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Business Rates – Risks for landlords at lease expiry

As the person or company that has the benefit of the use of the property, most commercial leases provide that liability for business rates rest with the tenant.

Typically, when a tenant vacates their property upon lease expiry, the landlord can then claim empty property rate relief. This is currently available for three months for shops and offices and six months for industrial property (although there are other exemptions available).

In the event that a tenant vacates their property before lease expiry, they usually remain liable for business rates under the terms of their lease. However, they may be able to claim empty property rate exemption for this period. The implication for landlords is that a tenant vacating a shop three months early could have utilised all of the exemption, leaving the landlord with an empty property and a rate bill from day one. Coupled with the loss of rent and the possibility of additional costs in securing and inspecting the vacant property, this is not an attractive proposition for landlords.

To mitigate against this we anticipate new leases will increasingly seek to claim compensation from outgoing tenants for any period of empty property rates they might try to obtain during the period of their tenancy. It is increasingly likely landlords will also look to undertake short term lets in order to pass on the liability for rates and obtain a new exemption for empty property rates, particularly if they are otherwise faced with a lengthy re-letting period.