High Court ruling on rates provides reassurance to landlords of empty properties, says expert

Out-Law News | 29 Jun 2012 | 3:30 pm | 2 min. read

A High Court ruling will reassure landlords seeking to avoid business rate charges on properties left lying empty, a property law expert has said.

Stuart McCann of Pinsent Masons, the law firm behind Out-Law.com, said that the Court's decision that a six-month grace period from the tax could still be triggered where only a small amount of space in the property had been used for business purposes would allow landlords and property owners to manage their tax liabilities.

"This judgment will reassure landlords who might otherwise have been reluctant to exploit a loophole in what is often called the 'bomb-site' tax," he said. "To a significant extent, the Court has removed the suspicion that managing empty rates liabilities through use of the '42 day rule' is stretching the limits of the law."

The case, as reported by Estates Gazette, involved the use by cash and carry chain Makro of a 140,000 sq ft warehouse to store a mere 16 pallets of documents for six weeks between November 2009 and January 2010. The judge said that the company's usage of what was effectively 0.2% of the warehouse's available floor space was enough to trigger the grace period.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. Premises are assigned a rateable value by the Valuation Office, which is part of HM Revenue and Customs (HMRC). This is used by the local authority to calculate how much the occupier of that property should pay.

Owners of commercial properties, such as shops and offices, are exempt from paying business rates on an empty property for three months after the property becomes vacant, while industrial properties remain exempt for six months after becoming vacant. Buildings with a rateable value below £2,600 are exempt until they become occupied again, while buildings with a rateable value above this amount are liable for the full amount after the relevant 'grace period' has passed.

The '42-day rule' relates to the amount of time a building must be occupied for before a grace period can be triggered. If a business can make some use of the property, paying business rates, for six weeks, it will be able to claim another rate-free period.

Andrew Rogers, the lawyer with the firm that acted for Makro, told Property Week that the case suggested there could be "further room for this area of the law to be addressed".

"The law states that any industrial property that has been empty for more than six months will no longer receive tax relief, and the empty property will instead be liable for 100% of the basic occupied business rate," he said. "The law also states that if a property is occupied again for a period of more than six weeks before becoming empty again, a six-month exemption period will apply."

Last month, Estates Gazette reported that Conservative MP Julian Study had formed a working group with six other MPs to produce proposals on how the existing empty rates regime could be changed. The news came after a freedom of information request made by the publication showed that the Government was spending more than £50 million in tax per year on its own vacant properties.

Industry bodies, including the British Chambers of Commerce and British Property Federation, have called on the Government to consider changes to the law or restore previous reliefs as a means of encouraging regeneration. Before April 2011, empty buildings with a rateable value of less than £18,000 were exempt from business rates until they became occupied again. Additional reliefs, which were stopped in 2008, allowed owners of commercial properties to claim 50% relief on rates after the three-month grace period had passed while industrial premises, including factories and warehouses, received a permanent exemption.