Empty property rates may be a tax on failure, but they are not going away any time soon. Instead, the tension will continue between central and local government in seeking to maximise revenue and those businesses who are seeking to use legitimate means to mitigate their liabilities.
The owner of newly vacant space, which is otherwise rateable, is not automatically liable to pay empty rates. After a period of occupation known as the off-set period, no rates are payable for the first three months of vacancy or, in the case of industrial premises, six months. After the expiry of the three or six months (depending on the type of property) empty rates become payable. If the premises are reoccupied for the so-called off set period, the owner is entitled to a new three or six month holiday from empty rates when the premises become vacant again.
The ratepayer can, on the present case law, arrange for the storage of boxes in premises so that they are occupied for the offset period, then remove the boxes to enjoy the rate free holiday. When that relief has been exhausted, the boxes can be brought back to achieve another off-set period of occupation in which rates are payable until the cycle goes onto “rinse and repeat”.
This is subject to the outcome of a High Court dispute which was argued in January. In that dispute, the issue is whether an intermittent occupation strategy is effective.
What’s new?
In England, prior to 1 April 2024, the holiday (or relief) from rates available to the non-occupying owner (six months for industrial property and otherwise three months) would apply after six weeks of continuous occupation. This was extended from 1 April 2024 to 13 weeks. The increase in the offset period reduces the maximum saving that would be available from an intermittent occupation strategy. This is the strategy of alternate periods of occupation and vacancy where the occupation is kept to the minimum required to qualify for a new holiday and the premises can be kept unoccupied during that holiday period.
Some ratepayers in England took the view that six weeks of occupation to trigger a new holiday period was too generous and did not take full advantage.
In summary, taking non-industrial premises as an example:
- At least 13 weeks of occupation – rates payable
- Then three months when premises are vacant – no rates payable
- At least 13 weeks of occupation – rates payable
- Back to step 2
Avoidance – the court reacts
In Rossendale v Hurstwood the Supreme Court signalled its distaste for two avoidance schemes in which a property holder granted a lease of an empty property to a special purpose vehicle, and the SPV was immediately placed into voluntary liquidation or dissolved.
The Supreme Court solved the problem presented by two varieties of an aggressive avoidance scheme based on a desk top exercise of granting leases and using (or abusing) insolvency procedures to achieve an artificial outcome. The court solved the problem by construing the words of the primary legislation in a fashion that was consistent with the presumed intention of Parliament.
The promoters of the avoidance scheme in this case wanted the liability to pay rates to fall on the SPVs to whom leases were granted. The SPVs had no means with which to pay.
This solution did not require fresh legislation or consultation with stakeholders; it just needed senior judges doing what they do best; namely, construing an act of Parliament.
The Supreme Court held that it was the owner of the premises in respect of which the leases were granted who remained entitled to possession and liable, therefore, to pay the rates.
Despite this change in England, and the ability of the court to construe legislation to avoid abusive schemes, there remains an appetite for further anti avoidance controls. The government is committed to making further progress to tackle avoidance and will publish a consultation on adopting a “General Anti Avoidance Rule” for business rates in England. A General Anti-Avoidance Rule (GAAR) is a legal framework which provides government with greater flexibility to counter avoidance schemes as they emerge.
A GAAR is already in force in Scotland and Wales. The detail in each case covers pages of the statute book.
Does the GAAR as introduced in Scotland and Wales make for a better rating regime? Probably not. First, the message from Rossendale is that the court can, and will, interpret legislation in a way that upholds the presumed intention of Parliament not to back aggressive schemes. Secondly, the complexities around the legislation will leave ratepayers uncertain as to how far they can mitigate for empty rates.
Those caught by the tax on failure are entitled to better treatment.
Consultation with government ends on 31 March 2025. We will be making a submission. If you have comments, please let us know NOW and we will do our best to reflect your views in our response. Send your comments to [email protected]
To find out more about our Real Estate Dispute Resolution team and how we can help you, please get in touch or call us on +44(0) 3333 231 580.
