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Rates - a heavy toll on property - is there any relief?

Landlords have long inserted provisions in leases to ensure that they do not lose out on any empty rates relief if the tenant should vacate the premises before the end of the term. Events over the last few years have highlighted the value of such provisions:

• on 19 July 2007 the Rating (Empty Properties) Act 2007 came into force, and removed the 50% relief from business rates allowed to commercial properties that remained unoccupied for more than three months (or six months in respect of industrial properties); and

• in autumn 2012 the government announced its intention to delay the business rates revaluation from 2015 to 2017.

Whilst the government also announced in 2012 a proposed exemption from empty property rates for all newly built commercial property for the first 18 months, this is probably small comfort even to the developers to whom the incentive is directed. To others finding themselves holding unlet or surplus property, three months is not long to prepare, market, and successfully relet, even at the best of times. In the difficult climate experienced in the sector since 2008, property owners have routinely suffered the additional significant holding cost of business rates, which were last revalued in 2008.

Recent years have seen a proliferation of business rates saving schemes; some widely advertised, others more discretely offered. The potential to pass on or eliminate rates liabilities has proved very tempting for many, whether as investors or as tenants, who find themselves with premises that cannot be let or sublet. Such schemes may not always be what they seem, and two recent decisions illustrate how landlords need to tread carefully.

Several cases involving the Public Safety Charitable Trust and relevant local authorities were heard together by the High Court in May 2013. Public Safety Charitable Trust Limited (PSCT) is a registered charity that offers free wifi and broadcasts crime prevention messages from hundreds of empty commercial properties across the country to members of the public who are Bluetooth enabled or within range of their wifi transmitters. PSCT arranges for a broadcasting transmitter, or transmitters, each similar in size to a domestic broadband box, to be placed at the premises. This equipment takes up a minimal amount of physical space at the premises.

The judge described their operation as follows:
"It takes a lease of commercial premises in respect of which the owner would be liable to pay non–domestic rates…It claims to be entitled to relief from payment of rates in respect of the premises. The lease is for a nominal or peppercorn rent; it is subject to a short notice period (say, seven days); and the landlord pays the PSCT a "reverse premium" in respect of its occupation. In this way, the saving in terms of relief from liability for non–domestic rates is shared between the landlord and the PSCT, the loser being the public purse".

PSCT had taken a number of leases of commercial properties nationwide with a view to installing the transmitters and was claiming relief from payment of non–domestic rates. The key issue for the judge was whether premises occupied by PSCT are "wholly or mainly used for charitable purposes". The judge held that PSCT was not entitled to charitable relief from business rates.

Relevant in the PSCT case is the fact that rates relief for charities of commercial property is mandatory where applicable. The fact that the building was not substantially and in real terms being used for the public benefit was central to his decision.

Later in May 2013, in the case of Sunderland City Council v Stirling Investment Properties LLP, the High Court was faced with a similar arrangement. A tenant had taken a short-term lease of premises for the purposes of installing Bluetooth apparatus (a server measuring 95 x 65 x 30mm, with a battery measuring 350 x 240mm and a wire aerial draped out of a window in the premises). The premises were described in the rating list as "Furniture Warehouse". In this case however, the local authority sought to preclude the claim by the landlord for relief from its liability to pay empty rates for six months after vacation by the tenant.

The court held that the presence of the Bluetooth apparatus did constitute occupation of the premises, and the landlord was entitled to the relief from rates claimed.

The judge commented on the differences from the PSCT case. He had had to decide whether the occupant was the rateable occupier of the rateable premises. In the PSCT case the dispute centred on whether the occupier qualified for charitable status exemption on the basis that the premises were wholly or mainly used for charitable purposes. So, the Sunderland case was about [rateable] occupation, the PSCT case was a more unusual one about the [charitable] nature of occupation.

Thus, those considering lettings that are primarily directed at saving business rates will need to consider the proposal of each tenant and the nature of the activities it proposes at the premises. We expect that many of the schemes relying on charities exemption may disappear. Other schemes intended to establish the brief (minimum 6 weeks) period of occupation that will entitle the landlord to another three month period of void rates may, by contrast, be encouraged by the Sunderland case.

It is clear that hard pressed rating authorities are exercising greater vigilance, and schemes of this nature are coming under much greater scrutiny and challenge. Where ratepayers claim a succession of empty rates reliefs (following various 6 week+ periods of claimed occupation), questions and visits from the rating authorities can be expected.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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