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Scottish court rules against retrospective business rate adjustments

Valuation assessors of commercial property in Scotland cannot set business rates that reflect changing economic conditions if those changes occur after the date at which the value of rates for the property is to be calculated, Scottish judges have ruled.07 Sep 2012

In separate rulings the Lands Valuation Appeal Court (LVAC) overturned decisions taken by two rate valuation bodies in Fife and Dundee. The Valuation Appeal Committee for Fife and the Dundee Valuation Appeal Committee had both determined that assessors should have to recalculate the "rateable values" of commercial property in the Mercat shopping centre in Kirkcaldy and the Overgate shopping centre in Dundee because of the effect that the economic recession has on retail rental values.

However, the LVAC said that the committees had not correctly applied Scots property law when arriving at their conclusions.

In the cases assessors conducted a revaluation of the commercial property in the shopping centre on 1 April 2010. The value of commercial property in Scotland has been assessed every five years since 1990. The value of property is assessed on the basis of select criteria, which includes an assessment of the rental levels at a set moment in time, known as the "tone date". Current commercial property values, stemming from 2010, have a tone date of 1 April 2008. Following revaluations, the value of commercial property is generally detailed in the 'valuation roll', a public document.

However, businesses had complained that being forced to pay rates on the basis of the tone date for the 2010 revaluation was unfair. They argued that because the economic recession hit in 2009, assessors should have adjusted the rateable value of the property they were leasing.

Under the Local Government (Scotland) Act 1975 assessors must change entries in the valuation roll if there has been "a material change of circumstances" to alter the valuation of property "while the valuation roll is in force". The alterations can only be effective "as from the date of the event by reason of which the alteration is made or as from the beginning of the year in which the alteration is made, whichever is the later."

LVAC ruled, though, that because the economic recession occurred after the 1 April 2008 tone date, assessors could not take the impact of the downturn into consideration when determining suitable business rates. This was because nothing in the Local Government (Scotland) Act 1975 allows assessors to consider material changes in circumstances that occur after the tone date, it said.

"It is inevitable that values will fluctuate between the tone date and the revaluation date; but it is essential to any revaluation that there should be one fixed date at which all valuations are assessed," the LVAC said in the ruling on the Fife case. "It would undermine the whole structure of the legislation if individual lands and heritages, or classes of lands and heritages, were to be valued as at some date later than the tone date simply because the values had fallen since then."

Property law expert Cassandra Auld of Pinsent Masons, the law firm behind, said that the decisions, whilst upholding the letter of the 1975 Act, will be considered by many in the industry as a failure to uphold a common sense approach.

"If the original decisions in these cases had been upheld the level of rates would have taken account of economic conditions and this could have given a much needed boost to retailers such as those involved here as well as other rates payers," Auld said. "Since we know that a significant number of claims for backdated rates relief could have followed in such circumstances and that this could have cost the government up to £600 million, the ruling will be a cause for relief in some quarters."