Since 2008, when empty property relief was first introduced, the use of short-term lease arrangements as a form of business rates mitigation has become commonplace. This typically involves tenants taking short-term leases on properties, often on very favourable terms, allowing the landlord or property agent to reduce their business rates liability by taking advantage of empty property relief when the lessee leaves. This can significantly reduce the landlord’s business rates liability across a property portfolio.
Of course, local authorities do not like this practice and seek out every opportunity to challenge these short-term occupations. Often, this involves pushing for evidence that the property is genuinely occupied and that there is a commercial benefit to the occupation. For example, the tenant could be running a business from the premises to make a profit.
In Principled Offsite Logistics vs Trafford Borough Council, the local authority argued that, by using the premises to simply store goods short term, the tenant was not getting any commercial benefit from its occupation and therefore it could not be regarded as a rateable occupation. The council argued therefore that the landlord should not be able to claim empty property relief when they leave.
The tenant openly described the arrangement as a rates mitigation scheme and explained that in exchange for storing goods, it was paying the landlord a peppercorn rent and also receiving a percentage of their savings when leveraging empty property relief. Trafford Borough Council had obtained magistrates’ court summonses seeking rates liability orders against Principled. However, Principled Offsite Logistics decided to challenge the council’s approach and it requested a judicial review.
The review has now concluded that, in the eyes of the law, rateable occupation does not have to be for commercial benefit as long as there is some benefit to the tenant. This outcome means the common objections raised by many local authorities against this type of rates mitigation scheme can be defeated and schemes can continue unheeded. This result will be welcome news for businesses, commercial landlords, property agents and corporate occupiers alike.
Yet the situation could change in the future. Local authorities have been up in arms for some time about what they consider a loophole in the law. The outcome of this case could encourage them to push for changes to legislation. Landlords and corporate occupiers need to be prepared for this.