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business rates review is essential to promote retail

23 May 2013

An examination of the business rates burden is under way as part of the ongoing inquiry into the UK retail sector which is being led by the Department for Business, Innovation and Skills (BIS) Select Committee.

Many expected the Chancellor to announce action on business rates in the recent budget. Edward Cooke, Director of Policy and Public Affairs at the British Council of Shopping Centres (BCSC), believes that the failure to do so may have signalled the end for many retailers.

The BCSC has highlighted that Portas Pilot Towns are among those set to lose out the most as a result of disproportionate rates being based on pre-credit crunch 2008 values, which have actually fallen by up to 40% in some cases. Add to this the Government’s decision to postpone the rates revaluation from 2015 to 2017 (which was attacked by the chairman of the Distressed Retail Property Taskforce) and this leaves a long period during which the impact of government initiatives such as the Portas Pilot will be undermined by a failure to revalue business rates. Many commentators are talking about the Government ‘giving with one hand and taking back much more with the other’.

At a time when the economy has remained flat, business rates have risen 4.6% in 2011 and 5.8% in 2012 (equating to an increase of £500m over those two years) and by a further 2.6 % this year. The ‘Fair Rates for Retail’ campaign (supported by the British Retail Consortium and Retail Week) believe a fourth successive year of business rates rises would pose a serious risk to investment, job creation, and economic recovery. To ensure  that  business rates are affordable and fair in the future they are appealing for:

  • a freeze of business rates
  • a review of the system which sets them

The Select Committee chairman has acknowledged reports from retailers that business rates are a major element of their problems and has recognised that a burdensome level of business rates could incentivise even more of a move online.

In written submissions to the enquiry earlier this week, Morrison’s said that the Government could offer more certainty on business rates by using a longer-run average of CPI rather than RPI. They also commented that current business rates liabilities in the retail sector frequently outstrip the cost of rent (and said surely this cannot be right). Jeweller F Hind’s and Moss Bros are among others who have recently said that rates liabilities were often more than rent, and that they have had to turn down several shops because the rates bill was so high.

The pressure of high business rates on landlords of empty premises has led to many arrangements seeking to make use of charitable exemptions and the High Court delivered a judgment last week on three cases against the Public Safety Charitable Trust (PSCT) which could reportedly now face claims in respect of around £2m of unpaid rates.

The PSCT has 2,000 leases for peppercorn rent on properties in 240 local authority areas. The PSCT operate by accepting a reverse premium from the landlord and then installing  free wi-fi and systems to broadcast Bluetooth public safety messages, thereafter applying for charitable relief. Mr Justice Sales summarised that  this structure allowed the landlord and PSCT to share the savings in respect of rates relief, with the loser being the public purse. It was held that their use did not meet the requirement for exemption that the premises be wholly or mainly used for charitable purposes.

As a result of this judgment the Charity Commission has re-issued an earlier warning to charities about the risks when getting involved in tenancy agreements which seek to take advantage of business rates relief. The Charity Commission recognise that being able to lease properties at a low cost can provide a good opportunity but warned that these arrangements can represent a significant risk in the form of business rates liability if the charity is not making sufficient use of the premises.

Until the position is resolved, retailers and landlords need to be clear about their liabilities and give active consideration to appropriate ways of minimising their liability (for example by seeking to under-let or assign leases of unused space). A free suite of training videos is available here at bjretaillaw.com which covers topics including lease liabilities and assignment and subletting which is likely to be useful to estates teams and those individuals with an interest in property management issues.

We will continue to provide regular updates and comment on the latest retail news via our retail portal, including the ongoing retail sector review.

The content of this bulletin is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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