Business Rates - Guidance in Harlow [2021] 4 WLR 65 on Occupation

When determining whether premises are rateably occupied for national non-domestic rates (‘Business Rates’), the conventional starting point is to apply the fourfold test derived from Tucker LJ's judgment in Laing (John) & Son Ltd v Kingswood Assessment Committee [1949] 1 KB 344 (‘JS Laing’), 350, namely:

‘First, there must be actual occupation; secondly, that it must be exclusive for the particular purposes of the possessor; thirdly, that the possession must be of some value or benefit to the possessor; and, fourthly, the possession must not be for too transient a period.’

This fourfold test is used to determine when a hereditament is rateable occupied, and when it is not - Business Rates being calculated on a day by day basis. Being able to determine when a hereditament transitions from being: rateably occupied, to unoccupied - is of course central to many aspects of Business Rates law. One scenario where it is important, is when determining whether a Makro[1] type rates mitigation scheme has been effective. In other words, when a property possessor seeks to intermittently rateably occupy/not occupy a hereditament, in order to minimise its exposure to Business Rates during a given period - by maximising use of empty property Business Rates exemption(s) - to its financial benefit.

In a recent High Court case of R. (on the application of Secretary of State for Health and Social Care (on behalf of Public Health England)) v Harlow DC [2021] 4 WLR 65 (‘Harlow’), Kerr J had to consider whether a ratepayer PHE had successfully implemented a Makro type rates mitigation scheme through intermittently rateably occupying/not occupying a hereditament. Kerr J referred to it, at paragraph 84, as a ‘“rates exemption hunting” case.

The Facts in Harlow

The Makro rates mitigation scheme implemented in Harlow consisted of the PHE claiming: (i) to have rateably occupied the relevant premises for 6 weeks; (ii) to thereby have become entitled, upon ceasing to occupy, to a 3 months exemption from unoccupied Business Rates; (iii) to have, in fact, ceasing to occupy the premises after 6 weeks and thereby rendered the premises unoccupied, triggering the (start of the) 3 month exemption; (iv) to have then, at the end of the 3 months, re-entered into rateable occupation of the premises, for a further 6 weeks, before ceasing to occupy again, to trigger a (second) 3 months exemption. Readers will be familiar with this type of rate mitigation scheme.

The Judgment in Harlow

On one level, Harlow simply involved the Court evaluating whether PHE had actually intermittently rateably occupied/not occupied, for the right periods of time, to qualify for the Business Rates mitigation sought. Did the ratepayer accurately calibrate its physical presence to: (i) qualify as rateable occupation for 6 weeks; then (ii) not qualify for 3 months, over 2 cycles. On the facts, Kerr J found[2]that PHE had successfully implemented the scheme; accordingly the Harlow case and PHE's implementation of the scheme can be used to illustrate what activities/things[3] on a hereditament/premises will and will not amount to rateable occupation.

However, Harlow is useful for a number of other points Kerr J made, which will have wider interest and utility. These will be extracted below.

Extract 1: Guidance - Checklists within the 2 Annexes
The first and main thing to extract from the judgment, and what will become a quick (though not exhaustive) guide, is what Kerr J placed in his 2 Annexes (Annex A and Annex B) to the judgment.

Before quoting the contents of the 2 Annexes, it is important to note what Kerr J said about them. At paragraphs 4 and 5, he said:

The first (A) states what I believe are correct propositions of law that will enable district judges to determine most if not all disputes of this kind. They comprise Tucker LJ's first, second and fourth propositions and incorporate an expanded version of the third one. The propositions are only a checklist and should not be taken as anything like a complete statement of law that has evolved over centuries.

The second annex (B) sets out a suggested protocol for swift and efficient determination of such disputes, in a manner that should save time and costs, reduce unnecessary controversy and avoid the need to bring disputes of this kind frequently to the higher courts. If it is not followed, the parties resistant to it could find district judges or other courts disposed to impose costs sanctions against them.’

With that explanation, the Annexes are:

Annex A: Propositions of law; When premises are occupied

(1) The possessor of the property must be in actual occupation of the property, ie making some use of the property.

(2) The possession of the property must be exclusive to the possessor; it must not be shared with another person also entitled to possession.

(3) Voluntary use of a small proportion of the property to store a small amount of the possessor's goods is sufficient.

(4) It does not matter if the storage is whimsical or eccentric, for example storage of a collector's items or of redundant items.

(5) The possessor of the property must have an intention to occupy the property, which may be inferred from use of the property.

(6) It does not matter if the possessor's predominant or sole motive is mitigation of or exemption from rates liability.

(7) There is no occupation of a property where the person entitled to possession intends not to occupy it but to create a semblance or pretence of occupation.

(8) The presence in the property of goods not worth the trouble of removing, which may be inferred to have been abandoned, is not sufficient for occupation.

(9) It is not sufficient for occupation if the only use of the property is its upkeep and preservation or alterations in preparation for future occupied use.

(10) The possessor of the property may be a professional contractor whose business is occupation, provided it has the right to exclusive possession.

(11) The possession of the property must not be too transient; it must endure for more than a fleeting period of time.

(12) Occupation may more readily be found too transient where the property in question is a temporary structure than where it is a building for permanent use.

Annex B: Protocol for resolution of disputes about occupation of premises

(1) Where a billing authority or a possessor of non-domestic property raises an issue as to occupation, the following procedures should be observed.

(2) The parties should co-operate in making arrangements for inspection by the billing authority of the property and its contents.

(3) An agreed list of the contents, with at least a generic description, should be produced and signed and dated by both parties, covering the material times.

(4) The billing authority should write to the other party stating whether it considers the property occupied or not, and at what times or over what periods.

(5) The billing authority should include in its written communication to the other party its reasons for its conclusions.

(6) The billing authority should issue any consequent demand for payment of non-domestic rates in the normal way, in accordance with the rating legislation.

(7) If the recipient of the demand disputes liability, it should write to the billing authority stating why.

(8) The recipient should not pay the disputed amount with a view to claiming it back later, since this deprives the magistrates’ court of jurisdiction.

(9) Any disputed rates liability should be the subject of a summons for non-payment issued by the billing authority under the rates collection legislation.

(10) The magistrates’ court can then determine whether and when a property is occupied or unoccupied and any consequent liability for non-domestic rates.

(11) The unsuccessful party will then have a right of appeal to the Administrative Court, by case stated, with full findings of fact.

(12) A party refusing to follow the procedures set out in this protocol may be subject to costs sanctions imposed by the magistrates’ court or any other court.

(13) A party claiming restitution of non-domestic rates wrongly paid should sue in the ordinary courts and may not necessarily recover its costs, even if successful.'

Extract 2: Whether third test/requirement present during 6 weeks occupation to gain 3 months exemption
The second thing to extract from Harlow, is what Kerr J said about the third JS Laing test/requirement - ‘…the possession must be of some value or benefit to the possessor.’ - along with whether such exists, on each day during the 6 weeks of rateable occupation.

In Harlow, PHE, argued that ‘…mere physical presence coupled with an intention to occupy for the purposes of rates mitigation is a thing “of value, in the words of the older cases, or is possession that is “of same value or benefit to the possessor” in the words of Tucker LJ stating the third requirement for rateable occupation…’ (paragraph 45) but Harlow disputed this, framing it’s argument as follows, at recorded by Kerr J at paragraphs 46 to 48:

‘The use of the property, for rates mitigation purposes, is what must be of value to the possessor. The exemption after six weeks of occupation arises only on the property ceasing to be occupied. The desired benefit—rates mitigation—is therefore not one that accrues from presence in the property but from cessation of use, ie vacating the property.

Under the legislation, said [counsel for Harlow], rates liability accrues on a day by day basis: on a given day, a property is either rateable or it is not. Whether it is depends on whether on that day each of the four JS Laing requirements is met. It follows, she argued, that the benefit of the exemption where a property is continuously occupied for at least six weeks (42 days) enures to the possessor only on the 43rd day when the property becomes empty again.

The benefit is accordingly, said [counsel for Harlow], absent on days 1 to 41 (or 42) inclusive. Therefore, on those days, the third JS Laing requirement is not met; therefore, on those days, the property is not rateably occupied.'

Holding that occupying to gain qualification for a 3 month rates exemption is of value or benefit such that, on each day in the qualifying 6 weeks, the third test/requirement is satisfied, Kerr J said, at paragraph 62:

‘I reject the proposition that no benefit accrues to a possessor motivated by the prospect of rates exemption, until the occupation has ceased. The reasoning is casuistic. Rateable occupation is, indeed, determined under the legislation on a day by day basis; but that same legislation aggregates days of occupation into periods of occupation. That an occupier must wait until its exemption crystallises does not stop current occupation conferring the present benefit of notching up another day of the period that will produce the exemption.’

Further, Kerr J said, at paragraphs 63 to 65:

‘I agree … that the artificial slicing up of occupation into 24-hour periods is inconsistent with the rules on exemptions and with the case law (preserved by section 65(2) of the 1988 Act), including the requirement that occupation must not be too transient (a period that may need to last at least months, especially in the case of temporary structures such as the builders’ huts in Sir Robert McAlpine & Sons Ltd v Payne (VO) (1969) 15 RRC 440 ).

In my judgment, [counsel for PHE’s] proposition of law is correct: actual use of the property, even minimal use as in this case, combined with an intention to occupy it is sufficient for occupation, whether the motive is rates mitigation or any other motive. The use need not be substantial, as the cases show. It need not be legally required. It may be whimsical or eccentric. It must serve a purpose of the occupier but that purpose can be obtaining a future rates exemption.

This is subject to ... two caveats ...The first is that the purpose must go beyond upkeep and development of the property itself, as shown by the caretaker cases and the decision in Arbuckle. The second is that occupation is not established by leaving abandoned goods there which are not worth the trouble of removing ( London County Council v Hackney London Borough Council).’[4]

Kerr J rejected an argument that the cases ‘…require the use to be of significant value to the possessor independently of the gaining of a rates exemption.’ (Paragraph 70)

Extract 3: Permissible Steps to Finding an Intention to Occupy

Supposing an Intention to Occupy 

A separate point is that, where a person is found to: (1) hold the intention to gain a rates exemption generated by intermittent occupying/ceasing to occupy; and (2) knows that occupation for six weeks is required to gain qualification (i.e the person correctly understands the Makro rates mitigation scheme essential components), then it can be supposed that that person did intend to occupy the premises for the requisite qualifying 6 week period. This was made clear by Kerr J, at paragraph 66:

‘I … accept that if the possessor's motive is to mitigate rates liability, its intention must be to occupy the property in question, at least if its understanding of the law of rates exemptions is correct. That is what Judge Jarman QC was saying in Makro Properties and, with respect, he was correct to do so. It is unreal to suppose that a person intending to gain a rates exemption and knowing that occupation for six weeks is required to gain it does not intend to occupy the property during those six weeks.’

Giving greater guidance on the intention to occupy aspect, Kerr J said, at paragraph 69:

'…an intention to occupy means what it says. It does not matter whether the occupation is out-sourced, as in Principled Offsite Logistics, or kept in house, as in this case. It does not matter that PHE's public functions do not extend to serendipitous occupation of buildings; it is as much entitled to pursue a rates exemption as anyone else and is acting properly in doing so.’[5]

Intention to Occupy can be inferred from storing items of value on the premises

An intention to occupy can be inferred from items of value being stored at premises which would otherwise be empty. However, merely because such items are stored at the premises does not inevitably lead to this conclusion. Alternative interferences might be more appropriate. The question is whether an intention to occupy is a proper inference from the presence of the items.

In Harlow, Harlow argued (as an alternative argument) that PHE had never ceased to occupy the premises after each 6 week period - so the premises were never unoccupied, and so could have qualified/triggered any 3 month empty property Business Rates exemption. However, Kerr J rejected Harlow’s argument on this, holding that PHE did, on the facts, cease to occupy the premises after (each) 6 week period ended. In explaining his decision, Kerr J highlighted how, depending on the nature and circumstances surrounding the items, and it being left on the premises, the Court might draw the inference that on that day there was: (1) intention to occupy on that day; or (2) while other might indicate an intention to occupy in the  future. Kerr J said, at paragraphs 75 to 77:

‘The intention to occupy is, conspicuously, absent except during the six-week periods. But there were certain items in the property outside the six-week periods when the crates and their contents were not there…

There have been cases where occupation has been found by reason of items of value being stored at premises which are otherwise unoccupied; for example, the books left at a bookshop in Appleton v Westminster Corpn [1963] RA 169 , DC. I think that is because an intention to use the premises for the ratepayer's benefit is inferred; the goods in Appleton were of commercial value to the leaseholder of the bookshop.

I do not think that the same reasoning can be applied to the boardroom table and the chairs round it, the model of the building and the display boards. The furniture was acquired with the building, from Glaxo Smith Kline. The model of the building and the display boards do not indicate a present intention to occupy; they indicate an intention to occupy the building in the future, when it becomes operational.’

Readers should consider whether section 65(5) of the LGFA 1988 applies[6].

Extract 4: Maintenance and Upkeep of a building - items and contractor visits

Kerr J considered items and contractor visits to the premises, linked to maintenance and upkeep of a building. Kerr J said, at paragraph 78:

The floor polishers and cleaning equipment are clearly for maintenance and upkeep of the property. It was common ground that contractors would come onto the site to maintain it. The upkeep and maintenance of a building does not amount to rateable occupation, as shown in cases such as Arbuckle. [Counsel for Harlow] rightly did not contend that PHE's contractors coming onto the site to maintain the building of itself amounted to PHE occupying the building.

Extract 5: Preparation for future exploitation of the property

In Harlow, Kerr J reaffirmed the position in Arbuckle Smith & Co Ltd v Greenock Corpn [1960] AC 813; [1960] 2 WLR 435 ('Arbuckle') that preparation for future exploitation of the property does not qualify as rateable occupation, Kerr J said, at paragraphs 79 and 80:

As for the use of the boardroom for meetings, also featuring tea and coffee making facilities, the evidence … is that these were “held to discuss the future development and promotion of the site”; were “of frequency … no greater than would be reasonably be expected for a project of this size and complexity”; and that the building “was only used on an occasional basis by senior PHE staff for the purposes of promoting the development of the site”.

That is a use not amounting to rateable occupation; it is preparation for future exploitation of the property, as in the Arbuckle case. Operational use of the site as PHE's headquarters must require the building to be prepared and adapted first. Discussions and planning must precede whatever physical works need to be done. Holding those discussions in the building and serving tea or coffee during them does not make the use present rather than contemplated.’

In other words, there was no actual occupation because preparatory use of a premises to get it ready for its main operational use, does not amount to qualifying actual occupation for the first JS Laing test/requirement. 

Extract 6: Law permits ratepayers ability to alternate occupation
Lastly, it is important to appreciate that the law permits this Makro rates mitigation scheme to work (if implemented correctly) because the law permits the possessor of property to calibrate, some might say, manipulate occupation, such that rateable occupation can be turned ‘on and off’ to a timetable. I.e. 'on' just long enough to qualify for an exemption, to then 'off', so as to immediately commence the exemption period, and then 'on', re-start the cycle - so as to minimum overall Business Rates liability. This ability to the possessor of property to do this is part of the law - and it would be for Parliament, if it takes objection to this, to intervene and alter the law. Kerr J said, at paragraphs 84 and 85:

‘The possessor of the property in question can, under the law, determine when it is in rateable occupation and when it is not, in order to benefit from the rates exemption which the legislature, in its wisdom, has ordained.

Unless the possessor misunderstands the law or takes a wrong step, it is in a position to benefit from the exemption by occupying and then vacating the property at times of its choice. There is nothing surprising or disturbing about that observation; it flows from the established principle that “the court is not a court of morals, but of law” (per Judge Jarman QC in Makro Properties, at para 56). It is for the legislature to change the position if it decides to do so.’





NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

[1] R (Makro Properties Limited) v. Nuneaton & Bedworth BC [2012] EWHC 2250 (Admin). Sometimes just referred to as an empty rates mitigation scheme

[2] In R. (on the application of Secretary of State for Health and Social Care (on behalf of Public Health England)) v Harlow DC [2021] 4 WLR 65, Kerr J said, at paragraph 83:

‘I am satisfied PHE was in occupation of the property during the six-week periods and not in occupation outside those periods. Accordingly, I must allow the claim and Harlow must repay the money paid by PHE following Harlow's rates demand.’

[3] Amongst other things, usage involved the locating of crates in (or not) the premises

[4] The reference to Arbuckle is a reference to Arbuckle Smith & Co Ltd v Greenock Corpn [1960] AC 813; [1960] 2 WLR 435;

[5] In R. (on the application of Secretary of State for Health and Social Care (on behalf of Public Health England)) v Harlow DC [2021] 4 WLR 65, Kerr J at paragraphs 67 and 68 said:

‘I agree with Ms Wigley and with Judge Jarman QC in Makro Properties that Minister of Transport v Holland and Wirral Borough Council v Lane are not persuasive against that analysis because in neither case was the intention of the possessor examined and determined as part of the ratio of the case. Neither is binding on me and in the Wirral case itself the Divisional Court appeared uncomfortable with the decision below.

In the modern era, the 2008 Regulations have spawned a tribe of rates exemption hunters, including the professional provider of occupancy services in Principled Offsite Logistics ; and that has sharpened the focus in the modern cases on the intention of the possessor. The old cases do not deal with intention to occupy coupled with the motive of obtaining a rates exemption. That is dealt with in Makro Properties and Principled Offsite Logistics.’

The full references in the above are:

(1) Makro Properties Limited v Nuneaton and Bedworth Borough Council [2012] EWHC 2250 (Admin)

(2) R (Principled Offsite Logistics Ltd) v Trafford Council [2018] EWHC 1687 (Admin)

[6] In R. (on the application of Secretary of State for Health and Social Care (on behalf of Public Health England)) v Harlow DC [2021] 4 WLR 65, Kerr J said, at paragraph 75:

‘If the presence of these items would lead to the conclusion that the property was rateably occupied at those times, the court must go on to consider whether that conclusion is excluded because the occupation is “by reason only” of the presence of “plant, machinery or equipment” falling within section 65(5) of the 1988 Act.’

Section 65(5) of the LGFA 1988 reads:

‘(5)  A hereditament which is not in use shall be treated as unoccupied if (apart from this subsection) it would be treated as occupied by reason only of there being kept in or on the hereditament plant, machinery or equipment—

(a)  which was used in or on the hereditament when it was last in use, or
(b)  which is intended for use in or on the hereditament

Later, in Harlow, Kerr J said, at paragraphs 81 and 82:

‘…I reject the alternative contention of Harlow that PHE was in occupation of the property throughout the material times. I do not think I need to consider the scope of the exclusion in respect of “plant, machinery or equipment” in section 65(5) of the 1988 Act. I did not hear full argument on the scope of those terms, which have surely been considered in other contexts which may throw light on their ambit here.

If, however, I did need to consider the scope of that exclusion, I would incline to the view (subject to hearing fuller argument) that the floor polishers, cleaning fluids, furniture, display posters and the model of the building (and, possibly, the tea and coffee making facilities) are all “equipment” and were either “used in or on the hereditament when it was last in use”, or “intended for use” in it, or both. For that additional reason, I would not accept Harlow's alternative case.’