The battle against insufficient occupation

RCJ portrait 146x219A recent High Court case looks set to change the way local authorities assess what amounts to sufficient commercial property occupation in order for businesses to secure rates exemptions. Andrew Rogers explains.

Prior to the introduction of the Rating (Empty Properties) Act 2007, empty commercial properties did not attract business rates. As a result, landlords with void properties were happy to leave them vacant in order to wait for good tenants and above-market rental income.

In order to get the market moving the Government sought to incentivise landlords to let out their void properties. The introduction of the 2007 Act limited the time that empty properties could avoid business rates by introducing three and six month exemption periods (for office or retail and industrial properties respectively). Once expired, the properties become liable to 100% rates.

However, the implementation coincided with the recession, and landlords were faced with full business rate liability and little or no prospect of securing tenants. As a result, many have sought out schemes devised to avoid or minimise rate liabilities. One such tactic – intermittent occupation – allows the landlord to re-occupy a property for a period of just over six weeks after the initial exemption period has come to an end. This allows the landlord to then vacate the property once again and claim a further exemption period.

The Makro Case

The recent High Court case of Makro v Nuneaton & Bedworth Borough Council (NBBC) brought the 2007 Act under scrutiny as it seemed, in some instances, there was confusion as to what amounted to rateable occupation.

The facts

Makro had an empty warehouse in Coventry which was nearing its initial six month rate free period. In order to minimise its liabilities, Makro took advantage of the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 by employing the tactic of intermittent occupation. It fulfilled the occupation criteria by storing approximately 17 pallets of valuable archive filing in the warehouse for six weeks following the initial exemption period, allowing a further exemption period to be claimed once the filing was removed.

The local authority, Nuneaton and Bedworth Borough Council (NBBC) felt that the storage of the documents did not amount to rateable occupation of the warehouse and declined to award a second exemption. Makro was then summonsed to appear in the local Magistrates’ Court.

Magistrates Court

NBBC argued that, while of sufficient value, the 17 pallets of archive filing were of insufficient quantity to justify it being stored in the vast warehouse. The Magistrates’ Court found in favour of NBBC, stating that the amount of filing stored was trifling, or ‘de minimis’, and did not amount to sufficient rateable occupation, so no further exemption could be awarded.

High Court appeal

Following the Magistrates’ Court’s decision, Makro appealed.

Prior to the 2007 Act, adopted case law showed that, in order to levy business rates, local authorities would look to find that, in line with the rules, any degree of occupation – regardless of value or volume - did in fact constitute occupation. In the Makro case, following the introduction of the 2007 Act, it appeared that in order to continue to benefit from business rates as a revenue stream, NBBC was taking the opposite approach. Where previously they might have sought to find that minimal occupation was sufficient to levy rates, they were now suggesting that minimal occupation was insufficient to provide the necessary rateable occupation that would entitle Makro to a further exemption period.

The High Court agreed, overturning the Magistrates’ Court’s decision and finding in favour of Makro, stating that the 17 pallets of archive files were sufficient to amount to occupation, and so further exemptions should be awarded.

What does this mean for local authorities?

In light of the Makro case, when faced with businesses employing the intermittent occupation tactic, local authorities will have to be very careful in deciding whether or not the degree of storage is sufficient to amount to rateable occupation. The pre-2007 case law, applied by the High Court in the Makro case, clearly states that very slight amounts of occupation can amount to rateable occupation, so local authorities will need to tread carefully when assessing such situations if they are to continue to utilise business rates as a revenue stream.

Checklist

So, what can a local authority do in a situation where a business with a questionable level of occupation is seeking to secure further exemptions? Before making any demands, it should consider:

  • Has the first exemption period come to an end?
  • Has the property owner made sufficient attempt to occupy the property with material of value?
  • Has the property owner satisfied the length of time element (six weeks plus one day) to constitute a break in the rate-free periods?
  • Is there any reason why the property owner might not be entitled to a further exemption?

Looking ahead

Local authorities are advised to be cautious in adopting a broad brush approach when faced with any kind of rates mitigation tactic, and are advised to apply the law to the facts in order to avoid falling foul of the findings in the Makro case.

Each case will be different and should be assessed on its own merits to determine whether the purported occupation is sufficient to achieve an exemption from rates liability – if there is any doubt, independent legal advice should always be sought.  

Andrew Rogers is a Senior Solicitor in DWF’s real estate group, which acted for Makro.