NEW rules being introduced as part of changes to the non-domestic rates system in Scotland could cause confusion for landlords and property investors, particularly in the industrial sector, according to Knight Frank.
Among the changes being brought in as part of the most recent settlement between the Scottish Government and local authorities, empty property relief will be devolved to councils from April 2023, allowing them to set different rules and conditions for exemption.
Under the current relief regime, vacant industrial properties are given 100% for six months, followed by 10% thereafter. However, Knight Frank revealed that some local authorities have already proposed changes, with others likely to do so in the future.
In the north east, Aberdeen City Council has proposed that vacant industrial properties will receive three months of 50% relief on rates, then falling to 10%. By contrast, neighbouring Aberdeenshire Council is planning to maintain the current regime for rates relief, creating different systems only a few miles apart.
Knight Frank added that, in the case of two comparably sized vacant industrial properties with the same rateable value located in Westhill and Dyce, the landlord of the property in Dyce would have to pay 56% more in vacant business rates over 12 months.
Scott Hogan, head of Scotland industrial and logistics at Knight Frank, said, “The new rules mean that local authorities can, and likely will, have different reliefs across Scotland, creating an uneven playing field. This will introduce an added degree of complexity for landlords and investors, and will almost certainly create confusion for anyone with property interests in multiple council areas.
“Councils are under pressure to collect more income and, understandably, reducing rates relief may seem like a simple way of bringing in more money. However, I am yet to encounter a landlord who does not want to let their property, so it will be especially punitive to those who are already struggling to secure occupiers and will add risk for any new investors looking at Scotland.
“The changes mean that landlords need to seriously consider how they manage their properties 12 months ahead of any lease expiries to ensure that void periods are kept to a minimum. This includes early engagement on dilapidations – a process that can take months to conclude in itself – and re-marketing of properties at least six months ahead of a possible vacancy.”