Empty commercial property – risk or opportunity?
If you own a business property which is lying empty, then aside from a poor return on your investment you have a liability on your hands.
The risks faced by an owner of empty property fall into three main categories. The most obvious is financial loss but there is also risk to the building itself; and the risk of the owner incurring legal liabilities, either because of the state of the building or because of possible illegal uses. Fortunately, there are ways to reduce these risks and to keep the property active while you look for a new tenant.
Check mortgage and insurance obligations
While a property is let, the tenant will usually be responsible for maintaining the parts they occupy and the landlord will be able to recover from the tenant the cost of insuring the building and repairing any parts not included in the lease. In the absence of a tenant, all of these costs will fall to the landlord. Unless the landlord takes active steps to keep the building in good repair and secure, there is a real danger that it will deteriorate or be subject to vandalism. Owners should check the terms of their mortgage and insurance policy, as there may be specific conditions or exclusions that apply if the building is unoccupied.
The financial impact gets worse after a property has been empty for three months, because the owner will then become liable to pay empty property rates.
One option is to agree a letting to a company that will occupy the property specifically to avoid empty rates becoming due. This can be controversial, as local authorities may challenge an arrangement if its sole purpose seems to be avoiding rates. In a case that came before the court in 2018, the tenant used the property for storage. The judge held that this was enough to stop empty rates falling due and refused to take the ethics of the situation into account. Another more complex scheme is due to be considered in the Court of Appeal so, if you are contemplating an arrangement of this sort, it is vital to discuss it with your solicitor first.
Squatters and illegal use of premises
Empty commercial properties can be attractive to squatters, especially since squatting in a residential building is now a crime. Once squatters are in the building, the owner will have to take formal legal proceedings to get them out, which may be costly and time-consuming.
The other key risk is that the property may be used for illegal purposes, whether by squatters or on a more casual basis. Even if no crimes are committed, as the owner you may be liable if the state of the property or the way it is being used causes a nuisance to neighbours, or if a trespasser is injured or killed and you have not taken reasonable steps to prevent this.
There are a range of possibilities for putting empty buildings to good use and, in many cases keeping some income flowing.
The current fashion for ‘pop-up’ businesses and events means there are now far more individuals and companies looking to occupy premises for short periods under what are often called ‘meanwhile’ leases. Local charities and other organisations may be keen to make use of premises for short term events or exhibitions, turning your neglected and empty building into a vibrant community space. It is important to make sure that any short term occupation is properly documented so you can get the property back once you find a long term tenant. Your solicitor will be able to advise you on a suitable lease document.
Property that is being put to good use will be better maintained and more secure than a property that is standing empty, even if the short term rent is less than would be achieved on a standard commercial letting. Your solicitor can advise you on the options and make sure any agreements you make are properly documented, so that when a good long term tenant comes along, the building is in good shape and ready to let.
For further information, please contact the commercial property team at Forrester Sylvester Mackett on 01225 755621.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.