Scotland’s inflexible appeals system for rates condemns businesses to a downward cycle
Colliers International warns that court decision and onerous revaluation methods mean errors of the past will be repeated
Commercial property specialist Colliers International is calling on the Scottish Government to adopt a more flexible system for mid-revaluation business rates appeals – significantly more onerous than those south of the border, as part of its emergency measures announced today, to avoid condemning sectors to a vicious cycle of failure due to progressively unfair taxation.
The company’s rating experts say the combination of high valuations in some sectors, due to harsh ‘hypothetical achievable turnover’ considerations to establish a hypothetical rental value, and an earlier court case that significantly limits the scope of ratepayers’ Material Change in Circumstance rights to appeal, mean that a growing number of businesses will be forced to close, because of the burden of rates during the current valuation period.
Louise Daly, a Glasgow-based senior surveyor in Colliers International’s Rating team, explained: “An earlier court decision means that Scottish businesses have far less chance of successfully appealing and reducing their rates should their circumstances change for the worse during a Revaluation. Therefore, it is practically impossible for Scottish businesses to successfully appeal their valuations beyond the brief six-month initial window. This means it has never been more important to exercise the right to appeal at this point, for the 2017 Revaluation. Licensed premises rates have been based upon hypothetical achievable turnovers as opposed to fair maintainable trade, as established south of the border and in RICS guidance.
“More detailed information should be sought in terms of profitability, as opposed to simply utilising the blunt and abstract turnover figures relating to rent, in order to establish the practice note and determine a rental value. A downturn during the revaluation cycle can leave many unable to pay, and make businesses unviable.”
In the case of Schuh Limited and others v Assessor for Glasgow, a group of Sauchiehall Street retailers tried to have their rates reduced to reflect the lower rental value of their shops following the recession. The Lands Valuation Appeal Court decision in this case resulted in fundamental alterations to the interpretation and scope of Material Change of Circumstance.
“Scotland’s valuations system is already more onerous than England’s. In respect of licensed premises valuations there is the use of ‘hypothetical achievable turnover’ in Scotland when setting rates, as opposed to ‘fair maintainable trade’ as the metric south of the border”, continued Daly. “Stuck with high rates for at least five years with no way for the system to react to marketplace changes, a disproportionate number of businesses in Scotland will be forced to close if there is even a slight downturn, while landlords will be left paying rates on empty properties and desperately trying to change their use to a less heavily taxed sector. It’s a vicious cycle.
“During the last valuation period, a number of retailers went out of business under the heavy burden of business rates set at the height of the economic cycle. The recession has made many locations far less profitable than before, but the latest revaluation is simply shifting the pain onto other sectors and is doomed to repeat the mistakes of the past by being far too inflexible.”
“The Scottish Government must urgently introduce measures to reflect market changes, which would allow businesses to appeal during the valuation cycle. Limiting Revaluation appeals to such a short initial period with limited other methods of subsequent recourse is unreasonable and devoid of an understanding of the economic and market realities facing Scotland’s businesses.”