Part 7: Material Change of Circumstances
Source: gov.uk (2025-02-17)

The Valuation Office Agency's (VOA) technical manual for the rating of business (non-domestic) property.

1. Statutory Provisions and Regulations

1.1 The right to make a proposal to alter the rating list is not unlimited and is restricted to the circumstances laid down in the legislation. Currently there are 15 grounds specified of which the right to make a proposal where there has been a material change of circumstance (MCC) is perhaps the most important.

1.2 1. A proposal to alter the rating list, normally requesting a reduction in assessment, on the grounds of a “ material change of circumstances” can only be made under regulation 4(1)(b) of the Non Domestic Rating (Alteration of Lists and Appeals)(England) Regulations 2009 SI 2268 (http://www.legislation.gov.uk/uksi/2009/2268/contents/made). The equivalent Welsh regulations, are the Non-Domestic Rating (Alteration of Lists and Appeals) (Wales) Regulations 2023 for 2023 and subsequent Lists or the Non-Domestic Rating (Alteration of Lists and Appeals)(Wales) Regulations 2005 SI 758 (W.63) (http://www.legislation.gov.uk/wsi/2005/758/contents/made) for the 2017 and earlier Lists.

This states that a proposal may be made if:

"The rateable value shown in the list for a hereditament is inaccurate by reason of a material change of circumstances which occurred on or after the day on which the list was compiled".

1.3 In England, the Non-Domestic Rating Act 2023 (‘NDR Act 2023’) amends the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 SI 2268 so as to restrict in England the circumstances in which a proposal can be made under Reg. 4(1)(b) for the 2023 and later lists. The Act adds the additional text ‘but this is subject to paragraph 2ZA of Schedule 6 to the Act’.

1.4 The new paragraph 2ZA contains provisions such that any change to the following matters:
- 2(7)(aa) matters affecting the physical enjoyment of the hereditament
- 2(7)(da) matters which, though not affecting the physical state of the locality in which the hereditament is situated, are nonetheless physically manifest there
- 2(7)(e) the use or occupation of other premises situated in the locality of the hereditament must be disregarded if that change is directly or indirectly attributable to:
i) legislation of any country ii) provision made under legislation of any country iii) advice and guidance by a public authority of any country iv) anything done by a person to comply with the above

So, a proposal reliant upon any changes covered by the provisions of para 2ZA would not be a lawful proposal.

In Wales, the Valuation for Rating (Prescribed Assumptions)(Wales) Regulations 2023 [SI 2023 No. 255 (W.34) (https://www.legislation.gov.uk/wsi/2023/255/regulation/2/made)] came into force 1st April 2023.

These go further than the counterpart regulations in England, in that they also cover the mode or category of occupation of the subject hereditament. They provide that any change to the following matters:
- Matters affecting the physical enjoyment of the hereditament
- The mode or category of occupation of the hereditament
- Matters which, though not affecting the physical state of the locality in which the hereditament is situated, are nonetheless physically manifest there
- The use or occupation of other premises situated in the locality of the hereditament
must be disregarded if that change is directly or indirectly attributable to:
- Legislation of any country
- Provisions made under legislation of any country
- Advice or guidance given by a public authority of any country
- Anything done by a person to comply with the above
1.5 A material change of circumstances in relation to a hereditament is defined by regulation 3 of 2009 SI 2268 as ‘a change in any of the matters mentioned in Para 2(7) of Schedule 6 LGFA 1988’.

1.6 It should be noted that the right to make a proposal is not because there has been a material change of circumstances as such, but that the rateable value shown in the list in inaccurate by reason of the MCC, which is a subtly different thing.

1.7 In 2017 regulations were introduced for England only regarding the procedure for challenging the assessments of properties for all rating lists compiled on or after 1 April 2017. The amended process is referred to as Check Challenge Appeal (CCA). The Non-Domestic Rating (Alteration of Lists and Appeals) (Wales) Regulations 2023 introduced CCA into Wales for the 2023 and subsequent lists.

1.8 For English rating lists compiled before 1 April 2017 and Welsh rating lists compiled before 1 April 2023, the previous procedures still apply including checking that a proposal is validly made.

1.9 Section A below outlines the position in England pre 1 April 2017 and in Wales pre 1 April 2023..

1.10 For the position in England for the 2017 rating lists onwards and in Wales for the 2023 rating lists onwards reference should be made to Section B below.

1.11 Section C then goes on to consider in detail the meaning of a material change of circumstances.

A. Pre 2017 Rating Lists in England and pre 2023 Rating Lists in Wales

2. Validity - Relevant Criteria

2.1 Broadly, for a proposal to be validly made on the grounds of a material change of circumstances it must:

a) have been made at any time before the day on which the next list is compiled (Regulation 5(1) of 2009 SI 2268)

b) include a statement of the nature of the change (Regulation 6(1)(e)(iii)), and

c) state the date on which the person making the proposal believes the change occurred (Regulation 6(1)(e)(iii)).

d) must relate to material changes on or after the compiled list date

2.2 Inevitably these provisions will give rise to questions as to whether proposals have been validly made and how to challenge them if they have not.

2.3 Proposals that fail to comply with the factual requirements of the above Regulations should be treated as invalid. Examples would include:

a) failure to specify the material change of circumstances;

b) failure to specify the date on which the change was believed to have taken place;

c) failure to link the event in question to at least one of the matters specified in schedule 6 para 2(7) to the LGFA 1988.

It should be noted that failure to correctly specify the exact date when the change took place does not necessarily render a proposal invalid. Regulation 6(1)(e)(ii) merely requires a statement of the date on which the maker of the proposal believes the change took place. In many cases a statement in this respect will be difficult to challenge.

2.4 The date should normally be the day, month and year but an indication of only the month and year is acceptable.

2.5 It may be difficult in some instances to determine the precise date on which a purported material change occurred. For example, where the material change is a building project, or road works in the locality, which has no effect on the property initially but gradually comes to do so. In such circumstances it is conceivable that there will be several successive material changes as the works progress and it should not be maintained that there is only one date which can be accepted, whether this is the day on which the works began or were completed.

2.6 More difficult questions of interpretation surround the phrase ‘material change of circumstances’. The scale of the alleged change is not the determining factor when considering a change in any of the matters mentioned in para 2(7) of Schedule 6 and even a minor change is ‘material’ if it satisfies this definition. A detailed consideration of what comprises a material change of circumstances is provided in paragraphs 7-11 below

3. Consideration of Validity on Receipt of a Proposal

3.1 General policy on the question of validity of proposals is dealt with in Rating Manual Section 6. The following paragraphs deal more specifically with proposals made on the grounds of material change of circumstances.

3.3 If there is a material deficiency, such as a failure to specify the material change or the date it took place, then an invalidity notice should be served. However, where it is considered that the deficiency lies in the purported material change itself the matter should be approached with some caution.

3.4 It is not generally a matter of validity where it is accepted that there is a material change of circumstances but the change has no effect on the value of the property. The proposal is valid but remains to be substantiated in valuation terms.

3.5 It could be argued that in the particular circumstances of a case the material change of circumstances is so remote in terms of its influence on the subject property that the maker of the proposal could not possibly believe that the change would have an effect on value. A challenge on these grounds will not be easily substantiated and Regulation 8(1) invalidity procedure should not normally be invoked unless there is good reason to believe that the proposal is vexatious or totally without foundation.

3.6 Failure to treat a proposal as invalid under Regulation 8(1) does not preclude the question of validity being raised at a later stage - e.g. on appeal to VT (Regulation 8(12)).

4. Scope of Proposal

4.1 Once it is accepted or established that a proposal has been validly made, no attempt should be made to restrict consideration of the assessment to the precise grounds of the proposal alone.

4.2 Legal advice indicates that where, for instance, a proposal is made for a reduction on account of the demolition of part of a hereditament, the VT and Lands Tribunal are not precluded from examining the whole of the assessment on the remainder, notwithstanding that this could not have been challenged otherwise. Similarly, when considering a proposal for a temporary reduction in assessment it is necessary to check that the existing list entry is correct. If the entry is, for example, insufficient then any allowance for the temporary disability must be deducted from the correct entry.

4.3 However, if a proposal is made on the grounds of a MCC that is agreed not to be value significant, the maker of the proposal cannot seek a reduction on other grounds such as regulation 4(1)(a) or (c) or in respect of other material changes of circumstances matters that were not mentioned in the proposal. [See para 90/91 of Merlin Entertainments Group Ltd v Cox (VO) [2019] UKUT 406 (LC) and para 25 of Wigan Football Company Ltd v Cox (VO) [2019] UKUT 0389 (LC).]

5. Material Day

5.1 The Non Domestic Rating (Material Day for List Alterations) Regulations 1992 SI 556 (http://www.legislation.gov.uk/uksi/1992/556/contents/made), as amended by the Non-Domestic (Material Day for List Alterations)(Amendment) (England) Regulation 2005 SI 658 (http://www.legislation.gov.uk/uksi/2005/658/regulation/2/made), the Non-Domestic Rating (Alteration of Lists and Appeals) (Wales) Regulations 2005 [WSI 2005 No 758]; and the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 [SI 2009 No 2268] makes no specific reference to ‘material change of circumstances’ so therefore regulation 3(7) will apply. That is, the material day for a proposal made on the grounds of an MCC will be the date of proposal, or if there is no proposal and the VO alters the list due to an MCC, then the material day will be the day on which the circumstances giving rise to the alteration occurred.

5.2 This can cause particular problems in the case of a temporary change in one of the ‘matters’ specified in para 2(7) of schedule 6 LGFA 1988 when a proposal has been served after that change is no longer present. In the case of a proposal that is served on the grounds of changes to the locality caused by road works that have ceased at the date of proposal, then no reduction can be given because at the material day no road works were in existence. Any proposal for a temporary MCC must therefore be served during the period when the change occurred.

6. Effective dates.

6.1 Regulation 14(2) the Non Domestic rating (Alteration of Lists and appeals)(England) Regulations 2009 SI 2268, (http://www.legislation.gov.uk/uksi/2009/2268/contents/made) or the equivalent in the NDR (Alteration of Lists and Appeals)(Wales) Regulations 2005 SI 758(W.63) (http://www.legislation.gov.uk/wsi/2005/758/contents/made) provides that the effective date of a list alteration will generally be the date the circumstances arose that required the list to be altered, often referred to as the ‘Day of Event’

Rating Manual Section 2: Part 4 (https://www.gov.uk/guidance/rating-manual-section-2-maintaining-the-rating-list/part-4-material-day) considers effective dates in greater depth.

B. 2017 Rating Lists onwards in England and 2023 Rating Lists onwards in Wales

7. Summary of the main changes following the introduction of CCA in England and Wales

7.1 The following section provides an overview of the main changes for the 2017 lists onwards in England and 2023 lists onwards for Wales in relation to making proposals on MCC grounds. For more full details of the various steps and process reference should be made to RM Section 6 which deals with all aspects of CCA.

7.2 For English 2017 rating lists onwards, new Regulations (SI 2017/155 and 2017/156) amending SI 2009/2268 and 2009/2269 were introduced changing the process for altering and appealing a rating list in England. Similar provisions were made for Welsh 2023 lists onwards by the Non-Domestic Rating (Alteration of Lists and Appeals) (Wales) Regulations 2023. The procedure is commonly known as Check, Challenge (proposal), Appeal.

7.3 A proposal (Challenge) cannot be submitted until the Check stage has been completed (Reg 4E in England or Reg 9 in Wales) or deemed completed under Reg 4F(3) in England or Reg 10(3) in Wales. However, the grounds for making proposals have not changed between rating lists although more detailed information is required when submitting a proposal under Challenge in order for it to be accepted as complete.

7.4 A proposal relating to internal MCCs (those relating to Schedule 6 para 2(7)(a-cc) matters) must be submitted within 4 months of the date of completion of a check relating to the proposal This time limit may be extended if a proposal is incomplete up to the end of the balance of the original 4 months for submission.

7.5 However, under Reg 6A(2) in England or 12(2) in Wales in relation to external MCCs (those relating to Schedule 6 para 2(7)(d-e) matters) the time limit for submission of a proposal is the later of 4 months from the date of completion of check or 16 months from the date of receipt of the confirmation of check (Reg 6A(2) in England or Reg 7 in Wales).

8.0 Timing of submission & MCCs

8.1 If a proposal for an MCC is submitted outside the above time limits then it is not lawful. Only one proposal can be made for each MCC affecting a property (Reg 6A(3) in England and Reg 12(3) in Wales). If a proposal for a material change of circumstances is not made within the relevant time limit, then a proposal cannot be made for that MCC (Reg 6A(5) in England and Reg 12(5) in Wales)

8.2 Where a proposal is made where the VO has reduced an RV for an MCC by a notice of list alteration at check, and the proposer disagrees, the proposer may alternatively make a proposal against the RV shown in the list because of the alteration (Reg 4(1)(d)) rather than as a direct MCC proposal.

8.3 A proposal may refer to more than one MCC only if the material day and effective date are the same for each change (Reg 6A (4) in England and Reg 12(4) in Wales). It follows that if a proposal mentions more than one ground/MCC for which different material days and/or effective dates are applicable then it is unlawful and should be returned to the proposer and no decision notice issued.

8.4 If a check has been submitted earlier on the property for the same MCC and the Proposer did not subsequently submit a proposal and is now out of time to do so, then no proposal can now be submitted in respect of that MCC following a new check. The proposal would be unlawful by virtue of Regulation 6A(5) of the Appeal Regulations.

9.0 Validity

9.1 One of the changes for 2017 lists onwards in England and 2023 lists onwards in Wales is that invalidity procedures no longer apply. If a proposal does not contain all the requisite information then it will be deemed incomplete and returned to the proposer. For further information on this see RM Section 6.

9.2 A proposal may be made incomplete up to the point a Decision notice is issued.

9.3 Where a proposal has been made on the grounds of an MCC for which, either it is not in existence at the material day (date of confirmation ie submission, of the check), or the change of circumstances mentioned is not a material change because it does not constitute matters mentioned in Schedule 6, LGFA 1988 e.g. because it is an economic factor, then the grounds of the proposal are unfounded.

9.4 In this event a response (Decision Notice) should be issued rejecting the grounds of proposal explaining that the event referred to was not in existence at the Material Day and consequently the grounds are ‘not made out’.

9.5 However, in order to ensure that the VO position is protected at any subsequent appeal hearing, depending on other evidence submitted, it will be necessary for the caseworker to have previously addressed all other issues raised during Challenge, valuation and any replies to evidence supplied by the Proposer.

10. Material Day

10.1 Note, there is no ‘material day’ for a Check. Check is the exchange and confirmation of information following receipt of which the VO may decide to alter the list, in which case the normal material day rules would apply.

10.2 However, the date of Check confirmation sets the material date for proposals on the grounds of a material change in circumstances under Reg 4(1)(b). For further information about the material day refer to Rating Manual Section 2 Part 4.

C. Material Change of Circumstances

11. The definition of Material Change of Circumstances

11.1 The definition of Material Changes of Circumstance (MCC) and the matters contained in Schedule 6 para 2(7) of the Local Government Finance Act 1988, and particularly para 2(7)(d) and (da), has caused considerable difficulty in interpretation. It was enacted to restrict the effect of the Addis decision in the House of Lords (Clement (VO) v Addis Ltd, [1988] RA 25; [1988] 1 WLR 301) which had allowed not just tangible factors in the locality but also intangible factors to be taken into account when considering a rating assessment.

The new definition was intended to restrict the factors that could be taken into account - essentially to the former. This is clear from the Secretary of State for the Environment’s statement in the House of Commons on 10 March 1988 that: -

"… changes will be taken into account only in so far as they relate to the physical state of the hereditament and its locality. Changes in economic factors will be taken into account in the 1990 and subsequent revaluations”.

House of Lords – Clement (VO) v Addis Ltd [1988] RA25; [1988] 1 WLR 301

11.2 For those wishing a full explanation of the historical background to the Addis case and subsequent legislative changes a careful reading of Merlin Entertainments Group Ltd v Cox (VO) [2019] UKUT 406 (LC) (‘Merlin’) is recommended and particularly paras 112 to 135.

11.3 However what is or is not physical – or physically manifest – has been subject to much argument in cases where proposals have variously been made on the basis of an MCC consequent on the effects of the destruction of the World Trade Center in New York, the London terrorist bomb attacks, the London Congestion Charge, the Foot and Mouth Disease Outbreak in 2001 or the smoking ban.

11.4 The VOA has taken legal advice on the meaning of aspects of the definition of MCCs on several occasions since 1990. Current advice, particularly on the question of what is physically manifest, is that it is necessary to adopt a purposive approach to the construction of Schedule 6 para 2(7) i.e. to look at its purpose and the context in which it was enacted.

12. Background

12.1 It might first be helpful to summarise the background. Whilst having an antecedent valuation date (AVD) for rating lists offers a number of advantages, it results in the complication that the legislation needs to set down what matters are taken at the antecedent date and what matters are taken at the date the list is compiled or later for changes to properties. The approach adopted is that everything is taken as it actually was at the AVD except those matters listed in Schedule 6 para 2(7). The latter are taken as they are at the date the list is compiled or at the material day, as is appropriate. The caseworker then has to judge what the rent would have been for the property at the AVD had the Schedule 6 para 2(7) matters been substituted for the actual circumstances at the AVD. Rating valuation is always a valuation at the AVD not the material day, but with the AVD physical matters replaced by those at the material day IF they fall within the Schedule’s list. So in the simplest example of a new property built on a vacant plot, the question is had the new property existed at the AVD, instead of the plot being vacant, what rent would it have achieved?

12.2 Matters to be taken as they were at the AVD will include:
- the purchasing power of money and inflationary trends
- the money supply in the economy as a whole. Changes in distribution of money between different regions and social classes will not be relevant
- propensity to spend within the economy as a whole. No account should be taken of changes in the propensity of individuals or organisations to spend, or in their spending preferences between different products, services, raw materials, land and buildings
- interest rates
- people’s attitudes and preferences
- the state of the market in which the hereditament is to be judged
12.3 The Schedule 6 para 2(7) matters can broadly be described as falling within the 2 established limbs of the Rebus principle (now more commonly referred to as the principle of reality): ‘physical’ matters and matters concerning mode or category of use . The intention was that economic matters such as level of interest rates, state of the economy, propensity to spend, together with attitude matters such as fashion, are taken as they were in the AVD setting. But a Schedule 6 para 2(7) matter is not to be disregarded on account of the fact that its cause is or might have been economic.

12.4 Prior to the NDR Act 2023 the Schedule 6 para 2(7) matters, the ‘relevant matters’ were:

a) matters affecting the physical state or physical enjoyment of the hereditament,

b) the mode or category of occupation of the hereditament,

c) the quantity of minerals or other substances in or extracted from the hereditament,

cc)the quantity of refuse or waste material which is brought onto and permanently deposited on the hereditament,

d) matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there, and

e) the use or occupation of other premises situated in the locality of the hereditament.

12.5 In looking at each of the Schedule 6 para 2(7) sub-paragraphs the purposive approach has to be borne in mind.

12.6 Since 2008 a number of cases have examined aspects of the Schedule 6 para 2(7) definition. The first is a Council Tax Court of Appeal case but does, whilst dealing with the related Council Tax legislation, comment on the rating legislation and the Addis case. The others are Lands or Upper Tribunal rating cases examining what is meant by the various matters in Sch.6 para 2(7) and particularly the meaning of ‘physically manifest’ in Sch.6 2(7)(d):
- Chilton Merryweather (LO) v. Hunt [2008] RA 357 (http://www.bailii.org/ew/cases/EWCA/Civ/2008/1025.html)
- Re The Appeal of Kendrick (VO) [2009] (http://www.landstribunal.gov.uk/Aspx/view.aspx?id=590) RA/59/2007
- Merlin Entertainments Group Ltd v Cox (VO) [2019] UKUT 406 (LC)
- Appeal of Moore (VO) [2018] - RA/5/2018
- Wigan Football Company Ltd v Cox (VO) [2019] UKUT 0389 (LC)
England – Post 2023 list rules

12.7 The NDR Act 2023 implemented several changes to the system of non-domestic rates. One of the changes has been the tightening of the scope of Material Change of Circumstances provisions in England such that legislation, licensing regimes and guidance from public bodies should not be grounds for a change in rateable value between revaluations.

12.8 The new Act has amended the former para 2(7) ‘Relevant matters’ by separating the provisions of the former paras (a) and (d).

12.9 ’Physical state’ and ‘physical enjoyment’ of the hereditament which previously both fell under para (a) are now two independent matters –

(a) matters affecting the physical state of the hereditament, and

(aa) matters affecting the physical enjoyment of the hereditament.

12.10 Similarly, the former para (d) ‘matters’ are now independent matters –

(d) matters affecting the physical state of the locality in which the hereditament is situated, and

(da) matters which, though not affecting the physical state of the locality in which the hereditament is situated, are nonetheless physically manifest there.

12.11 The Act also inserted a new paragraph 2ZA containing provisions such that any change to the following matters:
- 2(7)(aa) matters affecting the physical enjoyment of the hereditament
- 2(7)(da) matters which, though not affecting the physical state of the locality in which the hereditament is situated, are nonetheless physically manifest there
- 2(7)(e) the use or occupation of other premises situated in the locality of the hereditament
must be disregarded if that change is directly or indirectly attributable to:
- Legislation of any country
- Provision made under legislation of any country
- Advice and guidance by a public authority of any country
- Anything done by a person to comply by the above
This provision applies to any such change to a 2023 or later list.

Wales – Post 2023 list rules

12.12 In Wales, the Valuation for Rating (Prescribed Assumptions)(Wales) Regulations 2023 [SI 2023 No. 255 (W.34) (https://www.legislation.gov.uk/wsi/2023/255/regulation/2/made)] came into force 1st April 2023. These go further than the counterpart regulations in England in that they also cover the mode or category of occupation of the subject hereditament. They provide that any change to the following matters:
- Matters affecting the physical enjoyment of the hereditament
- The mode or category of occupation of the hereditament
- Matters which, though not affecting the physical state of the locality in which the hereditament is situated, are nonetheless physically manifest there
- The use or occupation of other premises situated in the locality of the hereditament
must be disregarded if that change is directly or indirectly attributable to:
- Legislation of any country
- Provisions made under legislation of any country
- Advice or guidance given by a public authority of any country
- Anything done by a person to comply with the above
13. The mentioned matters

13.1 The NDR Act 2023 amended the mentioned matters set out in para 2(7) of the Act to –

“(7) The matters are –

(a) matters affecting the physical state of the hereditament,

(aa) matters affecting the physical enjoyment of the hereditament,

(b) the mode or category of occupation of the hereditament,

(c) the quantity of minerals or other substances in or extracted from the hereditament,

[(cc) the quantity of refuse or waste material which is brought onto and permanently deposited on the hereditament,]

(d) matters affecting the physical state of the locality in which the hereditament is situated,

(da) matters which, though not affecting the physical state of the locality, are nonetheless physically manifest there, and

(e) the use or occupation of other premises situated in the locality of the hereditament.”

13.2 The factors in para. 2(7) fall into two parts. Sub-paragraphs (a) to (cc) deal with the hereditament. Sub-paragraphs (d) to (e) deal with the locality of the hereditament which does not include the hereditament. Furthermore, in the first part sub-paragraph (b) expresses the user limb of the reality (rebus sic stantibus) principle for the hereditament whereas sub-paragraphs (a), (aa), (c) and (cc) describe the physical limb as it applies to the hereditament.

13.3 It will be noted that paragraph 2(7) starts with the words ‘The matters are - ‘ and then sub paragraphs (a), (aa) and (d) also repeat the word by stating ‘matters affecting…’ a form of words that will be considered in more detail below. However, clearly in considering the meaning of the whole section as well as the two sub sections it is important to identify exactly what these ‘matters’ are.

Examining each of the sub-paragraphs of Schedule 6 para 2(7) in turn:

(a) matters affecting the physical state of the hereditament,

13.4 This is to do with the physical state of the hereditament itself or its use and relates to the first limb of the reality or rebus sic stantibus principle. It covers two aspects concerning the hereditament itself. The first, matters affecting the physical state, is straightforward. Changes to the physical state or nature of the hereditament at the material day should be assumed to have occurred by the AVD e.g. extensions and part demolitions, and would normally result in a new or revised valuation.

13.5 Changes caused by, and directly related to, the business performance of the occupier should however be disregarded. In Wigan the appellant sought to argue that the covering of areas of seating in the stands, and the closure of a ticket office fell within this sub section. This was rejected as they were directly related to the business performance of the occupier and therefore did not affect the intrinsic characteristics of the hereditament and could not be relied upon as a material change of circumstances. [See para 69 of the Wigan decision.]

13.6 It should also be noted that there is one aspect excluded from these provisions and that is to do with the actual state of repair of the hereditament. It must be assumed that immediately before the hypothetical letting began on the AVD, the hereditament was in a reasonable state of repair (save for any repairs which a reasonable landlord would consider uneconomic) whether or not that is in reality the case.

(aa) matters affecting the physical enjoyment of the hereditament

13.7 The second aspect is matters affecting the physical enjoyment of the hereditament. Not just ‘enjoyment’ but physical enjoyment. This includes the ability of the tenant to enjoy the premises by being physically present in them.

13.8 Particular care must be taken in the application of this second aspect. If an MCC is identified in relation to a particular hereditament, or class of hereditaments, this will not result in an alteration to the list unless the list is found to be inaccurate by reason of a change in matters affecting the physical enjoyment of the hereditament(s). Any alteration to the list must reflect the effect on rateable value of that change (the matter), rather than any broader impact of other things e.g. business decisions or economic changes, on the business’s profitability. Accordingly, VOs need to envisage what rent would have been paid for the hereditament at the AVD, assuming that legal changes or restrictions on use e.g. the smoking ban, were then in place affecting both the subject premises and other premises.

13.9 Prior to the NDR Act 2023, a statutory order or a legal prohibition preventing use was something that affected the physical enjoyment of those premises and would have been a change under this head.

13.10 An example was the introduction of the Firearms Act which made unlawful the use of hand guns and therefore made gun club buildings, which are sui generis and only useable as gun clubs, incapable of being lawfully physically occupied for their proper use. However, for the 2023 list any new legislation equivalent to Firearms Act impacting upon the physical enjoyment of a hereditament (a matter under 2(7)(aa)) would be disregarded in England under para 2ZA and in Wales by virtue of the regulations [SI 2023 No. 255 (W.34) (https://www.legislation.gov.uk/wsi/2023/255/regulation/2/made)].

13.11 Another example was the statutory requirement to close premises and cease certain business operations from those premises, as well as the further restrictions and closures required under the 2020 regulations brought in to deal with the coronavirus pandemic – however, see para 16.5 with regard to changes in matters attributable to coronavirus [COVID-19]. For 2023 and subsequent lists this would also be a matter under 2(7)(aa)) and so disregarded in England under para 2ZA and in Wales by virtue of the regulations [SI 2023 No. 255 (W.34) (https://www.legislation.gov.uk/wsi/2023/255/regulation/2/made)].

13.12 Other examples that met the requirement of being an MCC pre-2023 list but which would be disregarded in the 2023 and subsequent lists are matters such as a congestion charging scheme to a town or city attributable to legislation, provisions made under legislation or advice/ guidance by a public authority.

13.13 These are then matters that would be reflected in changes to rateable values at the now three-yearly revaluations.

(b) the mode or category of occupation of the hereditament

13.14 The terms ‘mode of occupation’ and ‘category of occupation’ are not expressly defined in the legislation. ‘Mode’ denotes the way or manner in which something is done; the term ‘category’ refers to uses within the same class or of the same type, having shared characteristics. A change of mode or category of occupation is concerned with the user of the hereditament and is not required to be accompanied by physical changes.

13.15 Whilst ‘mode’ and ‘category’ are, strictly, distinct terms the courts and tribunals have tended to treat ‘mode or category of occupation’ as a single test and, as such, the legal principles for identifying the mode or category of the hereditament are alike. Accordingly, notwithstanding the strict position, there may well be no practical difference relevant to the application of para. 2(7)(b).

13.16 The mode or category of occupation of the hereditament being valued should be taken as it is at the material day. ‘Mode or category of occupation’ is the second limb of the reality or rebus principle and should be taken to have the meaning confirmed in the Milton Keynes case (Williams (VO) -v- Scottish & Newcastle Retail Ltd, [2001] RA 41). See Appendix 1 for the analysis of this decision. Williams (VO) -v- Scottish & Newcastle Retail Ltd, [2001] RA 41 Court of Appeal case.

13.17 A change of occupier is not automatically a change in the mode or category of occupation. Neither is the closure of a public house and the change from occupation to non-occupation and/or the loss of its licence - see Schofield (VO) v RBNB (RA/42 and 43/2004) where these were held not to be changes within paragraph 2(7)(b).

13.18 A change in the intensity of use is not a change in the mode or category of occupation. A shop is to be valued as a shop not any particular kind of shop: a change from successful to unsuccessful shop is not a change in the mode or category of occupation.

13.19 In Wigan Football Company Ltd v Cox (VO), the ratepayer argued unsuccessfully that, when a professional football club was relegated from the Premier League to the Championship, there was a change in the ‘mode or category of occupation’ of the stadium. The Upper Tribunal observed that the phrase ‘mode or category’ has always been used as a hendiadys, that is, two words meaning one thing - a single concept. They concluded that differences in the conduct of the business of professional football between leagues are matters of degree. The league makes a difference, but it does not change the fact that the stadium is occupied for the purpose of playing football commercially. As the UT observed, football is football.

13.20 In Exeter City Council v Hughes [2020] the UT [at 204 and 205] took a broad view on mode or category of occupation of heritage assets.

13.21 Changes in level of trade or business on non-mineral hereditaments are not MCCs as such. Where there are physical changes to hereditaments which result in changes to the level of trade or business then, to this extent only, changes in trade can be taken into account, e.g. it is likely an extension to a restaurant or the building of a competing shopping centre at the other end of the high street would have affected the level of trade had the physical changes occurred prior to the AVD.

(c) the quantity of minerals or other substances in or extracted from the hereditament, and (cc) the quantity of refuse or waste material which is brought onto and permanently deposited on the hereditament.

13.22 Mineral hereditaments are treated differently from other classes of hereditament. Sub-paragraph (c) creates a special rule for the physical state of mines and quarries. During the lifetime of a rating list the reserve in a working mine or quarry will decrease as minerals are extracted and processed each year. Sub-paragraph (c) reflects these unusual features of that class of hereditament. The same analysis applies to the treatment of waste landfill sites (see sub-para. (cc)).Changes to the quantity of minerals extracted from a mine or quarry or waste deposited in a waste tip are MCCs by virtue of the definition above. This allows the annual revision of mineral assessments depending on previous year’s extraction or deposit. Prior to 1990 a similar provision existed for public houses.

(d) matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there, [and]

13.23 This sub-paragraph has been split into its two component parts by the NDR Act 2023 to create:

(d) matters affecting the physical state of the locality in which the hereditament is situated,

(da) matters which, though not affecting the physical state of the locality, are nonetheless physically manifest there, and

The change assists application of the provisions of para 2ZA of the NDR Act 2023 referred to at para 12.11, whereby for 2023 and later lists in England changes to para 2(7)(da) matters are to be disregarded where that change is attributable to legislation of any country, provision made under legislation of any country, advice and guidance by a public authority of any country or anything done by a person to comply with the above.

This sub paragraph causes the most difficulties particularly in its use of the phrase ‘physically manifest’ in the second part (da).

13.24 The part has two limbs. The first ‘physical state of the locality’ is the sister of the first limb of (a) and mirrors the language used there. Changes to the physical nature of the locality at the material day, as with changes to the physical nature of the hereditament, should be assumed to have occurred by the AVD. Changes affecting the physical fabric of the locality will give rise to a requirement for a new valuation to be carried out if the list is inaccurate by reason of those changes. Such changes should be tolerably easy to identify eg if a shopping centre has recently been built elsewhere in the town then it should be assumed to have been built at the AVD. If nearby road access has recently been improved this should be assumed to have already been undertaken by the AVD. For further discussion of the meaning of locality see section 10 below.

13.25 The second limb (‘physically manifest’) is less straightforward. The exact wording is “matters… , though not affecting the physical state of the locality, are nonetheless physically manifest there”. The first limb deals with matters which do affect the physical state of the locality but the second limb concerns matters which are only physically manifest in the locality.

This somewhat obscure wording was examined in the Heathrow First Class Lounges (Kendrick) case in relation to the effects of the terrorist attack on the World Trade Center in 2001 and, more recently, in the Merlin and Wigan Football Stadium cases.

It should be recognised in Merlin and Wigan that the matter being quoted (fewer people in the locality) was a consequence of what had occurred on the hereditament, i.e. the Smiler accident at Alton Towers or relegation from the Premier League in Wigan. This was not true in the Appeal of Kendrick (VO) 2009 where the terrorist attack occurred in New York.

13.26 It is not correct to treat the second limb as embracing any more than the matter, i.e. that which is itself physically manifest in the locality of the hereditament to be valued at the material day. Economic and other non-physical factors are not to be taken into account as existing at the material day, notwithstanding that such factors may have led to the matter or matters that are physically manifest (see para 146 in Merlin). To take into account, to any extent, such economic and other non-physical changes would be contrary to the purpose of the legislation and would work against consistency and uniformity across the statutory scheme.

13.27 A useful working rule is for the valuer to envisage the hypothetical landlord and tenant inspecting the hereditament to be valued and consider what would impress them as physically observable or physically manifest features in the locality of the hereditament. These might include:
- traffic flow
- pedestrian flow or footfall
- noise, fumes or vibration
- aircraft movements
- increased trading hours of licensed premises
- bus or public transport services
13.28 If any of these change to a degree which would be perceptible as between the date of compilation of the list and the material day, then there is an MCC. Perceptible does not mean simply measurable. In the appeal of Kendrick (VO) 2009 (http://www.landstribunal.gov.uk/Aspx/view.aspx?id=590) the Lands Tribunal rejected a technical analysis of footfall or aeroplane movements to decide if there had been a physically manifest change. It appeared to regard something as being ‘physically manifest’ if it could be identified by simple observation rather than being measurable in a scientific sense although in Merlin [at para 153] the UT seemed to take a different view.

13.29 The valuer is not required to enquire into the reasons behind the change. If, however, the reasons are themselves capable of physical observation, or obvious from what is physical manifest, then the valuer can assume this cause existed at the AVD. For example the reason for new regular aircraft movement overhead and accompanying noise would be an obvious and direct result of the creation of a new air lane.

13.30 If the link between the cause and that which is physically manifest is not so direct then the cause should be disregarded. Moreover, the physical manifestation should be envisaged at the AVD but the valuer should also consider the degree to which it accords with what would be expected at the AVD. If it does not so accord, then it will not be expected to persist and will not affect rental values. For example it was alleged in proposals made for shops in New Bond Street that footfall had significantly reduced as a result of a change in the propensity of Americans to fly, travel to London and spend money following the terrorist attacks and destruction of the New York World Trade Center in 2001. To the extent that there was a change in footfall the link to the WTC would not be immediately observable to the hypothetical landlord and tenant standing in New Bond Street but would require further enquiry. Footfall is something that varies over time. A drop in footfall could be the result of many different causes including economic changes and changes in people’s attitudes [see Merlin para 150/151]. Therefore, the link between the cause and that which is physically manifest is not direct and the cause should be disregarded. By contrast, a change in the alignment of a footpath resulting in a change in footfall will be demonstrable and physically observable, but this is quite different from remote changes which cause a change in footfall.

13.31 In re the appeal of Kendrick (VO) 2009 the President of the Lands Tribunal said the VT appeared to have treated the events of 11 September as a matter that was physically manifest. It said this was not possible because it was a past happening, not a matter existing on the material day. While past events could not constitute matters for this purpose, it could see that the consequences of such events, if they endured at the material day, could be said to do so. Even if the attitude of air passengers to air travel as the result of the events of 11 September was capable of falling within para 2(7)(d) (which he did not decide on) was this physically manifest in the locality of the hereditament? He found that this attitude was not physically manifest because it was masked by a number of other factors all affecting the footfall and numbers of aeroplane movements, so the test was not satisfied anyway. In Merlin at Para 67 the UT also considers ‘masking’ and would seem to take a different line.

13.32 In the decision of Merlin Entertainments Group Ltd v Cox (VO) [2019] UKUT 406 (LC) the UT made an exhaustive review of the meaning of para 2(7) and particularly sub para (d). They observed at para 56, that the legislation does not use the word ‘affecting’ for the second limb. Rather, it is ‘the matter’ itself which must be ‘physically manifest’ in the locality. It does not suffice that the matter affects the locality … only matters which themselves are physically present can qualify. Even then, their presence must be ‘manifest.’ The tribunal looked at the definition of ‘manifest’ in the Oxford English Dictionary: ‘Clearly revealed to the eye, mind, or judgment; open to view or comprehension; obvious …’

13.33 In the Merlin decision the tribunal suggests that in many instances it will be obvious whether a matter affects the physical state of a locality or is otherwise physically manifest there. But they do accept that sometimes it may not be clear at first sight whether a matter which is physically present in a locality has anything to do with its characteristics. Deciding how obvious a matter needs to be from its manifestation is not always easy. The Tribunal gave the example of a new transport facility, such as a bus service introduced into a locality with the effect of improving its accessibility. There the matter was an improved transport facility and clearly manifested by the buses going to and fro. Another example was an increase in traffic on a road or airplanes on flight paths, both of which might produce noise or other emissions to the environment and this increase might well be said to be physically manifest in a locality. Again the matter, an increase in road or air transport is clear from what is observable on the ground or in the air.

13.34 In the Merlin case the Tribunal was at pains to point out, when considering the MCC matter, there was no requirement to identify the cause. The legislation does not work by requiring a matter to be disregarded merely because its cause is economic or intangible but equally, the tribunal explained, the valuer or tribunal was not permitted to take account of some economic or other intangible matter which had changed since the AVD simply because that matter has caused or resulted in some physical change in the locality since the AVD. A key point in the decision seems to be that Schedule 6 para 2(7)(d) ‘does not allow the assumption that those economic factors (at the material day) also subsisted at the AVD, if different from those which did in fact exist on the AVD.’ [para 146]

13.35 This is a reminder that valuation is rooted in the AVD world. The matter can be taken back to the AVD but not the cause. An improved bus service can be taken back because it is there for all to see, increased traffic or more airplanes can be taken back but it would seem for many other matters, without the cause coming back to the AVD, the reality of the AVD world will mean the matter will blow away in the wind.

(e) the use or occupation of other premises situated in the locality of the hereditament.

13.36 This requires that the use or occupation of other premises in the locality should be taken to be as they were actually being used and occupied at the material day. This factual situation then needs to be taken back and imagined at the AVD. For further discussion of the meaning of locality see section 11 below. The wording used is similar to (b) but not identical. Rather than using the phrase ‘mode or category of occupation’ it says ‘use or occupation’. This should be interpreted so as to have regard to all changes of use not just those within the same mode or category of use ie it would include where the use of a shop changes from butcher to grocer. Changes in personal occupation will also be relevant eg if a major supermarket chain moves out of a shop in the locality and another occupier begins to trade. Vacation of a property in the locality will also be a change in the use or occupation of other premises.

13.37 The wording does not include a change in the intensity of use e.g. a change in the level of trade at nearby premises is not a change in the use and occupation of those premises.

14. Locality

14.1 Both sub-paragraphs (d) and (e) require the change to be within the locality of the hereditament. Locality is not defined in the 1988 Act or in earlier legislation. It is therefore necessary to rely on case law.

14.2 In the leading case of K Shoe Shops Ltd -v- Hardy (VO) and Westminster CC, [1983] RA 245 (HL) ‘locality’ was taken to be an area within which there would be sufficient evidence to produce a reasonably expected rent and outside which that rent might be different, and the decision of the Lands Tribunal on this issue was not disturbed.

14.3 The issue in Morton (VO) -v- Synor Electronics Ltd, [1983] RA 204 (LT) was the value of industrial units and comparison with modern physically similar units in an adjoining valuation area or physically poorer units requiring adjustment but in closer proximity. In his decision the Member stated that:

"The term locality is not defined. I take the view that the extent of a locality is a matter of fact in each case and the boundaries are more likely to be defined by physical conditions affecting aspects of value than by areas of administration."

14.4 The decision in Shearson Lehman Brothers Ltd -v- Humphreys (VO), [1991] RA 125 (LT) which concerned the locality of office premises:

"Locality is not defined in the 1967 Act and must be given its ordinary meaning. In the context of section 20 ‘locality’ may well include an area where one can expect to find comparable premises, transport facilities and other matters affecting the amenities of the locality, but that does not define the limits of the locality. In our view the limits of locality must remain imprecise and vary as to the circumstances in each case. It would be unwise to attempt any general definition."

14.5 ‘Locality’ was considered in Jafton Properties Ltd -v- Prisk (VO), [1997]LT RA 137 (LT) which concerned over supply of office accommodation:

"Mr Bell defined the locality in these appeals as the City and the fringe in the Richard Saunders and Partners Floor Space Surveys. This is the area where tenants taking accommodation in or close to the appeal hereditament would look for accommodation. The valuation officer says that ‘locality’ is not bounded by a distinct line but is an area within which the physical factors may affect the value of a hereditament and where there are similar buildings to satisfy the demands of a potential occupier. The ‘locality’ in these appeals includes the area around the fringe of the City core but within the City boundary or close to it. It does not include the area to the south of the Thames. I do not think I should attempt any general definition of the word locality which must remain imprecise and vary with the different circumstances of every case.

For these appeals I prefer the valuation officer’s definition and I accept his delineation of the ‘locality’ for the purposes of para 2(7)(d) and (e) of schedule 6…”.

14.6 Thus the Lands Tribunal noted in several of the cases that ‘locality’ is an imprecise term and not something for which it would wish to provide a general definition. What is the locality for any case will depend on the facts of the case.

14.7 Finally, in Merlin Entertainments Group Ltd v Cox (Valuation Officer), [2018] RA/24/2018, the Upper Tribunal decided that the locality referred to an area external to the hereditament being valued and did not include the hereditament itself. Sub paras (a) and (d) were mutually exclusive. [Note: Alton Towers was an extensive hereditament extending to over 900 acres].

15. Summary – what is or is not an MCC?

15.1 It is important, when considering MCCs, to bear in mind the scheme of the legislation - what was Parliament seeking to achieve in enacting Schedule 6 para 2(7) and not take into account other factors contrary to the scheme.

15.2 Be aware of the concept of the legislation that all factors, except where those mentioned in Schedule 6 para 2(7) have changed, are taken at the AVD. The idea is that rating is a tax on property at a snapshot in time retaken periodically with only a limited intermediate correction to the extent that changes occur within the two established limbs of the rebus principle.

15.3 In Merlin at [193], the UT set out guidance to deal with identifying whether something falls within para.2(7). It is suggested that this provides a useful check list for valuers/caseworkers:

(i) Does the matter concern an intrinsic characteristic of the hereditament or of the locality, or is it an extraneous matter, for example, something to do with the personal attributes of the actual occupier or the way in which a party conducts its business? If the latter, then generally it will not fall within para. 2(7);

(ii) Does the matter concern a characteristic of the hereditament? If so the issue is whether it falls within para. 2(7)(a) or (b) (or either (c) or (cc) in the case of minerals or waste deposit hereditaments);

(iii) If the matter does not concern a characteristic of the hereditament, does it concern a characteristic of the locality in which the hereditament is situated? If so, does it fall within para. 2(7)(d) or (e)?

(iv) If the matter concerns a characteristic of the locality, but does not affect the physical state of the locality or concern the use or occupation of other premises there, does it nonetheless fall within the second limb of para. 2(7)(d)? Under that limb the question is whether the matter is itself physically manifest in the locality.

15.4 The Practice Note to this section provides further guidance on whether particular events are likely to constitute MCCs having regard to the principles set out above. These will be added to from time to time as events occur.

16. Valuation issues arising from a material change of circumstances

16.1 The rating hypothesis requires that hereditaments are valued vacant and to let assuming a tenancy from year to year. It is well established that that this does not mean that the tenancy will last for exactly a year and finish with the tenant leaving the premises. Rather the assumption is that the tenancy will probably last for a longer period and is said to have a reasonable prospect of continuance. What is reasonable will depend on the circumstances of each hereditament but case law suggests in most case it could extend for a period of years. See Hardman (VO) v British Gas Trading Ltd (2015) UKLT 0053 which summarises case law on this point in the decision

16.2 When considering the impact of an alleged MCC, there are effectively three hurdles to be jumped.

The question, has there been a MCC - a change in any of the ‘matters’ falling within sch. 6, para 2(7)? This has been covered in detail in paras 13.1 to 13.35 above.

Has that MCC actually affected the hereditament in question?

If so, was it sufficient to affect the rental bid of the hypothetical tenant and hence the rateable value? The quantum of that reduced rental bid would be the reduction to be agreed in the rateable value. Even in cases where the rent of the property would actually appear to have been a reduced for an MCC great care needs to be exercised as often the reduced rent might include an allowance for loss of goodwill or for possible damage to goods and chattels or for breach of covenant.

16.3 It is not sufficient for ratepayers to simply identify one or more MCCs. If a reduction in rateable value is sought, the MCC(s) in question must result in the list being inaccurate. It is not, for example, the reduction in trade that is the MCC - the rateable value must be affected by the physical ‘matter’ identified. A proven MCC does not necessarily lead to a fall in value or mean an assessment should be reduced.

16.4 When a rateable value of a property affected by an MCC is being considered, the question is: what rent would be paid on a new letting of the vacant hereditament at the AVD assuming the physical circumstances were as they are at the material day?

Coronavirus [COVID-19]

16.5 On 25 March 2021 in England regulations were introduced to prevent non-domestic rating proposals being made on the grounds that the response to the COVID-19 pandemic gave rise to a Material Change of Circumstances. These regulations only had effect from 25 March 2021 in England and so the Government announced its intention to legislate to retrospectively apply the same rules for the period prior to 25 March.

16.6 The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, which received Royal Assent on 15 December 2021, applies to England and Wales and broadly replicates the effect of the regulations retrospectively back to 1 April 2017. The Act adopts different language to the regulations and goes slightly wider by applying to both determination of RV in a 2017 list and whether or not a hereditament ought to be shown in a list (not limited to 2017 lists). These are defined as ‘relevant determinations’.

16.7 For a relevant determination no account is to be taken of any matter directly or indirectly attributable to coronavirus.

16.8 The Act does not change the definition of a Material Change of Circumstances and it does not make such proposals invalid, incomplete, or unlawful. It simply requires the valuer (including a tribunal) to ignore the effect of coronavirus when determining the value, or the existence, of a hereditament.

16.9 On 1 April 2023 regulations [SI 2023 No. 240 (https://www.legislation.gov.uk/uksi/2023/240/introduction/made)] were introduced providing assumptions to be made about coronavirus in the valuation of non-domestic property on the 2023 rating lists for England. The regulations follow the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 and maintain government policy that coronavirus should not lead to a change in rateable value between revaluations. So, any legislation, advice or guidance from a public authority (the ‘relevant factors’) that relates to coronavirus are to be regarded as having been reflected at the valuation date for these lists, 1^st^ April 2021, rather than being a ‘material change of circumstances’ which could lead to a change in rateable value between general revaluations. The regulations provide the same exceptions as the 2021 Act and some changes affecting the physical state of a property such as extensions or conversions, albeit in response to coronavirus, will remain an MCC to be reflected.

16.10 Welsh Ministers have also brought in regulations coming into force 1 April 2023, The Valuation for Rating (Prescribed Assumptions) (Wales) Regulations 2023 [SI 2023 No. 255 (W.34) (https://www.legislation.gov.uk/wsi/2023/255/contents/made)].

16.11 The regulations in Wales go further than their counterpart in England in that any legislation, provisions made under and given effect by legislation, advice, or guidance from a public authority (not just relating to coronavirus) are to be regarded as having been reflected at the valuation date 1 April 2021 rather than being a ‘material change of circumstances’ which could lead to a change in rateable value between general revaluations.

16.12 For more information on the effect of the Act and the 2023 regulations, see Appendix 1, paragraph 11.0 onwards.

16.13 The NDR Act 2023 makes provision in relation to MCCs specifically in relation to the 2023 and subsequent rating lists in England. These alterations were made in part to address the influx of checks and proposals during the coronavirus pandemic arguing interventions concerning the use of property (such as requirements to close businesses or maintain social distancing to comply with health and safety regulations) were a material change of circumstances.

16.14 Parliament’s intention is that Revaluations allow the rateable value of a hereditament, and therefore rate bills, to be updated to reflect changes in economic factors, market conditions or changes in the general level of rents. 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.

16.15 The Rating (Coronavirus) And Directors Disqualification (Dissolved Companies) Act 2021 ensured that, in England, with retrospective effect, coronavirus and the government’s response was not a material change of circumstance.

16.16 The reform of the material changes of circumstances rules brought in by the NDR Act 2023 do not prevent matters such as changes in legislation ever being reflected in rateable values but these matters are only reflected at revaluations and so restores the law to its originally intended extent.

17. Permanent changes

17.1 If the hereditament has physically changed between the AVD and the material day (there has been an MCC) and these changes are fixed and permanent, for example, the property has been extended or part has been demolished, then all the caseworker has to do is to imagine the extension or demolition existing at the AVD and assess how much higher or lower the rateable value would have been if the extension or demolition had existed at the AVD.

17.2 The principle is exactly the same for permanent physical changes to the locality outside the hereditament although possibly more difficult to quantify. Some changes will be observable but would not affect the hereditament but others will be both observable and also impact upon the rental value of the hereditament in question.

17.3 In the short term there is unlikely to be any rental evidence showing the impact on value of permanent changes in the locality. The only evidence likely to be available is a change in trading income, pedestrian footfall or the like but this trading information is often incomplete and difficult to interpret. At the very least it must be compared to comparable periods for earlier years, ignoring any effects which are not due to the MCC in question. At best this might simply indicate that there is some impact on the subject hereditament from the MCC being claimed but it would not inform whether the rental value had been affected or if so, the quantum of that impact as there is no direct correlation between turnover or footfall and rent. It is not the reduction in trade that is the MCC - the rateable value must be affected by the physical ‘matter’ identified. In the Appeal of Pavlou the UT had no regard to the fact that turnover had dropped over 15% for the period of the Occupy London protest.

17.4 For examples of how these issues have been dealt with in decided cases see:
- Barlow & Sons Ltd v Wellingborough Borough Council (1980) 255 EG 461; [1984] JPL 48 - the impact of a new covered shopping mall in a town centre on the existing shopping streets;
- GPS (Great Britain) and others v Bird (VO) UKUT 0527 (LC) - whether the opening of an enlarged shopping centre reduced rental values at an out of town centre known as Fosse Park and if so, the amount of such allowance.
18. Temporary changes

18.1 A temporary disability may be either external to the hereditament e.g. road works or internal, e.g. making structural or other alterations within a building. A different approach to considering these two types of disability for rating valuation has to be adopted because the rebus sic stantibus rule (nowadays referred to by the courts as the Reality Principle) only applies to the hereditament: it does not apply to its surroundings. Rebus sic stantibus requires an hereditament to be valued in its existing physical state (other than repair) and its existing mode or category of use. This means the hereditament has to be viewed as if the physical state of the hereditament and its mode or category of use can never change - a frozen state. This does not apply to the locality of the hereditament, and likely future physical changes, insofar as they would affect the rental value, can be taken into account.

18.2 The effect of a temporary MCC has to be seen in the same context of the yearly tenancy and the effect on the annual rent given the reasonable prospect of continuance. It has often been argued that rental values have a degree of robustness. An incoming tenant considering the rent will note a temporary nuisance as being exactly that, temporary, and will be looking to the long term, not just the short term, when making the rental bid. If the nuisance is sufficiently severe and/or is likely to continue sufficiently long to affect the rental bid for a year-to-year tenancy then an allowance may be appropriate. The degree of importance attached to transience will vary with the facts of each particular case.

Where a temporary reduction in RV or a temporary deletion is warranted but the circumstances justifying the alteration cease to exist during the term of the relevant rating list, the VO will normally end date the reduction or deletion by raising a VOR.

After the first anniversary of publication of a new rating list, VOs cannot alter the former rating list other than to give effect to a proposal. This means VOs face a problem agreeing a proposal for a temporary reduction or deletion in the former list since the regulations prevent the VO from making a subsequent alteration end dating the proposed reduction. [See Reg.14(8) SI 2009/2268 in England, Reg xx-xxxx-xxxx for 2023 and subsequent lists in Wales and Reg 14(7) of SI 2005/758]

In such circumstances, if a challenge/IPP was settled by agreement this would lead to an inaccuracy in the rating list from the date the circumstances justifying the reduction or deletion ceased to exist.

A solution is available as the VTE and VTW have the power to end date reductions but only after an appeal has been made. Refer to the following Rating Manual sections for further details on action required:

England 2017 and subsequent lists – Section 6, Part 1C(v) and Section 6, Part 1E.

Wales 2017 list – Section 6, Part 4D

Wales 2023 and subsequent lists – Section 6, Part 3C(v) and Section 6, Part 3E

19. Internal MCC

19.1 Where works are being carried out to an occupied hereditament e.g. constructing an extension or altering the internal layout of part, it might be necessary to consider whether the rateable value should be temporarily reduced to reflect the disadvantages to the occupier losing space or of the dust, noise, vibration from the works. The question being, would these disadvantages affect the annual rental value of the hereditament?

19.2 In Paul Rocky and Co v Morley (VO) [1981] RA 208 the premises comprised a shop with offices above. The landlord commenced works to remedy structural defects which rendered some rooms and the rear car park unusable. The landlord agreed a 50% reduction in rent during the works which were expected to last for six months from the material date. The VO offered a 25% reduction on the basis that completion of the works could be anticipated in six months and this was the annual equivalent of the reduction offered by the landlord. The Tribunal rejected that VO approach saying that it was necessary to value the hereditament as it existed, rebus sic stantibus, at the valuation date, and assume a tenancy from year to year. At the completion of the works the VO had the ability to amend the RV to reflect the new circumstances.

20. External MCC

20.1 Whilst rebus sic stantibus or the reality principle applies to the hereditament and changes to the hereditament (other than minor ones) cannot be envisaged, rebus does not apply to the locality and therefore the prospect of the ending of an external MCC can be envisaged. The rateable value is an annual rent. So, if the temporary nuisance is only expected to last six months, the effect on the annual rent will be less than if the same nuisance lasted the whole year.

20.2 In cases involving a temporary MCC what is required to be considered is the effect, if any, the temporary MCC would have on the annual rental value of the property on the statutory assumptions at the material day. There have been numerous cases before the Lands and Upper Tribunal on these issues over the years and some from pre 1990 domestic rating cases. The following cases provide useful guidance on the principles to adopt:

The Appeal of Sheppard (VO) 1978 245 EG 665 concerned two adjoining houses affected by noise and dirt from sewer laying work over a six-month period. The VO suggested that no reduction was appropriate because the disability lasted for less than a year. The Lands Tribunal commented that the degree of importance attaching to transience must vary with the circumstances of the particular case. It noted that the 12-month period was a convenient administrative practice when rental value was not greatly affected. However, for severe disabilities which reduce that rental value substantially, administrative convenience must take second place. It held that an allowance was appropriate.

In Greenwood (Men’s Wear) Limited v Harrison (VO) (1985) no allowance was justified for the temporary presence (six weeks) of scaffolding outside a shop.

Morton (VO) v Jones t/a Jones’s Clothes and Others (1986) considered the effect on trade on a shop due to a road widening scheme varying in intensity over a 12 month period. Evidence showed that there was only real interference for a period of three and a half months. The tribunal confirmed that the matter had to be considered as at the date of the proposal (material date) at which point the works were almost at an end. No allowance was warranted even if regard could have been had to the full length of time.

In Berrill (trading as Cobweb Antiques) v. Hill (VO) [2000] RA 194 the ratepayer sought a greater allowance for the temporary disability of the construction of a tramway outside a shop than allowed by the Valuation Tribunal. There was no dispute that an allowance was appropriate. The Tribunal said it had to have regard to the (external) works affecting the property at the date of the proposal but regard had to be had to possible future changes in the scale of the works as they would be in the minds of the hypothetical landlord and tenant when negotiating the annual rent. The Lands Tribunal in this case did not find evidence of turnover helpful, commenting that there is no direct correlation between turnover and rent.

Denny Bros Supplies v Franklin (VO) RA/13/2009 concerned the size of the allowance which should be made to reflect disruption due to roadworks in the vicinity of the appeal property. A hypothetical tenant would have known that such disturbance would continue, to a greater or lesser extent, for nearly a year. The VO argued for an allowance of 15% but the UT decided for 25%.

More recently the case of the Appeal of Pavlou (VO) RA/73/2013 concerned whether an allowance should be made for the closure and restrictions applied to Paternoster Square resulting from the Occupy London protest outside St Paul’s. The Upper Tribunal held that the nature and likely duration of the protest meant that the hypothetical tenant would not be prepared to pay the same annual rent as he would in the absence of ‘Occupy London’, notwithstanding the attractive nature of the opportunity and the strength of the market at the AVD. It rejected that VO case that the protest was too transient to have affected the rent at which the appeal hereditament might reasonably be expected to have let from year to year at the AVD and a reduction was allowed.

20.3 These cases suggest that there are two factors to be considered in deciding whether an external temporary MCC or disability has had an effect on the rental value of the hereditament. The factors to consider are:

1. the severity of the disability

2. the duration of the disability

Both these matters need to be considered as at the material day of the proposal or challenge and not the date of the start of the works.

20.4 Within a particular class of property in a location some uses may be more affected by an MCC than others. It is the effect on the market generally for the mode or category of occupation that must be considered not the effect on a particular user within the mode or category. The same goes for different classes of property affected by the same disability. For example, road works may have more impact on shops (which rely on passing trade) than the small office suites sitting above those shops (which do not rely on passing trade).

20.5 Furthermore, a temporary disability may have a positive outcome for the occupier of a hereditament. For example, whilst street works such as re-paving may cause disruption to a shopkeeper the end result of a more attractive street scene may well boost trade and be something the shopkeeper very much wishes to see. This may offset in whole or part any tendency by the hypothetical tenant to reduce the rental bid.

20.6 Although it is natural to concentrate on the bid of the hypothetical tenant, it must not be forgotten that the interests of the hypothetical landlord must be taken into account. A material change in circumstances that is only expected to last for a few weeks is unlikely to induce the landlord to reduce the rent even if the short-term effect is severe. It is necessary to stand in the shoes of both hypothetical landlord and tenant at the material day and decide what is the likely expectation of the duration and severity of the MCC, possibly in the light of similar circumstances in the past elsewhere, and making allowance for a levelling off of the worst effects once the initial period of the impact of the MCC has passed. The hypothetical rent is the result of a notional negotiation. Remember also that the economic circumstances at the AVD may be more resilient.

20.7 Where at the material day the anticipated effect of continuance of the MCC is considered to be small, for example a proposal is made for roadworks when the scheme has almost been completed, the correct course of action is not to reduce the assessment even though assessments of other hereditaments have been reduced following proposals made at a much earlier date. However, since the change to the material day provisions in 2005 it is important to note there is now a difference between the material day for a proposal and that for an alteration initiated by the VO. For VO alterations the material day is the date of the ‘happening,’ which will probably be the start of the works, but for a proposal it is the date the proposal is made (pre 2017 proposals) or now, post 2017, the “date on which the VO received a confirmation under regulation 4C of the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 (as stated in an acknowledgement served by the VO under regulation 4D(1) of those Regulations)”.

20.8 The VO should always consider a proposal at the material day for the proposal but should also consider whether, had the material day been the date of the ‘happening,’ a reduction would have been appropriate. If the proposal cannot properly be agreed at a reduction, then the VO should consider making a VO alteration, if permissible within the statutory time limits, under the VO’s duty to accurately maintain the list.

20.9 When considering an MCC such as road or building works, the truth is that it will often comprise a series of smaller MCCs within the context of the whole scheme. In central area redevelopments it is likely there will be a series of events. For example, the closure of a car park, the demolition of building(s), street closures, building works etc. and each of these events are likely to have its own material day. Proposals could be made at the time of each of these MCCs. Where these MCCs are value significant, there is likely to be an ebb and flow of the intensity of the works as they progress. In such circumstances, rather than making a series of alterations for each material date of the MCC it has become normal practice to make a robust judgement at the start of the scheme as to the overall value effect for the duration of the works.