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Empty Rate presented by Gordon Heath BSc IRRV(Hons) for

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1 Empty Rate presented by Gordon Heath BSc IRRV(Hons) for
IRRV West Midlands Association July 2011 © Gordon Heath Ltd Gordon Heath Ltd 1 1

2 Empty Rate - History City of London Sewers Act half the general rate, not the poor rate, hence about 10%, no free periods, City only. Local Government Act discretionary 50%, 3 months free period, exemptions discretionary 100% plus rating surcharge surcharge abolished industrial exemption, 50% limit compulsory 50%, exemptions compulsory 100%, exemptions changed Gordon Heath Ltd 2

3 Meanwhile Project Set up in 2009 by last Government
Led by Development Trusts Association SQW Consulting - business case Meanwhile uses of otherwise empty buildings for socially beneficial purposes DCLG guidance on suitable sub-leases Gordon Heath Ltd 3

4 Empty Rate Avoidance and Evasion
A person is entitled to arrange their affairs so that their tax liability is minimised - tax avoidance - IRC V Duke of Westminster 1936 (H. of Lords) Tax the effect of the transactions - Ramsay Ltd v IRC 1982 (House of Lords) Tax avoidance is perfectly legal Tax evasion is a deliberate attempt to evade payment of a tax which is legally due Tax evasion is illegal Gordon Heath Ltd 4

5 Empty Rate Avoidance The following are legal tax avoidance:
Demolishing or soft striping a building Delaying new starts Not completing beyond shell and core Occupation for six weeks - repeatedly Section 44A relief for phased occupations and phased vacations Gordon Heath Ltd 5

6 Empty Rate Avoidance The following are legal tax avoidance:
Exempt because the building is listed or occupation is prohibited Letting to a charity that actually occupies for a charitable purpose Use for bluetooth broadcasting Granting a lease to anyone else Letting to a company that goes into liquidation? Gordon Heath Ltd 6

7 Empty Rate Evasion The following is potentially evasion:
Letting to a charity which has no intention of occupying for a charitable purpose - Charity could be liable for 100% charge Claiming bluetooth broadcasting is charitable Claiming 6 weeks occupation, without entering into beneficial occupation Claiming posters on shop window are occupation by a charity Gordon Heath Ltd 7

8 6 weeks Occupation There is nothing in the regulations that prevents a ratepayer from repeatedly occupying for 6 week periods to claim repeated empty periods Occupation means beneficial, actual, exclusive and not too transient occupation Empty boxes are unlikely to be beneficial Are a few boxes of company records or goods in an enormous hereditament is beneficial occupation? Gordon Heath Ltd 8

9 6 weeks Occupation There is no “de minimis” rule in the legislation
Wirral BC v Lane 1979 “the magistrates …….. decided to apply the maxim de minimis non curat lex to these valuable chattels.” “I am not prepared to hold as a matter of law that the magistrates were not entitled thus to relegate these objects to a lowly grade of value or importance” Gordon Heath Ltd 9

10 6 weeks Occupation Sheffield City Council v Metis Apartments Limited Magistrates’ Court Not a legal precedent 13/8/09 - moved boxes of files from head office and storage to 3 empty properties 8 or 9 boxes in each property 2/10/09 - moved back to head office Gordon Heath Ltd 10

11 6 weeks Occupation 12/2/10 - moved boxes back in
20 to 27 boxes in each property 27/4/10 - moved back to head office Council informed at every stage Claimed benefit - reducing storage costs, enabling access, freeing up office space Gordon Heath Ltd 11

12 6 weeks Occupation The District Judge said “I am of the view that in all the circumstances of this case, there has not been rateable occupation for the relevant periods when the boxes were placed at the three properties. There was no actual occupation. The use of the properties in the way described and photographed was so minimal. It is beyond slight in the sense that it is de minimis. Gordon Heath Ltd 12

13 6 weeks Occupation Beyond placing the boxes of files at the three properties, there is little evidence of the use to which they were put, or of the frequency of access or reference to them. They are boxes containing archived files. It occupied a very small percentage of the available floor areas.” Liability order granted Gordon Heath Ltd 13

14 6 weeks Occupation Nuneaton and Bedworth BC v Makro Properties Ltd and Makro Self Service Wholesalers Ltd Magistrates’ Court Not a legal precedent Former Cash and Carry used for temporary storage Liability order granted May be appealed Gordon Heath Ltd 14

15 6 weeks Occupation Ratepayers should tell the billing authority when they occupy for 6 weeks to enable inspection and makes sure it is occupied - then tell the authority when it is vacated Under LGFA 1988 s65(5) plant, machinery and equipment that was used or is intended for use should be ignored Includes shop fittings, counters and shelves Could include desks and chairs More than “de minimis” Gordon Heath Ltd 15

16 6 weeks Occupation Occupation by empty boxes - not occupied
Occupation by a few boxes of files - might be occupied, despite Sheffield Occupied by tents - where is the benefit? Gordon Heath Ltd 16

17 6 weeks Occupation Occupation by a small electronic box broadcasting messages on blue tooth Occupied - appears to be beneficial, actual and exclusive Could the VO value it as a communication station? - 6 weeks is probably too transient Is the occupation “de minimis” - probably not if the ratepayer is obtaining benefit by broadcasting Gordon Heath Ltd 17

18 Occupation Prohibited
Occupation Prohibited By Law where an empty property contains asbestos ? Asbestos surveys sent with the requests detailing varying levels and types of asbestos Just because an empty property has asbestos in it this does not mean it can’t be occupied Gordon Heath Ltd 18

19 Occupation Prohibited
Not an issue when occupied but when empty it may be difficult to refurbish for a new tenant Regent Lion Properties Ltd v Westminster City Council Notice under Health and Safety at Work Act refurbishment must cease until asbestos removed Gordon Heath Ltd 19

20 Letting to a Charity Letting to a charity only works if they occupy or intend to occupy it for charitable purposes of THAT charity (or that charity and others) If there is no intention for the charity to use it for a charitable purpose, the charity will be liable for 100% charge If it is occupied, it must be wholly or mainly used for charitable purposes All of the hereditament - not just all of the use made? Gordon Heath Ltd 20

21 Letting to a Charity English Speaking Union Scottish Branches Educational Fund v City of Edinburgh Council 2009 Judicial review of refusal of mandatory relief Tenants of whole building - 8 floors Only used the ground floor Ratepayer - wholly used for charitable purposes Council - only partially used To qualify, it must be wholly or mainly used for charitable purposes Council’s argument is consistent with the ordinary meaning of the language used in the legislation Gordon Heath Ltd 21

22 Letting to a Charity Letting to a charity that occupies with a bluetooth box broadcasting charitable messages Occupation of all or part is sufficient to establish occupation Everyone knows the 4 elements of occupation in the John Laing case - that’s not the point Charitable relief ONLY applies where it is wholly or mainly used by that or that and other charities Gordon Heath Ltd 22

23 Letting to a Charity Could it be valued as a communication station ?
9 months would not be too transient RV about £100 ? - or “de minimis” value ? However it must be a separate occupation - not occupied by the same ratepayer as the main hereditament and for the same purpose Moving the box around might frustrate this Gordon Heath Ltd 23

24 Letting to a Company in Liquidation
Just one of many examples: 5/8/ Company is formed 1/9/ Company takes 15 leases on empty property in two Boroughs 1/9/ Declaration of solvency 1/9/ Members voluntary liquidation later on the same day - Liquidator appointed Liability falls on leaseholder in liquidation - exempt from empty rate Gordon Heath Ltd 24

25 Letting to a Company in Liquidation
The are only peppercorn rents and no rate liability - company remains solvent No creditors to turn the voluntary liquidation into a compulsory liquidation No pressure to disclaim the leases No pressure to complete winding up Gordon Heath Ltd 25

26 Letting to a Company in Liquidation
Company wound up 3 months after notice from liquidator to Registrar at Companies House Remaining leases revert to the Crown as “bona vacantia” - vacant goods Treasury Solicitor Bona Vacantia Division Crown accepts no liability - landlord not entitled to possession and therefore not liable No one is liable Within a year the Crown will disclaim the leases and the landlord will become liable from then Gordon Heath Ltd 26

27 Instant Rate Saver Plan
As advertised by articles in “Property Week” Environmental charity - Healthy Planet Healthy Planet sign a short term lease with a retail landlord to install posters advertising its work in shop windows in return for a donation of RV x 25p Landlords benefit by avoiding empty rate Charity said the initiative “would help landlords to cut their empty rates bills, improve the look of empty shops, and help the charity” Gordon Heath Ltd 27

28 Instant Rate Saver Plan
May improve the look of vacant shops CLG has given money to some authorities to use vacant shops Could ask VO to split assessment between shop and advertising right, BUT- It is only a separate hereditament if there is a separate lease for the advertising right Is the charity in beneficial occupation by virtue of the posters in the window? - not in my opinion Gordon Heath Ltd 28

29 Instant Rate Saver Plan
Charity exemption from empty rate only applies if it appears that when next in use it will be used by that charity or that charity and others for charitable purposes If it is not the case - 100% liability remains Are free standing advertising boards inside the windows occupation? Is advertising a charitable purpose? Is it mainly used for a charitable purpose? Have some local authorities given relief? Gordon Heath Ltd 29

30 Section 44A It is at the Local Authority’s discretion
The discretion is exercised when the Local Authority applies for an RV apportionment The VO must give it The Authority must operate it It must appear to the Authority that part is unoccupied and will remain so for a short period Non-domestic rates: Guidance on rate reliefs for charities and other non-profit making organisations - updated June 2009 Gordon Heath Ltd 30

31 Section 44A CLG Advice It is not intended that section 44A be used where part of a property is temporarily not used or its use is temporarily reduced ….. Instead section 44A is aimed at situations, for example, where there are practical difficulties in occupying or vacating a property in one operation …. and it is phased over a number of weeks or months. In such cases it would be reasonable to reduce the liability on that part of the property which is unoccupied. Similarly, where a building or buildings on a manufacturing site become temporarily redundant it might be reasonable to take the unoccupied part of the property into account rather than levy full rates on the whole property. Gordon Heath Ltd 31

32 Section 44A CLG Advice So, for instance, where the rateable value of the apportioned, unoccupied part of the property is below the relevant threshold no rates will be payable on that part until the end of the operative period (see further paragraph 8.2.7). It should be noted that the threshold has been increased from £2,200 to £15,000 for a one year period covering the 2009/10 business rates year … Threshold £18,000 for 2010/11 Automatically reverted to £2,600 in 2011/12 Gordon Heath Ltd 32

33 Section 44A Start and end Dates Applies while the RV is unaltered
Period begins on: - the day it became partly unoccupied - the day after a previous apportionment ends Period ends on: - occupation of the unoccupied part - 31st March - requiring a further apportionment - becoming completely unoccupied Gordon Heath Ltd 33

34 Section 44A Further application is needed after 31st March
Further application if unoccupied area changes Successive apportionments can be used for phased occupation or phased vacation Eligibility depends on RV of the empty part - NOT the hereditament If RV of empty part is below £2,600 relief can be 12 months to 31/3/2012 Gordon Heath Ltd 34

35 Section 44A A second apportionment ends the first one
The charge under the first apportionment is purely an OCCUPIED rate charge It is not wholly unoccupied during the first apportionment Therefore s44A relief applies for the second apportionment on the basis that it would be exempt from empty rate charge for the first 3 or 6 months of that apportionment if wholly unoccupied Gordon Heath Ltd 35

36 Section 44A Successive apportionments under section 44A generate successive periods of 3 or 6 months relief, whether they include some or all of a previous apportionment, or not Can be used for phased occupations or vacations Gordon Heath Ltd 36

37 Telephone Masts Valued as “Communication Station (and Premises)”
Valued on rent for site plus any plant and machinery VO will not TOR unless incapable of beneficial occupation Entry in the list does not prove occupation Not the same as an advertising right where the right is rated Gordon Heath Ltd 37

38 Telephone Masts Kennett v British Telecom. 1983 (H. of Lords)
Exchange in occupation as soon as some equipment moved in LGFA 1988 s65(5) - can ignore plant and machinery If equipment switched off and disconnected it can be ignored No beneficial occupation - grant empty allowance Gordon Heath Ltd 38

39 Telephone Masts SI 2008/386 - unoccupied property regs.
Relevant hereditament - building (or part) or building (or part) plus land Communication station is a structure not a building - outside the definition of hereditaments subject to empty rate Similarly no empty rate on land including surface car parks and land used for storage Gordon Heath Ltd 39

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