Partner Article

Empty Promises

With Watson Burton LLP Law Firm

Last week’s Budget confirmed the controversial proposals announced in the 2007 Budget relating to the restriction of empty property relief provisions and the changes are now imminent. The reforms have been introduced in the Rating (Empty Properties) Act 2007 in a bid to incentivise the re-use or re-development of empty shops, offices or factory buildings to encourage re-generation, increase the supply of commercial property and to reduce costs for businesses. However, the property industry is of a differing opinion as the reforms are said to be leading to a £3.5bn tax grab from property owners’ pockets over the next three years alone.

At present, all empty industrial and warehouse premises pay no business rates. All other empty commercial premises (offices and retail) pay 50% business rates after receiving an initial exemption for the first 3 months. From 1 April 2008, empty industrial and warehouse property will only be exempt from business rates for the first 6 months and thereafter will be liable to a full rate liability. For all other commercial property, after receiving the 3 month relief, the full amount of business rates is due. This is to be calculated retrospectively, so, if a property has been vacant for 6/3 months (depending on the nature of the premises) or longer prior to 1 April 2008, full rates are payable from 1 April. The existing qualification period of 6 weeks for which a property would have to be re-occupied before it re-qualifies for the initial 6/3 month extension has been retained.

There is some limited relief for certain excepted premises for example: charities and community amateur social clubs receive 80% relief; listed buildings are currently exempt from business rates whether occupied or not; and buildings subject to closure orders or dangerous structure notices which render them not capable of beneficial occupation are exempt.

In light of this, the Government is consulting on “Anti Avoidance Legislation” to prevent deliberate dereliction such as the removal of roofs to render properties “incapable of beneficial occupation” to avoid paying business rates. Consultation is underway and therefore it is unlikely that this form of constructive vandalism will provide any solution to property owners in the long term.

Commentators argue that the reform, which was introduced to encourage property activity and re-development, will not have the desired regenerative effect as Landlords and Developers may turn to extreme solutions such as demolishing existing buildings or restricting development to avoid business rate liability. Alternatively, it could be the push property owners need to sell on their stagnant portfolio to willing developers. Whatever the effect on property activity, this “stick tactic” way of reform is certainly a blow for owners of empty commercial property.

If you have any comments or questions about this article or any other commercial property related matter, please contact nicola.marriott@watsonburton.com.

This article was published on 20 March 2008 and was correct at time of publication. The material contained in this article is intended as a guide only. Whilst the information is correct at time of publication, it is not a substitute for legal advice. Watson Burton can accept no responsibility for actions taken based on this information.

This was posted in Bdaily's Members' News section by Ruth Mitchell .