GovWire

1. Background

Since 1601 Rating has been a tax on the occupation of land including buildings. In 1966 an additional rate was created providing for rates to be payable by owners on some vacant properties. Owner and the class of property to which unoccupied rates apply are defined in the Local Government Finance Act 1988 and subsequent Regulations. This has been extended and modified, with the Rating (Empty Properties) Act 2007 being the latest change to empty rate legislation. This Act came into effect on 1 April 2008 and made changes to the empty rate provisions including increasing the unoccupied rate liability for many classes of property.

1.01 Legislation

The Local Government Finance Act 1988 makes provisions in sections 45 and 46 for the rating of unoccupied hereditaments. It defines who is liable to pay rates if a property is vacant and that the unoccupied liability only applies to those hereditaments prescribed by Regulations.

The Non-domestic rating (Unoccupied Property) Regulations 2008 SI 386 defines the classes of hereditament liable for unoccupied property rates.

The Rating (Empty Properties) Act 2007 removes the 50% empty property relief from 1 Aril 2008.

1.02 Unoccupied hereditaments: liability

Owners of hereditaments will be liable for unoccupied rates if all the conditions in the LGFA 1988 s45(1) are met. These are;

1. on the day none of the hereditament is occupied

2. on the day the ratepayer is the owner of the whole hereditament

3. the hereditament is shown for the day in a local non-domestic rating list in force for the year, and

4. on the day the hereditament falls within a class prescribed by the Secretary of State by regulations

Therefore no part of a hereditament must be occupied, the hereditament must be in the local list and be one of the classes prescribed by Regulations.

Owner of the hereditament is defined in section 65(1) as the person entitled to possession of it.

1.03 Relevant non-domestic hereditament

The class prescribed in s45(1) are all relevant non-domestic hereditaments. Relevant non-domestic hereditaments are defined in Reg 2 Non-domestic rating (Unoccupied Property) Regulations 2008, SI 2008 No. 386. They are any non-domestic hereditament consisting of, or part of, any building, together with any land ordinarily used or intended for use for the purposes of the building or part.

The first part of the test is that the hereditament must consist of buildings. As the definition relates to buildings or buildings with land then hereditaments that do not primarily consist of buildings cannot be relevant non-domestic hereditaments under these regulations and will not be liable to the unoccupied rate.

Having defined the class of hereditaments prescribed as being liable to empty property rates Reg 4 of SI 2008 No 386 sets out a list of hereditaments that do not fall within the prescription and are therefore not subject to unoccupied rate.

1.04 Property liable for unoccupied rates

Reg 4 of SI 2008 No. 386 lists hereditaments not prescribed for the empty property rate. These are, in effect, exempt from the empty property rate. They are any hereditament:

(a) which has been unoccupied for a continuous period not exceeding three months

Properties vacant for up to three months (or 6 months in the case of defined industrial property including warehouses see below) are not subject to empty property rates for that period. The unoccupied rate is not applied until three months has elapsed since the property became vacant.

Reg 5 covers the possibility that an owner might seek to gain additional three month void periods by quickly re-occupying and then vacating. Any occupation of less than six weeks duration is ignored when determining whether a property has been continuously unoccupied for three months. Therefore successive three months periods cannot be claimed after short periods of occupation.

Where a hereditament has been unoccupied for a period of three months is divided (for example if part is let) into two or more hereditaments, the unoccupied liability is payable on the vacant parts from the date of division without any further three months of non-liability (see Brent London Borough Council v Ladbroke Rentals Ltd 1981 CA RA 153).

A hereditament which has not previously been occupied shall be treated as becoming unoccupied on the day determined under Schedule 4A to LGFA 1988 (completion notice procedure), or where this does not apply, on the day for which the hereditament is first shown in the local rating list.

Changes of ownership do not trigger a fresh three months exemption from unoccupied rates.

(b) which is a qualifying industrial hereditament that has been unoccupied for a continuous period not exceeding six months

qualifying industrial hereditament means any hereditament other than a retail hereditament in relation to which all the buildings comprised in the hereditament are-

(a) constructed or adapted for use in the course of a trade or business; and

(b) constructed or adapted for use for one or more of the following purposes, or one or more such purpose and one or more purposes ancillary thereto:-

i. the manufacture, repair or adaptation of goods or materials, or the subjection of goods or materials to any process

ii. storage (including the storage or handling of goods in the course of their distribution)

iii. the working or processing of minerals

iv. the generation of electricity

Retail hereditament any hereditament where any building or part of building comprised in the hereditament is constructed or adapted for the purpose of the retail provision of-

(a) goods, or

(b) services, other than storage for distribution services, where the services are to be provided on or from the hereditament;

Up until 1 April 2008 empty property rates were not chargeable on qualifying industrial buildings at all. Since that date they have been brought within the ambit of the empty property rate but are given an extra three months void period compared to other properties ie they have a six months period.

The test of what is a qualifying industrial hereditament has two limbs;

• the property must be used for trade or business
• it must be constructed or adapted for one of the mentioned purposes

For example an animal breeding station owned by a pharmaceutical company may have fallen under the first limb (used for trade or business). It does not fall under the second limb, as it was not one of the mentioned uses.

It is a matter for the Billing Authority whether a property is a qualifying industrial hereditament and the description in the local rating list is not conclusive of this.

For example a garage and premises comprising car showroom, repair shop, stores etc. is not an industrial hereditament. It is constructed for the purposes of enabling the occupier to supply goods and services directly to the public. This is a commercial use similar to that of a shop not a factory (see Post Office v Oxford City Council 1980 CA RA 129).

Owners of vacant property may wish to avoid liability by bringing their hereditament under the classification of relevant industrial hereditament. To this end they may wish to have the description of their property in the List amended. The List description is a means of identifying the hereditament and must be accurate. It should not be altered without good reason simply so a ratepayer can use it to persuade the Billing Authority that the property is a qualifying industrial hereditament. Unless the description is incorrect, it should not be altered unless some overt act of occupation or physical alteration to the building or change of planning permission has taken place, which would indicate that the description was no longer appropriate. The regulations do not mention the actual use of the hereditament, the description or analysis codes. The test is solely concerned with the construction or adaption for use of the building. The description in the Rating List is not conclusive and not binding on the Billing Authority.

(c) whose owner is prohibited by law from occupying it or allowing it to be occupied

For example under London Building Acts (Amendment) Act 1939 a building was required to have a means of escape in case of fire. As the property does not have a fire escape no unoccupied rates were liable as the occupation of the property was prohibited by law (Tower Hamlets v St Katherine by the Tower 1982 QBD RA 261).

(d) which is kept vacant by reason of action taken by or on behalf of the Crown or any local or public authority with a view to prohibiting the occupation of the hereditament or to acquiring it

Note that a planning restriction does not necessarily prevent occupation. For example in Westminster City Council v Hailbury Investments Ltd (1985 CA RA 1) planning restrictions prevented the use for office purposes of four empty hereditaments described in the list as offices. The hereditaments were not exempt from unoccupied rates since occupation was not prevented only limited by planning restriction.

(e) which is the subject of a building preservation notice within the meaning of the Planning (Listed Buildings and Conservation Areas) Act 1990 or is included in a list compile