Paul Taylor, an Partner in the Commercial Property Unit, offers guidance for landlords on how to try and minimise their exposure to empty property rates

In April of last year, legislative changes were introduced to the level of business rates payable in respect of unoccupied commercial buildings (‘empty rates’) with the aim of encouraging landlords to re-let quickly at a competitive rent. The Rating (Empty Properties) Act 2007 came in to force on 19 July 2007 and since 1 April 2008, full business rates have been chargeable on all vacant commercial properties after an initial concessionary period of six months in respect of warehouses and industrial buildings and three months in respect of retail and office premises.

There are some exemptions from the new system (for example listed buildings do not attract a charge to tax) but generally business rates will now be payable on all vacant commercial buildings once the relevant concessionary period has expired, bringing the liability for empty rates to the same level as that for occupied properties. 

The current economic climate has led to an increasing number of landlords being faced with a tax on unused assets where they are unable to re-let their empty properties within the initial rate-free void period.  Therefore, it is vital that landlords do all that they can to shelter themselves from the liability to pay business rates on vacant buildings for as long as possible, for example, by ensuring that the terms of any lease allow them to take the full benefit of any available empty rates relief when that lease comes to an end.

Set out below are some of the ways in which landlords can seek to limit their exposure to empty rates:

• When buying an untenanted investment property that is ready for occupation, try and delay completion until you are in a position to proceed immediately (or within the relevant rate-free period) with the proposed lease.  This will prevent any void period before the lease starts but will need to be balanced with the interests of the other parties to the transaction. Similarly, where a landlord is in the process of developing commercial premises and has not pre-let, it may consider stopping work until a tenant is found as unfinished buildings which are not capable of beneficial occupation may not satisfy rateable criteria and may therefore be exempt from business rates (however, a local authority can serve a completion notice in certain circumstances where it is reasonable to assume that a property can be put into a lettable condition within three months).     
• Keep track of notice periods. Good estate management is essential to avoid delays in replacing old tenants.