In the recent case of Makro Properties Ltd v Nuneaton & Bedworth Borough Council (2012) PLSCS 150, the High Court approved a scheme initiated by the landlord to mitigate its empty rates liability. Expect well advised landowners to follow.

The last Government's punitive changes to the empty rate legislation are encapsulated in thethe Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008/386 (the "2008 Regulations") which came into force on 1 April 2008. The 2008 Regulations provide a 100% rates exemption for a three month period for both empty offices and retail properties and a six month reprieve for landowners of empty industrial properties. At the expiry of these grace periods full business rates are payable to the relevant local authority and it is self-evident that for landowners trying to re-let their vacant property; the addition of business rate costs are a most unwelcome financial burden.


Makro Self Service Wholesalers Limited ("Makro Wholesalers") had surrendered its lease of a 13,000 square metre warehouse (the "Warehouse") to its landlord in June 2009 when the Warehouse was cleared and vacated. The landlord in this case was a group company known as Makro Properties Limited ("Makro Properties").

Faced with the empty Warehouse and a full ratings charge once the six month exemption had passed, Makro Properties sought to take advantage of regulation 5 of the 2008 Regulations which provides that occupation of at least six weeks can break the period during which the relevant property is considered to be continuously unoccupied and at the expiry of which a further rate-free period of three/six months arises. Rather than the logistical and financial headache of moving back into the Warehouse, Makro Wholesalers was therefore given an informal licence by Makro Properties to store 16 pallets of documents in the Warehouse. The storage of these documents comprised 0.2% of the available floor space in the Warehouse and took place for a period of six weeks between November 2009 and January 2010. This document storage was intended to create a period of rateable occupation by Makro Wholesalers after which Makro Properties could seek to take advantage of a further six-month exemption from rates.

Not surprisingly, the local authority refused to accept that rateable occupation had taken place and considered the amount of space occupied was insufficient to be considered actual rateable occupation. They also argued there was no real benefit to the ratepayer (Makro Wholesalers) in occupying the Warehouse other than to trigger the rates exemption for Makro Properties. In short, they argued that the occupation was purely a method for Makro Properties to avoid rates liability.


In a victory for Makro Properties, the High Court (HHJ Jarman QC) disagreed with the local authority (and overturned the first instance decision in the Magistrates Court) in concluding that the use did amount to rateable occupation. The High Court was satisfied that Makro Properties could show that the storage of Makro Wholesales' documents amounted to actual occupation of the Warehouse which was exclusive to them and was of value to them (because the documents stored were required to be kept for legal reasons). The Judge held that it made no difference that the occupation was a deliberate scheme to avoid paying empty rates.


Local Authorities have been given a bloody nose in this case and the Government has announced that it is to review the legislation on empty rates which has been described by some commentators as "a naked tax grab". However, given that research by Knight Frank has suggested that ratepayers have been forced to pay over £1 billion to the Treasury since the 2008 Regulations were enacted (and given the current parlous state of the Nation's finances) it is doubtful to us whether the 2008 Regulations will be repealed.

The Makro case has demonstrated that even slight use of a property (provided that there is intention to occupy) may now be sufficient to defeat a local authority that is refusing to grant empty rates relief. This "intermittent occupation scheme" is apparently available each time the relevant premises fall empty.

Our message is that well-organised business ratepayers can effectively mitigate their rates liability in this way and should consider the use of such schemes.