Changes to Empty Property Business Rate Relief

30 March 2009

By Susan Poole, Partner, Commercial Property

The old regime

Under the old regime empty industrial and warehouse premises were entitled to a permanent exemption with regard to business rates.  Office and retail premises were liable to rates at 50% following expiry of a six month exemption period.
 
Why has this changed?
 
As a consequence of new legislation introduced by the government in the form of The Rating (Empty Properties) Act 2007 which  came into force in England and Wales on lst April 2008.
 
What are the key changes?
 
The old regime has been replaced with a new regime which provides that as from lst April 2008 in England and Wales 100% of the rates are payable on empty business properties once initial exemption periods have expired.
 
What are these exemption periods and how do they relate to different properties?
 
Office and retail premises – three months exemption
Industrial and warehouse premises – six months exemption
 
Subject to limited exceptions (see further below) after the expiry of these periods full rates are payable on empty business properties
 
Which properties are excepted
  • listed buildings
  • where the rateable value of the property is less than £2,200 (but see further below)
  • property held  by charities (and where its next use is likely to be for a charitable purpose)
  • property held by community amateur sports clubs and as with the charitable property, it seems likely its next use will be for the same purpose
  • owner prohibited by law from occupying the property or by action taken by the Crown or any other local or public authority from occupying the property
  • property where the owner  is entitled to possession only in their capacity as the personal representative of a deceased person
  • property where insolvency or debt administration situations exist (for example, bankruptcy order where the owner is an individual, companies subject to winding up orders or where a liquidator is entitled to possession)
Is it possible to have a property removed from the rating list?
 
A valuation officer may judge if a property is in poor condition and cannot be repaired economically that it should be taken out of the rating list completely.  Valuation Officers are Officers of the Office of Revenue and Customs.  Further details in this regard can be obtained from visiting their website at www.voa.gov.uk
 
Can I put my property into a state of disrepair to have it removed from the rating list?
 
No.  A Valuation Officer will disregard changes in a properties condition where it is evident it has been damaged in order to avoid paying rates.  Examples given include removing a roof from an empty property for the purpose of avoiding rates.  In a case such as this it will be assessed as though the roof were still intact and rates will remain payable.  Currently the Government has decided against introducing previously planned anti-avoidance legislation but professional commentators say they will be closely monitoring ratepayers actions in respect of what is referred to as "constructive vandalism".
 
Have there been any developments since lst April 2008?
 
In a pre-budget announcement on 24th November 2008 (www.opsi.gov.uk) in an attempt to assist small business to manage in the prevailing economic climate, the government announced  that properties rated below a threshold of £15,000  would pay no business rates for the period April 2009-1010.  As of the time of publication of this article, there are no plans to extend this concession beyond this date.
 
As a landlord or a tenant is there anything I can do to offset the effects of the new legislation?
 
In the current economic climate it is incumbent on both parties during their negotiations to acknowledge the effect of changes in legislation which could have an adverse effect on the availability of tenants or suitable property for letting. Parties should: 
  • consider the effect of the legislation when negotiating heads of terms to make clear who is to derive the benefit of rate relief if a property becomes empty during the term.  Appropriate provisions should then be included in the lease
  • tenants should be alert to landlords seeking to negotiate higher rents for shorter leases to cover any possible exposure to rates; landlords should look to factor this risk into agreeing rental levels
  • tenants should seek to obtain maximum opportunities to assign/sublet so as to ensure they are not left with a liability for rates if they no longer need to occupy the property; landlords should consider commercially acceptable concessions to minimise the risk that they may be left with a tenant who cannot meet its ongoing liabilities under the lease
  •  consider appealing against rating assessments
  • landlord's should consider intermittent short term occupation (often attractive to a charity or a seasonal business)
  • tenants should look to offset  increased financial commitments by reducing other outgoings as far as possible e.g. by negotiating monthly rental payments with landlords

UPDATE NOTE 19/05/2009: In the Chancellor's pre budget report, it was announced that  for the financial year 09-10 only  empty property with a rateable value of less than £15,000 would be exempt from business rates.  The changes are designed to assist in alleviating the effects of the economic downturn on small businesses.  For further information go to VOA website.

Contact our team for more information.