Counting the costs of empty properties

Many property owners focus on the lost rental revenue when calculating the cost of an empty building, but, says former Dot Dot Dot chief executive Peter Brown, there are many more savings to be had when using property guardians.

When a mainstream use of a property comes to an end e.g. because an occupier has left, or the building needs to be redeveloped, the focus on the financial loss to the property owner is usually on lost rental revenue. This is understandable, because those figures usually quickly add up, but there are also significant costs involved with managing and stewarding empty buildings which can hit the property owner’s bottom line. 

In my experience, most organisations will underestimate these costs as they aren’t used to holding property empty. And in larger buildings that have had a commercial tenant, the property owner won’t have been responsible for the building’s day to day costs and so may not even have a sense of the running costs of the building, so won’t have been able to make an assessment for how much the building may cost to keep empty. Every month when we run through our budgets, I never cease to be surprised by how quickly the savings of using guardians, rather than leaving buildings empty, can add up. 

For example, we took responsibility for around 165 Council Tax accounts in the last financial year, saving 14 of our clients more than £220k in Council Tax payments alone. Single accounts ranged from individual studio flats up to our largest 90-person property, and, there were plenty – hundreds – more accounts where the guardians paid Council Tax directly, thereby contributing even more savings. We’re also working up the savings on utilities, maintenance and alternative security options for each of our projects, so we can give our clients a more complete understanding of all the money they’re saving by choosing to work with us.

The costs of empty property that we typically see fall into two categories – direct and indirect. 

Direct costs are things that clients would have had to pay for themselves if the building lay empty – for example:

• Council tax: discounts and exemptions for empty property have not been available for a number of years, and in some areas policies to incentivise owners to use property means that Council Tax bills can double for longer-term empty property
• Energy and utilities: even when equipment is switched off, there are often standing charges to pay for
• Hard security products: many of our clients have historically used third party security products such as metal screens to secure their empty properties. These products are either rented or purchased, and so using guardians removes the need to pay for them
• Repairs and maintenance: we will often be able to take on some of the routine repairs and maintenance, depending on the building
• Health and safety, and compliance: even an empty building needs to be managed and kept safe, for visitors and to avoid it becoming a hazard.
• Depreciation: though it’s hard to measure, an empty building will most likely lose value over time as it becomes more dilapidated. There’s a value in a building that is cared-for and looked after.

But there are also other costs – indirect ones – that only become relevant once a property is empty:

• Insurance – many insurers have clauses requiring property to be occupied without long void periods, and some insurers will charge more for empty property given the risks of vandalism or damage going unnoticed and unchecked
• Theft or vandalism – these costs can be high in terms of both the cleanup and securing the building again. Unfortunately, we’ve seen even the smallest property being the target of metal thieves.
• Squatters or unauthorised access – the court and bailiff costs associated with removing squatters can easily run into five figures.

So, when faced with an empty building, my advice would be to consider and make provision for a wider set of these costs and not just rent loss.

If you want to get an idea of how much property guardianship could save you, get in touch with us at partnerships@dotdotdotproperty.com.