Occupation must be prohibited by law for exemption from empty rates

In what circumstances will a property owner be exempt from empty rates liability on the basis that it is prohibited by law from occupying or allowing occupation? The High Court decided the owner must show that the law actually prohibits occupation.

Original news

Pall Mall Investments (London) v Gloucester City Council [2014] EWHC 2247 (Admin)

Pall Mall sought exemption from liability to pay empty rates on the ground that their non-occupation of a number of properties was the result of dilapidations, caused at least in part by vandalism. It argued that the state of the properties was such that occupation was prohibited by law.

The High Court had to decide whether, in the absence of:

  • a current applicable statutory provision directly prohibiting occupation, or
  • a valid statutory notice prohibiting occupation

there were sufficient grounds to support a conclusion that Pall Mall was exempted from paying empty rates on the basis that it was prohibited by law from occupying the properties, or allowing them to be occupied.

Pall Mall argued that they were exempt on this basis as:

  • the properties were constructed as offices and were in disrepair, and
  • a surveyor's evidence confirmed that occupation of the properties for office use would not comply with health and safety legislation

What is the law in this area?

Local Government Finance Act 1988, s 45

Unoccupied commercial property in England and Wales is liable for full business rates following expiration of a concessionary period - six months for factories and warehouses, three months for everything else. Unless the property can be rapidly relet, or unless one of the statutory exceptions applies, this is likely to result in a direct and irrecoverable charge to the landlord. The statutory exceptions include where the owner is prohibited by law from occupying the property or allowing it to be occupied.

What did the court decide?

The court decided that the relevant magistrates court had been correct to decide that Pall Mall was not exempt from paying empty rates on the properties.

At no time had the law prevented Pall Mall from entering the properties to restore them.

To be prohibited by law from occupying, or allowing a property to be occupied, it was not enough for an owner to establish that if it occupies the property, or allows it to be occupied, for a particular purpose, it will render itself liable to prosecution under the health and safety legislation. It must show that the law prohibits occupation, either because:

  •         Tower Hamlets London Borough Council v St Katherine-by-the-Tower Ltd [1982] RA 261

as in Tower Hamlets, the law provides the owner must not occupy in the circumstances currently prevailing, or

  •           Regent Lion Properties Ltd v Westminster City Council [1990] 2 EGLR 175

as in Regent Lion, the necessary effect of a prohibition or enforcement notice is to prohibit the owner from occupation.

The health and safety legislation did not prohibit occupation and the risk of breach of the legislation if the premises were, without more, occupied, was not sufficient to exempt Pall Mall from empty rates liability.

In addition, Pall Mall's argument required the court to assume that occupation in itself would amount to a criminal offence. This was not the case. The health and safety duties were owed in the main by an employer towards its employees and visitors to the workplace. So, the owner could not itself use part of the premises as a workplace without, first, putting that part of the property into a compliant condition. The owner could not lease the premises to an employer without taking such measures as were reasonable for a building owner to take to ensure that the workplace would be safe (eg by requiring the tenant, as a term of the lease, to carry out the remedial work).

However, the legislation did not prohibit an employer or person in control from occupation of the building itself. The obligation of the owner, as an employer, to remedy the condition of the property or as a landlord to require the tenant, as an employer, to do so did not constitute a prohibition of occupation by law. Nothing less than a prohibition from occupation sufficed to create the exemption. Occupation of the properties did not constitute an offence under the health and safety legislation--nor did the legislation expressly or by implication prohibit occupation. Disobedience of a notice served under the legislation--whose effect was to prohibit occupation--would be a different matter.

Finally, the unoccupied rate was payable on any day when none of the hereditament was occupied and the occupied rate was payable on any day when all or part of the hereditament was. There was no reason why the premises could not be re-occupied in stages, with the immediate provision of temporary facilities, so as to avoid breaches of the workplace obligations either by Pall Mall or its tenants. The primary obligation was not to render the workplace congenial, but to render it safe. The occupation of the properties even for the purpose of creating a workplace would not, of itself, amount to the commission of an offence under the health and safety legislation.

What are the lessons for property owners?

Property owners wishing to rely on the 'prohibited at law' exemption must ensure that this is actually the case. If in doubt they should seek specialist advice.

First published on LexisPSL Property. Click here for a free trial.

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