Executive Summary: The Supreme Court has decided[1] that office premises that were undergoing redevelopment work that was so extensive that they were not capable of being occupied should be rated as ‘buildings undergoing reconstruction’ as opposed to ‘offices and premises’. This may result in such properties having a lower ‘rateable value’, and thus being subject to lower business rates.
The Facts: The case concerned premises owned by SJ & J Monk (SJJM) which were undergoing extensive reconstruction and had almost all internal elements, including, partitioning, electrical wiring, and sanitary facilities, stripped out. The premises were marketed for rental as office premises but were not in fact capable of being occupied in this way at the date of valuation.
Because of the state of the premises, SJJM contested that the premises should be rated as a ‘buildings undergoing reconstruction’ with a rateable value of £1. The Valuation Officer believed they should be rated as ‘offices and premises’ with a rateable value of £102,000.
The Legal Issues: The judgment hinged on a statutory assumption[2] that, for the purposes of the rateable value of the property, it is assumed that the premises are ‘in a state of reasonable repair’, excluding repairs that a reasonable landlord would find uneconomic. The Court of Appeal had ruled that, because the works amounted to repairs that would economically restore them to a usable state, the premises should be rated as though they were useable even though in fact they were not.
The Supreme Court reversed this decision, ruling that before considering this statutory test, it must be determined whether the premises were, in fact, capable of beneficial occupation. In this case, they were not and so the premises should be rated as ‘buildings undergoing construction’.
Conclusion: This is an important decision for property professionals. Following the Court of Appeal’s judgment, Valuation Officers had been declining to adjust rateable value while premises had been undergoing this sort of work, creating a serious tax burden on development. This decision will hopefully change this.
This judgment does not, however, give license for landowners to deliberately reduce rates by removing facilities in order to make the property incapable of occupation. This point was dealt with by the courts, who suggested that the Government could still use anti-avoidance measures in Section 66A of the Local Government and Finance Act 1998 to disregard these kinds of changes to the property.
[1] Newbigin (Valuation Officer) v SJ & J Monk (a firm) [2017] UKSC 14
[2] paragraph 2(1)b of Schedule 6 of the Local Government Finance Act 1988 (as amended by the Rating (Valuation) Act 1999)