Numerous ingenious attempts to reduce or avoid unoccupied property rates

Transcription

1 Numerous ingenious attempts to reduce or avoid unoccupied property rates Over the last year there have been a number of cases all concerned with attempts to reduce or avoid unoccupied non-domestic property rates. It is no accident that in some the tax case of Furniss v Dawson has been mentioned. They all concern attempts by one side to use transactions to reduce the non-domestic rates burden and on the other efforts by the local authority to protect its revenue by defeating those transactions. This article considers those authorities after first setting out the parts of rating law relevant in this context. 1. Unoccupied property rates Until 1967 rates were only payable if a hereditament was occupied and the concept of occupation is an important influence on the whole of rating law. The occupier is the ratepayer pursuant to section 43 Local Government Finance Act 1988 Act. The General Rate Act 1967 introduced for the first time a liability for rates in relation to unoccupied properties albeit at a reduced rate of one half and with certain exemptions such as for charities. This has been continued under the Local Government Finance Act 1988 (section 45) although the amount of rates payable is different and varies between one half and the full rates liability dependent on a formula. The person entitled to possession of the hereditament is liable to pay non-domestic rates when it is unoccupied and is shown on the non-domestic rating list and is within a class prescribed by the Secretary of State. All relevant non-domestic hereditaments are prescribed for that purpose other than those described in reg. 4 of the Non-Domestic (Unoccupied Property) (England) Regulations 2008 ( 2008 Regulations ) (reg. 3). Amongst the hereditaments taken out of section 45 by regulation 4 are those with a rateable value less than 2, Zero-rating under section 45(A) there are two specific categories in which the rates applicable to an unoccupied hereditament are zero-rated. The first is if the ratepayer is a charity or trustees for a charity and that when next in use the hereditament will be wholly or mainly used for charitable purposes (whether of that charity or of that and other charities) (sub-section (2)(b)). This particular category has been material with regard to efforts to mitigate unoccupied property rates. The second category relating to sports clubs has not. 3. Rate free periods during the first three months that a hereditament is not occupied it is not prescribed for the purposes of section 45 (reg. 4(a)). This is extended to six months if it is a qualifying industrial hereditament (reg. 4(b)). This feature has been utilised with a view to saving rates. It has to be borne in mind that if periods in which a hereditament is unoccupied have been broken by a period of occupation then unless that period of occupation is for six weeks or more the hereditament will be treated as continuously unoccupied (reg. 5). In consequence successive rate free periods can be achieved by having them interrupted by an occupation period of six weeks or more. 4. Charity another feature of rating law which has been employed with a view to reducing unoccupied property rates is the relief given to charities. Originally there was no exemption for charities and so authorities dealt with them by way of ex gratia reductions. It was not until 1957 that relief was granted. To qualify two conditions need to be satisfied (section 43(6)). The first is that the ratepayer is a charity or trustees for a charity. The second is that the hereditament is wholly or

2 mainly used for charitable purposes (whether of that charity or of that and other charities). This means that the user must be directly related to the achievement of the objects of the charity and so will not, for example, cover charity shops (Oxfam v Birmingham City District Council [1976] AC 126). When available there is a mandatory reduction in the rates of 80% (section 43) and discretionary relief may be given under section 47 as regards the balance of 20%. 5. Hereditaments one of the points that has cropped up in these cases are queries as to whether the hereditament is correctly described in the rating list or whether it should be divided into more than one hereditament. What has been made clear with such queries is that this is not an issue which is appropriate for consideration by magistrates when dealing with applications for or relating to a liability notice. There is a jurisdiction by which an application can be made to the billing authority s valuation officer to alter the description or extent of a hereditament if it is considered to be incorrect in its current form (section 55 and the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009). Unless and until such an alteration is made the issues arising in the context of unoccupied property rates have to be decided by reference to the hereditament described on the rating list. 6. Occupation it goes without saying that what constitutes occupation is crucially important in this area. It is not appropriate to undertake a consideration of the concept in this article. The starting point would be the four essential ingredients adopted by the Court of appeal in John Laing and Son Ltd. v Kingswood Assessment Ares Assessment Committee [1949] 1 KB 344. However, it is an issue which arises in cases involving an attempt to use the 2008 Regulations to reduce a rates burden. As discussed above the rates free period applicable to qualifying industrial hereditaments for the first six months of non occupation can be enjoyed more than once (see section 3 above). This is an almost irresistible invitation to arrange periods of occupation to break up periods of non-occupation. An invitation that was not resisted in R (on the application of Makro Properties Limited) v Bedworth BC [2012] EWHC 2250 (Admin). In that case the lessee had occupied the warehouse for the purposes of a cash and carry business until it was cleared in June The lease was surrendered in December 2009 to the freeholder which was part of the same group of companies. Between 25 th November 2009 and 12 th January 2010 sixteen pallets of paperwork were stored occupying about 0.2% of the floor space. Between 12 th January 2010 and 23 rd July 2010 the premises were empty again and then 40 palletts of paperwork were delivered occupying roughly the same space as before. The battle was over whether rates were payable for the period from January to July An attempt to rely on Furniss v Dawson was rejected. The judge held that such occupation was not de minimis and could not be regarded as trifling. The placing of the palletts constituted actual occupation which was beneficial to the occupant and so effectively interrupted the separate periods of non-occupation for the purposes of avoiding a rates liability (see section 3 above). 7. Arrangements to reduce rates burden the recession has greatly increased the number of vacant premises particularly on the High Street. Unoccupied property rates has become a real concern and it is, therefore, not a surprise that attempts are made to avoid or mitigate it. As a result there has been an increase in the challenges to such arrangements from billing authorities. The amounts involved can be substantial. 2

3 For example in Kenya Aid Programme v Sheffield City Council [2013] EWHC 45 (Admin) for a six month period the rate bill for two units occupied by a charity was 863,756 and 750,810. Reliance has been placed on two features of the rating regime zero-rating for charities and successive rate free periods. One type of arrangement seeks to allow a charity into occupation often at a premium paid to the charity which is less than the unoccupied property rates the landlord would otherwise have to pay. Another seeks to break up the unoccupied periods into rate free periods by intervening periods of occupation. 7.1 Charities in order for arrangements involving charities to achieve the desired reduction in the rates bill a crucial issue is whether the premises have been wholly or mainly used for charitable purposes. This has been the battle field in a number of recent cases Kenya Aid Programme v Sheffield CC supra - the arrangement in this case was described as a match made in heaven by the District Judge. The lease at a peppercorn rent of two units meant that the landlord avoided unoccupied property rent whilst the charity received donations in excess of such rates liability as it would pay. The charity stored furniture to be shipped to Kenya. However, it did not need all the space leased and the volume of furniture shipped to Kenya was found to be small. The District Judge made liability orders for the amounts mentioned above on the basis that the space was not used efficiently and was not used for the purposes of the charity as to the whole or main part of the premises. This was seeking to apply the decision in English Speaking Union v Edinburgh City Council [2009] ScotCSOH 139 in which the charity exemption was not available when the charity only occupied one floor of an eight floor building. However, on appeal this was set aside. Treacy LJ accepted that in determining whether this condition has been satisfied it is a tenable approach to consider the evidence as a whole on a broad basis and not just look at the extent of the occupation. It is not just a question as to whether the whole or main part of the premises has been occupied by the charity. Neither the need for the space nor the efficient use of that space was material to the dispute. Further no weight was to be attached to the claimed motive of reducing the rates bill. The matter was remitted for a fresh hearing so that it was still possible that the charity would be liable for the full rates. Such arrangements are not, therefore, without a possible downside for the charity Public Safety Charitable Trust v Milton Keynes Council [2013] EWHC 1237 (Admin) the charity had taken on a number of leases of vacant premises in return for a reverse premium. The charity installed in the premises a broadcasting transmitter or transmitter which provided free wi-fi internet access and broadcast free Bluetooth messages on crime prevention and matters of public safety which constituted a charitable purpose. It operated automatically without the need for anyone to be in attendance. The battle was whether PSCT was entitled to the mandatory charitable relief and could apply for the discretionary relief (see section 4 above) which in turn raised the issue whether the rateable premises were being used wholly or mainly for charitable purposes. The extent of occupation was minimal in the Milton Keynes case a realistic estimate was 0.1 %. In one case before the 3

4 magistrates PCST succeeded and in two it failed. All three were appealed to Sales J. sitting in the Administrative Court of the QBD. Sales J. considered that it was not exclusively a question of the purpose of the use of the premises but also account needed to be taken of the extent of the use. He would have reached the same decision on construction as that of Treacy LJ in the Kenya Aid Programme case even if he did not have to follow that decision. He considered it reasonable to infer that in order to enjoy the charity exemption it should depend on the charity actually making extensive use of the premises for charitable purposes being a use of the building which is substantial and in real terms for the public benefit. In consequence he held that the Councils were successful in all three cases. In one case the hereditament had as a result of an application been divided into a main hereditament and a wi-fi hereditament but the District Judge had limited the wi-fi hereditament to one only of the thirteen transmitters. Sales J. held that there was no objection to having two hereditaments with no clear boundary between them or physical contiguity but that the description applied not just to one transmitter but to the whole wi-fi network installed at the premises. He, therefore, remitted that matter back to the magistrates. This opens up another route by which a Council can seek to reduce the effect of such a transaction between an owner and charity Preston City Council v Oyston Angel Charity [2012] EWHC 2005 in this case the charity had a licence which permitted use of the premises for charitable purposes only. It also allowed sub-licences but again only permitted use for charitable purposes. The premises were not occupied and the authority argued that the charity would only be occupied if it could prove that it would use the premises for charitable purposes when next occupied. This challenge was rejected and it was held that it is enough that the next use of the premises will be charitable whether or not the user is the current owning charity. Hickinbottom J. made clear at paragraph 36 that a potential charitable ratepayer may find it hard when entering into such a commercial scheme with the objective of securing zero-rating to prove that the next use will in fact be charitable or that it is not a Furness v Dawson sham. It will be interesting to discover what that means as in the circumstances under discussion it would seem to be a reference to a sham under the general law rather than the application of the Furness v Dawson principle of statutory construction. 7.2 Rate free periods as seen with the Makro Properties case occupation for rating purposes does not require extensive occupation or use of the premises for the normal purpose. This has been emphasised by Sunderland CC v Stirling Investment Properties [2013] EWHC 1413 which involved the use of the premises by a charity to transmit Bluetooth messages in a manner similar to considered by Sales J. in the Public Safety Charitable Trusts case above in section This was not with a view to obtaining the benefit of the charity exemption but in order to establish a period of occupation intervening between two periods of non-occupation with a few to each such period avoiding a rates liability. For these purposes it was held to be sufficient and an argument that the use had to accord with the description of the hereditament in the rating list (in this case warehousing) was rejected. Such a disconnection between the actual use and the description was a matter for the valuation officer and not the magistrates. It was material that in that case the charity had paid full rates whilst the 4

5 tenancy continued. The tenancy was for 43 days (i.e six weeks plus one day for the purposes of reg. 5 of the 2008 Regulations). This would not leave much time in which the authority could discover the facts and then apply for an alteration in the hereditaments. 8. Burden of proof the burden of proof will fall on a ratepayer to prove not liable. Merely producing a document headed lease by itself will probably not be sufficient (Pall Mall Investments v Camden LBC [2013] EWHC 459 (Admin). 9. Conclusions 9.1 Unoccupied property rates encourage arrangements to avoid them which are being met with strong challenges from the billing authorities. 9.2 The use of premises by a charity will not automatically result in the application of an exemption for charitable purposes so that any charity needs to be protected from the potential rates liability. 9.3 Challenges by authorities based on the use of the premises not constituting occupation will stand less chance of success so that arrangements seeking to achieve successive periods of rate free non-occupation will stand a greater chance of success. 9.4 The application of the Furniss v Dawson principle of statutory construction to such arrangements has yet to be explored. ChrisyopherCant