I have mentioned before that, from the outside, some litigation appears to be undertaken in hope more than in expectation, and I think this is true for the recent rating cases in respect of the Mercat Centre in Kirkcaldy and the Overgate Centre in Dundee. While the result is bad for tenants and landlords, the law remains clear, and perhaps it may be time to look at whether the law needs changed.
Under the law on rating, a revaluation which took effect on 1 April 2010 was based on a valuation date of 1 April 2008. Between 1 April 2008 and September 2009 we are told that, in the Mercat Centre, the level of rents on which the rateable value is based fell by 40% or so. The Overgate reduction was less but still substantial.
The taxpayers’ argument was that there had been a material change in circumstances between the valuation date and 1 April 2010, and therefore an adjustment to the rateable value should be made. The Valuation Committee agreed that this material change meant that the figure that was entered onto the Valuation Roll as at 1 April 2010 should be reduced, which would reduce the taxpayers’ liability proportionately. This decision was appealed by the rating authority. The appeal court was absolutely clear that this was not the sort of material change in circumstance that the legislation was intended to cover and for which an amendment to the rateable value could be made. The legislation is clear that the valuation figure set on 1 April 2010, on which the rates payable by the tenant were to be based, was to be the market value as at 1 April 2008, 2 years earlier.
The commercial effect of this is that tenants can pay more in rates than would be justified by actual market values because of the two-year time lag. The higher rating valuation can have the effect of driving down current market rents, which has a knock-on effect for capital values. The opposite would be true if rental values had risen in the 2 year period, but then tenants and investors would not be complaining about the benefit.
For good practical reasons, I can’t see how it would be possible to avoid some sort of gap between the valuation date and the effective date for the new valuation. Would it be feasible to shorten it by a year? Perhaps, but I don’t see the government putting a high priority on reducing tax on commercial property. Maybe we should be pushing for a change which might take account of a rising market instead.