Business rates are now a significant item of expense for most businesses.  A recent test case has though resulted in success for GPs seeking to reduce their business rates burden.

The decision in Gallagher (VO) –v- (1) Dr MG Reid and partners and (2) Dr J Poyser and partners [2015] UKUT00001 (LC), on the question of how purpose-built GP surgeries should be assessed for purposes of determining rates liability, has been eagerly awaited in the sector, with some 1600 outstanding rating appeals awaiting the outcome.

Rateable value in relation to every property is assessed by reference to an amount which it is estimated the property might reasonably be expected to let on a year-to-year tenancy.  Revaluations usually take place every five years, although the revaluation which was due to take place on 1 April 2015 has been deferred for two years.

The most common method of valuing properties for purposes of assessing rateable value is by reference to evidence of lettings of comparable premises in the open market at around the valuation date.  This is known as the “rentals method”.  The rentals method does though, of course, rely on there being comparable premises let on the open market.  If there are insufficient comparable premises then an alternative valuation method needs to be used.

To date, the Valuation Office Agency has generally valued purpose-built GP surgeries using the rentals method, arguing that there are sufficient purpose-built GP surgeries actually leased to GPs for there to be a sufficient body of real-world rental evidence available.

In the Gallagher case, the GPs argued that there is, in actual fact, no open market rental evidence at all for purpose-built GP surgeries.  At no time are purpose-built GP surgeries vacant and to let on the open market.  Because of this, rather than the rents being determined by open market economics, as is the case with most buildings, rents of purpose-built GP surgeries are usually based upon development appraisals, which are notoriously unreliable methods of calculating what an occupier would actually pay by way of rent if the building was being let on the open market.  It was also argued on behalf of the GPs that the availability of the Doctor Rent and Rates Rebatement Scheme has the ability to distort rents that might otherwise be paid on the open market, making the actual rent paid an even less reliable indicator of what rent an open market bidder might be prepared to pay.

The tribunal agreed with the GPs and confirmed that instead of the rentals method, purpose-built GP surgeries should be valued using what is known as the “contractor’s basis”, which is essentially a valuation based on an assessment of how much a tenant would be prepared to pay in rent before it would become more financially viable to build his own similar property.

Whilst the arguments advanced in the case are of a highly technical and perhaps slightly abstract nature, the outcome does have considerable significance.  All three of the surgeries involved in the test case were reassessed at much less than half of the rateable value they had previously been assessed at.

Those GPs that occupy purpose-built surgeries and who do not already have appeals submitted, should take advice on the possibility of submitting an appeal.

There is a need to act fast though. Changes to the rating appeals system come into effect on 1 April 2015.  At present successful appeals can be applied back to April 2010, which is when the current ratings list came into force.  Any appeal submitted after 31 March 2015 will only be capable of being backdated to 1 April 2015.  This means that any businesses that delay in submitting rates appeals could be missing out on up to five years’ worth of potential rebate.