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General
News
The property industry is calling on Chancellor Alistair Darling to shelve the abolition of rate relief on empty property.
Property owners and advisers say the new rates will be damaging for business and could undermine the regeneration of towns and cities.
From 1 April, shops or offices which remain unlet for more than three months will be liable for full business rates. For industrial premises the cut-off is six months.
According to Rohan Short, an associate director and head of the rating team at CB Richard Ellis in Bristol, the proposals couldn’t come at a worse time.
He said: “We are in the middle of a global credit crunch and a slow-down in the national economy. The abolition of rating relief on empty property is another blow.
“It is obviously in landlords’ and developers’ own interests to ensure that their properties are let. The reality is that, in the current climate in particular, some properties will see a percentage of voids. For those developers who build speculatively, rates charges will add further cost and additional risk. For those involved in regeneration, where the margins are often lower, the risk is even higher. It is conceivable that the new policy will actually threaten regeneration.”
The campaign to force the Chancellor to re-think is being led by the British Property Federation, which represents companies involved in property ownership and investment.
Its members include Argent, Hammerson, Miller Developments and Targetfollow, most of whom have interests in Bristol and the South West.
However, Mr Short concedes that a U-turn is unlikely.
He said: “This is a massive income generator for the Government. It is estimated that as soon as the new rules come into force the annual revenue can expect more than £1bn, collected retrospectively on properties that were empty for the previous three-six months. With the prospect of a pay day of that scale, they are hardly likely to change their minds.”
Sale and rent back investigated by OFT
The National Association of Sale and Rent Back (NASARB), the only market-wide body for the sale and rent back sector, has welcomed the Budget announcement that sale and rent back will be investigated by the Office of Fair Trading (OFT).
A draft code of practice will be published towards the end of April and will have at its centre an impartial form of redress with sanctions for sale and rent back providers who fail to comply.
The National Landlords Association, on behalf of NASARB Committee, continues to be in detailed discussions with the OFT about the code of practice which will require transparency at every level throughout a transaction and afterwards. The code will also include a requirement for the vendor to prove they have taken legal advice or to sign a waiver indicating they do not require such advice. This will help to ensure that potential tenants make a fully informed decision.
John Socha, NLA vice-chairman and NASARB committee chairman, commenting just after the Budget announcement, said: “We are pleased that OFT is going to be looking into the practices for sale and rent back providers, the majority of whom provide owner-occupiers with their only opportunity to stay in their home as an alternative to imminent repossession. Regrettably some providers have been targeting and abusing unwary and vulnerable consumers.
We are now very close to publishing a comprehensive code of practice which is independent from any one group of sale and rent back providers, is squarely focused on protecting the financially vulnerable and will ensure that compliance with the code is transparent.
If the draft code of practice is satisfactory to the OFT, then there will be no reason why the good, smaller sale and rent back operator should be squeezed out of the market by the larger property investors in a similar way to what has happened in the equity release market.
Protecting a distressed vendor has nothing to do with how much cash a company has backing it up, but everything to do with making sure an owner-occupier knows what they are getting into before they sign on the dotted line. It is all about attempting to offer a long-term sustainable tenancy and peace of mind.”
Prepare for "Double Crunch"
A raft of new “green” regulations mean the property sector should brace itself for a year of “double crunch,” according to a leading expert.
Dr Angus McIntosh, head of research at international property consultants King Sturge, warned an audience of office developers and occupiers in Bristol that the effects of the global “credit crunch” would be compounded in April by the introduction of stringent new government environmental standards.
In addition to developers aiming for BREEAM Excellence (Building Research Establishment Environmental Assessment Method), which measures a building’s environmental impact throughout its life, Energy Performance Certificates (EPCs), which give buildings an A-G energy efficiency rating, come into force from April 2008 for larger buildings, and for all buildings by October.
Dr McIntosh was speaking at a “green offices” seminar held at Bristol Zoo lecture theatre, organised by the Bristol office of King Sturge.
“For the property sector this is the year of the double crunch, with the ‘credit crunch’ set to be followed by a ‘green crunch,’” said Dr McIntosh.
“We, in the property industry, need to separate the profit from the hype when it comes to green issues, and plainly we are not thinking about how we marry environmental sustainability with economic sustainability.
With the EPC issue in particular, it seems to be that we are wandering into a repeat of the HIPs fiasco last summer. But make no mistake, this is just the start of this process.
In addition to EPCs and BREEAM, all public sector buildings – such as GP surgeries, schools and Government offices – from October, need to provide a Display Energy Certificate – which identifies how much energy is used. All in all, we are entering a whole new era in terms of the way we look at buildings.”
Bristol’ property industry is counting down to the introduction of Energy Performance Certificates for commercial buildings – with the first requirements set to kick in on April 6.
Energy Performance Certificates (EPCs) will be required on the sale or letting of all commercial buildings over 10,000 sq m from that date. From July 1 this year EPCs will be extended to commercial buildings over 2,500 sq m and then to all commercial buildings by October 1.
The new requirements are part of the government’s efforts to increase energy efficiency in the UK and follow the introduction last year of similar certificates for private homes. In order to comply it will be necessary to obtain a certificate from an accredited assessor. The certificate and accompanying report will include an energy rating and provide advice on how to make cost-effective improvements to the building to make it more energy efficient.
Nick King of Bristol based Urbina, believes the new certificates will be welcomed by businesses across the city. “There’s now a real hunger among occupiers for sustainable offices,” he said. “That desire has sprung up in the past three for four years and is growing every year. The market will welcome these certificates if they encourage better use of energy and lower operating costs.
Go high or go wide
A industrial property advisor has warning Bristol Council it must reconsider its planning restrictions – or face damaging the city’s economic future.
Phil Wade, director of DTZ in Bristol, says that the severe lack of industrial accommodation in the city will have a serious effect on the greater Bristol economy in the future. He has called on the Council either to allow industrial development to go wider into the green belt, or look to building technologies from abroad and to high with two or more storey warehouses.
He said: “Demand for industrial accommodation has reached a level where there is now a huge lack of supply and limited availability of units for occupiers. DTZ research has concluded that the availability of industrial units in the greater Bristol area is now 60% lower than five years ago and only 5% of the average level of supply over the last 20 years.
“The new plans put forward by the council do not go far enough in allocating industrial employment land and unless something is done now we face the risk of losing our commercial viability as a city.”
Wade suggests there is a choice to be made – greenbelt of skyline. “Doing nothing is simply not an option,” he said. “If we can’t go wide we must go high. This is regularly done in other cities across the world, and developers Brixton are currently building the first such two-storey warehouse in the UK at Heathrow Airport; with ramps and loading yards at both levels. This minimises the land take whilst providing double the amount of accommodation on the same size site; however the buildings are higher.”
The development of industrial land in surroundings areas such as Avonmouth and along the M5 corridor is not a viable alternative, he argues. “Planning for industrial buildings to be away from Bristol simply exports jobs from the city to surrounding areas and encourages a daily reverse commute by Bristol workers with all the environmental damage that entails.
“If we are to remain a commercially-viable city we have to provide space for industrial occupiers,” Phil Wade concludes.
"April Lose Day"
“Two things in life are certain, ‘death and taxes’ and in case there was any doubt regarding taxes, 1 April 2008 sees the introduction of the Government’s empty property reforms, which will cost businesses in England and Wales an extra £1bn a year in empty business rates,” comments Leigh Richardson, director of GVA Grimley incorporating Osmond Tricks in Bristol.
“At present when a commercial property becomes empty, the ratepayer will pay nothing for three months and then a 50% charge providing the property remains empty, indeed industrial properties including warehouses and stores are not charged anything at all whilst they are empty.
The Government announced in last year’s budget, that from 1 April 2008, the full occupied charge of 100% would be payable on the majority of empty buildings, even though they are vacant and not in use. Despite intense lobbying from the property industry, the Rating (Empty Properties) Act 2007 will be force 1 April 2008 and further increases the financial burden on business in these uncertain economic times.
The Government believes the tax will help to ensure more efficient use of urban land, by providing an incentive re re-let or re-develop property, thereby increasing supply and reducing rents. However many developers have drastically cut back on speculative buildings, as they are concerned that their margins will be eroded if the new buildings are not let on completion. Additionally it would be wrong to think that landlords are not trying to actively market their vacant buildings and that this tax is required to bring empty properties to the market. Rather than encourage redevelopment or re-letting, an extreme example could see a landlord demolish a redundant building rather than pay business rates.”
The key provisions from 1 April 2008 are:
- Most empty properties will attract full business rates after a three month rate free period.
- A further three month rate free period (total six months) will be given to industrial premises, including stores and warehouses.
- If a property has been vacant for some time, and empty rates relief has already been given for at least three months (six months in the case of an industrial / warehouse) then the full charge at 100% will be payable from 1 April 2008.
- Exemption will be given where a property is a listed building. The ratepayer is a charity or is a community amateur sports club and the next use of the property is for the same purpose. The ratepayer is a company in liquidation or administration. The rateable value is lower than £2,200 or occupation is prohibited by law.
No doubt following the introduction of these reforms ratepayers will try to minimise their rate liability, but given the complexity of the rating legislation, it is essential they seek specialist advice before taking any course of action. Whilst the Government has stopped short of introducing anti-avoidance legislation for now, they will not doubt be closely monitoring the impact the change in legislation is having. Our firm is currently advising clients so as to mitigate their liability and by exploiting opportunities within the legislation it is possible to reduce a client’s empty rate liability and in some instances remove it altogether.