20th March 2026 | Mike Jenkins | Commercial Property, Business Rates, Retail

If you occupy commercial premises — whether a shop, office, warehouse or industrial unit — you will usually be responsible for paying non-domestic rates (business rates). Rates are often one of the largest ongoing property costs after rent, yet they are not always examined closely enough when a lease is agreed. Understanding how liability arises — and where the risks sit — is essential for both landlords and tenants.

Who is Legally Liable for Business Rates in a Commercial Lease?

The general legal principle is that the party in rateable occupation of the property is liable for business rates. In most leasehold arrangements, that will be the tenant in occupation.

Commercial leases usually reinforce this position. They typically require the tenant to:

  • Pay all non-domestic rates and similar outgoings; and
  • Indemnify the landlord if the landlord becomes liable.

In straightforward cases, the occupier receives the demand directly from the local authority and pays it.

However, the position becomes more complicated when occupation ends, when the property becomes vacant, or where a tenant fails to pay.

 

Reliefs and Exemptions

The headline rates bill is not always the final amount payable. A range of reliefs may apply, including Small Business Rates Relief, Retail, Hospitality and Leisure relief, charitable relief and empty property exemptions. Eligibility depends on factors such as rateable value, property use and the occupier’s wider holdings. Relief is not always applied automatically, so both landlords and tenants should check their position carefully.

 

2026 Update: New Support for Retail, Hospitality, and Leisure

It is important to note recent government measures designed to support high-street occupiers.

From April 2026, the business rates system is undergoing a significant shift. The previous temporary 40% Retail, Hospitality and Leisure (RHL) relief is being replaced by a what is being described as ‘a permanently lower tax rate (multiplier)’ for properties with a rateable value under £500,000. This aims to provide long-term certainty for shops, restaurants, and cafes.

Furthermore, in a boost for the night-time economy, the government recently announced:

  • A 15% Business Rates Relief specifically for eligible pubs and live music venues for the 2026/27 financial year.
  • A 2-year freeze in real terms for these venues, protecting them from inflationary hikes through to 2028.

While these reliefs are welcome, they are often subject to strict eligibility criteria regarding how the property is “wholly or mainly” used. Landlords and tenants should verify their status now to ensure these savings are reflected in their 2026/27 billing.

 

Rateable Value and Challenges

The amount of business rates payable is based on the property’s rateable value, which is set by the Valuation Office Agency (VOA). The rateable value reflects the VOA’s assessment of the property’s rental value at a specified valuation date. If the figure appears incorrect, it may be challenged through the formal “Check, Challenge, Appeal” process, although strict procedures and time limits apply.

 

What Happens If a Tenant Stops Paying and Disappears?

A common concern for landlords is whether the local authority can pursue them for unpaid rates where a tenant has been in occupation but has failed to pay and has effectively “disappeared”.

In principle, liability rests with the party in rateable occupation during the relevant period. If the tenant was genuinely in occupation, the tenant is primarily liable.

However, in practice:

  • The local authority will pursue whoever it considers legally liable based on the rating list and available information.
  • If occupation is unclear, disputed or difficult to prove, the authority may look to the landlord.
  • If the tenant has become insolvent or cannot be traced, recovery may prove commercially unrealistic.

Once the tenant’s occupation ends, liability will usually revert to the landlord (subject to any empty property relief). That can happen quickly if a tenant vacates unexpectedly.

Landlords therefore need to monitor occupation carefully and act promptly if premises are abandoned.

 

The Void Rates Issue

Empty commercial properties benefit from only a short exemption period (generally three months, or six months for industrial premises). After that, full rates become payable.

This creates a key commercial tension:
who bears the risk of rates during periods of vacancy?

  • If a tenant ceases trading but the lease continues, liability will usually remain with the tenant.
  • Simply handing back the keys does not end responsibility.
  • A break clause that is not exercised strictly in accordance with its terms may leave a tenant liable for ongoing rent and rates.

From a landlord’s perspective, the risk is exposure to rates during void periods between lettings. From a tenant’s perspective, the concern is being tied to liability for premises that are no longer generating income.

Market conditions and bargaining strength will often determine how this risk is allocated.

 

Where Rates Are “Included in the Rent”

Some leases — particularly serviced or short-term arrangements — provide that business rates are included within the rent.

While this can simplify budgeting, it does not necessarily remove risk.

If the landlord fails to pay the local authority, the council may still pursue the party in rateable occupation. In other words, the tenant may remain “on the hook” despite having paid an inclusive rent.

Clear drafting and proper administration are critical to avoid disputes.

 

Additional Risks to Consider

Tenants should be aware of:

  • Continuing liability if vacant possession is not properly given at lease expiry.
  • Service charge provisions recovering rates on common parts.
  • Rating revaluations increasing liability mid-term.
  • Exposure if a break clause fails technically.

Landlords should consider:

  • Recovery risk where a tenant becomes insolvent.
  • The evidential burden of proving occupation for rating purposes.
  • Immediate rates exposure once a property becomes vacant.

 

Why Early Advice Matters

Business rates can represent a substantial financial liability. The most significant exposure often arises not during stable occupation, but during transition — insolvency, abandonment, relocation or lease expiry.

When negotiating or reviewing a lease, it is important to understand:

  • When liability begins and ends;
  • How void risk is allocated;
  • What happens if a tenant fails to pay; and
  • Whether inclusive rent arrangements genuinely protect the parties.

Clear advice at the outset can prevent unexpected and costly outcomes later.

 

Find out more with our Commercial Property Team

Business rates are a significant and often fluctuating liability. Whether you are negotiating a new lease, managing a vacancy, or navigating the new 2026 relief schemes, early legal advice is essential to protecting your position.

To discuss how we can assist with your property portfolio, please contact a member of our Commercial Property Team.

 

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