Landlords granting short lets to occupiers so they can claim fresh relief from business rates once the properties become empty should note that the availability of relief can depend on who the occupier is – particularly where the occupier is a charity.
Under property law, owners of empty industrial premises (which includes warehouses and factories) in England and Wales must pay businesses rates on them after an exempt period of six months. However, if the premises are occupied by someone else for at least six weeks, a new six-month exemption period starts when the premises next become empty. A landlord of empty industrial premises who can find someone to 'occupy' them for just six weeks can, in certain circumstances, therefore claim exemption from business rates for a further six months when they next become empty.
It is, therefore, crucial for landlords to be able to establish that there has been 'occupation' for these purposes. There have been a number of legal decisions on this point.
In the latest case, a landlord let a warehouse to a tenant for six weeks and one day at a nominal rent. The tenant's use of the premises was limited to transmitting marketing and public safety messages from them within a 20-metre range, using a very small Bluetooth transmitter and battery.
The High Court followed the decision in a 2012 case where an occupier used only 0.2 per cent of the premises let to it, to store pallets of documents. In that case the court said four tests had to be satisfied before an exemption period could restart:
• actual occupation by the ratepayer (ie the occupier);
• exclusive or paramount occupation by the ratepayer;
• occupation that is of benefit to the ratepayer;
• occupation which is not for too transient a period.
As in the 2012 case, the court decided that the four principles were all satisfied. There had been six weeks' occupation for rating purposes and the six-month exemption could restart when the premises became empty again. The court ruled that even though the premises in this case had not been used as a warehouse, they had been used for beneficial commercial purposes and were therefore of benefit to the tenant.
The local authority's argument that the use was too minimal to amount to occupation for business rates purposes was rejected. The judge said: "The fact that the nature of [the tenant's business] was such that, once they had identified the optimum location for their equipment, they did not need to 'use' more than a minute fraction of the area encompassed within the premises did not prevent their occupation being rateable occupation."
However, landlords should take care where the occupier is a charity. In recent case, a charity was renting industrial premises and using them to provide free Wi-Fi services and broadcast crime prevention messages using transmitters. The court held that the charity had to make extensive use of the premises for its charitable purposes before there could be 'occupation' for rating purposes. It decided that the charity's activities failed this test and the landlord was not therefore exempt from rates for a further six months.
In another decision involving a charity, the court ruled that charities have to show they are using premises 'wholly or mainly' for charitable purposes before the rates exemption applies. However, it is irrelevant for these purposes whether the charity has an operational need to occupy the premises or is making efficient use of the space.
Recommendation
• Landowners with empty properties who are, or will shortly become, liable to business rates on them should consider whether they can make arrangements for 'occupation' of the premises by former tenants or others so the period of exemption from such rates restarts once those properties become empty again.
• They should take particular care where the proposed occupier is a charity, as the court may apply a more stringent test when deciding whether the charity is occupying premises for rating purposes.
Case refs: Sunderland City Council v Stirling Investment Properties LLP [2013] EWHC 1413
Makro Properties Limited and another v Nuneaton and Bedworth Borough Council [2012] PLSCS 150
Public Safety Charitable Trust Limited v Milton Keynes Council; Public Safety Charitable Trust Limited v South Cambridgeshire District Council; Cheshire West And Chester Borough Council v Public Safety Charitable Trust.
Kenya Aid Programme v Sheffield City Council [2013] EWHC 54