Holloway Iliffe & Mitchell Comment: High Court rules empty rates can be avoided25th July 2012

The High Court has ruled that commercial landlords can use schemes to reduce the burden of paying full business rates on their empty buildings.

Commercial properties, which are let out have their rates paid by the tenant. When the property becomes empty the liability for rates is met by the landlord. Until now landlords were eligible for an initial rates relief period of three months for offices/retail and six months for industrial units.

When this expires, if the property is not reoccupied, the landlord is liable to pay the properties business rates in full.

Since these arrangements were put in place on 1 April 2008, landlords have been actively looking for methods to avoid paying business rates on their empty properties. The downturn in the economy has reduced demand for commercial premises and this has led to buildings remaining empty longer and landlords not only losing rental income but also having to pay full rates on properties.

Many landlords have discovered that the initial rates free relief can be renewed by taking up occupation again for a minimum term of two months. When this term finishes the landlord is entitled to another three or six months rates free. It was considered likely that local authorities would take action against landlords using this course of action to reduce their rates liability.

In early July 2012, Judge John QC ruled in a court case between Makro Limited v Nuneaton and Bedworth Borough Council that a landlord or tenant were entitled to a new rates relief period after taking occupation for a minimum of two months.

Craig Powell, Associate Director at Holloway Iliffe & Mitchell said: “This is very good news for landlords who can now legitimately occupy their units for two months, when they pay full rates, in order to renew their three/six month empty rate relief.

Makro had occupied a warehouse at Rowley's Green, Coventry, which was surplus to requirements and had been vacated. Makro stored 16 pallets of documents in the empty 140,000 sq ft warehouse, occupying just 0.2% of the area between November 2009 and January 2010. The local council challenged Makro's claim for a further six month empty rate relief period starting in January 2010 and the matter was referred to the high court. In summary, Judge John QC ruled that Makro were entitled to the new relief period. Makro were able to claim a second empty rates period between January and July 2010.

Tom Holloway, Director at Holloway Iliffe & Mitchell said: “Landlords of offices will be able to substantially reduce their rates liability and it may change their view when dealing with tenants in arrears when previously they were cautious of forfeiting a lease as they would be liable to pay full rates only three months after the property was vacated.”