Property owners may become liable for rates on unoccupied premises in their portfolios. As a general rule unoccupied rates are payable at 100% of the full rate, after an initial exemption of three months. There are exceptions, primarily industrial and storage premises and “listed” buildings, which are exempt from unoccupied rate payments.

There are, however, numerous issues that the prudent landlord will need to address before accepting liability.

• Is there someone else that may be held responsible for the payments, (e.g. is there an existing lease under which the tenant would have a right to occupy), perhaps a head lessee or a previous assignee?
• If the outgoing tenant has received the benefit of the 3 or 6 months exemption prior to lease expiry, are there provisions in the lease that entitle the landlord to compensation?
• Are the premises capable of beneficial occupation or have they reached the end of their useful life such that they have only a nominal valuation without substantial alteration or refurbishment?
• If the premises are to be redeveloped or refurbished are there steps that should be taken to avoid rate liability, pending commencement of the works?
• In the case of new premises, has the Council served a Completion Notice and are there grounds for appeal?
• Are there any irregularities in the service of demands or other procedures that may give grounds to avoid the payments?

Landlords may also have a role to play in assisting tenants to minimise their rate payments, as part of their prudent asset management.

Landlords may take the view that the rates are the tenants’ responsibility, and play no part in the appeals. Where the premises are let to a single tenant with its own property advisors that may be perfectly prudent. However in the case of multi-let premises, especially where individual suites are quite small, the landlord may have a role to play.

Small tenants have become prey to unscrupulous, unqualified and unregulated “Business Rate Advisors” and often find it difficult to obtain professional advice at a cost effective price, having regard to the relatively small liability.

As a result the rate payments may not have been properly tested through the appeals system, resulting in excessive rates, which may affect the tenants’ ability to pay market rents and adversely affect the landlord’s asset value.

Landlords are well placed to represent tenants’ interests in such situations. They have access to full lease details for all the premises and are able to put the best case to the Valuation Officer when arguing for a reduction in rateable value. The result may be an improvement in occupation levels and rental income as well as reducing the landlord’s direct liability for unoccupied rates on suites that become vacant.

By arrangement with the tenants the cost of professional advice may be recoverable through the service charge.

With the increasing popularity of turnover rents the confidentiality of rental details for premises in shopping centres may be a particular issue. The Valuation Office will have obtained full lease details on its “Rent Return” forms, which can be presented in open hearings of the Valuation Tribunal. Confidentiality agreements may not prevent information, including details of premiums and incentives coming into the public arena.

Much of the information on returns will be commercially sensitive for both landlords and tenants, as it will disclose turnover rent formulae and may enable turnover to be calculated.

Landlords will therefore frequently take a coordinating role in the discussions, providing information to the Valuation Officer in confidence and enabling negotiations to concluded without releasing sensitive information.

Tenants with leases protected by the Landlord and Tenant Act are entitled to compensation based on Rateable Value in some circumstances where the landlord refuses the grant of a new lease. Therefore landlords should consider whether it is in their interests to appeal the rateable values of premises where they anticipate taking possession at the end of leases that expire during the currency of the Rating List.