News

Ministers intend to take steps to counter a threat by property developers to
leave buildings unfinished in an attempt to dodge an impending increase in
business rates.<br/>
<br/>
The measures, which are due to be announced this week, pit the Government
against increasingly angry commercial developers - as the Treasury tries to
raise an additional £1 billion in business rates from buildings that are
unoccupied.<br/>
<br/>
John Healey, the Local Government Minister, will ask local councils to make
better use of existing powers, including forcing developers to speed up the
completion of building works so that they cannot dodge taxes by leaving
buildings incomplete.<br/>
<br/>
Owners of unoccupied commercial property currently pay little or no business
rates but the Government is planning to cut the existing reliefs from next
month. That prospect prompted Ian Coull, the chief executive of Segro, to
threaten to leave the roof off new unlet developments to avoid the rates
bill.<br/>
<br/>
Mr Healey told <i>The Times</i> that his plans amounted to “zero tolerance on
commercial vandalism” – and he specifically warned developers against
damaging complete but unlet properties. “It would be an extreme step for a
property owner to go to the lengths of deliberately vandalising their asset.
I do not believe this is likely and I expect the property industry to adapt
in a responsible manner.”<br/>
<br/>
Developers argue that leaving buildings incomplete helps them to save money if
they fear that they can no longer find tenants for a planned building by the
time it is built. Segro estimates that its rates bill will be £8 million
higher as the existing system of reliefs is scrapped.<br/>
<br/>
Mr Healey will also indicate that he is prepared to enforce 20-year-old local
government finance legislation allowing rate valuation authorities to decide
that for tax purposes a building is completed three months from the start of
construction even if in reality the building has not been finished.<br/>
<br/>
Tim Wheeler, the chief executive of Brixton, which owns warehouses valued at
£2.4 billion, told <i>The Times</i> this month that the imminent
changes to rates relief would mean that his company would demolish old
buildings earmarked for redevelopment far sooner than planned, leaving
“piles of rubble” in their place.<br/>
<br/>
Mr Wheeler has calculated that the scrapping of empty business premises rates
relief will reduce Brixton’s earnings this year by at least £5 million.<br/>
<br/>
Responding to the threat, Mr Healey said: “I will not tolerate any deliberate
dereliction and will act on new antiavoidance measures if necessary. That is
why I will be monitoring the situation closely and why I am reminding
councils of their powers to safeguard local areas from potential commercial
vandalism.”<br/>
<br/>
Owners of industrial property obtain 100 per cent rate relief when buildings
are unoccupied. Owners of other commercial property, shops and offices,
obtain 100 per cent relief for the first three months and 50 per cent relief
after that.<br/>
<br/>
However, from April 6 industrial property owners will obtain 100 per cent
relief for only the first six months that a building is vacant. All other
empty commercial properties would have three months’ rates relief and then
incur the full amount.<br/>
<br/>
The Treasury expects the cuts to generate an extra £950 million in the 2008-09
tax year and £900 million the year after, and ministers are hoping for a
further economic boost because landlords would be obliged to offer lower
rents to businesses to offset the risk of a hefty tax bill.