Peter Muir, director and head of rating at Colliers International in Scotland
The move by the Scottish Government to postpone the Non-Domestic Revaluation from 2015 to 2017 is a serious blow to the Scottish economy.
A delay means the annual rates liability will be based on higher pre-recessionary rental levels, which will impact both businesses and those with any interest in commercial property in the Valuation Roll.
Similar action by the UK Government has been greeted with dismay south of the border and a petition to Parliament could see the issue debated by MPs during the early part of 2013.
Scottish business ratepayers had been eagerly awaiting the 2015 Revaluation, as the revised Rateable Value would have been based on rental values on or about 1st April 2013, known as the ‘tone date’.
The tone date for the 2010 Revaluation was 1st April 2008 and, therefore, before the full effects of the current economic crisis were felt.
According to research by Colliers International, property values in some areas of the country have fallen by a staggering 40 per cent. By postponing the revaluation by two years, the malaise in the commercial property market would not be taken into account until 2017.
At a time when the Government should be seen to help ratepayers, the failure to take into account Rateable Values that are significantly higher than the current market, will add to their misery.
While the Scottish Government has committed to not increasing rate bills beyond the level of inflation, postponing the 2015 Revaluation means many businesses are being denied decreases in real terms.
High rateable values on current vacant units will more than ever deter any potential occupier from taking a vacant unit.
This measure, coupled with the recent changes to empty property relief, can only increase the suffering for both landlords and their tenants and does nothing to bring life back into Scotland town centres.
This decision could also mark the end of much hoped for regeneration, in particular the retail sector, with artificially high values putting off potential occupiers. For some ailing High Streets, this could be the final nail in the coffin.
Even dramatically reduced rental levels and substantial landlord incentives may not be enough to offset high Rateable Values, based on rents set in a buoyant market.
Traditionally business rates amounted to the third biggest outlay faced by a business, this being behind salaries and annual rent. This measure will in effect now be reversed with rates replacing rent to any business annual outgoings.
The Scottish Government’s announcement, which followed similar moves by the UK Government in October, comes after radical changes to empty property relief.
Such relief, currently granted to landlords for some classes of property, has been increased from 50 to 90 per cent liability. This measure is seen as a way of stimulating the market, by forcing landlords to reduce asking rents.
However, with dramatic falls in rental levels, landlords have had to reduce rents anyway. They now face increased rate demands for empty property, based on rental levels way in excess of market conditions.
This will reduce any funds available to refurbish and reconfigure property to make these more attractive to potential tenants, thereby exacerbating the problem further for failing towns.
The options available for landlords and tenants to challenge a Rateable Value have also been cut in recent months.
Previously, where it could be proven that rental levels had fallen in a particular area since the last revaluation, an appeal based on a Material Change of Circumstances, i.e. a fall in rents, could be lodged.
However, two recent Lands Valuation Appeal Court decisions relating to the Merkat Centre in Kirkcaldy and The Overgate Centre in Dundee appear to have made such appeals much harder and more difficult to achieve.
At a time when businesses need all the support they can get, the announcement to defer the revaluation by two years, somewhat curiously set out in its ‘Supporting Business – Promoting Growth’ consultation document, is unwelcome.
Without a clear commitment to the original revaluation date of 2015, many businesses will not be around to take advantage of a belated revaluation in 2017.
Peter Muir is director and head of rating for Colliers International in Scotland