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In an earlier news item we commented on a case where the Upper Tribunal (Lands Chamber) applied only a nominal rateable value to an office property that had been stripped out as part of a scheme of refurbishment. Our news item “Nil assessment for property undergoing works” reported that the Valuation Office Agency had appealed to the Court of Appeal against that decision.
The Court of Appeal has now issued its judgment in that appeal Newbigin (VO) v SJ & J Monk (a firm) (2015 EWCA Clv 78). The Court of Appeal has allowed the Valuation Officer’s appeal and has determined that the valuation for rating must assume that the property is in a reasonable state of repair, not in its actual condition.
The appeal concerned offices on the first floor of a building known as Avalon House at Sunderland Enterprise Park. The offices had been stripped out including removal of sanitary fittings, electrical wiring including the comfort cooling system, most of the ceiling tiles and light fittings and about 50% of the raised floors. the Upper Tribunal (Lands Chamber) held that in its actual condition the property was incapable of beneficial occupation and that it should be valued at only a nominal rateable value.
The Appellant Valuation Officer contended that the Upper Tribunal had been wrong to hold that the “reasonable state of repair”, which is assumed to apply when valuing for rating purposes, did not apply in this case because “repairs” would not include the replacement of items that had been removed, such as the electrical circuits, heating and air conditioning systems.
The Court of Appeal determined that “repairs” would include replacement of these items because, although they had been removed, the question of what constitutes “repair” needs to be considered in the context of the hereditament as a whole, not of the individual elements of it. The Court of Appeal also determined that the question to be answered was whether these elements could be repaired economically, not whether a landlord would do so. The Court also determined that the question of the intention of the person undertaking the works was irrelevant and that the Valuation Office Agency Rating Manual was incorrect to have regard to this.
The Court of Appeal has allowed the appeal which means that the case will now be remitted to the Upper Tribunal (Lands Chamber) to determine the correct rateable value for the appeal property in the light of the Court of Appeal guidance on the interpretation of the law. It looks likely that the rateable value will revert to the previous figure of £102,000 in place of the figure of £1 determined by the Upper Tribunal (Lands Chamber).
This is an important case because it is the first time that the assumed “reasonable state of repair”, which was introduced into legislation by the Rating (Valuation) Act 1999, has been tested at this level. The decision gives clarity on the repairing assumptions that are to be made, but the clarity is not likely to be welcome to property owners who are carrying out repairs or refurbishments.
The interpretation of this assumption given by the Court of Appeal is likely to give rise to some further difficulties.
There are still likely to be disputes in respect of works that involve alterations as well as repair and refurbishment. Also, if properties undergoing refurbishment are to remain in assessment during the works, as this one apparently is, there is the question of what happens to their value when the works are completed. If the works are to be treated as repair, and if all properties are assumed to be in reasonable repair, will this mean that both refurbished and unrefurbished properties have to be valued at the same value?
Finally, there is the question of how this decision, about what works constitute repair and are therefore to be ignored when valuing for rating purposes, sits with more fundamental case law relating to what constitutes a hereditament. One extreme view of this decision might be that a property where all but the shell had been consumed by fire would have to be assessed as being in a reasonable state of repair!
This decision shows some of the problems that can arise when departing from reality and valuing on the basis of artificial assumptions. The Rating (Valuation) Act 1999 was allegedly introduced to “restore the law to its former position” but it seems to have done rather more than that. Is valuing things as they actually are such a mischief that it requires statutory intervention?…
