The Upper Tribunal (UT) has upheld the decision of the Valuation Tribunal for England (VTE) that the consequences flowing from relegation of a football club are not sufficient to amount to a material change of circumstances when assessing the level of business rates payable.

In Wigan Football Company Limited v. Wayne Cox [2019] UKUT 0389, three potential grounds for material change of circumstances were considered and ultimately rejected by the UT, notwithstanding that Wigan FC's broadcasting revenue and ticket sales had declined sharply as a result of relegation from the Premier League to the Championship in 2013 and then to League One in 2015.

This appears to be bad news for businesses more generally, particularly in the context where the UT acknowledged that relegation did indeed have a direct negative impact on ability to pay. We will look at some of the reasoning behind this decision to ask how this will impact businesses in other areas seeking to challenge rateable value (RV) on the basis of a material change of circumstances.

Background

Business rates are a tax based on the RV of a hereditament calculated by reference to the Antecedent Valuation Date (AVD). The Wigan case involved an appeal against the 2010 rating list which itself was based on an AVD of 1 April 2008. The life of the 2010 list was extended by two years more than normal with the next list taking effect on 1 April 2017. For further background on the 2017 revaluation see here.

Calls for more regular revaluations remain prevalent with the fortune of Wigan FC (the Club) being a key example of how the fortunes of a business can change dramatically in a five-year period. The question for consideration by the UT was whether such changes had made the 2010 list of rateable values inaccurate, such that it should be amended in order to comply with the Valuation Office Agency's (VOA's) statutory duty to maintain an accurate list.

RV for the stadium and other similar venues cannot be determined by reference to comparable properties as there is no market for such hereditaments in the same way as, for example, a supermarket store. Consequently, a formula specific to football stadiums has been agreed between ratepayers and the VOA (although the result of the application of that formula is, of course, not always agreed). This formula is designed to assess the ability of the Club to pay by looking at various factors, including the decapitalised cost of building an equivalent stadium and income generated.

The Club's appeal was based on the argument that RV (i.e. its ability to pay) was closely linked to league status. In particular, the Club's revenue decreased significantly in respect of broadcasting revenue and ticket sales following relegation, with match attendance and coverage both dropping off dramatically. In addition, the Club no longer received parachute payments from the Premier League which were used to assist with contractual payments.

Regulation 4(1)(b) of the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 (the 2009 Regulations) states that the rateable value of a hereditament may be altered where it can be shown that: "the rateable value shown in the list for a hereditament is inaccurate by reason of a material change of circumstances which occurred on or after the day on which the list was compiled".

A "material change in circumstances (MCC)" is defined by regulation 3(1) of the 2009 Regulations as a change in the following matters specified in paragraph 2(7) of Schedule 6 to the 1988 Act:

"(a) matters affecting the physical state or physical enjoyment of the hereditament,

(b) the mode or category of occupation of the hereditament,

(d) matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there…"

There is no quantitative test for whether or not something constitutes an MCC. Provided a change, even a minor change, falls within one of the categories above, it can be deemed to be an MCC and can reduce your RV.

The Club argued that, when it was in the Premier League, the primary purpose of occupation of the stadium was as a broadcasting studio in view of the level of broadcasting revenue generated in this context. Following relegation, far fewer games were broadcast and therefore it argued that the category of occupation had changed under 2(7)(b) so that the stadium was now used for the primary purpose of being an entertainment/sporting venue.

The UT rejected this line of argument on the basis that "football is football". Although broadcasting was much less frequent, attendance had reduced and fixtures were scheduled differently following relegation; ultimately the stadium was still used in the same way (i.e. for the spectator sport of playing scheduled football matches). On this basis, it could not be said that the mode or category of occupation had changed in any material way. In particular, the UT referenced the difference between premises being changed from a retail unit to a pub as being a true example of a material change under 2(7)(b).

Secondly, the Club argued that matters such as traffic volume in the area and the reduced number of attendees in the vicinity on match day amounted to matters physically manifest in the locality under 2(7)(d) above. The UT did not dispute the correlation between these matters and the relegation. However, it relied on the approach taken in Merlin Entertainments Group Limited v. Wayne Cox (Valuation Officer) [2018] UKUT 406 (LC). This case related to the decline experienced by Alton Towers following the tragic accident on one of its attractions, which inevitably led to a reduction in ticket sales etc. However, the UT in Merlin made it clear that a change in economic fortunes for any reason, including change in public attitudes (e.g. less enthusiastic supporters), does not result in a MCC under 2(7)(d).

Finally, the Club also sought to rely on 2(7)(a) (matters affecting the physical state or physical enjoyment of the hereditament). In 2013/14, the Club started to cover sections of seating in Championship matches because fewer spectators were expected, with further areas being covered when relegated to League One. In addition, one of the two ticket offices was closed down.

The UT ruled that the Club could not rely on this evidence as it had failed to include 2(7)(a) in its original proposal when filing a challenge with the VOA. This really emphasises the importance of frontloading any case and pleading all lines of argument at this early stage, in order to rely on them should it become necessary to advance an appeal.

Nevertheless, in this case the UT commented that even if 2(7)(a) were included within the proposal, the appeal would still fail. The UT noted that the seating changes etc. were caused by and directly related to the financial performance of the Club and not the physical characteristics of the hereditament necessary to make out an MCC appeal.

Overall, the UT concluded that, just because the list may now be inaccurate, it does not mean that there has been an MCC. Rather, the correct question to ask is whether the list is inaccurate because of an MCC set out in the 2009 Regulations. The list cannot be altered every time economic factors mean that ability to pay and therefore RV goes out of date as this would be both impracticable and undermine the stability and purpose of the list in the first place.

An MCC must relate to intrinsic features of the hereditament or physical changes in the locality, so as to retain an objective market-based list rather than a list that is altered to reflect matters that are personal to the occupiers (e.g. relegation, or an accident as per Merlin). Accordingly, the list can only be altered where it is inaccurate by reason of such a material change and it is that material change which must be identified if there is to be an alteration in the list.

Therefore, the door is still open for other business models to argue that changes in consumer behaviour (for example, the growth in online shopping and the increased prevalence of smaller on the high street grocery stores) amount to objective changes in the market across the board rather than personal circumstances. In other contexts, RV is determined by reference to a hypothetical tenant rather than ability to pay and, therefore, arguably a less black-and-white distinction would be reached in respect of the individual business performance of the ratepayer in question, as was the case with the Club.

For this reason, we will hopefully not get to a position where we must conclude, for example, that "shopping is shopping" and "offices are offices" irrespective of the undoubted extensive changes that have occurred in these markets since 2008.