Business rate increases in April 2017 have had a huge impact on high street retailers. Business rates are a property tax based on rental values and are increased annually in line with the Retail Prices Index (a measure of inflation). The 2017 increase however was affected by a “revaluation” by the Government of the rateable value of business premises for the first time in seven years.

Although there are transition measures allowing for a phasing of the increase over five years it is estimated that around 40,000 small shops saw business rates rise above inflation and around 30,000 faced an increase of between 10% – 14.99%. Rates for some online retailers dropped during the same period, with the likes of Amazon paying just 0.7% more (Altrus Group).

It is not just retailers who have been hit by these increases. Business rates are payable by the person in occupation of a commercial property. Where a property is unoccupied the “owner” is liable to pay i.e. the Landlord. Although empty shops and offices are entitled to a 100% exemption to rates for three months by virtue of the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 the decline in the high street has left many Landlord’s facing large rates bills where properties remain unlet after the initial three month period.

Various business rates saving schemes have been set up to try and mitigate this liability, including the use of short-term lettings. If a property is re-occupied for at least six weeks following expiry of the initial three month rates free period, the owner of the Property can claim a further three month exemption once the Property becomes vacant again. Landlords have been quick to make use of this type of arrangement but the short term letting must be “genuine”.

The question of what was genuine was tested recently in the case of R (Principled Offsite Logistics Limited) v Trafford Council and others [2018] EWHC 1687 (Admin) (6 July 2018). In this case POLL occupied business premises with the main aim of minimising the Landlord’s business rates liability. POLL took a Lease at a peppercorn rent for short term storage and charged the Landlord a fee equal to 20% of the business rates it would otherwise have paid. Trafford Rating Authority argued that POLL’s occupation did not amount to beneficial occupation for an independent commercial purpose and was not therefore a genuine letting. The High Court disagreed however and held that POLL had a genuine Lease creating a proper relationship of Landlord and Tenant and that the occupancy itself was the necessary value or benefit to POLL in exchange for the reward of the fee.

It will be interesting to see the impact of this decision, given the potential savings that may be available and the loss of income for local councils. Owners of empty properties should however make sure that they take legal advice in relation to any such arrangement to ensure that a genuine short term letting is created. If you need further information, contact Julia Ferguson on 01628 470009 or Julia.ferguson@moorcrofts.com.