UK: Empty Property Rates Relief Reform: Proposals Give Cause For Concern

Last Updated: 9 April 2012
Article by Jamie Grant

The Scottish Government has published a Bill setting out proposals for reform of the regime for rates relief for empty properties in Scotland, as heralded in our e-update of 27 September 2011. The Bill contains proposals which could have significant implications for a large number of properties already vulnerable because of the recessionary market.

Background

It was announced in the Scottish Government's Spending Review last year, that rates relief for empty commercial property is to be reformed "to provide strong incentives to bring vacant premises back into use, reducing the prevalence of empty shops in town centres and supporting urban regeneration".  Details of those reforms have now been made public in the Local Government (Unoccupied Properties etc.) (Scotland) Bill.

Proposals

In brief, the proposals are to reform the empty property relief regime to the following effect:

  1. For the first three months following vacancy, all properties will benefit from 100% relief and will pay no rates at all. This is no change from the current position.
  2. After that initial three month period, all empty property will be subject to a requirement to pay up to a maximum of 90% of the applicable non-domestic rates, unless further exempted from this requirement by Regulations yet to be promulgated by the Scottish Government. This is a significant change from the current position.
  3. Any property which is further exempted by Regulations, will continue to benefit from 100% relief during vacancy. This is no change from the current position, unless the Scottish Government elects to alter the classes of property/tenure which are subject to the further exemption.

Implications

The provisions of the Bill relating to non-domestic rates give the Scottish Ministers the flexibility to reduce relief to as little as 10%; they need not do so. However, the Policy Memorandum accompanying the Bill indicates that the Scottish Government's proposal is that all properties which do not currently benefit from the further exemption at 3, above, shall be subject to the 90% requirement. That is, those properties will receive only a 10% relief, compared to a 50% relief under the current regime.

In simplified terms, the properties which currently benefit from further exemption are industrial lands and heritage, listed buildings and Scheduled Ancient Monuments, property subject to rates of £1700 or less, and property subject to insolvency proceedings.

What that means is that all other property, including offices and retail premises, will lose 40% of the relief to which they are currently entitled.

England & Wales Contrasted

The Scottish Government has resisted any temptation to mirror reforms in England and Wales. To recap the position in England & Wales (since 2008), 100% relief available for empty commercial property is restricted to three months, after which the property becomes subject to the full rate for occupied property. The further relief available for empty industrial and listed properties has been restricted to six months.

Scotland, therefore, will still be better off than England and Wales, but the benefit gap has reduced significantly, other than for industrial property, where there is still a considerable competitive advantage.

Commentary

The effective date for these changes is not yet certain, although the anticipated date is April 2013. The potential impact on office and retail premises in particular is cause for concern. Even a requirement to pay 50% of passing rates liabilities might be a struggle for some owners in the current climate. Although the reforms may indeed act as an incentive for some owners to place their property on the market, not all of those properties are sure to sell, so adding the costs of marketing property to a 90% rates liability is not going to be welcome.

The Scottish Property Federation continues to lobby the Scottish Government, arguing that the costs of this reform outweigh the likely benefits. We shall be monitoring the Bill's passage through Parliament, so we will keep you abreast of developments.

© MacRoberts 2012

Disclaimer

The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.

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