The Upper Tribunal (Lands Chamber) has considered whether a factory was capable of beneficial occupation whilst substantial refurbishment works were being carried out
The Upper Tribunal (Lands Chamber) has considered whether a factory was capable of beneficial occupation whilst substantial refurbishment works were being carried out. The tenant needed to reinstall a high voltage electricity supply and factory lighting before it could start its manufacturing business. The tr
ibunal found that the tenant was in beneficial occupation whilst the works took place and there was no ground for removing the property from the rating list. (R3 Products Ltd v Salt [2014] UKUT 0333 (LC)
Background
Business rates are payable for vacant properties as well as occupied properties, subject to exceptions (section 45(1)(d), Local Government Finance Act 1988) (1988 Act).
However, case law has established that the property must be capable of beneficial occupation. If a property is incapable of beneficial occupation, it will be removed from the rating list altogether and no rates will be payable.
If only part of the property is incapable of beneficial occupation, the Valuation Office Agency (VOA) will reduce the rateable value of the property for the period during which that part cannot be used.
Facts
R3 operated a business which consumed a lot of electricity, converting mixed-waste plastic to products for the construction industry. R3 negotiated to take a lease of a factory for 10 years. Just before completion, it was discovered that the high voltage electricity supply had been cut off and cabling removed (although there was still a basic supply), so the landlord granted R3 a rent-free period. R3 restored the high voltage electricity supply and carried out major refurbishment over three phases, including the reinstallation of cabling and replacement of factory lighting.
R3 received a business rates demand covering the period of the works. It appealed to the VOA on the basis that the property was undergoing major refurbishment and it was impossible to use it for manufacturing without high voltage cabling and factory lighting. The VOA refused to alter the list.
R3 claimed that the property should be removed from the rating list during phase 1 of the works (or the rateable value reduced to a nominal amount) and then the property should be reintroduced to the list on a phased basis.
The Valuation Tribunal for England (VTE) dismissed R3’s claim and found that the property was capable of beneficial occupation. Although it was not suitable for R3’s occupation without the high voltage cabling, it could be used by a different non-specialist occupier. R3 appealed.
Decision
The appeal was dismissed.
The test was when the building was ready for occupation as a building, even if it could not actually be used for its intended purpose until after necessary equipment had been installed. Applying that test, the property was ready for occupation even before phase 1 of the works commenced as the works were to suit R3’s particular requirements. On the facts, R3 was in beneficial occupation of the property from the time of completion of the lease for the purpose of undertaking refurbishment to make it suitable for R3’s particular use.
Although it was open to R3 to submit in the alternative that the rateable value should be reduced to a nominal amount, on the facts there was no merit in the claim.
There was no legal basis in the legislation for a property to be reintroduced to the rating list on a phased basis. However, the business rates liability could be limited to the area of the property that was usable during phases 2 and 3 by the billing authority exercising its discretion to grant relief under section 44A of the 1988 Act.
This decision illustrates that business rates may be payable even where an intended occupant is carrying out substantial refurbishment works and cannot use the property for its intended purpose until the works are complete. If the intended occupant has particular requirements which other potential occupants would not have, the property may still be deemed to be capable of beneficial occupation.
If you have any queries relating to this matter, please contact Paul Westwell, on 0161 330 6821 or email pwestwell@bromleys.co.uk