The High Court has supported a landlord using a scheme to avoid the payment of business rates on vacant commercial premises.
In the current economic market, landlords are struggling against an increasing number of vacant units. This pressure increased on 1 April 2008 when a change in the law on business rates was brought in by the Rating (Empty Property) Act 2007 and the Non–Domestic Rating (Unoccupied Property) (England) Regulations 2008.
Landlords are required to pay business rates on empty properties, after they are vacant for three months, or six months on industrial units.
In this recent case a tenant, Makro Self Service Wholesalers Limited (a group company of Makro Properties Limited (Makro)) ceased to occupy a warehouse property and surrendered its lease in June 2009. Some six months later, it then stored 16 pallets of documents in the property occupying just 0.2% of the floor area from November 2009 to January 2010, a period of around two months.
Makro argued that this occupation entitled them to a further six month exemption from business rates. This was based on a rule that allows a further period of three or six months relief, following the property being occupied continuously for six weeks.
Unsurprisingly, the council did not agree. It argued that occupation by virtue of the pallets was not sufficient because it was ‘de-minimis’ given the size of the unit.
Makro relied upon case law decided in 2007. In these cases, councils had routinely been successful in arguing that even ‘de-minimis’ occupation was sufficient and triggered a requirement for business rates to be paid.
The High Court accepted the landlord’s reasoning and found that Makro was entitled to a further six months exemption from business rates. This equated to a saving for the six month period of £117,000. It would appear the court felt bound to come to this conclusion based on precedent and it went on to say: ‘It has often been emphasised that the court is not a court of morals but a court of law. If the outcome of this case is seen as unacceptable, it is for the legislature to determine that further reform is needed.’
A second case follows the same theme. In this case, a lease was given to a charity which paid a very minimal rent and used the property solely to house wireless and Bluetooth equipment, which was placed around the premises and visited now again for maintenance. The court found that the maintenance of the equipment was enough to amount to occupation of the whole premises, as although the occupation was slight, it was of value and benefit to the charity. Occupation in such a case is a matter of fact and law.
These cases appear to provide support to landlords seeking to reduce their liability for empty rates, and we can expect to see other landlords of empty units utilising similar strategies.
Longer term, the Government finally appears to be responding to calls from property investors to address the wider issues regarding empty rates. In May 2012 a working group (headed by Conservative MP Julian Sturdy) was set up to explore changes to this legislation.
- Makro Properties Limited and another v Nuneaton and Bedworth Borough Council
- Chester and West Chesire Council v Public Sectors Charitable Trust