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Landlord development

Published: 21 November 2016
Area of Law: Landlord & Tenant

Developing landlords need to consider business rates increase

The next business rates valuations for non-domestic properties in England, Scotland and Wales will come into effect on 1 April 2017, which is now only a few months away.  James Fownes explains why landlords looking to develop their commercial property  should act now.

It’s been seven years since the last re-valuation and nine years since the valuation date – which is when data was collated in order to set the rateable values (“RVs”) in 2010. In this time the market place has changed significantly and as such, it is likely that the RVs are likely to change on 1 April 2017.

Development opportunities

As UK businesses confidence continues to increase and developers and landlords invest in their property portfolio, commercial landlords need to understand the changes to the RVs in 2017. While all landlords need to understand any impact as a result of the re-valuation, if RVs are increasing there may be a real financial advantage for landlords looking to develop their portfolio to take action now.

Whilst there are local variations, there appears to be a real North / South divide with significant rate increases on the cards for London and the surrounding areas but rate decreases in some other major urban areas. This is all the more reason for landlords to understand the impact on their particular properties and plan how to minimise their exposure now before any termination notices need to be issued.

Landlords with plans to redevelop need to plan this activity wisely as they will need vacant possession of premises.  If a Tenant is in occupation of premises to be redeveloped, a Landlord may be able to serve contractual termination notices, based on the RV, requiring a Tenant to vacate within a certain timeframe.

Timing is everything

However, if a Tenant enjoys the benefit of security of tenure pursuant to the Landlord and Tenant Act 1954 (“the Act”), then a proactive Landlord will need to serve (a section 25) notice to terminate the Tenant’s lease and object to the grant of a new lease on the basis of the redevelopment ground stipulated in the Act.

If a tenant vacates the premises as a result, the landlord will usually be required to pay the tenant compensation based on the RV of those premises. The compensation is calculated based on the RV at the date the section 25 notice  is served. Don’t delay, act today.

In light of this, if it appears likely that the RV will increase on 1 April 2017 for premises to be redeveloped in the short term, then it is in the interests of Landlords to take legal advice and consider serving section 25 notices before the increase takes effect.  It may be that Landlords can position themselves now to save a significant sum in terms of the compensation it may be required to pay Tenants when they vacate premises to give effect to their redevelopment plans.

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