Business rates have dominated the news in recent weeks and many
commercial property owners have been in uproar at the impending
revaluation due to take place next month. However, amidst a
backdrop of uncertainty, the Supreme Court has issued a decision
which will be applauded by both property owners and developers.
Newbigin (Valuation Officer) v. S J & J Monk
concerned vacant first floor office space which, at the time of
valuation, was in the course of being redeveloped to form three
separate offices. Given that the premises were incapable of
beneficial occupation, the owner requested that the premises be
described as a "building undergoing reconstruction" for
rates calculation purposes, which would result in a rateable value
of £1. The Upper Tribunal found in favour of Monk, however
this was overturned by the Court of Appeal, which held that the
works should be categorised as works of repair rather than
improvement, and should therefore not attract a reduction in rates.
Monk then appealed to the Supreme Court.
The key question for the Supreme Court was whether the premises
should be valued by having regard to the actual physical condition
at the valuation date ("the reality principle"), or
whether the statutory assumption contained in para 2(1)(b) of
Schedule 6 to the Local Government Finance Act 1988 should apply
– that the premises are in a state of reasonable repair and
therefore the rates can be valued on a hypothetical lease.
In his judgment, Lord Hodge decided that the reality principle
should override the statutory assumption where the property is in
the process of being redeveloped/reconstructed. Helpfully, he put
forward a three-stage approach which will assist valuers in coming
Consider whether the premises were actually capable of
occupation in the state they existed on the assessment date
If the premises were capable of occupation, consideration
should be given as to the mode or category of the occupation
If any parts of the development are complete and capable of
occupation, the statutory assumption should be applied in
calculating the rates
Therefore, the test to be applied by valuers is an objective
one. The intentions of the owner are irrelevant. However, in
carrying out the objective assessment of the physical state of the
premises, the valuation officer can consider the programme of works
which is being undertaken. In Monk, it was of relevance
that the premises had been largely stripped out and an outline of
the future development (the communal lavatory facilities) had been
created. Given that the premises were not capable of material
occupation at the relevant time, the Supreme Court adopted the
common sense approach and held that rates should not be
This is a welcome decision which accords with commercial common
sense and developers will be relieved that their rates liability
will be reduced whilst their premises are being developed.
However, property owners would be mistaken to think that they
can simply allow their properties to fall into disrepair or start a
scheme of works for deliberate non-completion. Lord Hodge issued a
word of caution by highlighting s.66A of the 1988 Act, which gives
power to the Secretary of State to make regulations to disregard
changes in the state of unoccupied property and may be used to
undermine attempts by owners to avoid rates.
Although the 1988 Act is English law, we think that similar
principles are likely to apply in Scotland, particularly since
Lord Hodge is a Scottish Judge.
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