Business rates are payable on all non-exempt non-domestic properties irrespective of whether the property is vacant. The scope of this article is to raise awareness of the possible ways in which commercial property owners may reduce their liability for business rates during periods when their property is unoccupied.
Liability for and Calculation of Business Rates
The owner of the non-domestic empty property, defined as the person entitled to possession of the property, is liable to pay the rates. Business rates are payable on non-domestic properties capable of beneficial occupation including shops, offices, pubs and industrial property. Business rates are calculated by multiplying the rateable value of the property by the relevant multiplier. The rateable value is set by the Valuation Office Agency (VOA) and is based on the amount of rent reasonably obtainable for the property on the assumption that the landlord has put the property into a reasonable state of repair where it is economically reasonable to do so and the property is available to let on the open market at a fixed valuation date. From 1 April 2017, the rateable value will be based on the valuation date of 1 April 2015. The relevant multiplier is set by The Department for Communities and Local Government in England and normally changes each year in line with inflation. The provisional standard non-domestic multiplier for 2017/18 is 47.9p and the provisional small business non-domestic multiplier for 2017/18 is 46.6p. So, for example, if the VOA sets the rateable value of the property at £15,000 and the provisional relevant multiplier is 47.9p, the calculation is the rateable value multiplied by the relevant multiplier divided by 100 which in this example results in a total business rates bill in the sum of £7,185 (subject to any reliefs applied).
Empty Property Reliefs and Exemptions
The following are some of the main reliefs and exemptions applicable to empty non-domestic properties:
- Retail properties including shops and offices are exempt from business rates for three months only and industrial properties are exempt from business rates for six months only. It is important to note that this fixed period exemption is triggered at the point that the property becomes empty and a change of ownership does not trigger a new exemption. To avoid owners taking advantage of this exemption, short term lettings of less than six weeks will be ignored to prevent owners continuously letting the property for short periods in order to gain the benefit of additional exemption periods. To qualify for a new exemption, the property must have been let or occupied for more than six weeks before it becomes vacant again.
- Where occupation of the property is prohibited by any local or public authority or the owner is prohibited by law from occupying or allowing the property to be occupied, the property will be exempt from business rates.
- Listed properties, including properties that form part only of a listed building, are exempt from business rates.
- If the property is partly-occupied, the VOA may value the occupied and unoccupied parts of the property separately which may reduce the rateable value of the property for the period during which the unoccupied part cannot be used.
- Empty properties with a rateable value below a certain threshold are exempt from business rates. As from 1 April 2017, this threshold is set to increase from £2,600 to £2,900 in England.
It is crucially important that commercial property landlords fully understand the business rates regime and ensure they claim all applicable reliefs to reduce their business rates liability during periods when their property is empty. It is also important that landlords and tenants of commercial property understand the position and their respective liabilities under the terms of the lease including who is liable to pay the business rates, whether the tenant may make a proposal to alter the rateable value and the effect of forfeiture or disclaimer on business rates. In particular, landlords should ensure their leases contain a provision that if the landlord is unable to claim empty rates relief because it has been claimed by the tenant, then the tenant must reimburse the landlord such sums and the tenant should also check if its lease contains such a provision.
If you have any questions or require further advice, please contact our Commercial Property department.
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