This briefing provides a summary of recent decisions in relation to how premises are to be assessed for ratings purposes and important changes in the pipeline with upcoming appeals and the passing of the Enterprise Act 2016.

Monk v. Newbigin (VO) (C3 2014 1549 2015 EWCA)

  • The Supreme Court will hear the appeal in Monk v. Newbigin on 16 July 2016.
  • Prior to Monk, no rates would be payable where premises had been demolished or stripped out until the refurbished or redeveloped premises were complete. However, the Court of Appeal held that premises would be assumed to be in repair, notwithstanding their actual condition, unless a reasonable landlord would consider the repairs to be uneconomic.
  • Consequently, premises in substantial disrepair ahead of refurbishment or redevelopment will no longer necessarily attract a zero value in the ratings list. This is a worrying decision for developers, who anxiously await the Supreme Court's verdict on the appeal.

Barber (V0) v. Cerep III TW Sarl [2016] R.A. 20

  • Developers' concerns were eased somewhat in this case, which was the first practical application of the uneconomic test set out by the Court of Appeal in Monk.
  • The premises in Barber were derelict and hoarded up pending restoration works being carried out. The Tribunal emphasised that the test is whether a reasonable landlord would consider the works of repair to be economic and not whether he would actually carry out such works.
  • In this case the Tribunal concluded that the cost of putting the premises into repair (£112,000) was uneconomic in circumstances where this was equivalent to two years' rent. Consequently the premises attracted a rateable value of £0 even though the restoration works had not yet begun.

Woolway v. Mazars [2015] UKSC 53

  • The Supreme Court reversed the decisions of the Valuation Tribunal, the Upper Tribunal and the Court of Appeal and held that two non-contiguous floors let by the same occupier within a building should be treated as two separate hereditaments. In reaching this conclusion, the court referred to a three-pronged test of physical proximity, functional reliance and enjoyment of the two units.
  • The fact that the two floors were not interconnected and could only be accessed via the common parts as well as the ability to let each floor separately were instrumental in the court's decision.
  • We have yet to see the full extent of the consequences flowing from this decision but it will alert occupiers and investors alike to the fact that what has previously been considered a single hereditament may subsequently be treated as two distinct hereditaments for ratings purposes. This is seen further in the ATMs decision below.
  • In particular Mazars leaves open the possibility of two contiguous floors being treated as separate hereditaments where access between them is via the common parts alone and there is no other apparent connection between the units to justify treating them as a single hereditament.
  • For further information on this case, please see link: http://www.dentons.com/en/insights/alerts/2015/august/14/geography-function-and-objective-necessity-a-new-approach-to-non-domestic-rates-in-the-office

ATMs

  • The Valuation Tribunal decision in Sainsbury's and Others v. Valuation Office Agency is to be appealed. An appeal date is currently awaited.
  • The Tribunal determined that ATMs were in the rateable occupation of the bank rather than the respective retail operators and should therefore be listed separately in the ratings list. This decision looks at issues of paramount control, physical occupation and the purpose of such occupation. It has attracted significant interest and has led to concerns about the valuation implications of splitting what was previously considered to be a single hereditament.

Reform

  • With the new list being published on 1 April 2017, resource in the Valuation Office Agency is being diverted from case settlement to re-valuation with over 2 million properties to be valued. 90% of such valuations are now complete.
  • There are currently 280,000 cases outstanding and we can expect various new initiatives to try to address the backlog and create a more efficient system.
  • The Enterprise Act 2016 was given Royal Assent on 5 May 2016. It introduces a new "check, challenge, appeal" process with the new check stage to be introduced between four and twelve months to ensure the accuracy of valuation proposals at an earlier stage.
  • The Act contains measures to make the business rates appeal system more transparent and easier to navigate. The changes seek to ensure that businesses can be confident that their valuations are correct and that they are paying the right amount of business rates with any errors in proposals being picked up at the earlier new "check" stage (between four and twelve months from submission of the proposal).