Comments on Budget Proposals for Changes to Unoccupied Business Rates

From David Hudson of Vail Williams - 20 April 2007

The Budget announced changes to the imposition of business rates on unoccupied premises but the proposals give little detail of how the reforms will affect owners and lessees or when they will take place.

The starting point is the current position. Empty rates are charged at 50% of the full rate after an initial exemption period of three months except in the case of industrial and storage premises and Listed Buildings, which are exempt from the unoccupied charges. The Budget proposals will change this with effect from 1 April 2008.

Research by the Institute of Revenues Rating and Valuation (IRRV) suggests that the changes will result in the imposition of a 100% rate on all commercial premises, including industrial and storage premises after an initial exemption period. This initial period will be 6 months for industrial and storage premises with the 3-month period remaining for all other commercial premises.

No specific mention is made of Listed Buildings but the IRRV anticipate that they will lose their exemption unless some compelling reason can be found for it to continue. The only exemption specifically mentioned in the research is for Charity premises.

Who will this affect?

The changes will affect any owners or lessees of unoccupied business premises. The costs of holding unoccupied premises will be increased and in extreme cases may lead owners to review their portfolios to address exposure to costs for empty premises. The costs of holding premises with high vacancy rates will be increased and asset values will be affected. In extreme cases this may lead to redevelopment or change of use, involving new capital expenditure.

The changes will also affect companies undergoing rationalisation or those involved in acquisitions and mergers as the costs of holding surplus premises pending disposal will be increased. This will have most impact in areas of high vacancy and low demand, where prospects for re-letting are poor.

What Might Happen?

There is some evidence from history where landlords removed the roofs of empty factories to avoid empty rates, leading to the decision to exempt industrial property from unoccupied rates. The budget proposals could see an increase in buildings being damaged or soft stripped to avoid rates.

Owners of empty premises have been insulated to a greater or lesser extent from the full costs of business rates and in the case of industrial and "Listed" premises there was little incentive to appeal. The proposed changes will give an incentive to owners and lessees to ensure the rates are reduced to the lowest possible level. The rating appeals process is notoriously long winded and affected owners should take advice now to ascertain whether there are opportunities to reduce rateable values through the appeal process, in advance of the new proposals coming into effect.

David Hudson, partner Vail Williams

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