The changes in the rateable value threshold have placed substantial financial pressures on commercial landlords. The rateable value threshold at which an empty property becomes subject to business rates has been substantially reduced from the original threshold of £18,000 to £2,600. The exemption from empty property business rates only applies for the first three months (or in the case of an industrial property for six months) of a void period. It should be noted that there are other circumstances in which an unoccupied property will be exempt from rates including where the property is a listed building. Rate relief for small businesses is also available where the ratepayer (in this case the landlord) applies to the Council and occupies either
- one property or
- one main property and other additional properties providing those additional properties each have a rateable value less than £2,600.
The rateable value of the property mentioned in (a), or the aggregate rateable value of all properties mentioned in (b) must be under £18,000 in England or £25,500 in Greater London (this threshold varies in other parts of the country) for the relief to apply. The Government has announced that there will be a temporary increase in the threshold for Small Business Rate Relief of up to £6,000, which will continue until 30th September 2012 in Wales and 31st March 2013 in England. Tapering relief is also available from 100% to 0% for properties up to £12,000 in rateable value for that period.
With the downturn in the economic climate it has become difficult for landlords to rent out commercial properties. The number of vacant shops has been recorded to have risen to an all-time high. Commercial properties are being left vacant for large periods of time and places a substantial burden on the landlord which is exacerbated by their liability to pay business rates on these empty properties.
Landlords are continuously seeking ways to minimise their liability for the business rates on empty premises by adopting new initiatives. One of the most recent and most popular of the initiatives is the Meanwhile Lease. The leases permit the temporary occupation of vacant units for non-commercial purposes. They can be used across all property sectors, including offices, warehouses and retail. The tenants, who may be local voluntary or charitable groups, are permitted to use the premises temporarily and periodically for non-commercial purposes. This allows the landlord time to find a more permanent commercial tenant on more favourable terms. Apart from being beneficial to the landlord, the leases are also greatly beneficial to the community as they may be used for art and culture based exhibitions, workshops, charities, information centres or learning facilities.
The Meanwhile Leases are drafted in a manner that reduces the risks taken on by the landlord and protects the landlord’s capital interest. The lease is standardised and as such reduces the legal costs incurred by the landlord. The leases can vary in length between a term as short as one week to as long as several years. Under the lease, the tenant takes on the responsibility of paying the business rates relating to the property. It is not intended that the tenant will pay any rent, service charge or building insurance and the property can only be used for a non-commercial use such as, a showcase of art. The tenant is however responsible for paying the supply of the utilities to the property and, of course, the business rates. The leases contain a basic repair covenant which is subject to a Schedule of Condition and the assigning or underletting of the lease is prohibited.
As always, it is necessary to ensure that the grant of the Meanwhile Lease is permitted. Before the Meanwhile Lease may be granted the consent of a superior landlord and/or a mortgagee’s maybe required. Additionally there may be Stamp Duty or VAT issues that need to be addressed. The landlord must also bear in mind that the usual planning rules will still apply and that the tenants will not be able to use the premises for a use that is not covered by the planning permission for that premises. It is advisable to ensure that the proposed tenants obtain independent legal advice before signing the documentation.
For the landlord the Meanwhile Lease provides an attractive opportunity to either completely avoid or at the very least minimise their liability for business rates on the empty properties in their portfolio.
Any landlord considering granting a Meanwhile Lease is advised to always consult a solicitor before granting the lease to ensure that they have met the requirements associated with the premises.
For further information on this or other commercial property related issues, please do not hesitate to call Martin Reynolds, head of our Commercial Property Department, on 0118 958 9711 or by email: [email protected].