The consultation period on the new legislation ended on 1 October 2007. It is timely to consider what effect the proposed alteration to empty rates liability will have on the commercial property market when it comes into force on 1 April 2008.

The Rating (Empty Properties) Bill was introduced into the House of Commons on 10 May 2007. The main change is the introduction of 100% liability on commercial property after the initial void period. Currently empty retail and office premises receive 3 months nil liability and the remainder of the empty period at 50% liability. In the future it is proposed there will be 100% liability after the initial 3 months at 50%.

Furthermore, in the case of empty industrial properties which currently pay no rates for the whole of their empty period, there will be full rates liability after the initial 6 month period.

The Goverment`s stated intention (which was announced in the 2007 Budget) is to encourage owners to re-let, re-develop or sell empty non-domestic buildings, thereby reducing the need for new development on greenfield sites and increasing access to existing premises for businesses and consequently reducing rents.

The Government is aware that many owners may prefer to vandalise empty property rendering it incapable of beneficial use (and therefore not rateable), rather than pay rates. This could arise, for example, where the property has been purchased by a developer who plans to demolish it in the future as part of a redevelopment scheme.

To address this issue the Government intends to include anti-avoidance measures so that the property will be considered in its state prior to any such self inflicted damage. The Consultation Paper considers various scenarios how this might be done by considering the relevant date for considering the physical state of the building. In short, this will mean that the physical state of the property will be considered at an earlier point in time so that any subsequent "constructive vandalism" is ignored.

Another point to consider is that under current legislation there can only be one rating appeal for each individual event. Therefore where a property was going to be empty for the foreseeable future an appeal to reduce the rateable value may have been withdrawn as the expectation of empty rates made the appeal largely irrelevant. Now that the empty property will give rise to an ongoing liability the owners will be penalised for previously withdrawing their appeal based on the earlier empty rate provisions.

We have had numerous enquiries from warehouse operators who foresee this additional tax hitting them when their sheds are empty from a downturn in business.

The proposed measures will increase the financial risk of speculative developments. Developers will be less likely to begin construction without having already agreed terms with a tenant. Existing speculative schemes such as the Nimbus Distribution Centre at Thorne, Doncaster offering up to one million square feet of accommodation would be much riskier under the new provisions.

For further information please contact Paul Gleeson on 01482 645522 or paulgleeson@clarkweightman.co.uk

(First published 12th October 2007, www.clarkweightman.co.uk)

“...to encourage better use of commercial premises I will restrict the relief available for empty industrial properties to 6 months, and for empty offices and retail to 3 months” These words tucked away in the Chancellors Budget speech have not received much comment but could have very expensive consequences for owners of empty commercial property after 1 April 2008.

Currently non industrial empty property including retail and offices receive 3 months at nil liability and the remainder of the empty period at 50% liability. In the future there will be 100% liability after the initial 3 months at 50%.

The situation is even more marked in respect of industrial premises (which may be empty through lack of demand or being held prior to a redevelopment scheme). Under the existing provisions, all “qualifying industrial hereditaments” (including most industrial property and warehouses) are charged “empty rates” at nil liability. This remains the case for as long as the property remains empty. After 1 April 2008 these properties will attract nil liability for 6 months only and then the full liability will be due.

The Government has stated its intention to bring in this legislation “as soon as possible” and some of the detail still remains vague. For instance it is not known if the clock will start running on the exemption period from when the legislation is in force or from when the property first became empty. In the latter case this could give rise to a liability as soon as the legislation is in force.

The above could give rise to owners undertaking “constructive vandalism” of their properties in an attempt to avoid this financial burden. There could also be a disincentive for speculative developers of industrial property who may run the risk of a long period of business rate liability while a tenant is being found.

For further information on this or other business rate issues, please contact Paul Gleeson

(First published 3rd April 2007, www.clarkweightman.co.uk)