Empty property rates: April is the cruellest month


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From 1 April 2008 unoccupied commercial property in England and Wales will become liable for full business rates following expiration of a concessionary period – six months for factories and warehouses, three months for everything else. If the premises have been vacant for the concessionary period prior to 1 April, full rates will become payable on 1 April 2008.

Currently no business rates are payable on empty industrial buildings and 50 per cent. business rates are payable on empty commercial space after an initial three month concessionary period.

The Government has introduced the new regulations in order to encourage landlords to let empty space, to encourage tenants to assign leasehold properties they no longer occupy and, by increasing the amount of vacant space in the market, to drive down rents.

There are a number of exemptions and exceptions, and rating surveyors are advising that solutions can be found, albeit somewhat painful ones. The exemptions and exceptions are as follows:

  • agricultural buildings;
  • vacant land;
  • properties owned by or let to companies in liquidation or administration;
  • listed buildings;
  • unusable buildings. The Government initially intended to bring in legislation to prevent owners from vandalising buildings, but shelved this, perhaps in recognition of the difficulty of differentiating between this and genuine partial demolition prior to redevelopment. If the property is leasehold care will need to be taken to avoid action by the landlord for breach of repairing covenants;
  • unfinished buildings in course of development. If a building is within three months of completion, the local authority may serve a completion notice requiring the developer to complete the building, but has no power to do so if the works will take longer than three months;
  • property let
  • property let to a charity at a concessionary rent. Charities can get up to 100 per cent. discount on rates and will buffer the land owner or outgoing tenant from rates liability;
  • property, or part of it, occupied by yourself for short periods or let on short lets. A letting for as little as six weeks will refresh the exemption period, and the pattern of short let period of exemption may continue indefinitely; and
  • occupation prevented by law. Rates may not be charged if the building is too dangerous to occupy, perhaps because of asbestos or breach of fire regulations.

As may be seen from the above, there is a large number of possible solutions. Care should also now be taken when structuring surrenders and re-lettings, to ensure the outgoing tenant is not let off the hook before the incoming tenant is on it. Meanwhile the British Retail Consortium, whose members are likely to be hardest hit, have challenged the Government to promise that if the new tax fails to bring the promised increase of commercial property onto the market, it will revoke it.

For further information, please contact:

Amanda Hado-Bodfield, Partner, Fladgate LLP (ahado-bodfield@fladgate.com)

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