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Empty Rates – the end of rates mitigation?

The latest business rates consultation is targeting the use of mitigation schemes to reduce business rates liability on empty properties as the government try to stem the £250m cost of empty rates. Should any of the options below come into effect, it will have a fundamental impact on the cost of holding empty property.

If you have empty property then now is the time to review your options – get in touch to find out how we can help.

Prior to 1 April 2008, industrial properties were exempt from empty rates and offices/retail were subject to a 50% charge after an initial three month void period at 100% relief. After April 2008, this changed to 100% liability after six months on industrials and three months on offices/retail. The rationale for the different exemption periods is clearly outdated – originally industrial properties had a longer exemption as they were harder to let.

The bulk of rates mitigation schemes rely on a clause which allows a new void period with 100% relief after reoccupation for six weeks. There has been a multitude of schemes and providers over the years but the government is now looking to clamp down on what it sees as the misuse of the six week rule.

The consultation contains various options;-

  • Extension of the six week period to three or six months. Wales have already changed to six months and this has cut empty rates mitigation at a stroke. The suggestion is that having to occupy for an extended period would limit the financial benefit and extend the ‘pay back’ period, making it much less attractive.
  • Limit the number of times a property can benefit from empty property relief in any given period, so that even if a property repeatedly became vacant within a short time frame it would cease to benefit from relief until sufficient time had passed. The existing ‘reset period’ would cease to apply and, instead, a property would only benefit from a single rate free period of up to three or six months in a set period of time. Full rates would be payable for the rest of the time, regardless of whether the property was empty or not.
  • Address what constitutes occupation – there is currently no statutory definition and the consultation raises the question about whether more than 50% of floor space would need to be in use for it to be considered occupied. This is typically be much more than what’s currently used for mitigation purposes.
  • After an initial statutory void period, place empty rates relief in the hands of local authority and allow them to awarded it at their discretion. This has potential for wide variations as some councils would be hostile to owners/developers and others supportive.
  • The use of charities to mitigate rates requires an empty property, held by a charity, to be exempt as long as the next use is for charitable purposes. This allows charities to hold empty properties to use as say, warehousing for urgent aid distribution centers. There is a suggestion of widescale abuse and the new reporting requirements under the Non-Domestic Rating Act will stamp a lot of this out.

What it means in real terms

Rates mitigation is in widescale use for a reason. The solution has been created to combat a tax regime which doesn’t account for the complexities of the property market and the difficulties in letting certain types of property in certain locations and compounded by delays in the planning system.

Reducing the ability to mitigate rates won’t miraculously lead to vacant space being let but it will place an additional burden on a market that’s already suffering from high interest rates and increased energy costs. Landlords fundamentally do not want vacant space.

There are other options to mitigation including deletions due to works or obsolescence and we have successfully argued alternative methods that secure long term savings without the need for the repeated use of third party occupiers.

Get in touch to find out how we can help.

Empty Rates – the end of rates mitigation?

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