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Business rates and empty rates relief

Business rates and empty rates relief is a key issue for landlords.

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Business rates and empty rates relief

In the current economic situation, many property owners are struggling to rent out their properties, and their difficulties have been exacerbated by their liability to pay rates on empty properties.

Business rates are not payable on empty commercial properties with a rateable value below a certain threshold. The threshold was temporarily increased between 1 April 2010 and 31 March 2011 to £18,000 but on 1 April 2011 it will be reduced to £2,600.

This will mean that fewer empty non-domestic properties will be exempt from business rates.

Who is liable to pay rates on empty properties?
The person liable to pay rates on empty property is the “property owner” The” property owner” is the person entitled to possession of the property. This includes a tenant who has vacated but is unable to surrender the lease or find an assignee.

What empty non-domestic properties are rateable?
If a property is incapable of beneficial occupation, it will be removed from the rating list altogether and no rates will be payable. If only part of the property is rendered incapable of beneficial occupation, the Valuation Office Agency reduces the rateable value of the premises for the period during which that part cannot be used

Basis of calculation of rates
The business rates bill is calculated by multiplying the rateable value of the non-domestic property by the relevant multiplier.

Rateable value of wholly non-domestic property
The rateable value of the property is based on the amount of annual rent reasonably obtainable for the property, on the assumption that, if it is economically reasonable to do so, it has been put into repair.This assumption applies regardless of the actual state of the property. Where the repairs would not be economic, the valuation is based on the annual rent reasonably obtainable for the property in its unrepaired state.

The VOA reviews rateable values every five years. New rateable values came into effect on 1 April 2010.

Multiplier
The multipliers usually change each year in line with movement of the Retail Prices Index (RPI) since the previous September.

Exempt properties
The following types of empty non-domestic property are exempt from rates (either indefinitely or for a fixed period):

  • Retail property, such as shops and offices: 100% relief for a continuous period of three months only
  • Industrial and warehouse property: 100% relief for a continuous period of six months only
    • Changes of ownership during the three month period do not trigger a fresh three month exemption. The exemption applies to the property, not the person paying the rates.
    • Short term occupation of the property (of six weeks or less) by, for example, a tenant or licensee during the three month period will be ignored The three month period and the business rates exemption will continue to run during that period of short term occupation. This rule prevents owners from gaining additional periods of rates exemption by establishing a temporary letting.
    • If the property is let or occupied for a period of more than six weeks, the rates exemption will end at the start of that period, but when the property becomes vacant again, a new exemption period can be claimed
  • Properties whose owner is prohibited by law from occupying it or allowing it to be occupied e.g. where there is a breach of the fire safety regulations and a prohibition notice is served. or the property is closed by the local authority for health and safety reasons
  • Listed properties This includes property that forms part only of a listed property.
  • Empty properties with a rateable value below a certain threshold, As above this threshold is as follows:
    • £18,000 until 31 March 2011.
    • £2,600 from 1 April 2011.
  • for one year from 1 October 2010 there will be full relief for eligible small businesses occupying property with a rateable value of up to £6,000, and tapering relief for businesses with a rateable value of up to £12,000
  •  Empty properties whose owner is entitled to possession in his capacity as a personal representative or as trustee under a deed of arrangement
  • Empty properties owned by individuals subject to a bankruptcy order or by a company subject to a winding up order or in administration (However, an administrator is liable to pay business rates  where a company in administration continues to trade from the property)

Landlord and tenant issues
When negotiating heads of terms with prospective tenants, landlords should quantify the risk of void periods when no one is in occupation, and make it clear who is expected to bear the cost of any period during which the property is empty.

Tenants should ensure that they have flexibility under the lease to assign or underlet the property without unreasonable restrictions. This will allow them to mitigate the business rates they may incur if the property become surplus to requirements and has to be left empty.

If a tenant ceases to occupy the property prior to expiry or termination of the lease, it can claim business rates relief When the lease terminates the landlord can claim only the remainder of the appropriate period of business rates relief. This may mean that the landlord will incur more expense than it anticipated during the re-letting period.

Therefore the landlord may wish to provide that the tenant will compensate the landlord for any empty property relief that the landlord loses.

If a landlord forfeits the lease, the landlord will once more become responsible for paying rates (subject to any reliefs that may be available), as the person entitled to possession  The landlord should bear this cost in mind  if a replacement tenant for the property has not been identified.

In a difficult letting market, landlords may wish to consider offering incentives to tenants to take leases to off set the rates liability. For example, landlords might offer lower rents, reverse premiums or more favourable lease terms.

If you wish to discuss this article or require any advice or assistance in relation to commercial leases then please do not hesitate to contact Jonathan Senior on 0114 2536543. may incur if the property become surplus to requirements and has to be left empty.

If a tenant ceases to occupy the property prior to expiry or termination of the lease, it can claim business rates relief When the lease terminates the landlord can claim only the remainder of the appropriate period of business rates relief. This may mean that the landlord will incur more expense than it anticipated during the re-letting period.

Therefore the landlord may wish to provide that the tenant will compensate the landlord for any empty property relief that the landlord loses.

If a landlord forfeits the lease, the landlord will once more become responsible for paying rates (subject to any reliefs that may be available), as the person entitled to possession  The landlord should bear this cost in mind  if a replacement tenant for the property has not been identified.

In a difficult letting market, landlords may wish to consider offering incentives to tenants to take leases to off set the rates liability. For example, landlords might offer lower rents, reverse premiums or more favourable lease terms.

If you wish to discuss this article or require any advice or assistance in relation to commercial leases then please do not hesitate to contact Jonathan Senior on 0114 2536543.

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