Empty property charges hindering recovery

Richard Wackett
Richard Wackett
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ALMOST 90 per cent of surveyors in the north of England believe that charges placed on shops and offices are significantly undermining the region’s economic recovery, according to a new survey from the Royal Institution of Chartered Surveyors (RICS).

When commercial premises, such as a shop or an office, become vacant the owner is not required to pay business rates for three months.

However, after this period, these charges – known as Empty Property Rates (EPR) – are applicable at the full rate, leaving many companies with a tax bill which they have no means of funding.

Around 68 per cent of the respondents to the RICS survey across England and Wales claimed that commercial property floor space is vacant for periods of more than six months.

This means that the problem of “unmanageable taxes” is widespread at a time when businesses are most stretched, the RICS claims.

According to the RICS, business rates collected from ratepayers are initially acquired by central Government and then redistributed back to local authorities as part of the Local Government Finance Settlement.

These funds then contribute towards financing local services. There were 211 Yorkshire and Humber respondents to the RICS survey.

A spokesman said: “With the situation continuing to have an impact on towns across the north of England, the knock-on effect is also being felt in capital values. Eighty per cent of respondents believed that the price of retail premises will decrease as a direct result of EPR.”

The RICS would like to see an extended exemption period for commercial property owners announced in the Chancellor’s Autumn Statement.

This would mean that, should a retail property owner lose their tenant, no charges would be applicable for six, rather than three, months.

The RICS would like to see this extended to 12 months for owners of harder to let property, such as offices and industrial units.

Richard Wackett, the head of rating for property consultancy Lambert Smith Hampton (LSH), said: “The charges that property owners are facing are having a detrimental effect on many businesses.

“If the Government takes the initiative in the forthcoming Autumn Statement to offer property owners a longer exemption period, this would give commercial landlords some much-needed breathing space and contribute towards getting the business sector moving again.”

Robin Ellis, a director, at CBRE in Leeds, also supported calls for changes on the law relating to EPR.

He said yesterday: “The current statutory exemptions which apply when properties become vacant were conceived in far more buoyant market conditions, when void periods tended to be shorter.

“The current economic conditions are such that lengthy void periods are normal, despite the best efforts of property owners to re-let their property at realistic levels of rent.

“The current tax regime is unfair and should be modified.

“In many cases, tenants may vacate property prior to lease expiry, and some or all, of the exemption period has been exhausted by the time the landlord becomes liable for rates. It would be fair to apply a fresh period of exemption from the point where a landlord becomes liable.”

Paul Manning, a senior director at property consultancy, GVA, in Leeds, said he would welcome changes in the Government’s Autumn Statement to extend the EPR exemption period for commercial property owners.

Earlier this year, York Outer MP Julian Sturdy said the policy of forcing small firms to pay business rates on empty properties could hit the north hardest.

Mr Sturdy said the policy, which was introduced by Labour but continued by the coalition, was short-sighted.

In January, Local Government Minister Andrew Stunell acknowledged that small businesses would play an important role in building a sustainable economy, but he said the Government had little choice. He said the Government’s ability to take action needed to be balanced with the very high costs involved.

He added: “We are, however, also providing targeted support on business rates, and there is an overriding need to reduce public expenditure and support the economy generally by reducing the deficit.”

Construction, real estate suffering

THE construction and real estate sector is experiencing the worst effects of the downturn, according to KPMG’s second annual report on businesses that are either loss-making or unable to pay off their debt.

The firm’s restructuring practice is predicting a rise in the numbers of formal insolvencies, and an increase in distressed merger and acquisition activity. Loan book sales are also expected to ramp up. Mark Firmin, KPMG’s head of regional restructuring, said: “Those running Yorkshire’s construction and real estate businesses know that this is as bad a time as they have ever experienced, but our findings might serve as a wake-up call to the sector that their funder might also be worried about them.

“Given the importance of the support required from funders, businesses should make additional efforts to manage communication with their funders.”