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Business rates (also called 'non-domestic rates') are the way in which businesses contribute towards the cost of local authority services. They are an annual tax on commercial property and can be a significant proportion of occupancy costs. Business rates in Wales are set and administered by the Welsh Assembly Government. Business rates are calculated by multiplying the rateable value of the property by the relevant multiplier. The rateable value is based on the amount of the yearly rent reasonably obtainable for the property, assuming that the property has been put into repair, where it is economically reasonable to do so. If not, the valuation is based on the yearly rent reasonably obtainable for the property in its actual state. Rateable values are revised every five years by the Valuation Office Agency (and multipliers are revised each year). Revaluations are intended to maintain the tax base in line with movements in the property market so that ratepayers bear their fair share of the rate burden.
In addition to business rates, Local Government Act 2003, Part 4 provides for the payment of a levy by non-domestic ratepayers to fund business improvement district arrangements made by local authorities. The Environment Agency may also raise and levy on occupiers of chargeable land in a local flood defence district a 'general drainage charge' at an amount per hectare of that land.
The occupier of a property, either as owner-occupier or tenant, normally pays the business rates. The landlord of multi-let property will often agree to pay business rates for the whole building, recovering those costs from the tenants either through the service charge or under a separate covenant in the lease. Where rates are charged as a single figure for the whole building, the tenants will be required to pay a 'fair proportion', often calculated by reference to floor area.
In general the tenants should bear all expenses which are of a regularly recurring nature and which relate to the occupation of the property. The landlord should be liable for expenses which are incurred for the permanent improvement of the premises.
The tenant's covenant will generally not throw expenses of permanent improvements on the tenant unless there are words clearly requiring such a result. In each case the construction of the covenant depends on the words used, and on any other provisions in the lease which may properly be regarded as assisting the construction. The usual charges for improvements of a permanent nature are those for drainage and paving expenses and for the abatement of nuisances.
Empty Business Rates
Unoccupied commercial property in England and Wales is liable for full business rates following expiration of a concessionary period – six months for factories and warehouses, three months for everything else. Unless the property can be rapidly relet, or unless one of the statutory exceptions applies, this is likely to result in a direct and irrecoverable charge to the landlord. Broadly, the statutory exceptions are:
properties owned by companies in liquidation or administration
property let to a charity at a concessionary rent. Charities can get up to 100% discount on rates and will buffer the land owner or outgoing tenant from rates liability
property, or part of it, occupied by the landlord for short periods or let on short lets. A letting for as little as six weeks will refresh the exemption period, and the pattern of short let period of exemption may continue indefinitely
property where occupation is prevented by law. Rates may not be charged if the building is too dangerous to occupy, perhaps because of asbestos or lack of fire escape routes
unfinished buildings in course of development. If a building is within three months of completion, the local authority may serve a completion notice requiring the developer to complete the building, but has no power to do so if the works will take longer than three months
There is a general exemption for unusable buildings. The Government initially intended to bring in legislation to prevent owners from vandalising buildings (eg by removing the roof), but shelved this, perhaps in recognition of the difficulty of differentiating between this and genuine partial demolition prior to redevelopment.
Business rates supplement
The Business Rate Supplements Act 2009 allows councils to set a supplement of up to 2p in the pound on rateable values to promote economic development and improved infrastructure in their area. It extends to England and Wales.
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