The tax rules on empty properties have changed and the implications of these changes can place a heavy burden on the shoulders of property owners.
During the economic recession in the late 1980s there was low demand for commercial property. In order to assist the property world, the Government introduced rating relief which provided that if a property was occupied for six weeks (the 'six week rule') then the ratepayer was entitled to a three month exemption from rates. This was followed by a fifty per cent exemption from rates for the remainder of the empty period. Industrial properties benefited from full relief for the whole of the empty period.
The Government now believes that this enabled property owners to keep buildings empty whilst driving up the rent on other properties on the market. The rationale behind the latest change is to bring vacant commercial and industrial properties back into use to reduce the need for new development on greenfield sites and to bring forward opportunities to redevelop old industrial sites. This in turn is intended to increase the supply of vacant properties on the market, reduce business rents and improve the UK's competitiveness.
Under the new rules, empty commercial properties now only benefit from a three month rates exemption and the fifty per cent exemption after that time has been abolished. Empty industrial properties benefit from a six month exemption period instead of being exempt for the full void period. The six week rule still applies. A property is entered on to the rating list when the Valuation Office designates that it is capable of occupation. If a property is newly built, the VO may enter it on to the rating list if it will be finished within three months. If the property is not completed at the end of this period then the rates free period starts in any event. The changes to the rating relief mean that the date that a property is entered on to the rating list has become increasingly important.
The periods of relief may not reflect the time needed to re-let properties, and the new rules will certainly discourage speculative development. It is clear that developers have already put developments on hold as a result of the change.
As with all measures of this type, property owners will try and minimise the effects of the provisions. The Government does not expect developers to rip property back to shell to try and avoid the legislation. We suspect they are right on this as property owners' primary aim is to seek a return on their investment through promptly letting the property.
The view of the property industry seems to be that it is a shame that the Government didn't focus more on that basic principle initially because if they had they may never have introduced the new regulations in the first place.
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