Commercial property rates revaluations are proving controversial
The ongoing revaluation of the rates liability of every commercial property in Ireland is proving controversial in some areas - and presents a fee-earning opportunity for valuers. The purpose of the revaluation is not to increase income for local authorities, but to redistribute the rates burden on a more equitable basis, taking into account changes to properties and infrastructure, for example, road bypasses.
Previously, rates liabilities were based on the Net Annual Value (NAV) of the property as of 1988. That figure was then multiplied by each local authority's annual rateable value (ARV), or what used to be known as 'the rate in the pound'. The ARV is calculated each year, depending on the budget required by the local authority to provide services. Now, under the Valuation Act 2015, rates are being assessed off a rental value as of October 30, 2015.
Before getting into some of the technical issues, I suggest that some of the problems arise from confusion among occupiers over the higher rental values. Values in 2015 are of course higher than in 1988, but they are now multiplied by a lower ARV, to give the appropriate rates liability. The purpose of updating the rental value is to ensure that the overall burden is spread fairly, in the light of changes which affect the property's value. Another factor creating resistance, I think, is an inherent belief that rates aren't good value and that services have been reduced: for example, bin collection.
All the Dublin local authority areas have been revalued, as have Waterford and Limerick city and county. Properties in ten other counties are now being revalued. South Dublin County Council was the first area to be revalued in 2007 and will be the first area revalued for a second time as proposed valuation certificates (PVCs) will be issued to owners before the end of April. This revaluation is also taking place over much larger geographical areas, since the consolidation into ten local authorities.
It's very important that owners and tenants (to whom the rates liability is passed) pay careful attention to the process, as substantial sums of money are involved. If your property is incorrectly assessed and you miss the timescales for appealing, you will be paying excess rates for seven to 10 years. As a rule of thumb, your rates bill should be between 15pc and 20pc of your annual rent.
The procedure is that the Valuation Office (VO) issues a PVC and the owner has 40 days within which to appeal that. A valuation certificate is issued by the VO, followed by a final valuation certificate, and the owner has a further 28 days to appeal. Any further appeal goes to the Valuation Tribunal, who aim to issue a decision within six months. Further appeals can only be made on a point of law, to the High Court or Supreme Court.
According to rating expert Kevin Daly of Colliers, the main controversies have arisen over retail properties, and particularly provincial shopping centres. He told me that while the Valuation Office (VO) have access to more information than agents, notably, letting and turnover details from occupiers, they are under-resourced and are valuing by "sampling" and inspecting approximately 25pc of properties.
He cited the example of the TK Maxx unit at Athlone Town Centre, where the VO assessed the NAV at €668,000 p.a. Colliers assessed same at €160,000 p.a. and have appealed.
Daly told me problems are arising where the VO assess a rental value per square metre, for example in a shopping centre, and can then apply that rate across all units in the scheme, without allowing for location in the centre, the size of the unit, or its shape. He also said that he has seen cases where the VO has "an alternative method of valuing hotels, away from the traditional profits method for trading assets, in that they are applying subjective percentage multipliers to gross receipts from drink sales, food sales and golf courses etc., no matter where the hotel is located in the country".
Industrial revaluations are also producing discrepancies and a Colliers appeal for a global software firm in Dublin 22 produced a saving of €82,000 p.a.
Generally, agents handle rating appeals for a fee of up to 50pc of the first year's savings. Property owners should seek expert advice, bearing in mind that under the 2015 Act, your appeal can also see your rates assessment increase.