Businesses are continually evolving. At different stages in the corporate cycle businesses will be growing aggressively, consolidating operations or refocusing to address their changing commercial realities. The changes invariably involve acquisition, disposal, refitting or re-stacking property holdings. These changes have an impact on business rates liability and savings will be achievable on either a permanent or temporary basis.
Savings will be achievable through the appeals process and/or through the careful management of the exemptions process.
Business rates are a tax on the occupation of property. Where property is not occupied, either in part or in its entirety, exemptions are available to reduce the business rates liability.
Empty Property Rates
With effect from 1 April 2008 the rules for allowing business rate relief on vacant premises in England and Wales changed to a far more aggressive regime. Whilst landlords ultimately pass on their additional costs to occupiers and growing business will invest only if they can justify the additional costs, there has been a great deal of debate about the fairness of a system that seeks to levy additional taxes on struggling or restructuring businesses.
The rules are complex, but if you have accommodation that is either entirely empty or partially empty there may well be an opportunity to claim exemptions from business rates to lower the liability.
The legislation as drafted has left open a number of loopholes that can be exploited. Case law relating to how these rules should be applied is constantly evolving.
To qualify for the initial 100% relief period, occupied rates must be paid for a period of six weeks or more. If it is possible to prove an appropriate occupation for, say, two months, a new 3 or 6 month rate free period may be obtained. This can potentially be repeated cyclically. Consequently, with careful management a 100% liability to empty rates can be reduced over the course of a year to between a 25% and 40% liability depending on the circumstances and type of property involved.
Where an assessment on which occupied rates is being paid can be merged with an assessment on which empty rates is being paid, Counsel’s opinion indicates the initial 3 or 6 month exemption should be re-triggered. Similarly, paying occupied rates on a partially occupied property can be attractive where such an occupation would then trigger a full 100% exemption on the whole assessment upon vacation.
Legislation has not been introduced to defeat ‘constructive vandalism’ schemes. This route is therefore still open, although the criteria to determine what can legitimately be removed from the Rate List has become subject to greater scrutiny. The need to prove that an identifiable hereditament no longer exists is becoming ever more important.
The completion of new developments should be managed to avoid bringing the property to a condition which can be assessed to business rates prior to letting. Essentially the building needs to be left in a condition where it can be argued that it is not yet capable of beneficial occupation.
Local Authorities will attempt to defeat this course of action by serving Completion Notices. If the Local Authority serves a Completion Notice, it will need to be challenged within 28 days of service. We have had a great deal of success with appeals that successfully frustrate the service of Completion Notices.
The avoidance routes discussed above need careful management and will not apply in all circumstances. The government has committed to review whether avoidance activity is taking place and to introduce further legislation if they perceive avoidance activity is significant. Therefore these options may only be available for a limited period.