Understanding Rates Payable On Empty Commercial Property

When it comes to owning commercial property, there are many expenses to consider beyond just the initial purchase price or rental fees. One of these ongoing costs that can catch many property owners off guard is the rates payable on empty commercial property. These rates, also known as business rates, can quickly add up and become a significant financial burden if not properly understood and managed.

Business rates are a tax that is charged on most non-domestic properties, including commercial buildings, shops, offices, warehouses, factories, and even holiday homes. These rates are calculated based on the rateable value of the property, which is determined by the Valuation Office Agency (VOA). The rateable value is an estimate of the annual rental value of the property at a specific point in time.

For occupied commercial properties, the business rates are usually paid by the tenant as part of their lease agreement. However, when a property becomes vacant, the responsibility for paying the rates falls on the property owner. This can come as a shock to many commercial property owners who may not have budgeted for this additional expense.

The rates payable on empty commercial property can be a significant cost, especially for larger properties with high rateable values. In some cases, the rates payable on an empty property can be just as much, if not more, than the rates payable when the property is occupied. This can put a strain on property owners who may already be facing financial challenges due to the property being vacant.

To make matters worse, the rules around business rates on empty commercial property can be complex and confusing. In England, for example, the rules changed in 2008 to reduce the rate relief available for empty properties. Prior to 2008, most empty commercial properties received a 100% rate relief for the first three months and then a 50% rate relief thereafter. However, under the new rules, many properties are no longer eligible for any rate relief, leaving property owners with the full financial burden of paying the rates on empty properties.

There are some exceptions to this rule, such as newly built properties which may be eligible for a 100% rate relief for the first 18 months. However, these exceptions are limited and do not provide much relief for property owners who are struggling to cover the costs of their empty commercial properties.

One way that property owners can reduce the rates payable on empty commercial property is by taking steps to mitigate the rateable value of the property. This can be done by making changes to the property, such as reducing the floor area or improving the energy efficiency, which can result in a lower rateable value and, therefore, lower business rates.

Another option for property owners is to explore other ways to generate income from their empty commercial properties. This could include renting out the property for temporary uses such as pop-up shops, events, or exhibitions, which can help to generate some income to offset the costs of the business rates.

It is also important for property owners to stay informed about any changes to the rules around business rates on empty commercial property. Governments are constantly reviewing and updating these rules, so property owners need to be aware of any new developments that could impact their financial obligations.

In conclusion, rates payable on empty commercial property can be a significant financial burden for property owners. Understanding the rules around business rates and exploring ways to mitigate the costs can help property owners to manage this expense more effectively. By staying informed and proactive, property owners can avoid being caught off guard by the costs of empty commercial properties and ensure that they are not paying more than they need to.