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22 March 2018 0 Comments
Posted in Opinion, Property Disputes, Real Estate

Business rates: welcome clarity for commercial landlords

Posted by , Senior Associate

It has been a very active few years with a Valuation Officer arguing all the way to the Supreme Court that a property should not be reassessed for business rates when redevelopment works were being undertaken and preventing occupation, because the property was capable of being put back into the state of repair and occupied position at the material assessment date.

However, the Supreme Court decision in Newbigin (Valuation Officer) v S J & J Monk (a firm) [2017] UKSC Civ 78 has confirmed that they are wrong and has provided Valuation Officers (and therefore landlords) with clear guidance on the issue.

The case

SJ & J Monk (“SJJM”) owned the freehold of the first floor of a three-storey office building. Previously occupied by tenants as an office, in March 2010 SJJM decided to substantially renovate it to create three office units capable of being let singularly or as a whole. Between March 2010 and January 2012, the property was vacant and substantial construction works were carried out. The property was stripped to a shell with only the lift remaining in its original position.

SJJM wished to reduce the property’s liability to rates during the reconstruction.

In 2010, the rating listed the property as “offices and premises” with a £102,000 rateable value. SJJM proposed that it should be altered to “building undergoing reconstruction” with a rateable value of £1 as the property could not be occupied during the development.

The Valuation Officer rejected SJJM’s proposal, and the Valuation Tribunal upheld that decision. The Upper Tribunal allowed SJJM’s appeal, holding that the property had been stripped beyond repair and therefore it was correct that it should be reclassified. The Court of Appeal, however, allowed the Officer’s appeal and held that paragraph 2(1)(b) created an assumption that the repairs would return the premises to their former state provided that they were economic. This displaced the reality principle – that the property should be valued as it existed as of the date of valuation – with the principle that the property should be valued as if it were in a reasonable state of repair.

The Supreme Court unanimously allowed SJJM’s appeal and restored the decision of the Upper Tribunal, stating that it has been a long established principle that property should be valued as it in fact existed on the material day (“the reality principle”) and this remains a fundamental principle for rating manifested in paragraphs 2(6) and 2(7) of Schedule 6. Therefore, the Court of Appeal went too far in its interpretation.

On the facts found by the Upper Tribunal, the building was undergoing significant reconstruction on the material day, and therefore the application to alter the rating was appropriately made and, on the facts, justified. SJJM’s rateable value was therefore reduced to £1.

How Valuation Officers must assess the rateable value

As property disputes and commercial property lawyers, we welcome the Supreme Court’s clear guidance.

It is now abundantly clear that Valuation Officers must assess objectively whether a property is undergoing reconstruction and is therefore incapable of occupation rather than simply being in a state of disrepair. It stated that the Valuation Officer can have regard to the programme of works, and if it justifies ‘redevelopment’ there is no basis for applying the paragraph 2(1)(b) assumption to override the reality principle and create a hypothetical tenancy of the previously existing property in a reasonable state of repair.

Are you redeveloping your property? Can the works objectively be assessed as more than just repairs? Can you apply for a reduction in your rates?

This case provides clear guidance to landlords that, where previously your premises have been let and you decide to undertake redevelopment works, you should have a clear programme of works to demonstrate that they are more than simply repairs. If you can demonstrate objectively that this is the case, and, as a result, the premises are not capable of being occupied by tenants, you should be entitled to reduce your rates and can apply online to do so with the ability to challenge any decision in the Valuation Tribunal if unreasonable.

For expert advice on commercial property issues or disputes, contact our team on:

0800 302 9195     Email usproperty.enquiries@roydswithyking.com

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