RATES ON UNOCCUPIED COMMERCIAL PROPERTY – A BADLY-TIMED INCREASE IN BUSINESS COSTS

At a time when business costs are rising generally, the Rating (Empty Properties) Act 2007 has substantially increased the cost of leaving commercial premises unoccupied.

Previously:

• Most unoccupied commercial premises enjoyed 100% rating relief for the first three months that they were unoccupied. Thereafter, they benefited from 50% relief.

• Unoccupied industrial and warehouse premises were entitled to indefinite 100% relief.

• Unoccupied premises owned by charities and community amateur sports clubs were entitled to indefinite 90% relief, so long as it appeared that the next use of the premises would be for the purposes of the charity / club.

From April 2008:
• Most unoccupied commercial premises continue to enjoy 100% rating relief for the first three months that they are unoccupied. After this time, there is no rating relief and full rates are payable.

• Unoccupied industrial and warehouse premises are entitled to 50% rating relief for the first six months that they are unoccupied. After this there is no entitlement to rating relief.

• Unoccupied premises owned by charities and community amateur sports clubs are exempt from rates for so long as they remain unoccupied provided that it appears that the next use will be for the purposes of the charity / club.

The clock starts running from the date the property ceases to be occupied – not the date the changes came in.

One implication of these changes concerns commercial leases. If the tenant claims empty rating relief for a time his lease still exists, the landlord can lose his own ability to claim relief after the lease ends. A well-drafted commercial lease often contains an obligation by the tenant to indemnify the landlord in respect of a loss of rating relief. Such provisions will take on a greater significance in the light of new rules.

These changes pose another serious threat to businesses. It may be that premises become surplus to requirements as a result of the economic downturn, or suddenly become unoccupied when a tenant or subtenant goes bust. In the current climate, finding a new tenant may be far from easy. The subject certainly sparked a lively debate at one of our recent client seminars.

We have practical experience of advising clients about the various strategies which may be adopted to mitigate the problem of liability for rates on unoccupied premises. To find out more, please contact Caroline Wilton.

Filed: 23/06/2008 12:00:49