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Is Covid-19 a Material Change of Circumstances?

By October 28, 2020 No Comments

A Material Change of Circumstances under the rating system is not necessarily the same as how we experience things on a day to day basis.

On one hand, you could answer that of course Covid-19 has meant a material change in your circumstances has occurred. Your employees might no longer be working the same hours, for example, or even be working at all; your business might be that much smaller.

But when it comes to your business rates, what constitutes a Material Change of Circumstances (MCC), is complicated.

It has to come under Schedule 6 of the Local Government Finance Act 1988, which, obviously, does not explicitly allow for what happens during a pandemic.

Who’s Getting Business Rates Relief for Covid-19?

The Government is currently giving temporary business rates relief of 100% for retail, leisure and hospitality businesses together with children’s nurseries in England for the 2020-2021 tax year.

This is good news if your business is in one of these sectors, however, it’s not such good news if you fall outside them.

Plenty of other workplaces apart from those in retail, leisure, hospitality and nurseries have been impacted by Covid-19, not least offices.

The return to the office has stalled. ONS reported that between July and August, 39% of the workforce was still working remotely. In fact, the pandemic has made many people question the fundamental purpose of the traditional office altogether.

Offices are not just suffering due to no one being in them. They are also impacted by how their surrounding areas have altered due to Covid-19.

There are basically less people around, generating less footfall and less business.

But, crucially, the Valuation Office Agency does not include economic decline as a matter under which you can apply for a Material Change of Circumstances. So, your business might be impacted by Covid-19, but this alone will not provide you with the basis for a rates reduction and needs further consideration.

What Constitutes an MCC?

There are various grounds for a Material Change of Circumstances, including:

  • A property’s physical state
  • What you use it for
  • The physical state of its locality
  • The use of other premises in this locality.

The Valuation Office Agency has issued previous guidance on particular events, and whether any of them could be seen as a Material Change of Circumstances.

These events include:

  • The foot and mouth outbreak
  • 9/11
  • The 2007 London terror attacks
  • The smoking ban.

Different events have different interpretations however, making it hard to draw meaningful comparisons with the current situation.

There are, however, key triggers in mounting a challenge to your business rates under MCC, which could include changes to footfall and traffic flow, declines in public transportation, internal use restrictions and social distancing requirements.

The extent of the rates reductions that these situations might bring is hard to quantify and could range considerably depending on the extent of the impact, but is worth considering.  However, time is of the essence when commencing and proceeding through the process.

There is also the critical matter of physical change. Having less people in the city centre, or an office space alone, does not necessarily mean that physical changes have taken place, so each case will need its own consideration. It could also help to consider any additional costs you have faced due to Covid-19 and keep a record of the impact on your business.

In fact, one of the biggest impacts of Covid-19 has been psychological rather than physical. It has changed how we perceive going to work, possibly forever.

The question you might then ask yourself is whether you should look at a more long-term strategy for rates reduction.

The Case for Making a Strategic Change

If you currently rent or own more workspace than you need, what should you do about it?

The bigger picture beyond any potential rates reductions due to Covid-19, could be a review of your premises strategy.

You could live in hope that the Government will ride to the rescue and respond to the sheer number of struggling businesses with some sort of rates reduction offer of its own.  However, this would not address the underlying questions of space.

So, you could act now and conduct a review of your own longer-term interests.

What if you made a strategic decision to mothball or even relinquish your unused office space?  If the premises are rented, what scope is there in the lease to approach the landlord?

As well as the potentially lower lease costs, this could potentially open up a claim for empty rates, or for a reduced rateable value based on you occupying less space.

It might appear very big picture, but the evidence suggests that the office sector is likely to change for good. The whole nature of how we work is in the balance, with more designers and developers thinking along the lines of hybrid workspaces.

These would combine elements of working from home and co-working, and their locations would be more diverse, including commuter hubs based in suburban locations.

Can you afford to hang on in the hope of a return to a normality that may have gone forever, or should you take control of what you can and repurpose your workspace?

Start Your Strategic Rates Discussion

Please contact our team for specialist advice about your business rates, and how to develop strategies to manage them better.

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