Rating Talking Heads: Empty Property Tax

It has been observed that for as long as there has been property taxes, there has been an industry seeking to avoid them.

Where does the City of London v Principled decision sit in the context of the empty rate liabilities?

It has been argued by governments that Empty Property Rates (EPR) encourages landlords to either let, occupy, or redevelop vacant properties rather than leaving them unused. It was a tax on doing nothing!   

Prior to 1966, vacant commercial properties were generally not subject to business rates. The Local Government Act 1966 introduced partial liability for empty commercial properties, meaning landlords had to start paying rates on vacant premises. The Local Government Finance Act 1988 (in Section 45(1)) went further to oblige owners to pay empty rates where the property fell within a prescribed class outlined in S45 (1) (d). Following the initial 3-month grace period, a 50% charge was liable. 

The Lyons Report prompted the introduction of the Rating (Empty Properties) Act 2007 which resulted in 100% empty rates liability from 1 April 2008. The liability on empty industrial and warehouse properties also increased from zero to 100% overnight. 

Many businesses and landlords were unhappy, arguing that;

• The policy punished property owners for economic downturns and market conditions beyond their control
• When a tenant surrenders the lease, it takes time to market, secure and have the new occupier to move in
• The void period is substantially increased when the landlord undertakes repairs, refurbishments or simply decoration works
• The larger the property, the longer the time periods and the greater void period.

Consequently, the 2010s saw the emergence of a specialised industry whose tactics were to avoid the tax – including stripping out, demolitions, changes of use, short term occupations, rotating tenants, occupation by carboard boxes, snell tanks and blue tooth boxes to name but a few schemes.  

The Government is fighting back and GAAR – the General Anti Avoidance Regulation - could be in their arsenal of tools coming our way soon.  

But, has the scramble to collect money lost the historical perspective for why ERT was introduced; and it is now simply a money raising exercise, where both sides are increasingly digging in and playing dirty? All the while, local government is not getting the funds needed to deliver local services.

This programme will review some of these actions, as well as the actions of billing authorities, the VOA and the way Government policy has tried to push back at market behaviours.