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Landlords of High Street Premises Face Challenging Times

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A recent report from the Local Data Company (LCD) has forecast that the number of empty shops in town and city centres is set to rise in 2012. This increase may be attributed to the current economic instability that Britain faces. However, according to the data collected by the LCD the two most significant causes for a decline in town centre trade is the increased popularity of large out of town shopping centres and most influentially, online shopping, with the report that online sales have doubled between 2000 and 2011.

 Although this decline of urban areas has affected many individuals, arguably the landlords of the vacant premises are one of the hardest hit by the realities of this report. The main issue for landlords is that a vacant shop still attracts business rates which are usually set at 40% of the shop’s estimated rental value. Due to the fact that this heavily criticised local taxation system has a cycle of five years it is slow to recognise the decline in a shop’s value, and therefore can impose heavy taxation on landlords who are in possession of a vacant shop.

 Yet at the same time business tax increases are assessed annually by referring to the previous September’s Retail Prices Index inflation measure. Last September’s figure of 5.6 per cent was the highest for the past decade. The RPI has fallen every month since then and stands at 4.8 per cent. Therefore whilst retail property prices are falling the premises are being penalised with taxes that do not accurately reflect the current financial situation.

Evidence of the present dilemma faced by landlords can be seen by their desperate attempts to avoid paying the business rates on the property, even if it means forgoing any rent.  A major national retailer reported that in certain areas they are only paying a nominal fee of £1.00 per year in way of rent.

Another retail leader which also utilises certain stores across Britain on a rent free basis noted that the business rates of a property are in some areas considerably higher than that of the applicable business rates ,  which in itself makes for a disincentive for them to locate there.

 It seems that for some companies the negligible rent payment is still not a great enough incentive to stay in town centres. One leading retailer has stated that many of their outlets will be relocated upon expiry of their lease to the more popular out of town shopping centres.

Due to the fact that charity shops have an 80% reduction on business rates many landlords are keen to encourage these businesses to their premises. However, in the recent report by the Government’s retail advisor Mary Portas a recommendation was made that charity shop numbers should be capped, whilst at the same time affording the same benefit of an 80% reduction to start up retail businesses.

It can be seen that Landlords can do very little else to attract potential businesses in to their empty shop spaces after they have offered a rent free property. Some areas have reached the point of no return and landlords will have to look at other ways to generate income other than retail. One suggestion has been to turn some retail areas into residential premises even though this may mean landlords accepting that their property has significantly decreased in value.

Such measures could spell the end of the high street as a retail location. However, this is arguably a more positive scenario than a deserted town or city centre which in some areas is threatening to be a possible reality.

For additional information please contact Edward Worthy on 01245 228124 or worthye@gepp.co.uk   The above is not legal advice; it is intended to provide information of general interest about current legal issues.