Business Rates Relief on Commercial Property

by PropertyBlawg on December 7, 2012

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Guest property law blog post regarding business rates relief on commercial property in the UK.

The majority of high streets are made up of commercial property as are retail parks and industrial estates.  The recession not only brought the collapse of many established consumer brands leaving many of these commercial properties empty. Since the collapse of Woolworths over 3 years ago and more recently Comet going into administration, the situation shows no signs of improvement.

A commercial lease usually provides that the tenant shall be responsible for all business rates on a property. Where the property become empty for over three months for shops and offices, or six months for industrial units, then business rates relief cannot be claimed and the liability to pay business rates rests with the landlord.

Business rates are determined by the rateable value of the property as calculated by the Local Authority. There are many firms of surveyors who specialise in trying to negotiate the rateable value of properties with the Local Authority. The surveyors usually charge a fee equal to the percentage of the saving on business rates they achieve for the occupier. Properties with a rateable value of below £2,600 are not liable to pay business rates until such a time that they are reoccupied.

It has been known for landlords to let out the property for short term in order to re-qualify for business rates relief. Such period of occupation needs to be at least six weeks every three or six months. This allows the landlord to re-claim the business rates relief after the occupation for three or six months depending on whether it is shop, office or industrial unit. Landlords however, find it difficult to find tenants who will take up these short term tenancies. This problem is compounded if the property is in a bad state of disrepair.

Given these problems, it has been known for landlords to have reciprocal arrangements between themselves to let each other’s property for the short term period in order to utilise the business rates relief. Or, re-use their commercial property themselves for this short-term occupation which is an easier route. However, councils have become aware of this and are seeking to challenge such occupation. For example, in June 2012, Makro tried to avoid having to pay business rates by using the warehouse for temporary storage of documents for a short period of time and the area occupied was approximately 0.2% of the warehouse’s total floor space. The High Court considered that this use was actual occupation. This meant that once this occupation had ceased, business rates relief could be claimed.

In the case of new buildings which are in the course of development, these are exempt from business rates. However, we have seen local authorities trying to serve completion notices on developers; such notices require the developer to complete the development if the authority considers that building is within three months of completion. Thus, if you are a developer who is undertaking a development and does not have a tenant, you may want to consider not completing the development until you know that there is a prospect of gaining a tenant.

Hawkins Hatton Corporate Lawyers are a Legal 500 and Chambers recognised law firm specialising in Commercial Property. For more information, please contact any one of our property lawyers.

Commercial property lawyers



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