Flight to quality

A trend accelerated by the Pandemic has meant that increasingly traditional office spaces are no longer as desirable, so landlords have to adapt to attract tenants. Occupiers are seeking collaborative spaces, green spaces, and offices that reflect their brand identity. Hybrid working has also led to a reduction in the size requirements for office spaces. This ‘flight to quality’ means that occupiers are looking for smaller, higher-quality spaces. With each property being unique, Rateable Values need to be reviewed to ensure accuracy for the 2023 Rating lists and rolls. With the ‘flight to quality’, the secondary and tertiary spaces have quickly become undesirable, and their values are falling. If Valuation Officers and Scottish Assessors have been unable to review each of these unique properties, occupiers should take the initiative to do so themselves.

Empty property

Landlords are facing significant challenges with secondary space, leaving them with the choice of redeveloping or leaving their properties empty. This places a heavy burden on landlords, investors, and developers, who are required to pay full empty rate liability after the initial relief period, with no tenancy in place. However, for those who choose to redevelop or refurbish their properties, there is an opportunity to remove assessments and liability from the rating list entirely during the construction phase. With rates being one of the biggest overheads for landlords, the savings can be substantial.

Sustainability

The Minimum Energy Efficiency Standards (MEES) and Energy Performance Certificate (EPC) regulations are having a significant impact on the office property sector, felt by both landlords and tenants. This increasing focus on sustainability means that sustainable additions to buildings will eventually become rateable. This will likely result in increased costs for occupiers in the long run. However, there may be an incentive to make sustainable additions now before they become rateable. While there could be an argument in the future around ‘beneficial occupation’ and the requirements for efficiency, from a rating perspective, the long-term benefits of sustainability measures will likely outweigh the added cost.

Regulatory compliance

England and Wales

Non-Domestic Rating Act 2023

The Non-Domestic Rating Act 2023 will introduce potentially onerous mandatory obligations on ratepayers to regularly update the tenure and physical details of all properties within their portfolios with the Valuations Office Agency (VOA).

Increasing the administrative burden on businesses, it will require prompt updates to the VOA and annual returns even where there are no changes, with penalty risks for non-compliance. The complexity of business rates management will increase with measures anticipated to be fully in place for the 2026 Revaluation.

Material Change of Circumstance (MCC)

Legislative changes to Material Change of Circumstance provisions took immediate effect in October 2023. They tighten the scope of MCCs in England so that new legislation, licensing regimes and guidance from public bodies will not be grounds for a change in Rateable Value between revaluations.

Completion Notices

For buildings that have been temporarily removed from the rating list during redevelopment, billing authorities will be able to issue Completion Notices in the same way as for a new building. The regulatory changes should be in effect from January 2024.

Empty Rate Relief

The Business Rates Avoidance and Evasion Consultation closed at the end of September. The consultation document covered various forms of empty rate mitigation, which central and local governments are seeking to remove or limit, and it sought views on how reforms should be implemented. Measures under consideration include:

• Extending the period during which properties need to be reoccupied before a period of empty rate relief can be claimed from the current six weeks to three or six months
• Limiting the number of times that an individual ratepayer might be able to apply for empty rate relief on the same property
• Requiring more than 50% of a property’s floorspace to be occupied to qualify for a fresh rates-free

Scotland

Since January 2023, Scotland’s new legislation has transferred Valuation Appeals to the Scottish Courts Tribunal service. This entails strict deadlines and rigorous requirements for ratepayers and advisors. All appeals against valuations from April 2023 should have been submitted as a comprehensive case with supporting data by 31 August 2023. Learn more about how to appeal business rates in Scotland >