BUSINESS RATES – Court Rules on Avoidance Schemes

In May of this year, the High Court ruled on the controversial area of business rate relief: R (on the application of Principled Offsite Logistics Limited) v Trafford Council [2018] EWHC 1687 (Admin).

It is generally known that a landlord of empty commercial property is entitled to business rate relief for either 3 months or 6 months, depending on the type of property (Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 (SI 2008/386)).  The relief ends on the earlier of the fixed period of relief, or when the property is once again subject to “beneficial occupation” by a tenant.  Transient or temporary occupation of less than 6 weeks is not counted when calculating the 3 (or 6) month period.  It follows that if a landlord lets commercial property for 6 weeks or more, he escapes liability for empty property business rates during the currency of that tenancy.  Instead, the liability falls upon the occupying tenant.  Once the 6 week (or more) tenancy ends, the landlord is again entitled to claim relief for business rates for the statutory period.

This scenario has fostered what has been described as a growth industry, whereby specialist businesses agree to enter into a short term lease for a “reverse rent”, being paid by the landlord to occupy rather than the other way around.  The amount paid to the tenant is usually a percentage of the business rates that the landlord is relieved from paying.  This is the business model of Principled Offsite Logistics Limited (POLL), which states that: “We implement a solution that relies on a period of occupation of six weeks or more to ‘trigger’ an entitlement to a further three (or for industrial or storage premises, six) month period of relief from empty rate liability. The solution uses the temporary substantial storage of goods or documents by a third party”.

This arrangement has troubled various rating authorities up and down the county. The rating authority in this case, Trafford Council, concluded that this was a scheme to avoid paying empty property business rates, and so sought liability orders from the Magistrates’ Court on the basis that POLL were not in “beneficial” occupation.  POLL, in turn, challenged Stafford’s application for liability orders by way of judicial review, which was heard by The Honourable Mr Justice Kerr in the High Court in May this year.  After examining on long line of previous conflicting and confusing authorities, the judge concluded that, on the facts of this case, POLL were in beneficial occupation.  He stated that the lease was genuine and created a bona fide landlord and tenant relationship.  The four necessary ingredients for rateable occupation, laid down in the earlier case of John Laing & Son v Kingswood Assessment Committee [1949] 1 K.B. 344, namely (a) actual occupation (b) exclusivity for the possessor’s purposes (c) possession for some value or benefit to the possessor and (d) occupation that was not transient, had all been met.  The fact that the motive for the occupation by POLL may have been to mitigate the landlord’s liability for business rates was “neither here nor there” and that “ethics and morality” are not relevant considerations.

This decision will be welcomed by many commercial landlords who seek legitimate means to avoid or reduce empty property business rates.  Rating authorities will be correspondingly concerned about the High Court’s interpretation of beneficial occupation, but for the time being at least they will need to be circumspect about pursuing empty property business rates where commercial property is being occupied for a period of at least 6 weeks.

Peter Byfield

Consultant

Wannops LLP

July 2018

 

For more information, contact the Dispute Resolution team on 01243 778844 or by email.

About Penni Gibbs

Penni is an experienced litigator with significant experience of commercial landlord & tenant related disputes including, opposed and unopposed 1954 Act lease renewals, Electronic Communications Code, contested break notices, dilapidations, rent reviews, rent and service charge recovery, forfeiture and possession claims. Her experience also includes residential landlord and tenant related disputes as well as the full range of property disputes such as trespass and nuisance, rights of way, restrictive covenants, adverse possession, vendor misrepresentation, neighbour and boundary disputes.
She also has experience of dealing with partnership disputes, shareholder disputes, claims arising from trade mark infringement and passing off, contractual disputes, including indemnity and warranty claims arising from business sales and purchases, claims arising from supply of goods and services, professional negligence, building disputes, property related insolvency and debt recovery.
Penni also regularly advises clients on compliance and regulatory matters including GDPR and data protection issues.
She has acted for a range of businesses including household names in the leisure and retail sectors, charities, property developers /land owners/ investment companies, LPA Receivers, insurers, brokers, public sector clients, rail and marine sector clients and private individuals”

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