If your premises has been damaged and is no longer habitable due to the recent flooding you may be entitled to business rates relief under the Valuation Office’s regulations regarding a ‘Material Change In Circumstances’ (MCC’s) which is noted below.
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Valuation Office Regulations on MCC’s relating to flooding.
“Flooding has to be considered in the same way as any other matter. Firstly it has to be established that the flooding comes within the ambit of Schedule 6 para 2(7).
If flood waters damage the hereditament this will be a change to the physical state of the building (para 2(7)(a)). As set out in the practice note to the 1999 Act where flood damage sufficiently damages a building so that it is incapable of beneficial occupation VOs have always, as with fire damage, regarded it as having no rateable value. This may mean, where the building is the entirety of the hereditament, that the entry should be deleted.
If the building remains capable of beneficial occupation then the repairing assumptions of the hypothetical tenancy envisage the hypothetical landlord putting the premises into repair before the letting commences providing it is economically reasonable. If this is the case no reduction should be conceded.
Where flooding is a periodical occurrence the AVD rental evidence will already reflect the flooding risk. Where flooding has not previously occurred, or has not happened for many years, the attitude of prospective tenants in the real world may be altered by the now perceived higher risk of flooding. Providing the flooding occurs before the AVD, this attitude should be reflected in valuations for the next revaluation. It should only be reflected in the present assessments if it can be seen as coming within the para 2(7) matters.
Flooding, as such, is not considered to be a change in the physical state of the locality. “Physical state” connotes some degree of permanent change as opposed to transient phenomena. Flooding may be present for a few days only and is no more a change to the physical state of the locality than are wet pavements after rain, a heavy snowfall or a sunny day, even if the phenomenon can be very much more noticeable. Changes resulting from flooding such as swept away bridges or banks, whilst un-remedied, are a change to the physical state of the locality.
On the other hand floodwaters can be seen as the physical manifestation of a marginal risk. Whilst present they manifest the risk of flooding in a locality and clearly indicate, whilst present, there is a modern day risk of flooding. Proposals made during the time of flooding, providing the normal requirements of a valid proposal are met, can therefore be valid MCC proposals. In valuing for the proposal any change in attitude on behalf of prospective tenants that would have occurred at the AVD due to any heightened expectation of flooding can be taken into account. However, when the flood has ended any subsequent proposal made in respect of the flood or any other purported MCC matter cannot take the heightened risk of flooding into account as it is not then physically manifest on the material day. The Material Day in respect of a VO alteration is the day the relevant circumstances first arose and consequently, where the VO accepts that during a period of flooding the rateable value of a hereditament was affected, it is possible for the VO to make a retrospective alteration reflecting those matters outlined above. Such an allowance would be removed with effect from the day the flooding had receded and in most cases will therefore only apply for a short period of time.
The incidence of flooding and MCC’s has recently been considered in the Appeal of Jo Moore (VO) [2018] UKUT 0324 (LC). This concerned a large ‘car supermarket’ at Hessle Dock on the Humber Estuary. The site flooded on 5 Dec 2013 resulting in substantial damage to stored cars. As a consequence the property could no longer be insured against the ‘flood risk’ and the landlord agreed a 25% rent reduction. An MCC proposal on 30 March 2015 sought a reduced RV with effect from 6th Dec 2013 citing the flood of Dec 2013, its impact on insurance and the resulting rent reduction. No flooding existed at the Material Day 30 March 2015. The UT reviewed the issues raised against the physical matters set out in Sch.6 para 2(7) and determined neither the rent reduction or reallocation of the property so that it fell within a flood zone, resulting in a commercial insurers decision to refuse insurance cover, were matters to be reflected. The decision confirmed that changes in the level of rent, however these result, are considered as part of revaluations and do not give rise to a material change of circumstances. Similarly, nothing was physically observable on the ground in relation to the flood zone allocation. The heightened risk of flooding did not constitute an MCC and the appeal was thus held to be invalid.”