Property owners may be able to reduce their business
rate liability on vacant properties until legislation catches up
and closes the loophole as result of the High Court decision in the
recent case of Makro Properties Limited v Nuneaton and Bedworth
Borough Council. Kristine Ng from our Property Disputes Team
looks at the case in further detail.
Since April 2008 property owners have been required to pay business
rates on empty properties after they are vacant for three months,
or six months on industrial warehousing units.
In the case of Makro Properties Limited v Nuneaton and Bedworth
Borough Council the tenant, Makro ceased to occupy a warehouse
which it used as a "Cash and Carry" and surrendered its
lease in June 2009. Makro then entered into a licence with its
former landlord allowing it to store 16 pallets of archived
documents in the property using just 0.2% of the floor area for a
period of just over six weeks between November 2009 and January
2010.
The Council argued that occupation by virtue of the pallets was not
sufficient because it was 'de-minimus' having regard for
the size of the unit. Makro sought to rely on previous case law
where councils had been successful in arguing that even de-minimus
occupation was sufficient and triggered a requirement for business
rates to be paid. Marko argued that this occupation entitled it to
a further six month exemption from business rates. The High Court
agreed.
The court accepted that this outcome meant that a scheme to avoid
paying tax had succeeded. It was acknowledged that ratepayers can,
and do, organise their arrangements to avoid paying rates. The
court emphasised that "the court is not a court of
morals" and that, if the outcome was unacceptable, it is for
the legislature to decide whether reform is necessary.
What this means for property owners
This decision will be welcomed by property owners as in the
current economic downturn owners are struggling against maintaining
an increasing number of vacant units. The decision also removes
some of the uncertainty around whether short term lettings of six
weeks or more can successfully trigger a fresh period of empty
rates relief even where that is the primary intention of the
letting.
However, specific conditions for rateable occupation still need to
be fulfilled and property owners should also be careful to ensure
that the degree of control that they exercise over the
occupier's occupation does not amount to occupation by the
owner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
