In Newbigin (Valuation Officer) v S J & J Monk (a firm) , the Supreme Court decided that a vacant non-domestic property undergoing refurbishment did not have to be valued for business rates as if it were a useable office thereby reducing the rateable value of the property from £102,000 to £1.
In 2010, the owner of a vacant first floor office space in Sunderland, which had been vacant since 2006, had entered into an agreement with a construction company for extensive renovations to be carried out.
The building was listed in the 2010 list as “offices and premises” with a rateable value of £102,000. When this was due to be re-assessed in 2012, it remained vacant and the property was still in the process of being redeveloped and the installation of services was incomplete.
The owner of the property argued that the rating list should be altered to a “building undergoing reconstruction” and that the rateable value should be set at £1. The Court of Appeal found in favour of the Valuation Officer and held that the statutory assumptions took precedence which meant the building should remain listed as “offices and premises” with the rateable value of £102,000.
Issue – Reality v Repair
The Reality Principal sets out that a property should be valued on how it existed on the valuation date. The Repair Assumption sets out that when a non-domestic property is vacant, on the valuation date, the property should be valued based on the amount of annual rent reasonably obtainable on the assumption that the property is in a reasonable state of repair, regardless of the actual state of repair.
This case centred on which of these two principals should apply and whether the Repair Assumption required the Valuation Officer to assume the property was in a reasonable state of repair.
The Reality Principal applied. The Supreme Court held that the property was not capable of occupation and that the rating list should be altered to reflect reality. The rateable value of £1 applied with the description of a “building undergoing reconstruction”. The Court stated that in deciding whether a building is undergoing reconstruction, the matter must be assessed objectively.
The Supreme Court dismissed concerns that this would create deliberate avoidance tactics by owners of empty buildings removing facilities from their premises and claiming that they are not capable of occupation. The Court reiterated the anti-avoidance provisions under the LGFA 1988 which can be invoked to prevent avoidance measures. This decision is no doubt a welcome relief for property owners and developers.
Richard Farr, RICS Registered Valuer at Sanderson Weatherall LLP and the surveyor responsible for this rating case, offers his verdict on the decision:
“I am delighted by the eventual ruling at the Supreme Court, four years after I first started this case. The decision is welcome news for ratepayers, who will not be required to pay business rates on properties that are undergoing refurbishment and remodelling. In a rapidly moving property world where functional and physical obsolescence are common and demand fluctuates this decision marks the return of realism to the tax system.”
If you have any questions or require further advice, please contact our Commercial Property department on 01642 356 500. Alternatively, should you wish to discuss this matter with Richard Farr, please email Richard at Richard.Farr@sw.co.uk or contact him on 0191 269 0115.