The High Court has recently confirmed in the case of R (on the application of Principled Offsite Logistics Ltd) v. Trafford Council [2018] EWHC 1687 (Admin) that the motive behind occupation of a premises is not relevant in the context of determining liability for business rates. The decision will be of great interest to owners of commercial premises in light of the rising use of "professional occupiers".

Liability for business rates

National non-domestic rates, commonly known as business rates, are normally charged to the person entitled to possession of commercial premises, whether or not that person is in actual occupation. However, if a landlord is neither in occupation nor entitled to possession (i.e. because they have let the premises to a tenant) the liability to pay business rates falls on the occupying tenant.

Rateable occupation

The Court of Appeal set out the four necessary ingredients for rateable occupation in John Laing & Sons Ltd v. Kingswood Area Assessment Committee [1948] 1 KB 344:

• actual occupation;
• it must be exclusive for the particular purposes of the possessor;
• the possession must be of some value or benefit to the possessor; and
• the possession must not be for too transient a period. Case law has determined that 42 days is a sufficient period of time.

Background

Principled Offsite Logistics Ltd (POLL) was a company which occupied commercial properties for the primary purpose of minimising the landlord's liability to pay business rates. This is because a landlord can seek to continuously benefit from empty rates relief by arranging a series of six-week plus occupations, provided no more than three months elapse from the end of one occupation to the start of the next.

Under such an arrangement, the tenant agrees to become liable for business rates in return for a fee based on the amount of business rates for which the landlord would otherwise have been liable. In this instance, POLL charged a "reverse rent" which had the effect of the landlord paying POLL to occupy the premises.

The local authority argued that the arrangement amounted to an unlawful rates avoidance scheme. The local authority's reasoning was that, while it did not dispute that POLL had actual, exclusive and sufficient occupation of the premises, it did not believe POLL enjoyed beneficial occupation for ratings purposes.

The local authority submitted that occupation for its own sake, without any separate purpose other than to occupy, did not amount to beneficial occupation for ratings purposes. POLL, in contrast, argued that case law supported the view that beneficial occupation was determined by the will of the occupier and did not need to be for a commercial purpose to constitute rateable occupation.

Decision

The issue for the court was whether beneficial occupation of premises required an independent business purpose, such as the storage of goods for onward sale, or was simply occupying the premises sufficient to be beneficial?

The court held that occupation had to be beneficial, both in law and in fact, and this was assessed from a morally neutral standpoint. As ethics and morality were excluded from the discussion, there was no good reason why the thing of value to the occupier could not be the occupancy itself.

The court acknowledged that POLL did not intend to use the property for storage or some other commercial purpose and that POLL's sole intention was to occupy the premises in a way which amounted to beneficial occupation so its landlord could avoid paying business rates. Notwithstanding this, there was no basis in law to contend that POLL had to use the property for a commercial purpose. In addition, the court emphasized that it was required to distance itself from the morality behind POLL's reasons to occupy the premises.

Commentary

The court has confirmed that a party can beneficially occupy a property for ratings purposes when its sole use of the property is to occupy it. The absence of an additional commercial purpose, or the presence of an ulterior motive (i.e. rates mitigation), is irrelevant when determining whether a party enjoys beneficial occupation.

For landlords of vacant properties engaged in mitigation schemes similar to the one set out above, this decision will be welcome news. This case will also be of interest to anyone currently contesting liability for business rates on the basis of beneficial occupation as a number of local authorities had put similar proceedings on hold pending the outcome of this case, which has been conclusively decided in favor of the ratepayer.