Everyone will have seen the plethora of empty shops throughout the City Centre and there could be more bad news on the way with HMV having recently entered into administration and lots of other retailers reporting a big downturn in shopper numbers and consumer spending. Mike Ashley (of Sports Direct and Newcastle FC fame) has predicted the death of the high street in the next few years.
One of the main reasons given for HMV’s administration was a huge business rates bill and other retailers are arguing that by having to pay large business rates bills they simply cannot compete with online retailers who do not have that cost.
So what are Business Rates? Business rates, officially known as national non-domestic rates, are typically payable by the persons entitled to possession of commercial premises, whether or not that person is in actual occupation (effectively Council Tax for businesses). However, if a landlord is not in occupation or entitled to possession (because they have let the premises) the liability falls on the occupational tenant.
With more and more pubs, shops and restaurants becoming empty (an increase of over 4,400 in the first 6 months of 2018 compared to the same period in 2017) more and more landlords are being faced with a double whammy of no income and a continued rates bill. Such landlords will have a short window of 3 months “empty rates relief” after a property has become vacant but full rates are payable thereafter.
This has led to landlords letting properties to charities for a reduced rental (charities have a reduced liability for business rates if certain conditions are met) but also letting properties to “professional occupiers” whose sole motive is to avoid or reduce business rates for a landlord.
A recent high court case considered the role of these professional occupiers. The way it works is the landlord lets the property to the occupier for a period of at least 6 weeks. The occupier assumes the rates liability for their period of occupation (although is not occupying for any real purpose) but then vacates leaving a further 3 months empty rates relief period available. The tenant receives a fee assessed by reference to the rates saved by the landlord.
The high court had to consider whether the motive to reduce the landlord’s business rates liability and absence of any true business purpose meant the ratings authority could ignore the professional occupier’s period of occupation and continue to charge the landlord in full. Fortunately for many landlords the high court decided not. A really helpful decision for landlords and perhaps a little chink of light in these otherwise tough times.