Cooke & Arkwright

Empty Property Rates kick in

02/04/08

From April 1st 2008, with a few exceptions, all unoccupied commercial property in England and Wales became liable to 100% business rates due to the abolition of empty property rate (EPR) relief, first introduced almost 30 years ago. In addition, the commencement of the exemption period has been set retrospectively, meaning that anyone with a property that has been empty for more than six months for industrial, or three months for all other commercial property, becomes liable to full rates with immediate effect.

Andrew West, a director at property advisors Cooke & Arkwright was involved in consultations in 2007 with the Welsh Assembly Government on behalf of the Royal Institution of Chartered Surveyors and the CBI, where concerns were raised about the abolition of the EPR relief and the effect it would have on business in Wales.

“The outcome was disappointing as we had lobbied hard,” said Mr West.  “The rates liability will be the same in both England and Wales, while Scotland has opted out of the scheme. There can be little doubt that the legislation is going to have a negative impact on commercial property and the timing in view of the current economic climate is unfortunate. It’s going to prove costly to business and we already have evidence of the additional rate burden stopping speculative development and refurbishment of older buildings. This is a cause of some concern as these developments are a catalyst for job creation.

“Property owners are concerned that the rates will restrict their capacity to upgrade or redevelop empty property in order to attract potential occupiers. It can take many years to obtain planning permission and build or carry out refurbishment on obsolete buildings for which no demand exists. Keeping a property empty is already costly due to maintenance, service, funding and marketing costs. It does not benefit any owner to keep a property empty and some of the increased costs are likely to be passed on to occupiers.”

Garrison Barclay purchased the 106,000 sq ft former Burberry factory in Treorchy, which became vacant in April 2007 after production was switched to China. On April 1st the vacant premises will be liable to a rate bill of £61,978 per annum.

Tristan Hobbs of Garrison Barclay said, “When we purchased the factory we were acutely aware that no occupier could be found in its original condition, so we developed advance plans to create multiple serviced units within the building.  During this process Andrew West advised that once completed, not only would we be liable for unoccupied property rate during the marketing period, which we envisaged could take up to two years, but that the type of development would actually increase our rates bill.  This was a factor which caused us to review the viability of the scheme. The decision was made not to undertake the redevelopment which would otherwise have started, creating employment to the benefit of the local economy.”

Also hit in an unexpected way will be small businesses which currently receive substantial small business rate relief.  If these small properties are vacant for more than three months, small business rate relief of up to 50% will no longer apply, leaving owners liable for higher bills than when the premises are occupied.

Property director of Rombourne, Damian Stokes commented, “This is surely one of the unintended consequences of this legislation, which will have a negative impact on the vulnerable small business sector.  It is a revenue raising exercise that risks damaging competitiveness in Wales and the UK. I hope the Welsh Assembly Government will correct this nonsense as a matter of urgency.”

Mr West said that there would be an increase in the number of rating appeals. “We are providing advice on the potential for clients to minimise their liability, including any potential for legal mitigation with regard to the details of the new legislation,” he said. “It is extremely important to seek professional advice as the government has made it clear that whilst no anti-avoidance legislation has yet been drafted into the empty rates bill, this is an option in the future.”

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