RICS sources indicate that the Chancellor is likely to address the issue of Empty Property Rate Relief in the forthcoming Pre-Budget Report.

This will be in response to changes in the property market since reform of the relief which came into force in April 2008.

RICS response to Government
RICS has been working with the Government and opposition politicians since the announcement of the changes to Empty Property Rate Relief in the 2007 Budget.

This move was not expected by the industry and was a result of Sir Michael Lyons’ review into local government finance.

RICS immediately responded to the proposals raising concerns about the Government's decision to restrict rate relief on empty properties as a way of keeping commercial rents stable and properties occupied.

RICS advice to Parliamentarians
Following on from this initial criticism, RICS briefed MPs and Peers as the Rating (Empty Properties) Bill was introduced into Parliament in May 2007.

Our Parliamentary briefing questioned the lack of consultation on the issue and described the proposals as "purely a revenue raising exercise with no thought of the potential consequences".

It also raised concerns about the impact on the property market, the experience of the 1970s when buildings were demolished to avoid paying rates and that property development in the most deprived areas would be the worst affected.

Points raised by RICS were supported by then Finance Secretary Ed Balls and former Shadow Housing Minister Michael Gove.

Since the reform was introduced
Although the Bill passed into law, RICS kept up its work expressing concern about the proposals and highlighting possible unintended consequences.

We have had regular meeting with official at both HM Treasury and Communities and Local Government to air our grievances and responded to the Government’s consultation Modernising Empty Property Relief.

This response made recommendations to:

• Retain the empty property exemption for listed buildings
• Exempt companies in administration, bringing them in line with companies in liquidation and individuals subject to bankruptcy proceedings;
• Delay the introduction of anti-avoidance regulation due to the likely incidence of avoidance activity following the introduction of the reform.

RICS also met with opposition politicians including Conservative MP Mark Prisk and provided questions for him to ask Ministers.

More recently, RICS has contributed to coalitions within the property industry alongside organisations such as CBI, Corenet Global, BRC, BPF, IPF and RSA.

RICS was amongst the signatories to a letter to Local Government Finance Minister John Healey MP.

RICS has continued to provide comments to the national and trade press on this issue and made representations to the Treasury on EPR as part of our 2008 Pre-Budget Report submission.

Empty Property Rates Survey 

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.

Prior to April 2008 the void period where empty rates did not have to be paid was 3 months for most commercial property and 50% 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 6 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% of the standard business rate.

Although the debate around empty property rates has been vocal and well publicised, 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.

Key findings from the report include:

• The main cause of the increase in vacant property over the last year has been the downturn in the economy
• However, there has been and increase in demolition of perfectly sound properties over that same period, largely as a result of their liability for empty property rates
• Owners tend to wait around 12 months before considering demolition so this is likely to increase in the next few months
• Alongside that, investment in new property has been discouraged
• The combined effects of these impacts is that there is likely to be a shortage of commercial property available for occupation when the economy begins to pick up again
• This is going to have a significant negative impact on the ability of central and local government agencies to pursue property led urban regeneration strategies
• The demolition of perfectly sound buildings may well have detrimental environmental consequences which need to be borne in mind when considering government targets for reducing carbon emissions

On this basis, RICS and LSH recommend that government should consider either:

• Increasing Empty Property Rate Relief to 12 or 18 months before full business rates become payable; or
• The removal or significant reduction of EPR across all non domestic property in full consultation with industry.

The survey report can be downloaded from the right hand side of this page in PDF

For further information contact:

Nadia Nath-Varma
Senior Policy Adviser
nnathvarma@rics.org

James Rowlands
Policy Project Manager
jrowlands@rics.org