While these are challenging times for us all, UK businesses face further uncertainty as we move into the new year, with the upcoming revaluation of business rates in April 2023. With the economy slipping into the anticipated recession, commercial property landlords are left waiting to see what impact it will have on their businesses, especially in light of the fact that the Minimum Energy Efficiency Standards (MEES) regulations are set to become stricter at the same time.
The revaluation of business rates will be based on property values as of April 2021, which was a year into the COVID-19 pandemic. What outcomes the ratepayers face is uncertain, however it is possible that some will face significant increases in their liability, in an attempt to balance those who will end up paying less because their sectors and properties have potentially fared less well during the COVID-19 pandemic.
Any increase in business rates will be unwelcome, further impacting profitability, which is possibly already under pressure following other recent cost increases. Should this increase result in tenants going out of business, this could leave commercial property landlords without a rental income stream, causing even more difficulty for the sector. Coupled with the fact that the landlord becomes liable for the business rates should they not be able to replace a tenant for the property makes for a concerning start to 2023.
The additional impact of MEES
As mentioned above, the regulations around MEES are due to become stricter from April 2023, restricting landlords from letting their commercial properties which have an Energy Performance Certificate (EPC) rating of F or G. The costs to commercial landlords to improve the EPC of the building can be significant, however not doing so could leave the landlord without the ability to lease the property at all. This would also result in them becoming liable for the business rates, rather than a prospective tenant.
There are exemptions that can be filed for under the regulations, especially for older buildings. Failure to comply with the regulations could result in sizeable fines, starting from the equivalent of 10% of the property’ rateable value (ranging between £5,000 and £50,000) and increasing dependant on the length of time the breach of regulation continues.
Not all doom and gloom
Thankfully there are options available to landlords to mitigate some of this uncertainty. For example, landlords whose commercial properties become vacant may be eligible for an Empty Rate Relief. Should they be eligible, this would entitle them to a 100% relief on their business rates for a three to six-month period, depending on the type of property they own.
Other reliefs may be available if the commercial property is completely unfit for occupation while it is being refurbished or redeveloped.
At the time of writing, there are also two schemes in place in England – and Wales albeit with some differences – through which a commercial property landlord can potentially reduce their rates liability.
The main one is the Makro scheme. This allows landlords to let a property for a short term (six weeks or more) following the expiration of the initial Empty Rates Relief period. The scheme entitles eligible landlords to claim an additional three-month period of 100% rate relief.
Following the recent Autumn Statement 2022 by the Chancellor of the Exchequer, the Government have published a Business Rates Factsheet. Our Sales Director, Jamie Chamberlain, commented:
This is evidently very good and welcome news for landlords who haven’t had much good news in recent years. It it helps keep retail units and offices open then it could be a bit of a life-line for many local high-streets and local economies.
Be prepared with a commercial property valuation
Having worked in the London property market for over 25 years, our Chartered Valuers have extensive experience in all types of commercial property. From industrial units, office buildings, shopping centres and more, our experts can provide a valuation that will help you prepare for the upcoming review.
Speak to a member of our Commercial Valuation team on 0800 071 5517 or email firstname.lastname@example.org.