More than 60 UK serviced office providers have banded together to voice “urgent and deeply serious concern” over sudden changes to business rates that have left them liable for entire buildings.

In an open letter to chancellor Rachel Reeves, the operators warned that new liabilities they now face were an “existential threat” to their businesses and their tenants.

The letter responds to the Valuation Office Agency’s decision to reclassify flexible workspaces so they are treated as one large property for business rates purposes, instead of as multiple smaller units where occupiers were treated separately.. The change makes operators liable for the entire building, and means small business occupiers lose their eligibility to small business rates relief (SBRR).

Faced with huge increases to their liabilities, the operators, which house more than 27,000 business combined across serviced offices, business centres and co-working spaces, said they have no choice but to pass on the costs to their occupiers or risk closure themselves.

This could trigger a wave of closures, reduce workspace availability and jeopardise national growth, the letter warns, stating: “High streets will hollow out. Growth will stall. Investment is drying up”.

Faced with huge increases to their liabilities, operators warned they had no choice but to pass on the costs to their occupiers or risk closure themselves, according to the letter.

The letter called for urgent intervention from government, with one anonymous operator saying that “many centres are now on the brink”.

According to estimates from the Federation of Small Businesses, this could effectively strip up to 150,000 SMEs that occupy flex spaces nationwide of SBRR.

Jane Sartin, executive director of FlexSA, the industry body leading the challenge, said the change had been made quietly and without consultation, with the first reclassifications starting around six months ago and no guidance issued by the VOA. Sartin called it “an existential threat to a sector that underpins the UK’s SME economy”.

She said the move risks “lasting damage to one of the UK’s most dynamic and productive sectors”, claiming it misrepresents how these spaces operate and strips support “for the very businesses the government claims to champion”.

A spokesperson from the Valuation Office Agency said the change was a result of “developments in case law” which meant it had had to review the way serviced offices are assessed.

“As a result, many may now need to be treated as a single property rather than individual units, depending on their contractual arrangements. We understand this could have a financial impact on operators and we are engaging with industry representatives to discuss our approach. However, we are obliged to apply the law based on the facts in each individual case.”

Richard Johnson, managing director of UBC, a flex office provider with 15 sites, said the “sudden changes” had forced it to put planned investment into new a site on hold.

“Flexible workspace has been a proven catalyst for bringing people, jobs and energy back into places like this,” he added. “The uncertainty has stopped projects like ours in their tracks, and the confidence that’s helped regenerate towns and cities across the UK is rapidly fading.”