Rating (Empty Properties) Act 2007

In the March 2007 Budget, the Chancellor announced that rate relief on empty property was to be curtailed with the introduction of the Rating (Empty Properties) Act. The Treasury has estimated that additional revenue from the scheme will generate between £900m and £950m. The legislation became law on 19th July 2007. A fundamental part of the Act is the provision for the Secretary of State to make changes by regulation, the majority of which will come into effect on 1st April 2008.

Business rates are primarily a tax on the occupiers of non-domestic properties, and are calculated by multiplying the rateable value of the property occupied by a centrally set multiplier. Current Government policy exempts unoccupied business properties from business rates for three months, at which point rates are levied at 50% of the full rate. In the case of empty industrial and storage property, such facilities enjoy 100% rate relief until re-occupation.

With effect from 1st April 2008 this will change, and most property that has been empty for more than three months – or, in the case of industrial property (storage facilities, warehouses, factories) and listed buildings, for more than six months – will no longer receive relief from rates. After the initial three or six month rate-free period expires, empty property will be liable for 100% of the basic occupied business rate unless it falls under one of the designated exemptions.

The reforms are designed to significantly change the amount of relief most owners of unoccupied properties currently benefit from. The Government hopes that the new Act will give owners a strong incentive to re-let, redevelop or sell on empty non-domestic buildings (lost rental income, together with the liability for repair and insurance costs does not appear to have been factored into the Government’s assessment). The desired effect is a reduction in the need for new development and a greater number of available premises for businesses, which may lead to a reduction in rental costs.

The Rating (Empty Properties) Act has three main clauses:

1. Empty properties will pay occupied rates, although it is believed there may be a way for the empty charge to be reduced – to a minimum of 50% of occupied liability. However, the specific laws on this have not been made yet.
2. Unoccupied property owned by charities or Community Amateur Sports Clubs (CASC’s) will receive 100% relief from empty rates – but only if it appears that the property will next be occupied by a charity or CASC.
3. The introduction of anti avoidance provisions, which prevent owners from constructively vandalising their own properties (as was the case in the recession of the 1980’s, where factory owners removed the roofs of their empty properties in an attempt to escape any business rate liabilities). Section 66A of the Local Government Finance Act 1988 has been amended, to provide that an unoccupied property, whose physical condition has been changed, could be valued in its previous state.

The consultation paper is silent on whether a property that has been vacant for three (or six) months by 1st April 2008, will benefit from a fresh void period or will pay 100% rates from that date.

To view the full article including exemptions and industry response to the Act, please see below:

Full Article

In the March 2007 Budget, the Chancellor announced that rate relief on empty property was to be curtailed with the introduction of the Rating (Empty Properties) Act. The Treasury has estimated that additional revenue from the scheme will generate between £900m and £950m. The legislation became law on 19th July 2007. A fundamental part of the Act is the provision for the Secretary of State to make changes by regulation, the majority of which will come into effect on 1st April 2008.

Business rates are primarily a tax on the occupiers of non-domestic properties, and are calculated by multiplying the rateable value of the property occupied by a centrally set multiplier. Current Government policy exempts unoccupied business properties from business rates for three months, at which point rates are levied at 50% of the full rate. In the case of empty industrial and storage property, such facilities enjoy 100% rate relief until re-occupation.

With effect from 1st April 2008 this will change, and most property that has been empty for more than three months – or, in the case of industrial property (storage facilities, warehouses, factories) and listed buildings, for more than six months – will no longer receive relief from rates. After the initial three or six month rate-free period expires, empty property will be liable for 100% of the basic occupied business rate unless it falls under one of the designated exemptions.

The reforms are designed to significantly change the amount of relief most owners of unoccupied properties currently benefit from. The Government hopes that the new Act will give owners a strong incentive to re-let, redevelop or sell on empty non-domestic buildings (lost rental income, together with the liability for repair and insurance costs does not appear to have been factored into the Government’s assessment). The desired effect is a reduction in the need for new development and a greater number of available premises for businesses, which may lead to a reduction in rental costs.

The Rating (Empty Properties) Act has three main clauses:

1. Empty properties will pay occupied rates, although it is believed there may be a way for the empty charge to be reduced – to a minimum of 50% of occupied liability. However, the specific laws on this have not been made yet.
2. Unoccupied property owned by charities or Community Amateur Sports Clubs (CASC’s) will receive 100% relief from empty rates – but only if it appears that the property will next be occupied by a charity or CASC.
3. The introduction of anti avoidance provisions, which prevent owners from constructively vandalising their own properties (as was the case in the recession of the 1980’s, where factory owners removed the roofs of their empty properties in an attempt to escape any business rate liabilities). Section 66A of the Local Government Finance Act 1988 has been amended, to provide that an unoccupied property, whose physical condition has been changed, could be valued in its previous state.

The consultation paper is silent on whether a property that has been vacant for three (or six) months by 1st April 2008, will benefit from a fresh void period or will pay 100% rates from that date.

The reforms provide that charities and CASC’s which own empty property will not be liable to rates for that property, provided that it appears it will be used for charitable purposes or the purposes of the club. Listed buildings, and those subject to a building preservation notice, currently pay no empty rates, but the Government is presently consulting on possible reforms to the exemption for empty property that is listed or subject to a building preservation notice; and on the possibility of extending the exemption from rates for empty property held by companies in liquidation to that held by companies in administration.

The British Property Confederation is concerned by the Governments perception that landlords withhold property from the market, as this does not make commercial sense. Landlords generally only withhold property when they are waiting for planning permission or waiting to regenerate. The fear is that the proposals may well jeopardise such schemes, and the supply of available buildings may become stifled as opposed to increasing as per the Government’s wishes. Furthermore, in areas of high demand such as central London, there is already ample pressure on owners to re-let vacant property. The removal of relief is unlikely to reduce rental values, as market forces are the major determinate of rental prices. In the long term, the Act will result in higher costs for property owners, but in the short term, it could also conflict with the Government’s initiative – to see shorter and more flexible lease terms being available to businesses.
As a result of the proposed regulation, developers may become wary of investing in areas requiring regeneration, if there is a possibility that new buildings could lie empty and attract a 100% business rate tax. In response, the Government has proposed the introduction of specific tax incentives for regeneration. Whether this will be sufficient to redress the concerns remains to be seen.

The proposed regulation may also put the UK in a vulnerable position when compared to our European counterparts who generally pay a much lower rate on empty properties.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 19/09/2007.