit derived by the business.
Dentons successfully resisted a recent claim by a local authority for non-domestic business where toilet rolls were stored at warehouse premises for six weeks before being distributed to office premises in other parts of the country. In this case the council did not dispute the exclusive, actual, non-transient nature of the occupation for the purpose of storing the toilet rolls but sought to argue that there was no direct correlation between this and any benefit to the business and therefore the test for rateable occupation was not made out.
This challenge was successfully defended by reference to the available evidence. In this context, evidence of the following will be useful to resist any summons received:
- Purchase receipts/other proof of ownership of the goods.
- Evidence of where the goods were stored prior to arrival at the relevant site.
- Inventories to demonstrate how/when the goods were used by the business and transferred to the serviced sites.
- Photographs of the goods in varying locations (including bar codes/other means of identifying the specific items).
- Evidence of how the stock was monitored to ensure the ability to service all sites.
- Transit information from one location to another.
- Witness evidence from those who have used the items for the benefit of the business (for example cleaning contractors responsible for re-stocking toilet rolls).
In conclusion ratepayers should be advised that Makro remains good law but that it is vital to ensure that, before any Makro Scheme is implemented, proper records and evidence are kept to demonstrate the beneficial nature of the occupation and practical benefit to the business. Our recent experience demonstrates that swift production of such evidence will reduce the local authority's appetite to pursue a claim for non-payment of business rates and minimise the associated legal costs involved in relying on this type of structure.