I'm sure many in the museums sector will be breathing a collective sigh of relief after an important ruling on business rates last week which saw York Museums Trust triumph in a long-running dispute with the Valuation Office Agency.
The Upper Tribunal found in favour of York Museums Trust, which had challenged the VOA's method for determining the values on which its business rates were based. The VOA had argued that the calculation should be based on the cost of rebuilding the property, with York maintaining that rates should be based on net income instead. The Tribunal agreed with York, which means that the rateable value of its properties has reduced dramatically (and it has received a rebate of £100,000 in backdated bills).
While this is no doubt very important for the sector, the part of the judgment that interested (and pleased) me most was the Tribunal's decision that York's shop and cafes fell within the remit of the trust (a charity) and not just its commercial arm, York Enterprises. This meant that the vital 80% charitable rate relief was available across the whole site. Again, in this aspect of the judgment, the Tribunal found in favour of York; disagreeing with the ratings agency. This decision reaffirms the approach currently adopted by most local authorities, who do not seek to charge full business rates on museum cafe and shop premises.
I know this element of the ruling will be particularly welcome within the sector as losing this charitable relief would have put a huge pressure on museum budgets, which could have been disastrous at this time of ongoing funding pressures.
The issue of potentially having to pay business rates for commercial outlets has been something of the elephant in the room for some time, particularly when contracting with catering companies. Museums and their trading subsidiaries are of course keen to share or off-load the cost-impact of any ratings increase onto the caterer, and yet they do not want to pre-empt something that may not happen in a way that could prejudice the current levels of commission they receive from them. This tension has meant that most catering contracts are silent on this point, or they simply sign-post that a change in ratings will result in a renegotiation of the commercial arrangements of the deal. It will be interesting to see what change this decision may have on museums' relationships with commercial providers going forward.
Of course the decision was fact-specific, and I look forward to reading the judgment when it comes out to see precisely what lessons we can take from it.
We published a briefing on the wider issue of business rates reform last year – please click here to read it.
If you require further information on anything covered in this briefing please contact Jane Randell (firstname.lastname@example.org ; 020 3375 7198) or your usual contact at the firm on 020 3375 7000. Further information can be found on the Museums and Galleries page of our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, June 2017