COMMERCIAL RATES are a contentious issue for businesses and will remain so with the implementation of the Dublin city rates revaluation. There is a perception that the revaluation will lead to automatic rates savings for struggling companies. This may not be the case.
The current system, under which rateable valuations (RVs) are calculated, is archaic and fraught with anomalies. These deficiencies are intended to be addressed by the long-awaited rates revaluation for Dublin city, which will relate rates to rental values in April 2011. Despite the announcement of this revaluation in May, it will not become operative until January 1st, 2014.
While rents have fallen dramatically in recent years, this will not necessarily translate into a corresponding reduction in rates, which are calculated by multiplying the RV (based on 2011 rent) by the ARV (or multiplier, which is set annually by Dublin City Council). This multiplier has yet to be determined and will not become known until the proposed valuation certificates are issued in October 2012 (then as a budget figure only).
The council cannot levy more rates post revaluation than in the preceding rating year. The Valuation Act 2001 effectively provides a cap on the total rates intake in 2014 only, which was intended to reassure rate payers that they would not be unduly burdened by the implications of a rising market.
However, while the act does not prevent the council from levying less rates following a revaluation, the practise to date has been to advocate a “revenue neutral” exercise, which has become a stranglehold on businesses. Maintaining the same level of rates pre- and post-revaluation ensures there will always be those subjected to increases, because the total rates levied is merely redistributed among rate payers.
In the three rating authorities revalued to date (South Dublin, Fingal, Dún Laoghaire-Rathdown) the rates liability has equated to about 15 to 17 per cent of 2005 rents. The IPD and Jones Lang LaSalle rental-growth indices show that rents have fallen by 30 to 37 per cent from September 2005 to March 2011. However, these indices often lag behind the market and in reality the decline could be up to 50 per cent. Therefore, while the fall in commercial rents has been widely reported and recorded, this will not be the catalyst for lower rates across the board, because the council will adopt a higher multiplier than previously under the revaluation process to date so as to ensure their overall rates intake is maintained to make up the loss.
Simply put, if rents have halved since 2005, ratepayers in Dublin city are more likely to pay rates equivalent to 30 per cent of their rent post-revaluation. The sample calculation included in the Valuation Office information pamphlet, although purely for demonstrative purposes, uses a figure of 40 per cent of rent.
Furthermore, an analysis of local-authority budgets would indicate that there is increasing pressure on the ability to lower multipliers due to the noncollection of rates and escalating vacancy refunds. While local authorities have been reducing their expenditure in other areas in order to lower the required rates intake, the provision for bad debts is increasing and counteracting these efforts.
For example, the budgeted amount of rates needed to be levied by the council has fallen by 12 per cent since 2009, but the multiplier adopted has fallen by only 2.6 per cent. This is because the provision for bad debts, arrears, vacancy, etc has increased significantly, so much so that the council has provided a 22 per cent “cushion” between the budgeted amount needed to be raised through rates net of any such debts and the amount actually provided for by the adoption of the current multiplier.
In South Dublin, where the accounts show explicitly a budget for refunds and irrecoverable rates, this provision has almost tripled since 2009, which has significantly hindered the reduction of the multiplier.
If vacancy refunds continue to increase and more ratepayers fail to discharge their rates, there will be even less possibility of a reduction in the multiplier or businesses’ liabilities. The inevitable result is that ratepayers who continue to pay their rates are not getting the benefit of a reduced multiplier because of higher levels of default by other businesses.
Siobhán Murphy is a rating surveyor at GVA Donal Ó Buachalla
