Pictured above: Phil Glenn, Head of DTZ's Nottingham office

On the 1 April this year, the threshold for which properties become eligible for empty business rates will drop drastically from a Rateable Value of £18,000 to £2,600. Phil Glenn, Head of DTZ's Nottingham office warns of the implications for building owners and the wider commercial property market:

"When the last government increased the threshold for empty rates to £15,000 Rateable Value (RV) for the 2009/2010 rate year, it was estimated that up to 70 per cent of all rating assessments on vacant buildings could qualify for exemption from empty rates. This threshold appeased landlords to some extent, and was extended to rateable values below £18,000 when the 2010 revaluation came into force on 1 April 2010. Unfortunately, from 1 April this year, the exemption limit will now be drastically reduced to cover only those properties with rateable values below £2,600 meaning that most vacant properties will now be hit with a full rates bill.

The current exemption threshold (until 31 March 2011) encompasses the majority of all business premises, typically smaller shops, industrial units, offices, stores, and vehicle repair garages which have rateable values below £18,000 RV. Landlords who particularly benefit from this relief include those with business centres offering start-up units for small businesses, where void costs could otherwise be a problem.  

When the threshold is reduced to £2,600RV on 1 April, they are among the owners and landlords who will be hardest hit, as the only properties which will continue to be exempt from empty rates will be the very smallest of business premises such as corner shops, lock-up garages and market stalls.

Lowering the threshold is an 'easy win' for the government as it is estimated by the Department for Communities and Local Government that the change in legislation will bring in an extra £630m in revenue. However, the effects will be devastating for property owners who are already struggling to find occupiers for their properties in extremely difficult market conditions and, in extreme cases, may even result in the demolition of perfectly sound buildings. Speculative development of small business units will now be completely stifled by the looming cost of business rates, which is yet another set-back for economic recovery. 

Demolition is not necessarily the solution to the problem and RICS qualified rating practitioners can advise how best to strategically manage vacant property to mitigate rates liabilities under the new legislation."