Business Rates - Rating your chances?

It is well-known practice amongst property owners to perform rating mitigation exercises to obtain relief from business rates whilst their properties stand empty. There is, of course, nothing wrong with using a loophole in legislation which enables them to avoid the financial burden of paying rates on an empty property which is not generating any income. However, certain purveyors of “schemes” offered to landlords to “assist” them in avoiding rates have exploited the system for less than altruistic purposes, leaving unsuspecting landlords on the receiving end of proceedings brought by local authorities for liability orders for unpaid rates.

Certain classes of non-domestic property that are empty for a continuous period of 3 or 6 months (depending on the type of property) are exempt from rates over that period. Occupation of the property for less than 6 weeks during that time will be ignored, but if the premises are occupied for 6 weeks or more, the rates exemption will end at the beginning of the occupation but then a new exemption period will begin to run afresh once the property is empty again.

It is therefore common practice to lease an otherwise empty property to another party for a period of 6 weeks, during which time the leaseholder becomes liable for the rates. Once the 6 weeks have expired, the tenant then vacates and the property is then returned to the landlord, who then claims a further statutory 3 or 6 month exemption from rates, and the cycle the continues.

This is beneficial not only to landlords but also for tenants looking for short-term storage and companies who trade in performing the operational logistics by moving items between the various properties.

However, numerous landlords have fallen victim to those who try to exploit this system for financial gain. Companies have sprung up offering to provide landlords with short-term tenants to enable them to take advantage of the rates exemption regime, but there have been numerous instances of the “tenants” not occupying the properties sufficiently to fulfil the requirement of “actual occupation”. This has resulted in local authorities across the country taking action to recover rates on the basis that the tenancies were “shams”. These companies have also taken matters a step further, by seeking to gain not only the 3 or 6-month exemption period for the landlord, but also to avoid liability for the 6-week letting periods. To do so they have attempted to rely upon various other classes of exemption, including a discretionary relief for use of premises for charitable purposes and an exemption for use of premises for fish farming. The latter has resulted in “tenants” placing boxes in premises and claiming that they are being used for snail farming (the definition of fish farming includes shellfish, which in turn includes “molluscs”).

There are several cases like this where Magistrates’ Courts have sided with the local authorities, leaving landlords liable to pay non-domestic rates when they had been under the impression that they had been provided with legitimate tenants and that they had therefore successfully avoided liability. We have acted for landlords in cases where they have fallen victim to these scams and have been able to extricate them from such proceedings before reaching court. If you have recently had proceedings brought against you for rates that you do not think you are liable for, or think you may have unwittingly become involved in one of these “scams”, please contact us.