by Cheraine Williams, Dispute resolution solicitor, Brachers, Maidstone

Many businesses are finding it difficult to survive in the current economic climate and must restructure.

This has had a particular impact on the High Street, with unprofitable shops closing down and disappearing.

Landlords are often left with an empty shop or office space with no rental income, but are liable to pay business rates.

Under ‘The Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008’, a landlord only qualifies for a maximum of three months empty rates relief where the property is empty continuously for three months.

Change of ownership will not trigger a fresh period of empty rates relief and any occupation for less than six weeks during this period will not be a rateable occupation.

To minimise rates liability, landlords have been granting Licences to Occupy any empty space for six weeks (minimum) to businesses or charities free, particularly as the latter are exempt from rates.

In Makro Properties Ltd v Nuneaton and Bedworth Borough Council (2012) the High Court considered a magistrates’ decision that letting 0.2% of a warehouse for storage of 40 pallets for six months was not a rateable occupation and did not trigger empty rates relief as the only intention was to avoid liability.

A Rateable Occupation requires:
1 Actual occupational possession (which involves actual use of the land)
2 Occupation or possession that is exclusive
3 Occupation or possession which is of some value or benefit to the occupier or possessor
4 Occupation or possession which has a sufficient quality of permanence.

Considering the above, the High Court held that despite the size of the space and that the pallets could have been stored elsewhere, the landlord had let the warehouse to store documents which must be retained for legal reasons and were of practical benefit.

The case provides useful guidance on the types of short term lettings of six weeks (minimum) which could trigger a fresh period of empty rates relief even where the landlord’s intention is to avoid liability.

This could lead to savings to landlords who could benefit from an additional five months empty rates relief per annum.

While the government may legislate to close this loophole, any landlord should ensure that the four conditions are met to take advantage of the same.

In particular, (1) clear evidence of an intention to occupy, (2) the use of the space is not insignificant as without evidence of intention a slight user may not be sufficient, and (3) there is limited control of the unit by the landlord indicating a letting.