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Discuss this article in our forums How is the Rateable Value Calculated and what is the Impact of Rents on it?
• RV Represents the annual rental value as at 1st April 2003 on various statutory assumptions
• VO identifies rents in number of ways FORs, Stamp Duty etc
• Rent indicates RV but there are other factors like rent free, premiums etc
• VO takes a basket of rents
The Rateable Value in the 2005 Rating List is supposed to represent the annual rental value of a property as at 1st April 2003 on various assumptions but the main ones being that the tenants pays all the maintenance, insurance etc for the property.
The Valuation Officer has a number of ways of identifying rental values. The main one is through the use of a rent return form which is usually a 6 page blue form which asks all manner of questions about a lease and is sent to properties the Valuation Officer believes are rented. They also receive information from the Stamp office about new leases, and may also ask landlords to supply rental information.
Therefore if your property is rented that rent will provide a good indication of what the Rateable Value should be. However because of the way the Valuation Officer gathers this information he may be unaware of factors which have affected the rent payable including items like rent free periods, premiums, stepped rents etc so it is possible that the Rateable Value will not be the same as your rent. In addition the Valuation Officer will consider a basket of rents averaging out the highs and lows.
How is the Rate Demand Calculated?
• Current rate poundage is 41.5p with supplement to 42.2
• If RV less than £15,000 no supplement payable assuming its your only property
• Scale of additional relief for RVs between £5,000 and £9,999
• Relief has to be applied for annually
• Transitional adjustment Limits increase to 12.5% for large properties and 5% for small ones, decrease to 12.5% for large and 30% for small properties
The rateable Value is multiplied by the rate poundage which for the current year is 41.5p in the pound however there is a supplement payable to subsidise small business relief. With the supplement the rate poundage rises to 42.2 p in the pound. If your rateable value is less than £15,000 and (with some minor exceptions) you occupy no other commercial property you can apply for small business relief. Small business relief results in you not having to pay the 7p a pound supplement and if your RV is less than £10,000 there is additional relief. This is on a sliding scale with zero at £9,999 down to 50% with a RV of £5,000. This relief has to be applied for annually.
Following the 2005 rate revaluation some properties will be subject to transitional adjustment. This is designed to protect businesses from a large increase in business rates caused by the revaluation and for the current year it restricts the increase in rates payable to 12.5% for large businesses and 5% for small ones. It is subsidised by those who rates should have fallen and limits the maximum reduction to 12.5% for large businesses and 30% for small one.
There is additional rate relief that may apply for rural properties and those in redundant farm buildings. For further information see http://www.wealden.gov.uk/Business/Business_Rates/Index.aspx
What Properties are subject to business rates
• A property is non-domestic if it is not domestic!
• Some exemptions for agricultural and religious buildings
• For home working the test case involved Eilleen Tully an employee of the Inland Revenue who worked at home from her spare room. Held as the furniture was similar to that found in any home, and her ironing board etc was also in the spare room it was domestic. However if structural alterations made for client access, parking etc decision may be different.
• No obligation to tell VO who are working from home although neighbours might
• No obligation to advise a local authority when you move into a business premises. Encon case. But make provision for back rates!
• Watch out where you occupy part of a business property as spilts and mergers can be backdated for several years
The definition of a non-domestic property is one that is not domestic, which is not a particular help! However certain non-domestic properties are exempt from rates, predominately those used for religious or agricultural purposes. A bigger question mark can be found over residential properties where part is used for non-domestic purposes. . The basic rule is what is the use of that part of the property at midnight and have alterations been made to facilitate access by clients. These changes would include ramps for disabled visitors, creation of additional parking areas etc. Therefore if you have an outbuilding used as an office it is likely to be rateable. If on the other hand your desk and PC are in the corner of your lounge it will be domestic so not rateable. This issue has been clarified by a court case ironically involving an employee of the Inland Revenue called Eileen Tully. For further information see http://www.voa.gov.uk/council_tax/examples_working_from_home.htm although remember this is a Valuation Office website.
Incidentally there is no obligation for you to tell the Valuation Officer you are using the property for work purposes. If you do tell the VO you are working from home you can expect a visit and therefore it might be easier to keep quiet. Although if the nature of the work causes inconvenience for your neighbours you can expect them to tell the VO about your activities.
The other interesting point is that there is no obligation on you to notify a local authority when you move into a business premises unless they ask. It is up to them to find you. In many cases they are of course notified by the outgoing occupier who no longer wishes to pay the business rates. However there has been a case in Nottingham involving a company called Encon Insulation who had been in occupation of a building for a number of years. The local authority found them several years later and issued a demand for back rates for a significant sum. The court held that the Council had a duty to find the occupiers and as long as the company had not denied being in occupation when asked then business rates could only be charged from the beginning of the financial year they were found in. Whilst this is case law persuading local authorities of it is difficult and if you know you are not paying business rates it is advisable to make provision for any back payment.
Also you should make provision where you are occupying a property that used to form a previous different assessment. So if you are in the ground floor of an office building and know that the assessment is for the whole, make provision for the business rates. The VO can backdate a merger or split for a significant number of years. For example I had a client who suddenly got a demand for 3 years back rates as the property had been split out of a larger assessment. They had made no provision for back rates!
If you make changes to a property you will normally need planning consent. In theory the local authority will tell the VO about the alterations and the VO will re-assess your property. This does not always happen and there is no duty on you to advise the VO of changes unless asked although making provision for any backdating is always wise.
How the Appeal Process Works and How to Choose an Agent if appropriate
• Can appeal anytime upto 31st March 2010 reduction effective from 1 April 2005 assumming nothing changed in meantime
• Only one general right of appeal
• Additional appeals can be served for changes to building or locality ie Morrisons in Crowborough
• VO acknowledges appeal and provides details of discussion period
• His first action is usually to send letter stating assessment is fine and please withdraw
• Agents Fees – Should be based on savings in rates payable rather than RV
• Savings in RV are less than half due to rate poundage
• If upfront fee check how much it is as a proportion of rates demand. Also remember little incentive for agent to work hard
• Check agent belongs to professional body such as RICS and do phone them to confirm it!
Under the current regulations you can make an appeal at anytime upto 31st March 2010 and have a reduction backdated to 1st April 2005. However one can only make one appeal on the general grounds that the assessment is incorrect. You can however make additional appeals based on material changes to the property or area, so retailers in the town centre may want to appeal due to the works on the Morrison store. Any appeal has to state whether the property is rented or not and if it is what the rent is. This has lead to some bizarre instances where we have quoted the correct rent but had our proposal rejected as the VO has incorrect information!
Once the proposal has been received by the Valuation Officer he will acknowledge receipt and at some point will advise of a negotiation period to seek to settle the appeal. Our experience shows that the first thing that happens when the negotiation period starts is that the VO issues a letter stating the assessment is correct, whether it is or not, and encloses a form to withdraw the proposal. The Valuation Officer is also more reluctant to reduce assessments on the 2005 Rating List which makes it more difficult for occupiers to deal with their own appeals.
If you decide to use an agent to seek an allowance in business rates there are a number of issues you need to consider. Most reputable agents will not charge an upfront fee of any sort, and the fee will be based on a percentage saving in rates payable. If the fee is based on saving in Rateable Value remember that you pay rates based on 42.2p in the pound so the savings in rates payable will be less than half the savings in rateable value. Also remember to check what the position is with transitional relief as this might affect your savings.
If asked to pay an upfront fee check your rate demand to confirm how much business rates you are paying and what saving you need to pay that upfront fee. Also remember that with an upfront fee there is limited incentive for an agent to fight hard on your behalf as he has already been paid for his time. His time might be spent more productively dealing with a case where the savings are easier. An agent with no upfront fee will fight harder for a saving as it is the only fee he will get!
You can contact the Royal Institution of Chartered Surveyors (www.rics.org) or the Incorporated Association of Valuers and Auctioneers to check whether your proposed agent is a member or not.
Rent Reviews and Lease Renewals
• Many businesses appear more concerned about the business rates rather than the rent
• Rent you pay 100% of the figure and it affects the rates!
• Rent affected by property type, age, size, location together with lease terms
• Share rental information with your neighbours. If you think you have a good deal you want your neighbours to have it too, as otherwise at review your rent is likely to be based on their high figures!
• Consider professional advice as complexity of lease terms can affect rental value substantially.
• A Chartered Surveyor will have lots of experience of the negotiations and brinkmanship. Also has the time to investigate comparables etc and removes the personal interest.
• Fees should be based upon savings between rent quoted and rent agreed, possibly capped to an specific interest. Consider whether you chosen agent acts for tenants or landlords usually.
• Lease renewals. Many leases guarantee your rights to remain in occupation. Ensure you meet deadlines for responding to Landlord and applying to Court, take legal / valuer advice if necessary.
In my experience many businesses appear to be more concerned about the Business Rates rather than the rent they pay. Remember that with the rent you pay 100% of the figure, and it can also affect your Rateable Value. The payable rent can be affected by a number of issues primarily the location, age and size of the property, together with the lease terms. The longer the lease generally the lower the rent payable per square foot.
It is surprising how often occupiers are reluctant to share rental information with each other. It is invariably in your interest to share your rental details with other occupiers in a development, as if someone else agrees a high rent you can expect the Landlord to refer to that high rent when next agreeing your rent review. The other issue is to fully read the lease as it can have a clause which will assist you in seeking a lower rental value. For example I have recently been instructed by a client to act in respect of his rent review which his lease states clearly should have occurred in Mid 2004. Careful reading of the lease found another clause which stated that the effective date of the review was either Mid 2004 or 6 months after the rent review notice was served. The result is a delay in the rent review of over 2 years!
Alternatively you may wish to instruct a Chartered Surveyor to act on your behalf, which has the advantage that they will have the time to pursue your case, will be well aware of the brinkmanship which takes place in these negotiations, and have the experience and knowledge to get to the bottom of other transactions in the area. It also depersonalises the process. A reputable surveyor will usually charge based on the saving between the landlords quoted rent and the rent finally agreed, and where the Landlords quoted rent appears totally unreasonable may be prepared to cap their fee.
With a lease renewal it is even more important to take suitable professional advice as many leases offer you protection under the Landlord and Tenant Act 1954 however there are a couple of steps which you have to take to protect your rights. Discuss this article in our forums |
