Consulting » INSIGHT – Millennium space race.

INSIGHT - Millennium space race.

British businesses are hurtling towards another year 2000 timebomb as sky-high property rents will lead to astronomical rates bills.

Many FDs are so busy combating the millennium bomb, they may have missed another threat creeping up on them and also designed to detonate on 1 January 2000. This is the date that new rateable values for business property are published. Four months later, in April 2000, businesses will start paying rates based on the new rateable values. All this may seem pretty work-a-day stuff. In fact, like the millennium timebomb, it is potentially expensive. The £12bn a year that businesses pay in rates equals something like 20% of corporate profits. And some companies may be unwittingly priming the bomb as they complete forms innocuously entitled “Notice requiring supply of information for non-domestic rating”. The blue forms arrive from local Inland Revenue valuation offices which are in charge of business property revaluation. Local valuation officers use the forms in order to determine the new rateable values of commercial property. So what? This happens every five years. What’s the big deal? The last time a revaluation came into force – in 1995 – it was based on property values two years earlier, 1993, the end of the recession when rents had slumped as much as 50% since the heady days of the late eighties. As a result, the revaluation proved comparatively painless for business and there were few complaints. That won’t be the case next time. The 2000 revaluation is broadly based on this year’s rents. And they have soared since 1993 – often back to or beyond their late eighties levels. Result: some businesses are going to get a very nasty surprise indeed when the new list is published. Take the case of one of the most prestigious West End offices – Lansdowne House. In 1993, space was letting as low as £20 to £22 per square foot. In recent weeks, tenants have agreed deals at more than £50 per square foot. When valuation officers get wind of that, they will lick their lips and hike the rateable values commensurately. One outcome of all this is likely to be a sharp jump in the number of appeals against rateable values after the list is published. Andrew Smith, managing director of LSM Partners, a Mayfair firm of chartered surveyors which specialises in rating issues, believes the proportion of companies appealing could rise as high as 70%. That could take it back to levels in the 1990 revaluation, when companies were clobbered by values based on sky-high 1988 rents. But, as Smith points out, the appeals procedure consumes time and money. Much better to try to keep the assessed value down as low as possible. Those blue forms now dropping through company letter boxes have to be completed within 21 days and returned to local valuation offices, but offer an opportunity to provide information that may lead them to take a more favourable view of the rateable value to be placed on a property. Companies that have negotiated good deals on leases recently can help everybody by letting the local valuation office know. Low rents encourage valuation officers to set low rateable values. But Smith adds: “If you got a very expensive deal, you need to be keeping your head down if you can. Obviously, if you get a form you have to fill it in. But if you don’t, then you can avoid the point.” But Smith warns that valuation officers are becoming astute at targeting companies they think ought to be providing information. Smith says a company needs to make sure there is no hidden value in the headline rent which the Revenue doesn’t know about. For example, in warehouses landlords sometimes insert a mezzanine floor to increase storage capacity. If the Revenue doesn’t know about that, it inflates the per square foot rent and may have a detrimental impact on the rateable value. Although the blue forms are not difficult to complete, where a company has some doubts over issues that might affect the rateable value, it could do well to consult a professional adviser sooner rather than later. There will be some unpleasant surprises on 1 January 2000 – and they won’t all be caused by the millennium bug.

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