Rates - Revaluation Shock

March this year saw the issue of rates re-valuation notices for commercial premises, the first since 2010 from which new rateable values will have come into effect on 1 April 2017.  These are likely to have come as a shock to many business occupiers,   particularly those who operate licensed premises.

The theory is that rateable value is, or should be, equivalent to the amount of rent a property might reasonably be expected to achieve on the open market and for most properties that is based on floor area.

However licensed premises are treated differently with turnover being the main criterion.  One area of controversy is the fact that the Assessor may take into account not only actual turnover but hypothetical achievable turnover.

This leaves it open to an assessor taking a view that an occupier could be doing better than they are and making a decision without all the facts.    If, for example, an occupier in licensed premises fails to submit the statutory return giving actual turnover figures, then the Assessor has no choice but to make an informed guess and that is likely to have been based on rental figures provided by large pub groups which may not truly reflect the position for those premises.

While a lease is likely  to disclose a headline rent amount (which landlords would not be keen to reduce as that would impact on their property/portfolio  valuation) the landlord may, for example, have made a lease  more attractive  by agreeing to accept a reduced rent from the tenant which is reflected in a back letter which is a private arrangement between the landlord and tenant.  An arrangement the Assessor unless advised will have no knowledge of.

If an occupier believes the rateable value is wrong there is a right of appeal which must be exercised within 6 months (i.e by 30 September 2017). 

However appeals can only be made in very limited circumstances:-

1. Where there has been a manifest error in the rates bill;
2. Where there is a change of owner, tenant or occupier in the property; and/or
3. Where it can be proved that a material change has occurred which has an adverse effect on the value of the property.

Appeals under 1 and 2 being factual are easier to quantify but it is more difficult to appeal under 3. 

A “material change of circumstances” is defined in the legislation as “a change of circumstances affecting [ the property’s] value” however it would appear from recent judicial decisions in Scotland  that to meet that requirement the change must be something “significant “ or “exceptional” which has a direct effect on the property value.

As examples of events which met the material change threshold in the last re-valuation:-

• The economic recession of 2008
• The smoking ban
• The Edinburgh tram works or other severe disruption as a result of roadworks

If the matter cannot be resolved by negotiation with the Assessor it will be heard by an Independent Valuation Appeal Committee although complex appeals may be heard by the Lands Tribunal for Scotland and further appears can be made to the Lands Valuation Appeal Court.

During the appeal process an occupier must continue to pay their rates at the revalued level until the appeal is decided (or they may face recovery action).  If following an appeal a bill is reduced, the overpayment will be refunded.