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Rateable Value – how to calculate percentage contributions in accordance with it

A lot of older leases provide for contribution percentages for ground rent or service charge to be calculated in accordance with ‘rateable value’. Sometimes ground rent increases are to be calculated as a percentage of the rateable value of the demised premises. Maybe you have inherited a site with that wording in the leases and need to work out the contributions and /or increase in ground rent payable. It sounds straightforward…

… However, following the introduction of Council Tax, rateable values no longer apply to premises so how do you go about working out the contributions for each flat?

There is no ‘correct’ answer to this it would seem. Does the relevant clause ‘fail’ for want of a clear and workable mechanism? [Option 1] Do you try to determine the amounts by applying the Council Tax valuation? [Option 2] Or do you try to ascertain the notional rateable value that would exist had it not been abolished?[Option 3].

Firstly you should look at the lease to see if it has a clause which allows the lease to update to take into account legislative changes. If it does so allow those changes then you could calculate the amounts in accordance with Options 1 or 2.

Option 2 means that you will have to obtain the value of the premises as in April 1991 when the valuation bands were set. The Local Authority must presumably have those values to hand as they allocated those values to each property back then for the purposes of Council Tax banding. If you can obtain those figures then you can presumably base the calculations on that value as the starting point.

Another option would be to assess the percentages based on the internal floor area of the block as a whole and propose this to the tenant and hope they agree. If there is general agreement then the landlord may wish to formalise this by way of a Variation to the lease. Tenants may prefer to vary to make future sales of the premises easier.

If the tenants do not agree then you are back to the beginning! Check whether disputes between parties can be settled by an expert or arbitrator – and if so, this may be a case in point where one can be engaged. If not , it may well be that the lease is still variable on a statutory ground in that the service charge is unworkable.

Good luck if this arises or has arisen. Please share with us how you have resolved this issue by emailing jw@slcsolicitors.com

N.B. should you require advice on lease variations on this point or in general please contact Alison McLachlan on apm@slcsolicitors.com

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