From 1 April 2017 new rateable values for non-domestic properties in England and Wales are due to come into effect for the first time since 2010.
This could impact landlords significantly by potentially increasing the rateable value of properties and subsequently increasing any compensation payable by the landlord to a tenant on the landlord’s termination of a business tenancy pursuant to the Landlord and Tenant Act 1954 (the 1954 Act).
Under the 1954 Act, a landlord is liable to pay a tenant statutory compensation for opposing a renewal business tenancy on a ‘no-fault’ ground, for example where the landlord wishes to use the property for its own purposes.
The amount of statutory compensation payable by the landlord is calculated by reference to the rateable value of the property.
If a tenant has occupied the property for less than 14 years the amount of statutory compensation the tenant is entitled to is equal to the rateable value of the property.
However, where the tenant (or its predecessor) has occupied the property for 14 years or more, the amount of statutory compensation payable by the landlord is equal to twice the rateable value of the property.
The rateable value of the property is based on the valuation list in force at the date that either of the following is served:
- the landlord's notice pursuant to section 25 of the 1954 Act terminating the tenancy; or
- the landlord's counter-notice pursuant to section 26 of the 1954 Act, opposing the tenant's request for a new tenancy.
From 1 April 2017, the new valuation list will be used to calculate the rateable value of a non-domestic property.
This means that from 1 April 2017, any statutory compensation payable by a landlord pursuant to the 1954 Act will be calculated using the new rateable value of the property.
Landlords can check the new rateable value of their property on the Valuation Office Agency’s website (https://www.tax.service.gov.uk/view-my-valuation/search) if they are considering when to serve the section 25 or section 26 notice to terminate a business tenancy.
If you are considering whether to terminate a business tenancy and want to discuss the impact of the ratings changes, or have any other queries concerning termination, please contact Joanne Wright in our Commercial Property Department.