Why you should look back at your 2017 rates assessment now
Offices have not enjoyed the business rates relief available to the retail and leisure sectors. Local authorities resisted those that tried to apply for empty rates relief when they mothballed their offices through lockdown. Whether office occupiers will be able to apply for a share of the promised £1.5bn in additional relief remains to be seen, as the government still haven’t released the criteria or application process that was announced when they put a stop to Covid driven rating appeals.
The next Business Rates Revaluation is on the horizon and set to kick in from 1 April 2023. For many, this can’t come fast enough as rateable values are now dramatically out of sync with rental values. Will this relevelling favour city centre office occupiers?
It will all come down to available evidence but there will be a lack of transactions around the 1 April 2021 Antecedent Valuation Date upon which the new list will be based and wide fluctuations in the pre- and post-Covid position, certainly in relation to rent free and other incentives even if headline rents have been maintained.
What will take time to crystallise is the floor plate of these transactions – there have already been a number of high profile requirements that have reduced in size due to home-working and the VO will have an interesting job on their hands determining the quantum allowances on larger takes.
We won’t know where the Valuation Office will pitch values until the draft list is released and this is now looking to be December 2022 (later than the usual September) which will leave very little time for meaningful Draft List representations. It is likely that Transitional Relief will again play a significant part in the liability calculations for the first years of the Revaluation and an incorrectly inflated 2017 figure could have unwanted repercussions in 2023, masking any reductions in liability as transition smooths out the drop.
It’s important to ensure that you have reviewed and where required, corrected your current 2017 rates assessment – not only will this produce savings now but it will also establish the facts upon which the reval is based. We continue to find significant issues with factual floor areas that haven’t been picked up for several rating lists and misguided analysis of rental transactions by the VOA, which has missed substantial incentives through rent free periods, stepped rents, landlord contributions, reflected parking and penalty free breaks.
Our PropData platform allows us to sniff out the useful evidence and where the opportunities lie and as a direct result we have within the last few weeks produced considerable savings for two office clients on the edge of the city. One was a correction of floor areas that have been more than 50% out for several years – refunds exceed £65,000 with potentially more to come when we discuss the applied price per sqm. Much better to correct factual errors now as otherwise they would be carried forward to a new list and the historic savings potentially lost. The other major success was a reduction in price per sqm which we proved via transactions highlighted by PropData. Savings are in excess of £300,000.
What is crystal clear is that the Antecedent Valuation Date is again at a point where the VO will be relying on limited evidence and a difficult market – similar to the 2010 list which relied on evidence around the last financial crash. The Valuation Office remain under pressure with a tight draft list delivery target and utilising less than perfect evidence.
Taking Manchester council area as an example, there are over 8,000 separate office rating assessments to revalue relying on information mainly derived from rent returns which force occupiers, many without a property background, to respond to complex property questions via the VO website driven by the threat of a fine. This submitted information then becomes the VO’s gospel. Even if incorrect. We have a huge advantage with our PropData platform and can see that there are circa 200 new transactions in the months either side of the AVD – this is the key evidence. What’s more startling is when you distil this down and look at the size of these new lettings. There are very few of any notable size which is going to make the VO’s job valuing larger offices in particular, rather difficult.
So what does this mean for you? If you haven’t looked at your business rates since 2017, or that didn’t involve a survey then you should consider doing so. If you receive a VO request for information then make sure it accurately reflects the lease terms and clearly demonstrates incentives.
We would of course be happy to help. If you have a business that would benefit from access to up to date occupier data then we’d be happy to give you a demo of PropData. As things open up it would be good to get out and meet people for a coffee again and for the time being at least, we won’t be queueing to get into the city centre.