Councils receive setbacks in empty property rate relief battles

The ability of local authorities to take a hard-line approach in empty property rate relief cases has received a setback after two councils lost separate legal battles in the last month.

The Rating (Empty Property) Act 2007 states that any industrial property which has been empty for more than six months will no longer receive tax relief, and the empty property will instead be liable for 100% of the basic occupied business rate.

However, it also states that if a property is occupied again for a period of more than six weeks before becoming empty again, a further six-month exemption will apply.

In the first case, cash and carry business Makro won an appeal to the High Court over the rates liability of its Coventry store.

Nuneaton and Bedworth Council accepted at the original Magistrates’ Court hearing that Makro had stored a proportion of its archived files at the Coventry location and these were of sufficient value (one of the factors in qualifying for the six month rate-free period).

But the council argued that the volume stored did not justify the retention of the property. Therefore, it did not qualify for the second rate-free six-month period.

Ruling in favour of the council, the Magistrates’ Court concluded that the degree of occupation by Makro was ‘de minimis’ and did not amount to occupation.

In the High Court, Makro successfully appealed on the basis that prior to the introduction of the 2007 Act, local authorities would often bring cases against any businesses that were claiming un-occupied premises to qualify as rate-free, even where the degree of occupation was negligible.

The cash and carry giant also argued that the ‘de minimis’ principle was not applicable to occupation for the purpose of rates liability on the basis of decided case law prior to the 2007 Act. 

DWF solicitor Andrew Rogers, who acted for Makro, said: “The case could set an interesting precedent for surveyors, property managers and local authorities as it brings into question the clarification around some of the requirements for the rate-free period. It suggests that there could be further room for this area of the law to be addressed.”

Richard Glover QC of Francis Taylor Building was counsel for Makro.

The second case involved Vale of Glamorgan Council and an unnamed entertainment and leisure industry client of law firm Stones Solicitors.

The firm’s client had sub-let a property. When the tenants moved out, it applied for empty property relief, which was granted.

The company marketed the property as soon as it became vacant because it no longer formed part of its strategic plan. However, it was unable to break the lease or reduce the rent.

In the meantime the business used the premises for storage. This was declared to Vale of Glamorgan Council and rates were paid.

The business moved out of the property again and sought to claim empty property relief. However, Vale of Glamorgan Council this time rejected the claim.

The local authority argued that rates were payable because the property was “awaiting something to store” and was therefore occupied. It therefore issued a claim for unpaid rates before Cardiff Magistrates’ Court.

The issue before the court was whether the business had been in rateable occupation of the property within the meaning of Regulation 5 of the Non-domestic Rating (Unoccupied Premises) Regulations 2008 during the period in question.

At the trial, it was agreed that the intention of the client was pivotal in establishing whether it was entitled to rate relief.

District Judge Jenkins found that:

  • There had been a genuine effort on the part of the business to market the property and the reality was that it did not want the property, but was stuck with it;
  • The business’ efforts to sub-let the property were not a smokescreen to hide its real intention, as the council had alleged;
  • The business had used and would continue to use the property when it was absolutely necessary and when it was commercially beneficial so to do;
  • The business had attempted to mitigate its rate liability where possible, which they were entitled to do under the statute and regulations;
  • The business had only used the property for just over 10% of the time over a period of four years and three months;
  • The intention was not to use the property as a storage facility in so far as it could do without it.

The district judge ruled that the business had not been in actual occupation during the periods when the property had been empty, and Vale of Glamorgan had not established its case on the balance of probabilities.

Andrew Lovett of Stones Solicitors said: “This judgment shows that the true intention of the ratepayer is critical. Each case should be looked at on its own facts and in light of the relevant regulations.

“This is not a charter for ‘sham’ attempts at establishing occupation (with a view to thereafter claiming empty property rate relief) but instead a decision based on a ratepayer’s genuine and legitimate aim to mitigate its rates liability.”

He added: “By no means all local authorities approach this issue in the same way as Vale of Glamorgan Council has done: but as local authority budgets have come under increasing pressure there has been a growing tendency to do so. We hope that this judgment will restore balance and common sense to the equation.”

Robin Neill of St John’s Chambers in Bristol was counsel for the business involved in the dispute.

Philip Hoult