Shopping centres face increasing pressure on commercialisation profits

UK shopping centres are coming under increasing pressure from Local Authorities and the Valuation Office Agency who are now determined to extract revenue from mall activity once seen as too insignificant or transient to chase.

Devolved powers over business rates and increased commercialisation of shopping malls by owners who need to extract as much revenue as possible have changed the shopping centre business rates landscape.

Before now, whilst some mall activity has been assessed – and this is uncontroversial – now transient occupations such as pop up stalls are being captured in controversial residual hereditaments that cover shopping mall areas. As shopping centre owners have begun to sweat assets and employ commercialisation specialists, the VOA has begun to sit up and take notice of these new and regular revenue streams.

It is an issue that will affect most shopping centres in the UK at some point and the British Council for Shopping Centres (BCSC) is keenly aware and is investigating this shift in the VOA’s position.

Around 60 assessments have been made in the UK so far, totalling £2.14m in rateable value, equating to around £1.07m in new annual business rates liabilities.

The VOA now seems to be maintaining that revenue from these occupations should be combined and assessed as a single “residual mall assessment”.

Questions being asked include:

• What is the extent of the hereditament? Can you really just pick and choose and simply ignore the elements of the hereditament that are unprofitable?

• Is it possible to link such transient occupations to form one single assessment in the light of the recent Supreme Court decision concerning the unit of assessment?

It also seems clear that any shopping centre that does not co-operate with the VOA to supply requested details faces a potential backdated ‘finger in the air’ assessment.

As a starting point, a guide to conventional separate assessments and those occupations that form the more controversial ‘residual hereditament’ is set out as follows:

Conventional

• Kiosks/sites of RMU’s anticipated to be in permanent occupation for more than 12 months
• Sites of barrows (and other moveable chattels) where occupation of the “site” is anticipated to be more than 12 months
• Promotional pitches taken by a third party (for example People & Space) – in this instance the third party will be the rateable occupier
• Food courts
• Photo booths
• Drinks machines where bolted to the floor or surrounded by barriers
• Permanent advertising hoardings
• Permanent car valet services within centre car parks
• Electronic Delivery Lockers

Controversial

• Kiosks/sites offered by the landlord on a short term basis. Will include “seasonal” occupations, “car displays”, AA/ RAC promotions plus other short term lets
• Sites of drinks machines and children’s rides which are easily moveable
• Temporary advertising structures (often electronic)
• Other miscellaneous let outs and promotions where a fee/rent is paid but no degree of permanence exists

As ever with the law, there are two sides to every position… There are clear arguments that the VOA position is flawed but it is a position where significant investment has been made and not one that is going to be abandoned easily.