Agents 'unimpressed' by rates plan; RATES.
ANEW empty property rate relief scheme for newly-built commercial buildings is due to become available next month. According to Local Government Minister Brandon Lewis, the scheme is set to restore confidence in the commercial sector.
The working mechanism of the scheme was recently announced and agents GVA says the industry remains unimpressed.
The rates relief scheme covers all offices and commercial properties completed between 1 October 2013 and 30 September 2016 with a maximum vacant relief period of 18 months.
GVA senior director David Jones said: "It is the EEC state aid limits which make the scheme fairly unattractive for larger new builds.
"No development company can receive more than the equivalent of 200,000 euros (PS170,000) in relief for a new build, the government defining new build as more than 50% new. Certainly expectations following the chancellor's budget announcement have been severely tempered by the detail. I don't expect the scheme to have a profound impact on development viability. Notwithstanding, it all helps, and we are working with our clients with near completed new developments to maximise this relief."
The scheme is worth an estimated PS150m and is intended to benefit over 11,000 new commercial properties including factories, offices and warehouses.
Susan d'Arcy of the GVA North East rating team added: "The biggest disappointment is that the scheme only relates to new structures and has not been extended to cover extensive landlord fit outs on older property."
Paul Easton, heads of the rating team at Storeys Edward Symmons, Newcastle, said: "The government has made signifi-cant changes to Empty Property Rates in recent years.
"Until April 1, 2008, retail properties benefitted from three months full exemption followed by 50% relief when empty. Industrial properties fared better and were completely exempt when vacant.
"However, from April 1, 2008, the then Labour Government introduced signifi-cant changes so that, after three months, the landlords of retail properties would be required to pay 100% of the rate liability.
"For industrial properties, the grace period was set at six months before full rates were payable.
"The rationale behind this was to encourage redevelopment and increase supply. The problem was that it corresponded with one of the worst recessions in living memory. In the North East, supply was already increasing, demand had reduced and along with a lack of availability of finance, this all conspired to produce an environment which did not encourage property investment.
"As a result many landlords were left, not only with vacant property they simply could not let, but also with a rates bill to pay which in some circumstances amounted to a substantial sum of money.
"As a consequence some landlords let properties at much reduced and sometimes nil rents to pass the rates liability to the tenant. On this basis, some might argue the legislation achieved its objective, however it is difficult to imagine the Government anticipated the full impact of this change and it is questionable whether there has been any net benefit to the economy.
The letting of property by landlords to divest themselves of the empty property liability comes with its own issues and is not necessarily the answer.
Since 2008 there has been an increase in avoidance measures, such as intermittent occupation, which can reduce rate liability significantly. I recently advised a client who was faced with a bill for empty property rates on a commercial property. " Chris Dobson, spokesman for the G9 group of North East group of chartered surveyors, said: "The fact that an empty rates policy exists is well-known and so is its impact - a virtual cessation on new build projects.
"The penalty for moving ahead with development is not only the cost of site acquisition, design and construction at the risk of the developer but to exacerbate matters if a building remains empty business rates on that empty property will be payable.
"This can amount to a very sizeable levy each year applied to the developer. Faced with this many buildings have been demolished to avoid the payment of 'empty' rates and the development process has been significantly reduced." Dobson said on olive branch was handed out by the Department for Communities and Local Government under the title of New Build Empty Property Relief' "It is explained as a 'temporary measure' and that there is no a change in the rules on when a property becomes liable for empty property rates," said Dobson.
"Instead the department is providing the exemption by reimbursing local authorities that use discretionary relief powers under section 47 of the Local Government Finance Act 1988 to grant relief.
"It will be for individual local billing authorities to decide to grant relief under section 47 but central government will reimburse local authorities for the local share of the discretionary relief based on outturn of relief granted in the circumstances specified."
New structures are to be considered completed when the building or part of the building of which they form part is ready for occupation for the purpose it was constructed unless a completion notice has been served in respect of such a building or part of a building - in which case it would be the date specified in that notice."