A rateable value based on a pre-recession tone date
has recently been allowed despite earlier rates appeal cases being
based on post-recession levels. Two decisions have been handed down
by the Inner House of the Court of Session (the highest civil court
outwith the Supreme Court) and are therefore not only binding on
Scotland, but “persuasive” under English law as well.
This may have a significant impact on rates paid.
The tone date chosen (1 April 2008) reflects a very
different economic market, and due to the global financial crisis
that has occurred since then, the values for most commercial
properties in Scotland are now actually lower than they were in
2008. By way of example, if the market value of a commercial
property as at 1 April 2008 was £100,000, and presently stands at
£50,000 due to the downturn in the market, the building occupier
may still be charged the commercial rates calculated on the
£100,000 valuation. This will squeeze profit margins for
commercial building owners or occupiers in an already difficult
economic climate.
Mechanics of the Valuation Roll and Tone
Dates
The Valuation Roll is used by local authorities to
calculate market values for non-domestic property and their
rateable values, and it is derived from the net annual value,
established every five years at a revaluation, the most recent
being on 1 April 2010.
A “tone date” is used for the
revaluation. The “tone of the roll” is a measurement
provision which ensures that the revaluation rate and the
valuations made during the currency of the Roll share a common
base. During the currency of the Roll, the valuations should
not exceed the value ascribed in the tone date. The tone date
is therefore crucial, as it sets a ceiling for rateable values for
the next five years. The tone date chosen for the 2010-2015 roll
was 1 April 2008.
The Cases
The two cases are (1) The Assessor for Tayside Valuation Joint Board v Land
Securities PLC and Others [2012] CSIH 68 and (2) The Assessor for Fife v Mercat Kirkcaldy Ltd and
Others [2012] CSIH 67. This Law-Now reports on the first of the
cases, the second one has a similar decision.
The point of contention in Tayside v Land Sec was the rate per
square metre applied in the Overgate Centre, Dundee. During the
previous Valuation Roll (2005-2010), the global financial downturn
was accepted as a material change in circumstances and new lettings
rates for 2009 - 2010 were negotiated at a lower value than those
negotiated between 2005 and 2008.
So when the tone date for 2010-2015 was set at 1
April 2008, this reflected pre-recession rates, whilst rates agreed
in the preceding calendar year had been negotiated at
post-recession rates. The difference in value is
considerable. Zone A rates were reduced from £1050 psm in
2005 to £700 psm in 2009. The value as at 1 April 2008 was
£875 psm. The Lord President, Lord Gill noted that the
successful appeals made during the previous roll had no bearing on
the Assessor’s ability to set the tone date for the current
roll.
The material change in circumstance (the downturn
in 2009) occurred before the 2010-2015 Roll came into force and, as
such, could not be regarded as a material change in circumstance
for the new Roll. The Lord President agreed with the
Assessors that in setting the tone date as at 1 April 2008, they
had performed their duty, and that the appeals against higher rates
during the previous roll had no bearing on setting the tone date
for the current Roll (Belhaven Brewery Group plc v Glasgow City
Ass, 2003 SC 395 applied). The Assessors’ appeal
was therefore allowed, and the tone date remains as at 1 April
2008.
Empty Property Relief
Meanwhile, the Local Government Finance (Unoccupied
Properties etc.) (Scotland) Bill is due to start Stage 2
consideration on 25 September 2012. This would seek to remove
the 50% reduction on rates applicable to empty properties, instead
introducing a three month 100% relief period, followed by 10%
relief thereafter. The passage of the bill through the
Scottish Parliament is by no means certain, as it faces opposition
from the Scottish Conservatives and the Scottish Parliament Finance
Committee, together with industry groups such as the Scottish
Property Federation, CBI Scotland and the Federation of Small
Businesses.
Crisis – what crisis?
With the 2010-2015 Roll starting in a recession, it
is hard to envisage how and where a material change in circumstance
could help ratepayers before 2015. If the proposed reforms to
empty property relief also gain approval then commercial ratepayers
are faced with a situation where rates are valued at a high level,
thus reducing their attractiveness to potential tenants and
sub-tenants, with no additional rate relief available if they are
unable to find tenants or sub-tenants.
Ironically, with a c230% increase in the number of
empty publicly-owned buildings in Scotland between 2009 and now,
the big losers could be Local Authorities – a double whammy
of paying 90% rates on empty buildings (instead of 50%) and where
the calculation is based on an increased rateable value.
Co-contributor Fraser Muego
Tel: 44 (0) 131 220 8997