A number of recent cases have considered the validity of mitigation schemes adopted by landlords to avoid business rates liability.
Exemption from liability for business rates - the law
The Non-Domestic Rating (Unoccupied Property) Regulations 2008 provide that:
Property owners are entitled to three months exemption from business rates when a commercial property becomes empty, or six months exemption in the case of industrial or warehouse property.
The property must have been occupied for at least six weeks for the exemption to apply.
What “occupation” by a tenant is needed for a landlord to benefit from the exemption?
The recent case of Sunderland City Council v Stirling Investment Properties LLP shows that if a tenant occupies even a minimal part of a property, then provided such occupation is for at least six weeks, once the tenant vacates the premises the landlord may be entitled to a further exemption from business rates.
The landlord, Stirling, granted a company called Complete Mobile Marketing Limited a lease of a large former industrial warehouse for 43 days for a nominal rent. The tenant paid business rates during its occupation. The lease allowed the tenant to locate a “bluetooth box” in the corner of the premises for bluetooth marketing and advertising services.
After the tenant vacated, Stirling claimed a six months exemption from liability to pay business rates, as a lease of the premises had been granted for a period of more than six weeks, triggering a fresh period of exemption. The local authority took the view that the tenant’s use of the premises was not “occupation” for the use shown in the rating list, or, alternatively, that such occupation was so insignificant as not to amount to actual occupation, and therefore Stirling was not entitled to a rates exemption.
The court found that:
Taking into account the reduction in size of digital technology, the tenant had occupied the premises for rates purposes, even though the area occupied by the tenant’s equipment was minimal compared to the total available space.
The tenant’s use of the premises was for commercial means which were beneficial to it, and it was irrelevant whether the premises were shown in the rating list as having that use.
Stirling was therefore entitled to a six months exemption from rates liability.
The decision in this case is a further blow to local authorities following the earlier decision in Makro Properties Ltd v Nuneaton and Bedford Borough Council, where the High Court held that occupation of a very small percentage of a warehouse was rateable occupation which gave rise to a period of empty rates relief when the occupation ceased.
However, local authorities are increasingly responding to the use of such schemes by seeking a determination from the Valuation Office that the tenant’s use of the premises should be separately rated, so that the rates exemption only applies to the area which is actually used by the tenant. Therefore, landlords should carefully consider their position and take professional advice before granting any tenancies which are designed to avoid rates.