Supreme Court ruling on empty business rates is a welcome relief for commercial property owners

Supreme Court ruling on empty business rates

The Supreme Court has ruled on the long awaited decision regarding empty rates liabilities in Newbigin (Valuation Officer) v S J & J Monk (a firm) (2017). Commercial property owners are relieved at the outcome where the Supreme Court held a commercial building in the course of redevelopment should be valued for rating purposes in its current state and not as if it were still usable, enabling reductions in the rates list. In this particular case, the “building undergoing reconstruction” had a rateable value of £1. The case has restored the previous established practice of ascribing nominal values to property undergoing redevelopment.

The facts in Newbigin (Valuation Officer) v S J & J Monk (a firm) (2017)

S J & J Monk (“Monk”) owns the freehold of the first floor of a three-storey office, known as Avalon House (“the Premises”). The previous tenant occupied the Premises as a single office suite and in December 2009 Monk accepted the surrender of the lease of the Premises. On 9 March 2010, Monk entered into a contract for the renovation and redevelopment of the Premises into three separate units to be let. The works consisted of stripping out the space, demolishing the block walls and removing the cooling system and sanitary fittings, as well as other works.

As a result of the redevelopment works, Monk proposed that the rateable value should be reduced to £1, from £102,000. The Valuation Officer (“Newbigin”) did not agree to reduce the rateable value and “assumed” that the Premises were in reasonable repair as “offices and premises”, even though in reality they were not.

Monk appealed the decision of Newbigin to the Valuation Tribunal. The case concerned the proper interpretation of the statutory assumption that property is in a state of reasonable repair when it is valued for rating purposes. The Valuation Tribunal rejected the appeal and held that the rateable value should not be reduced, agreeing that the statutory assumption as to the property being in repair should apply. Monk appealed further to the Upper Tribunal (Lands Chamber).

The proceedings in Newbigin (Valuation Officer) v S J & J Monk (a firm) (2017)

The Upper Tribunal agreed with Monk and held that business rate valuations should follow the reality of premises, with no assumptions to be made as to their future use. In this case, the Premises, as a boarded up and stripped out office building, had a rateable value of no more than £1.

Newbigin appealed to the Court of Appeal, who held that there should be a statutory assumption that an office building in the course of redevelopment is in a reasonable state of repair. So where a landowner “stripped out” a property the rateable value would not be decreased. As a result of the Court of Appeal decision, valuation officers assessed premises at full value until construction had begun.

Monk appealed the decision of the Court of Appeal to the Supreme Court, who gave judgment for this case on 1 March 2017.

The Supreme Court decision

The Supreme Court, allowing the appeal of Monk, held that the Premises were undergoing reconstruction and that the Upper Tribunal was entitled to alter the rating list to reflect the reality of the Premises. The Supreme Court held a commercial building undergoing redevelopment should not be valued as if it were in a reasonable state of repair and usable. The Supreme Court held that the physical state of a commercial building should be assumed to be in repair, but that the category of occupation should be found as in reality. Here, the Premises were categorised as a building under construction and the rateable value was £1.

Commentary

This decision is to be welcomed by developers of commercial buildings. Owing to the decision of the Supreme Court a building undergoing construction will not necessarily be assessed as having a full rateable value, but will be assessed as found in reality.

For further information, please contact the Real Estate Disputes Team at Hamlins.