You should read this if you own or manage empty, rateable property of appraise refurbishment schemes.

It has just got harder legitimately to avoid empty property rates.  An important court decision last week criticised the guidance given by the Valuation Office Agency to its officers.  Remarkably, this confrontation resulted in a win for the Valuation Officer and defeat for the ratepayer.

The ratepayer owned a building with an empty unlet floor.  It commenced a refurbishment programme.  After the existing premises had been stripped out, the ratepayer proposed a reduction in the rateable value (RV) of the floor to a nominal £1.  Its intention was to sub-divide the floor into three separate lettable parts.  The Valuation Officer would not agree to that, contending that the RV should be that for a building in repair.

The issue for decision was what physical state was the floor assumed to be in for the purpose of rates liability?  The answer was found in the statutory formula for assessing an RV, being a hypothetical rent of the property, assuming the tenant pays for the repairs. A further assumption is that the premises:

  • are in a state of reasonable repair; excluding
  • any repairs “which a reasonable landlord would consider uneconomic”.

These factors are “potentially counter-factual”.  In last week’s case, the assumption was, in reality, counter-factual.  So how does it work?  You value the property as it stands on the relevant date; this is the reality principle.  In this case, one started with a stripped out floor.  The ratepayer’s intention to refurbish was irrelevant.  What mattered was whether the ratepayer could put the floor back into repair.  In this case it could.  So assume repair, meaning work to remedy the damage or deterioration from the strip-out, but not improvements.

The ratepayer’s only escape would be if a reasonable landlord would consider the repairs uneconomic.  There was no evidence of this.  The outcome was an assumed rateable unit whose RV would reflect its state of repair without any strip-out.

What this means is that owners who seek to reduce an RV to reflect ongoing works must focus on proving that the cost of repairs would be uneconomic.  At least the court has provided ratepayers with that roadmap for the future.

Source:  Newbigin (VO) v Monk [2015] EWCA C iv 78.