The rating game: why the odds are stacked against you

01 January 2000
The rating game: why the odds are stacked against you

WESTMINSTER City Council has 31,000 businesses on its rating list. Between 1990 and the beginning of 1994, Westminster's valuation office sent the council 36,121 amendments to the list.

Of these changes, most were the result of appeals by businesses challenging rating assessments for their premises.

As these figures suggest, rating valuation is an imprecise process. The mathematics involved in the rateable value of restaurants is more obscure than for many other types of property, and hence more open to challenge.

Restaurant use is categorised in planning consent terms as A3. This category allows sale of food or drink for consumption on thepremises and of takeaway hot food.

Rating valuers seem to act on a presumption that restaurant use has some extra benefits which enhance value in comparison with other types of retail business. As a consequence, restaurauteurs are often saddled with what they consider to be excessively high rateable values and excessive business rates.

This is particularly evident in London's Covent Garden, where the Valuation Office has just increased previously issued assessments of some restaurants by around 10%.

The valuation of restaurants on an "open market basis" and the valuation for rating purposes are different, and both present many potential problems. The unique assumptions that rating valuers apply mean that there seems to be no real connection between the two systems.

Discrepancies frequently seem to occur. One of the assumptions applied by rating valuers is the long-established principle of rebus sic stanibus (as it stands) which is included in their equations.

This principle means that the valuer is rating the restaurateur according to any improvements he has made to the property. In many cases, the restaurant is valued as fully fitted. Such a calculation will take into account air conditioning, for example.

Many restaurateurs extend into their basements. Without air conditioning, basements are inoperable. Valuing the space as usable restaurant space and then making an addition to the calculation for air conditioning is, therefore, double counting.

It is not unusual for rating valuers to make 5% additions to the A1 rating classification, which applies to retail premises, to reflect fitting out. However, far greater additions are often made to restaurant premises.

Many valuations officers have sought to add 10% to the rateable value over and above that applied to any identical unit with an A1 (retail) use.

The question of taking premiums into account is another stumbling block for restaurateurs. Premiums paid by A1 users are difficult enough to analyse. Premiums paid by restaurateurs are even more difficult to untangle. Traditionally, goodwill is part of the equation, and payments for fittings and fixtures may be involved.

The problems are exacerbated by the different forms of drinks licensing operating in the UK. There is the normal restaurant licence, possibly with a supper hour extension. There is also the full on licence, as held by publicans. Indeed, many pubs trade as restaurants with a high percentage of drinks income generated by the restaurant. Café bars have also become popular in the past five years.

It is unclear how these different licensing arrangements are included in the rating process. Equally, it is not easy to assess whether allowances are made for the extra costs that some restaurants have to pay for the staff to run a café bar 16 hours a day, seven days a week.

And what about the expense of promotion and advertising? One could argue, justifiably, that restaurants have to spend a great deal more than other businesses to become established and remain successful.

Finally, traditionally open market valuations of floor areas are based on the overall area, but rating valuers use a zoned method.

Given all these separate conditions, it is unsurprising that discrepancies exist.

Restaurateurs often do not understand why they are asked to pay comparatively higher rates than retailers. To earn a sufficient margin to pay rents, they operate longer hours, more days of the week and employ more staff - often on a shift basis.

Excessive rates billscannot but be reflected in the price of meals and the cost to customers.o

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