Firms hoping for rates bonanza as court decides if rent cuts should mean lower valuations

Deputy Business Editor, Sunday Herald

Sunday 2 September 2012

SHOPPING centres and other businesses across the country are in line to claim rates rebates worth millions of pounds depending on a landmark appeal case due to be decided this week.

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By Steven Vass

The Land Valuation Appeal Court in Edinburgh will decide whether to uphold previous decisions that entitled the Mercat and Overgate shopping centres, in Kirkcaldy and Dundee respectively, to reductions in rates valuations worth hundreds of thousands of pounds, backdated to 2010.

If the court decides the appeals in their favour, it could open the floodgates to a deluge of other potential rebate claims. Brian Rogan, associate director at Colliers, which has been advising Mercat, said: "It's probably one of the biggest business cases in the last 20 years. "It means a lot for all businesses across Scotland."All businesses have to pay rates on their properties to the local council. These are determined by valuations that take place every five years and take into account the rental value of the property. This most recently happened in April 2008, setting valuations that came into effect in April 2010. In both the cases before the appeal court, tenants negotiated cut-price rental deals in the wake of the recession that came into effect between April 2008 and April 2010. Mercat, Overgate and the affected tenants are arguing that the April 2008 ratings valuations should have been reduced to reflect these changes. The local rates assessors are arguing the law does not permit this. Because so many businesses in Scotland negotiated rent cuts during the same two-year period to stay afloat, a court decision in favour of the shopping centres looks set to entitle them all to the same kind of rebate. Billy McKaig, a senior director at BNP Paribas Real Estate, another Mercat advisor, said after previous valuations rents have not broadly fallen between the time of valuation and the new rates coming into effect. He said: "It affects so many categories of properties in Scotland. Because the recession was at the end of 2008, there's evidence of a large drop in rental values."He added that there were also large numbers of properties, such as those belonging to the NHS, whose rates are calculated in relation to their costs. He estimated that these costs fell by about 20% between 2008 and 2010, which should also make them eligible to substantial rebates.This might provide some respite to the public sector, which could otherwise be hit quite hard if the court decides in the shopping centres' favour. "In terms of the overall valuation roll, there will be a significant impact in terms of value levels," he said. Katherine Armstead is the senior portfolio manager for Land Securities, which owns the OvergateShe said: "We would be disappointed if the reduction was overturned on appeal as it has been a much-needed boost for retailers during a time when tough economic conditions have made trading very challenging."

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Firms hoping for rates bonanza as court decides if rent cuts should mean lower valuations

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