Fundamental Changes to Ratepayer Rights and Obligations

In the final part of our post-Budget round-up we outline the changes to introduce ratepayer mandatory duties and reduction in CCA appeal rights.
1. Duty to Inform; (D2I)
The government will introduce:

  • a duty to notify the VOA of changes to the occupier and property characteristics that affect the assessment of the property for business rates. The VOA will share occupier details with billing authorities to support correct and timely business rates bills
  • mandatory provision of rent and lease information, as well as trade information used for valuation
  • this will take the form of a mandatory annual return, even on properties not undergoing Check or Challenge, with a responsibility for interim updates. Eventually, this D2I process will replace the Check stage.
  • in order for information relating to valuation to be more up-to-date in real-time, the government proposes that people using rateable property will need to update the VOA each time circumstances change (such as when their rent changes, they start or stop occupying a property, or they alter a property); and confirm with VOA each April that they have made any relevant notifications and their information remains up to date. Any interim information will need to be provided close to the event, usually within 30 days.

To inform the VOA in carrying out its valuation function, ratepayers will be required to provide:

  • information about the property
  • information about the tenancy and use of the property
  • trade and accounts information (where relevant to the valuation)
  • costs information (where relevant to the valuation)

Ratepayers will need to notify the VOA of changes to relevant information about the lease(s), licence(s) or other agreements concerning the use of the property. The nature of information required overall will be the same as what is requested in the VOA’s current process for collecting information (known as “Forms of Return”). The ratepayer will be able to identify the relevant information specific to their property by accessing the online service.
Ratepayers occupying certain specialised types of properties, such as petrol stations, will need to provide information about their trade and accounts (where it is relevant to their rateable value). This obligation factories. The type of information which may apply, for example, to utility networks, pubs and petrol filling stations. It will not apply to most ratepayers occupying shops, offices and industrial premises. Unlike the other parts of the duty, this one will not be triggered by a change in relevant information but will have to be provided annually for a 12-month period. Ratepayers will be able to provide this information when completing their annual confirmation.

  • An annual confirmation stage will require ratepayers to access the online service annually to confirm that they have provided the information which is required of them and in the course of doing so will be asked to confirm that the data held for their property remains correct. This will give ratepayers who have failed to notify the VOA of changes during the year an opportunity to correct their information.
  •  In business rates, a unit of property which merits its own assessment on a rating list is called a ‘hereditament’. The duty will apply to the ratepayer of a hereditament, irrespective of whether that hereditament has yet been entered on to a rating list. This is either the person in rateable occupation of the hereditament or the person entitled to possession if the property is unoccupied. This will ensure that a leaseholder who has vacated but still retains the lease will still be captured by the duty rather than the freeholder. The duty will apply to hereditaments which are not yet in a rating list so that there is no information gap when a hereditament joins a rating list for the first time.

Where an obligation has been triggered (for example where there has been a change to the property) then ratepayers will be required to log in to the online service to provide their information in a 30 calendar day window. The online service will guide registered users through steps to understand how they are engaged by the duty.
We envisage that where the VOA knows of an upcoming notifiable event, such as a rent review, then they will send prompts to ratepayers registered on the online service to remind them of the information they need to provide and notification timeframes.
For rental information, the requirement to provide information will be triggered when a formal agreement (or amended agreement) becomes legally binding. In the case of an informal agreement, it will be the date the rent (or any subsequent amended rent) is payable. Examples include:

  • signing a new lease
  • signing a formal tenancy agreement, including sub-lets
  • if an informal tenancy agreement, including sub-lets, the date rent is first paid
  • if details of the informal tenancy are changed with the signing of a formal agreement, this will again trigger the duty
  • signing a rent review memorandum
  • signing a lease renewal agreement
  • where there has been a change in rent, e.g. as a result of Company Voluntary Arrangement (CVA)
  • where there has been a change or addition to a tenancy agreement, e.g. side agreement, change of terms

For receipts information (for ratepayers for properties which are normally valued directly or indirectly having regard to turnover), information should reflect their business’ annual accounting period (financial year) and be supplied within 30 calendar days of 31 March.
For changes to occupation or property characteristics, the requirement to provide information will be triggered by events such as:

  • new occupation or the ending of an occupation
  • property is extended, or other physical alterations are completed.
  • when there has been a change in use of the property.

For the annual confirmation, ratepayers will need to confirm within 30 calendar days of 31 March each year that they have met their obligations under the duty during the previous year and that the details held by the VOA remain accurate and up to date. Where there have been no changes, this will simply require ratepayers to check the information and tick boxes.
In addition to the penalties set out at the end of this article, ratepayers will only be able to access Challenge (the system for challenging a rateable value) if they are up to date with their obligations under the duty (including annual confirmation).
2. CCA Appeal changes;
Between revaluations the determination of rateable values can only be changed to reflect “material changes of circumstances” including, for example, physical changes to the property or the locality. However, the government now say the scope of material change of circumstances should not be so wide as to capture changes in economic factors, market conditions or changes in the general level of rents as that would be akin to real-time revaluations, impracticable and undermine the role of the revaluation. Changes in such matters should not result in a change of rateable value between revaluation. Earlier this year the government introduced legislation to ensure that the impact on rental values of COVID-19 or interventions in response to the coronavirus pandemic should not result in changes to rateable values outside of a revaluation. That legislation will ensure that a divide between revaluation and material changes of circumstances is maintained in respect of coronavirus as a revenue preserving exercise.
Inevitably, there are and will be other events which occur between revaluations which by their nature concern the economic or market conditions or the general level of rents rather than, for example, property specific effects such as changes to the physical state of the property (such as internal demolitions) or the locality (such as roadworks).
Emboldened by their stance on the pandemic, the government will legislate to clarify that factors arising from legislation, changes in licencing regimes, or guidance concerning how a property should be used, are not in scope for MCC claims.
The government wishes to make sure that rateable values are based on the legislative landscape at the preceding AVD, by clarifying that changes to legislation do not constitute MCCs. To ensure the coherence and simplicity of the system, all legislation will be covered including changes to private or hybrid legislation and by-laws.
The government also wants to make sure that changes in licensing regimes should not give rise to an MCC. Licensing regimes are run by public bodies with powers under legislation to administer licenses and create, apply and enforce rules to govern the operation of certain industries and sectors. The government considers that, like legislation, licensing regimes in effect set the economic context for the occupation and use of particular properties. Therefore, changes to these regimes should not give rise to an MCC but rather should be considered at revaluations.
They also consider that advice or guidance issued by a public authority concerning how a property should be used is of a nature which means it should not give rise to an MCC. Advice or guidance from a public authority which concerns the enjoyment of a property is generally less common than legislation or licensing regimes which have the same effect. But the means by which public bodies implement their responsibilities is sometimes through advice or guidance and, like legislation or licensing regimes, sets the economic context for the use of the property. This will ensure that, for example, changes in health and safety guidance issued by HSE does not give rise to an MCC.
The government recognises that there are circumstances in which regulatory changes may have secondary consequences and that recourse to appeal should be available for these cases in respect of those physical changes. Ratepayers will still be able to make an MCC Challenge on the basis of the following matters even where they have been caused by a change in legislation, licensing or guidance:

  • a physical change to the property
  • a physical change in the locality
  • the property joining or leaving the categories ‘domestic’ or ‘exempt’
  • the property forming or no longer being a “hereditament” (the term used to describe a unit of property for business rates).

The VOA will still attempt to assess the rateable value on the basis of the landscape of legislation, licensing and advice/guidance that existed at the AVD, but changes in the matters set out above (even if caused by a regulatory or licence change since the AVD) will remain eligible grounds for an MCC. For example, a road closure indirectly caused by a by-law may still be in effect an MCC but the legislative instrument itself would be out of scope.
We expect these changes to take effect for the start of the 2023 lists.