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Beware of rates shock

There are often hidden costs in developments that can provide an unpleasant surprise at the end of a building project.

One of the most frequent is the impact that any work will have on the rateable value of a business. Steve Cooper, commercial director and head of rating, CVS UK, the commercial property rating and rent review specialist, warns that in some cases the rises can have a damaging effect.

He said: “If you apply for planning permission to extend or alter your premises, that information is picked up by the local authority and it will go out and inspect the property or extension being added.

“There is nothing you can do to prevent it. It is part of the overall planning package and you would be well advised to look at the potential consequences.”

The rateable value is based on what someone would rent the property for. If you take a bare piece of land and add a car park then you are adding value to it and, therefore, the rates are likely to increase.

Even something as simple as installing air conditioning can increase its value and lead to a rates rise.

For dealerships working to tight margins, an un-expected rise can cause serious cashflow problems.

Cooper warned: “Everybody gets caught out from time to time. I have even seen businesses have to close because of this oversight. The valuation officers will not say it would be better off for a business to continue and keep rates down. The valuation officer has a duty to be fair to all other businesses and maintain a fare rating.”

Case studies are numerous, such as the restaurant that began selling wine and was deemed to have been turned into a wine bar by the local inspector. Reclass-ified, the rateable value of the property rocketed and the rates bill went from £12,000 to £32,000, even though there had been no physical change.

CVS focuses on helping companies reduce the cost of occupying property, from rates reviews to rent evaluation. It handles more than 100 new instructions a week on a ‘no saving, no fee’ basis.

Cooper said: “You must consider rates during the planning phase, because this can have a major impact on the bottom line of the business.”

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