Chancellor George Osborne’s budget delivered largely good news for commercial landlords, even if his decision to increase business rates relief for small businesses has received a mixed reception. What can landlords expect from the development, both in the short and long term?
What the chancellor has proposed
From next April more than half a million small companies will be permitted to claim relief on their business rates, while an additional quarter of a million will pay a reduced rate. Mr Osborne said this will “level the playing field” between small and big businesses, but some have suggested that it’s landlords that will benefit most.
Helen Miller, an Associate Director of the Institute for Fiscal Studies told The Telegraph that the change could eventually “be capitalised into the value” of properties, therefore allowing landlords to boost their incomes.
Good news in the long term
The market dictates that rents increase in proportion to reduced business rates. Consequently, for businesses renting properties, a rates reduction may not affect their outgoings at all – and certainly not in the long term.
However, in the more immediate future landlords may notice that their operational costs fall. Until their rental contracts expire, landlords will be unable to charge more. They will therefore have to wait a period of time until any benefits can be felt.
“In the short run, the changes are likely to benefit people who rent property,” Ms Miller explained, “because they have rent contracts, and you cannot increase rents overnight.”
Ms Miller's opinion is shared by Ryan Bourne, Head of Public Policy at the Institute of Economic Affairs, who told The Telegraph that landlords will eventually become “the primary beneficiaries” of the Chancellor’s business rates relief.
However, one hypothetical concern for landlords is that they’ll experience a sales surge fuelled by over-enthusiastic tenants that, further down the line, become less able to afford their rent. If you’re concerned that your tenants may default, prepare your business for the future by eliminating commercial rent arrears today.