Motor Matters - Business rates: a game of two halves

13 November 2018

This case considered what constituted ‘occupation’ of premises for the purpose of non-domestic rates.

Principled Offsite Logistics Ltd v Trafford Council [2018] EWHC 1687 (Admin). 

First half 

This case considered what constituted ‘occupation’ of premises for the purpose of non-domestic rates. In the end the court concluded that there could still be rateable occupation even though the only, or principal, purpose motivating that occupation was to avoid paying business rates.

The claimant’s main business was occupying premises on behalf of commercial property owners in order for them to minimise their liability for non-domestic rates. It contracted with landlords to arrange for storage of items in unoccupied premises. Provided it continued for a period of more than six weeks, then the owner could avoid paying rates for the property for a three month period. Owners were then able to avoid liability for rates indefinitely by arranging a series of six week plus occupations, provided that not more than three months elapsed from the end of one occupation and the start of the next one. The claimant took a fee based on the percentage of rates saved, which the landlord would otherwise have had to pay on the empty building. The rating authority tried to claim that these amounted to sham transactions, but the court found otherwise. 

There was no question that the transactions in this particular case were genuine, that there was actual occupation of the properties and that the leases in question created genuine landlord and tenant relationships. According to the court there was no concept in the rating legislation that the meaning of the word ‘occupation’ required a purpose or motive beyond that of the occupation itself.

Second half

Wigan Athletic FC – the football fans amongst you will recall that Wigan was originally relegated to the Championship from the Premier League in 2013. Two years later they were relegated again to League One before re-joining the Championship last season.

During the period of their successive relegations the business rates on their stadium had been assessed at £590,000 based on the revaluation carried out in 2010 – compare this against an average assessment for League One clubs of £88,000. The club tried to argue that its relegation from higher divisions constituted a material change in circumstances, such that they should be entitled to a significant reduction in their rates liability following the 2010 assessment. What is interesting about this particular case is that whilst ability to pay is taken into consideration at the point of setting business rates liability, the tribunal, in this case, did not find that the relegation of the club, and its attendant fall in TV revenue, was a material change of circumstances for the purpose of the rating assessment. The tribunal did confirm that the basis of the assessment looked at the use of the premises for its purpose and bearing in mind other reasonable users of the site. In particular they noted that the football club shared its ground with a very successful Super League rugby side, as well as hosting concerts and other events at the stadium. At the time of this article we are waiting to hear whether there will be a further appeal of this decision which was only made at First-tier Tribunal level.

Extra time

There are two additional matters to bring to your attention following government consultations as follows:

  1. A current consultation is considering bringing forward the formal revaluation cycle to make it a three-year review rather than the current five years, starting the first three year cycle in 2021. In addition, the government also proposes to change the basis of increase to CPI inflation rather than RPI inflation with effect from this year.
  2. The thrillingly titled ‘Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Act)’, which came into force on 1 November 2018, has reversed the effect of the Woolway v Mazar’s decision of a couple of years ago. This was the case where a firm of accountants occupying two floors in an office building were deemed to be in two separate assessment areas (which resulted in a higher overall business rates assessment) rather than a single hereditament as had previously been Valuation Office’s practice. After victory for the Valuation Office in the Supreme Court, the government has effectively reinstated the pre-litigation position.

What doesn’t appear anywhere in the government’s pronouncements is any suggestion that they intend to overhaul the rates system itself, despite lobbying from business. A number of high profile business failures in recent months have highlighted the burden of business rates on traditional bricks and mortar businesses. Indeed John Lewis (which recently announced a 99% drop in profits) has confirmed that the rates assessment for its flagship Oxford Street unit will be £10.5m for the coming year. Compare this with the UK corporation tax paid by online giant Amazon of just £4.5m. In spite of the recently announced ‘digital tax’ to be imposed on retailers from 2020, the difficulty that the government faces is making good on its promise to divert more than £1.4bn of business rates income back to local authorities to enable them to invest in their local areas. All of which feels a slightly uncomfortable catch 22…

For further information please contact Melissa Loucas or another member of Birketts' Commercial Property Team.

This article is from the winter 2018 issue of Motor Matters, our newsletter for those working within the motor industry. To download the latest issue, please visit the newsletter section of our website. Law covered as at November 2018.

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