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3 July 2008

Adverse effect of end of rates relief on empty buildings

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by Lin Freestone

Adverse effect of end of rates relief on empty buildings

The changes in the law introduced at the beginning of April this year, which removed the empty property rates relief on commercial buildings, is leading landlords to demolish un-let property rather than pay the new levy.

Empty offices and shops are now liable for the full business rate after the first three months. This is extended to six months for factories and warehouses.

The government reasoned that the changes would encourage activity, reduce rents, and ensure that empty commercial buildings were refurbished and re-let quickly. It would, at the same time, generate an additional £1.4bn revenue from the commercial property sector.

It was also perceived that by making more commercial property available, it would reduce the need for new developments on greenfield land.

However, fear of added costs from un-let units are making developers think twice about proceeding with speculative projects, especially in areas not considered to be prime locations.

Another effect of the change is that it is taking space out of the market. Some developers are bringing forward demolition plans on larger buildings that were not due to be cleared for another two or three years.

Industry groups like the British Property Federation and the CBI have opposed the imposition of full business rates and are asking the government to closely monitor the situation. They claim that the government did not properly consult the property or business industry on the detrimental effects and unintended consequences of the policy.

There are provisions within the legislation for the rate to be cut by up to 50% in certain circumstances. Currently, only companies in administration are exempt, as are charities.

In the meantime, empty commercial property continues to be a drain on a company’s finances and is becoming not so much a valuable asset as a major overhead.

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