Avoiding rates!

Author: Alison Mould

In the early 1990s recession we called a tenant “someone who paid the rates”. They clearly couldn’t afford the rent, but often met their rates liability. In the last few years rates, again, have become a key issue, particularly where premises become vacant following the termination of a lease via insolvency action or otherwise.

Liability for rates falls upon the person who is entitled to occupation. If a property is not let, then that is the owner. Landlords have, therefore, found themselves with substantial rates liabilities.

Of course a landlord is entitled to claim “empty rates”. For each period of non occupation a party can claim three month’ empty rates for shops and/or offices or a period of six months for industrial premises, after which a full rate liability is incurred. Often, the tenant has claimed this empty rate period having vacated the property before the end of its lease. A landlord in that situation is not entitled to a further rate free period of three months until such time as the premises have been reoccupied for a period of six weeks or more.

Various schemes or arrangements have been introduced by landlords to try to mitigate liability for rates.

One of the schemes that has been considered by the courts is “wi-fi lettings”. In these situations the landlord lets the property, frequently to a charity, which then installs a free wi-fi within the property concerned which broadcasts messages to passers-by advertising goods and/or crime prevention messages. The extent of the use of the premises is minimal. However, under the letting agreement the tenant is liable for the rates. The letting must be for a period of occupation lasting longer than six weeks so that more than one rent free period is created.

During the period of occupation by the tenant, the tenant is liable for the rates. However, if the tenant is a charity and is using the premises for charitable purposes, then it is only liable for 80% of the rates.

In a recent case the court considered such a letting and held that to take advantage of the charity exemption the charity must make extensive use of the premises which, by merely placing free wi-fi equipment within the premises, it did not. Consequently, whilst the letting was to a charity, the charity tenant was unable to make use of the charity exemption for rates liability during the short tenancy.

The second aim of this type of scheme is to ensure that, when the premises are returned to the landlord in seven or eight weeks’ time after the wi-fi letting has taken place, occupation by the wi-fi tenant is sufficient to justify a fresh rate free period to which the landlord is entitled.

This second issue has also been considered by the courts recently.

In the case before the courts, a property with an area of approximately 1,500 square metres was let to a tenant for 43 days at a nominal rent of £1. The tenant installed wi-fi and bluetooth equipment. The bluetooth box, cabling and aerials occupied a tiny, tiny part of the premises that had been rented.

At the end of the tenancy the landlord claimed a further six months’ (these were industrial premises) exemption for business rates. A local authority challenged a landlord’s entitlement to a further rate free period on the basis that the wi-fi letting was so minimal it did not qualify as a rateable occupation.

The court found in favour of the landlord. It said that to qualify for a further rate free period there were three tests. These were:

  1. the occupation must be actual;
  2. the occupation must be beneficial to the occupant;
  3. the occupation must be exclusive.

One anticipates that further cases will come before the court in due course. However, and at least for the moment, wi-fi lettings would appear to be a satisfactory route to securing further rate free periods for a landlord.

Alison Mould, Partner, Fladgate LLP (amould@fladgate.com)

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