One of the most controversial announcements in the 2007 Budget referred to changes to the system of Empty Property Rate Relief in England and Wales.

RICS believe that the Government's decision to restrict empty property rate relief could have significant adverse effects on commercial property.

In brief, office and retail premises will be given 100% relief for the first three months, and industrial and warehouse premises will be given 100% for the first six months, from when the property becomes empty. All rate relief for these properties will end after this time and the full Non-Domestic Business Rate will be chargeable. The reform will take effect from the 1 April 2008.

RICS is seriously concerned about the consequences this will have for commercial property. The decision has been made without any consultation and has effectively pre-empted the report of the Lyons Inquiry which recommended a review of all exemptions and reliefs.

Properties are not left vacant deliberately and the RICS does not believe that a charge on empty property is an effective way of encouraging the redevelopment of vacant sites or empty property.

The decision will impact adversely on commercial property. The retail sector alone has an aggregate Rateable Value of £38bn. Current estimates show 7% of this stock as vacant, which would suggest an aggregate RV for vacant retail property of more than £2.5bn.

Altogether, we estimate that the revenue generated by the removal of empty property rate relief could equate to more than £1bn per annum.

This decision has the potential to result in:

• Property owners deliberately damaging their buildings to remove them from the ratings list therefore not eligible to pay the empty rate
• Increasing service charges to recover for empty rates
• Increased number of rating appeals and Valuation Tribunal cases challenging the rental values particularly on redundant premises
• Increased dilapidation claims
• A drop in share prices for companies with big holdings of industrial property

This is a repeat of the situation in the 1970s when an empty rate was introduced in the form of penal rating surcharge. However it didn't create new lettings and lead to the deliberate vandalising property to avoid rate liability. If there had been a consultation on this topic the potential impact could have been considered.

This is purely a revenue raising exercise with no thought of the potential consequences, which will undoubtedly affect many businesses.

For further information contact: publicaffairs@rics.org