Property People: CBRE director discusses rates system changes

The new rating appeal system, introduced at the same time as the 2017 Rating Revaluation, threatens to undermine the credibility and fairness of the rating system and may lead to ratepayers paying too much in rates year on year, says CBRE director Robin Ellis.

“The Government’s aim is two-fold, they are trying to cut the costs of operating the rating system and they want to bring certainty to local authority finances, especially now that councils have a stake in any revenues lost or gained in the appeals system.

“Dissuading ratepayers from challenging their rates liability is seen as way of potentially achieving both objectives, limiting loss on appeal and requiring fewer staff to administer fewer appeals with the aim of reducing staff employed by the VOA by around 30%.

“The background to this,” said Ellis, “is that the VO do not share the evidence upon which their valuation is based. Not surprisingly the ratepayer submits an appeal to check if their valuation is correct. Historically around 30% of appeals are successful leading to reduced liability.”

Whilst the VOA is able to discuss a valuation and provide some rental information to support it, they have become increasingly reluctant to concede reductions, even when reasonable to do so, said Ellis.

It seems their primary concern is “RV Loss” despite their statutory obligation being to maintain an accurate rating list.

In such cases the VOA’s valuer, and even the local management, are not trusted to make the decision based on their local knowledge and experience.

Instead, he said, they have had to submit “RV Loss” reports to remote senior colleagues for approval- in most cases they have no knowledge of the property being valued.

This bureaucracy has slowed down the settlement of cases, meaning many have to be referred the Valuation Tribunal Service who simply do not have the capacity to hear all the listed cases, leading to a backlog of cases.

Once the cases are resolved, either by settlement or Tribunal decision, the effect of the appeals have been back-dated as far back as 1st April 2010 which has compounded the problem for local Councils’ budgets.

It is a major task for the Valuation Office Agency (VOA) to complete a Revaluation of commercial property, he said, involving collecting and analysing a huge amount of rental, costings and, in the case of leisure properties, revenue information.

“Inevitably some of the information will be misleading or flawed,” said Ellis, “which is the nature of the property market, but the VOA in the end have to make subjective judgements about the correct levels of rental value – a rateable value (RV) is then applied to every commercial property.”

He said that whilst the system was “not perfect”, around 30% of appeals resulted in a change of rateable value, which highlights the importance of having an accessible and relatively simple appeal procedure.

“One of the main reasons for a large number of appeals is the lack of transparency,” he said. “In most cases the VOA provide the basic valuation breakdown but they do not publish the evidence or thought process upon which the valuation is based. Rather than take the obvious step of reducing appeals by increasing transparency, the Government have introduced a more complex three-tier appeal system known as ‘Check, Challenge, Appeal’ (CCA) to dissuade ratepayers.”

There are three distinct phases of the new system, said Ellis:

Check – The Ratepayer or Agent can request the factual information which has been relied upon by the VOA. A ‘Check’ can then be submitted to request any alterations. This process can take up to 12 months.

Challenge – Within 4 months of the ‘Check’ being completed a ‘Challenge’ can be made, setting out full reasons and evidence to support an alternative valuation. The VOA considers the challenge and should provide a written decision. Depending upon whether their decision is accepted the Appellant can move to the ‘Appeal’ stage.

Appeal – Within 4 months of the ‘Challenge’ decision or after 18 months if no decision is forthcoming, an ‘Appeal’ to the Valuation Tribunal can be submitted.

The whole appeal process is likely to take in the region of 3 years and there will be a series of procedural hurdles to cross to avoid an appeal being struck out.

Ellis said: “The onus of proving that a rating assessment is wrong has shifted very much towards the Ratepayer, notwithstanding that the VO holds a substantial amount of information which could be made available to avoid the need for an appeal.

“The new appeal system is far more complex to navigate and, undoubtedly, will achieve the Government’s aim of reducing the volume of appeals and thereby reducing the amount of revenue lost through the appeal system.
“However, in a taxation system based on the VOA’s judgement where, historically, 30% of appeals have been successful, it must be questioned whether the new system is fair and just.”