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Rating law in repair as Supreme Court mends valuation rules for property undergoing reconstruction

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Summary: In Newbigin (Valuation Officer) v S.J. & J Monk , the UK Supreme Court ruled that a commercial building in the course of redevelopment does not have to be valued as if it were still usable. There is no need to assume that the premises are in reasonable repair as “offices and premises” on a date when they were simply a “building undergoing reconstruction”. This outcome will save money for developers.

Background

The case of  Newbigin (Valuation Officer) v Monk  is the most significant case on business rates payable by developers  for many a year.

Facts

The owners of a floor of an office building, S.J. & J Monk had an opportunity. Their tenant had vacated, the lease had expired and the premises were empty. Monk decided to refurbish by splitting the floor into 3 separately lettable units. They stripped out the space, removed the cooling system and sanitary fittings, demolished the block walls and carried out other works.

Monk proposed that the rateable value be reduced from £102,000 being the value at which the premises had been assessed, to £1 to reflect what had occurred.

Mr Newbigin, the valuation officer, did not agree to reduce the rateable value. So Monk appealed to the Valuation Tribunal.

The proceedings

The Valuation Tribunal rejected Monk’s appeal. Monk appealed to the Upper Tribunal (Lands Chamber) (still referred to as the “Lands Tribunal”), the specialist tribunal for rating appeals. That tribunal held that for non-domestic rating the valuation of the premises followed reality. The premises were no more valuable than a boarded up, stripped out office floor might be. The rateable value was £1.

The valuation officer appealed to the Court of Appeal.  The Court of Appeal  examined both the principles of rental valuation as applied to rating and the assumption as to the state of the property in the rating legislation. This includes the assumption that the premises are in a reasonable state of repair. The Court of Appeal held that one assumes that an office building in the course of redevelopment was an office building in a reasonable state of repair.

The consequences of the Court of Appeal’s decision

The outcome was disastrous for developers who found valuation officers seeking to keep premises assessed at full value until the construction of the new scheme for the building had begun. One site was assessed for rates payable of £8m more after the judgment than before.

Appeal to the UK Supreme Court

Monk was given permission to appeal to the UK Supreme Court, whose decision was delivered on Wednesday 1 March 2017.

The British Property Federation and the Rating Surveyors Association were given permission to intervene in the appeal.

The outcome

The Supreme Court has decided that a commercial building undergoing redevelopment does not have to be valued as if it were still usable. On a date when the premises were simply a building undergoing reconstruction one does not assume that the premises are in reasonable repair as, for example “offices and premises”.

It is that assumption that leads to a full rateable value.

The Court held that whilst the physical state of the premises is assumed to be in repair, the mode or category of occupation is as found in reality. In the case of Monk, the premises were correctly categorised as premises under construction. That led to a rateable value of just £1.

The effect of the decision is that the building undergoing construction has only a nominal rateable value. For developers this is very good news indeed.

Completion notices

The Court rejected a submission by the valuation officer that the statutory wording concerning completion notices supported his case for saying that offices in repair ought to be assumed.

Conclusions

The outcome vindicates the decision of the British Property Federation and the Rating Surveyors Association to intervene in the appeal. The court described the intervention as “helpful”, adopting many of our points.

Berwin Leighton Paisner is pleased to have represented the interveners in this case.

On their behalf, we instructed Dan Kolinsky QC and Luke Wilcox of Landmark Chambers.

Next steps

Appeals in the rating tribunal that raised the issue decided by the Supreme Court have been stayed. Those appeals should now be activated.

If you wish to discuss the outcome and how it may affect you, please contact Roger Cohen at roger.cohen@blplaw.com.

 

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