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Part 4: Rateable Value - AVD, Material Day and Effective Date

Valuation Office Agency

August 5
11:59 2022

1.1

The definition of Rateable Value is set out in Schedule 6, paragraph 2(1) of the Local Government Finance Act 1988 (as amended by the Rating (Valuation) Act 1999):

2 (1) The rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating, shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions

(a) the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;

(b) the second assumption is that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic;

(c) the third assumption is that the tenant undertakes to pay all usual tenants rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above.

(8A) For the purposes of this paragraph the state of repair of a hereditament at any time relevant for the purposes of a list shall be assumed to be the state of repair in which, under sub-paragraph (1) above, it is assumed to be immediately before the assumed tenancy begins.

1.2

This is a deliberately involved definition and over the years, since the definition became law the courts have considered the wording carefully. A number of these elements are covered in detail in other sections of the Rating Manual but important points to consider regarding the definition are set out below.

1.3

This definition only covers non-domestic property. Special provision is made at paragraph 2 (1A) for situations where the hereditament comprises both domestic and non-domestic elements i.e. a composite property. For more information of the domestic /non-domestic borderline please see Section 2, Part 5.

1.4

The principle is based on a notional annual rent based upon certain assumptions which will be dealt with further below. This rent is assumed to have been agreed between a reasonable landlord and reasonable tenant (more on this under hypothetical tenancy below) and to begin on the antecedent valuation date (AVD, see more on this below). It is however not necessarily the actual rent on the subject property since this may be based on different terms to the definition (more of which below) and at different dates. Additionally, it may be out of line with comparable properties. Despite this, it is important evidence since it is based on the actual property with the inherent advantages and disadvantages of that individual property (see weighting of evidence).

1.5

It is important to appreciate that this definition exists regardless of the type of property, whether it is actually rented or not, i.e. whether it would or could be rented and is done to ensure a uniformity of approach to all non-domestic property. In situations where there is little or no rental evidence the notional rental value may have to be adduced using different methods of valuation (see Section 4: Valuation Methods).

1.6

The words from year to year in the definition above means a yearly tenancy. However, it is important to understand that this does not mean that the tenancy ends after a year but rather the courts have accepted that the tenant has a reasonable expectation of the tenancy continuing for more than a year. This expectation may differ depending on the circumstances of the case. In the Court of Appeal decision in Humber Ltd v Jones (VO)[1960] 53 R&IT 293 the ratepayers argued for a reduction in rateable value since an annual tenancy was not reasonable for a car manufacturer where it took 5 years to set up and reach full capacity on a new production line. Here the tenant had a 21-year lease renewed for another 21 years and break clauses for the tenant at 7 and 14 years. In this decision the court confirmed that the hypothetical tenancy was not to be seen as restricted to only a year but to be of a similar length to that expected for the type of property being valued.

1.7

There may be situations where the tenant cannot or will not remain in occupation for a year but the assumption in the legislation is that the tenancy will continue. However, following the case of Dawkins (VO) v Ash Brothers and Heaton Ltd [1969] 2 AC 336 an exception to this assumption will be where occupation will be prevented by statutory restriction or statutory authority. In this case the House of Lords decided that an allowance was attributable where within a year part of the property would be demolished as part of a road widening scheme. A distinction was made between what was accidental to the hereditament i.e. intentions of the actual owner, and what was essential to it i.e. actions which would happen irrespective of the actual landlord and tenant, e.g. such as a confirmed CPO. In situations such as this effect on rental value may be taken into account but if in any doubt seek technical advice.

2. The hypothetical tenancy

2.1

This term arises from the definition of rateable value outlined above and relates to the tenancy upon which the notional rent is established. The hypothetical tenancy is the arrangement between the hypothetical landlord and the hypothetical tenant on the terms of the assumptions set out above. It exists regardless of the tenancy in place or even whether the hereditament is owner occupied.

It is important to note that the hypothetical tenant can include the actual tenant or the actual occupier e.g. in a limited market or unique property (R v London School Board [1886] 17 QBD 738).

3. Dates of valuation 1 Antecedent Valuation Day (AVD)

3.1

For most valuation purposes there is a requirement for a fixed point in time or valuation date e.g. in the case of inheritance tax or rent review the valuation date is set out respectively in statute or in the lease. In the same way for rating, in order to arrive at the appropriate rateable value for a specific hereditament it is important to establish the date of valuation. For rating however the legislation requires that two elements are to be considered when establishing the valuation, the first being the Antecedent Valuation Day. The second, the Material Day is considered below.

3.2

Revaluations are undertaken in order to take account of altered market conditions and the relative changes of value across locations and property types. In the modern rating system revaluations take place approximately every 5 years with recent revaluations taking place in 2010 and 2017 and due to take place again in 2023.

3.3

Each revaluation sets a new valuation date. Historically this was the date the list came into force so that for the 1973 list this was the 1st April 1973. However, following the House of Lords case of K Shoes Ltd v Hardy (VO) and Westminster City Council [1983] 1 WLR 1273 the difficulty in estimating rental values ahead of time became clear, and so for the modern rating list the date of valuation is set ante or two years before a new rating list comes into force, known as the Antecedent Valuation Date or AVD. This means that the actual valuation date for the 2010 list was 1st April 2008, for the 2017 list it was 1st April 2015 and for the 2023 list the AVD is 1st April 2021.

3.4 Statutory Basis

The basis for this is set out in paragraph 2(3) of Schedule 6 of the 1988 Local Government Finance Act which allows the Secretary of State (or the Welsh minister in Wales) to specify a date. Successive orders, therefore, have set the AVD for each revaluation which is also the valuation date for alterations under paragraph 2(4).

This means that the AVD for the 2017 list was specified in regulation 2 of The Rating Lists (Valuation Date) (England) Order 2014 (SI 2014/2841) and Rating Lists (Valuation Date) Wales Order 2014 (WSI 2014/2917). For the 2023 list this has been set out in regulation 2 of Rating Lists (Valuation Date)(England) Order 2020 (SI 2020/832) and the equivalent for Wales (WSI 2020/1378).

3.5 Application of the AVD

The AVD is fixed for the life of the revaluation, whether for the original valuation, or settling appeals challenging that valuation and when taking into account changes like extensions or disabilities. However, the date on which certain relevant matters are to be taken into account depends on the reason for the valuation and this date is termed the material day which is explained in more detail below.

The combination of these dates

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