Could Covid-19 affect business rates?

Stuart Hicks, Manchester Office, Director - Dunlop Heywood

By Stuart Hicks, Director

We are living in interesting times at the moment and every headline seems to relate to the Coronavirus.

Whilst the global economy will recover from the Covid-19 pandemic, disruption in certain business sectors is severe.

Here I offer some practical advice to those looking to mitigate the cost of business rates as a result of the current crisis.

You must carefully consider your grounds of appeal if you wish to appeal your rateable value as a result of this change in circumstances.

Under regulation 3(1) of the regulations, a Material Change in Circumstances (MCC) relevant for rating appeals is defined as a change in any of the matters mentioned in paragraph 2(7) of Schedule 6 to the Local Government Finance Act 1988. Relevant to the majority of ratepayers are:

  • Ground “a” – which relates to matters affecting the physical state or physical enjoyment of the property; and
  • Ground “d” – which relates to matters affecting the physical state of the locality in which the property is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there.

When thinking about Covid-19 it is essential to consider the following:

  1. Is the Covid-19 crisis affecting the physical state or physical enjoyment of the property concerned?
  2. Is the Covid-19 crisis a wider change that is physically manifest in the locality of the property which needs to be considered when assessing its rateable value?

Last year in Wigan Football Company Limited v Cox (VO) the issue was whether relegation amounts to a MCC providing grounds for a reduction in the stadium’s rateable value.

The facts were undisputed:

  • Wigan FC owned and occupied the DW Stadium.
  • At the valuation date Wigan FC was in the Premier League.
  • In 2013 and 2015 Wigan FC suffered successive relegations, first to the Championship and then to League One. This led to a dramatic loss of revenue.

Going back to Questions 1 and 2 above.

Question 1 – the Upper Tribunal held thatfootball is football” and differences between leagues do not change the fact that the stadium is occupied for purpose of playing football commercially. The intrinsic characteristics and quality of the property itself was unaffected by the change in league status.

So, the success (or otherwise) of a business itself is not relevant because that is not something to do with intrinsic qualities of the property itself. The rating system is based on broad categories, it is not intended to be a tax on profits.

Then later that year Merlin Entertainment Group Limited v Cox (VO) asked whether a decline in visitor numbers to Alton Towers amounted to a MCC providing grounds for a reduction in rateable value.

The undisputed facts were:

  • Merlin owned and occupied Alton Towers.
  • At the relevant date the “Smiler” ride was subject to an accident.
  • After the accident there were fewer visitors to Alton Towers and fewer cars in the locality transporting visitors to the attraction.

Here, the Upper Tribunal ruled that a “matter” relied upon pursuant ground “d” must refer to a physical characteristic of the locality and must be a matter which itself is physically manifest in the locality.

The answer to Question 2 – business performance may produce physical consequences (e.g. reduced visitors) but that does not bring the economic or intangible factor of the property within the ambit of para. 2(7)(d). “For a given property. The rateable value is the same whether the actual occupier runs a flourishing business or trades at a loss… Rates are not a tax on actual profits.”

So grounds of appeal must be specific:

  • Make the grounds of appeal specific to the provisions in reg. 2(7)
  • Be specific about the matter relied on and articulate why the change in rateable value proposed is by reason of the change in that matter.
  • Note the causal effect; your language must be clear.
  • Merlin has largely closed the door on economic circumstances qualifying as an MCC. Therefore, the ground must be physically observable at the property itself or in the locality. Then and only then can the economic factors be considered.

Appeals were successful for the “foot and mouth disease crisis” so they are possible but be very careful with your language. Good luck!