Empty Business Premises – What are your options?
Since the abolishment of empty property business rates relief last year, most landlords benefit from only three months grace for non-industrial premises and six months for industrial premises before having to pay the full amount of business rates.
Certain types of property are exempt from empty property rates, and these include:
- properties where occupation is prohibited by law
- listed buildings
- those held by a personal representative of a deceased person
- those held by a liquidator or trustee where the owner is the subject of insolvency proceedings or whose company is in administration.
The threshold at which an empty property becomes liable for business rates increased to a rateable value of £15,000 in April, but this is a temporary measure and only assists a proportion of landlords.
As the prospect of letting premises continues to diminish, what options are there for a commercial landlord paying full rates on empty premises to help them mitigate their losses?
- The “six week rule” – relates to a tenancy providing for intermittent occupation of, or storage at, the premises for at least six weeks. This will trigger a further “grace” period of three or six months and arguably this is the easiest measure for a landlord to employ. There is a suggestion that the Valuation Office Agency are looking into ways to close off this loop hole but nothing has been established yet.
- Charitable occupiers – benefit from 80 per cent relief where the premises must be occupied for the purposes of the charity and cannot be left vacant. Whilst this can be a big saving, specifically securing a charity tenant in the current market is likely to be difficult.
- Community Amateur Sports Clubs – that have registered with the Inland Revenue and who satisfy certain criteria will automatically get 80 per cent relief too. However, these may be harder to find than charities.
- Constructive vandalism – is something that you may have heard discussed, on the basis that a building will be exempt if it is not capable of ‘beneficial occupation’. However such actions will incur additional costs in the long term in order to return it to a rentable state. This is an extreme and risky measure and, if the state of your property is damaged for the purposes of avoiding rates, under new anti-avoidance legislation introduced by the Government your valuation officer will be required to disregard the change in the property’s state when assessing its rateable value.
- Unfinished buildings – do not qualify for rates and therefore a developer landlord could defer completion until he is able to secure a tenant. There is the risk however that the local authority will use their power to serve a completion notice and landlords would be wise to consider careful phasing for completion of such units to avoid this risk.Where a landlord wants to refurbish premises, and is considering delaying this process, unless they are able to prove that the premises in their current condition are not capable of ‘beneficial occupation’ they will be liable for empty premises rates.
- Appeal – if you believe that the rateable value of your premises is wrong, you can make a formal appeal or proposal to alter the rating list to the Valuation Office.
Other ways for a landlord to mitigate their losses would be to consider offering more flexible lease terms, or agreeing to reduce rents in an effort to fill empty properties.
A landlord may also consider a change of use in order to make premises more marketable or, in order to attract smaller business tenants, splitting a larger unit into two or more units. Professional advice should be taken to find out if such proposals would require formal planning consent as certain changes of use and alterations will be permitted without the permission of the local authority or the Secretary of State.
A further consideration for landlords with empty commercial properties is the difficulty obtaining insurance due to the increased likelihood of damage due to vandalism, the implications if there is flooding or a fire and the fact that there may be nobody on-site to react promptly. There is also the potentially increased risk of squatters moving in or causing damage.
With the economic outlook for 2010 still uncertain there is even more pressure on landlords to use existing properties more efficiently and re-using existing space will be key.
If you are considering your options, please contact Roger Wilkinson or Richard Hemingway and we will advise on the best course of action.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.