A couple of weeks’ ago, I spoke at the 25th RICS Rating Diploma Holders’ Section Conference in Loughborough on what is and what is not a material change of circumstance.
There has been a wave of tribunal cases recently that have sought to clarify what factors can be taken into account within a property’s rating valuation. And with each decision an unfairness peculiar to rating has increasingly been exposed.
First, some background.
Rating valuations can be described as dual valuations: economic circumstances assumed at the antecedent valuation date (AVD) and physical circumstances assumed at the material day. For most valuations in the current 2017 List Revaluation, this means assessing rental value as at April 2015 assuming physical circumstances as at April 2017.
There are only specific occasions when the prevailing situation as it exists after April 2017 can be taken into account in the valuation. These are known as material changes of circumstance. The circumstances are prescribed in legislation, set out in Sch.6 Para 7 of the LGFA 1988 as follows:
- matters affecting the physical state or physical enjoyment of the hereditament,
- the mode or category of occupation of the hereditament,
- the quantity of minerals or other substances in or extracted from the hereditament,
- (cc) the quantity of refuse or waste material which is brought onto and permanently deposited on the hereditament,
- 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, and
- the use or occupation of other premises situated in the locality of the hereditament
Some are fairly obvious; others less so. And it is disagreement over what can and cannot fall within the scope of these prescribed matters that has given rise to the recent litigation.
So, why the unfairness? It comes back to reality - can the reality of a situation (especially one which is agreed by all parties to have an effect on value) always be reflected in a property’s rateable value (RV) when it needs to be? The answer is not always.
When a football club is relegated, can the RV reduce to reflect this?
When a quarry produces fewer minerals, making part of the works redundant, can the RV reduce to reflect this?
When a leisure attraction’s attendance rates and turnover are affected by an accident, can the RV reduce to reflect this?
In all of the above cases, the answer is currently no.
Where these events cannot be classed as prescribed matters that fit the scope of the legislation, the valuer’s ability to reflect such events in the valuation is frustrated. They are instead classified as economic factors, fixed at the AVD, and only revaluations can unlock the handcuffs.
It is the inability to reflect the reality of a situation in a property’s valuation that can lead to claims of unfairness. This has been made worse by the recent postponement of the 2015 Revaluation to 2017 which has created a significant dislocation between the hypothetical and the real.
So, what’s the answer?
More frequent revaluations will help. The recent announcement that the 2017 List would only be in force for four years and that subsequent revaluations would last only three years will give valuers far greater opportunity to reflect the reality of the situation in a property’s valuation. Annual revaluations, if feasible, would almost entirely extinguish the problem.
In absence of ever more frequent revaluations, then surely the LFGA, which is now over 30 years old, is due a substantial refresh. It simply has not kept pace with the changes in the way properties are occupied and how their value is viewed by modern occupiers. For a property tax to be fit for purpose in the modern world, it must be able to handle ever increasing complexities in property occupation.