Empty rates relief – empty boxes are not enough

Rate mitigation schemes are back in the headlines following the Court of Appeal's decision in The Mayor and Commonalty and Citizens of London v 48th Street Holdings Ltd and Principled Offsite Logistics Ltd, which concerned the legitimacy of so-called "box-shifting" arrangements. These schemes typically involve placing boxes containing redundant items into otherwise empty premises for the minimum period required to trigger a fresh period of empty rates relief.  In a blow for property owners, the Court of Appeal concluded that this particular form of arrangement is ineffective where it serves no purpose beyond obtaining a rates advantage.

In this case, it was common ground that the boxes served no commercial or business purpose. Their sole function was to create "occupation" for rating purposes and thereby generate a further period of empty rates relief. The Court repeatedly described the arrangement as a "pure rate mitigation occupation" scheme. Previously, it had generally been understood that occupation could still be "beneficial" even where the principal objective was the reduction of business rates. The Court of Appeal rejected that approach. Adopting a purposive interpretation of the legislation, it asked whether Parliament could really have intended property owners to avoid a substantial proportion of their empty rates liability through the temporary placement of largely worthless items. In doing so, the Court signalled a continued willingness to examine the substance, rather than merely the legal form, of rates mitigation structures. Given the City of London's estimate that these arrangements have deprived it of approximately £35 million per year in revenue, it is perhaps unsurprising that the Court took such an approach. 

The decision does not mean that all rates mitigation schemes are ineffective. The Court was careful to distinguish genuine occupation undertaken for operational, commercial or business reasons. Nevertheless, the burden is now likely to fall more heavily on ratepayers to demonstrate the commercial reality of any occupation relied upon to secure relief. That may lead billing authorities to scrutinise a wider range of short-term occupation arrangements.

From a practical perspective, owners of vacant property should review any existing mitigation arrangements, assess whether there is a clear commercial rationale underpinning the occupation and consider the evidential position if a billing authority challenges the arrangement. Schemes that depend solely on creating the appearance of occupation are now significantly more vulnerable.  It remains to be seen if the case will go to the Supreme Court. 

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