R3 Products Ltd v James R Salt (Valuation Officer)  UKUT 0333 (LC)
Tenants may often assume that they will not be liable for business rates until such time as the requisite fit out works have been executed, and they are able to operate from the premises in question. However, the decision of the Upper Tribunal (Lands Chamber) at the beginning of this month (September 2014) has confirmed that a tenant may have crossed the threshold into beneficial occupation, and thus be liable for business rates, whilst they are engaged in a refurbishment programme to render the premises suitable for their particular purpose.
R3 Products Ltd (“R3”) operated premises in Sheffield from which it manufactured mixed waste plastic into goods for use by the construction industry. This process required substantial high-voltage electricity supply, cabling and factory lighting, which was unavailable at the premises whilst major refurbishment works were on-going. Following a demand from the Valuation Office Agency for business rates during the refurbishment period, R3 argued that it had not been possible to use the factory for manufacturing purposes and that carrying out the works did not itself constitute beneficial occupation. They argued that the premises should, in fact, have been removed from the ratings list during the relevant period of works.
Rejecting the arguments of R3, the Tribunal held that the factory was capable of beneficial occupation during this period. Although the premises had not necessarily been suitable for occupation by R3, the premises had been capable of being used by a different “non-specialist” occupier. It seems, therefore, that the issue to be determined will be whether the premises are capable of occupation by any tenant, as opposed to focusing on the specific requirements of the tenant in question.
In this case, whilst sympathy was expressed for the ratepayer, some force was given to the fact that the tenant completed the lease, with only a three month rent-free period, in the full knowledge that the property had been stripped of the necessary cabling and electricity supply that it required to run its business, and thus that substantial works would be required. Tenants therefore ought to give consideration to the possible liability for business rates when negotiating leases.
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