In a proposal which has the potential to devastate new development in and the current market for industrial property, the Scottish Government announced on 16th December 2015 a proposal to reform levels on Empty Property Relief.
Currently empty industrial property obtains 100% relief when vacant. From April 2016, it is proposed to continue for the first six months of the property being empty, after which time the level of relief is proposed to be reduced to just 10%. After this, a landlord or developer will be responsible for 90% of the full rates liability on any industrial, warehouse or store.
For a vacant property with a Rateable Value of £100,000, this will mean a rates bill jumping from £0 to £45,000.
For other commercial property (offices and retail) which currently obtain 100% relief for the first three months, the relief is being reduced to 50%, after which time the level of relief will be reduced to 10%.
John Swinney in his recent Budget announcement confirmed that “Scotland’s businesses are the key to creating jobs and boosting prosperity”. He also mentioned that “our system of business rates must minimise barriers to investment, be responsive to the economic conditions and support long term economic growth and investment”.
But the subsequent announcement on vacant rates is incongruous with this proposed policy, as this increase in vacant rates liability on developers and landlords will deter any future new development and will also lead to demolition of older property which will reduce industrial stock throughout Scotland.
There will be no incentive for developers to build new speculative industrial buildings as this extra cost will have an adverse effect on value and can only lead to an increase in rents to nullify this extra cost.
Prior to these proposals, Scotland had a distinct advantage over England in attracting industrial investment due to our competitive business rates policy, but under these proposals this would no longer be the case.
The Government’s proposals were not mentioned in John Swinney's budget speech but instead discreetly included in a document addressed only to Local Authorities and COSLA. Responses are sought by the 15th January 2016 and it is likely there will be a significant outcry against these proposals.