"The potential liability of the empty rates tax could cause lenders to view larger properties less favourably. If a lender is forced to take possession of a commercial property from a beleaguered owner they will need to lease or sell it in a market where values and occupier demand are both declining or become liable for the empty rates tax. A recent example we've seen involved a site of 87,400 square feet which would have faced the client - or a lender in a possession situation - with an empty rates bill of around £126,995 pa. In the current climate this is a huge disincentive for banks to lend against commercial property.

"We're receiving increasing numbers of enquiries on otherwise attractive deals, but once we factor in the possibility of an empty rates bill they become unworkable. We also have to assume that if the property is already vacant pending development and the owner has not been able to meet our repayments then they won't have been paying the tax either, leaving us with a debt to service."

"Following rate cuts and recapitalisation measures the government is now putting pressure on banks to kick-start lending to businesses, yet they have ignored the issues presented by this tax. These will become more severe in 2009 when the tax is calculated using peak inflation figures from September 2008 and then in 2010 a revaluation will see it based on property values between April 2003 and April 2008.

"The empty rates tax will exacerbate the fall in commercial property transactions and prevent banks from lending to businesses that need to use their premises as security. If the market was buoyant it might be less problematic, but drastic changes are required in light of current conditions."