The Court of Appeal has ruled that rates will be payable unless a vacant building is beyond economic repair.
Liability for empty rates for empty properties is governed by the Local Government Finance Act 1988 (LGFA 1988). If a property becomes unoccupied, the owner does not have to pay rates for three months (shops and offices) or six months (industrial or warehouse premises). Once this period has expired, full rates are payable, subject to some exceptions.
In this case, the owner planned to re-develop the property as 3 separate units and had removed various non-structural items including the comfort cooling system, electrical wiring, suspended ceiling and sanitary fittings. The owner argued that, since the property was unfit for beneficial occupation, it should not be liable for rates.
The LGFA 1988 sets out various assumptions which are to be used by the rating officer to assess the rateable value. These include an assumption by the officer that, if a tenancy of the property were to be granted, then before the tenancy commences the property is in a state of reasonable repair, but excluding any repairs that a reasonable landlord would consider to be uneconomic (paragraph 2(1)(b)).
The Upper Tribunal (Lands Chamber) held that, since the property was not capable of beneficial occupation, the property had a nominal rateable value of £1.
The rating officer, Mr Newbigin, appealed to the Court of Appeal on the basis that, on the date of his valuation, the property was in a state of disrepair but that, faced with a choice between repair and doing nothing, a hypothetical landlord would carry out the repair works necessary to put the property back into repair. Therefore, the repairs would be economic and should be taken into account in valuing the property as being in a state of reasonable repair under paragraph 2(1)(b) of the LGFA 1988.
The owner argued that the refurbishment works were alterations and improvements, and could not be called repairs. There was no intention to recreate the original layout.
The Court of Appeal agreed with Mr Newbigin and held that, on the facts, the replacement of the items which had been removed would be “repair” and they could be put back economically. It did not matter whether in fact they would be put back, or if the property would be used for the same purpose in the future. The court commented that some of the valuation assumptions in the Valuation Office Agency’s Rating Manual, which had been relied on in court, were incorrect.
Repairs had the usual landlord and tenant meaning, and on the date of valuation by the rating officer the property should properly be valued as being in a reasonable state of repair. On this basis, the property was liable for rates.
The case is now the subject of a further appeal to the Supreme Court but, for the time being, the effect of the Court of Appeal judgment is to make it more likely that landlords will be liable for rates while an empty building is being re-developed. If the cost of re-development goes beyond economic repair, then landlords may avoid liability, but this will be a question of fact in each case.