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Commercial property investors warned of new act

21 July 2008

Commercial property investors have been warned to be aware of the implications of new laws on rates for empty properties.

The Rating (Empty Properties) Act 2007 increased liability to business rates for unoccupied properties from the previous level of 50 per cent of the occupied rate to 100 per cent of that rate.

However, the government has power to vary the empty property rate by any amount down to a minimum of 50 per cent of basic liability.

Mat Oakley, chairman of the British Council of Offices (BCO) warned the new rules could have a "big impact" on the profitability of owners offering up a wide portfolio of premises on commercial leases.

Mr Oakley said: "If you were to buy an empty property you start paying rates from day one, so you have a cost whether or not you have an income."

He added many investors buy a commercial property with a tenant in place and therefore an income stream attached, meaning some would not initially be affected by the new rules.

Pat Davies, property partner, advises: "Rates are now normally charged at the full rate 6 months from the date industrial premises become empty and 3 months from the date offices and retail become unoccupied. However if premises are let for 6 weeks then the exemption starts again so it may be worthwhile granting a short term lease if only to avoid paying rates!"

The UK Monthly Property Index for June 2008, released by IPD, shows that commercial property returns fell by 1.5 per cent in June, while income return remained largely unchanged at 0.5 per cent month on month.