Nil value where repair was “uneconomic”

The Upper Tribunal (Lands Chamber) has determined that a property in Mount Pleasant Road, Tunbridge Wells, which forms part of a redevelopment site, should have its Rateable Value reduced to £0 because a hypothetical landlord would not consider it economic to incur the costs of repair given the uncertainty of rental income from the property. The decision in Barber (VO) v CEREP III TW SARL (2015) UKUT 021 (LC) is significant because it is the first decision from the Upper Tribunal on the issue of “state of repair” since the judgment of the Court of Appeal in Newbigin (VO) v SJ & J Monk (2015) EWCA Civ 78.

The property at 43 Mount Pleasant Road had been built in the 1960’s and used as a shop until about 2008. It now formed part of a site known as the “Cinema redevelopment site”. Other properties in the redevelopment site were hoarded off , but the appeal property remained outside the hoardings. At some time after 2008 the property had been vandalised and, as a result, brown asbestos had been disturbed and was exposed. The Valuation Tribunal for England determined that the assessment of the property should be reduced to Rateable Value £0 because the presence of exposed brown asbestos rendered it incapable of beneficial occupation.

The Valuation Officer appealed against that decision and contended that the works required to the property were works of repair; that the cost of those repairs was reasonable in relation to the value of the property and that the property therefore had to be valued in an assumed “reasonable state of repair”.

In its decision the Upper Tribunal (Lands Chamber) determined that, following the Court of Appeal guidance, the Valuation Tribunal decision could not stand, because the question to be asked was not, as the Valuation Tribunal had determined, whether the property was incapable of beneficial occupation. Instead the questions to be answered were those set out by the Court of Appeal in Newbigin which were: firstly, was the property in repair; secondly, if the property was not in repair, were the works required to make it capable of occupation works of repair; and thirdly; if the works were works of repair, were they ones that a reasonable landlord would consider economic?

The evidence was that the property was not in repair, and the Upper Tribunal decided that the works required to make it capable of occupation did, indeed, fall within the definition of repair as set out by the Court of Appeal in Newbigin. However, the Tribunal determined that a reasonable landlord would not consider the cost of the works, which were equivalent to about two times the rental value of the property in a reasonable state of repair, to be economic. This was because the prospect of redevelopment and the presence of adjoining properties which were hoarded up and were also part of the redevelopment site, would mean that a hypothetical landlord would “have no confidence that his investment in repairs would yield much, if any profit”. Because the works of repair were ones that a reasonable landlord would not consider economic, the property fell to be valued in its actual condition, rather than in an assumed reasonable state of repair and, in its actual condition, its value was nil.

This decision gives some important perspective on how the tests set out by the Court of Appeal in Newbigin should be applied in practice, and may help show that counter-factual assumptions, such as the assumed reasonable state of repair, do not always have to lead to counter-factual answers.