Ruling by Court of Appeal in July 2026 to have significant impact on the mitigation of business rates for commercial landlords.
The Court of Appeal has recently made a significant decision affecting business rates mitigation arrangements for commercial landlords. The court in City of London v 48th Street Holdings Ltd & Principled Offsite Logistics Ltd [2026] EWCA Civ 970 considered the use of the “box shifting” scheme, a scheme used by many commercial landlords to mitigate business rates for unoccupied offices.
Business Rates for Commercial Properties
In England and Wales, business rates are charged on most non-domestic and commercial properties to the local council. When a property is occupied, these rates are normally paid by the business or person occupying the property. However, when the property is not occupied, property owners become liable for the business rates on the property.
There are various types of business rate relief schemes and exemptions. The government provides a range of relief schemes and local councils may choose to offer further schemes for the benefit of the community. Commercial landlords may for instance be eligible for relief where the property is empty, partly empty or being refurbished, where the landlord is making improvements to the property.
Empty property relief lasts for three months and starts on the day the property becomes empty. To mitigate circumstances where properties are empty for a longer period, landlords have made use of the so-called “box shifting” scheme. This involves a third party taking short-term occupation of an otherwise vacant property by storing boxes or other low-value items in otherwise unoccupied premises for a period of six weeks after which the empty property relief can be claimed again. The placement of the boxes under this scheme breaks the period of continuous inoccupation and resets the clock after a period of six weeks or more. By using this scheme, the commercial landlord’s liability for business rates is reduced. It is this last scheme that is affected by the Court of Appeal’s decision in July 2026.
What Was the Court Ruling on Business Rates Mitigation?
The Court of Appeal ruling concerns the application of the “box shifting” scheme. The High Court ruled in the first instance that the scheme was effective. The City of London appealed this decision, and the Court of Appeal considered the matter in July 2026. In the ruling, the court considered whether “the placing of boxes in the premises for a period of six weeks amounted to “occupation”.” The Court of Appeal drew a distinction between genuine occupation and occupation carried out solely to obtain rates relief. The Court of Appeal stated:
“where the sole aim of doing so is to generate occupation for the purposes of those provisions, there is no commercial or business purpose save for rate mitigation, and the putative occupation is “beneficial” only due to the claimed rate mitigation benefits.”
The Court of Appeal concluded that the laws and regulations relating to business rates:
“do not have the effect that the placement of items in an otherwise unoccupied hereditament amounts to occupation where the sole aim of doing so is to generate occupation for the purposes of those provisions, there is no commercial or business purpose save for rate mitigation, and the putative occupation is “beneficial” only due to the claimed rate mitigation benefits.”
How Could This Ruling Impact Commercial Landlords?
The “box shifting” scheme is widely used by commercial landlords. The decision is a move away from the previous position held by the courts and is likely to have a significant impact on commercial landlords’ consideration of mitigating business rates.
Following the judgment, the Ministry of Housing, Communities & Local Government published correspondence stating:
“local authorities should now review whether box shifting schemes, and other schemes where the object of the occupation is rates avoidance, should continue to be recognised as occupation for rating and withdraw relief where they conclude it is not.”
Whilst further appeal procedures may be initiated, landlords who are currently using the “box shifting” to mitigate business rates will now need to assess whether their use of the scheme goes beyond generating occupation for the purpose of mitigating business rates. It is likely that the recent ruling will increase scrutiny of the schemes adopted by commercial landlords.
What We Can Do
While an appeal of the discussed case may follow, the decision is expected to influence business rates planning across the commercial property sector. Commercial landlords should review existing mitigation structures and ensure there is a clear rational supporting any occupation arrangements.
This article is intended for general information purposes only and does not constitute legal advice.
This article was written by Mike Davies, Partner and Rebecca Van Der Veer, Solicitor Apprentice in our Property Litigation team.