On 30 September 2016 the Government published draft revised rateable values (“RV’s”) for all commercial properties in England. It is estimated that over 1.8 million properties have been revalued and once finalised these RVs will be used to calculate the business rates payable by commercial occupiers from 1 April 2017.
The new figures are based on the rental value of commercial properties as at 1 April 2015 and provide the first opportunity to understand how the Valuation Office (the “VO”) has responded to the revaluation challenge. Given that the current valuation was set in 2008 a considerable hike in rates bills is expected in those areas that have seen significant rental growth in that period.
Conversely, there will be rates reductions in areas where rental values have not recovered from the recession. Not surprisingly, the increases are expected to focus on London and the decreases in the regions. The net effect will compound the polarising of the cost of occupying commercial premises between London and the rest of the country.
The Government is currently consulting on transitional arrangements to mitigate any overnight effects of substantial increases or decreases in RVs. At the cost of delaying the receipt of the full benefit to those properties where RVs have fallen, increases will be phased in over a period of time. Transitional arrangements will definitely be put in place and the consultation is simply in relation to how long it will take before the new rates become payable in full. The Government’s preferred option phases the changes in more quickly to enable the benefit of rates reductions in the regions to apply sooner. If implemented this will almost certainly be at the expense of the London rate-payer. The consultation is open until 26 October 2016.
A new 3 stage “Check Challenge Appeal” appeal process introducing a fundamental change to the way rating appeals are heard will be implemented in relation to business rates following a consultation that closed in January this year. This will require an appellant to disclose and agree all relevant facts with the VO (“the Check”) and put together its case in full, including valuation evidence and the appellant’s proposed RV (“the Challenge”). At the Challenge stage the VO will issue a decision as to whether the rating list will change. If the requirements for the Challenge stage have not been met the VO does not have to make a decision and the process won’t progress to the appeal stage. Only when the Challenge has run its course and the VO has given a decision can the appellant move on to the final stage being the appeal to the Valuation Tribunal for England (the “VTE”).
Whilst there is scope for a revised RV to be agreed at an earlier stage avoiding a full appeal, the new process will be considerably more time consuming and costly to see through from start to finish particularly when the introduction of appeal fees are taken into account.
There is a further proposed change that has the potential to have an even greater impact when considering a rates appeal. The Government has proposed that when it comes to the appeal the VTE can only change an RV when it is wrong outside the “bounds of reasonable professional judgement”. It is not entirely clear what this vague statement means and it potentially allows the VTE considerable discretion whether to allow an appeal or not. Valuation evidence in relation to any given property could vary quite widely without straying outside of the bounds of what a competent valuer could propose. If this change is made, the increased uncertainty of success at appeal could leave many occupiers taking the view that the considerable costs of embarking on the process in the first place are simply not worth it. This part of the new proposal was subject to an ongoing consultation on the detailed rules of the “Check, Challenge, Appeal” process that closed on 11 October 2017.
Whilst there has been rental growth across most sectors in London since 2008 which will result in an increase in RVs next April, it is those areas that have enjoyed significant regeneration or market repositioning during that time that will be most affected by the revaluation. Areas such as Kings Cross following the refurbishment of the station and regeneration of the surrounding area or the repositioning of Old Street as the hub of the London IT sector have seen considerable rental growth and now command rents across the office and retail/leisure sectors that rival more established locations such as Mid-town or the City. Rates rises from 2008 levels will mean considerable increases for these areas exacerbating the cost of occupying commercial property in those locations. The consequences of this could be fairly serious both for the occupiers and landlords operating in these areas.
Smaller, entrepreneurial occupiers who have favoured these locations may be forced out to cheaper fringe arears whilst larger businesses may consider moving back to the established locations which will increasingly appear to be good value in comparison. For landlords with rent reviews coming up, these spiralling costs cannot be ignored and they may find that large increases in rates bills for their tenants have a depreciating effect on their rental income.
