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An important case, The Queen (on the application of the Secretary of State for Health and Social Care on behalf of Public Health England v Harlow District Council [2021], has brought some much needed clarity to the claiming of empty property relief on empty property - an area of contention for both landlords, businesses and the councils who benefit from the income. Harsh words too from the presiding judge.
For many years, landlords have looked at ways of mitigating their exposure to business rates on empty properties. One way of doing this is to have a short-term occupation of the property for a period of at least six weeks, allowing the landlord to take advantage of empty property relief for a period of three or six months.
Over the years there have been a number of ways that landlords and businesses have sought to do this – from pop up businesses to storing documents, installing blue tooth servers transmitting marketing messages and even snail farms (the latter was unsuccessful).
Over time, business rates mitigation has become a business in itself and there are companies who work with landlords and portfolio managers, and when managed and implemented properly on a rolling basis, significant savings can be made.
Reduced income for councils
But, the councils do not like this and understandably so from their perspective. Business rates is a form of income for councils, who get to keep a percentage of the business rates they collect. They do not like giving reliefs and therefore many make it hard for landlords to claim.
To be eligible for empty property relief, the council must be satisfied that the property has been occupied for a period of at least six weeks. Rateable occupation is generally understood as meaning that there must be:
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Actual occupation (i.e. physical occupation);
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Exclusive occupation;
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Some value or benefit of the occupation to the possessor; and
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Possession for not too transient a period.
(John Laing & Sons Ltd v Kingswood Area Assessment Committee [1949] 1 KB 344)
Over time, cases such as Makro Properties Ltd v Nuneaton & Bedford BC [2012] and Sunderland City Council v Stirling Investment Properties LLP [2013] (where Shakespeare Martineau LLP acted for the successful landlord at first instance and on appeal) have made it very clear that the bar for actual occupation is low. For example, in the Stirling case, a small blue tooth server installed in a large warehouse was found to be sufficient for the court to find that the whole of the property was occupied.
The biggest and consistent battle for landlords and tenants is over what amounts to beneficial occupation. Different councils have different interpretations of the rule and case law. Often what is acceptable to one council is deemed insufficient for another. Unfortunately, unless one of the parties is willing to back down, it comes down to a court to make a final ruling.
A process open to abuse?
There is evidence though, that councils abuse this position too. Going to court costs and even if successful, recovering all costs is rare, and the time incurred going through the process will never be recovered. There is also the inherent risk in litigation. For councils, however, the major costs and risks come a lot later. To obtain a liability order against a landlord for non-payment of a business rates bill (due to a dispute over empty property relief), the council only has to submit a list of all alleged debtors to the Magistrates’ Court, who will issue court summonses. The landlord then has to attend court to dispute the making of a Liability Order.
If the court can see that there is merit in the dispute, the matter will go forth to a trial. Unlike with the commercial courts, there is no requirement for the council to set out its case until after the summons hearing. There is also no court fee for the council to pay. Some councils, somewhat questionably, force parties to attend court to dispute the order of a Liability Order without having previously given proper consideration to their case.
The case of The Queen (on the application of the Secretary of State for Health and Social Care on behalf of Public Health England v Harlow District Council [2021], however, provides useful guidance.
The judge in this case had some harsh words for difficult “business rates mitigation hunting” councils and set down some directions on how these disputes should be dealt with.
Importantly, the Judge confirmed that:
What counts as beneficial occupation of a commercial property?
The case of The Queen (on the application of the Secretary of State for Health and Social Care on behalf of Public Health England v Harlow District Council [2021], however, provides useful guidance.
The judge in this case had some harsh words for difficult “business rates mitigation hunting” councils and set down some directions on how these disputes should be dealt with.
Importantly, the Judge confirmed that:
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The bar for beneficial occupation is not high. Actual use of the property, even minimal use, combined with an intention to occupy is sufficient for occupation. The use does not need to be substantial, and can be “whimsical or eccentric”.
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More importantly, occupation for the purpose of rates mitigation is beneficial occupation, regardless of any view held by a council over the morality of such a business.
The judge also provided a useful summary at Annex A of the judgment on when a property should be considered occupied, as well as a proposed protocol for resolution of these sort of disputes at Annex B. Annex B in particular, stressed that the council’s should provide written reasons for its conclusions and, if it remains in dispute, landlords should not pay the disputed amount.
Despite the judge finishing his judgment by saying that he hoped that “further challenges of this kind in “rates exemption hunting” cases will be few and far between” it is apparent that this message has not reached many councils, and we are still seeing the same arguments over and over. For now, the argument continues.
If you are in dispute with a council in over your liability for business rates, please contact Ben Humphreys at Shakespeare Martineau LLP, who has extensive experience in this area.
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Ben has a broad range of experience across all areas of commercial litigation, including breach of contract claims, professional negligence recovering large commercial debts, business protection claims and applications for injunctive relief.
