Empty Rates Mitigation and Principled

On 15th May, a new ruling was made in the High Court which had major implications for business rates in the UK.

The case involved the City of London (COL) vs Principled Offsite Logistics. Had COL won, it could have had meant the end of not only Empty Rates Mitigation but the established idea of what constitutes rateable occupancy.

But what is Empty Rates Mitigation? When a property is vacant, it is generally liable for business rates only after an initial period of relief – usually three months, but six months for industrial properties. Empty Rates Mitigation is employed by some businesses to try and legitimately reduce paying business rates on properties that are sitting empty.

Since 2008, when changes to Empty Rates schemes took place, strategies for rates mitigation have been utilised by businesses throughout the UK. These forms of mitigation are crucial in helping to reduce the financial burden on businesses already impacted by ever increasing costs.

One form of Empty Rates Mitigation includes temporary occupancy, where the property is occupied for a short period of time to trigger a new period of empty rate relief. This is the method that Principled used on the building in question; 2 America Square.

Here, they leased floors to a third party, who stored files there for 13 weeks before vacating, giving them a new three-month void period. COL viewed this as rates avoidance, and billed Principled as if no occupation had taken place, to the tune of approximately £100,000.

COL had two main arguments based on their interpretation of the intention of rating law;

1. The Ramsay Principle should be followed when considering a rates avoidance scheme. *The “Ramsay Principle” is a concept used in some taxation disputes. In brief, it allows the court to declare an action is unlawful if the consequence is to subvert the intention of a law, rather than attempting to legislate for every possible loophole;

2. the use Principled put the property to did not constitute “beneficial occupation” – essentially, the leasing of the floors and the storing of the files happened purely to give the company a business rates exemption. COL believed that as the occupation was purely to avoid business rates, it was not valid and the property should be charged the standard business rates liability.

Fortunately for Principled, the High Court did not agree.

The Judge ruled that the intention of the Government regarding the validity of mitigation schemes had been made clear in their response to the large scale 2024 consultation and review of empty rates mitigation. The pros and cons of mitigation strategies in use were openly discussed and the Government had a wide range of options available to shut them down if they desired. They could have extended the occupied reset period by years, abolished it completely or even changed the definition of occupation to prevent mitigation of this type. They did none of these things. The government directly accepted that rate mitigation happens and simply tweaks the reset period.

Since COLs argument relied on establishing that rates mitigation was a direct subversion of the Governments intent, this comprehensively shut down their case.

Had Principled lost, it would have had wide ranging ramifications, something that the Judge acknowledged, stating that allowing COL to overturn established concept of occupation would cause significant uncertainty and confusion.

Whether the COL appeals this decision remains to be seen. There is no doubt that the Government is continuing to keep a close eye on rates mitigation, but for now, it can continue to be a legitimate part of a business’ strategy. At a time when businesses are under a huge amount of pressure to stay afloat with rising bills, valid ways to keep their business rates bills down are as important as ever.

Alex Izett, Partner, Business Rates and James Skelly, Commercial and Audit Lead, Business Rates.

If you need help with your current business rates strategy on empty rates, or anything else, then speak to our experts.