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The April business rates revaluation and business lease renewals

Author : Alex Watt, Real Estate Department partner, Stevens & Bolton

03 March 2017

Are business rates a significant overhead for your business? If so, you need to be aware of the April rates revaluation and forthcoming changes to the appeals process.

For business tenants seeking to renew their leases, the revaluation may also affect the level of compensation received if the lease is not renewed.

Current rateable values took effect in England and Wales on 1 April 2010, based on rateable values on 1 April 2008.

On 1 April 2017 the Valuation Office Agency is revising these values, and while the rateable value of some properties is reducing, others face a significant increase.

You can check the draft rateable value for your property on this website. If you think the new rateable value for your property is too high, you might consider appealing.

The government is planning to implement a new three stage Check, Challenge, Appeal process in England, stated to be aimed at making the system easier to navigate, especially for small businesses.

However, it is proposed that appeals will only be allowed where the valuation is beyond “reasonable professional judgment”.

This has raised concerns that it may be harder in practice for businesses to appeal successfully, and moreover the new process may involve additional time and effort in the early stages of the process.

Although the new appeals process is due to come into effect soon, the government is still consulting on how to implement these changes so it is not clear yet how the new process will work.

If you are a business tenant, a landlord wanting the space back at the end of the lease may have to pay you compensation, and this may be higher if your business rates valuation is due to increase.

You should first check whether your business has a right under the Landlord and Tenant Act 1954 to stay in the property when the lease ends, and to apply for a new lease.

In many cases it will if it occupies for business purposes, unless the lease was formally “contracted out”. You should then check whether it was agreed that the landlord doesn’t have to pay compensation if the lease is not renewed.

Even if it was, the business may still be entitled to compensation as such agreements are only valid when the tenant has been in continuous business occupation for less than five years on leaving the property.

If there is not a valid agreement that no compensation is payable, landlords successfully opposing a business lease renewal solely on no tenant fault grounds (such as redeveloping the property) will have to pay statutory compensation to the tenant.

However, landlords successfully opposing the lease renewal only on a ground involving tenant fault, such as persistent delay in paying the rent on time, will not have to pay compensation.

Compensation is the same amount as the rateable value of the premises on the date of service of either the landlord’s notice seeking to end the lease and oppose a renewal, or the landlord’s counter-notice to the tenant's request for a new tenancy, but is twice the rateable value where the tenant has been in occupation for 14 years or more.

Where the rateable value is increasing, a tenant may achieve higher compensation if it serves a valid request for a new tenancy on or after 1 April.

Compensation is one of many commercial considerations where a business tenant exercises a legal right to apply for a new lease that the landlord does not want to grant.

The statutory process is complex, therefore it is vital to take early legal advice to allow time to draft and serve the required notices and/or respond to any notices served.

This information is necessarily brief and is not intended to be an exhaustive statement of the law. It is essential that professional advice is sought before any decision is taken.

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