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High Court Approves Schemes for Mitigation Rates Liabilities

High Court Approves Schemes for Mitigation Rates liabilities - R (Principled Offsite Logistics Ltd) v Trafford Council and others [2018]

The person liable to pay business rates on an unoccupied property is the "owner", who is the person entitled to possession (sections 45(1) and 65(1), Local Government Finance Act 1988).

The Non-Domestic Rating Regulations 2008 provide that empty shops and offices receive 100% exemption from rates for three months. If the property is re-occupied for at least six weeks, the occupier becomes liable to pay the rates and the owner then can claim another three months' exemption when the property becomes vacant again. Therefore, the use of genuine short-term lettings may be a useful way of reducing liability.

The main business of Principled Offsite Logistics Ltd (POLL) was occupying premises with the aim of minimising the landlord's liability to pay business rates. POLL would take a lease at a peppercorn rent for short term storage and charge the landlord a fee of 20% of the rates saved. The rating authority argued that the mere presence of POLL's goods on the property for rates mitigation, rather than for an independent commercial purpose, could not amount to beneficial occupation.

The High Court accepted that the transactions were not shams: POLL had genuine leases, producing a relationship of landlord and tenant and a genuine fee of 20% of the rates saved. Assuming the occupation fulfilled the other requirements for rateable occupation (it was actual, exclusive, and not too transient), the occupation had to be of some value or benefit to POLL. The ordinary meaning of the word ‘’occupation’’ did not require a purpose beyond that of the occupation itself, and there was no reason why the value or benefit to possessors, such as POLL, should not be the occupancy itself. Intention to occupy for reward was sufficient, without any further commercial or other purpose. Thus, it was not necessary for the owner or POLL to have to show any further commercial activity other than POLL’s occupation and entitlement to charge a fee for the scheme to comply with the regulations.

Owners of empty properties who use short term-lettings to mitigate their rates liability will be relieved by this decision. It is likely to have a wide impact on property owners, local authorities and "professional occupiers" given that several magistrates' court cases have been stayed pending the outcome of this case. Practically, this legislation provides certainty to commercial property owners with empty property, who may have capitalised on this loophole through utilising services offered from companies such as POLL.

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Commercial Property eBrief - 24 October 2018