Rateable Value Versus Rental Value Explained

A landlord’s rent review, a new lease and your business rates bill can all put different figures in front of you. That is why rateable value versus rental value causes so much confusion. They are connected, but they are not the same thing – and assuming they should match can leave a business paying more rates than it ought to.

For a shop, office, warehouse, pub, factory or dental surgery, the rateable value is the figure that drives the starting point for business rates. If it is too high, the cost can put unnecessary pressure on cash flow year after year. Rental evidence is often central to testing that figure, but it must be interpreted properly.

What is a rateable value?

A rateable value (RV) is the Valuation Office Agency’s assessment of a non-domestic property’s annual rental value at a legally fixed valuation date. It is not a bill, and it is not automatically the rent you pay your landlord.

Your local authority uses the RV, alongside the relevant business rates multiplier, to calculate your starting business rates liability. Reliefs, exemptions, transitional arrangements and local discounts can then alter the amount actually payable.

For the current 2023 rating list in England and Wales, the valuation date is 1 April 2021. In practical terms, the VOA must assess what the property could reasonably have been let for on that date, subject to the rating assumptions. Market conditions today may be useful context, but they do not automatically prove that an RV set by reference to 2021 is wrong.

This time lag matters. A tenant may have agreed a rent during a stronger or weaker market, signed a lease with unusual incentives, or taken premises in a condition that differed from the basis assumed by the VOA. The headline rent alone rarely settles the question.

What does rental value mean?

“Rental value” is a broad term. It might mean the passing rent in your lease, a rent quoted for a vacant unit, an independent valuer’s opinion of market rent, or the rent achieved on a comparable property nearby.

The most relevant comparison for rating is usually the market rent for a comparable property at the valuation date, adjusted to reflect the terms on which it was let. A lease signed last month may help indicate a trend, but it is not a direct substitute for rental evidence from the statutory date.

That distinction protects both sides. It prevents a ratepayer relying on an unusually low deal that came with a short lease, poor condition or major tenant obligations. Equally, it prevents the VOA relying on a high rent from a particularly desirable unit and treating it as the market standard for every property on the street or estate.

Rateable value versus rental value: why figures differ

It is perfectly possible for a property’s rateable value and current rent to be different without either figure being incorrect. The key question is whether the RV reflects a fair rental value on the required valuation basis.

A passing rent can be higher than the RV because the lease was agreed in a buoyant market, the tenant paid a premium for a prime location, or the landlord included valuable services. It can be lower because the property had been vacant, needed substantial repairs, had limited access, or the tenant secured an incentive to take it.

Commercial leases also differ in ways that affect rent. One tenant may pay for repairs, insurance and service charges while another has a more inclusive arrangement. One unit may have secure parking, loading access or a prominent frontage; another may have awkward delivery arrangements, restricted trading hours or poor layout. Experienced rating surveyors do not simply compare pounds per square foot and call it a day. They adjust the evidence so like is compared with like.

For larger or specialist properties, the valuation method may not be based chiefly on rent at all. Hotels, pubs, leisure premises and certain operational properties can be valued using receipts and expenditure, while some complex buildings may be assessed using a contractor’s basis. Rental value can still be relevant background, but the route to a fair RV is more technical.

When your rent could point to an over-assessment

Your lease is worth reviewing where the rent is materially below the figure implied by your rateable value and there is a credible reason it represents the wider market. The strongest cases usually have more than one piece of evidence behind them.

For example, a warehouse occupier may be paying a lower rent because access is constrained for HGVs, the eaves height limits storage use, or part of the accommodation is poorly configured. If the assessment treats the property as comparable with better industrial units, those physical differences could matter.

A retailer may find that nearby comparable shops have lower rental evidence because footfall has shifted, a shopping parade has deteriorated, or the unit has inferior frontage. An office occupier may have evidence of weaker demand, poor natural light, outdated specification or a lack of parking. A pub or dental practice can have its own trading and layout factors that need careful analysis rather than a generic comparison.

The point is not that low rent automatically means lower rates. It is that low rent may reveal a feature, market change or valuation assumption that the assessment has failed to reflect.

Do not compare the wrong numbers

Before concluding that your RV is excessive, check exactly what you are looking at. Your annual business rates bill is not your rateable value. Nor is your monthly rent the same as an annual market rent on the rating basis.

A useful first check is whether the assessment describes the property correctly: address, use, floor areas, outbuildings, parking, storage and any shared or excluded space. An inaccurate area or an assumption that space is usable when it is not can have a bigger effect than a small difference in rent.

Then consider the lease terms and date. Was there a rent-free period? Did the landlord contribute to fit-out? Was the rent stepped up over time? Was it agreed between connected parties? Did the tenant take on expensive repairs? Each issue can affect how much weight should be given to the figure.

Finally, look at genuine local comparables. Properties a few roads apart can command different rents because of parking, prominence, condition, access and customer catchment. Local knowledge is not a nice extra in a rating case – it can be the difference between a persuasive challenge and an unsupported assertion.

What happens if you think the rateable value is wrong?

Do not wait for a rates demand to become a long-running overhead problem. A professional review can establish whether there is evidence that the RV is too high and whether a challenge is worthwhile.

In England, the formal process involves checking the VOA’s property information, presenting evidence and, where necessary, progressing the matter through the statutory rating procedures. Timing and the facts of the case matter. A successful alteration can reduce future liability and may create entitlement to a refund of overpaid rates for an eligible period, but outcomes are never guaranteed.

This is where busy directors and finance teams can save themselves a great deal of time. Rather than trying to interpret rental schedules, valuation dates and technical evidence between running the business, leave the detailed analysis to qualified specialists. A RICS or IRRV-qualified surveyor can test the assessment, identify suitable evidence and handle the rating process on your behalf.

Your Local Business Rates Saver offers a free initial eligibility review, so there is no need to guess whether a lower rent is enough to support action. If the evidence does not justify a challenge, you will know. If it does, you can pursue the potential saving with professional support from start to finish.

A lower rent is a prompt to investigate, not proof

Rental value is one of the most useful clues in a business rates review, but it is only meaningful when matched to the correct valuation date, lease terms, property characteristics and local market evidence. That is the real answer to rateable value versus rental value.

If your rent, property details or local comparables do not appear to stack up against your assessment, ask for it to be checked. You have nothing to lose by finding out whether your business is carrying an avoidable rates cost.