letters
Published: 01 May, 2007
== An open letter to the Chancellor ==
We are writing to urge you to reconsider the proposal, announced in the Budget, to reform empty property rate relief. This proposal, if implemented, will fail to achieve its objective of bringing empty property into use and will result in a number of adverse and unintended consequences.
Tenants invariably strive to dispose of unprofitable vacant units as quickly as possible in order to avoid paying rent on property which is surplus to requirements. However, they are often unable to do so either because of restrictive alienation clauses preventing assignment or subletting, or because of weak local markets.
The DCLG has frequently expressed concern about inflexibility in the area of assignment and subletting and the British Property Federation has sought to promote some liberalisation of subletting restrictions. Despite this step in the right direction, the majority of leases still contain restrictive clauses.
Removing the current relief will do little to address market failure in locations where there is an oversupply of space and poor occupier demand, i.e. in declining urban neighbourhoods. Instead, the outcome will be higher rents and longer lease lengths as landlords seek to mitigate the impact of increased rates on difficult-to-let properties.
Reforming empty property relief will also lead to an increase in building material being consigned to landfill as landlords and owner-occupiers decommission hard-to-let and surplus properties.
The overall result of this proposal will be to undermine urban regeneration efforts across the UK. The proposed reforms will deter developers from building speculatively in areas desperately in need of regeneration due to the higher risks associated with these sites, which will, of course, prevent those communities from enjoying the economic benefits generated by property development and redevelopment.
It should also be noted that the Minister's powers to increase Uniform Business Rate (UBR) by more than the annual increase in the Retail Price Index (RPI) is limited to ensuring a consistent yield. Given that the Treasury estimates a net yield from this reform of around £900 million per annum, thus breaking the RPI cap on yield, the logical suggestion is that to remain within the boundaries of the law the poundage rate would have to be reduced.
Dr Kevin Hawkins OBE, director general, British Retail Consortium
Richard Paver, president, UK Chapter CoreNet Global
== But is reform really such a bad idea? ==
There has been a great deal written in recent months about the increases to business rate charges on vacant property, and a view of this as a negative development. However, strangely, this may prove to be an opportunity in disguise which may help to revitalise our shopping centres and high streets with exciting new retail brands and concepts. The new terms restricting business rate relief to three months and thereafter, increasing rate charges to 100 per cent of the liability, will affect the cashflow of many landlords and tenants. Generating the occupancy of vacant units will therefore become more of a priority.
This may perhaps encourage landlords to be more flexible when choosing tenants, opening up opportunities for a new generation of retailers. Currently, new independent retailers and brands wanting to expand via local businesses by franchising or licensing, find it extremely difficult to break into shopping centres and prime high street locations. There are many barriers to entry: high levels of rents, lack of capital, lack of status, lack of track record and so on.
New retailers need start up opportunities to help them get their businesses off the ground - shorter leases or licences, turnover rents or small basic base rents to cover rates and the service charge. Some of these ventures will become credible businesses and, eventually, those retailers with track records will convert to regular leases. We must remember that many international retailers - Body Shop, Laura Ashley and Karen Millen to name just a few - started out with a single unit.
The UK's retail industry has always been dynamic and evolving. The counter service groceries of the 1950s have become today's supermarket superstores and the corner shop has been rejuvenated by the modern convenience store format - for example, Tesco Express and Sainsbury's Local. However, 'sameness' is always inevitable and we need to stop 'clone town Britain'. We need these new ventures, emerging entrepreneurs and different concepts to invigorate the retail environment.
Barry Hammond, managing director, Hammond Phillips
