Commercial surveying news from the Beattie Partnership

Schools: Should You Consider Refurbishment or Rebuild?

A building project is going to be a significant business cost, and how it is subsequently valued for business rates will add to this. Your plans may be driven by a combination of functional and aesthetic considerations, but you also need to think of the long term implications for ongoing costs, depending on the decisions you make.

For all businesses, their new rateable value will be determined by the hypothetical annual rental value of their buildings, based on information as at 1 April 2015. For the education sector, however, the rateable value is typically determined by building costs.

In either case, what is being spent on the actual building works will factor into the rating analysis that determines the rateable value of your building. So can refurbishment save you money in rates if you choose it instead of a more extensive rebuild?

The answer is complicated. Firstly, the idea that you can take a break from business rates during refurbishment has been challenged by recent developments and the Valuation Office’s updated practice guidelines confirm this. Now a property undergoing refurbishment may not be considered below the threshold of “reasonable repair”, so might not be eligible for a rates reduction during the works.

Secondly, initial research that we have undertaken, has pointed to significant gaps between tender costs and final building costs. In a competitive climate, contractors are often keeping their tenders low in order to win work. But this can result in increased actual building costs mounting up during a project’s lifetime. What this means is that potential savings indicated by a tender, may actually be reduced, or wiped out, when the “hidden” costs of the actual work itself are taken into account.

The choice between refurbishment and rebuild is, therefore, far from clear-cut. There are obvious factors to take into consideration around the actual final purpose of the building, and the affordability of the project. But these need to be balanced out by a cautious appraisal of the likely building cost implications and the building’s future rateable value, and consequent business rates.

The Beattie Partnership are continuing the research in to the impact of build costs on business rates.  If you require further information, please use our contact us page and we'll get in touch.

Alternatively, please read our interview in Property Aspects Magazine, Schools: Should You Refurb or Rebuild?