UK: Supreme Court Likes Reality In Business Rates

The disputed rates in Newbigin (Valuation Officer) (Respondent) v S J & J Monk (a firm) (Appellant) relate to building works in 2012 and the question was whether the rating list could give the building a £1 nominal value or whether it had to assume a market value based in an assumption of repair.

The Judgment

In determining whether or not a commercial building which is in the course of redevelopment has to be valued for the purposes of rating as if it were still a useable office, the Supreme Court decided that the principle of reality applied. It was not displaced by the assumption that the hereditament is in a state of reasonable repair (excluding any repairs which a reasonable landlord would consider uneconomic) set out in paragraph 2(1)(b) of Schedule 6 to the Local Government Finance Act 1988.

The Supreme Court regarded as "helpful" the intervention by the Rating Surveyors' Association and the British Property Federation that, where works were being carried out to an existing building, the correct approach was to proceed in this order:-

(i) to determine whether a property is capable of rateable occupation at all and thus whether it is a hereditament,

(ii) if the property is a hereditament, to determine the mode or category of occupation and then

(iii) to consider whether the property is in a state of reasonable repair for use consistent with that mode or category. Only at this third stage should the valuation officer apply the statutory assumption of paragraph 2(1)(b) if the reality is otherwise.

In addition, the Supreme Court pointed out that there is no basis for the argument that a building can be listed as being under reconstruction only once the works have proceeded so far that it is no longer ecomonic to restore the hereditament to its former state by means of repair.

As a result, the fact that the premises in question were undergoing reconstruction on the date of assessment should be reflected in a reduction of the rateable value of the premises in the rating list to £1.

The Facts

The facts are important as there has to be an objective assessment. All other cases will turn on their particular facts as to the condition of the building.

In this case, at the relevant date for assessing the facts and applying the assumption referred to above, the premises were vacant and the building contractors had:-

(i) removed the majority of the ceiling tiles and the suspended ceiling grid and light fittings and also 50% of the raised floor;

(ii) removed the cooling system and the sanitary fittings and demolished the block walls of the lavatories and stripped out the electrical wiring;

(iii) erected and plastered plasterboard partitions to form the outline of the proposed communal lavatories and erected and plastered a partition across the floor at the east side of the premises;

(iv) completed first fix electrical installations to the lavatory area and altered the drainage to accommodate the new location for the lavatories.

This was part of a scheme of renovation and improvement of a three storey office building (which had been occupied by tenants as a single office suite) with a view to making it more adaptable for use as either three separate suites of offices or as a single suite in order to attract replacement tenants.

What can we take away from this case?

Where a property is subject to significant building works, ratepayers may be able to seek an amendment to the rating list so that rates will not have to be paid whilst the property is being redeveloped. However, what amounts to "significant" building works will still be a question of fact and degree in each case. Intention will not be relevant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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