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01st November 2016

Bracing for impact: Business Rates Revaluation 2017 and other changes

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The first revaluation of business rates since the midst of the credit crunch is on the horizon: businesses across England and Wales are now able to access their draft Rateable Values online, in advance of the new rates coming into effect as of 1 April 2017.

Billed as ‘the largest change in a generation’, the Valuation Office Agency has based the new figures on the assessed property’s rental value as of April 2015. The last rates revaluation took place in 2010, and the figures were based on rental valuations for 2008. Although rates valuations ordinarily take place every five years, the Government announced a two year postponement in October 2012. As a consequence, many companies are finding that their business rates exposure from 1 April 2017 is likely to be radically different from what they have been paying over the last few years, as business rates become realigned as a result of the significant shifts we have seen in rental levels  since 2008.

For some businesses, the revaluation will provide welcome relief, as the drop in rental levels in some areas of England and Wales will be reflected in a reduction in their rateable value. As business rates are typically one of the largest overheads for businesses, this will be well received after a long period of overpayment for many. On the other hand, many businesses occupying prime commercial property will be bracing themselves for a significant increase in the business rates which they will pay as of next year.

The bad news for some doesn’t stop there, as any increase in business rates will have a knock-on effect elsewhere.

Landlords and tenants who are negotiating lease renewals pursuant to the Landlord & Tenant Act 1954 will be impacted. Any statutory compensation payable for opposed lease renewals is based on the rateable value of the commercial property in question, the timing of the service of the landlord’s section 25 or section 26 notice could mean that the amount of statutory compensation payable may either increase or decrease in amount, depending on what side of the 1 April 2017 date it is served. With this in mind, landlords who are looking to oppose their tenant’s request may look to serve notice on the tenant prior to 31 March 2017, so as to pay a lower rate of statutory compensation. Tenants, on the other hand, may strategically decide to delay serving their request for a new business tenancy until after 1 April 2017, so as to potentially increase the amount of compensation which they may be entitled to in the event that their landlord opposes renewal.

For those looking to appeal against the rateable value which has been applied to their property, the appeals process is set to get more difficult. Following a Government consultation, the Government announced in July 2016 that the ‘check, challenge, appeal’ process is likely to be brought in alongside the implementation of the new business rates on 1 April 2017. The new process will only allow businesses to formally appeal to the Valuation Tribunal in limited circumstances, with emphasis being placed on picking up discrepancies between the ratepayer and the Valuation Office Agency at the ‘check’ and ‘challenge’ stages. Furthermore, the Government have proposed that the Valuation Tribunal, when considering the matter, will only have scope to alter the rateable value when it is judged to be ‘outside the bounds of reasonable professional judgement’. This burden of proof arguably leaves room for error, as it effectively allows for incorrect rateable value figures to remain in place if they are ‘somewhere in the region of’ the figure which should technically be imposed.

There have also been developments in relation to the business rate relief for charities and not-for-profit organisations. To qualify, it has now been made clear that the ‘charitable use’ which the commercial property is used for must normally occupy in excess of 50% of the building, but will be judged on a case-by-case basis.

Following the 2015 Supreme Court decision in Woolway (VO) v Mazars LLP, the Valuation Office Agency have now confirmed that different areas within the same property which are only accessible through common areas will be seen as separate premises for the purpose of assessing the business rates payable. This is a marked change from the Valuation Office Agency’s previous position, which was to treat the areas within the same building as one set of premises for the purposes of assessing the rateable value of the property. This decision from the Valuation Office Agency will mean that any changes will be backdated to either 1 April 2015 (if the property is based in England) or 1 April 2010 (for Welsh property), and that business may see a change in their business rates even if there has been no change to their tenancy in this period.