There have been a number of developments on business rates which affect investment management and lettings to corporate occupiers. Exactly what use qualifies as charitable and benefits from reduced rates is clearer, as is what qualifies as a business unit in a multi-let building plus there is disturbing news on rates appeals.
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Charity Rates Relief Guidance
During the toughest phase of the recession, lettings to charities for a nominal rent gave investors of vacant properties the benefit of no longer paying business rates, but questions arose over the use of these leases especially where the landlord paid the charity a contribution based on a share of the cost of the saving, and over some charities that did not fully occupy the leased properties or only occupied them inefficiently. Could these arrangements stand?
We now know:-
- the premises must be wholly or mainly used for charitable activity. It is not enough that the activity conducted on the premises is wholly or mainly charitable eg. a charitable activity on only one floor of an eight storey building will not attract charitable relief, even if the charitable activity is the only activity being carried on in the building;
- however, if the premises are being used wholly or mainly for charitable purposes, it does not matter that they could have been run more efficiently or that strictly only part of the premises need have been used. The fact that the purpose of the arrangement between the landlord and the charitable tenant is to reduce or avoid the payment of business rates is immaterial;
- a building can qualify for charitable rates relief even though not every square metre of floor space is in constant use all the time, eg. a spacious office which is not crammed with people working for these purposes is wholly used as an office..
Conclusion: the charitable use must usually occupy more than 50% of the building for the purpose of attracting charity rates relief and it will depend on the facts of each case not a strict floor area measurement of the actual space taken up by the activity.
Multi-Let Properties – be aware
Last year the Supreme Court decided that two separate floors in the same building were not a single hereditament for rating purposes. Now the VOA has issued guidance to the effect that it will treat different areas of the same building which are accessed through communal areas as separate premises for business rates purposes. This is a change from the VOA’s previous approach of valuing separate but adjoining areas occupied by one business as a single unit for rating purposes. Any adverse valuation impact achieved as a result will be backdated to the most recent of the date of occupation and 1 April 2015 in England (but 1 April 2010 in Wales).
What is more, whilst the VOA is currently working towards the 2017 revaluation, how and when the separate assessment will be applied remains to be seen. The concern for property occupiers is, therefore, that they will have to make provision for backdated and future rates liabilities.
Government’s Proposal to Limit Power to Appeal Business Rates
Draft regulations for England put forward by DCLG propose to reform the business rates appeals process by preventing the Valuation Tribunal from amending the rateable value of a business unless it is “outside the bounds of reasonable professional judgment”.
Top rating experts have suggested that this could well mean that the Valuation Tribunal would now be directed to rule that a higher rateable value should be allowed to continue just because the figure put forward on appeal is within the same “ball-park”, ie. 10 to 20 per cent, and businesses affected would then be stuck with the higher valuation for 5 years.
Responses to the consultation on the proposals must be received by 5pm on 11 October 2016 and details can be found at https://www.gov.uk/government/consultations/reforming-business-rates-appeals-draft-regulations