Business rates: back to reality
6th March 2017
The Supreme Court has overturned the Court of Appeal decision and found in favour of the ratepayer in this much-anticipated business rates case involving the rateability of a property which was undergoing substantial renovation.
The ratepayer submitted that the value of such a property should be nominal as it would be incapable of rateable occupation, whereas the Valuation Office contended that – in line with rating assumptions - the property should be deemed to be in reasonable repair and therefore should be valued as such.
The case involved offices in Sunderland. On the relevant date for valuation, the ratepayer was in the midst of redeveloping the property. Ceiling tiles and parts of the raised floor had been removed and services had been stripped out, with the likelihood that the offices were going to be separated out into three new suites. In line with established thinking, the ratepayer assumed that the property would be incapable of beneficial occupation during the period of works and had sought a rateable value of £1.
The Valuation Office, however, raised a novel argument. Rateable value should be assessed in accordance with what a willing tenant would pay a willing landlord for the property concerned, with the property’s use and condition being assessed on a particular date and in line with various assumptions. One of these assumptions is that the property should be deemed to be in a reasonable state of repair unless the hypothetical landlord would consider it uneconomic to undertake these repairs.
The Valuation Office in this case argued that, although the redevelopment works were substantial, it would still be economic for the property to be put back into repair on the relevant date and the property should therefore be valued as if in its prior state and in its prior use – offices – which resulted in a rateable value of £102,000.
In its judgment, the Supreme Court placed great emphasis on the presumption of reality which underpins the rating hypothesis. On the relevant date the property was not capable of being occupied as offices and was genuinely a property undergoing reconstruction, and should appear in the rating list as such. The starting point should be whether a property can be beneficially occupied before the valuer beings to consider whether the property is in a state of disrepair or not.
- During periods of redevelopment, properties should be given a nominal value on the rating list if they are incapable of beneficial occupation
- However, the extent of works necessary to constitute ‘reconstruction’ could well be the subject of further appeals
- Also, parts of a property may become capable of beneficial occupation – and therefore rateable – as building works progress
- There are hundreds of similar appeals currently stuck in the system and it is hoped that the Valuation Office will take a sensible approach to settling these so ratepayers can pursue refunds as soon as possible.