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Chancellor’s failure to tackle empty property rates

Five years has passed since the previous Government’s ill conceived decision to levy full business rates on empty commercial and industrial premises. Inevitably over the years, property owners and landlords have found innovative and creative ways of avoiding the unfounded tax grab.

Empty Property Rates (EPR) was intended to be a 100% charge on those properties that remained empty beyond a three or six month period. Introduced to dissuade landlords from being unrealistic in their rental expectations and keeping buildings empty rather than adjusting their asking rents, in our opinion it was a tax that was destined to fail and create tensions between the Government and commercial property landlords.

EPR remains a major obstacle to development

Five years down the line, an estimated 15-20% of retail units are vacant and some 24% of all office space is empty. The rates levy has certainly been a factor in stalling speculative development and although the last budget did hold some concessions in this respect, EPR is still one of the major obstacles to development.

Where the Coalition has been subjected to accusations of going too far too soon in terms of reducing the deficit, with EPR it is most certainly a case of not far enough. The Government will not disclose how much it has made from EPR but there is an element of ‘own goal’ about a policy that has cost an estimated £50m per annum from those vacant commercial premises owed by public sector organisations in England alone.

Coalition compounds misery

While the policy was a Labour initiative, the current Conservative led Coalition has compounded misery upon ratepayers by taking no action to alleviate the situation.

A sticking plaster has been applied in that new developments will not have to pay full rates for 18 months from September 2013, but a failure to repeal has led to frustration amongst business leaders.

The frustration with the current Chancellor has led calls for Business Secretary Vince Cable to open the debate on the future of business taxation.

Tax Avoidance – Courts side with businesses!

It is a sign of the desperation of property owners that, especially in the North in areas of low property demand and where business start-up is limited, investors are turning to rating professionals to see how they can advise them on legal avoidance schemes. This has not gone down too well in the corridors of Whitehall or indeed with our local councils who now have more involvement in rating matters following the Government’s Localism Bill.

Once the EPR holiday (three months for commercial buildings or six months for industrial type buildings) has elapsed, owners then have to pay full rates. If a business occupies a property for six weeks and then vacates, a new EPR holiday can commence, heavily mitigating the owner’s annual liability where he has no tenant.

The most high profile recent legal decision was the Makro case, where the wholesaler successfully argued that a pallet of documents covering 0.2% of the floor space was sufficient to claim a six week occupation in order to gain a six month void from business rates.

Bluetooth technology proves victorious

Locally, Sunderland City Council have taken objection to the use of Bluetooth short-wave mobile phone messaging services which employ small amounts of a property’s space. The owners of a building in Sunderland rented an office to a Bluetooth service provider for six weeks at a peppercorn rent before vacating and claiming a rate free period. Magistrates absolutely rejected the Council’s objection. The Council referred the decision to the High Court but just last week (24/05) this also ruled in favour of the Bluetooth provider.

A further recent decision on a separate operation using similar Bluetooth techniques has fallen foul of the courts. Public Safety Charitable Trust (PSCT) occupied premises full time as a charity claiming the relief that comes with such status. However it is the charity status that is questionable here which differentiates it from the Sunderland case.

Local Authorities seek non-occupation

It is a perverse role-reversal that local authorities are now just as likely to be seeking to prove non-occupation in the courts as they are to be seeking to prove occupation. They, and the Government, cannot reasonably expect to win both sides of this argument.

LSH has helped both private and public sector bodies to legally avoid EPR in the North East and the rest of the country as part of a wider rates mitigation service to ensure clients pay their fair and reasonable share.

This was posted in Bdaily's Members' News section by Laura Drake .