No escape from empty-property rate reform – even self-vandalism is not an option

With the stated aims of increasing competitiveness, efficiency and fairness, the government is hoping that imminent reform to empty property rate relief will incentivise owners to re-let or re-develop commercial property without delay. For most commercial premises the existing 3 month full exemption remains but that is all – there will be no more 50% continuing exemption until re-occupied. For industrial and warehouse premises, the existing unlimited exemption whilst empty will be abolished and instead exemption will merely apply for 6 months.

Predictably few in the industry share the government’s optimism as to the effectiveness of the proposals. Most investors accept that empty units are an inevitable if unwelcome feature of property ownership. However as from 1 April 2008, herculean effort combined with a large dose of luck may be required even on the most well managed of portfolios to achieve re-letting within three months to avoid this new ‘tax’. With claims that this change in regime could reduce the value of British pension funds by as much as £3bn, this is a problem not only for landlords.

Such a radical overhaul has inevitably prompted lateral thinking on how to side step the problem. But in a sign of the government’s determination here, even the 1970’s practice of owners vandalising their own property beyond economic repair to avoid paying rates is unlikely to assist. Instead the government has power to introduce regulations so that even if an owner has taken the drastic step of removing the roof, for rating purposes valuation can assume the roof is still in situ.

Despite the recent consultation, commercial property owners should brace themselves now for what may amount to substantial additional costs come April 2008 if any part of their portfolio remains vacant.

Ignore new procedure and your income may be at risk

On 1 October 2007 the government, as part of its strategy to better protect residential tenants of long leases (21 years plus), introduced measures whereby landlords and management agents must ensure that service charge demands are accompanied by a summary of the tenant's rights and obligations. An eye for detail is required since the statement must appear in precisely the same terms as set out in the legislation, running to 12 paragraphs in total. That's a lot of tenant rights to communicate and you cannot shrink this information since there is even a minimum font size with which to comply. Similar detail must also accompany any demand for 'administration charges' – typically costs payable by the tenant for the grant of landlord approvals under the lease. Some may wonder whether any tenant will bother to read the new warnings, whilst the cynical are already calculating to what extent this practice will have the opposite effect, increasing the landlord's administrative burden and so pushing up service charge costs.

That said, it is clear the government means business as demonstrated by the penalties for non compliance. A tenant can withhold payment until the correct information is supplied and without incurring the usual liability to pay interest: those provisions will not apply for the period during which the tenant legitimately withholds payment.

Forfeiture – the end of the line?

For landlords of commercial premises the combined options of peaceably re-entering or distraining in the face of non-payment of rent have always been effective remedies. However, under proposed reforms the landlord's ability to distrain is to be abolished and peaceable re-entry is to be replaced by a notice based procedure. This sea-change to a more tenant friendly regime marks an important time for landlords as everyone gets to grips with how the reforms will operate in practice. As yet there is no date for implementation but landlords will need to begin reviewing their standard documentation.