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Business Rates

Napthens - November 4th 2014

Business rates are often cited as a burden, particularly for small businesses. Recently a spokesman for the Federation for Small Businesses went so far as to say that they are no longer fit for purpose and need total reform. Whatever your views, whilst business rates are payable it is important to be aware of the possible ways in which they may, or may not, be reduced.

The recent case of R3 Products Ltd v Salt related to the application of the beneficial occupation test to business rates. Generally, business rates are payable on both occupied and vacant properties - but this is subject to exceptions. Previous case law established that if a property is not capable of beneficial occupation then no rates are payable and the property would be removed from the rates list.

The arguments in this particular case revolved around what constituted beneficial occupation.

The tenant negotiated terms for a new lease of a factory. Its business was electricity intensive. Just before completion it came to light that the high voltage electrical supply was cut off and the cabling had been removed, although a basic supply remained. As a result, the landlord agreed to a rent free period to the tenant and the lease was completed. The tenant carried out major refurbishments including reinstallation of the cabling and the installation of new lighting.

The tenant received a business rates demand. It appealed the demand citing the fact that it could not carry out its business at the property without the cabling and lighting being in place. The tenant argued that the property should be removed from the ratings list whilst the first phase of works were completed and should have a phased reintroduction to the list as works proceeded.

The Valuation Office Agency refused to alter the list. The tenant appealed and the matter eventually ended up in the Upper Tribunal (Lands Chamber). The tenant’s appeal was dismissed. The test was to ascertain when the building was ready for occupation as a building. The fact it could not be used for this particular tenant’s purpose until necessary equipment was installed, was not sufficient. On the facts, the tenant had beneficial occupation when it completed the lease so business rates were payable. The Upper Tribunal also stated that the legislation provided no opportunity for reintroduction of a property to the rates list on a phased basis.

This case is a reminder of the importance in ascertaining and planning for business rates liability prior to taking occupation of a property. The fact that a tenant (or purchaser) cannot use a property for its intended purpose does not necessarily mean rates will not be payable - the property may still be deemed capable of beneficial occupation.