Business rates revaluation 1 April 2017 – landlords, do you need to act now?


29 March 2017

Business rates are currently a hot topic in the consumer sector and with good reason. With the April 2017 Revaluation affecting all properties across the UK, the sector has been badly hit, with shops experiencing a 9% increase in their liabilities, large food stores 14% and factories and warehouses 5%; pubs are experiencing a 15% increase in their liabilities and restaurants an even larger 23%; hotels are experiencing a 20% increase in their liabilities. There is, however, a particular point which has slipped (relatively) under the radar.

Under the Landlord and Tenant Act 1954, a landlord who successfully opposes the renewal of a business lease on certain grounds will most likely have to pay compensation to the outgoing tenant, so long as the renewal has not been prevented by the tenant’s breach. This situation will usually arise when a landlord has an intention to redevelop or to use the premises itself.

The compensation to the outgoing tenant is based upon rateable value (RV). A tenant is entitled to 1x RV, unless it has been in occupation for more than 14 years in which case compensation will be 2x RV.

Compensation is calculated at the time when the landlord serves its termination notice under s.25, or responds to a tenant’s request for a new tenancy that it wishes to oppose a new tenancy under s.26(6).

It is therefore important that, if a landlord is thinking about opposing a new lease, it considers whether there is an advantage to serving a s.25 notice or counter-notice to a s26 request prior to 1 April 2017, when all rateable values in the UK will be reassessed. Tenants will have to be alive to this action as well, and there may be implications for a tenant as to whether it wishes to appeal the RV of its property or not depending on the circumstances of the case.

New RVs can be checked here: https://www.gov.uk/correct-your-business-rates

 

Key points

  • If the RV of the property is decreasing, then a landlord is better waiting until after 1 April 2017 to serve a s.25 notice as compensation will be less.
  • If the RV of the property is increasing, a landlord should consider serving notice/counter-notice prior to 1 April 2017. A tenant will be able to appeal its new RV from 1 April 2017 so the service of a s.25 notice/ counter-notice to a s26 request may affect its decision.
  • Certain sectors and certain areas of the country are being hit particularly hard by the revaluation so this could have a significant effect on compensation.
Richard New, Partner
e: richardnew@eversheds-sutherland.com
t: +44 122 322 4239