When it comes to investing in commercial real estate, property owners must consider not only the potential rental income but also the expenses associated with owning and maintaining the property. One of the costs that property owners need to account for is the rates on empty commercial property. These rates can have a significant impact on the overall returns on investment, making it crucial for investors to understand how they are calculated and how they can be minimized.
rates on empty commercial property, also known as business rates, are taxes that property owners are required to pay to the local government. These rates are based on the rateable value of the property, which is determined by the Valuation Office Agency (VOA). The rateable value is an estimate of the annual rental value of the property as of a specific date, known as the antecedent valuation date.
The amount of rates that a property owner has to pay is calculated by multiplying the rateable value by the multiplier set by the government. The multiplier is determined annually and is usually expressed as a percentage of the rateable value. In England, for example, the standard multiplier for the 2021/2022 financial year is 51.2p, meaning that properties with a rateable value of £100,000 would be subject to an annual rate bill of £51,200.
For vacant commercial properties, the rates on empty commercial property can be a significant burden, as property owners are still required to pay business rates even if the property is unoccupied. This is because the local government considers empty properties as a drain on public resources and levies rates to encourage property owners to bring the properties back into use.
However, there are ways that property owners can reduce or mitigate the rates on empty commercial property. One common strategy is to apply for empty property relief, which can provide a temporary exemption or reduction in rates for unoccupied properties. In England, for example, properties can qualify for 100% relief for the first three months after becoming vacant, followed by a 50% reduction for the next three months. After this initial six-month period, the property owner may still be eligible for further relief, depending on the circumstances.
Another option for property owners looking to reduce rates on empty commercial property is to consider leasing the property on a short-term basis. By entering into a short-term lease agreement with a tenant, property owners can avoid paying the full rates on empty commercial property. This can be a win-win situation for both parties, as the property owner reduces their financial burden while the tenant gains access to a space for their business.
Property owners can also explore the option of appealing the rateable value of their property if they believe it has been set too high. By providing evidence of comparable properties with lower rateable values, property owners may be able to successfully challenge the valuation and reduce their rates on empty commercial property.
In addition to these strategies, property owners can also consider investing in their vacant properties to make them more attractive to potential tenants. Renovating or refurbishing the property, improving its energy efficiency, or enhancing its curb appeal can help to attract new tenants and generate rental income, thereby offsetting the rates on empty commercial property.
Overall, rates on empty commercial property can have a significant impact on the financial performance of an investment property. By understanding how these rates are calculated and exploring various strategies to reduce them, property owners can maximize their returns and make their properties more appealing to potential tenants. With careful planning and proactive management, property owners can navigate the challenges of rates on empty commercial property and unlock the full potential of their real estate investments.