Summary: Empty property rates is a tax on failure; the failure of the owner to let premises or to find its own use for the premises. That’s why most empty space is empty. In December 2014, the overwhelming concern of a government paper on business rates avoidance was the avoidance of empty property rates. This article looks at three current products all of which have been tested legally.

The tenant company was proud of its new HQ; a building that was all-round best in class. Energy efficient, highly connected wi-fi, low carbon footprint. There was no paper in sight, but a tablet in every worker’s hands. The space glowed with sustainability.

To the side of the front reception desk was a sign advertising an art exhibition on an upper floor. Culture completed the inspired design. I complimented the executive showing me around. He smiled at my highbrow appreciation. “It’s rates mitigation,” he declared.

The tax

Empty property rates is a tax on failure; the failure of the owner to let premises or to find its own use for the premises. That’s why most empty space is empty. In December 2014, the overwhelming concern of a government paper on business rates avoidance was the avoidance of empty property rates.

There are a number of rates mitigation products on the market and a growing body of legal judgments commenting on them. There promises to be more case law later this year, so what products have been tested and with what outcomes?

This article looks at three current products all of which have been tested legally.

The background

In rating, the motive for arrangements for the use or occupation of property is not examined. It is not a question of ethics or morality. In Kenya Aid Programme v Sheffield City Council [2013] EWHC 54 (Admin); [2013] 2 EGLR 138, Treacy LJ said that if “the parties were indulging in tax avoidance, I do not consider that this is a matter to which weight should have been attached”.

Empty property rates are payable by the non-occupying owner where premises are unoccupied. However, there is no liability for the first three empty months.

What if empty premises are occupied after three months? The new occupier will then become liable for rates.

When the occupier vacates, the non-occupying owner becomes liable once more for empty property rates. However, if the intervening period of occupation is six weeks or more, the non-occupying owner becomes entitled to a new three-month period of exemption from empty property rates.

So a party who could go into “occupation” of otherwise empty property for periods of six weeks with three-monthly gaps would create savings for the non-occupying owner.

Now for the products.


The first product is simplicity itself. It was tested in Rossendale Borough Council v Hurstwood Properties (A) Ltd [2017] EWHC 3461 (Ch).

The key elements of the product were:

  • The product provider incorporated a company.
  • The ratepayer leased the unoccupied premises to the company.
  • Thus, (a) the company became the “owner” of the property for rating purposes and (b) the ratepayer was no longer liable to future business rates.
  • In a variant, contemporaneously with, or shortly after, the grant of the scheme lease, the company was liquidated, exempting it from rates liability.

On the grant of the lease, the company became the owner of the property for rateable purposes. It did not make any difference what happened next. The lease passed the rates liability to the company.

The judge held that the scheme was not a sham (see text box). A lease was granted. Nor was the lease artificial. On the grant of the lease, the entitlement to possession of the relevant hereditament passed to the company.

The product faced a further challenge. The court has limited powers to go behind “abusive” transactions. Could the corporate existence of the company separate from the ratepayer be disregarded, by “piercing the corporate veil” (see Prest v Petrodel Resources Ltd [2013] UKSC 34)?

Before Rossendale, it was understood that the court might use its limited powers to prevent the abusive avoidance of existing liabilities. However, the avoidance of future liabilities was not abusive. Rates liability accrues each day there is chargeable ownership or occupation. The ratepayers argued that a rates liability avoided by a product would be a future liability and incapable of being retrieved by piercing the corporate veil. The judge did not agree.

There was a continuing obligation to pay business rates which was avoided by the grant of the lease to the company. Had that been an ordinary commercial transaction, then clearly it would have operated to divest the ratepayer of its ongoing liability for business rates.

But these were not ordinary commercial transactions. There was an arguable claim that the tax scheme was ineffective and that at all material times the ratepayer remained liable for national non-domestic rates.

Rossendale is being appealed to the Court of Appeal, with a hearing due in November 2018.


The second product is storage, as debated in R (on the application of Principled Offsite Logistics Ltd) v Trafford Council [2018] EWHC 1687 (Admin)[2018] PLSCS 125.

In order to trigger the next three months’ exemption from empty property rates, there must be at least six weeks of occupation intervening. So the question for the court was whether six weeks of storage amounted to beneficial occupation.

The judgment of Kerr J alludes briefly to the facts. POLL, the product provider, took a lease of premises (for a six-month term at a peppercorn rent, with the tenant to pay rates, and the cost of that service equivalent to 20% of the rates saved)  into which it moved goods  for storage.

The issue concerned the character of the storage and whether it gave rise to beneficial occupation rather than whether the amount stored was adequate.

In his conclusions, the judge said: “I cannot see any good reason why, if ethics and morality are excluded from the discussion, the thing of value to the possessor should not be the occupancy itself. The verb ‘occupy’ and the nouns ‘occupation’, ‘occupancy’ and ‘occupier’ are, in the end, ordinary English words. Their meaning has developed in case law to give them a sensible construction, but they have not been given technical statutory definitions… I find no concept within the meaning of the word requiring a purpose or motive beyond that of the occupation itself. [Beneficial occupation] is sufficiently present where the intention is to occupy for reward, without any further commercial or other purpose.”

So there was beneficial occupation by storage sufficient to trigger the next three-month exemption period.

Although permission to appeal was granted, no appeal is anticipated.


In November 2015, Ludgate House was occupied by guardians; so, the valuation officer deleted the property from the valuation list.

Early in 2016, the billing authority inspected and proposed that the property be restored to the rating list. By May 2017, Ludgate House was being stripped out prior to demolition.

Thirty-two “property guardians” were recommended to protect the property from trespass and damage. The Valuation Tribunal for England found that, while the guardians were physically present, their occupation was heavily restricted and under the control of the ratepayer, the owner of the property (Ludgate House Ltd v Ricketts (Valuation Officer) and another (5 July 2018)). The owner was in paramount occupation of the property as a single rateable unit. The evidence was that the premises were not being used by the guardians for residential use.

The presence of the guardians was to provide security. That did not take the premises out of the rating regime. It is not known whether this decision is being appealed.


The effectiveness of a mitigation product must be judged by reference to the exact details of the product on offer.

In the leasing case, the issue is whether one looks behind the separation of ratepayer company and lessee company.

The guardians case has not yet reached the professional judges.

So in general terms, ratepayers seeking to mitigate should not be storing up too much trouble by considering a genuine storage product. Some old canvasses, crated up, might just work?

Sham: the legal position

  • An artificial transaction is not the same as a sham transaction.
  • Persons are entitled to arrange their affairs to their best advantage, so long as the law allows it.
  • A transaction cannot be challenged merely because it was entered into solely to obtain an advantage as a result of a statutory provision.
  • The court has no power to fill a gap in a statute.
  • A transaction is a sham only if the parties thereto have the dishonest common intention that the transaction is not going to create the legal rights and obligations which it gives the appearance of creating.
  • The court is slow to find that an agreement is a sham.