Changes could mean a one-third increase for City offices
With bank debt and real estate costs two of the most common causes of law firm distress, increases in business rates were met with concern by real estate professionals and lawyers in the Square Mile last month.
Announced in February ahead of March’s Budget, government plans to boost business rates following a seven-year hiatus would see City of London offices facing a 33% increase to their rates, which are calculated against property values.
Average rates will increase from £876m this financial year to an average of £1.16bn a year over the next five years, according to property agent CVS. This represents a £1.4bn rise in total over five years.
Rises adopted in 2010 had previously been capped at 12.5%, but businesses could see increases of up to 42% if the changes come into force on 1 April. The average rate increase for London is set to be around 11%.
However, a challenge has been made by a consortium of trade bodies, represented by Berwin Leighton Paisner (BLP).
In a letter to parliament’s joint committee on statutory instruments, the group challenged the system used for appealing business rates valuations over a lack of clarity. Olswang and CMS Cameron McKenna also signed the letter. BLP claimed the draft rules could leave businesses overpaying their rates.
BLP real estate disputes co-head Roger Cohen told Legal Business: ‘In the draft regulations there is no definition of “reasonable professional judgement”. We are saying it is unclear how it works. The valuation tribunals system is also under enormous pressure.’
Rate changes outside the City of London could be lower: an estimated increase of 2% is in draft regulations for Canary Wharf. Firms such as Linklaters are based in the City, while Clifford Chance is based in Canary Wharf, after moving in 2003.
Outside the City, high street law firms could experience a major impact, according to Hogan Lovells UK real estate head Daniel Norris: ‘High street solicitors will be concerned about this. Small law firms have less capacity to absorb unforeseen increases in operating costs and could be hit hard.’
Norris added: ‘Will we see an exodus from the City? Not immediately; it’s unusual for there to be enough flexibility in an occupational lease. Smaller operations, such as the US firms that have branches in London, often have shorter leases with break rights, so they may be able to move, but it’s less likely for bigger London firms.’
The potential rates changes have led to protest from Conservative party MPs and pressure on chancellor Philip Hammond to mitigate the impact in the upcoming Budget.
matthew.field@legalease.co.uk