The availability of empty rates relief for commercial property was curtailed in 2008. Relief is now only available for three months for retail and office property and six months for industrial and warehouse property. However, short term occupation of such properties, provided they are longer than six weeks, triggers a fresh period of exemption. Landlords of properties that have proved hard to let in the recent economic downturn will have been giving consideration to short-term lettings as a means to make substantial savings on rates. There had however been some concern that such schemes would be found void due to their apparent avoidance motives.
Occupation is a matter of fact and law
The Court has held that whether or not such schemes work depends solely on whether the occupation in each case fulfils the conditions for rateable occupation. In every case this is a matter of fact and law. (Chester and West Cheshire Council v Public Sectors Charitable Trust and Makro Properties Limited v Nuneaton and Bedworth Borough Council)
In order for occupation to count as rateable occupation there must be:
- actual occupation;
- exclusive occupation;
- which is of some value or benefit to the occupier and possessor; and
- which has a sufficiently permanent quality.
In the Makro case the Court held that occupation by the tenant of 0.2% of the floor space of a warehouse to store paperwork was rateable occupation because there was an intention to occupy and the papers had to be retained for legal reasons. It was therefore of practical benefit to the tenant. In the Chester case the charity tenant used a property solely to house wireless and bluetooth equipment which was placed on various windowsills in the property and visited occasionally for maintenance. Again this was found to be of the benefit to the charity and to constitute actual occupation.
In the Makro case the Court acknowledged that this meant that a scheme to avoid paying tax had succeeded. However, it emphasised that it was for the government to decide whether reform was necessary and this was not something the Court could decide.
Charity tenants should still exercise caution
Charity tenants are reminded that these decisions do not endorse the morality of such arrangements. They should ensure that they give full consideration to whether any tenancy agreements to occupy empty properties really do further the charity’s purposes and are in their best interests. The Charity Commission has provided guidance for trustees on this issue..
The government set up a working group in May 2012 to explore changes to the empty rates legislation. In the interim landlords can take some comfort from these two cases when exploring opportunities for empty rates relief. Landlords and tenants should take care when entering such schemes: we can help with ensuring that any such arrangements are property set up and do not risk inadvertently creating protected business tenancies, or unintended obligations on either the landlord or tenant.