Serviced Offices Update – the car crash continues in slow motion.
Back in February 2024 I reported on an ‘impending car crash’ in the serviced office market as the Valuation Office Agency appeared to be changing their approach on the back of a court decision that looked at ‘paramount control’. The Ludgate House case, or more accurately, Ludgate House Ltd v Ricketts (VO) and London Borough of Southwark (2019) had nothing to do with serviced offices; it was about live-in guardians in an empty office building, but the decision shone a light on paramount control- who ultimately has authority or influence over the space within a property.
From a serviced office context, if control remained with the landlord, because of the flexibility afforded to the tenant with a short-term lease and the ability of the landlord to enter for cleaning or others reasons or to move tenants around at will, then it would be the landlord, not the tenant, who had paramount control and would therefore be responsible for rates.
In the real world this is manifesting itself with the VOA serving notices to merge the multiple, individual assessments that could have existed at serviced offices for many years (decades in some instances), into a single large rating assessment. To pile on the problems, the VOA are backdating to 01/04/23 – the start of the current rating list.
The arrival of the notice in the post, in many instances without prior warning, discussion or any indication of an impending change, triggers a substantial backdated bill and a raft of revised bills and credits to the tenants who sit in blissful ignorance of the events unfolding around them. The building operator is left wondering how on earth they are going to pay a liability that in many instances runs well into 6 figures.
The VOA gave a presentation on paramount control at a recent conference, but without actually going into the change in position on serviced offices. Their rationale is that they have reinterpreted existing caselaw and a revised legal opinion underpins their change in policy. Will they share that opinion? No they won’t.
I have asked different sources whether there is a widescale review underway and been given different answers, but the number of new single, backdated rating assessments being created supports that if anyone has put their head above the parapet by asking for a split, merger or RV reduction, then they might find their serviced office in the firing line.
This leaves operators in very different positions. Some are reeling from the paradigm shift in the business rates position, the additional operating cost and huge backdated liabilities. At least one I’m aware of has wound their business up.
Others are blissfully unaware and potentially may never suffer the fallout.
Pro-active operators are actively trying to ensure that their agreements give the tenants paramount control, which typically involves not having the flexibility of lift and shift provisions or allowing access for cleaning. What’s really unpalatable is that even where this preparation has taken place and the agreements meet all of the paramount control requirements , the VOA have steamed in and created single assessments without any discussion, leaving the occupier faced with a lengthy battle to rectify through the Check Challenge Appeal process. This could take many months or even years, over which period they remain responsible for the arrears and ongoing liability. And what happens at the end? The assessments will be once more split and the tenants face the burden of years of backdated bills and retrospective Small Business Rates Relief applications.
The current landscape is grossly unfair. If the VOA have an alternative interpretation of caselaw then they should share it and run a test case or a selection of test cases. This would put operators ‘on notice’ of potential changes. If they win, and only if they win, there should be a well-publicised policy change that allows the operators time to adapt, without a threat of business killing backdated liabilities. As its stands there isn’t a level playing field, the operators are facing a long period of uncertainty, and the VOA are hiding behind ‘secret’ advice whilst still actively taking action that causes significant damage. What can operators do? Check current agreements, amend as necessary and prepare for the worst. The VOA are coming – in a fragmented and disjointed attack on the serviced office industry.
