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Empty and partly occupied property liability

publication date: Apr 8, 2008
author/source: Michael Hare
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The theory is that this will help to increase a supply of premises to let, reducing business rents and improving the competitiveness of the UK. The theory also expands that it should encourage redevelopment of brownfield sites therefore reducing the need for new development on greenfield land.

What will this mean for rates liability?

As from 1 April 2008 most property which has been empty for more than 3 months, or in the case of industrial property, for more than 6 months, will no longer receive relief from rates. After the initial 3 or 6 month rent free period expires, empty property will be liable for 100% of the basic occupied business rate. The only exceptions to this are unless:

The property qualifies for the new zero rate provided by the rating (Empty Properties) Act 2007. From 1 April 2008 the rates liability of empty property which is held by a charity and appears likely to be next used for charitable purposes, or which is held by community amateur sports club and again appears likely to be next used for that same purpose, will be reduced from 10% for the basic occupied rate to zero.

The property qualifies for an exemption from rates under the NNDR (Unoccupied Property) Regulations. Whilst the current permanent exemption for industrial property will be reduced to six months, the government proposes to preserve the majority of the other existing exemptions unchanged. However the government is also consulting on possible reforms to the exemption for empty property which is listed or subject to a building preservation notice. It is also consulting on the possibility of extending the exemption from rates for empty property held by companies in liquidation to that held by companies in administration.

Is it possible to have my property taken out of the rating all together?

If the property is not capable of beneficial occupation – for example if it is in poor condition and cannot be economically repaired – the valuation officer may judge that it should be taken out of the rating list all together. However it should also be noted that if the property is damaged intentionally for the purposes of avoiding rates, under new anti avoidance legislation introduced by the government the valuation officer will also be required to disregard the change in the property’s state when assessing its rateable value. So for instance if the roof is taken off from an empty property for the purpose of avoiding rating liability it may be valued on the assumption that the roof remains in situ.

How will the rates liability be affected if a property is only partly occupied?

If a property is only partly occupied, the billing authority has discretion to request that the valuation officer apportions the property’s rateable value between its occupied and unoccupied parts. The current system, broadly speaking, means that empty property rates applies to the empty part of an apportioned building and the occupied business rate applies to the occupied part. However as from 1 April, as a consequence of these reforms, the empty part will receive a complete exemption from rates for the first 3 months it is empty (or if it is an industrial property, for the first 6 months), and after the initial rate free period expires in most cases the apportionment will cease to have effect and the occupied business rate will apply to the whole of the property.

This will ensure that occupiers can benefit from any occupied business rate relief to which they are eligible, such as small business rate relief, on the whole of the property, not just the occupied part. It should be noted however if the property would qualify for new zero rate or for an exemption from rates when empty, the apportionment will continue to have effect and the owner will not be liable for rates on the empty parts.

Is there an appeal process against the changing rates liability?

The changes in the rating liability arising from the reforms are not in themselves grounds for appeal. Nonetheless if an occupier disagrees with a rateable value that appears in the current rating list, under the existing arrangements they can challenge it by making a proposal against it to the local valuation office. An occupier’s rights of appeal are not affected by the reforms to empty property rate relief and the usual process of contacting the local valuation office about the arrangements for making proposals still stand.


This proposal of changes to the system of empty property rate relief was one of the most controversial announcements in the 2007 Budget. Shortly after the proposals, the RICS publicly stated ‘changes to the system of empty property rate relief will not achieve the government’s aim of increasing the supply commercial property and reducing rents and will instead discourage new d e v e l o p m e n t and damage r e g e n e r a t i o n schemes by raising cost for developers.

The RICS have firmly stated that these changes will have significant adverse affects on commercial property, and when the paper was published in August 2007, RICS stated that the retail sector alone had an aggregate rateable value of £38billion.

Current estimates showed 7% of that stock as being vacant, which would suggest an aggregate rateable value for vacant retail property of more than £2.5billion. Furthermore RICS estimated that the revenue generated by the removal of empty property rate relief could equate to more than £1billion a year. The RICS’ view is that the changes are purely a revenue raising exercise with no thought of the potential consequences, much of which will undoubtedly effect many businesses. The RICS suggested that these consequences include:

  • Property owners deliberately damaging their buildings to remove them from the rating list therefore not eligible to pay the empty rate.
  • Increased service charges to recover empty rates payments. An increased number of rating appeals and Valuation Tribunal cases challenging rental values, particularly on redundant premises.
  • Increased dilapidations claims. A drop in share prices for companies with big holdings of industrial property.

For those of us with long memories, this is going back to the situation in the 1970s when an empty rate was introduced in the form of a penal rating surcharge. At that time no new lettings were created by that surcharge and it led to the deliberate vandalising of property, in order to avoid rates liability. Anecdotal evidence from RICS members in respect of the demise of the UK engineering industry in the 1970s suggested that a major contributory factor was the inability to mothball factories during recession.

The necessity to pay full rates on premises not manufacturing anything resulted in plant and machinery being sold off, and many buildings being demolished. When recovery eventually came, manufacturing companies found that it was not cost effective to rebuild and the only economic solution for many household name companies was to import from the Far East.


Once again in the writer’s view this is an indication of government meddling in market forces and either not undertaking full consultation, or indeed taking note of any consultation process from the people at ‘the coal face’. Notwithstanding these comments however the legislation will be enforced from 1 April, and obviously those of who deal with commercial property will have to be advising clients (if they have not done so already) of their increased liabilities under the rating system.

The practicalities of advising clients aside, there is a view in certain quarters that the legislation will have a knock on effect on the market not least in the managed business space sector. Property Week has recently as the 7 March commented that Tom Stokes, Managing Director of Evans Easyspace believes that this move to shorten the period before rates are imposed on empty space could be a hammer blow to his type of operation. The article in Property Week reported that Evans Easyspace has already decided to cut development plans by half, citing extra costs from empty rates liability of £500,000 a year. As a result two new proposed centres in Merseyside and Staffordshire worth £6,000,000 and with capacity for 400 jobs have been postponed by the developers.