Viewpoint - 19/11/2012

Courts find in favour of legitimate avoidance

The Empty Property Rates (EPR) debacle rumbles on, but two court rulings in recent months have left councils with little room for manoeuvre and will hopefully bring about the rapid demise of this unfair and destructive tax.

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The tax, which levies full business rates upon the owners of unlet commercial property, has hammered owners already reeling from the effect of the recession on lettings and occupancy rates. However, there is light at the end of the tunnel.

When is a property occupied?

In July, a decision in the High Court to uphold an appeal against a lower court ruling on EPR avoidance effectively sounded the death knell for EPR as a tax raising mechanism. In the landmark case Makro Properties Ltd vs. Nuneaton and Bedworth Borough Council, the High Court found that even though just 0.2% of the floor space of a warehouse was being occupied by a pallet of business documentation, the property was deemed to be occupied. The court decided that, upon the timely removal of those documents from the premises, a new period of EPR relief ought to commence. The decision saved the business £117,000 in business rates.

In an entirely unrelated case, the rules surrounding empty property legislation were again brought into question when the Vale of Glamorgan council sought to levy rates on a property owner who had stored documents in an empty building while seeking to attract tenants. Upon the timely removal of those stored documents, the owner claimed EPR relief. The council rejected the claim on the basis that the property was “awaiting something to store” and was therefore occupied. However, the court rejected the council’s claim and found in favour of the owner.

Clear intent is crucial

There are a number of points to consider:

De minimis – the principle that a minimum threshold of occupation must be met in order to qualify for EPR relief appears to have been undermined to the point of irrelevance.

Evidence – the owners ensured that their occupation
was specific and that the timings of occupancy had been well documented.

Clear intent – the intent of the owners to occupy the property within the strict requirements of the Rating (Empty Property) Act 2007, in order to legally minimise their tax bill, was absolutely clear and apparent.

Toothless anti-avoidance legislation

It is important to note that such test cases involve highly technical legal debate on business rates legislation and each case is considered upon its individual merits. The floodgates are far from open. However, in the face of a senior appeals court judgment, the government’s EPR anti-avoidance legislation appears toothless. At last, the genie is out of the bottle.

This article is part of the autumn 2012 issue of Rating in Brief. You can download a PDF.


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