For landlords with vacant commercial properties, business rates can be a significant (and often unwelcome) cost.
Over the years, a number of schemes have been developed to help owners reduce this liability while a property sits empty. One of the most commonly used schemes, so-called ‘box-shifting’, has just been dealt a serious blow by the Court of Appeal.
Aiden Wiffen, Senior Associate in our Property Litigation team, takes a look at the case, the resulting clarification of what constitutes a genuine occupation for the purposes of empty property rates relief, and how it’s potentially bad news for anyone relying on artificial arrangements to reset the clock.
What’s the issue?
In England, business rates are payable on commercial property whether it’s occupied or empty. Landlords, however, get a break with relief available for three months after a property becomes vacant (extending to six months for industrial premises and warehouses). Once that period ends, full rates become due again.
To get around this, an industry of mitigation schemes has grown up. As above, the most common method is ‘box-shifting’, where a specialist company takes a short lease on the empty property and moves in enough boxes of low-value or redundant items to count as occupation.
Once the reset period has run, the boxes are removed, the lease ends, and the owner can claim empty property relief all over again. Repeated in cycles, this can significantly reduce a landlord’s rates bill.
This has led to a long-running argument between local councils and landlords, with the former arguing this defeats the purpose of the rules, while the latter say they’re following the law.
City of London Corporation v 48th Street Holdings Ltd
The dispute centred on offices in America Square, London. The owner, 48th Street Holdings Ltd, granted a short lease to a specialist occupier, after the initial rates-free period ended, which in turn placed boxes of redundant contents in the building for six weeks. At the point the lease ended, the boxes were removed.
The Court of Appeal ruled that this didn’t amount to genuine occupation, saying that, where temporary occupation serves no purpose beyond generating a rates saving, Parliament could not have intended that this would be how it would be used in practice. The court stated that an earlier ruling allowing this kind of scheme was wrongly decided.
Importantly, the judgment doesn’t exclude every form of temporary occupation and arrangements with a real commercial purpose, such as genuine self-storage, aren’t affected.
With 48th Street Holdings having applied for permission to appeal to the Supreme Court, the dispute is set to continue.
Why it matters
This ruling may create financial difficulties for already under pressure landlords that have in the past relief on box-shifting to manage their empty properties, with local authorities likely to challenge similar arrangements more aggressively. It is also likely that past relief claims based on the same approach will face further scrutiny.
With the court failing to set out exactly where the line falls between token gestures and genuine commercial usage, some uncertainty remains. It is yet to be seen whether this could be clarified when progressing to the Supreme Court.
What you can do
Owners and managers of empty commercial properties should consider reviewing their position now rather than waiting for a dispute to force the issue. In particular:
Business rates mitigation remains a complex and fast-moving area, so expect further change. Anyone unsure as to whether their arrangements still stack up, it’s worth getting legal advice sooner rather than later.
Thrings’ Property Litigation lawyers are experienced in reaching resolution in property disputes, acting for both landlords and tenants, often without recourse to court proceedings, and with an excellent track record when cases do go to Court. To find out more, get in contact.