Are you risking Business Rates liability whilst fitting out a property for occupation?


Andrew Challener

The recent case of R3 Products Ltd v James R Salt [2014] UKUT 0333 (LC) acts as a reminder for all tenants to carefully consider their liability for business rates before they take occupation of a commercial property and not make the assumption that they will not be liable for business rates until such time as any fit out works have been completed and they are able to operate from the premises.  The liability for business rates lies with the “owner”, who is defined in legislation as the person entitled to occupation of the commercial property. Business rates are payable once the property is fit for “beneficial occupation”.

In this case the tenant (R3) took a lease of a unit in Sheffield which needed major upgrade works to the electricity supply to enable it to be used for R3’s specific requirements. R3 negotiated a three-month rent-free period with the landlord in order to do the works and completed the lease. When the Local Authority issued a rates demand R3 challenged this on the basis that because it could not use the unit until the electricity works had been completed they were not in “beneficial occupation”.

The case was decided by the Upper Lands Tribunal who found against R3, determining that although the premises may not have been suitable for occupation by R3 specifically, they were suitable for occupation by another tenant.

All cases are determined on their facts and maybe with different facts a tenant may not be considered to be in beneficial occupation. Perhaps the fact that R3 completed the lease with only a three-month rent-free concession may have been a factor. Notwithstanding this decision a tenant may still be able to argue rates only apply to part of a building where works are carried out over a larger site.

In any event tenants should always consider potential rates liability when negotiating leases and in particular negotiating letting inducements.

Andrew Challener
Commercial Property Department
0113 227 93222

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