Fashion retailers across the UK need to prepare now for the 2017 rating revaluation, which will take effect in April, says Mark Higgin, partner and head of rating at commercial property adviser Montagu Evans.
Time is of the essence because from April opportunities to mitigate and negotiate rate liabilities will be riddled with bureaucratic delays and potential pitfalls.
This year’s revaluation and the new statutory rules around challenges to assessments mean that a proactive approach is required, particularly in the most prominent retail sectors, but also for those struggling to gain a foothold.
Business rates are a charge on the use of retail properties. The tax base is common to England, Scotland, Wales and Northern Ireland, although the charging rules vary. In England, Scotland and Wales the 2017 revaluations require the valuation officer – or assessor in Scotland – to estimate the rental value of shops by reference to market conditions at 1 April 2015.
The long delay since the last revaluation is problematic at both ends of the market: growth in prime retail – which covers “high end” fashion retail in the West End and UK cities between 2008 and 2015 – has led to much higher rateable values. Secondary locations, especially in the north, have experienced large reductions in assessment.
In England the rules covering charging will limit the protection where increases are large, but severely limit reductions where assessments have fallen – for example, for shops that have 2017 list assessments of more than £100,000, but whose 2010 list figure was 50% higher, will only have a reduction in rates payable of just more than 2% in April 2017. That will be a bitter pill for many retailers to swallow.
The Valuation Office Agency has published statistics indicating average increases in retail assessments of more than 25% in London. Falls in the north-east of England average 6.5%. There are many examples of increases of more than 100% in the best prime locations and of decreases in the north of more than 50%.
There is effectively no relief for struggling locations
Since 1990 the government has applied “transitional relief” after a rating revaluation designed to limit overnight increases and decreases. The approach this time will prove disastrous. Some of the most extreme retail increases in assessment (rateable value) exceed 300% and these increases will filter directly to rates payable within five years for rateable values of more than £100,000. The statutory transitional scheme combined with a recovering London market will ultimately have inflationary consequences for shoppers.
At the opposite end of the retail market, in the less prosperous areas, decreases in assessment will lead to limited reductions in rates payable of not more than 20% over five years for the largest retail units. There is effectively no relief for struggling locations.
In England the advent of a new regime for appeal known as “Check, Challenge, Appeal” (CCA) will greatly inhibit opportunities to make a formal case for a reduced rates bill because of the prescribed statutory limits on getting to a full adjudication or even a negotiation with a government surveyor. Actually getting to a formal appeal could take up to 34 months from April. The trick is for high street occupiers to stick together. Any attempt to divide and conquer the retail community should be resisted. The great danger is that a lack of transparency in the CCA regime will encourage the Valuation Office Agency to hold its cards close to its chest and not share the full basket of rental information.
Any appeal will only be robust where there is complete evidence for the high street and a clear majority in support
The CCA regime proposed will place the emphasis on ratepayers to request a check by revealing certain key data, including rent. Those willing to challenge and then appeal will need to ensure that other comparable retailers are committed to supporting their challenge as a true “class action”. Any appeal will only be robust where there is complete evidence for the high street and a clear majority in support.
Ahead of the revaluation retailers should carefully consider appealing their existing assessment, which may have been set as long ago as 2010. This could produce retrospective savings but might also affect the amount of transitional adjustment. This is very pertinent for those whose assessments are going down. It may also provide an opportunity to informally discuss and reduce the draft 2017 assessment before it takes effect, but the clock is ticking.
Our advice to fashion retailers is:
- Talk to the retailers closest to you and find out what action, if any, has been taken to challenge their rates.
- Check out your rent passing and when it was first established. This might prove helpful if a challenge is contemplated.
- Finally, any investigation should be initiated well before the 31 March deadline for appealing existing assessments.
Mark Higgin is partner and head of rating at commercial property adviser Montagu Evans