The Local Government Finance (Unoccupied Properties etc.) (Scotland) Bill was introduced to the Scottish Parliament this week. The proposals are aimed at (i) encouraging owners to rent or sell empty commercial properties to bring them back into active use and (ii) to raise additional revenue - it is estimated that should the Bill become law, the measures could raise around £18 million a year.
The proposals will have a significant effect on owners of empty properties in the public sector.
What is the current position?
Currently, most owners in Scotland receive 100% relief from business rates for empty properties, when these become vacant.
After three months this relief is reduced to 50% and stays at 50% until they are occupied.
Some properties such as industrial properties, listed properties and properties with a rateable value below £1,700 benefit from 100% relief for the whole unoccupied period.
The proposed changes
The Bill allows the Scottish Government to vary the relief that applies to non-domestic rates. It is proposed that from 2013/14 the 50% relief will be reduced to just 10% meaning landlords, investors and public sector owners of commercial property will soon have to pay increased business rates on their empty properties.
No changes are proposed for industrial properties, listed properties and those with a low rateable value and these types of properties will continue to enjoy 100% relief.
Concerns?
There are concerns amongst some that the proposed changes will have a negative impact on the property industry putting off investors and pushing some businesses into administration. Commercial properties are seldom left empty on purpose and the increase in rates will significantly affect already hard pressed owners.
Is Scotland alone?
No, in England, the UK Government abolished empty property relief in 2008. Currently in England & Wales landlords must pay 100% of business rates after three months. The change down south could not have been more ill-timed. As the recession bit, some landlords, when faced with large rates bills and no tenants to pass these on to, found it cheaper to demolish their properties than keep these standing. An empty site pays no rates. In 2012, conditions may be slightly better, but not by much. The property industry is still struggling.
On the positive side, Scotland will retain 10% rate relief instead of suffering the zero relief, which applies in England. It is hoped that this will allow Scotland to retain an element of competitive advantage.
Need for a positive strategy
The fact the Scottish Government is addressing the problem of empty properties is to be welcomed, but many people in the property industry would like to see a range of more positive measures to help support owners. Properties are empty generally not through choice but because of the lack of demand caused by the recession.
The Scottish Government has produced a stick by cutting empty rates relief, but the Commercial Property sector perhaps also needs carrots to turn empty properties into vibrant businesses.
Further call for evidence
The Government has called for evidence on the Bill and submissions are to be received by 9 May. The Bill is bound to attract a lot of interest and we will follow it closely as it makes its way through Parliament.
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