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Pitfalls and traps of the rating system

Business rates are, for the Westminster, Welsh and Scottish administrations a tried and successfully tested means of tax recovery from businesses but since 1990 the huge amount of new regulation has made rate bills virtually impossible to read let alone interpret. The system is full of pitfalls and traps for the unwary so Montagu Evans provides a short summary of what to look out for as the dreaded bills hit the door mats of business premises in February and March.The sun is shining, and I'm still in my role in the corporate real estate team with market value reports flying in!

  • Transition or phasing will not apply in Scotland and Wales at the 2017 revaluation but in England it is a mechanism designed to ‘protect’ ratepayers who will experience a steep increase in rateable value. A very kind Government initiative, but take care because where rateable values have decreased the reduction will also be ‘phased’. Further the percentage increases are not generous to ratepayers. Whether or not (and when) a rateable value reduction is beneficial or even disadvantageous, where transition applies, requires very careful consideration in order to avoid some nasty unforeseen liability penalties! 
  • Splits & mergers are on the Valuation Officer’s early agenda this year following a ruling of the Supreme Court in late 2015. Ratepayers occupying more than one floor in an office building, several parts of the same industrial estate or several adjacent retail units may find that the VOA will be considering a ‘split’ in rateable value where each part is capable of separate exclusive occupation. In broad terms a split from one assessment to several invites a larger liability and dispenses of a need for valuation ‘allowances’. 
  • The ‘Material Day’ Regulations are complex and require expert interpretation in many cases. For example a ratepayer affected by building works or road works close to his premises does have grounds to challenge their assessment, but should do so at the start of any disturbance in order to maximise the possibility (and quantum) of a reduction in rateable value and rate saving. Challenges towards the end or after the event are much less likely to be successful. Circumstances (including the length of disturbance) can only be considered at the date of notification. 
  • Disrepair to a property is more or less disregarded in rating law…..unless it is severe and even if a building is under-going redevelopment! Whether or not there are grounds for appeal is a matter for expert intervention taking into account the potential costs of remediation to the whole of the ‘hereditament’ and whether or not any works will create something entirely different from what has already been assessed. Any expected conversion from a commercial to a domestic use may also require some special considerations under the law. Watch this space as we await another Supreme Court ruling in 2017! 
  • Completion Notice Regulations. These regulations apply to buildings nearing completion. Imagine this: A developer speculatively develops 100,000 square feet of retail space as part of a new town centre retail scheme, but can only let 10,000 square feet initially.. He expects to let the rest over the next 24 months. The local authority sees 90,000 square feet of unfitted and vacant retail space and believes that it could be fitted and made ready for use within 3 months and so issues a Completion Notice on the developer to that effect. The Valuation Officer MUST assess the space as if it were ready for use, assuming there is no successful appeal against the notice. Subject to a 3 month statutory void the developer who fails to appeal within 28 days has a very large 100% overhead for rates until the space is let. 
  • Legal empty rate avoidance. Rates are charged on most empty non-domestic premises after a short period of exemption of either 3 months (commercial) or 6 months (industrial buildings). There are some legal avoidance measures available which can severely restrict the empty rate charge during periods of void, but owners or those with a leasehold interest in an empty building should tread carefully. Some schemes have be deemed to be beyond the provisions of the law.
  • Cowboy operators. Beware and check the credentials of ‘advisors’ (as Chartered Surveyors). Ratepayers should not make payments in advance and should not ‘tick box’ contract documents.

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