Is Data Centre ‘White Space’ Subject to Business Rates? Question Answered
21 Jan 2022
In order to be subject to non-domestic rates, a commercial space must be capable of beneficial occupation for the purpose for which it is intended. In a guideline case, a tribunal considered whether that criterion is met by so-called ‘white space’ in the numerous gigantic data centres that have sprouted around the UK.
The operator of a data centre let units in large data halls to clients who wished to use them to house and operate IT equipment. When not in use, units were maintained as white space. Although such space was fitted out with power, security, cooling and other equipment, it had yet to be adapted for the use of clients.
The operator contended that white space is not subject to business rates and sought alterations to the local rating list accordingly. Such alterations would have greatly reduced its rates liabilities. A valuation officer (VO) took a contrary view but the operator’s arguments prevailed before the First-tier Tribunal.
In challenging that outcome before the Upper Tribunal (UT), the VO asserted that white space is fitted out to a high degree of readiness and requires only modest, non-structural adaptation to meet clients’ needs. For its part, the operator argued that significant works are needed to customise white space. It was not merely a matter of shifting furniture or equipment and the situation could not be compared to the moving of telephone equipment into an exchange.
Upholding the VO’s appeal, the UT did not agree with the operator’s characterisation of works needed to render white space fit for client use. Such works did not require any structural changes or alterations to the building itself. The extent to which white space was ready for customer use was in any event a red herring. It was the operator’s own beneficial occupation of the white space that mattered.
Whilst the building was designed for the installation of client equipment, it was also designed for the operator’s occupation. The entirety of the data halls, white space included, was at all times under the control of and beneficially occupied by the operator. The UT noted that any other outcome would have the absurd result that the rateable property would constantly change in size as units alternated between utilisation by clients and white space.