How to deal with Empty Business Rates nightmare

Under that Act empty industrial property was granted 100% relief while all other commercial property received 50% relief following an initial three months exemption. However, under the new charging system industrial premises were granted relief for the first six months of any void period after a minimum of six weeks occupation while all other commercial property receives relief for the first three months of any void period after a minimum of six weeks occupation.

Ever since its introduction, developers, property owners and occupiers have sought ways of mitigating their losses to avoid paying the charge where possible.

The charge was introduced under the pretence that it would encourage developers and property owners to bring back into use commercial properties that had, or would otherwise have remained empty. At the time those developers fortunate enough to have planning permission in place were able to bring forward any planned redevelopment in order to avoid paying the charge, however many were not so fortunate and as a result of the recession many developers and property owners have found themselves in a position of having a redundant planning proposal or no tenant in place to avoid or mitigate paying the charge.

In addition some buildings were, or indeed are, deemed to be beyond economic use, so have little or no market for alternative use. In such cases the introduction of empty business rates has done nothing to bring these properties back into use.

Faced with such a scenario some property owners have resorted to putting their buildings beyond beneficial use or have demolished the building altogether to avoid paying rates. Such anti-avoidance measures of wilful acts of destruction of property, to avoid paying the charge are likely to fall foul of the regulatory authorities albeit that the practice is quite understandable.

However, it is not just developers and property owners who are in the firing line but occupiers of all commercial property too. With rates charged on the whole, those owners with empty premises, be it office, industrial or retail, will also have to act quickly to let any vacant space to avoid paying the charge after any exemption period.

So what can be done? Clearly wilful acts of self-vandalism are not to be condoned, although undoubtedly they do occur and for some they remain an option. Instead it is incumbent on developers and owners to explore different avenues when seeking to mitigate empty business rates and two alternative strategies maybe considered.

One option would be to let any empty business premises to a registered charity.

Currently charities receive an 80% dispensation on their business rates, so paying only 20% of the charge. However, rates of even 20% on the whole of a property could be considerable for a charity to bear, but if the owner were to make a charitable donation to the charity, commensurate to 20% of the overall rates bill then having a charity as a tenant could be mutually beneficial especially if the owner is then able to off-set the donation against tax.  Of course it maybe disingenuous for an owner to expect a rent in addition to saving 80% of a potential rates liability but there are some charities prepared to pay a nominal rent and take on all the day-to-day running costs.

Further benefits may also accrue in the form of good public relations in having let an otherwise empty property to a charity and such an initiative can do no harm when applying for planning permission in the future or going through a public consultation.

The second option sees the temporary occupation of a building by a tenant; and there are various alternative scenarios that may be adopted here.

Already some entrepreneurial companies have set themselves up to act, either as a temporary tenant, or to find suitable temporary tenants, to occupy the empty space.

Finding a temporary tenant works by taking advantage of the six weeks occupation rule and it can be advantageous especially when applied to industrial property. Here the property owner having already enjoyed six months relief on their business rates on an empty warehouse finds a temporary occupier either directly or through a specialist ‘turnkey’ operator to occupy the warehouse for a minimum of six weeks. The temporary occupier contracts to lease the premises for a defined period and agrees to pay the rent and rates during this time although the building owner will reimburse the company and in addition will pay a fee which generally represents 10-15% of the additional savings.

For such an approach to work four principles must be adhered to:

•The temporary occupier must actually occupy the said premises
•The temporary occupier cannot be excluded from any part of the said premises
•The temporary occupier must derive some benefit from occupying the premises
•A specific time limit must be set so the occupier cannot be regarded as transient

Peter Chapman, head of rating at Cluttons said: "It is important that the temporary warehouse occupier actually meets the above criteria by holding stock of worth in the premises in order to achieve and demonstrate a beneficial occupation. At the end of the defined period of the agreement the now empty warehouse reverts to the owner who then applies for a new six months relief from their business rates."

This strategy can be adopted time and again on the same building, although such an enterprise does not lend itself so well to empty offices because here it is harder to demonstrate a beneficial occupation than it is with an industrial property because offices cannot be used for warehousing. Retail however, has found itself a niche opportunity in the current economic climate with the rise of the ‘pop-up’ shop.

With our high streets littered with empty shops, the pop-up shop together with empty business rates have created an unrivalled opening for prospective retailers to experience retailing without the encumbrance of a punitive long lease. The pop-up can take the form of any retailing enterprise, from clothes to goods, sold by an established retailer or those starting out. Furthermore the pop-shop phenomenon can create a buzz around a brand. In the fashion – fad – celebrity world we live in, the pop-shop can sell this seasons "must have" item or be the place to go and be seen. Already the pop-up has transcended the retail sector and crossed over into bars and restaurants.

While admittedly the shelf life of some pop-ups is a lot less than six weeks, in order to preserve their exclusivity, they are clearly a consequence of empty shops and a legitimate strategy in the fight against empty business rates. They are also an example of how markets can come together to exploit and adapt to a changing set of circumstances.

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One thought on “How to deal with Empty Business Rates nightmare

  1. Mike King

    I grow mushrooms and have been exploring the possibility of a temporary mushroom growing facility in a retail or office building. The District Valuer has confirmed that as I am “farming” the property will be exempt from rates. Such a use creates no lasting mess or damage and is self contained within a fully sealed environment within a building. I am looking for a building for 6-12 weeks to test the proposition. Any thing considered ideally in East/West Sussex, Surrey or Kent. Respond to me on 07792 466986

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