Property owners undertaking redevelopment works will welcome today's Supreme Court decision in Newbigin (Valuation Officer) (Respondent) v SJ & J Monk (a firm) (Appellant).
The issue in the case was how the rateable value of a property undergoing redevelopment works should be assessed.
A property owner has to pay rates on its property according to its rateable value.
In this case, the 2010 rating list had listed the property as "offices and premises" with a £102,000 rateable value.
The owner was undertaking extensive redevelopment works and wanted to reduce its rates bill during the period of these works. Therefore, it proposed to the Valuation Office that the description should be changed to "building undergoing reconstruction" and the rateable value reduced to £1.
This reduction in rateable value was significant and resulted from the fact that the property could not be occupied during the works.
The Court of Appeal decided that paragraph 2(1)(b) of Schedule 6 to the Local Government Finance Act 1988 applied and that the rateable value had to be assessed on the assumption that the property was in a reasonable state of repair. This was obviously false, and sent shock waves through the property industry. To take this approach departed from the long held principle that a property should be valued as it existed on the material day – the principle of reality.
In overturning the Court of Appeal's decision, the Supreme Court has declared that the principle of reality must be followed.
Where a property is undergoing redevelopment, the first step is for the valuation officer to establish whether it is capable of beneficial occupation on the material day. If it is not, there is no need to go further.
However, if the property is assessed as being capable of beneficial occupation, that is when the test in paragraph 2(1)(b) applies.
The test to be applied by the valuation officer is an objective one. The intention of the freehold owner is not relevant. Whilst the assessment of the physical state of the property has to be carried out on the material day, the valuation officer can take account of the programme of works being undertaken.
The Supreme Court considered whether it would lead to an abuse of the system. So, for example, would it lead to property owners removing windows or other items to render the property incapable of occupation? The Supreme Court did not consider the risk of abuse great. However, it decided that any potential abuses of the system could, if necessary, be dealt with by regulations issued by the Secretary of State and Welsh Ministers.
The decision will be welcomed by property owners. It takes us back to the position before the Court of Appeal decision, and re-establishes the importance of the principle of reality in rating law.Contributor: Alexandra Holsgrove Jones