Anyone in possession of a non-domestic property whether occupied or vacant will be liable for payment of business rates. 

Fortunately there are mechanisms in place to offer temporary relief from this liability in circumstances where the property has been empty for a period of time. In the case of industrial and warehouse properties, 100% relief from business rates is available on vacant properties up to a continuous period of 6 months. Any short term lettings of 6 weeks or less during this time will not be subject to business rates. For retail property including shops and offices the period of exemption is restricted to 3 months.

For an empty property to be considered rateable case law has established that it must be capable of beneficial occupation. Conversely if a commercial property is incapable of beneficial occupation it will be removed from the rating list and no rates will be payable. 

R3 Products Ltd v Salt (VAO) [2014]

However, the issue of beneficial occupation of a tenant intending to carry out substantial refurbishment works was recently considered by the Upper Tribunal (Land Chamber) in the appeal case of R3 Products Ltd v Salt (VAO) [2014]. The tenant, R3 Products Ltd, had completed on a 10 year lease of a factory in June 2011. Shortly before completion the tenant was made aware that the high voltage electricity supply at the property had been cut off and cabling removed. The tenant had a specific requirement for high voltage electricity in order to operate its manufacturing business which was an influencing factor in the choice of factory. At this late stage in negotiations it was untenable for completion not to proceed and the landlord agreed to a 3-month rent-free period.

Immediately following completion the tenant embarked on the first phase of major refurbishment works to initially restore the desired high voltage electricity supply and thereafter to reinstall cabling and replace the factory lighting to make it compliant with health and safety legislation. When presented with a rates demand the tenant argued that the property should have been removed from the rating list during the first phase of the works as they could not use the property for the purpose in which it was leased without the high voltage electricity.

The Tribunal dismissed the appeal finding that the property was capable of beneficial occupation. When considering the facts presented, the Tribunal found that the property was ready for occupation and could be used by other potential occupants before refurbishment works were commenced by the tenant which was only required to meet their particular needs. On this basis the tenant was found to be in beneficial occupation of the property for the purpose of conducting works to make it suitable for their specific use from the time of completion of the lease.

Prospective tenants should therefore be mindful when viewing potential properties requiring refurbishment works specific to their needs as they may be caught by business rates liability even if the property is unusable by them.

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