Business Rates on Vacant Property – A Less Favourable Playing Field for Property Owners
In the space of four months, the industry has seen three key changes announced which will increase empty rates costs for property owners. Where does this leave Owners with vacant property?
In our November blog post https://fore-view.co.uk/news/business-rates-on-vacant-industrial-where-are-we-now/ the Investor & Developer team at ForeView predicted there would be changes to the Rating System which would make conditions less favourable for property owners. In particular we predicted that the Government would extend the occupation “reset period” to qualify for Empty Property Relief and we forecast that the Valuation Office Agency (VOA) would become more “resistant to removing industrial property from the list even where a scheme of works is seemingly fairly extensive.”
Whilst the moves made by the Government aren’t unexpected, the speed at which they have implemented changes in legislation is surprising, not only affecting the industrial sector but property owners across all sectors. In the space of four months, the industry has seen three key changes announced:
- The Government have tightened up the legislation relating to the service of Completion Notices, which makes it easier for Local Authorities to bring newly refurbished properties back into the rating list. This change in legislation was effective from 26th December 2023 and with Local Authorities under increasing budgetary pressures we have seen an uptick in Completion Notices being served on property owners with vacant new or refurbished space. In some instances, Completion Notices being served within days of a refurbished property being taken out of the rating list by the VOA.
- The Government announced in the spring budget that they have extended the Empty Property Relief “reset period” from 6 weeks to 13 weeks effective from 1st April 2024. Further legislative changes are being considered as the Government reviews the responses to their recent consultation on “Rates Avoidance & Evasion”
- The VOA emboldened by their success at Valuation Tribunal on two industrial properties undergoing works, took two further cases, this time on office properties to the Valuation Tribunal in January. Again the Tribunal have awarded in favour of the VOA. There were undoubtedly issues with the way these two latest cases were prosecuted rather than the works not necessarily being sufficient in scale for the properties to be removed from the list but these latest decisions will no doubt put further “wind in the sails” of the VOA.
Where does this leave property owners with vacant property?
In the space of four months, property owners now face conditions where an increased Empty Rates cost is almost inevitable. Local Authorities are more proactively bringing new and refurbished buildings into assessment, the opportunity to remove a property from the rating list during a scheme of works is more challenging and where owners are faced with long term voids the savings profile on temporary occupation rates mitigation schemes is less favourable.
For a lot of property owners the default position on any void has for a long time been to implement a temporary occupation rates mitigation scheme. Whilst the changes in legislation won’t put a complete stop to the practice of rates mitigation, it will mean an increased rates cost needs to be written into development appraisals and asset management strategies. At best the saving over a 12 month void period is 50% on all property classes other than industrial.
There are still opportunities to delay the onset of a liability and remove a property from the rating list during a scheme of works but, more so than ever before, putting a proactive strategy in place ahead of an upcoming vacancy is key to the outcome. Selecting an advisor with the right specialist expertise to successfully implement that strategy is critical. Pick the wrong strategy or advisor and an owner could be left with a 100% rates liability during the void period with significant impact on the development appraisal or performance of the fund.
As reported by Costar, 2023 saw a record number of new start up companies launched. The office sector talks of a “flight to quality” and the advisory market is no different as property owners and occupiers seek “best in class” advice whatever their property requirements.
The changing rating landscape is impacting ratepayers with vacant property more than any other industry. There is constant pressure from Local and even Central Government to capture more in empty property tax. What is being overlooked is that investors and developers don’t want their property sitting vacant.
Often a property falls empty for reasons completely out of the hands of the owner and even where they are trying to get vacant possession, it’s for redevelopment purposes. Those redevelopment proposals often sit at the mercy of the Local Authority planning department. With the Valuation Office also taking an increasingly resistant stance to deleting property from the list, now more than ever it’s essential that investors and developers ensure they are properly advised.
Ed Searle and Sam Walters head up the ForeView Investor and Developer Rates advisory team. Between them they have advised some of the largest institutions and developers and deliver director led advice and service to all our of their clients. Their combined experience in the industry, spans almost 40 years.
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