A recent legal battle has seen landlords triumph over councils, as judges rule that commercial landlords can continue exploiting a loophole in empty property relief rules. But councils are expected to begin a renewed push for reform and some commentators believe high street landlords may still have to rethink their strategy.
Targeting empty property relief
Landlords are struggling to cope with the lack of tenants and waves of Company Voluntary Arrangements (CVAs) that are pushing down rents on the high street. Consequently many have been taking on tenants for free, just to reduce their business rate liability.
In some areas, there have even been cases where landlords have taken on tenants for very short terms. Their aim is simply to take advantage of the 3 months of empty property relief on business rates that’s triggered when the tenant leaves.
With councils also facing budgeting issues, many are cracking down on this tactic by pursuing landlords in court. Their aim is to prove that such short-term lets don’t qualify as rateable occupation because they don’t provide commercial gain and therefore should not qualify for empty property relief.
However, the recent case of Principled Offsite Logistics vs Trafford Borough Council ruled in favour of landlords, despite the tenant clearly describing the let as a business rate mitigation scheme. The crux of the ruling was that the there doesn’t have to be commercial benefit for a let to be deemed rateable, as long as the tenant benefits from leasing the property.
In the short term, landlords can continue using such schemes to cut costs. In the longer term, however, councils may push for reform. That means landlords may need to be open to fresh ideas to improve property occupation and cash flow.
Allocating some of a building to flexible occupants may form part of the solution. A recent study suggests that landlords should allocate around 15-30% of a property to coworking environments to take advantage of the trend. The same theory may apply to high street trends like pop-up stores, markets and food courts.
Whatever approach you choose, you’ll need to ensure that you have the systems in place to enforce your lease and claim rent arrears. For advice and information about how Dukes can help you put that in place, contact us today.