There has been a lot of press surrounding the business rates revaluation recently, but there is a particular point which has slipped (relatively) under the radar.

Under the Landlord and Tenant Act 1954, a landlord who successfully opposes the renewal of a business lease on certain grounds will most likely have to pay compensation to the outgoing tenant, so long as the renewal has not been prevented by the tenant’s breach. This situation will usually arise when a landlord has an intention to redevelop or to use the premises itself.

The compensation to the outgoing tenant is based upon rateable value (RV). A tenant is entitled to 1x RV, unless it has been in occupation for more than 14 years in which case compensation will be 2x RV.

Compensation is calculated at the time when the landlord serves its termination notice under s.25, or responds to a tenant’s request for a new tenancy that it wishes to oppose a new tenancy under s.26(6).

It is therefore important that, if a landlord is thinking about opposing a new lease, it considers whether there is an advantage to serving a s.25 notice or counter-notice to a s26 Request prior to 1 April 2017, when all rateable values in the UK will be reassessed. Tenants will have to be alive to this action as well, and there may be implications for a tenant as to whether it wishes to appeal the RV of its property or not depending on the circumstances of the case.

New RVs can be checked here:

https://www.gov.uk/correct-your-business-rates

Key points

  • If the RV of the property is decreasing, then a landlord is better waiting until after 1 April 2017 to serve a s.25 notice as compensation will be less.
  • If the RV of the property is increasing, a landlord should consider serving notice/counter-notice prior to 1 April 2017. A tenant will be able to appeal its new RV from 1 April 2017 so the service of a s.25 notice/ counter-notice to a s26 request may affect its decision.
  • Certain sectors and certain areas of the country are being hit particularly hard by the revaluation so this could have a significant effect on compensation.