Business rates have become one of the most frustrating costs attached to empty commercial property and various concepts have been developed to avoid paying them. Now, the Court of Appeal’s decision in City of London v 48th Street Holdings Ltd & Principled Offsite Logistics Ltd has added a clear legal warning for landlords, occupiers and businesses holding empty space.
The court found that placing boxes of redundant items into empty premises purely to trigger further empty property rates relief did not amount to occupation. In simple terms, empty rates mitigation schemes need substance, not just paperwork. For many businesses, the ruling should prompt a bigger question: if an asset is empty, costly and no longer serving an operational purpose, what is the plan?
What has changed?
The case centred on vacant premises that were temporarily occupied by boxes for the required reset period before the boxes were removed and a further period of empty property rates relief was claimed. The Court of Appeal held that, as the boxes contained redundant items and therefore had no real commercial or business purpose beyond obtaining rates relief, the arrangement did not amount to occupation for business rates purposes.
That does not mean every mitigation approach is ineffective. It does though mean businesses should expect greater scrutiny of arrangements that rely on artificial or minimal activity. Owners will need to demonstrate genuine, beneficial and commercial use.
Why this matters for businesses with vacant property
Empty commercial property can quickly become a material cost. Once the initial relief period has expired (generally 3 months but 6 months for industrial premises) rates liabilities will continue to build at a time when the property is generating no income and delivering no operational value.
As the benefit of such empty rates mitigation schemes has already been diminished by the minimum occupancy period having been extended from 6 weeks to 13 weeks, should now consider whether a building is at the end of its natural life in its current use and whether it should be repurposed.
Repurposing vacant assets
Where there is still underlying value in the location or building, repurposing can provide a route back to productive use. That might mean adapting space for a different occupier profile by exploring alternative commercial or residential uses or stripping out an existing dated fit out prior to a comprehensive refurbishment to suit current market requirements
A more strategic approach to empty property
The wider implication is that vacant property should not be treated simply as a rates problem. It should sit within a broader asset strategy that considers business need, occupational demand, market value, refurbishment cost, alternative uses and exit options.
That may require closer collaboration between business rates advisers, agency teams, building surveyors, planners and asset managers. The earlier those conversations take place, the better placed a business will be to control liability and make confident decisions.
Jonathan Young, Partner and Head of Business Rates, says the ruling should prompt businesses to review vacant property sooner rather than later:
“This decision makes it clear that empty rates mitigation must be commercially credible. If a property is empty, costing money and not supporting the wider business, now is the time to review whether it should be comprehensively refurbished for the existing use or repurposed for an alternative commercial or residential use.”
The answer will be different for every property, but the need for a clear strategy is now more pressing. Our business rates experts can help you understand the implications of the ruling, review your exposure and plan the next step for your vacant property.