Out-Law News 4 min. read
02 Aug 2012, 3:53 pm
In its ruling, seen by Out-Law.com, West Cheshire Magistrates' Court said that the local authority was unable to effectively split the building in two for the purposes of calculating the business rates liability of its occupier the Public Sector Charitable Trust (PSCT). The local authority, Chester and West Cheshire Council, had argued that the parts of the building in which no transmitters were installed were not being used for charitable purposes. Business rates on these parts of the building should therefore be charged at the full rate, without deducting the 80% discount required under the Local Government Finance Act.
Commercial property law expert Suzanne Gill of Pinsent Masons, the law firm behind Out-Law.com, said that the decision showed that the use of charitable relief remained a "legitimate way" for landowners to mitigate the effect of empty rates.
"Business rates are an increasingly heavy burden and landlords are doing all they can to mitigate their effects," she said. "However, this decision also works as a warning to telecoms companies who should make sure that the documents granting them the right to place apparatus on unoccupied property don't bring with them an unexpected rates bill."
District Judge Sanders, presiding over the case, said that by entering into a lease agreement for a nominal value with the charity in return for a "reverse premium payment" in the form of a charitable donation, the landlord's liability to pay business rates on the empty property transferred to the tenant. As a registered charity, PSCT could legitimately reduce or extinguish that liability by applying to the local authority for the mandatory 80% charitable relief. Under the Local Government Finance Act, local authorities may relieve a charity of the remaining 20% at their discretion.
In this case, Chester and West Cheshire Council had originally granted both the mandatory and additional discretionary rate relief to PSCT. However, even before attempting to charge the full amount of business rates in respect of the unoccupied part of the building, it cancelled the discretionary relief after receiving a "large number" of similar applications from the charity in respect of other properties in the area.
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. Rates are charged on individual 'hereditaments', or units of occupation.
In his ruling Sanders said that it was difficult to separate the occupied and unoccupied areas of the property for the purposes of establishing two separate hereditaments as there was "clearly no physical defining line" between the two. He added that, where there was "ambiguity or lack of clarity" in the definition, "fairness dictates that the hereditament should be construed narrowly so as to benefit the person liable to pay the rates and not the person seeking to collect the rates".
"Although the [Valuation Office Agency] purports to create a single WiFi hereditament, it would appear on all evidence that the WiFi/Bluetooth transmitters can be moved around the building, their numbers increased or decreased, at will," he said. "Although the VOA purports to create a single WiFi hereditament, the reality is that there are currently at least 13 separate (although wirelessly linked) sites in the property."
He added that the law was clear that the installation of wireless transmitters within the property counted as "occupation" for the purposes of calculating the property's rateable value since periodic access to the property was needed for maintenance purposes. This was the case regardless of whether the equipment could just as easily be installed in otherwise occupied buildings, he said.
"Occupation is a question of both fact and law," Sanders said in his ruling. "In order to qualify occupation must be actual, beneficial, exclusive and more than transient ... [PSCT] obtained the lease for the purposes of placing the transmitters, has indeed arranged to place a number of transmitters within the hereditament, uses the wiring in the building as a whole to power the transmitters, and visits regularly – if not frequently – in order to relocate, maintain and change the transmitters in order to provide the best coverage."
The court acknowledged that "considerable discussion" was taking place between Chester and other local authorities in respect of similar applications. Earlier this week Paul Bayliss, head of Derby City Council, called on the Government to remove a "loophole" which he said allowed "legal tax avoidance".
"We're working with MPs and officers from other authorities to try and shut this loophole down," he told the BBC. "You could say it's a smart way to avoid having to pay your taxes but I think most people realise in this day and age, we need every tax penny we can to avoid cutting services."
Gill said that although the two cases turned on a similar point, Bayliss' compliant related to short-term occupation of the property for the purposes of triggering the three-month exemption period which applies when a property falls empty. The so-called '42 day rule' relates to the amount of time a building must be occupied for before the exemption 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.
"I would expect the lease in Derby to end as soon as it's not a 'transitory' occupation, whereas in Cheshire the lease could run indefinitely until a 'real' occupier can be found as a result of the charitable relief," she said.