High Court judgment reinforces boundaries on business rates mitigation

A High Court ruling, The Mayor and Commonality and Citizens of the City of London v 48th Street Holding Limited & Anor ([2025] EWHC 1130 (KB)), has reaffirmed the legality of certain business rates mitigation schemes, for commercial property owners across England and Wales.

In his judgment, Deputy High Court Judge Charles Bagot KC upheld the lawfulness of a structured mitigation arrangement, reinforcing long-standing principles around what constitutes rateable occupation.

The facts: a familiar but tested strategy

The City of London Corporation sought to recover £111,475.30 in unpaid business rates, plus interest, from 48th Street Holding Limited (the property owner) and Principled Offsite Logistics Limited, which had temporarily occupied the unlet office building under a short-term tenancy.

POLL took possession, placed boxes containing materials in the premises for six weeks, and became liable for business rates during that period. Following the end of the lease, the items were removed, and the property reverted to an unoccupied state – with the intention of triggering a further three-month exemption period for the owner.

This type of short-term occupation, designed to reset the exemption period, is a widely used mitigation strategy. The question was whether this occupation was sufficiently real and beneficial to be lawful.

The legal framework: what counts as occupation?

At the heart of the decision are two key principles: whether there was beneficial occupation and whether that occupation met the long-established tests of being actual, exclusive and non-transient to the occupier.

The courts have consistently held that this type of short-term rates mitigation is not inherently unlawful. In Makro Properties Ltd v Nuneaton and Bedworth BC [2012], even limited use – such as document storage – was accepted as rateable occupation, provided it was genuine. However, as mitigation schemes have evolved, the line between legitimate planning and artificial contrivance has been increasingly tested.

Beneficial occupation: motive matters, but only so much

The judgment affirms that any occupation must serve a business purpose for the occupier. It does not need to be substantial, commercially lucrative or even rational in a conventional sense – it can be “whimsical or eccentric” – but it must be real.

Judge Bagot was clear: beneficial occupation cannot be manufactured merely to satisfy a legal form. Where the occupier derives no meaningful use – such as arrangements involving abandoned goods. But in this case, the occupation met the threshold: the property was used intentionally, exclusively and with discernible benefit to POLL.

Importantly, the judge declined to invoke the Ramsay principle to override the arrangement. He reiterated that the test lies in the fact of occupation, not the motive behind it. The general anti-avoidance principle does not automatically invalidate schemes simply because they aim to reduce tax liabilities.

Implications: clarity for some, warning for others

Billing authorities are increasingly scrutinising rates mitigation schemes, and this ruling does not offer cover for arrangements lacking substance. Where occupation is artificial or the occupier derives no real benefit, challenges are likely to succeed.

Landlords could also consider more sustainable alternatives – such as genuine occupiers with short term requirements, meanwhile uses or temporary commercial activations – which can reduce liabilities while delivering broader value.

Tension with policy: courts vs. government

This judgment creates an interesting contrast with the government’s October 2024 policy paper, Transforming Business Rates: Tackling Avoidance and Improving Compliance, which signalled a tougher stance on short-term occupation schemes. That paper proposed enhanced investigatory powers for local authorities and hinted at reforms to curb what it views as “artificial” mitigation strategies.

Yet, as the judge noted, the 2024 amendments to the Regulations – which extended the minimum occupation period from six to thirteen weeks – did not redefine the legal concept of occupation. This could be read as recognition of the legitimacy of such schemes when implemented correctly.

Conclusion: A green light, but with guardrails

This judgment is one of the strongest judicial endorsements to date of the continued legality of structured mitigation – provided it meets the established criteria.

For landlords, the message is clear: smartly structured rates mitigation remains lawful, but success depends on understanding the boundaries. Any occupation must deliver value to the occupier, not just the landlord.

Leave to appeal has been refused, however schemes where the sole purpose of the occupation is to mitigate the vacant rates liability are likely to be challenged again.

Whether Parliament now moves to tighten those boundaries through legislation remains to be seen.

Alex Probyn
Practice leader (Europe & Asia Pacific) of global tax firm Ryan