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Mitigating cost in challenging times

View profile for Phil Hunt
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Many will have been watching the Government’s consultation on the future of business rates and hoping that any changes made will support the growth of businesses. 

There was a full revaluation of business rates on 1 April 2023, the first since 2017.  Business rates are now based on property values as they stood on 1 April 2021.  This revaluation had been deferred due to the ongoing repercussions of the pandemic and their likely impact on rental valuations.  The postponement of the revaluation was broadly supported by the business community who anticipated that rateable values assessed at 1 April 2021 could suppress value because of the continuing impact of the pandemic.

However, the revaluation may have led to unexpected outcomes for ratepayers, with some facing significant increases in their liability.  For many businesses, this will represent a further challenge in their trading environment at a time when they may still be dealing with additional costs such as repayment of Covid emergency loans.  The most vulnerable businesses may become insolvent with the result that both landlords and tenants face upheaval as they manage the consequences of these strange times .  

Insolvency is a common reason for a landlord to seek to terminate a lease so that it can seek to re-let the premises to a new occupier.  If a replacement tenant is not quickly found, the landlord will become liable for business rates.  It may therefore be preferable to refrain from terminating the lease in these circumstances to avoid incurring additional business rate liability at a time when the rental income may have stopped.

When a commercial property becomes vacant the owner can apply to the local authority for empty rates relief, which gives them 100% business rates relief for the first three months that the building is empty, or six months in the case of warehouses or industrial premises.  

There are also methods to assist in the continued mitigation of business rates liabilities.  One such measure applies where a property is being substantially redeveloped or refurbished.  If a property is classified as incapable of beneficial occupation it is not subject to rates liability.  

Where the commercial property has a poor energy efficiency rating, work undertaken to improve it may be sufficiently substantial to qualify for exemption from business rates.  This could conceivably include work undertaken to comply with the Minimum Energy Efficiency Standards (MEES). 

MEES prevent the grant of new leases of commercial spaces or allowing the continuation of existing leases where the energy performance rating for the premises is F or G.  The minimum rating requirement is expected to rise in stages in the next few years.

Owners of property with a poor energy performance should be considering whether they qualify for any exemption from MEES and, if they do not, will need to programme and budget for the works that may be required to bring their property up to standard.  The prohibition on new or continued lettings will not apply to leases of less than six months, unless at the time of letting the tenant has already been in occupation for more than 12 months.  Those who breach the regulations will face financial penalties. 

We are able to help property owners to mitigate these risks, advising on methods to manage potentially insolvent tenants and on compliance with statutory requirements.  Please call Phil Hunt or Beth Margetson on 0121 2357388 if you are affected by anything discussed above.