Liability for rates for vacant commercial properties: The impact on landlords and tenants

March 13, 2019

As of 1 April 2008, property which has been vacant for more than three months no longer receives relief from paying rates. After the initial relief period any vacant property with a rateable value of more than £2,599.00 is liable to pay full rates. The purpose of rates on vacant non-domestic property has been to encourage properties to be brought back into use. Some properties are eligible for an extended period of relief, including:

• Industrial premises (such as warehouses), which are exempt for a further 3 months;
• Listed buildings, until they are reoccupied;
• Buildings with a rateable value under £2,600.00, until they are reoccupied;
• Properties owned by charities, but only if the property’s next use will be mostly for charitable purposes;
• Community amateur sports clubs buildings, but only if the next use will be mostly as a sports club.

The person liable to pay the rates is the person entitled to possession of the property, which is usually the owner. The rate-free period usually runs from the date a non-domestic property becomes vacant. A property will usually be considered vacant where it is unoccupied, unfurnished and not used for storage purposes. The property must have been previously occupied for at least six weeks before the rate-free period can be applied. After this period the rates are billed at half of the amount of the normal occupied amount. Any short-term occupation of the property, that is, occupation for less than six weeks, during the rate-free period is ignored and rates do not become payable. However, any occupation for longer than six weeks allows the owner to claim a fresh period of exemption should the property become vacant again.

The introduction of vacant rates has impacted on both landlords and tenants. If a tenant moves out of a property but continues to hold the lease, then they remain liable to pay any unoccupied rate charge that may become due until the lease expires. If the tenant’s lease ends, however, the landlord will be liable to pay any rate charge instead. In the High Court case of Schroder Exempt Property Unit Trust v Birmingham City Council [2014] EWHC 2207, the Judge held that landlords are to be treated as the occupier of unoccupied property for the purpose of non-domestic rates where a tenant’s liquidator disclaims its lease. This remains the case even where there is a guarantor.

Furthermore, the economic downturn has made it increasingly difficult for landlords to acquire new tenants, and some have thus resorted to demolishing properties rather than paying the full rates for the vacant property. There are also examples of pensioners who, after purchasing commercial units as a means of supplementing their retirement income, are at risk of economic ruin due to the obligation to pay rates on their vacant properties. As landlords want to re-let their properties as soon as possible, they may have to consider offering incentives to prospective tenants, such as lower rents or more favorable lease terms.

In November 2012 RICS published the following results after expert members conducted research into the effect of these vacant property rates:

• 92% of respondents viewed the rates as a barrier to town centre regeneration;
• 89% felt that the policy was restrictive to overall economic growth;
• 88% considered the rates to be a significant deterrent for speculative building.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.

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