R3 Products Limited v James Salt (Valuation Officer) 2014 UKUT 333 (LC)
Despite the recent economic upturn the issue of business rates remains a major problem for land owners and occupiers alike. Most tenants will negotiate a rent free period at the start of the lease to compensate them for the time they will be fitting out the premises, rather than occupying and\or trading from it. Some tenants also assume that they will not have to pay business rates until the premises is ready for them to operate from. However, rating law makes it quite clear that is not the case. Liability for empty property rates rests with the person entitled to beneficial occupation. It is only if the premises is not capable of beneficial occupation (subject to certain other limited exceptions) at all that they can escape this liability, not simply that the premises is not ready for occupation by the particular tenant.
In this case R3 took a lease of a factory near Sheffield. The nature of their business (turning waste plastic into goods for use by the construction industry) required a high-voltage electricity supply, cabling and factory lighting which was not present at the factory when R3 took the lease but which the landlord agreed R3 could install (and gave them a rent-free period for this purpose).
R3 tried to argue that the factory was incapable of beneficial occupation whilst the installation works were ongoing and that it should therefore be removed from the rating list or, alternatively, the rateable value reduced. Unsurprisingly the Valuation Officer did not agree on the basis that the factory remained capable of beneficial occupation throughout the works and contended that R3 were in beneficial occupation during this time.
The Upper Tribunal of the Lands Chamber rejected R3’s argument. The issue for determination was whether the property was capable for occupation by any tenant not R3 specifically for their particular purposes. In the circumstances R3 were found to be in beneficial occupation of the factory throughout the installation works for the purpose of making it suitable for their occupation. Given its conclusion the Upper Tribunal did not need to consider R3’s alternative argument that the factory should be reintroduced to the rating listed on a phased basis but agreed with the Valuation Officer that there was no statutory basis for this.
This result seems a fairly obvious one, although the fact that R3 chose to run this case all the way through to the Upper Tribunal is a reflection of the lengths occupiers will go to in order to minimise their rates liability. Unsurprising given the effect rates liability can have on a business’s cashflow and turnover, particularly where they are not yet ready to trade from the property. Occupiers need to keep in mind that local authorities and the Valuation Office Agency are increasingly willing to fight their corner on these types of cases where perhaps once they would have avoided the expense and hassle. No doubt this is in turn a reflection of the local authorities’ right to retain a much higher proportion of the rates they collect that was introduced relatively recently rather than accounting for it all to Central Government.