The Court of Appeal in the case of Monk v Newbigin explained the statutory assumption that premises are, when valued for rating, in repair. They did so in a way which has increased empty rates liabilities. The assumption does not apply when a reasonable landlord would consider repairs to be "uneconomic". The Upper Tribunal has just published a helpful decision on what that means.
At last, developers have something to sing about. And as more than one developer will be pleased, it won't be a solo. More probably barber shop.
The background is that until February 2015, when rateable premises were demolished or stripped out in readiness for redevelopment, no rates would be payable from demolition or strip out. Rates would become payable again when the new premises were complete.
In February 2015, the Court of Appeal decided the case of Monk v Newbigin, giving guidance on the assumption that premises are in repair when they are valued. The Court overturned guidance to valuation officers in the Valuation Office Agency’s own manual. In consequence, rates are payable up to the time that the new works begin. This is playing havoc with development appraisals.
The solution - 1
The UK Supreme Court has given the ratepayer, Monk permission to appeal. BLP is working with industry bodies, including the Rating Surveyors Association to seek permission to intervene in the appeal. This is to ensure that the Supreme Court has the benefit of arguments from developers in general.
A date for the appeal hearing has not yet been fixed.
The solution – 2
The statutory assumption does not apply where a reasonable landlord would consider repairs to be "uneconomic".
This is a partial solution in that there are some markets (where rents are high relative to construction costs) in which repairs would not be uneconomic.
However, in other markets it may provide a ratepayer with an escape route.
"Uneconomic" – what does it mean?
Both the Valuation Tribunal and the Upper Tribunal have, in a smattering of cases, applied the "uneconomic" test. This month, the Upper Tribunal (Judge Alice Robinson and surveyor member Mr McCrea) had another go. This was the first since the Monk v Newbigin case was decided by the Court of Appeal. This was the case of Barber (VO) v CEREP III TW SARL.
- Former 2 storey retail unit, now demolished. Vacant at valuation date;
- Part of the Tunbridge Wells cinema redevelopment site;
- Rental value of unit in repair was £57,500 a year ( based on £660 per sqm zone A);
- Cost of repairs £112,000;
- At the material day, the property and every other property in the development site were vacant and hoardings had been erected around many. The development proposals were long standing.
The Tribunal held that a reasonable landlord would not spend £112,000 on repairs in those circumstances. There was no reasonable chance of making a profit. The repairs would be uneconomic and the correct rateable value was £0 even though the new works had not begun.
So why is this good news for developers?
It has been suggested that the "uneconomic" test requires a formula comparing cost of works to rent or similar. In Barber the Tribunal had the confidence to look at the facts in the round and make a judgment that was informed and non-formulaic. It is a helpful precedent for future cases.
So here’s to you, Judge Alice Robinson and Mr McCrea.