How Making Rates "Amends" Could Help The High Street

01 February 2012

December is not normally a month when announcements affecting property make headlines. Last year was different with the Northern Ireland Executive releasing its long awaited amendments to the rating of non-domestic property. Grabbing the headlines was the levy on occupiers of retail properties with a rateable value of £500,000 or more to fund an extension of the Small Business Rate Relief Scheme. This levy will be 15% reduced from the original proposal of 20% and will apply for three years from April 2012. It will fund a 20% rates discount for business premises with a rateable value between £5,001 and £10,000.

The re-valuation planned for 2010 will not be introduced until 2015, but could, in my view, have been brought forward to April 2013 had the Finance Minister announced it when he released the consultation paper on rating amendments in June 2011. This move could have made it unnecessary to introduce the controversial large shops levy. Whilst the levy and Small Business Rate Relief are the most far-reaching changes, two additional amendments announced have the potential to reverse the degenerating effect of an increasing number of vacant shop units within our town centres.

The first of these relates to the use of shop fronts or windows in empty retail premises for non-commercial, non-political, community or artistic purposes without ratepayers losing their right to 50% empty property rates relief (or exclusion, if applicable). The depth of the window display must not exceed 1.5 m and the area of the window display must not exceed 5% of the floor area of that part of the building fronted by the window display. The provision offers great potential to charities, community and arts groups to promote their organisations or events. A well-dressed window will add interest to a high street or shopping centre compared to the gap-tooth effect of vacant or shuttered shop windows.

The second laudable measure proposed is rates relief for long-term empty retail premises. Retail premises vacant for 12 months or more will be entitled to 50% relief for the first 12 months of trading. This will apply to town centre and out-of-town retail properties, effectively allowing 50% empty property relief to continue for up to a year after a shop is occupied.

Whilst this initiative is welcome, it could have gone further. The measure will only be available for uptake in the rating year commencing April 2012 - in my view it should have been extended. Furthermore, the test should be based on whether or not a landlord is entitled to receive any rent for the retail premises in the preceding 12 months, not simply because the premises were vacant.

Many landlords allow qualifying charities who pay no rates or retailers who cannot afford to pay a rent to occupy shops for limited periods rent-free. Landlords benefit by relieving themselves of the vacant rates burden for a period: charities and small retailers benefit from having access to premises they could not otherwise afford. The high street or shopping centre benefits from a smaller number of vacant units blighting the environment. However, the new provision as drafted prevents a landlord in these circumstances from offering his unit to a retailer with the benefit of 50% rates relief for 12 months. This could act as a disincentive to landlords to allow occupiers into their premises rent- free in the hope that preserving its vacant status gives them an advantage in attracting a rent-paying tenant after April 2012. Developers of unfinished retail units should note that in order to qualify, the premises must be in the Rating List and vacant for at least 12 months.

I believe that there will be few objections to the latter two amendments, which can only improve the retail environment. Providing relief to small businesses is also to be welcomed albeit arguably the way it has been implemented is not sufficiently targeted and its effectiveness is likely to be limited. Let’s hope that warnings from the likes of Tesco and Sainsbury’s that this levy will result in job losses or the loss of future investment in Northern Ireland will not be borne out.