Leading agency King Sturge has warned liability to pay full rates on empty buildings could tempt landlords to offer cut price deals and damage an already uncertain market.
The company believes landlords taking this action could spark widespread “stand-offs” between themselves and tenants as a direct result of the new legislation.
In April, the government scrapped rate relief on empty commercial and industrial properties such as warehouses and offices.
Until then, 100 per cent rate relief was given for the first three months a commercial property became empty, dropping to 50 per cent thereafter for shops and offices, but remaining at 100 per cent rate relief for warehouses and factories.
Andrew Crampton, at King Sturge, said if evidence emerges landlords, now liable to pay the full amount, were accepting low rents just to get tenants in, there could be unexpected consequences. “That situation would allow the landlord to avoid paying tax on their empty property,” he said, “but when the rent reviews come round, that’s when the trouble starts.”
Rent reviews on commercial and industrial properties take place every three to five years but, said Mr Crampton.The current rounds of rent review negotiations will become influenced by any rents reduced to avoid rates.
“You base a rent review on comparable property and the deals done in a particular market,” he said. “So you might have tenant A, whose rent is up for review, and you’ll compare it to tenant B, who may have been able to get a very low rent because of the new rules.
“Now tenant A is understandably going to resist paying any more when tenant B is paying a rent below the true market value.
“That’s where the conflict starts and more and more rent review disputes between landlords and tenants are likely to be referred to the Royal Institution of Chartered Surveyors dispute resolution service.”
Mr Crampton, a fellow of RICS, added: “The economy is going through an unprecedented period of uncertainty and this is just going to inflame an already volatile situation.
“I don’t think you can entirely blame the government, because changes in rules sometimes have unforeseen consequences.”