Proposed Changes To Empty Property Relief Confirmed
Mark Linning, Senior Chartered Surveyor at Bulleys outlines some of the possible ramifications together with a number of legitimate measures to avoid business rates on vacant commercial property as from 1st April 2008.
Mark comments:
“One of the most controversial announcements in Gordon Brown’s final budget speech before becoming Prime Minster was to change the existing vacant property relief provisions for commercial property”.
At present, all vacant industrial and warehouse premises pay no business rates. All vacant offices and retail premises pay 50% business rates after receiving an initial 100% relief for 3 months.
The Rating (Empty Properties) Act 2007 will drastically change the liability to pay business rates when a property is empty. As from 1st April 2008 empty offices and shops will only receive 100% relief for the first 3 months and thereafter will be liable to a full rate liability. For owners and occupiers of industrial and warehouse property, the change is even more drastic. After receiving a 100% relief for the first 6 months all industrial and warehouse occupiers will be liable to a full rate liability.
Mark goes on to comment:
“Furthermore, it is my understanding that if a property has received or is already receiving its existing void rate allowance, it will not receive a further three or six month allowance as from 1st April 2008”.
Many owners of commercial and industrial property will recall the situation that arose in the early 1980’s when occupiers and owners of such property went to the extent of removing roofs to render properties “incapable of beneficial occupation” and therefore avoided paying business rates.
In an attempt to avoid a similar situation arising this time round, the Government intends to also introduce “Anti Avoidance Legislation” whereby prior to and leading up to 1st April 2008, buildings will be assessed on the assumption that the building was in the same physical state as it was prior to any “constructive vandalism” such as the removal of a roof.
The Government is currently inviting views and comments on its “Anti Avoidance Consultation Document”. If indeed as it seems likely, the Anti Avoidance Legislation will be introduced and “soft stripping” or “Constructive Vandalism” is not an option, rating surveyors acting on behalf of rate payers will need to come up with some ingenious solutions to limit their clients rate liability.
If the legislation is passed by Government, Mark outlines some of the legitimate potential Anti Avoidance measures that may be considered as follows:
• Charities or community amateur social clubs (CASC’s) legitimately receive 80% mandatory relief. Owners of large property holdings may consider setting up their own Charities or CASC’s and let vacant properties to charities or CASC’s.
• Buildings that are subject to closure orders or dangerous structure notices are not capable of beneficial occupation and therefore pay no business rates. Owners of older properties in particular may thereafter wish to consider applying for such an order or notice in attempt to avoid paying business rates.
• A property is deemed to have been occupied if occupied for a period of 6 weeks. Thereafter, when it becomes vacant, the appropriate three or six month void rate allowance will be applicable. Landlords may therefore wish to consider intermittent lettings of 6 – 8 weeks and to move tenants where possible to alternative accommodation in multi let properties to try and avoid and limit their overall rate liability.
• Listed Buildings are currently exempt from business rates whether occupied or vacant. Buildings located in a conservation area are not exempt.
Therefore, at present, if an owner obtains a protected listing for a building, it will be exempt from paying business rates. However, the Governments current consultation paper is presently considering a number of options relating to Listed Buildings, one of which is to provide owners of protected buildings with the same exemptions and allowances as other commercial properties.
• If a new building does not have a Completion Notice, it is not liable for business rates. The Billing Authority can only serve a Completion Notice on the owner of a new building where it comes to the Billing Authorities notice that the work remaining is such that the building can “reasonably be expected to be completed within three months”
Mark comments further regarding the issue of Completion Notices as follows:
“Landlords or owners should also make sure that Billing Authorities have issued a Completion Notice in accordance with the required regulations. If Building Authorities have not complied correctly with the regulations, the Completion Notice may be invalid and have to be re-served, reducing the rate payer’s liability.”
The estimated loss in rate yield on empty properties in England is estimated at £1.3 billion in 2005/2006 and the income to be raised for 2007/2008 is estimated to be £950 million. It is argued by Government, however, that the legislative reform was to encourage owners to try and develop or use vacant property for alternative uses. It is therefore almost a certainty that the legislation will come into effect from April next year.
The impact, however, will be overwhelming. GL Hearn estimate that 7% of all retail property is currently vacant. An unnamed high street Bank estimates that out of a portfolio of 2,500 properties they currently have 6 – 8% vacancy which will result in a £1.6 million bill overnight. King Sturge also estimate that 49.1% of industrial development is speculative and Mark comments that
“We are already seeing developers put on hold speculative development until such time as the current legislation is passed”.
Mark also comments that “Manufacturing expansion is also unlikely to take place if proposed moves or expansions are likely to result in existing or old premises remaining vacant and liable to rates.
Mark concludes that:
“Ironically, Gordon Brown’s decision to restrict empty property relief in an attempt to encourage reoccupation and redevelopment of vacant properties could have exactly the opposite effect. The initial legislation was rushed through within 2 months of first being placed before the House of Commons on 10th May 2007, with no consultation and in my opinion will encourage Landlords and Developers to demolish existing buildings or restrict development to avoid rate liability. This will result in a detrimental impact upon property activity and values in what is an already uncertain market due to the continuing concerns about credit problems in the UK banking markets”.
Bulleys Chartered Surveyors have offices in Wolverhampton, Oldbury and Telford and are appointed Royal Institution of Chartered Surveyors rating helpline advisors. For further advice and a free initial telephone consultation on how to appeal your existing rating assessment, contact Mark Linning, MRICS on 01902 778582 or be email on mark.linning@bulleys.co.uk.
