Rating – Non-domestic rates – Exemption – Rate mitigation scheme – Intermittent occupation – Second defendant occupying commercial premises to exclusion of first defendant leaseholder as part of rates avoidance scheme – Claimant billing authority seeking rates liability order – Whether intermittent occupation scheme effective to generate repetition of three-month exemption periods – Claim dismissed
The second defendant provided rate mitigation schemes for unoccupied properties to third parties. The first defendant was the leasehold proprietor of the 1st floor, 6th floor and part of the 4th and 5th floors of 2 America Square, London, EC3. It engaged the second defendant to reduce its liability for unoccupied property rates.
When the premises became vacant, the effect of section 45(1) of the Local Government Finance Act 1988 and regulation 3 and 4a of the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 was to confer an exemption from liability for three months. Under the scheme, after that period, the first defendant granted the second defendant a lease of the premises, and contemporaneously, a break notice was served terminating the lease six weeks thereafter; the second defendant then placed boxes and their contents in the premises for those six weeks. It claimed to be liable for occupied rates for that period.
When the lease ended, the boxes were removed. On the asserted basis that the placing of the boxes meant that the premises were “occupied” within regulation 5, the first defendant claimed a right to a further three-month exemption. The result was a 67% reduction in liability for unoccupied rates. The cycle was then repeated.
The claimant billing authority brought a claim to recover unpaid non-domestic rates totalling £111,475.30. The central issue was whether the intermittent occupation scheme was effective to generate repeating three-month exemption periods.
Held: The claim was dismissed.
(1) The parties agreed that the RMS here was materially the same as the one considered and found to be effective in R (Principled Offsite Logistics Ltd) v Trafford Council (POLL) [2018] EWHC 1687; [2018] PLSCS 125; [2018] RA 499. However, the claimant contended POLL was wrongly decided because the approach taken in that case was inconsistent with the purpose of the underlying rating legislation, and with the case law on tax avoidance schemes, which the Supreme Court had confirmed in Hurstwood Properties Ltd v Rossendale Borough Council [2021] EGLR 28 also applied to RMS. In any event, where the sole benefit of occupation was rates mitigation, the four ingredients of rateable occupation in John Laing v Kingswood [1948] 1 KB 344 were not satisfied; and those ingredients had to be present before considering whether the exemption was triggered.
In the context of rating legislation, the mischief with which the relevant statutory provisions were intended to deal was to stop the owners of premises leaving them unoccupied to suit their own convenience and to their own financial advantage and that was reflected in the exceptions from liability in the 2008 Regulations.
Although the decision in POLL had to be seen in the light of the subsequent decision in Hurstwood which brought to bear the Ramsay principles to rating schemes, the court should still guard against descending into any moral judgment or distorting of legislation, while having regard for the statutory purpose. But the statutory scheme here was much more nuanced than the claimant contended. Under the 2008 Regulations, it already provided a specific exemption which showed that the purpose went wider than merely incentivising, to supporting landlords with empty properties, potentially on an ongoing basis. At least to some extent, the statutory purpose encompassed competing considerations. It was not “obvious” that interim occupation schemes were automatically or even necessarily contrary to Parliament’s purpose.
(2) Regulation 5 of the 2008 Regulations was amended by the Non-Domestic Rating (Unoccupied Property) (England) (Amendment) Regulations 2024 so that, with effect from 1 April 2024, the requisite period of continuous occupation was extended to 13 weeks, thereby rendering RMS less attractive. But it explicitly maintaining the effectiveness of such schemes using minimal occupation, such as “occupation with a single box of files”. The consultation process, the analysis of the responses to it and the Explanatory Memorandum to the 2024 Regulations, showed that the secretary of state actively considered adopting an approach of the type advocated by the claimant, but rejected it on grounds of preserving coherence in the law.
The claimant’s reliance on the Ramsay principle and Hurstwood to defeat the RMS were not made out. They rested on an overly simplistic reading of the purpose of the empty rates regime which paid insufficient attention to the structure and content of the legislation itself, or to the consequences of the claimant’s approach for the wider integrity and operation of the rating system.
(3) In considering the Laing ingredients, possession of value to the possessor was present where the value was the occupancy itself. That provided the necessary “benefit” and “volition” to occupy. It did not matter that that was not realised until the next exemption period was triggered and it did not require some other purpose beyond that of occupation itself (leading to rates mitigation).
There was no support in the case law for introducing an additional distinct step in the process of considering whether the necessary occupation was present, beyond the Laing ingredients. That would be contrary to the need for coherence in the law and the following of precedent. It was an important part of the statutory purpose or its implementation, that the principles to be applied could be readily understood by billing authorities and ratepayers without needing to engage in a complex legal analysis or investigations.
(4) Opening up an enquiry into the value of occupation, where some occupation was productive and some was not, begged the question of the criteria to be applied. It was clear from Hurstwood, that the process of interpretation was not boundless, however much uncertainty it created. Here, it was the legislator who had decided to prioritise legal certainty, so the court did not have to make that judgment call. To go down the road suggested by the claimant would involve the court engaging in impermissible value judgments about intermittent occupation schemes, going beyond merely having an eye to the statutory purpose.
The court could only reach a different conclusion from that in POLL if it was convinced that judgment was wrong and/or there was a powerful reason to do so. However, the claimant had not come close to persuading the court to adopt that course.
David Forsdick KC and Kate Traynor (instructed by City of London) appeared for the claimant; Dan Kolinsky KC and Luke Wilcox (instructed by Mills and Reeve) appeared for the second defendant.
Eileen O’Grady, barrister
Click here to read a transcript of City of London Corporation v 48th Street Holding Ltd and another
