On 1 April 2017, the first revaluation of rateable values since 2010 will take effect in England and Wales. This revaluation should be taken into account when considering the amount of tenant's statutory compensation payable under the Landlord and Tenant Act 1954 (1954 Act).

Business rates revaluation

  • Business rates are a tax payable on non-domestic properties.
  • In England and Wales business rates are calculated using the rateable value of the property. In turn, rateable values are based on the annual open market rent for the property as estimated by the Valuation Office Agency (VOA).
  • The first revaluation of rateable values since 2010 will come into effect in England and Wales on 1 April 2017.
  • While the changes to rateable values will mean that some will see a reduction in their business rates bill, others, particularly retailers in central London, may see a significant increase.
  • Draft rateable values have been published on the VOA's website making it possible for ratepayers to estimate their rates bill for 2017-18.

Effect on statutory compensation payments pursuant to the 1954 Act

  • If a landlord successfully opposes the renewal of a business lease pursuant to the 1954 Act on a "no fault" ground (such as wishing to develop the premises or occupy them itself) this can give rise to the payment of statutory compensation to the tenant.
  • The amount of statutory compensation payable under the 1954 Act is based on the rateable value of the premises multiplied by the "appropriate multiplier" (which for most cases is currently one). However, where the tenant (or its predecessor) has occupied the premises for 14 years or more, the statutory compensation will be twice the rateable value of the premises multiplied by the appropriate multiplier.
  • The rateable value used to calculate the statutory compensation is based on the valuation list in force at the date either of the following is served:
    • the landlord's notice ending the current tenancy (section 25 notice); or
    • the landlord's counter-notice opposing the tenant's request for a new tenancy (pursuant to section 26(6)).
  • The last day that the current valuation list will be in force is 31 March 2017. From 1 April 2017, the amount of compensation will be calculated using the new rateable value.
  • The timing of service of either of the above notices could have a significant impact on the level of statutory compensation that may be payable by landlords to tenants pursuant to the 1954 Act.

Action required

  • Landlords and tenants should check whether the rateable value of the premises will increase from 1 April 2017.
  • If the rateable value is set to increase on 1 April 2017, then service of a section 25 notice or a landlord's counter-notice opposing a lease renewal on or after 1 April 2017 will mean that more compensation could be payable. If it has decreased, then the reverse will apply.
  • If applicable, landlords should consider serving a section 25 notice (to end the tenancy) by 31 March 2017 so that a lower rate of statutory compensation (based on the old list) is payable. If a section 26 request is received from a tenant before 1 April 2017 and the renewal is opposed, landlords should serve a counter-notice within the two-month deadline and by 31 March 2017 to ensure that the old list applies.
  • If applicable, tenants should consider whether to wait until after 1 April 2017 to serve a section 26 request for a new tenancy so that more statutory compensation could be received from the landlord in the event of an opposed renewal.