Change in Circumstances – can it affect your non-domestic rates bill?

If you occupy commercial property in Scotland, there's a good chance you are paying the local authority non-domestic rates.

Non-domestic rates are based on the "rateable value" of a property. These values are assessed in years of revaluation, with the value typically being based on the sum a tenant would pay for the use of the property. The last valuation took place on 1 April 2022 (and took effect on 1 April 2023). The next valuation will take place on 1 April 2025 and will take effect on 1 April 2026.

A week is a long time in politics, and three years can see the occurrence of significant changes that affect the value of commercial property.

So, what happens if an event occurs after the valuation that reduces the hypothetical rent that a property might generate?

You don't have to wait until the next year of revaluation before seeking a reduction in your rates bill.

Under the Local Government (Scotland) Act 1975, ratepayers can appeal their valuation on the ground that there has been a material change in circumstances (a "MCC").

A material change of circumstances is a change that affects the value of the lands but excludes any change in rents or in the level of valuations generally or in the value of lands and heritages generally. If the rent achievable for your property reduces because the rent for the surrounding properties has reduced, that of itself will not be a MCC.

MCC is one of the most important and most controversial grounds for making alterations to the valuation roll. It is very wide in scope – any kind of change may suffice provided it affects rent. The general rule is that a ratepayer should look to show that their property would command a lower rental than the neighbouring properties comparable with them that are unaffected by the change in circumstances. It is essential that not only does a ratepayer establish a change of circumstances, but also that it has affected value.

Examples of successful appeals on the ground that an MCC had occurred include: the complete exhaustion of extractable coal reserves at a mine; a mill becoming redundant, unoccupied and valueless; and the construction of the Edinburgh trams.

Ratepayers have, however, been unsuccessful in arguing that the following constituted MCCs: mere falls in revenue or profitability; falling rent levels generally (a normal fluctuation in the economy); with regard to shootings, inevitable fluctuations in bag returns from year to year. Coronavirus has also been excluded by statute from constituting a MCC.

It is sometimes said that you know a MCC when you see it, but to succeed with a challenge to your property's rateable value you will need a considered and carefully presented case. Success is likely to involve a team of experts and advisors to assist you with specialist knowledge. There are also timescales and a process set out for progressing any appeal that should be followed.

A successful appeal, however, can bring a significant cost saving so is always worth considering.

If you have any questions or queries in respect of MCCs, or valuation for rating more generally, please contact our Real Estate Litigation Partner Matthew Farrell or our Solicitor Advocate David Ford.