As of 1 April 2008, commercial property owners are now subject to new regulations relating to business rates on empty commercial and industrial properties. This is likely to have a significant effect on the commercial property market.

Previously, vacant industrial and warehouse buildings got complete exemption from business rates that were paid on occupied premises, until they came back into use. Office and retail premises that are unoccupied could qualify for a three month exemption, after which they could claim a minimum of 50 per cent relief.

The new regulations allow full relief for vacant industrial and warehouse premises for the first six months, with a similar relief for office and retail premises for the first three months. Rate relief for these properties then end and the full non-domestic business rates are chargeable.

The logic behind the new regulations is that the original reliefs were introduced back in the 1980’s, during times of recession, to assist property owners in difficult times. The government has questioned whether such tax breaks should be offered in the current market and believe the reforms will encourage re-development of vacant sites or empty property.

There has been strong resistance to the reforms with suggestions that they may have the effect of landlords increasing rents in occupied properties, to cover the costs of unoccupied buildings or units within. It has also been suggested the reforms may deter speculative development. One certainty is that the new regulations will generate revenue for the government. Whether they re-energise the commercial property market remains to be seen.