William Eichler 13 May 2019

Debenhams’ CVA to cost councils £8.5m in rates

Local authorities are set to lose millions of pounds worth of business rates due to Debenhams financial difficulties, ratings experts say.

According to the terms of Debenhams’ CVA, the retail store will close a third of its 166 UK stores to allow it to continue to trade.

The ratings experts Colliers International estimates that this will affect 59 councils who will lose out on £8.5m of the £17.3m rates bills Debenhams would be paying if all of its stores remained open.

Debenhams had categorised its properties into five groupings and now plans to reduce its rates bill in two of these categories – Category 4 and 5 – by around 50% in the current billing year, backdated to 9th May 2019.

Such properties have been referred to as ‘materially underperforming’ (Category 4) and in ‘smaller, weaker tertiary retail centres’ (Category 5).

Newcastle Upon Tyne will be particularly hard hit. According to Colliers, the council will lose over £543,000 this year of the £1.169m it was expecting to receive.

Guildford will lose £446,070 from the £811,440 it was expecting, and Hammersmith and Fulham (Westfield) will lose over £715,000 of the £1.54m it should have received in the same period.

‘Debenhams claims its new arrangements will offer a better return for the rating authority than going into administration, where after a short trading period the premises would be closed and no business rates would be paid under the exemption for empty properties,’ said John Webber, head of business rates at Colliers.

‘And to some extent they are right – stores are kept open, jobs are saved and at least some business rates are paid to fund public services.

‘But, leaving aside the irony that it is the iniquitous business rates system that has been one of the major reasons for this mess in the first place, this move by Debenhams has far reaching implications.

‘In the long run, if by using a CVA a retailer is let off the hook of some of its business rates liabilities and this practice is followed by other struggling retailers, we will see the public purse massively compromised.

‘Local authorities will not have the funds they have budgeted for to run local services, which we already know are tightly stretched.’

Read our feature looking at what authorities can do to protect themselves from tenant insolvencies in the retail sector.

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