The Valuation Office Agency (VOA) has updated its practice note on valuation principles in the light of the decision of the Supreme Court in Newbigin (Valuation Officer) v S J & J Monk (a firm). The amendments refer to Part 6: Disrepair practice note and now require the valuation officer to ascertain whether premises are “undergoing reconstruction rather than simply being in a state of disrepair”. If so, the premises are incapable of beneficial occupation and of only nominal value for ratings purposes.
The updated note states that it is for a valuer to make a judgement, based on objective evidence, about whether a building is undergoing reconstruction. It is clear that a programme of works need to be “fairly substantial” so as to constitute reconstruction; this does not include redecoration, basic refurbishment or the sort of works a tenant might do during the course of the lease. Instead, in order to constitute reconstruction, the works must result in a “materially different” hereditament to that which existed before the works took place.
Stripping out on its own does not constitute a programme of reconstruction but rather simple damage, putting the hereditament into a state of disrepair. A property that is deliberately damaged with a view to reducing or avoiding rate liability, known as “constructive vandalism” or “soft-stripping”, will not receive a nominal value for ratings purposes. However, a project of demolition followed by an immediate reconstruction project is likely to constitute a programme of reconstruction. This should be distinguished from stripping out with only a vague expectation of future demolition, which will be treated as mere disrepair.
Other factors the VOA will consider when assessing whether a programme of redevelopment is underway are whether any building contract has been agreed and the existence of an approved planning consent or building control application.
Where the programme of reconstruction relates to only part of the premises, the whole hereditament is valued on the assumption that the part under reconstruction is effectively out of use on a permanent basis. The VOA has stated that the reconstruction of a part of the premises is unlikely to have a knock-on effect on the rateable value of the remainder, unless that reconstruction is in relation to a part of the premises on which other parts are dependent. An example meeting this criteria are works done to a main reception area which prevent access to the rest of the building.
Deciding whether there is a programme of works constituting reconstruction is a prior question to be answered before considering valuation. The limitations of valuation assumptions do not apply until this is decided and all facts can be objectively assessed.