Business rates changes explained

Changes to the business rates system are scheduled to take place on 1 April 2017. Property lawyer Katie Kozlowska looks at issue of business rates and the implications for landlords and tenants of the pending changes.

The Valuation Office Agency, who is responsible for setting rateable values, will be introducing new changes to business rates which will be related to the underlying rental values of the property at the valuation date.

How do Business Rates work?

In the UK, businesses are required to pay business rates on their premises which is calculated by reference to the rateable value of a property, and a ‘multiplier’ which is linked to the size of the business, and its location.

Business rates are based on various factors including the value of the real estate, as well as the value of machinery and equipment, and the sector in which the business is operating. The rateable value of a property is the open market value on 1 April 2008 based on an estimate made by the Valuation Office Agency.

The next revaluations will be based on rentable values from 1 April 2015, and will come into effect on 1 April 2017. Although the revaluation should have been published two years earlier, the reason why it was postponed was because the government wanted to avoid changes to the business rates bill.

Depending on what part of the country a business is based, with certain prices rising strongly in parts of London and South East, and prices failing in other regions, there will be some disparity across the different regions.

Who pays Business Rates?

Businesses that have a rateable value over £12,000 have to pay rates. If the property has a rateable value between £12,000 and £15,000, tapered relief is available for such businesses. Furthermore, businesses located in the countryside with a population below 3,000 can get between 20-100% off their rates.

Relief is also available for sports club and charities who may be eligible for up to 80% relief. There are also exemptions which are applicable to some properties, such as agricultural land or religious buildings.

What impact will Business Rates have to the Statutory Compensation payable for Business Tenancies?

In cases where a business tenancy is protected by security of tenure under the Landlord and Tenant Act 1954, this may result in payment of Statutory Compensation by the landlord to the tenant.

This will be on the grounds that the landlord opposes the tenant’s renewal as the landlord wishes to develop the premises, or occupy the premises himself. Before the landlord is able to rely on the development ground, the landlord will need to demonstrate a firm and settled intention.

If the above grounds are satisfied then the landlord will be required to pay Statutory Compensation to the tenant. The amount which will be payable will be based on the valuation list in force at the date when either the landlord’s notice ending the tenancy is served, or the landlord’s counter-notice to the tenant’s request for a new tenancy is served.

The multiplier in relation to the Statutory Compensation payable is currently set at one. However, it will be doubled where the tenant has been in occupation for the purpose of the same business for a period of 14 years or more. The doubling rate will also be applicable where the identity of the tenant has changed, but the tenant and its predecessor have been in occupation for more than 14 years, carrying out the same business.

Advice for Landlord and Tenants

The first step would be for both landlords and tenants to check the revised rateable value for the business premises concerned and to check whether there is likely to be a change, and the impact this will have upon business rates.

It is important for landlords to carefully consider the rateable value which is attributed to the business premises. If landlords are not happy with the rateable value ascribed to their business premises, they may then consider appealing.

The new changes are set to come in force on 1 April 2017. This will mean that the old valuation list will be applicable until 31 March 2017. For landlords, careful consideration will need to be given as to when the landlord’s notice or counter-notice is served. This is because if the notices are served prior to 31 March 2017, the rateable value of the premises could be lower compared to if the notices are served on or after 1 April 2017 where the rateable value of the premises will be higher in the new list.

This could mean that more Statutory Compensation is payable.

Landlord’s should therefore ensure that as long as the end date of the lease is less than one year from 31 March 2017, notices are served prior to the new valuation coming into force.

For tenants, the new changes will mean that it would be more appropriate to wait until after 1 April 2017 to serve a new request for a new tenancy as if the landlord opposes the renewal, a higher rate of Statutory Compensation will be payable based on the new rates list.

For further advice surrounding your legal position surrounding business rates, please contact Katie Kozlowska on 01772 258321. Katie is part of the property team based at Harrison Drury Solicitors in Preston. We also have lawyers in Lancaster, Garstang, Clitheroe and Kendal, covering all of Lancashire and the South Lakes.