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22 November 2018

Business Rates

Empty shops and offices receive a complete exemption from business rates for 3 months after they become vacant.

But, what happens after that?

The person liable for business rates on an empty property is the owner who is the person entitled to possession (sections 45(1) and 65(1), Local Finance Act 1998).

However, the High Court has held that there could be a rateable occupation, even though the only purpose for that occupation was to avoid rates.

What does this mean?

It means that if a commercial property is re-occupied for at least 6 weeks, the occupier becomes liable to pay rates and when he vacates the owner can claim another 3 month exemption when the property becomes empty again.

How does this work?

For there to be a rateable occupation there are four elements:
1. Actual occupation of the property
2. Exclusive possession for the occupier
3. Possession of the premises for value or benefit to the occupier
4. Permanency of occupation

For example, in a recent case, the occupier’s main purpose of occupying the premises was to minimise the owner’s liability to pay rates. They agreed that the occupier would pay a peppercorn rent, for short term storage, for more then 6 weeks and the occupier would charge 20% of the rates saved.

The local authority argued that using the property for storage did not amount to a beneficial occupation as there was no commercial purpose for the occupation. However, the court held that a genuine relationship of landlord and tenant was established to mitigate liability for rates.

The court further added that the meaning and effect of genuine transactions should not be distorted in the name of morality to prevent the avoidance of rates where statutory provisions meant no rates were payable; the purpose of occupying the premises was to occupy to whatever extent was required by the law and fact. The motive was to avoid rates for the owner and morality was irrelevant.

What is the outcome?

Owners of empty properties may well want to consider using short-term letting to mitigate their liability for rates, they should, however make sure the relationship with the occupier is documented properly by way of a licence agreement or lease.