The assessment of rateable value for the calculation of business rates for large retail premises is currently under the spotlight at the Lands Tribunal.We are acting for Harrods in its challenge of the entry for its Knightsbridge store in the 2000 Rating List, which forms the basis for the payment of rates from2000 to 2005 but will also impact on the rateable value in the current List.
The case is significant as the basis of assessment of large retail premises has not been considered by the Lands Tribunal for several years and the valuation officer has become accustomed to settling figures with retailers based on the previous List with an increment broadly based on the growth of the economy. Retailers have been reluctant to challenge this approach, partly because of the impact of the transitional arrangements (which reduce or cancel any potential savings) and (not least) due to the cost of proceedings before the Tribunal.
The legal formula for assessment of rateable value is long-established, being the consideration of what a hypothetical tenant would pay by way of rent on certain assumptions, and the present case involves a return to basics. The grounds on which Harrods is relying in the arguments before the Tribunal are of wider application formany retailers:
- Modernity: this is broadly the issue of quality of the retail store and includes visibility, escalator provision, accessibility and general impression. Comparison with other retail premises is the primarymethod of accounting for this element
- Repair Costs: where these are out of the ordinary, for example by reason of listing of the building (Harrods is Grade II* listed), there needs to be a deduction fromthe rateable value to account for the additional costs
- Fragmentation: where, as in Harrods, the goods delivery and despatch facilities are some distance fromthe sales floors the servicing costs are increased and this should be reflected in the assessment
- Location: this is of importance as a property’s location and transport connections etc have a significant impact on its retail performance
- Size: in the case of Harrods the store is so large that issues arise as to the rent the hypothetical tenantwould pay for the property (ignoring the Harrods brand,which is not part of the calculation). This factor involves considering the likely demand for the property if it were available to let and the risks whichwould be faced by another retailer setting up its own business on a leasehold basis
The Tribunal’s decision is expected to be issued inMay and will be covered in a future edition of this Briefing.