by James Snaith
While the Local Government and Finance Act 1988 (“the Act”) makes some fundamental changes to the way in which rates are calculated and distributed, most of the underlying principles of law consolidated by the General Rate Act 1967 are preserved, although the Government has reserved very wide powers to alter the existing principles by regulations.
The key elements of the new system are as follows:
(1) The non-domestic business rate will no longer be fixed by individual local authorities, but instead the “rate poundage” (now called a “multiplier”) will initially (ie for 1990-91) be fixed by the Government. The multiplier will subsequently be linked to the retail price index.
(2) A revaluation is almost complete for determining the rates due from April 1 1990: there will be subsequent revaluations every five years.
(3) The product of the new rate will be pooled and then distributed to local authorities on a per capita basis. The population of each local authority is to be determined in accordance with rules contained in a report to be made by the Secretary of State and laid before the House of Commons. The Secretary of State’s determination of the population of each area in accordance with the rules will then be notified to each authority every year. The pooling arrangements will result in a transfer of value from areas of high rateable values and lower population to areas with large population but low rateable values. The Government intends, however, that the total revenue from rating will (subject to appropriate provisions being made for inflation) remain approximately the same.
(4) Special provisions apply to the City of London, which is to retain the power to raise a rate for its own purposes, and as a consequence hereditaments in the City will be subject to a reduced national multiplier.
(5) There will be transitional arrangements for the years 1990-1995 which are designed to phase in redistributive effects of the new system.
Rating lists
There are two types of list, local and central. The central list deals with property which runs across local authority boundaries and will not be discussed here.
Local lists are to be compiled every five years by the valuation officer appointed for each charging authority (usually a district council or London borough) by the Commissioners of Inland Revenue.
A similar requirement relating to the periodic compilation of lists contained in the General Rate Act 1967 was effectively suspended by successive governments.
The valuation officers must send a copy of the new list to the relevant charging authority as soon as practicable after its compilation and the local authority must give public notice of it. The Act implies that the valuation officer may alter the list before it is deemed to have been compiled, ie on April 1 in each revaluation year (see section 55(1)).
The Secretary of State may make regulations which deal with the alteration of lists once they have been compiled (section 55(2)), but these are still only in draft. The latest press release (September 18 1989) suggests that ratepayers (ie occupiers and owners of property), persons with any interest in property (head and intermediate lessees) and local authorities (but only in the cases of new properties or where a material change in circumstances has occurred) will be entitled to propose changes to the lists.
There will be an unfettered right to propose a change for the first six months of the new rating lists. Proposals not agreed by the valuation officer will become appeals to local Valuation and Community Charge Tribunals (VCCT). After the initial six months, proposals will only be considered within six months of:
(1) An alteration of the rating list by the valuation officer.
(2) A material change in circumstances.
(3) A change of occupier, where no previous appeal has been determined in respect of the hereditament.
(4) A decision of the Lands Tribunal or a local VCCT on another case which has a bearing on the valuation of the property.
VCCTs have taken over the jurisdiction of the old valuation courts, which was to give “such directions with respect to the manner in which the hereditament is to be treated in the valuation list as appear to them to be necessary to give effect to the contention of the appellant if and so far as that contention appears to the court to be well founded” (section 76(5) General Rate Act 1967). Members of the VCCT are appointed by the relevant county council, metropolitan district or London borough council. While the regulations relating to applications to the VCCT in respect of non-domestic rates have yet to be made, appeals against decisions in respect of community charge must be made within two months of the date on which the relevant registration officer notified the appellant of his decision, and the hearing may (if the parties agree) be dealt with by way of written representations.
Appeals on questions of law may be made to the High Court; the Act (para 11(1) Schedule 11) suggests that regulations will provide for appeals on questions of fact to lie in the Lands Tribunal in respect of decisions on proposals to alter the non-domestic rating list. It appears that an application for judicial review can still be made where the validity of the entire list is put in question.
Contents of the lists
The list must show:
(1) For each day in the financial year, every non-domestic hereditament situated in the relevant local authority area.
(2) Whether the hereditament is entirely non-domestic or whether it is a “composite hereditament” (ie partly domestic and partly non-domestic) and whether any part of the hereditament is exempt.
(3) The rateable value of the hereditament (or part of it, if part is domestic or exempt).
A non-domestic hereditament is one which is not domestic and a domestic hereditament is a property which is used for the purpose of living accommodation or ancillary purposes (section 66).
A recent press release indicates that holiday homes let for a certain number of weeks in the year will be treated as non-domestic hereditaments.
Valuation officers are given powers to require owners and occupiers to supply them with such information as the officer may require to carry out their functions. Failure to comply with such a request is an offence. Rights are also given to persons wishing to inspect the list to do so and to obtain certain information in respect of the list from the valuation officers.
Valuation
The formula is the same as that for non-domestic property under the old law, ie “the rateable value of a non-domestic hereditament shall be taken to be an amount equal to the rent at which it is estimated that the hereditament might reasonably be expected to be let from year to year if the tenant undertook to pay all usual tenant’s rates and taxes and to bear the cost of repairs and insurance and the other expenses (if any) necessary to maintain the hereditment in a state to command that rent” (Schedule 6 para 2(1)).
The rateable value of a composite hereditament is to be an amount equal to the rent which, on the assumption that the whole of the hereditament is let, would be reasonably attributable to the non-domestic use of the property. A similar provision deals with partially exempt hereditaments.
“Hereditament” is defined by reference to the General Rate Act 1967 but also includes a right to use land for advertising. The 1967 Act provided that “hereditament means property which is or may become liable to a rate being a unit of such property which is, or would be, shown as a separate item in the valuation list”. Save in exceptional circumstances two or more properties in the same curtilage or contiguous to one another and in the same occupation will be treated as a single hereditament, but properties which are not in the same curtilage or which are not contiguous will be treated as separate hereditaments even if they are in the same occupation (S Gilbert (VO) v Hickinbottom & Sons Ltd [6] 2 QB 40 (CA); 165 EG 440 (LT)).
The Secretary of State may make regulations requiring prescribed assumptions to be made for particular types of valuation or prescribed principles followed in all valuations. This will give him very wide control over the operation of the rating system.
The “tone of the list” principles introduced shortly before the 1967 Act are retained. Paragraph 4 of Schedule 6 to the Act states that where a rateable value is determined with a view to making an alteration to the list the day by reference to which the determination is to be made is the day on which the list came into force (unless the Secretary of State specifies otherwise). However, the following matters are to be taken as being as they are on the date of the proposal for alteration:
(1) The physical state/enjoyment of the hereditament.
(2) The mode/category of occupation thereof.
(3) The quantity of minerals etc extracted therefrom.
(4) The quantity of refuse/waste material brought onto and deposited therein.
(5) The use or occupation of other premises in the vicinity.
Exemptions
These are contained in Schedule 5 to the Act. The types of exempt property and the principles applied to such property follow the old law, subject to some minor amendments. The most notable provisions relate to agricultural property, places of religious worship, property used for the disabled, and sewers and property in enterprise zones.
Liability
An occupier pays an amount equal to the rateable value multiplied by the multiplier initially determined by the Secretary of State (it will be announced in the rate support grant report), and subsequently increased by reference to the retail price index.
Where the ratepayer is a charity occupying for charitable purposes only one-fifth of the rates otherwise due are payable. Owners of unoccupied hereditaments pay half the rate payable by an occupier (or one-tenth if the owner is a charity).
A charging authority has discretionary powers to grant additional relief to charities and similar organisations and to other ratepayers in cases of hardship (these are similar powers to those which local authorities had under the old law).
Pooling
The rate is collected by the relevant charging authority, who must determine the amount that they should have collected for each year, “if they had acted diligently” — presumably this means that some allowance can be made for bad debts. The Secretary of State then calculates the amount to be distributed to each charging authority which will be a proportion of the total estimated receipts determined in accordance with the population of the relevant charging authority. The amount to be distributed is paid to the charging authority during the course of the relevant year at such times as the Secretary of State may decide. The actual payment of sums by the local authority to the Secretary of State and the redistribution back to the charging authority is likely to be dealt with by compensatory transfers.
Collection and enforcement
Payment must be made within 14 days after the demand is served. A single demand may relate to more than one hereditament. The rate is payable in up to 10 instalments depending on the number of months left in the relevant financial year after the service of the notice.
If the ratepayer defaults, the local authority may serve a further notice requiring payments in seven days. The authority may then apply for a “liability order” in the magistrates court which allows the authority to distrain for arrears, apply for bankruptcy or imprisonment of individuals or petition for the winding-up of a company. The authority is also given a new power to pursue civil remedies against a defaulting ratepayer.
The ratepayer may sue the charging authority for a repayment if one is due and claim interest on the relevant sum.
Regulations may be made entitling the charging authority and the ratepayer to enter into agreement whereby the charging authority delays taking steps to enforce payment for a specified period on the basis of security afforded by a charge on the relevant hereditament.
Joint owners are jointly and severably liable.
Transitional provisions
These provisions apply during each financial year commencing April 1 1990 and ending before April 1 1995. They are contained in The Local Government and Housing Bill which received the Royal Assent on November 16. The provisions are intended to phase in the distributive effects of the new provisions by limiting both increases and decreases in the rates which are payable on hereditaments under the new system.
The transitional provisions do not apply if:
(1) The hereditament was created after March 31 1990.
(2) The hereditament is shown in the non-domestic rating list for April 1 1990 as having a rateable value of less than £500.
(3) The transitional provisions would have the effect of reducing the rates otherwise payable under the new system and the person deriving the benefit of the provisions (ie an occupier or owner) for a particular day in the transitional years does not:
either
(a) occupy all or part of the hereditament on March 31 1990; and
(b) occupy or own the hereditament for every day between March 31 1990 and the day for which the transitional relief is sought.
or
(a) own the hereditament on March 31 1990; and
(b) occupy the hereditament on March 31 1990 and occupy all or part of the hereditament on at least one day in the period April 1 1988 to March 30 1990 (or the date on which the property was last occupied by another person, if later); and
(c) own or occupy the hereditament every day between the day of occupation required by (b) and the day for which transitional relief is sought.
Thus owners of properties in areas where rateable values are likely to increase and which are likely to be unoccupied on March 31 1990 should ensure that they occupy part of their premises for at least one day before that date. Similarly, potential purchasers of hereditaments who are considering moving to larger premises situated in such areas should make up their minds soon, because they will only obtain the benefit of the transitional provisions if they complete before April 1 1990.
The transitional provisions operate as follows:
The rate which would be payable from April 1 1990 under the new system (this is the “notional rate”) and the base rate are determined.
For 1990-91 the base rate is:
(1) The rateable value of the hereditament as shown in the old list for February 15 1989 (or if no rateable value is shown for that day, as shown for the first day between February 15 1989 and April 1 1990) is multiplied by.
(2) The general rate poundage effective for March 31 1990 for the rating area for the hereditament.
(3) The product of 1 and 2 is then divided by the number of days in the financial year. Special rules apply if a proposal to alter the list is made between February 15 and April 1 1990.
The base rate for each of the transitional years 1991-95 will be increased by either 20% or 15% of the base rate for the preceding year after taking account of inflation. The base rate for the preceding year is multiplied by the “appropriate fraction”, which is found by dividing the figure in the retail prices index for the preceding September by the figure in the index for September in the year before that, and then multiplying the product by either 1.2 (if the hereditament is situated in Greater London and its rateable value on April 1 1990 is £15,000 or more or if it is situated outside Greater London and its rateable value is £10,000 or more) or 1.15 (if it is in Greater London and its rateable value is less than £15,000 or if it is outside Greater London and its rateable value is less than £10,000).
The Secretary of State may by order vary the appropriate fraction.
If the notional rate exceeds the base rate for the day concerned and for every transitional day prior to the day concerned or if the notional rate is less than the base rate for the day concerned and for every transitional day prior to the day concerned then the rate payable for that day is the base rate (or half the base rate for unoccupied properties and, in the case of charities, one-fifth of the base rate).
Thus as soon as the base rate goes above or below the rate payable under the new system the new rate is payable for the rest of the transitional period, even if the base rate subsequently reverts to being less or more than the notional rate.
A different formula applies to hereditaments in an area of a special authority (ie the City of London), which takes account of the reduced multiplier applied to such hereditaments.
The Local Government and Housing Act 1989 received Royal Assent on November 16 1989. Much of the secondary legislation under the 1989 Act had not been drafted at the time that this article was written and changes to some aspects of the law to be dealt with by regulations may well be made.
James Snaith is an assistant solicitor with S J Berwin & Co, of London WCI.
