City of London fails in High Court challenge over business rates mitigation scheme involving placing of boxes on premises

The City of London Corporation has lost a High Court challenge to the lawfulness of a scheme designed to mitigate empty property rates by regularly filling a space with boxes.

Charles Bagot KC, sitting as a deputy High Court judge, ruled that the rate mitigation scheme operated by Principled Offsite Logistics for property owner 48th Street Holding was lawful despite the corporation claiming it had been deprived of £111,475.30 in business rates.

The judge noted that regulations impose liability for rates on the owner of unoccupied property after it has been vacant for three months.

This meant that if a property was occupied for more than six weeks, and then once more became unoccupied, it would not be classed as rateable unoccupied property for three months beginning on the date that it became unoccupied again.

Mr Bagot said: “An industry has developed around providing property owners with services to mitigate rates on vacant property by bringing those properties into temporary occupation, thereby triggering a further exemption period, free from rates liability.”

He said there had been disputes between companies such as Principled Offsite Logistics and various local authorities for 12 years creating a large body of case law.

The scheme in question operated by 48th Street Holding granting Principled Offsite Logistics, upon expiry of that three-month period, a lease of the premises, and a break notice is served terminating the lease six weeks thereafter.

Once the lease is granted Principled Offsite Logistics places boxes in the premises for those six weeks and claims to be liable for occupied rates for that period.

At the end of the six weeks, the boxes are removed and 48th Street Holding then claims a right to a further three-month exemption giving it a 67% reduction in liability for unoccupied rates, with Principled Offsite Logistics paid a share of this saving. The cycle then repeats.

Mr Bagot said it was common ground that the boxes were solely used to generate ‘occupation’ and served no commercial or business purpose save for rate mitigation,

He said the central issue in the case was whether the rate mitigation scheme operated by Principled Offsite Logistics was generating repeating three-month periods of exemption from empty rates.

This in turn depended on whether, on a purposive construction of the legislation, the placing of boxes and their contents in the premises for six weeks means that the premises are ‘occupied' within the meaning of regulation 5 the 2008 Regulations for that six-week period thus avoiding regulation 5 and triggering a fresh three-month period of exemption.

The Corporation argued the scheme was not within the ‘class of facts’ to which ‘occupied' in s.65(2) and regulation 5 is intended to apply is occupation, which is consistent with the statutory purposes.

It said the scheme was contrary to the statutory purposes as the ‘occupation’ is generated solely to avoid the liability which the legislation sought to impose and serves no business purpose.

Principled Offsite Logistics argued it was mistaken to refer to a liability for unoccupied rates until the four s.45(1) statutory preconditions under the Local Government Finance Act 1988 are met. If those are not satisfied then there is no avoidance, as there is no liability for rates.

Mr Bagot said the anti-avoidance rule was a general principle, but did not mean that every scheme which drives at avoidance should be struck down.

He said part of the Corporation’s case was that the purpose of the statutory scheme was to incentivise landlords to bring properties back into use, so anything that undermines that is undermining the statutory scheme.

“That is an overly binary approach to my mind,” he said. “The learning from Hurstwood…is that it is not generally to be expected that Parliament intended to exempt from tax a transaction which has no purpose other than tax avoidance.

“But this makes clear a general not absolute position, the first part of which also confirms that there is not a principle that a transaction otherwise effective to achieve a tax advantage should be treated as ineffective to do so if it is undertaken for the purpose of tax avoidance.”

He said the statutory scheme was “much more nuanced” than the Corporation contended.

The judge explained: “Under the 2008 Regulations, it already provided a specific exemption which showed that the purpose went wider than merely incentivising, to supporting landlords with empty properties, potentially on an ongoing basis.

“So, at least to some extent, the statutory purpose encompassed competing considerations or to put it another way, a balance of different considerations.”

He said this opened the door for schemes such as the one in question.

Mr Bagot said he agreed with Principled Office Logistics’ position and said the Corporation’s case rested on an “overly simplistic reading of the purpose of the empty rates regime which pays insufficient attention to the structure and content of the legislation itself, or to the consequences of [the Corporation]’s approach for the wider integrity and operation of the rating system”.

The Corporation also argued the ‘Laing Ingredients’ must be present before considering whether the exemption is triggered (John Laing & Son Ltd v Assessment Committee for Kingswood Assessment Area [1949] ) and they were not. It said that if the Laing Ingredients only exist because of the rating exemption, there is no rateable occupation.

Principled Office Logistics said the concept of ‘occupation’ is to be read consistent with and informed by “the existing font of knowledge on rateable occupation”.

Mr Bagot said the corporation had “not come close” to persuading him to reach a different conclusion from that in [R (POLL) v Trafford Council [2018] ] in which Kerr J concluded the Laing Ingredients were satisfied via a scheme materially the same as the one in question.

To follow the Corporation’s argument “would involve the Court engaging in impermissible value judgments about intermittent occupation schemes, going beyond merely having an eye to the statutory purpose”, he said.

Mr Bagot added the corporation’s approach “would also call into question the whole line of cases from [Makro Properties Ltd v. Nuneaton & Bedworth BC [2012] EWHC 2250 ] onwards, on the 2008 Regulations”.

Striking down the scheme without addressing wider questions, “would give rise to small factual differences generating undesirable uncertainty for those seeking to understand and apply the law day-to-day”.

Mark Smulian