There has been a further decision considering the effectiveness of arrangements entered into by property owners for the purposes of mitigating the effect of the rates charged on empty properties.

In an earlier article on Landlords' relief over empty rates ruling, we commented on the High Court decision of Makro Property Limited v Nuneaton Borough Council concerning the availability of empty rates relief.

This note considers the later decision and its consequences, given the fact that there are a number of empty property rates schemes in the market.

Background

From 1 April 2008, industrial properties, including warehouses, receive full relief from rates for only six months, after which business rates are payable in full (unless the property qualifies for relief on other grounds).

Previously, such properties received full relief from business rates for as long as they remained unoccupied.

For other commercial properties the relief is reduced to just three months. Previously, such properties received full relief from business rates for three months, following which they received 50% relief for as long as they remained unoccupied.

Companies in administration are exempt from rates in respect of their empty properties (freehold and leasehold) for the whole period of the administration (adding to the existing exemption for companies in liquidation and bankrupt individuals).

Charities and community amateur sports clubs qualify for permanent 100% relief from business rates for their empty properties if it appears that the properties, when next used, will be used for charitable purposes or by a community amateur sports club. Previously such entities were liable to pay 10% of full rates or a lesser figure at the local authority's discretion.

As a result of these changes, property owners have entered into various arrangements for the purposes of mitigating the effect of these changes.

Recent cases

In the Makro case, the High Court held that the temporary storage of documents occupying only 0.2% of a warehouse's floor space was actual occupation for the purposes of business rates liability. This meant that a new period of empty rates relief applied when that occupation ended.

A second High Court case - Preston City Council v Oyston Angel Charity - concerned section 45A(2) of the Local Government Finance Act 1988, which provides for property to be zero-rated for non-domestic rates where the property is empty; the owner is a charity; and it appears that, when the property is reoccupied, it will be wholly or mainly used for charitable purposes (whether of that charity, or of that and other charities).

The court held that the words in brackets mean that 'when next in use the property will be wholly or mainly used for the charitable objects of the owning charity, accompanied or not by other charitable purposes'.

There was no requirement, as argued by the rating authority, for the premises to be wholly or mainly used by the owning charity for charitable purposes.

Conclusion

While the court's decision is not surprising, it is easy to understand the local authority's motivation for seeking to establish an interpretation of the rules that would deny business rates zero-rating to charities that lease or licence premises, but have no intention of occupying them.

Given concerns raised by local authorities about the loss of rating income and of the Charity Commission about the involvement of charities in such arrangements, it will be interesting to see whether changes are made to the law in this area.

Currently, there is no general anti-avoidance rule that applies to arrangements designed solely to avoid or reduce rates, although it appears that in the Oyston case, a Furniss v Dawson argument was raised.

Pressure for change is likely to be exacerbated by the number of schemes that have appeared on the market designed to secure empty rates relief by putting in place arrangements for the temporary occupation of property by third parties so as to secure an additional six-month rates' holiday.