United voice as property sector calls for rates change
IT has had more press coverage than David Beckham’s latest hair-do and everyone, it seems, has an opinion to give on the subject. But, six months on, what has been the impact of empty rate relief reforms on the Yorkshire property sector? Deputy Editor Ian Briggs assesses the climate of opinion.
WHEN the Government announced plans in the 2007 Budget to change the way rates are charged for owners of unoccupied buildings, the reaction wasn’t high profile.
Other issues dominated the then Chancellor Gordon Brown’s final Budget before his accession to Number 10, so the property proposals did not feature top of commentators’ lists.
Fast forward 12 months and the situation was very different. As the news sank in that from April 1 this year the legislation would change, this correspondent carried out interviews with professionals from Yorkshire’s property sector with the reaction to the legislation ranging from the angry to the incredulous.
A number of agents have told of owners demolishing buildings to avoid paying rates amid fury that the Government, which introduced the changes to incentivise people to let their properties, could generate an additional £1bn a year from unoccupied buildings.
But with communities secretary Hazel Blears hinting at the recent Labour Party conference that the Government is considering changes to the policy, which has seen legislation change so that industrial property owners obtain 100% relief from rates for only the first six months that a building is vacant while all other empty commercial properties have three months’ rates relief before incurring the full amount, due to the wider economic downturn, is there hope for the sector?
Here, property professionals give their views to TheBusinessDesk.com on what the future holds as the legislation takes effect.
Jonathan Moore, an associate in the property department at law firm Dickinson Dees in York:
“In recent weeks there have been strong suggestions that the government is reviewing its policy relating to relief from rates for unoccupied property.
“Almost without exception, the commercial property sector agrees that the regulations that were brought in on April 1 to remove relief from rates for unoccupied property were ill conceived and problematical. Now, given the economic pressure faced by property investors and corporate occupiers alike, it is unthinkable that the current regulation will remain unchecked.
“Those involved with development and regeneration have been affected by these changes, although the crisis in the banking sector and its far reaching consequences for commercial developers and construction companies has masked the potential affects on this section of the industry. A more visible hard hitting impact however, can be seen in the investment and commercial landlord and tenant markets.
“The economic environment shapes the commercial property market and in the circumstances that we are currently faced with tenants need flexibility. In most cases they need to know that if their business is hit by a downturn in trade, they can consolidate, cut overheads and exit a property that they do not need. Where such terms are available for a tenant, deals are still being done.
“We are also seeing increases in corporate occupiers being hit by the removal of rates relief, not least where prior to the onset of the ‘credit crunch’ a business has committed to larger premises in order to deal with projected growth.
“Where a company has committed to take for example, 100,000 sq ft of warehousing and distribution space, the rates that might apply to this building could be in excess of £100,000. If the property is not occupied immediately due to revised expansion, these rates will be payable by the business. This is a cost that it would not have budgeted for when drawing up its original expansion plan and as such, they must address how to mitigate their liability for the increased rent and the rates on the whole or part of the unoccupied building.”
Jonathan Moore, an associate in the property department at law firm Dickinson Dees in York: 
Colin Harrop, chairman of the RICS (Royal Institution of Chartered Surveyors) regional board for Yorkshire and the Humber:
“It’s an unpopular tax that is an extra burden on companies at the worst possible time, given the credit crunch. The drastic measures that are being taken to avoid empty property rates is a clear sign that the Government needs to look at this again. In some cases, it is reportedly leading to companies demolishing empty buildings to save extra tax bills but at the same time, the need to reduce the number of empty properties can’t be ignored.
“Within the legislation, the Secretary of State has the discretionary power to reduce the empty property rate to a minimum of 50 per cent of the occupied rate, so there is leeway for the Government to reduce the burden.”
“Obviously the Secretary of State’s central focus is the impact the charges will have on planned regeneration schemes but the mainstream commercial property sector is burdened by this taxation now.
“The Government needs to look at this urgently. To come to any other conclusion than the repeal of this tax would illustrate a complete lack of understanding of the whole commercial property sector.
“This tax increases property costs, reduces choice and increases delay for occupiers as well as creating an unfair burden on owners, and stagnation in areas where the Government has either pinned its own political hopes on regeneration and re-development particularly in areas such as Yorkshire.”
John Webster, head of commercial agency for property consultants Carter Jonas in Leeds:Gillian Oliver, rating director at DTZ:
“There is evidence that the burden of empty rates is causing owners to demolish empty un-lettable property at the earliest opportunity rather than retain them for possible future renovation and refurbishment. This could mean that some ‘character buildings’ will be lost forever but there are other solutions and demolition is not necessarily essential.
“With careful planning, there are ways around the legislation which can substantially reduce rates liabilities and landlords are now seeking professional rating advice more than ever, in order to maximise savings.
Retail landlords are now more amenable to short-term lets. At present, if a shop unit is occupied for at least six weeks, a further three months ‘rates holiday’ is secured when it becomes vacant again. Similarly industrial landlords can benefit from a six month period of void rates on the vacation of a unit.
“Landlords of large empty warehousing and retail properties are taking a flexible approach to rental levels and lease terms in the current market, to balance the rent and rates equation. Dependent on their future plans for a property, some landlords are even prepared to grant a lease at a nil or negligible rent simply to transfer the rates liability to the tenant.
In theory there is nothing to stop a landlord occupying a small part of a warehouse for at least six weeks and then claiming six months void after moving out.”
“The new empty rates charges are certainly acting as a deterrent to speculative development, particularly for large footprint buildings, such as major distribution centres or large offices.
“The changes are also acting as an incentive for wholesale demolition of redundant properties, some of which deserve retention.
“This appears to be an unforeseen and unfortunate implication on this ill-considered legislation.”
Paul Mitchell, managing director of Wakefield-based architects The Harris Partnership:Lois Todd, a property lawyer at Pinsent Masons in Leeds and a spokesperson for Leeds Legal, said:
“The reforms were brought in to stimulate redevelopment but due to the economic climate there are concerns that the change will slow down commercial property investment and development.
“The change in the law could lead to property owners deliberately damaging their properties to make the buildings unfit for potential tenants and therefore avoid taxation.
“Damaging or demolishing buildings may be a short term solution, but it will lead to a decrease in the supply of available properties in the future, and consequently an increase in rents when the demand for property recovers.
“It will also be interesting to see whether there is an increase in the number of rating appeals and valuation tribunal cases challenging the rental values, in light of the new legislation.”
Paul Clarke, regional head of accountancy firm PKF’s real estate and construction team, based in Leeds:
“The latest changes to the empty rate relief are the last thing the industry needs. Increasing the potential risk for property developers in the current economic climate discourages speculative redevelopment and is halting work in progress. In the short term, this may not be too much of a problem, but in the future there may be many fewer commercial properties on the market.
“The changes also affect existing properties, as owners may be forced to implement further restrictions on tenancy agreements, and may, in turn, increase rents to cover the cost.
“The new legislation was modified to stimulate redevelopment, but instead it has increased the risk, making the market less stable.”
