Wi-fi lettings to charities - liability for business rates

To avoid paying business rates, some landlords have entered into “wi-fi lettings” arrangements.

A landlord of an empty property may find themselves having to pay business rates. Initially a landlord is entitled to an exemption from rates for three months for a shop or office or six months for industrial premises. If at the end of that period the landlord has still not found a tenant, it then must pay business rates.

To avoid this some landlords have entered into short lettings to tenants to allow the landlord to reduce its liability to pay rates. During the tenancy the tenant pays the business rates. At the end of it the tenant gives up occupation. At that stage the landlord may find itself once again with an empty property. However, if the tenancy has lasted for a minimum of six weeks, the landlord can claim a further exemption period of three or six months. Landlords are therefore keen to encourage a tenant to take a short term letting. The obligations on the tenant are usually minimal with the rent often a nominal £1 and the landlord paying a premium to the tenant to induce it to take the letting. The landlord’s concern is not to obtain income from the letting but to use it to trigger a new exemption period from payment of business rates.

Some of these arrangements involve “wi-fi lettings”. Here the tenant installs equipment to provide wi-fi and broadcast advertisements to passerbys who have a bluetooth enabled device such as a mobile phone or tablet. As such the tenant installs a small bluetooth box and some cabling and an aerial. The equipment takes up a tiny amount of space. In addition, there is no need for the tenant to be there at the premises; only occasional visits are required to check that the equipment is operating effectively.

A recent High Court case involved just such an arrangement - Sunderland City Council v Stirling Investment Properties LLP (2013). The landlord let out a warehouse property with an area of approximately 1500 square metres to a tenant for 43 days at a nominal rent of £1. The tenant installed a wi-fi and blue tooth message service. This involved the installation of a blue tooth box measuring 100 x 100 x 50 millimetres plus some cabling and an aerial. The tenant was not a charity so during the tenancy it paid the business rates.

After the end of the tenancy the landlord claimed a further six months exemption from business rates. The council challenged this on the basis that the wi-fi letting of the building was so minimal as not to qualify as “rateable occupation” for the purposes of the rating legislation. However, the court agreed with the landlord. It decided that the three tests for rateable occupation were satisfied: the occupation must be actual, beneficial to the occupant and exclusive. So the decision suggests that as a general rule such wi-fi lettings are effective to allow a landlord to claim an exemption from business rates at the conclusion of the letting.

In some instances charities have entered into a wi-fi letting with landlords. Often the landlord makes a donation to the charity as an inducement for it to enter into the letting. A tenant who is not a charity has to pay the business rates. However, a charity can claim an exemption from payment of 80 per cent with the local authority having a discretion to increase this to a 100 per cent exemption. The exemption only applies if the charity uses the premises “wholly or mainly” for “charitable purposes” . The High Court decision in Public Safety Charitable Trust v Milton Keynes Council and others (2013) has recently considered this issue.

The Public Safety Charitable Trust case was similar to the Sunderland City Council case. It involved an installation of broadcasting transmitters at the premises to provide a free wi-fi service. In addition, the transmitters broadcast bluetooth messages on crime prevention and public safety to passersby with bluetooth enabled devices. The actual occupation of the premises as in Sunderland City Council was minimal.

Unlike in Sunderland City Council the argument was not about whether this minimal physical presence was sufficient to constitute rateable occupation. That was accepted or at least not disputed. Instead the argument was whether the charity was using the premises wholly or mainly for a charitable purpose as is required by the legislation which awards charities exemption from payment of rates. The court decided that the charity was not doing this and was therefore unable to claim the 80 per cent discount on business rates. At paragraph 34 of the judgment Mr Justice Sales says:

“… it is reasonable to infer that Parliament intended that the substantial mandatory exemption from rates for a charity in occupation of a building should depend upon the charity actually making extensive use of the premises for charitable purposes (ie, use of the building which is substantially and in real terms for the public benefit, so as to justify exemption from ordinary tax in the form of non-domestic rates), rather than leaving them mainly unused.”

So the Sunderland City Council case shows that a wi-fi letting may qualify as rateable occupation thereby allowing the landlord to claim a further period of rates exemption at the end of the letting. However, the Public Safety Charitable Trust case says that such a letting to a charity is unlikely to mean the charity is using the premises wholly or mainly for charitable purposes. That being the case the charity is unable to claim a discount on business rates.

How can we help you?

If you would like to discuss any issues raised by this article, please contact Christopher Thompson on 01223 4222257 or [email protected].

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