Real Estate Blog – Avoiding rates on unoccupied commercial properties
On April 1st 2008 rates on empty business premises came into force. Before then, industrial property benefited from 100% relief and other commercial property 50% relief. Since then, businesses have looked at various ways of avoiding paying business rates on unoccupied properties (which is understandable given that business rates can exceed rent).
In recent years the position has worsened, with the long term future of the high street as we know it in doubt. Against this backdrop, there has emerged a new rates-avoidance scheme. The scheme works whereby a landlord/owner of unoccupied property that is subject to business rates, creates a special purpose vehicle company (SPV), which then takes short leases of the property. As the occupier, the SPV is responsible for business rates, not the landlord. The SPV is then dissolved or put into liquidation to escape the liability to pay rates.
These were the facts in the case of Hurstwood Properties Limited and others v Rossendale Borough Council and on 14 May the Supreme Court held that:
- a lease from a landlord to an SPV in these circumstances was not a sham. However, the scheme to dissolve or liquidate the SPV had no ‘real world’ or business purpose other than to get out of paying rates;
- the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 were aimed at deterring owners from leaving property unoccupied for their own financial advantage and encouraging them to bring such property back into use for the benefit of the community.
Adopting this approach, the Court held that ‘owner’ for the purposes of the Local Government Finance Act 1988 is the ‘person entitled to possession’ i.e. the person with a right of actual physical possession. The legislation did not intend to allow this artificial type of technical possession solely for the purpose of circumventing its provisions. In the circumstances, the landlord could still decide whether to leave the property unoccupied and it had not passed this entitlement to the SPV by way of the leases. For the purposes of the legislation, it was still the ‘owner’ for rates purposes and liable for those rates.
It therefore seems that the Courts will look dimly on attempts to circumvent the obligation to pay business rates on empty properties, and sooner or later these schemes (and those that follow) will most likely be struck down by the Courts.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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