It has not been rosy in the business rates garden recently.
Following the Woolway v. Mazars decision, the vagaries of
the business rates revaluation and the complete uncertainty and
potentially adverse consequences flowing from Check, Challenge,
Appeal, the ratings and property industries would be forgiven for
bunkering down under a siege mentality. However, at last there is
some relief for those manning the barricades. The Supreme Court has
overturned the Court of Appeal decision in Newbigin v.
Monk. This will be extremely welcome news to developers keen
to ensure that their developments are not assumed to be properties
in repair subject to business rates.
The Court of Appeal determined that a property undergoing
redevelopment was assumed to be in a state of repair where it was
economic to carry out the repairs. It considered that individual
items of renewal (e.g. the air-conditioning system) amount to
individual items of repair. The consequence of this was that a
developer either had to rely on repairs being uneconomic or
possibly demolish the whole building so that the assumption on
repairing did not apply (i.e. renewal of the whole could not be
construed as a "repair").
This created uncertainty as to what was considered
"economic" and how a development would be treated where
an existing building was stripped back to its shell, but not
demolished. In respect of the "economic" argument some
first instance guidance emerged from Barber v. Cerep III TW
Sarl where it was considered that the cost to repair being
equivalent or greater than two years' worth of rent would not
be economic. However, this was fact-specific and first instance. It
provided at best tentative guidance, but no certainty.
The Supreme Court has decisively overturned the Court of Appeal
and applied a welcome reality check. Gone is the uncertainty
concerning the repair assumption and whether or not the assumed
repair is economic or otherwise. Instead, it is back to basics. The
question to ask is whether the property is capable of beneficial
occupation. This is an endorsement of the "reality
principle" where properties are to be valued for rating
purposes based on the state that they are in on the valuation day.
If the property is, in reality, not capable of beneficial
occupation, then it cannot be assumed to be in a state of repair
(economic or otherwise).
Therefore, a property undergoing redevelopment should be listed
as such where it is not capable of beneficial occupation. If that
is the case, then its RV should be listed at a nominal value. An
owner of a property undergoing development should therefore be able
to make a proposal to alter the list in order to minimise exposure
to business rates whilst the property remains incapable of
The Supreme Court did indicate that if part of the property
becomes capable of beneficial occupation during the redevelopment,
then it separately could be assumed to be in repair and be
separately listed. Developers should pay heed to this in order to
avoid this situation arising, or else ensure that the area capable
of occupation is then quickly occupied by a third party who will be
liable for the business rates for that part of the property.
The Newbigin decision is a fundamental one that the
development industry will be relieved with. It does, however, only
tackle one material issue adversely impacting on the rating and
property industries. There are other weeping sores that still need
to be addressed.
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