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Empty Rate

presented by

Gordon Heath BSc IRRV

for

IRRV Thames Valley Association

July 2011© Gordon Heath Ltd

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Empty Rate - History• City of London Sewers Act 1848 - half the general

rate, not the poor rate, hence about 10%, no free periods, City only.

• Local Government Act 1966 - discretionary 50%, 3 months free period, exemptions

• 1971 - discretionary 100% plus rating surcharge• 1974 - surcharge abolished• 1983 - industrial exemption, 50% limit• 1990 - compulsory 50%, exemptions• 2008 - compulsory 100%, exemptions changed

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Meanwhile Project• Set up in 2009 by last Government• Led by Development Trusts Association• 2010 - SQW Consulting - business case• Meanwhile uses of otherwise empty buildings for

socially beneficial purposes• www.meanwhile.org.uk• DCLG guidance on suitable sub-leases

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Empty Rate Avoidance and Evasion • A person is entitled to arrange their affairs

so that their tax liability is minimised - tax avoidance

• Tax avoidance is perfectly legal

• Tax evasion is a deliberate attempt to evade payment of a tax which is legally due

• Tax evasion is illegal

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Empty Rate AvoidanceThe following are legal tax avoidance:

• Demolishing or soft striping a building

• Delaying new starts

• Not completing beyond shell and core

• Occupation for six weeks - repeatedly

• Section 44A relief for phased occupations and phased vacations

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Empty Rate AvoidanceThe following are legal tax avoidance:• Exempt because the building is listed or

occupation is prohibited• Letting to a charity that actually occupies for a

charitable purpose• Use for bluetooth broadcasting• Granting a lease to anyone else• Letting to a company that goes into

liquidation?

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Empty Rate EvasionThe following is potentially evasion:

• Letting to a charity which has no intention of occupying for a charitable purpose - Charity could be liable for 100% charge

• Claiming bluetooth broadcasting is charitable

• Claiming 6 weeks occupation, without entering into beneficial occupation

• Claiming posters on shop window are occupation by a charity

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6 weeks Occupation• There is nothing in the regulations that prevents

a ratepayer from repeatedly occupying for 6 week periods to claim repeated empty periods

• Occupation means beneficial, actual, exclusive and not too transient occupation

• Empty boxes are unlikely to be beneficial• Are a few boxes of company records or goods

in an enormous hereditament is beneficial occupation?

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6 weeks Occupation• There is no “de minimis” rule in the legislation• Wirral BC v Lane 1979• “the magistrates …….. decided to apply the

maxim de minimis non curat lex to these valuable chattels.”

• “I am not prepared to hold as a matter of law that the magistrates were not entitled thus to relegate these objects to a lowly grade of value or importance”

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6 weeks Occupation• Sheffield City Council v Metis Apartments

Limited 2010 - Magistrates’ Court

• Not a legal precedent

• 13/8/09 - moved boxes of files from head office and storage to 3 empty properties

• 8 or 9 boxes in each property

• 2/10/09 - moved back to head office

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6 weeks Occupation• 12/2/10 - moved boxes back in• 20 to 27 boxes in each property• 27/4/10 - moved back to head office• Council informed at every stage• Claimed benefit - reducing storage costs,

enabling access, freeing up office space

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6 weeks Occupation• The District Judge said “I am of the view that in

all the circumstances of this case, there has not been rateable occupation for the relevant periods when the boxes were placed at the three properties. There was no actual occupation. The use of the properties in the way described and photographed was so minimal. It is beyond slight in the sense that it is de minimis.

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6 weeks Occupation• Beyond placing the boxes of files at the three

properties, there is little evidence of the use to which they were put, or of the frequency of access or reference to them. They are boxes containing archived files. It occupied a very small percentage of the available floor areas.”

• Liability order granted

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6 weeks Occupation• Ratepayers should tell the billing authority when

they occupy for 6 weeks to enable inspection and makes sure it is occupied - then tell the authority when it is vacated

• Under LGFA 1988 s65(5) plant, machinery and equipment that was used or is intended for use should be ignored

• Includes shop fittings, counters and shelves• Could include desks and chairs• More than “de minimis”

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6 weeks Occupation• Occupation by empty boxes - not occupied• Occupation by a few boxes of files - might be

occupied, despite Sheffield• Occupied by tents - where is the benefit?

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6 weeks Occupation• Occupation by a small electronic box

broadcasting messages on blue tooth• Occupied - appears to be beneficial, actual and

exclusive• Could the VO value it as a communication

station? - 6 weeks is probably too transient

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Occupation Prohibited• Occupation Prohibited By Law where an empty

property contains asbestos ?

• Asbestos surveys sent with the requests detailing varying levels and types of asbestos

• Just because an empty property has asbestos in it this does not mean it can’t be occupied

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Occupation Prohibited• Not an issue when occupied but when empty it

may be difficult to refurbish for a new tenant

• Regent Lion Properties Ltd v Westminster City Council 1990 - Notice under Health and Safety at Work Act 1974 - refurbishment must cease until asbestos removed

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Letting to a Charity• Letting to a charity only works if they occupy or

intend to occupy it for charitable purposes of THAT charity (or that charity and others)

• If there is no intention for the charity to use it for a charitable purpose, the charity will be liable for 100% charge

• If it is occupied, it must be wholly or mainly used for charitable purposes

• All of the hereditament - not just all of the use made?

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Letting to a Charity• English Speaking Union Scottish Branches Educational

Fund v City of Edinburgh Council 2009• Judicial review of refusal of mandatory relief• Tenants of whole building - 8 floors• Only used the ground floor• Ratepayer - wholly used for charitable purposes• Council - only partially used• To qualify, it must be wholly or mainly used for charitable

purposes• Council’s argument is consistent with the ordinary

meaning of the language used in the legislation

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Letting to a Charity• Letting to a charity that occupies with a bluetooth

box broadcasting charitable messages• Occupation of all or part is sufficient to establish

occupation• Everyone knows the 4 elements of occupation in

the John Laing case - that’s not the point • Charitable relief ONLY applies where it is wholly

or mainly used by that or that and other charities• Could it be valued as a communication station?

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Letting to a Company in LiquidationJust one of many examples:• 5/8/2010 - Company is formed• 1/9/2010 - Company takes 15 leases on empty

property in two Boroughs• 1/9/2010 - Declaration of solvency• 1/9/2010 - Members voluntary liquidation later on

the same day - Liquidator appointed • Liability falls on leaseholder in liquidation -

exempt from empty rate

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Letting to a Company in Liquidation• The are only peppercorn rents and no rate

liability - company remains solvent• No creditors to turn the voluntary liquidation into

a compulsory liquidation• No pressure to disclaim the leases• No pressure to complete winding up

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Letting to a Company in Liquidation• Company wound up 3 months after notice from

liquidator to Registrar at Companies House• Remaining leases revert to the Crown as “bona

vacantia” - vacant goods• Treasury Solicitor Bona Vacantia Division• Crown accepts no liability - landlord not entitled to

possession and therefore not liable• No one is liable• Within a year the Crown will disclaim the leases

and the landlord will become liable from then

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Instant Rate Saver Plan• As advertised by articles in “Property Week”• Environmental charity - Healthy Planet• Healthy Planet sign a short term lease with a

retail landlord to install posters advertising its work in shop windows in return for a donation of RV x 25p

• Landlords benefit by avoiding empty rate• Charity said the initiative “would help landlords to

cut their empty rates bills, improve the look of empty shops, and help the charity”

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Instant Rate Saver Plan• May improve the look of vacant shops• CLG has given money to some authorities to use

vacant shops• Could ask VO to split assessment between shop

and advertising right, BUT-• It is only a separate hereditament if there is a

separate lease for the advertising right

• Is the charity in beneficial occupation by virtue of the posters in the window? - not in my opinion

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Instant Rate Saver Plan• Charity exemption from empty rate only applies if it

appears that when next in use it will be used by that charity or that charity and others for charitable purposes

• If it is not the case - 100% liability remains• Are free standing advertising boards inside the

windows occupation?• Is advertising a charitable purpose?• Is it mainly used for a charitable purpose?

• Have some local authorities given relief?

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Section 44A• It is at the Local Authority’s discretion • The discretion is exercised when the Local

Authority applies for an RV apportionment• The VO must give it• The Authority must operate it• It must appear to the Authority that part is

unoccupied and will remain so for a short period • Non-domestic rates: Guidance on rate reliefs for

charities and other non-profit making organisations - updated June 2009

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Section 44A CLG Advice• 8.2.2 It is not intended that section 44A be used where

part of a property is temporarily not used or its use is temporarily reduced ….. Instead section 44A is aimed at situations, for example, where there are practical difficulties in occupying or vacating a property in one operation …. and it is phased over a number of weeks or months. In such cases it would be reasonable to reduce the liability on that part of the property which is unoccupied. Similarly, where a building or buildings on a manufacturing site become temporarily redundant it might be reasonable to take the unoccupied part of the property into account rather than levy full rates on the whole property.

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Section 44A CLG Advice• 8.2.4 ........So, for instance, where the rateable value of

the apportioned, unoccupied part of the property is below the relevant threshold no rates will be payable on that part until the end of the operative period (see further paragraph 8.2.7). It should be noted that the threshold has been increased from £2,200 to £15,000 for a one year period covering the 2009/10 business rates year …

• Threshold £18,000 for 2010/11• Automatically reverted to £2,600 in 2011/12

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Section 44A• Start and end Dates• Applies while the RV is unaltered• Period begins on:

- the day it became partly unoccupied

- the day after a previous apportionment ends• Period ends on:

- occupation of the unoccupied part

- 31st March

- requiring a further apportionment

- becoming completely unoccupied

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Section 44A• Further application is needed after 31st March• Further application if unoccupied area changes• Successive apportionments can be used for

phased occupation or phased vacation• Eligibility depends on RV of the empty part - NOT

the hereditament• If RV of empty part is below £2,600 relief can be

12 months to 31/3/2012

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Section 44A• A second apportionment ends the first one• The charge under the first apportionment is

purely an OCCUPIED rate charge• It is not wholly unoccupied during the first

apportionment• Therefore s44A relief applies for the second

apportionment on the basis that it would be exempt from empty rate charge for the first 3 or 6 months of that apportionment if wholly unoccupied

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Section 44A• Successive apportionments under section

44A generate successive periods of 3 or 6 months relief, whether they include some or all of a previous apportionment, or not

• Can be used for phased occupations or vacations

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Telephone Masts• Valued as “Communication Station (and

Premises)”• Valued on rent for site plus any plant and

machinery• VO will not TOR unless incapable of beneficial

occupation• Entry in the list does not prove occupation• Not the same as an advertising right where the

right is rated

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Telephone Masts• Kennett v British Telecom. 1983 (H. of Lords)• Exchange in occupation as soon as some

equipment moved in• LGFA 1988 s65(5) - can ignore plant and

machinery• If equipment switched off and disconnected it

can be ignored• No beneficial occupation - grant empty allowance

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Telephone Masts• SI 2008/386 - unoccupied property regs.• Relevant hereditament - building (or part) or

building (or part) plus land• Communication station is a structure not a

building - outside the definition of hereditaments subject to empty rate

• Similarly no empty rate on land including surface car parks and land used for storage