Empty Property Rates Relief Cut - Return To Bombsite Britain?

The Government has announced that from 1 April 2011 the empty property rates threshold will revert to £2,600 from the current level of £18,000. This will be a matter of concern for commercial property owners who have any empty premises in their portfolio.

The changes will have a widespread impact on both landlords and tenants, whether you or your clients are:

• landlords and wish to discuss how to make your commercial leases more attractive to prospective tenants; or
• tenant of business premises and wish to discuss how you may be affected by the virtual scrapping of the scheme.

Currently the relief provides that owners of unlet commercial property with a rating value of under £18,000 pay no business rates on their empty property. The Government has estimated that it would cost £400m to continue the scheme, and as part of its wider spending review believes that cost can no longer be justified.

The proposed changes have been strongly criticised by the British Property Federation ("BPF") who have declared it will bring about a return to 'bombsite Britain' as owners of empty property chose to demolish their holdings rather than pay full business rates

In a statement BPF Chief Executive Liz Peace said: "The majority of the properties affected by today's announcement will be in areas that are already economically disadvantaged, and so this will be a further blow." The BPF is lobbying the government with representatives from the British Retail Consortium, CBI, RICS, British Chambers of Commerce and others and has set up a website www.emptyrates.com as a focal point for its efforts.

Clearly this change will be a matter of concern for commercial property owners who have struggled to let their buildings as a result of the downturn. Calculations will have to be made to ascertain the likely cost to property owners and innovative solutions considered to let those properties which will now be caught by the tax.

If they want to let those properties which are currently empty, Landlords could consider:-

• Extended rent free periods
• Contributions towards fit-out costs
• Stepped rather than open-market rent reviews
• More generous alienation provisions
• Break clauses
• Monthly rent payments and other concessions

Landlords could also look at planning issues to make their properties more lettable. This can be done by addressing town planning constraints such as the need for change of use planning permission i.e. storage and distribution to light industrial use, or removing restrictive planning conditions that might restrict hours of working, traffic movements or other operational requirements. Applying for more 'open' planning consents on sites and buildings that could be attractive to a greater range of businesses and users can help to turn round empty properties more quickly.

The proposed changes will also have an impact on small businesses as the government does not intend to re-introduce a 50 per cent relief, and small firms will not be able to claim Small Business Rate Relief on the property. The Federation of Small Businesses ("FSB") has stated that it had written to local government minister, Bob Neill, to protest that the changes could potentially put some small firms out of business. If the cuts cannot be avoided, the FSB claims, it would be better to provide per cent relief or at least to allow a business to claim Small Business Rate Relief on their empty property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.