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Welcome news for commercial landlords seeking rates relief for empty premises

By Karolina Skinner
10 May 2021

A recent High Court judgement has provided commercial property landlords with reassurance about the use of ‘cyclical occupation’ schemes as a way to mitigate their liability for business rates on empty properties.

Simon Freeman, a partner and property litigation specialist at national law firm Clarke Willmott LLP

Lawyers say this is a useful step towards ending protracted arguments between commercial landlords and ratings authorities over what constitutes rateable occupation and is a clear statement that these mitigation schemes are lawful and effective.

In the case of R (on the application of the secretary of state for health and social care on behalf of Public Health England) -v- Harlow District Council Mr Justice Kerr proposed a protocol to be followed by both parties and gave a means for a magistrates court to impose costs sanctions where the protocol is not followed.

Simon Freeman, a partner and property litigation specialist at national law firm Clarke Willmott LLP, said: “Business rates and council tax together make up local authorities’ largest source of income. The clear incentive on local authorities to maximise business rate recovery was increased when, in October 2015, the Government announced its intention to enable local government as a sector to retain all business rates raised locally.

“At the same time changes to impose liability for business rates on owners of empty commercial property have significantly increased the tax burden on commercial landlords. The resulting financial tension has, over recent years, resulted in a number of decisions of the Court where it has been asked to rule on the validity of various types of business rate mitigation schemes deployed by commercial landlords.

“However, Mr Justice Kerr sitting in the High Court, has now given a very clear and helpful judgement that should go a long way to limiting claims and the legal and other professional costs associated with them.

“We have, of course, seen similar judgments which have not prevented these arguments, but where the PHE decision goes further is in proposing a protocol to be followed.”

The case found that the storage of a relatively small number of boxes in an otherwise empty building for six weeks at a time before their removal did constitute rateable occupation. Therefore, the claimant was entitled to the subsequent three-month relief from national non-domestic rates after each six-week period.

The practical implication to this is that rates liability can effectively be mitigated for empty buildings by occupying an empty building for periods of at least six-weeks at a time, which can be followed by three-months of relief from rates liability. The use of the building during the six-week occupation period does not need to be extensive, so long as there is an intention to occupy, which there normally will be where this sort of mitigation scheme is employed.

Mr Justice Kerr helpfully provided two annexes to his judgment, the first (Annex A) setting out what he considers to be the correct law in relation to when a premises is considered to be occupied and the second (Annex B) providing a suggested protocol for determining disputes in this area.

Freeman continued: “This judgement will hopefully give ratings authorities pause for thought when seeking to reject claims for rates relief in circumstances where empty premises are occupied for short periods of time in order to take advantage of the Rates relief following those periods of occupation.

“Ultimately, the parties should co-operate as with any other pre-action protocol and if a rates demand is made which ignores a relief period rightfully due, the ratings authority should be challenged in writing. If the protocol is not followed, then the party not following it may be subject to costs sanctions.

“If you receive demands from a rating authority which do not take into account relief periods, this should be disputed with clear legal reasoning.”

Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.