The High Court has ruled in favour of empty rates avoidance.
Owners of empty commercial properties do not have to pay business rates for the first 3 months the property is empty (6 months for industrial and warehouse properties).
After that period, business rates become payable again in full.
One way businesses try to mitigate this liability is by “intermittent use”.
If the business occupies or lets the property out for at least 6 weeks, it will get another rates free period of 3 months (or 6 months, depending on what type of property it is) when the property next becomes empty.
This process can be repeated indefinitely.
Knight Frank report the High Court in June overturned the previous decision reached in favour of the council at the Magistrates Court last year in Makro Self Service Wholesalers Ltd v Nuneaton and Bedworth Borough Council.
The property owner used a small fraction of its empty space to store documents – between November 2009 and January 2010 only 16 pallets of documents were stored in a 140,000 sq ft shed.
Although the amount of space used was small, the court ruled the owners were entitled to six months' empty rates relief after the documents were removed.
The High Court has effectively sanctioned the intermittent use scheme.
The council were unsuccessful in arguing the amount of space occupied was insufficient to be considered actual rateable occupation.
More details on the case are given by DWF, who acted for the successful party.
Many, including the British Property Federation, want the abolition of empty rates altogether.
"We welcome this decision which supports the hard pressed ratepayer who has been forced to pay over £1 billion a year to the Treasury on empty non-productive property. The draconian changes in the legislation brought in by the last Government have damaged the property industry and driven companies out of business. It is clear, that this decision is a litmus test to the new Government's stated commitment to support business. We would call upon the Government to demonstrate this by issuing guidance to local authorities to accept this decision which supports local industry."
Councils, not surprisingly, aren’t happy – Local Government Lawyer reports: “The ability of local authorities to take a hard-line approach in empty property rate relief cases has received a setback”.
Will the case be appealed?
[ Update 16/7/12 There's more commentary on the case here from Herbert Smith, who say that where there is genuine occupation which benefits the occupier, empty rates mitigation schemes are likely to be successful and note that the government is reviewing the empty rates regime generally.]
Will the case be appealed?
[ Update 16/7/12 There's more commentary on the case here from Herbert Smith, who say that where there is genuine occupation which benefits the occupier, empty rates mitigation schemes are likely to be successful and note that the government is reviewing the empty rates regime generally.]
This is a good result for the property sector and about time. Makro were effectively carrying out a token occupation to achieve the new rates void period. Councils do it themselves so there shouldn't be too much fuss. When the government removed the relief they said it was to encourage flexible uses of space so careful what you wish for. We find short term uses for space all over the country.
ReplyDeleteIn Gage v Wren it was ruled that a rate payer may arrange their affairs so as to avoid liability, therefore ruling that avoidance is legal. That case is over a century old and nothing has really changed in terms of the general principle. What is interesting with empty rates schemes is many of them fall under the 'evasion' category which is illegal and fraudulent e.g. fictitious tenants, claiming that empty pallets constitute rateable occupation etc. Genuine occupations for 6 weeks are entirely legitimate and actually encouraged by the Department for Communities and Local Government with their 'meanwhile project'.
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