The last two years have brought challenging times for ratepayers and there is little respite on the horizon. With the 2017 Revaluation looming, rateable values are likely to increase substantially throughout large swathes of the country. Together with changes to the appeal system and a raft of Valuation Office-friendly judicial decisions, ratepayers are understandably becoming more alive to the possibility of appeals and more aware of the options available to them.
In bare bones, ratepayers pay half of what the Valuation Office assess to be the market rental value for each commercial property they occupy, whether or not the ratepayer owns the freehold or the leasehold of that property.
The deemed date of assessment changes; the last rating list was based on 2008 rental values and the impending revaluation comes into effect on 1 April 2017, with rental values being assessed as at April 2015.
The 2008-2015 period was an especially volatile period for the property market. However, many cities were over the worst of the downturn and had started to accelerate by 2015 so are gearing up for sizeable increases in their rateable values. Certain areas of London are expected to increase by nearly 100%, which, even with transitional relief, will put a severe dent in the finances of every corporate occupier.
The Valuation Office has published on 30 September 2016 the new rateable values in draft and is currently inviting representations from ratepayers as to any factual or other substantial errors. Prudent ratepayers have already instructed their rating surveyors to pore over the figures and see whether there is any scope for challenge.
When the list goes live on 1 April 2017, ratepayers will be able to appeal their assessments formally, but a new system is coming into effect which will influence which battles ratepayers wish to pick.
“Check Challenge Appeal”
The Valuation Office and the Valuation Tribunal are encumbered by a large backlog of appeals and this is affecting how swiftly changes to the rating list can be effected. Whilst some of this was caused by strict deadlines for appealing the current (2010) rating list, there is a strong suggestion that too many appeals are being put in speculatively with little chance of success. The changes to the appeal process should prompt ratepayers to be more diligent in their appointment of trusted, well-respected advisors because the process will now be more paper-heavy and forensic from the outset.
The Valuation Office hopes that with the introduction of the “Check Challenge Appeal” process it will reduce the number of potentially frivolous claims and lead to more challenges being settled in the early stages, with fewer appeals being heard before the Valuation Tribunal.
The final details of “Check Challenge Appeal” are still under consultation [until 6 October 2016], but as it stands this process certainly places greater emphasis on the ratepayer to ensure that its appeal is well-founded. Ratepayers will need to ‘frontload’ more than they currently do for the appeal process, both in terms of assessing opportunities and accumulating evidence. Save for physical changes to the property or its locality, the ratepayer will only get one bite at the cherry for each rating list, hence the importance of being sure of the grounds for challenge.
Check: this is the chance for the parties to agree factual evidence regarding the property concerned and its entry in the rating list. The ratepayer will be responsible for the accurate presentation of information regarding the property and this will lead to the Valuation Office reassessing whether an amendment is merited. If the ratepayer presents false information then it may find itself subject to a fine.
Challenge: if Check leads to no amendment, then the ratepayer may provide more substantive information as to why the list should be altered. The ratepayer should expect to state the detailed grounds for the alteration and provide evidence in support, whether this be market data or legal or factual representations which support a change to the rateable value. There will then be a period for negotiation.
Appeal: the ratepayer retains the ability to appeal its assessment to the Valuation Tribunal if no agreement can be reached with the Valuation Office. It is likely that limited evidence can be brought in front of the Tribunal save for that disclosed during the Challenge phase, so there is a real need for comprehensive thought to have gone into the submissions made at an early stage of any appeal. A fee will also be payable to take the appeal to a hearing.
“Check Challenge Appeal” will undoubtedly put more of an onus on ratepayers, both in terms of time and money they spend on preparing its appeals and in compliance with time limits. It is proposed that if ratepayers fail to submit evidence by certain deadlines then their appeals will be terminated instantly, but how this will operate in practice is still open to speculation. This would seem to be unreasonable given that the Valuation Office is recommending that it has 12 months to deal with the Check phase and 18 months in which to deal with the Challenge, so the prospect of an early decision is questionable. The Valuation Office hopes to bring these times down once the system is up and running; it is conscious that any new system of this nature will no doubt hit snags along the way and with the current backlog showing no signs of abating, it is prudent for the Valuation Office to take such measures.
Whilst ratepayers and rating surveyors remain resolutely dubious as to the merits of “Check Challenge Appeal” there is certainly something to be said for a change of approach to the current appeal system. If a structured, online process can be run successfully then it will hopefully lead to the quicker resolution of appeals and the elimination of spurious challenges which clog up the system.
What else will the future bring?
The cases of Mazars and Newbigin have garnered much attention and have vexed the minds of many ratepayers, as well as increasing the workload of the Valuation Office.
The Valuation Office has issued guidance on how it will interpret Mazars. In short, if parts of a property are not sufficiently connected so you can go from one to another without passing onto the land of another (including common parts in a multi-let block), then those parts are likely to be held as separate properties for rating purposes and assessed accordingly. Mazars involved two floors in an office block but will have wider ramifications. Ratepayers are likely to see rateable values increased through the separation of what were combined properties. Large properties could lose their established ‘quantum’ discounts if broken up in such a way.
Newbigin is being heard by the Supreme Court on 7 November 2016, and ratepayers up and down the land are hoping for a reversal of the Court of Appeal decision. The case affects any property which is undergoing refurbishment or redevelopment. The statutory provisions state that a rateable property should be deemed to be in economic repair and the question before the Supreme Court is whether that applies to those properties which are subject to works of improvement or alteration rather than merely dilapidated or outdated, and how significant those works need to be in order to rebut the statutory assumption.
On another issue, the demands placed on the Valuation Office by the changes mentioned above appear not to have diluted their drive to weed out illegitimate mitigation schemes. Companies can seek to mitigate their rates liability if, for example, their properties are empty or used for charitable purposes. The Valuation Office and local authorities are becoming far more tenacious in their investigations as to whether the schemes fulfil the appropriate criteria for relief or whether they are being used in a way to evade lawful taxes. Ratepayers have been issued with voluminous questionnaires as to their use of their premises and have been pursued aggressively through the Magistrates Courts. Advice needs to be obtained before a ratepayer implements most forms of mitigation strategies.
On a final note, the government announced this year that by 2020 it expects local authorities to be able to set and collect the entirety of their business rates budgets. This means that certain types of business may be given more lenient assessments to encourage their settlement in certain areas of the country or, on the other hand, certain businesses may be more harshly assessed. The intention is for local authorities to have discretion as to how much they charge individual businesses or types of business. There has been a mixed reaction as to whether this will improve or exacerbate the divide between the more and less successful areas of the country. There is a large question mark as to how councils will view this increased power. Ratepayers can only hope that local authorities will issue detailed guidelines as to how they will implement these changes well in advance of the 2020 target date, if that is indeed met.