Fair maintainable trade: how your rent and rateable value get decided

Two of the largest fixed costs in a pub, hotel or leisure business are set by an estimate of what a competent operator could earn from the building. Not what you earn. What the assessor believes the property can sustain.

Why your building is valued on trade rather than rent

For most commercial property, a rateable value is worked out by comparison. The Valuation Office Agency looks at rents actually paid on similar units nearby, adjusts for size and condition, and arrives at a figure.

That method breaks down for a pub, a hotel, a holiday park, a nightclub or a visitor attraction. There is no shelf of comparable open-market rents for a 1930s roadhouse on a bypass, and the value of the building cannot be separated from the trade it is capable of carrying. Two identical hotels, one on a station approach and one on a ring road, are not the same asset.

So the valuation is built from trade instead. The starting point is fair maintainable trade: the annual level of turnover, excluding VAT, that the premises would be expected to achieve if run in a reasonably efficient way.

Read that definition again, because the whole argument lives inside it. It is not your turnover. It is not last year's turnover. It is an estimate of what a reasonably efficient operator would get out of your building, in your location, with your licence, your covers and your bedrooms.

Who "the reasonably efficient operator" is, and why it matters

The reasonably efficient operator is a construct. He is competent but not exceptional. He is properly capitalised, adequately staffed and reasonably managed. He does not have your marketing genius and he does not have your problem with the head chef.

That construct cuts both ways, and founders usually only notice one side of it.

If you are trading brilliantly — a name on the door, a following, a strong online presence — the assessment will not simply follow your figures upward, because part of that trade belongs to you rather than to the building. Goodwill personal to the operator is meant to be stripped out.

If you are trading badly, the assessment will not follow you downward either. Poor management, a bad tenant mix, a period of understaffing or a refurbishment gone slowly are your problem, not the property's. The assessor is entitled to say that a competent operator would have done better, and to value accordingly.

The productive question is therefore never "what did we turn over?" It is: what is it about this property, this location or this market that would limit any competent operator, and can I evidence it?

How the calculation is actually assembled

The method differs by property type, but the shape is consistent.

For public houses, the assessment starts by splitting fair maintainable trade across the income streams — drinks, food, accommodation and other sales such as gaming or events. Percentages are then applied to each stream to arrive at rateable value, and those percentages are agreed with industry bodies rather than invented case by case.

This matters practically. The percentage applied to wet sales is not the same as the percentage applied to food or accommodation, so the mix of your trade changes your bill, not only the total. An operator who has shifted from drink-led to food-led without the assessment being revisited may be paying on the wrong basis entirely.

For hotels and larger leisure properties, the receipts and expenditure method is used. In outline: several years of accounts are reviewed to establish gross income; the cost of sales and working expenses are deducted; an allowance is made for the operator's own reward and for a return on the tenant's capital; and what is left — the divisible balance — is the sum available to be split between operator and landlord. The landlord's share is the rent, and therefore the value.

That structure is the reason a single line in your accounts can move a rateable value by a surprising amount. If a cost is treated as a working expense, it reduces the divisible balance. If it is treated as something else, it does not.

Rent and rates are decided by the same argument

Operators tend to treat rates as a tax problem and rent as a property problem, handled by different people at different times of year. On a trade-valued property they are the same argument, conducted twice.

Where a lease of business premises is protected, the tenant has security of tenure and a right to a new tenancy, which a landlord can resist only on the statutory grounds. When the terms of that new tenancy are argued, the rent is built from the same kind of evidence: what trade could a reasonably efficient operator sustain here, and what share of the divisible balance should the landlord receive?

The consequence is straightforward. A trading case you make well for rating purposes is a case you can make again at renewal — and a case you make badly, or fail to make at all, follows you into both. Running the two in isolation means paying twice for the same missing evidence.

What actually changes the answer

Assertion changes nothing. Assessors see confident assertion every day. What moves an assessment is evidence that a competent operator could not have done better, and it is almost always one of the following.

Physical and legal constraints on the property. A licence condition capping hours or capacity. A planning restriction on external areas. A kitchen too small to lift covers. Access that cannot take deliveries at scale. Rooms that cannot be let because of a fire strategy. These are constraints on the building, and they belong in the valuation.

Location evidence, not location opinion. Footfall data. The closure of the anchor that drove your trade. A road scheme, a car park lost, a bus route withdrawn. Occupancy data across the local market showing the whole area moved, not just you.

Trade evidence properly presented. Several years of accounts, consistently prepared, with the parts personal to you clearly separated from the parts that belong to the property. Departmental splits that match how the valuation is actually built. Adjustments explained rather than asserted.

Comparable settlements. What has been agreed on similar properties, and on what basis. This is the evidence operators most often lack and most often need.

The process, and the deadlines inside it

In England, changing a rateable value means completing a Check case with the Valuation Office Agency before a Challenge case can be made, and only then, if the outcome is still wrong, appealing to the independent Valuation Tribunal for England. Each stage has its own deadlines and its own evidential requirements, and evidence not put in at the right stage is difficult to introduce later.

The Tribunal charges a fee to appeal, which is lower for small businesses. It is not the barrier. The barrier is that most operators arrive at Challenge without having built the evidence the stage requires, and then find that the strongest points in their case are the ones they cannot properly put.

Where a specialist is needed

Formal valuation evidence — the report a tribunal will weigh — is the work of a RICS registered valuer with rating experience, and Dinmore Bell instructs one where the case needs it. The same is true of expert evidence on trade or footfall.

Anything that turns on the treatment of items in your accounts for tax, rather than for valuation, is your accountant's. And if a rent dispute has to be determined by the court rather than settled, the conduct of that litigation goes to a litigator we instruct and manage.

What Dinmore Bell does with it

We hold the whole position in one place: the leases, the licences, the rating assessments, the renewal dates and the review dates across every site. We assemble the trading and constraint evidence, we run the Check and Challenge process, we brief and hold the budget for the valuer where one is required, and we take the negotiation with the landlord or the Valuation Office Agency off the operator's desk.

The reason to do this early is unglamorous. Rating lists and lease renewals arrive on fixed dates, and the evidence that wins is gathered before those dates rather than after them. An operator who starts building the case when the demand lands has already lost the best of it.

Dinmore Bell provides an outsourced General Counsel function for founder-led businesses, owning work of this kind end to end rather than advising on it and handing it back.