Rating – Non-domestic rates – Alteration of rating list – Historic flooding – Appellant valuation officer appealing against decision of Valuation Tribunal for England that high risk of flooding in future constituting material change in circumstances – Whether risk of future flooding constituting material change of circumstances – Whether risk affecting physical state or physical enjoyment of hereditament – Whether risk affecting physical state of or physically manifest in locality – Paragraph 2(7) of schedule 6 to Local Government Finance Act 1988 – Appeal allowed
The tenant ratepayer occupied the Hessle Dock site on the banks of the Humber in Hull from which it operated an extensive car supermarket. The property comprised a 1950’s warehouse, refurbished in 2010, on a large site which could accommodate many hundreds of cars. The property was entered into the 2010 non-domestic rating list at a rateable value of £103,000 with an effective date of 1 July 2012.
The appellant valuation officer (VO) accepted that on 5 December 2013 the appeal property was extensively flooded, resulting in around 800 cars being written off at a loss to the ratepayer of around £2 million. Having been placed within a flood risk zone 3 area (the most prone to flooding) by the Environment Agency, the property could no longer be insured against flooding. A 25% rent reduction was agreed with the landlord.
On 30 March 2015, the ratepayer’s agent made a proposal to reduce the rateable value of the appeal property with effect from 6 December 2013 because: “the site was extensively flooded in December 2013, insurance is an issue and the rent was reduced as a result of the flood threat …“. The proposal was initially accepted as valid by the Valuation Office Agency (VOA). However, before the Valuation Tribunal for England (VTE) the VOA raised validity as a preliminary issue, submitting that at the material day of 30 March 2015 (being the date of the proposal) there was no flood and no material change of circumstances, and as such the proposal was invalid.
The VTE determined as a preliminary issue that, although at the material day there was no actual flood, there was still the high risk of a flood in existence and that constituted a material change in circumstances. The appellant appealed arguing that the risk of future flooding was not a valid material change in circumstances. The appeal was decided on written representations.
Held: The appeal was allowed.
(1) (1) The valuation officer was responsible for compiling and thereafter maintaining rating lists for each billing authority area. This appeal concerned the 2010 rating list which was effective from 1 April 2010 to 31 March 2017. Each rating list had to contain those “hereditaments” (or properties) qualifying for non-domestic rating, and for the 2010 rating list the valuation officer ascribed a rateable value to each hereditament, based its rental value on certain assumptions at the antecedent valuation date. The VO’s determination of rateable value was open to challenge. Regulation 4 of the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 defined the circumstances in which an interested person might make a proposal to alter the rating list. Such a proposal was limited to the grounds set out in regulation 4(1) which included that “(b) the rateable value shown in the list for a hereditament is inaccurate by reason of a material change of circumstances which occurred on or after the day on which the list was compiled”. A material change of circumstances was defined under regulation 3 as “a change in any of the matters mentioned in para 2(7) of Schedule 6 to the Local Government Finance Act 1988”. Those matters, which were assumed to be as they were on the material day, included: (a) under para 2(7)(a), matters affecting the physical state or physical enjoyment of the hereditament, (b) under para 2(7)(d), matters affecting the physical state of the locality in which the hereditament was situated or which, though not affecting the physical state of the locality, were nonetheless physically manifest there. Paragraphs 7(a) and 7(d) were mutually exclusive. The “locality” referred to in (d) was an area external to the hereditament, and did not include it.
(2) The VTE relied on several matters. Those that concerned the hereditament itself and so might fall within para 2(7)(a) were the rent reduction and the fact that the hereditament was uninsurable against flooding. Secondly, the allocation of the appeal property (and, one assumed, the locality) within flood zone 3, which might fall within para 2(7)(d). The rent reduction was not something which was physically manifest. Levels of rent were considered as part of the VO’s quinquennial revaluations, and changes in levels of rent, whether by a voluntarily agreed reduction, a new letting, rent review or lease renewal, did not give rise to a material change in circumstances. Neither was an insurer’s commercial decision to decline insurance cover for flooding. It might be different if for instance insurance requirements dictated that the appeal property was required to be sandbagged in a way which restricted access, but that was not the case. Accordingly, as far as the requirements of para 2(7)(a) were concerned, at the material day there was no material change in circumstances on which a valid proposal could be founded. Furthermore, there was no evidence that the effect of the allocation in flood zone 3 physically affected the state of the locality, nor was itself physically manifest at the material day. There had to be some physical effect which had to be observable on the ground. It followed that the VTE was wrong to determine that a heightened risk of flood constituted a material change in circumstance, and the appeal had to be allowed. Therefore, the proposal was invalid: Merlin Entertainments Group Ltd v Cox (VO) [2018] UKUT 0406 (LC) followed.
Eileen O’Grady, barrister
Click here to read a transcript of Re: Motor Depot Ltd, Hessle Dock Site, Hull
