A recent decision by the Lands Valuation Appeal Court could have significant implications for all occupiers, owners, landlords and tenants. Current business rates were calculated in 2008, before the extent of the downturn became apparent. As economic conditions got worse, high bills remained and retailers wanted them reduced. A recent court case has rejected the claim by a group of retailers that the impact of the recession could justify a cut in business rates.
All non-domestic properties in Scotland have a rateable value for local taxation purposes. The values are established every 5 years at revaluation. An appeal against a valuation may be made within 6 months of acquiring an interest in a property, or, where the Assessor alters the Valuation Roll (by making a new entry or changing the value) the appeal must be lodged within 6 months of the date of the valuation notice. Appeals may however be lodged at any time under s3(4) of the Local Government (Scotland) Act 1975 on the grounds of error or in the event of a material change of circumstances.
The case: Assessor for Glasgow v Schuh Limited and others
A group of retailers in Sauchiehall Street, Glasgow successfully appealed the entries in the 2005 Valuation Roll on the grounds of material change of circumstances. They argued that the rental values of the properties had fallen significantly during the currency of the 2005 Roll by reason of the economic recession, the effects of changing patterns of retail in Glasgow city centre and the impact of large out of town shopping centres. They successfully argued that these causes together constituted a material change of circumstance and that the effective date of the material change should be 1 April 2009. The Valuation Appeal Committee upheld the appeal and held that the valuations should be reduced by 30%.
The Assessor has now appealed this decision and the appeal has been upheld.
The Court of Session held that the Valuation Appeal Committee had misdirected itself on several points. Interestingly, it was held that the various factors which contributed to the reduction in rental values did not amount to material change for the purposes of an appeal. It was the Court's view that in the retail world change is constant. In competitive conditions retailers gain and lose market share - some shops or centres prosper while others fail. The emergence of new shops and centres are all part of the ebb and flow of a dynamic industry. The effect of these changes will be reflected when the subjects are assessed each revaluation (every 5 years). Where there is a fall in rental value in consequence of a fluctuation in the economy rather than an abnormal economic crisis, that fall cannot constitute a material change for the purposes of s 3(4).
So what has been held to be a material change of circumstances?
Whether a change is material will usually depend to some extent on the facts of the case. It has been recognised that certain events may be of such significance and impact as to constitute a material change of circumstances. For example:
The decision will go back to the Committee to be re-heard. The case raises important issues relating to the ability of rate payers to appeal the rateable value of their properties and the outcome will have repercussions not only in Glasgow but in other valuation areas throughout Scotland.