Part 2: the use of rateable value for various statutory and other purposes
The Valuation Office Agency's (VOA) technical manual for the rating of business (non-domestic) property.
Certain Acts provide for VOs to supply formal certificates or written determinations of apportionments of assessments. VOs are also authorised to supply, either in writing or verbally, informal apportionments in certain other cases.
The circumstances when a VO may act in this capacity are listed below. In no other cases should apportionments of assessments be given (see paragraph 11.3). Any requests for apportionments outside the scope of these instructions should be referred to the NSU Local Taxation (Rating) Technical Adviser.
2. Landlord and Tenant Act 1954 (as amended)
See RM Section 1: Part 3 - Determination of Rateable Value of Business Premises.
3. Income and Corporation Taxes Act 1970
See Capital Gains Tax Manual: Part 5 para 1.54.
4. Local Government Finance Act 1988 (as amended)
4.2 Unoccupied property
See RM Section 3: Part 3.
4.3 Composite hereditaments
See RM Section 3: Part 5.
5. The Rent Acts
Section 64 of the Housing Act 1980 abolished controlled tenancies and provided that from the commencement of the Act every controlled tenancy became a regulated tenancy. Where an element of the tenancy was subject to business use this was to be treated as being subject to Part II of the Landlord & Tenant Act 1954. See para 2 above.
There may be a limited number of requests for apportionments in circumstances where it is necessary to establish whether a tenancy was controlled prior to the 1980 Act. These cases are extremely rare and should be referred to the Technical Adviser for advice.
6. Land Drainage Act 1991
Since 1993 when s.40 of the Land Drainage Act 1991 came into effect drainage boards no longer have regard to the RV of a hereditament shown in the Valuation List for assessing drainage rates. The 1991 Act provides for rates to be levied by reference to the annual value of agricultural land and buildings. In these circumstances requests for apportionments from drainage boards are unlikely and if a drainage board requests an apportionment for a hereditament (other than a breakdown of assessment where it is in occupation), the reason for the request should be ascertained and the matter referred to the Technical Adviser, who will give instructions including details of any charge to be made.
7. Doctors’ rent and rates scheme
7.1 Apportionment of rateable value
7.1.1 Requests for Apportionments of Rateable Value made by the Primary Care Organisation (PCO), normally a Primary Care Trust (PCT) are rare, as GPs do not often share buildings with other private sector users in circumstances where only one assessment in the Rating List applies. The one exception is where GPs are located in a Health Centre or similar building shared with other health occupiers and some accommodation is non exclusive. This is likely to be a growing trend.
7.1.2 Apportionments of RV are required to be made on PREM 3 on the basis on which the assessments are made ie according to the make-up of the valuation. In this respect PCOs may require more than one apportionment and the DV should comply with the request. It is important that where an apportionment of RV is provided to the PCO that the DV responsible notes (or ensures that the appropriate notes are made) the method and details of the apportionment on the rating valuation sheet or when valued as a bulk class, in the remarks column on RSA.
7.1.3 In circumstances where part of the premises is used regularly but not exclusively for practice purposes, it is vital that the value of these parts are shown separately and not regarded as being reflected in the values apportioned to the other parts specifically named. In any case where uncertainty exists as to the precise nature of the part of the premises, which the DV is being requested to apportion by the PCO, the position should be clarified before proceeding to make the apportionment.
7.1.4 If the property is assessed using the contractor’s test basis, advice should be sought from the Technical Adviser as to the ‘fair and reasonable’ method of apportionment to be adopted.
7.2 Valuation and lands tribunal hearings
Caseworkers should not under any circumstances refer to the apportionment of RV for the purpose of this scheme at VT or LT hearings nor request either Tribunal to consider the question.
7.3 Correcting NDR assessments.
If the DV is of the opinion that the RV for the hereditament the PCO are seeking to apportion is incorrect then the DV should advise the VO who will raise a VOR. The DV should explain to the doctor the reason for and effects of the necessary amendment before the VO alters the List and serves the notification of alteration. In any case where the assessment is to be altered, any apportionment should be of the proposed figure and the circumstances explained to the PCO.
8. Leasehold Reform Act 1967, Leasehold Reform, Housing and Urban Development Act 1993 and Commonhold & Leasehold Reform Act 2002
The Leasehold Reform Act 1967 and Leasehold Reform, Housing and Urban Development Act 1993 [as originally enacted] gave tenants of houses and flats held on long leases the right to acquire on fair terms the freehold and/or extended lease of the property. The leaseholder must hold a “long tenancy” at a “low rent”. The definition of “long tenancy” is essentially the same as that in s.2(4) of the Landlord and Tenant Act 1954 as amended by the Local Government and Housing Act 1989.
8.2 Houses – low rent qualification
8.2.1 The Leasehold Reform Act 1967 gave the tenant of a leasehold house the right to acquire the freehold or extended lease of the house and premises where the tenancy was a long tenancy and at a low rent and:-
a. if the tenancy was entered into before or on 1 April 1990 [or on, or after 1 April 1990 in respect of a contract made before that date and the house and premises had a rateable value at the commencement of the tenancy or else at any other time before 1 April 1990 - see s.114 Housing Act 1996] subject to subsections (5) and (6) of s.1 of the 1967 Act (see 8.1.3 below), the rateable value of the house and premises on the appropriate day was not more than £400 in Greater London or £200 elsewhere.
b. If the tenancy did not fall within the above paragraph (a), on the date the contract for the grant of the tenancy was made, or if there was no such contract, on the date the tenancy was entered into, a statutory formula was provided (see below) where R must not exceed £25,000:-
R = (P x I) ÷ (1 - (1 + I)) - T
In the formula:-
P is the Premium payable as a condition of the grant of the tenancy (and includes payment of money’s worth) or where no premium is paid, zero.
I is 0.06
T is the term, expressed in years, granted by the tenancy (disregarding any right to terminate the tenancy before the end of the term or extend the tenancy
8.2.2 It should be noted that the “appropriate day” in relation to any house or premises means 23 March 1965 or such later day as the house and premises first appeared in a Valuation List in force. Section 118(1) of the Housing Act 1974 inserted subsections (5) and (6) to Section 1 of the 1967 Act and substituted the sums of £400 in Greater London and £200 elsewhere as follows:-
a. where the appropriate day is on or after 1 April 1973 and the tenancy was created on or before 18 February 1966, to £1,500 RV in Greater London and £750 RV elsewhere;
b. where the appropriate day is on or after 1 April 1973 and the tenancy was created after 18 February 1966, to £1,000 RV in Greater London and £500 RV elsewhere;
c. where the appropriate day was before 1 April 1973 and the rateable value on that date was more than £400 in Greater London and £200 elsewhere, and the tenancy was created on or before 18 February 1966, to £1,500 RV in Greater London and £750 RV elsewhere as at 1 April 1973.
8.3 Flats – low rent qualification
8.3.1 The Leasehold Reform, Housing and Urban Development Act 1993 enabled a qualifying tenant of a flat to purchase an extended lease for a term of 90 years after the original term had ended at a peppercorn rent provided certain qualifying conditions were met by the property, the lease and the tenant. S. 8 of the 1993 Act defined whether a lease was at a low rent:-
A lease of a flat was at a low rent, if either no rent was payable under it in respect of the flat during the initial year of the lease or the aggregate amount of rent so payable during that year did not exceed the following:
a. where the lease was entered into before April 1 1963, two-thirds of the letting value of the flat (on the same terms) on the date of the commencement of the lease;
b. where the lease was:-
i) entered into either on or after April 1 1963, but before April 1 1990, (or on or after April 1 1990 in pursuance of a contract made before that date) and
ii) the flat had a rateable value at the date of commencement of the lease or else at any time before April 1 1990 two-thirds of the rateable value of the flat on the appropriate date; or
iii) in any other case, £1,000 if the flat is in Greater London or £250 if elsewhere.
8.3.2 The “appropriate date” means the date of the commencement of the lease or, if the flat did not have a rateable value on that date, the date on which it first had a rateable value other than nil.
8.4 Removal of “low rent” qualification – The Commonhold and Leasehold Reform Act 2002
Part II of the Commonhold and Leasehold Reform Act 2002 removes the “low rent” qualification and provides leaseholders with new rights and enhances the existing ones from 26 July 2002.
The Commonhold and Leasehold Reform Act 2002 (CLR Act 2002) amend not only the qualifying conditions but also the valuation.
Originally the tenant of a flat had to hold a long lease for an initial term exceeding 21 years at a “low rent” or for a particularly long term exceeding 35 years. The 2002 Act abolishes the ’low-rent test’ in its entirety for new lease claims, so that the only condition required to be a qualifying tenant is that the lease is a long lease. It introduces new rights for leaseholders to manage their own building (Chapter 1), simplifies the eligibility criteria for leaseholders to buy collectively the freehold of their building (Chapter 2), abolishes the residency condition and replaces it with the requirement that the lease must have been held for at least two years (Chapter 3).
The Leasehold Reform Act of 1967 allowed a qualifying tenant of a house to purchase the freehold of that house. Again the 2002 Act (Chapter 4) provides for the ‘low rent test’ to be abolished almost entirely (exceptions are certain holdings to which the Agricultural Holdings Act 1986 applies and tenancies let with other land). The residency condition is abolished and replaced by a requirement that the lease must have been held for at least two years, there are new rights for extended leases and if the tenant does not buy the freehold an entitlement to an assured tenancy under Part 1 Housing Act 1988 when the extended lease expires.
8.5 Determinations of rateable values - improvements
8.5.1 In circumstances where the “low rent“ provisions are still applicable, provisions exist (s.1(4A) 1967 Act see s.118 (3) of and the 8th Schedule to the Housing Act 1974 as amended by s.141 and Sch 21 Housing Act 1980) which allow the tenant to apply at any time for the rateable value to be reduced in respect of improvements made or contributed to by the tenant or any previous tenant.
8.5.2 The tenant must first serve a Notice on the Landlord requiring him to agree to the improvements to be disregarded and proposing a figure for the reduced rateable value. Failing agreement between the parties the County Court may determine the improvements to be disregarded and the Valuation Officer required to determine a reduced rateable value disregarding any improvements. The timescale for Notices under Sch 8 are mandatory and for that reason a tenant may only make a single application.
8.5.3 Paragraph 1 of Schedule 8 to HA 74, if a tenant makes or contributes to the cost of a relevant improvement to the demised property, the tenant can serve a notice on the landlord requiring the landlord’s agreement to a reduction in the property’s rateable value.
8.5.4 Paragraph 2 of Schedule 8, the amount of any reduction in rateable value can be agreed in writing between the landlord and the tenant. If there is a dispute between the landlord and the tenant as to, among other things, the works involved in the improvement, the tenant can apply, under paragraph 2, for the county court to determine the disputed matter.
8.5.5 Paragraph 3(1) of Schedule 8 indicates that the tenant can make an application for a certificate under paragraph 3(2) if it is agreed between the landlord and the tenant or determined by the county court that the improvement is one to which Schedule 8 applies and that the tenant made the improvement or contributed to its cost, and there is an agreement or determination as to the works involved in the improvement, but there is no agreement on whether there should be a reduction in the property’s rateable value or on the amount of any such reduction.
8.6 Certification - valuation officer’s certificate
8.6.1 VO’s must conduct references in person with impartiality and avoid any action which might reasonably be taken by any one of the parties as suggestive of bias. The provisions provide for a determination and certification by the VO. To obtain the VO’s determination the tenant must apply to the VO on a prescribed form attaching thereto schedules specifying the improvement(s) and the works involved which have been agreed between the landlord and tenant or determined by the County Court or, on appeal, by the Court of Appeal. On receipt of an application, the VO should immediately contact the relevant Technical Adviser for advice.
8.6.2 Where the tenant applies for a certificate, under paragraph 3(2) “the valuation officer shall certify” whether or not the improvement has affected the property’s rateable value, and if it has, “the amount by which the rateable value would have been less if the improvement had not been made”. Paragraph 3(1)(b) states that the question put to the valuation officer for certification “shall be determined in accordance with the certificate unless the landlord and the tenant otherwise agree in writing”.
8.6.3 Under paragraph 3 of Schedule 8, the valuation officer’s involvement is only necessary if the landlord and tenant cannot themselves agree on whether a reduction to the property’s rateable value should be made or on the amount of any such reduction. The valuation officer’s role is therefore akin to that of an arbitrator. Like an arbitrator, he becomes involved only where there is a dispute, and his role is to make a decision by issuing a certificate resolving the disputed matter.
8.6.4 After an arbitrator makes his decision, he is generally functus officio. In Dawes v Treasure & Son Ltd (2010) EWHC 3218 (TCC), Akenhead J stated that:
“The expression “functus officio” is not a term of art but in the context of arbitration it describes or implies the point at which an arbitrator has exhausted or concluded all that he or she had jurisdiction to deal with” (para 27). The Valuation Officer is in no different a position and once the decision has been made the VO is functus officio, he cannot remake his decision simply because, for example, further representations on the subject of the dispute are put to him.
8.6.5 The VO’s role is prescribed by paragraph 3(1)(b) of Schedule 8, which states that when a question concerning a reduction in rateable value is put to him, “that question shall be determined in accordance with the certificate unless the landlord and the tenant otherwise agree in writing”. This provision is clear. Unless the parties otherwise agree, the VO’s certificate determines the question of any reduction in rateable value. After the VO has issued his certificate, the VO has “exhausted or concluded all that he…had jurisdiction to deal with”. The VO has no power to review his certificate if further representations are made to him by the landlord or tenant, he has no power to recall his certificate, and he has no power to issue a fresh certificate of his own motion. Such actions would not be consistent with the interests of good administration or with the language of paragraph 3(1)(b) of Schedule 8, which has the air of finality in stating that the question put to the VO “shall be determined” in accordance with his certificate.
8.6.6 Accordingly, it is considered that in making his determination the VO must exercise considerable care including full consideration of the parties’ representations but once having issued his certificate, the VO is functus officio.
8.6.7 It should be noted that the reduction does not affect the rateable value but is purely a notional reduction.
8.7 Remedy available to an aggrieved party
8.7.1 There is no statutory right of appeal against the VO’s certificate, and so the only remedy available to an aggrieved party against a certificate is Judicial Review. This would involve issuing a judicial review claim against the VO in the Administrative Court. See R-v-Valuation Officer for Westminster and District ex parte Rendell (1986) EGLR 163.
8.7.2 In practical terms the Administrative Court are unlikely to quash the certification unless the VO has applied the law incorrectly or has not acted in a procedurally proper manner in arriving at his certification. The only other likely ground for any judicial review would be alleged irrationality, e.g. Wednesbury unreasonableness – Associated Provincial Picture Houses Ltd-v-Wednesbury Corporation (1948) 1 KB 223..
8.7.3 Potential human rights challenges
Any human rights challenge to the VO’s certification would have to be made in Judicial Review proceedings, in reliance on the European Convention on Human Rights (“ECHR”), as incorporated into domestic law by the Human Rights Act 1998. However, it is considered unlikely that the VO’s certification could be successfully challenged on human rights grounds.
8.7.4 LRA 1967 section 9(1)(A)
There was nothing in the LRA 1967 as originally enacted to exclude the assumption that open market included all potential purchasers, including the tenant himself – see Custins-v- Hearts of Oak Benefit Society LT (1969) 209 EG 239. Parliament immediately reversed this decision by s.82 of the Housing Act 1969 and s.9(1) LRA 1967 having added after “if sold in the open market by a willing seller” the words “with the tenant and members of his family….not buying or seeking to buy”. However, it should be noted that there is considerable benefit to the landlord under the provisions set out in s.9(1)(A).LRA 1967 for higher value houses in relation to the purchase price, where the rateable value certified is above £1,000 rateable value in London and £500 rateable value elsewhere. S.9(1)(A) introduced a different formula for assessing the price payable for the freehold by tenants of higher value houses. S.9(1)(A) is in these terms:-
The price payable for a (higher value) house …shall be the amount which…the house…, if sold in the open market by a willing seller, might realise on the following assumptions:
on the assumption that the vendor was selling an estate in fee simple, subject to the tenancy, but on the assumption that this part of the Act conferred no right to acquire the freehold…
Thus, the difference between the two provisions is that s.9(1)(A) LRA 1967, unlike s.9(1) does not require the assumption that the actual tenant is excluded from the market and gives rise to hope/marriage value.
9. Blight provisions
9.1 This paragraph should be read in conjunction with the DVS Land Compensation Manual - Section 15 - Practice Note 15/2:Planning Blight.
9.2 Under the Blight Provisions, section 2(3)(b)(i) Land Compensation Act 1973 provides that a qualifying hereditament is one where the annual value [in the broadest of terms the rateable value appearing in the Rating List – see section 171(1) Town & Country Planning Act 1990 for the full definition in this context) does not exceed the “prescribed amount”, which is defined in section 2(6) as that referred to in section 149(3)(a) Town & Country Planning Act 1990.
The amount currently (July 2007) prescribed for the purposes of section 149(3)(a) Town and Country Planning Act 1990 by The Town and Country Planning (Blight Provisions)(England) Order 2005 (SI 2005 No. 406) is £29,200.
9.3 For property exempt from rating or where part of a property is not rateable the “annual value” will be calculated by adding together the rateable value of the property that has been rated and an “appropriate value” provided by the valuation officer. (This aspect is expounded upon further in the DVS Practice Note referred to earlier.)
For property exempt from rating, this “appropriate value” will be equal to the rateable value that would have applied if the property were not exempt. Although the types of hereditament where this will apply are limited (with places of public religious worship perhaps being the most common), the VO is required to adopt the normal non-domestic rating principles to arrive at “appropriate value”.
The value attributable in respect of an exempt hereditament within an enterprise zone (EZ) should be approached on the assumption that the EZ was not designated at the antecedent valuation date. Any effect of exemption from payment of rates on rental values should be disregarded.
9.4 Experience has shown that most requests will come from potential claimants, rather than from acquiring authorities or other official bodies. Accordingly, the usual Customer Contact Record (CCR) procedures need to be followed (see Customer Service Manual - Part 5 - General Enquiries).
9.5 As it is improbable that there will be any current survey records for the property, an inspection to reference the premises should be arranged at the earliest opportunity with the occupier. Bearing in mind that the valuation may well need to be on the contractor’s test method and the appropriate local Building Surveyor will also need to make an inspection, it may prove more efficient and economical to combine the two. Accordingly, in addition to formally instructing the Building Surveyor in writing, an early informal contact should also be made with the Building Surveyor Service to smooth out local logistical details.
9.6 Once the valuation has been prepared, a report in letter format should be sent to the potential claimant. The following text, which can be adapted to suit particular circumstances, may be used as a model:
“For the purposes of Section 149(3), and in accordance with Section 171, of the Town and Country Planning Act 1990 I certify that the rateable value which would have been shown in the rating list for (address or identity of property) on (date of service) if it were a relevant non-domestic hereditament consisting entirely of non-domestic property, none of which was exempt from local non-domestic rating would have been £ xxxxx.
The relevant rating list in force on (date of service) was compiled on 1 April (2005 or 2000 etc, as appropriate) and adopts a statutory valuation date of 1 April (2003 or 1998 etc, as appropriate).”
9.7 It should be noted that there are no provisions for appeal against the value certified by the valuation officer.
10. Informal advice to water companies
VOs are required to refer any request for an apportionment of RV to the NSU prior to supplying any informal apportionment of an assessment to a water company. However, there are certain circumstances where apportionments should not be provided. These exceptions relate to assessments of the following properties:-
On-licenced hereditaments with public drinking bars where upon receipt of a request for an apportionment, the VO should inform the applicant company that the basis of valuation is such that the required information is not available;
Any hereditament where the VO considers that an apportionment would be unduly complicated or the information to provide an apportionment is no longer available,
In many instances Water Companies still base their charge schemes for domestic properties on 1973 Valuation List RV assessments. However, all new properties constructed after 1 April 2000 will be metered and water usage charged accordingly.
NSU will provide guidance on charging, (based upon the full economic cost of providing the apportionment), as the apportionment of rateable value is not information provided under Open Government.
10.3 Requests from gas and electricity utility companies
Requests for apportionments of rateable value received from gas or electricity utilities should be referred via the relevant Technical Advisor for advice.
11. Request for non-statutory apportionments of rating assessments Sky television public viewing agreements
Sky Television has a method of charging for public viewing agreements based on the rateable value in the Rating List. VOs may receive requests from ratepayers for apportionments of rating assessments between the areas used for viewing and the remainder of the hereditament. Requests are generally in respect of leisure class hereditaments valued on the contractors or profits basis where apportionments cause difficulty. Any request from a ratepayer for such an apportionment must be refused. In any event Sky Television have advised that their charges will be based on the actual RV in the List, and they will not accept an apportioned RV as a basis for their charge.
12. Information to ratepayers – general
There is no statutory requirement for VOs to provide apportioned assessments to ratepayers on demand. The exception is where there are statutory provisions as set out above ie S.44A certificates – see para 4.1 above.
12.2 Details of valuations
12.2.1 VOs are reminded that rating law does not prevent disclosure to the ratepayer of details of the valuation underlying the rateable value of their property. Accordingly information relating to the valuation supporting the List entry can be provided when asked for by a ratepayer. Failure to respond positively to such requests (before or after a proposal is made) is likely to attract justifiable criticism of the Agency.
12.2.2 Therefore whilst requests by ratepayers for apportionments must be declined, VOs may provide a breakdown of the assessment in the form that would be presented to a VT in evidence. However, in any case when a rateable value has been arrived at by reference to a percentage of gross receipts, as in other cases when the valuation cannot be shown on a ‘room by room’ basis, ratepayers should be advised that the information might not assist them in the way they may be expecting. No attempt should be made to apportion rateable values arrived at by any method, other than in the circumstances set out above. See Paragraph 1.1 above.
12.2.3 There is of course no right of appeal against the breakdown of an assessment, only against the entry in the rating list. Any requests for apportionments outside the scope of these instructions should be referred to the NSU Local Taxation (Rating) Technical Advisors