Will exemption on short term empty property rates stimulate commercial property development?25th June 2013

This month (June 2013), the Government launched its six-week consultation period into the proposed short-term empty property rates (EPR) exemption of all new build commercial property developments completed between 1 October 2013 and 30 September 2016, following the Chancellor’s original announcement in his 2012 Autumn Statement.

Robert Harlow, Head of Rating at the Wales division of commercial property consultancy, Lambert Smith Hampton (LSH) outlines what this relief means for developers of commercial property and gives his views on whether the exemption will in fact stimulate commercial property development.

What does this mean for the commercial property developers?

• New-build commercial property developments completed between 01 October 2013 and 30 September 2016 are eligible for EPR relief for 18 months.
• The European Community State Aid rules limit the funding to €200,000 over three years.
• Central government will fund local authorities to provide 100 per cent relief in the prescribed circumstances, capped by the EC State Aid limits.
• The proposals do not apply to existing office and retail property, which become liable to EPR after a three month void and industrial property after six months.
• At the end of the 18 month exemption period, the relief will end. If the property continues to be unoccupied, the rates will be payable in accordance with local government regulations.

Will the EPR exemption stimulate commercial property development?
The policy is a step in the right direction but is unlikely to spur speculative development.
An 18 month EPR exemption for new developments is designed to stimulate construction by removing the unexpected rental void as a reason for not developing new grade A commercial space.

This 18 month exemption appears tentative, while a three year period of grace would invigorate the market, encouraging employment, stimulating growth and raising future tax revenues from VAT, Income Tax and Corporation Tax.

The European Community State Aid rules limit the funding to €200,000 over three years, which will not stretch far enough to encourage large-scale developments, of which the costs would be much higher. Larger scale development viability has far more to do with confidence in the occupier market, and whether there is finance available.

The EPR legislation, an unmitigated disaster since its introduction, has actively dampened the commercial property development market and irreparably damaged many businesses. The government needs to be much bolder and come down firmly on the side of enterprise and growth.

The consultation closes on Friday 26 July 2013.