Empty properties are an ongoing concern for landlords as they are now liable to pay business rates on their vacant building. This is as a result of new legislation introduced by the government in the form of The Rating (Empty Properties) Act 2007 which came into force in England and Wales on l April 2008. Below we look at the implications of the new regime and how it may affect a landlord who decides to forfeit a lease if his tenant becomes insolvent.
Previously, empty industrial and warehouse premises were entitled to full relief from business rates. Office and retail premises were liable to rates at 50% following expiry of a 3 month exemption period.
The new regime provides that from 1 April 2008 in England and Wales, full rates are payable on empty business properties once initial exemption periods have expired. The exemption period for office and retail premises is 3 months and for industrial and warehouse premises it is now 6 months.
Current exemptions and relief
Should a Landlord forfeit a lease if his tenant becomes insolvent?
While a landlord may have a legal right to forfeit a lease held by a tenant, a landlord should be cautious of exercising that right in cases where it does not expect to be able to let the premises immediately. Prematurely exercising a forfeiture right may leave a landlord liable to business rates in respect of premises even where the landlord has no use for the premises other than to seek re-letting.
In some cases, it may be preferable for the landlord to continue with a lease, even if the tenant is insolvent. As administrators have no power to disclaim leases and landlords are not obliged to accept the surrender of a lease, tenants in administration can be held to their obligations (subject to subsequent liquidation).
In the case of Exeter City Council v Trident Fashions plc 2007 it was held that business rates for occupied and empty properties are payable as an administration expense. However, the law was changed soon after to provide relief to administrators of empty properties. However, the fact remains that in so far as the property remains occupied by the administrator, the liability for rates remains with the administrator.
In the case of Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration) 2009, the court held that an administrator electing to hold leasehold premises could do so only on the terms and conditions contained in the lease, and any liability incurred while the lease was being enjoyed or retained for the benefit of the administration was payable in full by the administrator as an administration expense. This rule applies even where the administrator is using only part of the landlord’s premises.
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