Department Stores

Debenhams CVA could cost local authorities £8.5m in business rates

Colliers International has estimated that Debenhams CVA could affect up to 59 local authorities, who could lose out on £8.5m of the £17.3m rates bills the department store retailer should have been paying on properties.

As part of its CVA proposals, 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 9 May 2019. Such properties have been referred to as “materially underperforming” (Category 4) and in “smaller, weaker tertiary retail centres” (Category 5).

Particularly hard hit will be the local authority in Newcastle Upon Tyne for example, which will lose over £543,000 this year of the £1.169m it was expecting to receive, Guildford which will lose £446,070 from the £811,440 it was expecting and Hammersmith and Fulham (Westfield) which will lose over £715,000 of the £1.54m it should have received in the same period.

According to the real estate services firm, the terms of Debenhams’ CVA, backed “overwhelmingly” by its creditors on Thursday, will mean it will eventually close a third of its 166 UK stores to allow the chain to continue to trade.

John Webber, head of business rates at Colliers International said: “This news is yet another twist in the long and tortuous year of CVAs. 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.

“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.”

He added: “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. “

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