Want to save money on empty commercial property?
Both a tenant with space they no longer occupy and a freeholder who can’t find a tenant have to pay business rates on empty commercial properties, no matter how hard they are trying to find a new occupier. Indeed, even the Government is affected as it will pay over £70m rates on empty buildings this year. Empty retail and office premises only have a three month rate-free period, industrial and warehouse units have six months and then full rates become payable. However, legislation provides that a new rate-free period is triggered when there has been a degree of occupation for a minimum period of six weeks.
The Courts have recently decided two cases where the owner of the property was able to successfully reduce/avoid its rates liability.
1. Landmark case gives six figure saving
In the case of Makro Properties Ltd v Nuneaton and Bedworth Borough Council, Makro owned a large empty warehouse which was liable for 100 per cent, rates. Makro subsequently used the property to store 16 pallets of documents that occupied only 0.2 per cent, of the floor space. It was argued by Makro that the occupation for the required 6 week period triggered a six-month unoccupied rates grace period once the files were removed, saving £117,000 for Makro.
The Court ruled that occupation of a very small percentage of a warehouse did constitute rateable occupation. This allowed Makro to claim empty rates when the occupation ceased and so a new period of empty rates relief applied.
There are hurdles that must be satisfied in order to qualify for this relief. However slight the occupation is, there must still be an intention to occupy the premises and the occupation must provide a practical benefit to the occupier.
This case demonstrates that the rate-free period can be re-set if a rate payer occupies even a very small part of its premises. However, anyone doing this must consider the insurance of the premises and exactly how they plan to “occupy” the premises.
This case may well be appealed and/or legislation introduced in order to close such a blatant loophole, but at present it could yield some very welcome savings.
Rating relief applies where the ratepayer is a charity and the property is wholly or mainly used for charitable purposes. The case of Preston City Council v Oyston Angel Charity (OAC) shows how granting a licence to a charity can trigger zero rating relief.
Facts of the case
OAC entered into a licence with the freehold owner of several commercial units. The licence provided that OAC had to pay all the rates due, if any, and only allowed the charity to occupy or sub-licence the units for charitable purposes.
Most of the units remained unoccupied but OAC did sub-licence one unit to another charity.
The local authority issued rates demands on OAC for the unoccupied units. OAC refused to pay. In Court, the local authority claimed that such units were not entitled to a zero rate relief as the property would not be occupied by OAC itself.
The Court ruled in favour of OAC and held that the units were exempt from unoccupied rates as the ratepayer was a charity and it appeared that, although OAC would not occupy them, the units would still be wholly or mainly used for charitable purposes.
By granting a licence to a charity which imposes the liability to pay rates (if any) an owner can potentially avoid paying unoccupied business rates subject to certain provisions
Both cases are good news for the rate payer, but not for the local authority. If you are paying empty rates on a commercial property and are interested in following one of these schemes our Real Estate Team would be happy to discuss them further with you.