The High Court on empty rates mitigation and Makro type schemes

In a win for ratepayers, the High Court has clarified the law on empty rates mitigation. Jenny Wigley QC analyses the ruling.

In a comprehensive judgment in The Secretary of State for Health And Social Care On Behalf of Public Health England, R (On the Application Of) v Harlow District Council [2021] EWHC 909 (Admin), Mr Justice Kerr has further clarified the question of what constitutes occupation of premises for non-domestic rating purposes in the context of the now well known ‘Makro’ scheme used to mitigate liability for empty rates by intermittently occupying property (as originally considered by the High Court in the Makro case (R (Makro Properties Limited) v. Nuneaton & Bedworth BC [2012] EWHC 2250 (Admin) and most recently reconsidered in R (Principled Offsite Logistics Ltd) v. Trafford Council [2018] EWHC 1687 (Admin)).

Public Health England (PHE) had deployed the Makro scheme in relation to its large Glaxo Smith Kline Building in Harlow which is awaiting redevelopment. It had moved archive boxes into the property for two separate 6 week periods and had claimed subsequent three month empty rates exemptions in respect of each period. Harlow District Council, the billing authority, refused those claims and PHE challenged the refusal by judicial review on the basis that Harlow had applied the wrong legal test and that on the undisputed facts the only conclusion legally open to it was that PHE had been in occupation during the six week period.

At the hearing, Harlow sought to defend its decision on two bases: The first argument was that the 6 week period did not constitute rateable occupation because the storage of the boxes was minimal; the boxes contained redundant items and the storage was of no benefit to PHE. This argument was conclusively rejected by the Judge who re-emphasised the point in Makro, namely that a present intention to occupy coupled with slight occupation is sufficient to constitute rateable occupation. The Court made clear that if a possessor’s motive is to mitigate rates liability, its intention must be to occupy the property in question, at least if its understanding of the law is correct. Further, it does not matter if the storage is for whimsical or eccentric purposes, for example storage of a collector’s items or of redundant items. Finally, it also does not matter that PHE’s public functions do not extend to “serendipitous occupation of buildings; it is as much entitled to pursue a rates exemption as anyone else and is acting properly in doing so.”

Harlow’s reserve argument relied on a completely different basis from the grounds of its decision under challenge. It argued that if PHE was in occupation during the six week period then it was also in occupation during the subsequent three month period (such that occupied rates would be payable throughout). Harlow relied on the presence in the building, after the removal of the crates, of a model of the property, display boards, a boardroom table and chairs, tea and coffee making facilities and cleaning items and the use of the building for occasional meetings.

That reserve argument was also conclusively rejected by the Court. Intention to occupy was conspicuously absent except during the six week periods. The presence of the items in the property either related to the upkeep and maintenance of the property (which does not amount to rateable occupation) or indicated a mere intention to occupy the building in future (after development) and not a present intention to occupy. The meetings to discuss the future development and promotion of the site similarly fell into the category of indicating a future, not present, intention to occupy.

PHE had also argued that the building could not be considered as occupied by virtue of the items left in it as those items fell within the category of ‘plant, machinery or equipment’ used ‘in or on the hereditament when it was last in use’ or ‘intended for use’ or both (within s.65(5) of the 1988 Act). Mr Justice Kerr did not consider it necessary to consider this argument fully (as he had rejected Harlow’s case on other grounds) but he indicated that he would incline to the view that the floor polishers, cleaning fluids, furniture, display posters and model of the building (and, possibly, the tea and coffee making facilities) were all ‘equipment’ and were excluded from constituting rateable occupation by s.65(5) and that this would be an additional reason for not accepting Harlow’s case.

The Judgment is essential reading for anyone advising on Makro type schemes, whether for the ratepayer or billing authority. It includes two Annexes: Annex A is a checklist of propositions of law to aid district judges determining disputes of this kind. Annex B sets out a suggested protocol for swift and efficient determination of such disputes and the Judgment indicates that if not followed in future, the parties resistant to it could find costs sanctions imposed against them.

PHE’s claim was allowed in full with costs.

Jenny Wigley QC of Landmark Chambers represented PHE. Luke Wilcox, also from Landmark, was instructed by PHE to make written submissions at an interim stage.