Seán Hackett, partner at Davis Blank Furniss, discusses the upcoming Business Rates Revaluation and what the strategic implications will be for landlords and tenants in opposed lease renewals
The business rates revaluation taking effect on 1 April 2026 will significantly impact statutory compensation calculations in opposed lease renewals under the Landlord and Tenant Act 1954.
Overview of the Business Rates Revaluation
Business rates are calculated based on a property’s rateable value—an estimate of its annual open-market rental value as at a specified Antecedent Valuation Date (AVD). The Valuation Office Agency (VOA) conducts periodic revaluations to ensure these values reflect current market conditions and maintain fairness in the rating system.
The forthcoming revaluation, effective from 1 April 2026, is based on rental values as at the 1 April 2024 AVD. This follows the 2023 revaluation (based on 1 April 2021 AVD) and marks a shift to three-year revaluation cycles, designed to respond more swiftly to economic fluctuations.
Draft rateable values have been published by the VOA at https://www.tax.service.gov.uk/business-rates-find/search, allowing property owners and occupiers to review and challenge their assessments through the Check, Challenge, Appeal process ahead of the revaluation taking effect.
Key Changes from April 2026
The 2026 revaluation introduces several significant changes:
Multiple multipliers: From April 2026, lower multipliers will apply to retail, hospitality, and leisure properties with rateable values below £51,000, providing targeted support to these sectors amid ongoing economic pressures.
Transitional relief: Extended transitional relief schemes will mitigate sharp increases in liabilities for properties facing significant uplifts in rateable value.
Sector-specific impacts: According to Savills article of 7 November 2025, the revaluation will have varying effects across different property sectors:
Industrial and logistics properties: average increase of 21% in rateable values, reflecting robust demand driven by e-commerce growth
Office properties: more modest average rise of 6%
Retail shops: slight average decrease of 0.6%, with approximately three-quarters of city centre units anticipated to see reduced rates
These sector-wide trends mask considerable variation at individual property level. Actual changes will depend on specific location, property characteristics, and local market conditions, making individual assessment essential.
Statutory Compensation Under the Landlord and Tenant Act 1954
The Landlord and Tenant Act 1954 (the 1954 Act) grants security of tenure to qualifying business tenants, entitling them to renew their leases unless the landlord successfully opposes renewal on one of the grounds specified in section 30(1).
While statutory compensation is a default entitlement, parties should be aware that lease terms can seek to exclude or modify compensation provisions. Any such provisions should be carefully reviewed when assessing potential liabilities or entitlements.
Fault vs Non-Fault Grounds
Successful opposition on “fault” grounds—such as persistent rent arrears (ground (a)), breach of repair obligations (ground (b)), or other substantial breaches (ground (c))—incurs no compensation liability for the landlord (even if “non-fault” grounds are also cited).
However, where successful opposition relies solely on “non-fault” grounds, the tenant is entitled to statutory compensation upon vacating the premises. The three non-fault grounds are:
Ground (e): Alternative accommodation is available
Ground (f): Landlord intends to demolish or reconstruct the premises or carry out substantial works
Ground (g): Landlord intends to occupy the premises for their own business or residence
Calculation of Statutory Compensation
Under section 37 of the 1954 Act, statutory compensation is calculated as:
Standard rate: One times the rateable value of the premises
Enhanced rate: Two times the rateable value where the tenant (or predecessors in the same business) has been in occupation for 14 years or more
Crucially, the rateable value applied is that shown in the rating list on the date of service of either:
The landlord’s section 25 notice (terminating the tenancy), or
The landlord’s counter-notice to the tenant’s section 26 request (for renewal)
This timing mechanism determines whether the pre-revaluation or post-revaluation rateable value applies to the compensation calculation, even if the tenant’s actual vacation occurs after the revaluation date.
The Revaluation’s Impact on Compensation: A Critical Timing Issue
The Strategic Importance of Notice Timing
Given the anticipated increases in rateable values for many properties (particularly in the industrial, logistics, and office sectors), the timing of section 25 notices or section 26 counter-notices could significantly affect compensation quantum.
Scenario 1: Notice served before 1 April 2026
The current (pre-revaluation) rateable value applies, potentially resulting in substantially lower compensation even if the lease termination and vacation occur after the revaluation date.
Scenario 2: Notice served on or after 1 April 2026
The new, often higher, rateable values apply, escalating the landlord’s compensation liability.
Worked Example: Industrial Property
Consider a warehouse property currently with a rateable value of £100,000. The tenant has occupied for 16 years, triggering the enhanced compensation rate.
If section 25 notice served before 1 April 2026:
Compensation = 2 × £100,000 = £200,000
If section 25 notice served after 1 April 2026:
Assuming a 21% increase (average for industrial properties):
New rateable value = £121,000
Compensation = 2 × £121,000 = £242,000
Difference: £42,000 additional liability simply due to notice timing
For portfolios containing multiple industrial or logistics properties, the cumulative impact could run into millions of pounds.
Strategic Considerations for Landlords
Acting Before 1 April 2026
Landlords contemplating opposition on non-fault grounds should assess whether they can validly serve section 25 notices before 1 April 2026 to lock in current rateable values for compensation purposes.
Key constraints:
12-month maximum notice period: Section 25 notices must specify a termination date no less than six months and no more than 12 months from the date of service. This means landlords serving notices in March 2026 can specify termination dates only up to March 2027.
Genuine grounds required: Rushing to serve notices solely to minimise compensation could backfire severely if the stated opposition grounds are not genuinely made out. For ground (f) redevelopment cases, courts require evidence of a firm and settled intention, with reasonable prospects of implementation. Serving speculative notices risks costs orders and potential bad faith claims.
Evidential requirements: Ground (f) requires demonstrating firm intention backed by planning permissions, financing arrangements, and contractor engagement where appropriate. Ground (g) requires genuine intention to occupy (for at least five years in most cases).
Properties Where Early Action May Be Warranted
Landlords should prioritise early review for:
Industrial, logistics, and warehouse properties (facing potential 21% rateable value increases)
Office buildings in strong market locations (projected 6% increases)
Properties where redevelopment plans are already at advanced stages
Situations where the landlord genuinely requires the premises for their own occupation
Properties Where Delay May Be Acceptable
For retail properties in locations where rateable values are expected to decrease, serving notices post-revaluation may actually reduce compensation liability. Individual assessment is essential.
Strategic Considerations for Tenants
Potential Benefits from Post-Revaluation Notices
Tenants in sectors facing rateable value increases may benefit from higher compensation if landlords serve notices after 1 April 2026, provided the opposition succeeds entirely on non-fault grounds. However, this benefit is contingent on:
The landlord actually opposing renewal (tenants cannot force opposition)
The landlord succeeding in their opposition
The tenant actually having to vacate
Section 26 Requests: Timing Tactics
Tenants considering serving section 26 requests to initiate renewal proceedings should be aware that the date of the landlord’s counter-notice (if opposing) determines the rateable value for compensation purposes. In sectors expecting rateable value increases, there may be tactical advantage in delaying section 26 requests until after 1 April 2026, though this must be balanced against:
Security of tenure considerations
Business planning needs
Market rent implications
The risk that the landlord may serve a section 25 notice first
Retail Sector Tenants
Conversely, retail tenants in locations where rateable values are expected to decrease might prefer to trigger proceedings earlier to preserve compensation calculations based on higher current values, should the landlord oppose renewal.
Check, Challenge, Appeal Process
All property owners and occupiers should verify their draft rateable values promptly via the VOA’s online portal. Where assessments appear incorrect or disproportionate, the Check, Challenge, Appeal process offers three stages:
Check: Request the VOA review the evidence behind the valuation
Challenge: Formally dispute the valuation with supporting evidence
Appeal: Refer the matter to the Valuation Tribunal if the challenge is rejected
Early engagement with this process is advisable, as it may take several months to resolve disputes. Specialist rating surveyors can provide valuable assistance in preparing challenges and appeals.
Conclusion
The 1 April 2026 business rates revaluation presents both significant challenges and opportunities in the context of opposed lease renewals under the 1954 Act. The timing of section 25 notices and section 26 counter-notices will have material financial consequences, potentially running to tens or hundreds of thousands of pounds per property in sectors facing substantial rateable value increases.
Landlords contemplating opposition on non-fault grounds should act decisively but carefully, ensuring opposition grounds are genuinely made out while considering whether early notice service before the revaluation date might significantly reduce compensation liability. Tenants should similarly assess their strategic position, recognising that compensation entitlements may be enhanced or diminished depending on notice timing and sectoral trends.
Both parties should verify draft rateable values promptly and challenge inaccuracies through the appropriate process. Given the complexity of the interplay between rating law and the 1954 Act, early specialist legal and valuation advice is essential to navigate these changes effectively.
For bespoke advice on your specific circumstances, including strategic assessment of notice timing, compensation calculations, and rating appeals, please contact our commercial property team.
