The rateable value of commercial premises is generally equal to the rent payable under a hypothetical letting on the relevant assessment date. There are some express statutory assumptions for this – it is to be an annual periodic tenancy and the premises are assumed to be in a reasonable state of repair unless the works required would be uneconomical for the landlord to carry out. Paradoxically, there is a separate, long standing principle of reality which requires the premises to be valued as they actually exist on the assessment date. How do these two opposing principles fit together?
In early 2010, the owner of a vacant office block embarked on an extensive renovation project, stripping it back to shell and taking out all existing services and systems. The building was listed in the 2010 list as “offices and premises” with a rateable value of £102,000. When this fell to be re-assessed in 2012, it was still vacant. Works were underway, but the re-installation of services was incomplete.
The Court of Appeal found in favour of the valuation officer and held that the statutory assumptions took precedence.
That decision has been overturned this week by the Supreme Court, which decided that the reality principle was overarching. The valuation officer, they said, should have taken a three step approach. First, he should consider whether the premises were actually capable of occupation in the state they existed on the assessment date. This is an objective test. If they were, the second step is to ascertain the mode or category of occupation. These two steps are based on the reality principle. The third step is to apply the statutory assumptions. If any part of a building undergoing redevelopment is capable of occupation on the assessment day, it can be separately assessed for rates and the statutory assumption of repair would apply to that part. In this case, the works had rendered the whole premises incapable of occupation so the statutory assumptions were not engaged. The building should have been rated as a “building undergoing reconstruction” with a nominal rateable value of £1.
The court dismissed concerns of deliberate avoidance tactics by owners of empty buildings as the Secretary of State has the power to enact regulations to prevent owners benefiting from the removal of services before a rating assessment.
There may now be a rise in factual disputes over the extent of redevelopment works and whether all or part of the premises is capable of occupation, but the decision will be welcomed by developers and property owners alike.