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Business rates and beneficial occupation

12 December 2014

In the Autumn Statement, the Chancellor announced that a full review of the structure of business rates would be carried out, to report by Budget 2016. He also announced a cap on the inflation linked increase in business rates to 2% for an additional year from 1 April 2015. These announcements have been welcomed by the British Retail Consortium, since it is clear that the cost of business rates remains a major concern amongst retailers. With that in mind, a decision of the Upper Tribunal (Lands Chamber) from a few months ago will hardly allay those concerns.

Subject to any reliefs that may be available, business rates remain payable even though a property is vacant, unless the property is not capable of beneficial occupation. The case in question considered whether a property was capable of beneficial occupation. A tenant had taken a lease of a factory from June 2011 for its business of converting mixed-waste plastic to products for the construction industry. Just before completion, the tenant discovered that the factory was unfit for its use as the high voltage electricity supply that it needed to operate its business had been cut off. The tenant had to restore the high voltage supply and then carried out major refurbishment works. By January 2012, the tenant had completed the first phase of the works, namely the re-installation of cabling and the replacement of factory lighting to comply with health and safety legislation.

After the tenant received a business rates demand, it claimed that the property should be removed from the rating list for the period before January 2012 on the basis that the property could not be used for manufacturing without high voltage cabling and factory lighting. The Upper Tribunal, however, disagreed and found that the tenant had been in beneficial occupation since the grant of the lease, even though it could not use the property for its intended purpose. In fact, it could not have carried out its works without being in beneficial occupation. The Local Government Finance Act 1988 assumes, for rating purposes, that a property is in a state of reasonable repair (excluding any works that a reasonable landlord would consider uneconomic) and it would therefore be assumed at the valuation date that the lighting had been replaced and the power supply reconnected. The fact that the tenant could not operate its business without carrying out these works was not relevant.

This case illustrates that business rates may be payable even where a tenant is carrying out substantial refurbishment works and cannot use the property for its intended purpose until the works are complete. If the tenant has particular requirements which other potential occupants would not have, the property is still likely to be deemed to be capable of beneficial occupation.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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