Last week’s Supreme Court ruling that the owners of stripped-out office developments should not have to pay business rates was hailed by experts as a “victory for common sense” - but questions still remain over the impact of the decision.
The court upheld an appeal by developer SJ & J Monk, which had argued that its office’s rateable value should be reduced from £102,000 to £1 while the building could not be occupied due to renovation works.
The Valuation Office Agency (VOA) had previously rejected the application, a decision that was backed by the Court of Appeal in 2015. But the Supreme Court decided that commercial buildings undergoing redevelopment should not be valued as if they are still usable.
Business rates experts have unanimously welcomed the ruling. Gerald Eve partner Richard Nice calls the decision a “victory for common sense”, while Mark Henderson, international partner at Cushman & Wakefield, says it was the correct reversal of an “Alice in Wonderland” rating regime.
The correct reversal of an “Alice in Wonderland” rating regime - Richard Nice, Gerald Eve
Henderson expects the backlog of appeals put “on ice” pending the Supreme Court’s decision to start to clear “within the next week or two”.
The ruling applies to buildings that were previously paying rates during demolition or substantial refurbishment works and will lead to companies receiving refunds, he says.
“The tribunal will now start listening to these cases, so we’re hoping we can now move forward literally within the next week or two in trying to get these appeals resolved.”
The decision means that many pending appeals should be “open-and-shut” cases in favour of landlords, he adds. However, he warns that a lack of resources at the VOA could delay the process.
“The valuation office is challenged by resourcing issues and [there has been] a certain amount of dumbing down. They’ve lost a lot of experienced staff and lack the new blood.”
This note of caution is amplified by others. Ian Allison, director of business rates at BNP Paribas Real Estate, says there will be “a lot of refunds” following the decision - but warns that landlords are months away from seeing any money.
“We’ve got to wait and see the valuation office react to the judgment and see what policy it puts in place. It will take a couple of months for a policy to [reflect] the judgment. That’s the reality of the situation.”
He adds that it is “possible” the VOA might “dream up” a new policy to counter the decision, thus restoring the status quo.
Nice also plays down the possibility of “easy wins” for developers. “It’s not a case of me ringing up the valuation office and saying: ‘We won the case; can we get these appeals sorted?’ It’s not an overnight change.”
For one, the VOA will have to update the ratings manual that caseworkers use to decide cases, which will take “weeks or months”, he says, adding that even when appeals are decided, it is still likely to take time for refunds to be released from the billing authorities.
Nice also warns that developers should not overestimate the impact of the ruling and says that many “grey areas” remain about the level of renovation that must be done before business rates relief applies.
He says he has already had clients ask if they can get money back for more minor works done in the past: “That’s not going to be an easy win.”
The decision is good for the industry and for future development - experts agree that developers might take a more positive view of schemes if they know they don’t have to pay rates at certain periods of development.
But for those landlords still stuck in the ratings appeal system with 300,000 others, it is a bit too early to start popping the champagne corks.
8 March 2017
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24 February 2017
8 February 2017