The UK Supreme Court has issued its decision in the appeal in Newbigin (VO) v S J & J Monk, which is likely to have a significant positive effect on rates liabilities for owners and developers of property which is the subject of refurbishment or redevelopment. The case concerned the statutory assumption that property is in a state of reasonable repair when it is valued for rating purposes and how the principle applies to a building undergoing reconstruction.

Schedule 6 of the Local Government Finance Act 1998 (as amended) details how the rateable value of a non-domestic property (a hereditament) shall be assessed. Paragraph 2(1) of Schedule 6 states that the rateable value shall be “taken to be an amount equal to the rent as which it is estimated the hereditament might reasonably be expected to let from year to year” subject to three assumptions. We are concerned here with the second of these which reads as follows: “immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic”.

In a welcome decision, the Supreme Court has held that the statutory assumption applies to the physical state of the property but that it is necessary to objectively assess whether the property is capable of occupation before determining the appropriate rateable value. The decision does away with the need to assess whether it is economic to repair a building.

A distinction is drawn between properties which are being refurbished and those which are in disrepair. Owners and developers whose properties are in the process of being refurbished and cannot be occupied should be able to propose that their property be described on the rating list as a “building undergoing reconstruction” with a nominal rateable value only.

Supreme Court decision

After hearing evidence from the Rating Surveyors Association and the British Property Federation as well as SJ&J Monk and the Valuation Officer, the Supreme Court held that:

  • the Court of Appeal was wrong to conclude that the statutory assumption as to reasonable repair displaced the principle of reality to such a degree. The assumption applies to matters relating to the physical state of a property but it is still necessary to separately consider the question of whether premises were capable of occupation;
  • it is a matter of objective assessment for a valuation officer to determine whether a property is undergoing reconstruction, or whether it is simply in disrepair. If it is under construction, it is not capable of beneficial occupation and therefore the statutory assumption does not apply; and
  • for the period during which a building is incapable of occupation, there is nothing to prevent a change to the description of a property on a rating list to a “building undergoing reconstruction”, and for the listed rateable value to be reduced to a nominal amount; and
  • it did not accept the argument that a building could only be listed as under reconstruction once the redevelopment works have proceeded so far that it is no longer economic to restore the property to its former condition by means of repair.

This decision is a welcome relief, particularly at a time when ratepayers are facing the 2017 Business Rates revaluation.