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Effect of business rate revaluation on lease renewal

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By Adrian Price

On 1 April 2017, business rates will be revalued for the first time since 2010. This will potentially have a significant impact on landlords and tenants of business premises who are set to terminate (or try to renew) their tenancies under the Landlord and Tenant Act 1954.

Where a landlord wishes to terminate a lease under the Act and successfully does so on one of the “no fault” grounds (e.g. where the landlord intends to redevelop or occupy the premises itself), compensation is payable by the landlord to the tenant.

The amount of compensation is calculated using the rateable value of the premises, either being 1x the rateable value where occupation by the tenant (or its predecessor) has been less than 14 years, or 2x for any longer period.

Importantly, the relevant date for ascertaining the rateable value is that of the relevant landlord’s notice under the Act. The current valuation list only remains in force until 31 March 2017, with the new valuation list taking over from 1 April 2017.

As a result, if the rateable value of particular premises is set to increase, the landlord will want to serve its relevant notice before 1 April 2017 to ensure that it is only liable for the lower rate of compensation. Conversely, the tenant of the same premises would want to delay service of any notice until after 1 April 2017 so it can recover the higher rate of compensation.

Of course, the rateable values of some properties are due to decrease on 1 April 2017, in which case the opposite will apply.

As such, both landlords and tenants will want to check the new rateable value of any premises that are set for lease renewal within the next year and think carefully about the timing of any notice under the Act, if they wish to take advantage of this rare event.

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