Call to reform Empty Property Relief

22 April 2009

Empty property rates could cause long term instability to commercial property markets says RICS and LSH Empty Property Rates (EPR) Survey Report

RICS and commercial property consultancy, Lambert Smith Hampton, have published the findings of a survey on the impact of changes to the system of Empty Property Rate Relief. The Empty Property Rates Survey, is the first industry review of the tax following its controversial introduction a year ago.

Although the debate around empty property rates has been vocal and well publicised in recent months, it has largely been based on anecdotal evidence. What this research aims to do is establish the actual impact of the changes and provide evidence to allow for a reassessment of the policy.

Prior to April 2008 the void period where empty rates did not have to be paid was three months for most commercial property and 50 percent of the rate thereafter; empty industrial property was exempt from liability indefinitely. Changes came into effect in April 2008 and consequently only industrial properties were entitled to void periods of six months with no void period for other commercial property. Once the void periods had elapsed, the empty rate had to be paid at to the level of 100 percent of the standard business rate.

According to the RICS/LSH, “Empty Property Rates (EPR) are paving the way for future instability in non-residential property markets as property owners are increasingly turning to demolition to avoid paying the rates whilst cutting back on future investment. Empty Property Rates are exacerbating the financial difficulties of many property companies and occupiers with an overwhelming 93 percent of respondents in agreement that this was the case.

“This has led to an increase in the demolition of perfectly sound properties, with 75 percent of respondents agreeing that there had been an increase in the demolition of properties and 85 percent believing this was to avoid paying the rates. In addition all sectors saw a decrease in investment of new properties, with the industrial sector being the hardest hit, and 79 percent believed that Empty Rates are having a detrimental effect on town regeneration and speculative development.

“Consequently there is likely to be shortage of available commercial property once the economy turns around. EPR will also have a significant negative impact on the ability of central and local government agencies to pursue property-led urban regeneration.

The problem of demolition is set to get worse over the coming months, as the results indicate that owners are tending to wait around 12 months before considering demolition of empty stock, meaning we should expect to see a sharper rise in occupiers resorting to knocking down empty buildings over the coming months. “

According to Gillian Charlesworth, Director of External Affairs at RICS, “Although the Government’s motives for reducing EPR relief were well intentioned when initially introduced, it is clear that the recession has led to these rates having the opposite effect and causing more damage to a sector that is already suffering. This survey has finally produced the evidence-based facts to support the need for changes to be made to this hugely unpopular tax.

“On the basis of these findings, we have urged the Government to give serious consideration to increasing the EPR relief to 12 or even 18 months before full business rates across all non domestic properties become payable, or to remove, or significantly reduce, empty property rates across all non domestic property, in full consultation with the industry.”