Changes to rateable value and the impact on statutory compensation

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The rateable value of a property is assessed by the Valuation Office Agency based on the annual open market rent for the property. The last revaluation took place in 2010 which used 2008 valuations. As we are well aware, the property market has changed significantly over the last 9 years and rental values are far removed from the rateable values which continue to be used.

As such, rating revaluation has taken place and the new rateable values are due to come into effect on 1 April 2017. We are likely to see sizable increases in the rateable value of properties as well as see business rates escalate.

Some businesses may get relief after years of overpayment but many face the prospect of a marked increase in rating liability.

There are also implications for landlords and tenants where a landlord wishes to oppose a business lease.

Under the Landlord and Tenant Act 1954, if a landlord wishes to oppose a renewal of a business lease, under a ‘no-fault ground’ then it is liable to pay to the tenant statutory compensation.

Statutory compensation is directly linked to the rateable value of the property; where the tenant (or its predecessor carrying out the same business) has been in occupation for 14 years or more, the landlord will be liable to pay statutory compensation which equal to twice the rateable value of the property. Where the tenant’s occupation has been for a shorter period, compensation will be payable at the rateable value.

The timing of the service of notices thus becomes highly critical as a result of these changes.

The rateable value which will be used to calculate the statutory compensation due to a tenant will be based on the valuation list in force at the date that either of the following is served:

  • the landlord’s section 25 notice terminating the tenant’s tenancy opposing renewal on a ‘no- fault’ ground; or
  • the landlord’s counter notice to a tenant’s section 26 request for a new tenancy, opposing renewal on a ‘no- fault’ ground.

If either the section 25 notice or section 26 counter notice is served on or after 1 April 2017, compensation will be calculated by reference to the new rates list which could see a landlord paying a significantly greater compensatory sum to the tenant if it is successful in making out this ground. Conversely, if either of these notices are served before 1 April 2017, the rateable values detailed in the 2010 list will still apply.

It is therefore crucial that a landlord considers the new rateable value of the property in question as soon as possible in order to ascertain when a section 25 notice should be served or whether a counter notice to a section 26 request needs to be served without delay. Likewise, if values are increasing, tenants should hold off serving a section 26 request until after April in order to benefit from increased statutory compensation (if it is aware that a ‘no- fault’ ground may be relied upon).

Should you require any further information as to the rate changes or impact on your business, please contact Louise Read.