Business rates should not be hiked to bail councils

Some businesses have seen their rates bill increase as councils try to make up shortfalls from a drop in developer levies by seeking more money from companies, writes PETER STAFFORD

EARLIER THIS month, the Valuations Office announced the timetable for the revaluation of all commercial property in Dublin City, as part of the county-by-county revaluation process required by law. This valuation forms the basis for the commercial rates bills the city council will issue to commercial ratepayers.

By October next year, ratepayers in the city will have received a proposed valuation certificate, based on the value of their property on April 7th, 2011.

Since 2005, South Dublin, Fingal and Dún Laoghaire-Rathdown counties have been revalued, and three more will be assessed in the next couple of years.

This revaluation process is the latest step in the ongoing debate about the equity of the commercial rates system, which has emerged in recent months. Both in Dublin and elsewhere, some businesses have seen their rates bill increase by between 50 and 100 per cent at a time when trade is declining and market rental values are falling. For that reason the issue of rate reform is unlikely to go away.

Commercial rates are an important source of income for local authorities, netting €1.25 billion each year, and providing local government with 26 per cent of their annual income. Based on current valuations, rates on 43,000 properties net €620 million for the Dublin local authorities.

For occupiers of commercial property in the past, rates represented about 13-17 per cent of occupation costs although this varied between property types and county council areas.

More recently, as the economy has changed, rates can now represent 50 per cent or more of occupation costs. For local authorities and businesses, a transparent, equitable and fair commercial rates system is paramount.

HOW ARE RATES CALCULATED?

There are two elements to a rates bill. First, is the “rateable valuation”. This is the notional rental value of a property assessed by the Valuation Office. This value usually remains fixed unless the property is physically altered.

Second, a multiplier is decided each year at the local authority’s budget meeting. It is derived from the number of commercial properties in the area and the budget the local authority estimates that it requires to provide public services over the next year.

This is expressed as a percentage of the rateable value. In Dún Laoghaire, for example, it is set at 17 per cent of the value of the property and charged annually. So if a commercial property has a notional rental value or rateable valuation of, say, €50,000 and the multiplier is 17, then the rates bill is €50,000x.17= €8,500.

So the rates bill is made up, not only of the rental value of the property but also the budget of the local authority in which the property is based.

Since 2007 income to local authorities from development contributions from new private-sector building work has collapsed, and local authorities have looked to commercial rates to make up the shortfall in income. The difficulty faced by local authorities in balancing their books is the reason why commercial rates have risen so fast, and why commercial rates have become a significant cost to commerce.

THE VALUATION ACT 2001

A national revaluation of all commercial property in Ireland was started in 2005, following the introduction of the Valuation Act in 2001. The process is necessarily laborious, and the process which allows rate payers to make representations to the Valuations Office on receipt of the valuation certificate, and then appeal the valuation, has meant that the national process of revaluation has happened at a much slower rate than the economy has changed.

VALUATION DATE

The value of all commercial property is pegged to a county-wide valuation date. For the forthcoming revaluation of Dublin City property, its value will be pegged at April 7th, 2011.

Given the constant decline in commercial property values since the first county (South Dublin) was revalued in 2005, the slow progress of national revaluation has caused significant confusion and consternation and, for its part, the Society of Chartered Surveyors Ireland has recommended that the Valuations Office is more adequately resourced so that the whole country can be valued within the same narrow time frame, and that older valuation dates are updated to reflect the changed environment.

SOLUTION

During better times, many businesses paid little attention to their rates liability but now that trading conditions are difficult, they are correct in scrutinising all their expenses and questioning the rateable valuation.

Rate-payers should be aware that the Valuation Act 2001 is restrictive about allowing an existing rateable valuation to be reassessed where the statutory appeal period has elapsed.

It is worth getting professional advice at the outset to ensure everything is in order. That said, it is possible for a rateable valuation to be increased when appealed, so there is a need for caution, and the society would always recommend that a professional analysis of the rateable valuation is made before any appeal is lodged.

Regarding this, it is particularly important that any business should ensure it uses a rating consultant with appropriate qualifications and experience, such as a chartered surveyor, who operate under specific rules of professional conduct.

Periodic revaluation of property is vital if local authorities are to levy charges on the basis of their rental value. The process, however, is too slow, and at the current rate of revaluation, it could be many decades before the process is complete.

In the short term, and to reflect the changed economy, Ireland needs to re-evaluate how local authorities are funded, and what services they should be reasonably expected to provide.

Simply replacing lost income from development contributions with increased charges on the business sector is unfair. Expecting local authorities to provide the same level of public services with reduced income is equally unfair.

Dr Peter Stafford is director of policy and public affairs at The Society of Chartered Surveyors Ireland