Is an occupier liable to pay business rates while it carries out essential work to enable it to use premises for the purposes of its business? The litigation in R3 Products Ltd v Salt [2014] UKUT 333 (LC; [2014] PLSCS 269 concerned premises that were let to a tenant that wanted to use them to convert mixed waste plastic, using plastic moulding techniques, to products for the construction industry.
After terms had been agreed, but before the lease had been completed, the tenant discovered that, although the property still had an electricity supply, the high voltage supply, which was essential for its business, had been cut off and that the high voltage cabling had been removed. The tenant renegotiated with the landlord and was given a rent-free period while it carried out the work that was necessary to restore the supply.
Business rates are usually payable, even if premises are vacant, unless they are incapable of “beneficial occupation”. Consequently, the tenant tried to have the property removed from the rating list for the period while it did the work on the ground that the premises were incapable of beneficial occupation. Alternatively, it argued that their rateable value should be reduced to a nominal value while the work was done.
The tribunal was satisfied, on the facts, that the property was capable of beneficial occupation from the very outset, even though this particular ratepayer had needed to carry out essential work to enable it to use the premises for its own particular requirements. Consequently, it would not be appropriate to delete the property from the rating list while the work was done.
Furthermore, the Local Government Finance Act 1988 includes a statutory hypothesis, for rating purposes, that hereditaments are in reasonable repair immediately before a tenancy begins (although the hypothesis excludes repairs that a reasonable landlord would consider uneconomic). The tribunal sympathised with the tenant, but ruled that the work that was required to restore the high voltage electricity supply to the premises constituted a “repair” and that a reasonable landlord would have considered it economic to do the work to let the property.
Consequently, the facts that the power supply had had to be reconnected and lighting had had to be replaced in order to comply with health and safety legislation must be ignored when assessing the rateable value of the premises.
The surge in rating cases following changes in the rules relating to empty properties shows no signs of abating. Meanwhile, prospective tenants would be well-advised to consider their liability for business rates when negotiating rents and rent-free periods on new leases.
Allyson Colby is a property law consultant
