Retailers face frustration over new rates reforms
Helen Edwards, senior associate at Gerald Eve, on new empty property business rate relief measures in Wales that take effect from April 1
NEW rates reforms could cause further frustrations for Welsh retailers. Currently, shops and offices in Wales can receive up to three months’ business rates relief for empty properties, provided the property was occupied for six weeks beforehand.
But all this is about to change. Delayed since April 2021, due to the ongoing Covid-19 crisis, new regulations will come into force from next month, requiring that retail and office properties be occupied for six months before the ratepayer can claim for three months’ rates relief.
The reform follows the Welsh Government’s claim that it loses between £10m and £20m to rates mitigation schemes, which have been common practice since 2008.
Certainly, rates mitigation strategies will be a frustrating drain on the Welsh Government’s resources.
But extending the ‘reset period’ to six months will come as a nasty shock to the retail sector, in particular.
The impact of the pandemic on the retail sector has been profound, with high-street retail continuing to suffer blow after blow: the recent series of storms and weather warnings urging people to stay at home, combined with the continued rise of e-commerce and the fallout from Covid-19, caused footfall in Welsh cities and towns to decrease by more than 17% in February, compared to the same period pre-pandemic.
Importantly, though retail, leisure and hospitality businesses in Wales will receive 50% business rate relief for the 2022/23 year, the scheme will be capped at £110,000 per business and has to be applied for, rather than being automatically awarded.
Against this background, the new rates reforms seem unnecessarily punitive and could serve to devalue retail property further, with potential owners being put off by higher rates liabilities during void periods.
With business rates already calculated based on property values from 2015 – when retail property commanded significantly higher prices – these new measures further disadvantage retail property owners.
The new regulations may also see less creativity on the high street.Until now, ratepayers could mitigate their losses by allowing pop-ups to take residence in an empty shop for six weeks. But under the new regulations, popup operators would need to occupy a space for six months, which is simply too long for such smallscale retailers. Meanwhile, with landlords under increased pressure to find tenants, the new reforms could lead to more charity shops taking space on the high street. Though an important part of any high street, an overabundance of charity shops reduces variety and can detract from an area’s overall appeal as a desirable retail destination.
Of course, there is a possibility that the rates reforms will have a positive impact on the retail and office sectors, encouraging owners of properties that are no longer viable or fit for purpose to convert or improve them. However, it is equally likely that we will see an influx of poor-quality redevelopments, as property owners rush to avoid additional taxation.
Whilst the Welsh Government’s move to recoup its losses is understandable, it is unclear why it has chosen this approach, when it could have returned to the pre2008 rates relief policy, which granted businesses 50% relief whilst landlords searched for an occupier.
The timing is also off. Rather than supporting the office and retail sectors, the new Welsh rate relief measures seem to penalise landlords and property owners who are already dealing with the implications of having an empty property on their hands. With 1 April fast approaching, we must hope that new policies are soon introduced that give a helping hand to these struggling sectors in other ways.