On 1 April 2017 new ratings valuation lists will come into effect in England and Wales. The new rateable values were released on 30 September 2016 and are based on the rental value of properties on 1 April 2015. These are the values that will be used to calculate business rates bills from 1 April 2017.

According to the Government, the majority of ratepayers will see a decrease in their rates. Those facing increases will benefit from transitional relief (the structure of which is yet to be confirmed).

What is the effect on lease renewals?

Where a lease renewal is opposed under grounds (e), (f) and (g) of the Landlord and Tenant Act 1954 , the rateable value of the property is used as the basis for the calculation of statutory compensation.

The rateable value used is that in force at the date on which the landlord's notice under section 25, or section 26(6), is served.

As landlords will want to minimise the statutory compensation payable:

  • If the rateable value of the property is going to increase on 1 April 2017, the landlord should, where possible, serve the section 25 notice, or section 26 counter-notice, before 1 April 2017.
  • If, on the other hand, the rateable value will be going down, it would be beneficial to serve the notice on or after 1 April 2017.

Tenants should also be mindful of changes in the rateable value:

  • If the rateable value is going to increase, serving the section 26 request for a new tenancy on or after 1 April 2017 will result in higher compensation if the landlord opposes the renewal on grounds (e), (f) or (g).
  • If the rateable value is going to decrease, and there is any risk that the landlord will oppose a new lease, where possible, the tenant should serve the section 26 request before 31 January. This will prevent the landlord from serving a counter-notice on or after 1 April 2017.
  • A tenant under a LTA 1954 protected lease, who is considering appealing the new rateable value of its property, should think about whether this will benefit it in the long run. The tenant will need to balance the benefit of lower rates against the reduced compensation payable if the landlord opposes a lease renewal under grounds (e), (f) and (g).

Will the transitional provisions make any difference?

The way in which the transitional relief will work has not yet been determined. Two options were proposed in the Government consultation, which closed on 26 October 2016. The response should be published shortly. However, as statutory compensation is calculated using the rateable value shown in the valuation list, whether or not transitional relief is available will be immaterial.

Whether you are a landlord or a tenant, you should be thinking about the changes to the rateable value of premises and the impact that this will have on the service of section 25 and section 26 notices. Failure to take the changes into account could lead to you paying more, or receiving less, statutory compensation than you had anticipated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.