2017 is not going to be an easy year for retailers.
From 1 April 2017, rateable values across the country will be set at new values based on 2015 rental rates. The rateable value reflects the yearly rent a property could be let for on the open market. To calculate the business rates bill, this value is then multiplied by the relevant multiplier (set by central government) and exemptions and reliefs are applied where appropriate. Current rateable values are based on 2008 rents meaning that particular locations and businesses will be facing sizable increases to their rate bills. CBRE research has found that on average retailers around Regent Street are looking at rate increases of 52%, retailers in Sloane Street will be facing increases of 66%, and those located in Mount Street, Mayfair will be facing substantial increases of 138%. To illustrate this in monetary terms, the Financial Times reported that Harrods will see its rates bill rise from £12m to £18.6m and Selfridges’ rates will increase from £10m to £15.1m.
Whilst rate increases are set to hit London the hardest, cities across the country are facing uplifts to their rateable values. Retailers in Leeds, Liverpool, Manchester and Reading will on average face rate increases of 2 to 15%. However, some retailers will benefit from the change – for example, retailers in Newcastle, Southampton, Cardiff, Bristol and Birmingham are likely to see their rates reduce from 1 April next year.
Whilst rising rates have hit the headlines, it’s not only the rate increases that should concern retailers. The overhauled appeals system, memorably rebranded ‘Check, Challenge, Appeal’, is likely to make it harder for retailers to successfully challenge their rateable value. Firstly, retailers will be required to submit their full statement of case at the initial ‘Challenge’ stage of the appeal with limited opportunity to add to a case later on. Secondly, and even more worringly, the draft regulations state that an appeal will fail unless the Valuation Office’s valuation is ‘outside the bounds of reasonable professional judgment’. With little guidance as to what a “reasonable professional judgement” constitutes and the margin of error that would be deemed unreasonable, we await with baited breath the first of what we imagine will be many appeals on the issue.