The question of how to value a building which is undergoing substantial refurbishment came before the Court of Appeal who ruled yesterday that the Valuation Tribunal had wrongly attributed a rateable value of £1 to offices which had almost all of its internal elements stripped out including the cooling system, all internal and external plant, electrical wiring and had no sanitary fittings. It has ruled on what 'repairs' are but the judgment will not give many investors clarity over what their rates liability could be during refurbishment works.
The case is Newbigin v S J and J Monk. The building was only built in the late 1990s. During the recession the freeholders stripped out the building. It had been vacant for some time.
Refurbishment works were undertaken in 2012 when the first floor was vacant, without its ceiling or sanitary fixtures; had only half of its raised floor and had no cooling and electrical wiring or other plant.
By statute the rateable value has to be assessed by reference to rental value assuming a reasonable state of repair "but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic".
As a result of this case we know that in assessing rateable value –
- repair has the normal common law meaning – having regard to the age and character of the property is it reasonably fit for the occupation of a reasonably minded tenant of the class who would be likely to take the lease.
- Where the property is in disrepair this means it has deteriorated but why it deteriorated is not relevant.
- What constitutes repair has to be viewed in relation to the whole of the property. Are the items that have to be replaced a "subsidiary part of the whole"? If reinstating stripped out services would not result in a building that was different in kind from what existed before then it is likely that the works to do this will be repairs as they were in this case.
- The test of whether the property could be repaired economically is objective not subjective. The Court of Appeal described the Valuation Manual as confusing on the point. It is not relevant that the ratepayer intends to create a different kind of building.
We did not get any clues as to when refurbishment will exceed repair so when investors are refurbishing empty properties to make them fit for tenants to occupy they will have to consider all the facts to see if the property will be different "in kind" as a result of the works if they are to avoid rates liabilities during the works.
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