Case Law Update: City of London v 48th Street Holdings Limited and another

On 15th May 2025, judgement was passed in the case of The Mayor and Commonality and Citizens of the City of London v 48th Street Holdings Limited and another [2025] EWHC 1130 (KB).

The case represents a significant set back for the City of London ("COL") in their efforts to recover unpaid non-domestic rates totalling £111,475.30 plus interest relating to a rates avoidance scheme that took place across four floors of 2 America Square.

This decision reaffirms the existing legal precedent set by R (POLL) v Trafford Council [2018] RA 499 ("Trafford") and solidifies the need for the Government to take real meaningful action if they wish to stamp out rates avoidance schemes.

The case revolves around intermittent occupation, also known as box shifting; the practice of occupying an empty building for a set period of time (historically 6 weeks but now 13 weeks) to repeatedly cycle empty exemptions until a long term occupier can be found.

In this exact case, it was agreed between all parties that the scheme operator intermittently placed boxes within the building with the sole intent of mitigating rates. The boxes served no other purpose.

It is possible for property owners to implement this scheme themselves but there is an entire industry dedicated to offering this service. This scheme was estimated by the Local Government Association in 2019 to cost councils around £125 million per annum.

There is a storied history of Local Authorities challenging the scheme operators and the benefiting property owners. The courts have consistently sided with the scheme, frequently stating that the practice is legitimate in law despite having moral shortcomings.

The Ramsay Principle

This case sought to overturn those decisions in light of the Supreme Court decision in Hurstwood Properties Ltd v. Rossendale Borough Council [2021] UKSC 16; [2022] AC 690 ("Hurstwood").

Hurstwood determined that the Ramsay principle (W T Ramsay v. Inland Revenue Commissioners [1982] AC 300) applied in a rating context. To give an extremely condensed summary of the Ramsay principle; one must look at the transactions intended to be affected by the charge or exemption and seek to discover whether they fall within the statutory intent of those charges or exemptions.

How that applies here, is by asking whether the statutory intent of Parliament was for the box shifting practice (the transaction) to successfully mitigate rating liability of empty properties (the exemption).

COL suggested that Parliament clearly did not intend for a practice that, scheme operators themselves admit, has no commercial benefit beyond the avoidance of rates. The point of introducing a charge for empty properties was to entice owners to bring the property back into occupation. The suggestion is this scheme removes some of the financial burden of an empty property, allowing the property sit vacant for longer.

The defendants, 48th Street Holdings Limited (the property owner, "48SH") and Principled Offsite Logistics Limited (the scheme operator, "POLL") suggested that the The Non-Domestic Rating (Unoccupied Property) (England) (Amendment) Regulations 2024, which increased the reset period to gain an empty exemption from 6 weeks to 13 weeks showed that Parliament were tolerant of the scheme.

They argued that the during the preceding consultation to the 2024 Regulations the issue of box shifting was raised and if Parliament truly intended for the practice to stop then they would have taken more severe and comprehensive measures.

Ultimately, this argument was persuasive and the Judge felt the Ramsay principle did not apply here.

Whilst there can be little doubt that the Government should have done more within the 2024 Regulations, we believe it is clear they do wish to end this practice. Our belief is that they felt by extending the reset period, the finances of box shifting would change so dramatically it would adequately put operators and landlords off- this has not been the case. The Government has asked for further comment within its Transforming Business Rates consultation, explicitly naming box shifting as a "pervasive" issue.

The Laing Ingredients

COL also argued that the decision in Trafford was a misapplication of the rules of occupation set out in John Laing v. Kingswood [1948] 1 KB 344 ("Laing"). Within Laing, four ingredients necessary for rateable occupation were set out. Relevant to this case is beneficial occupation; which simply asks whether there is an actual benefit to the occupation.

COL's stance is POLL had no beneficial occupation of the property and without beneficial occupation, there is no rateable occupation. So, in this case, POLL would have not have occupied for the necessary time (6 week reset period in this case) to receive another empty exemption.

Within Trafford it was determined occupation purely for the intent of receiving mitigated business rates constituted beneficial occupation. COL argued this point, stating that mitigated business rates could only be achieved if there was satisfactory occupation, so if there are no mitigated business rates then there is no occupation.

COL stated that it should be asked whether there is beneficial occupation before the application of any reliefs or exemptions have been applied. For there to be beneficial occupation, you must work backwards and apply the empty exemption first.

Conversely, POLL stated that occupation could be tested by imagining a situation where empty property did not attract a charge (as was the situation prior to 1966) and only occupied properties were liable for rates. In that scenario, would POLL be deemed occupied and liable or would the property be deemed empty and exempt.

The Judge felt POLL's presence in the building would plainly amount to occupation and the Local Authority would demand rates. It was agreed that there was a valid lease and that POLL did have items in the building; COL's argument was equating benefit to motivation of occupation. The Judge made clear that the focus must be instead on use and intention.

Summary

In summary, COL failed to persuade the Judge on either arguments. Throughout the entire judgement, it was made abundantly clear that if this practice is to end, then there must be intervention from Parliament to specifically legislate against it. The fact that the Government's previous attempt to curb the practice (by extending the reset period from 6 to 13 weeks) was used to show that a scheme, that serves no commercial benefit other than tax avoidance, could be within the statutory intent of empty rates must be a frustrating blow to those who felt it would help close the loophole.

It will be interesting to see what comes next, whether COL will challenge this decision in higher courts or whether the Government will take specific action to address the practice.

The full judgement can be read here: assets.caselaw.nationalarchives.gov.uk/d-8ac96c04-8efe-452b-b25b-b74a775dd58e/d-8ac96c04-8efe-452b-b25b-b74a775dd58e.pdf

If you have any questions regarding this decision, please get in touch with us at info@hollowaybond.co.uk or 0208 0950 990.

If you are a property owner struggling with empty rates, there are methods to mitigate your rates and provide real community benefit with your property. Please do let us know if you'd like to understand this further.