Rateable Values for the next revaluation, which will come into effect on 1st April 2021 – determining business rates liabilities until 31st March 2024, will be based upon an estimate by the Valuation Office Agency (VOA) of the property’s open market rental value on 1st April 2019, the antecedent valuation date (AVD).
Valuation practice states that only deals which could be in the minds of the hypothetical willing landlord and tenant can be considered as evidence of the market value. Deals struck on/or before the antecedent valuation date are evidence. A deal on the actual property on 2nd April 2019 would not be known.
Reduced rents under a CVA or other forms of insolvency restructuring, in addition to lease renewals during 2018 and the first quarter of 2019, only become a material consideration at the AVD. If rents were in decline before the antecedent valuation date, then the continuing decline in values after 1st April could, however, be used to support a reduced rent subsequently agreed.
The true value on a set date can only be informed by looking at matters in the market around that date. Antecedent valuation date evidence will play a crucial part in the general assessment of the state of the market to the extent that it is likely to be used to support and demonstrate a pattern or trend in rents.
It is also possible to link post-AVD evidence to a pre-AVD event which triggered a fall in values not evidenced by deals until later.
The reduced rent agreed under a CVA, whilst relevant at the AVD, may not necessarily set the Rateable Value – this depends on whether it is a genuine reset of the rent to an open market value or is the best deal in the circumstances. Read more on the potential effect of CVAs here.
Unlike an open market deal, eg a letting or an unprotected renewal, or a deal where the terms are based on open market assumptions, eg a review or statutory renewal, in a CVA there are only two parties and one will have more “power” than the other – therefore the rent could be above or below market value.
A turnover rent, for example, which have become increasingly popular for retailers, would only be looked at in the absence of any other evidence – there will usually be a straight open market transactions to analyse i.e. the clean deal next door will be seen by the VOA as a better indicator than the turnover rent on the subject property.