Ratings, refurbishment and repair - part II

14 Mar 2017

Following our previous article after the Court of Appeal’s decision in Newbigin (VO) v SJ & J Monk, the Supreme Court has now conclusively determined the question of whether valuation officers should apply the statutory assumption that a hereditament is in a reasonable state of repair when valuing a building that is undergoing development work in SJ & J Monk v Newbigin [2017] UKSC 14.

In this instance, the property was the first floor of an office block built in the 1990s, which had a rateable value of £102,000 in the 2010 non-domestic rating list. On 6 January 2012 (the material date for valuation purposes), SJ & J Monk (“Monk”), the freeholder, applied to alter the list as the property was being “stripped out” for extensive renovation works and was no longer fit for beneficial occupation.

The rateable value of non-domestic property must be determined in accordance with paragraph 2 of Schedule 6 to the Local Government Finance Act 1988 (as amended). This provides that:

“(1) The rateable value of a non-domestic hereditament [none of which consists of domestic property and none of which is exempt from local non domestic rating] shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions—

… (b) the second assumption is that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic; …”

The Upper Tribunal (Lands Chamber) found in favour of Monk’s application and held that the rateable value of the property should be amended to £1 as a nominal value to reflect that the property was not capable of beneficial occupation. At the time of our previous article, the Court of Appeal had ruled that valuation officers must apply the repairing assumption of paragraph 2(1)(b) above when valuing building where freeholders were carrying out redevelopment works.

On 1 March 2017, the Supreme Court allowed Monk’s appeal, distinguishing between repair and reconstruction works. Lord Hodge said that the correct approach for valuation officers to adopt must be to first determine whether the property is capable of beneficial occupation on the material day. Then, only if this is the case, to consider (i) what is its purpose of occupation, and (ii) whether the property is in reasonable repair for use in accordance with that occupation. Therefore, where a property has been rendered unfit for occupation, as was the case with Monk’s property, it is appropriate to apply a nominal rateable value of £1 as a ‘building undergoing reconstruction’.

This decision provides greater certainty for freeholders when considering their rating liability in contemplation of redevelopment works. Where a property is in a state of disrepair due to the landlord’s failure to maintain it in accordance with their repair obligations, the assumption that the property is in a reasonable state of repair for valuation purposes will apply. However, where a property is objectively assessed as incapable of beneficial occupation on the date of application due to redevelopment works, the appropriate rateable value will be a nominal £1.

If you require any further information on this decision, or would like to discuss it further, please contact a member of our Real Estate Litigation Team.

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