In these depressed economic times, business rates can be a significant source of difficulty for owners and occupiers of commercial premises, and they have been something of a newsworthy topic in recent months.  In September, the Lands Valuation Appeal Court (LVAC – an appeal court within the Court of Session that hears appeals in relation to ratings valuations) issued two decisions that, in effect, refused significant reductions in the rates currently payable by many businesses. Meanwhile, at the end of October, the Scottish Parliament approved new legislation that will provide for a reduction in the rates relief available to owners of unoccupied properties.

Reductions in rateable values refused

Business rates are based on rateable property values that are set every five years.  The most recent revaluation took effect in April 2010, when the 2010 valuation roll came into force.  In accordance with the relevant legislation, the values in the roll were assessed as at 1 April 2008, which is referred to as the tone date.  Ratepayers can appeal against the valuations in certain circumstances.  In the LVAC appeal Assessor for Fife v Mercat Kirkcaldy Limited [2012] CSIH 67, the court refused to allow reductions in the values of shops in the Mercat Centre, Kirkcaldy.

The ratepayers had appealed against the valuations on the basis that a material change of circumstances affecting the values of the shops had occurred after the tone date.  The material change of circumstances was a significant fall in retail rental values caused by the recession, which had been found to have occurred with effect from 1 September 2009 in a previous appeal by ratepayers in the Mercat Centre (Argos Distributors Limited v Assessor for Fife 2011 SC 272).  On that basis, the LVAC in the previous appeal allowed a reduction of 40% in the values in the 2005 valuation roll with effect from 1 September 2009.

The difficulty for the ratepayers in the latest appeal was that the material change of circumstances occurred in the period after the tone date but before the date on which the valuation roll came into force.  The legislation provides for a reduction in value where there is a material change of circumstances after the date on which the relevant entry in the roll is made.  The Valuation Appeal Committee for Fife decided that the legislation should be read as permitting a reduction in value where there is a material change of circumstances any time after the tone date, and that the reduction sought by the ratepayers should be allowed.  However, the Assessor appealed against that decision to the LVAC, who rejected the Committee’s approach.

The LVAC decided that the legislation only permits a reduction in value where there is a material change of circumstances after the date on which the entry in the roll is made.  The question to be determined was, what was that date?  The LVAC concluded that it was when the Assessor had to deliver copies of the new roll to the rating authority, which was in March 2010.  The material change of circumstances relied on by the ratepayers had occurred before then, so the reduction sought by them could not be allowed.

A similar decision was reached by the LVAC in an appeal by ratepayers in the Overgate Centre, Dundee, which was heard along with the Mercat appeal (Assessor for Tayside v Land Securities plc [2012] CSIH 68).  Ratepayers across Scotland were disappointed by the outcome of the appeals as it has prevented them from seeking reductions on the same basis.  Retailers have warned that the current levels of rates may lead to increased prices and possible shop closures.

Rates relief for unoccupied properties to be reduced

Owners of unoccupied properties will have been disappointed at the end of October by the Scottish Parliament’s approval of legislation that will provide for a reduction in the rates relief available to them.  The legislation will enable the Scottish Government to reduce the current discount of 50% for unoccupied properties to a minimum of 10 per cent.  It will also, however, enable the Government to provide a discount to new occupiers for a period of time after certain properties becomes occupied.  It is intended that a 50 per cent discount for a year will be available to new occupiers of properties that have been empty for more than a year.

The new legislation is intended to lead to a reduction in the number of empty properties in Scotland, particularly shops in town centres.  According to figures released by the Scottish Retail Consortium in November, 9.9 per cent of Scottish shops were vacant in October, a slight improvement on the 10.5 per cent recorded for the previous quarter.  It will be hoped that the new measures will lead to a continued improvement.  However, the legislation has been criticised by business leaders, who have warned that it will simply worsen the current financial pressures on Scottish businesses, particularly commercial property investors who have been unable to sell or rent unoccupied properties due to a lack of demand.  CBI Scotland has estimated that the proposed reduction in rates relief will cost businesses £18 million a year, and has described it as a “tax on distress”.

With retailers warning of the detrimental effect of current levels of rates, the new measures may well do little to reduce the number of empty properties.

The LVAC decision in Assessor for Fife v Mercat Kirkcaldy Limited, can be found here and the LVAC decision in Assessor for Tayside v Land Securities plc, can be found here.