Business rates can have a significant impact on the financial performance of commercial property, particularly when buildings become vacant, undergo refurbishment or form part of a wider redevelopment strategy.
For landlords, investors and developers, understanding potential business rates liabilities should be considered as part of the management and appraisal of a commercial property.
Business Rates and Vacant Commercial Property
When a tenant vacates a commercial property, responsibility for business rates will generally return to the property owner. Empty property relief can provide a temporary period during which business rates are not payable (subject to the property and circumstances).
Once the applicable relief period expires, however, full business rates can become payable even though the property is producing no rental income.
For investors and landlords, this can create a significant additional holding cost.
Empty Property Rates for Offices and Industrial Property
Different property types can be treated differently.
Most empty commercial properties can initially qualify for a period of empty property relief, while qualifying industrial premises such as warehouses can receive a longer exemption period.
Understanding when these periods begin and end is important when budgeting for vacancy and planning reletting, refurbishment or redevelopment.
Refurbishment and Redevelopment
Business rates should also be considered when planning substantial refurbishment or redevelopment works.
The rating position of a property can potentially change depending on the nature and extent of the works being undertaken and whether the building remains capable of beneficial occupation.
Seeking specialist advice at an early stage can help property owners understand the potential rating implications of a proposed project.
Business Rates and Property Investment Decisions
Business rates can also affect the overall investment case for a commercial property.
When assessing an acquisition, investors may need to consider:
- Current rateable value
- Existing occupational arrangements
- Potential vacancy periods
- Empty property rates exposure
- Planned refurbishment or redevelopment
- Potential changes of use
- Future letting strategy
- Business rates across a wider portfolio
Understanding these costs before acquiring an asset can help investors build a more accurate picture of potential holding and operating costs.
Managing Business Rates Across a Property Portfolio
For landlords and investors managing multiple commercial properties, even relatively small rating issues can become significant when multiplied across a portfolio.
Regular reviews can help identify inconsistencies, upcoming liabilities and potential opportunities for relief or savings.
A portfolio-wide approach can also help improve forecasting, particularly where leases are approaching expiry or properties are likely to become vacant.
Consider Business Rates Early
Business rates should not be an afterthought when developing a commercial property strategy.
Considering the potential liability alongside rental income, service charges, refurbishment costs, void periods and other expenditure provides a clearer picture of the overall performance of an asset.
At TGE Property, we help landlords, investors and developers consider these wider commercial property factors.
Where detailed rating advice is required, we can connect clients with specialist business rates advisers to review the individual property or portfolio.
Need Advice on a Commercial Property?
Whether you own a vacant commercial building, are considering an investment acquisition or are planning a refurbishment/redevelopment, understanding the business rates implications early can help you make better-informed property decisions.
Speak to TGE Property about your commercial property and business rates requirements.