The case of SJ & J Monk v Newbigin (VO) was recently heard at the Court of Appeal.
Monk engaged a contractor to carry out renovation and improvement works including stripping out of the interior and remodelling the first floor of a three-storey office block in Sunderland (pictured) to provide three separate office suites, serviced by new communal wc’s, in place of the single office that previously existed. The floor was described in the 2010 Rating List as “office and premises” with a rateable value of £102,000.
In January 2012, Monk made a proposal to reduce the rateable value to a nominal £1. They relied on the scheme of refurbishment works being a material change of circumstances and argued that the premises were incapable of beneficial occupation whilst the refurbishment works were being carried out. The VO rejected this as did the Valuation Tribunal for England which considered that the assumption in paragraph 2(1)(b) of Schedule 6 to the Local Government Finance Act 1988 applied, such that the hereditament had to be assumed to be in a condition of reasonable repair on the material day in January 2012, where the repairs necessary to put into repair were not uneconomic. It upheld the rateable value of £102,000.
That decision was reversed on appeal to the Upper Tribunal (Land Chamber) which held that paragraph 1(b) did not require an assumption that the hereditament had been reinstated to its condition prior to the commencement of the works and that, where it was in fact incapable of beneficial occupation as an office and premises on the material day, the Rating List should be altered to reflect that fact and the RV was reduced to £1. The Valuation Officer appealed. The Court of Appeal allowed the appeal and the rateable value has recently been reinstated to £102,000.
Detail of the Decision
The Court considered that the assumption required by paragraph 2(1)(b) of the 1988 Act, was potentially counter-factual insofar as it assumed the hereditament to be in a state of reasonable repair, excluding any repairs which a reasonable landlord would consider uneconomic. A state of “reasonable repair” was such repair as, having regard to the age, character and locality of the property, would make it reasonable fit for the occupation of a reasonably-minded tenant in the class that would be likely to take it: Proudfoot v Hart (1890) applied. The Valuation Officer therefore had to begin by asking whether the hereditament, in its actual condition, was in such a state. Although it was not in reasonable repair as an office and premises as at January 2012 owing to the ongoing works, on the application of para 2(1)(b), it still had to be assumed to be in that state, unless that would involve the carrying out of “any repairs which a reasonable landlord would consider uneconomic”.
The word “repairs” in that context, meant repairs as traditionally understood in the law of the Landlord & Tenant: Camden London Borough Council v Langford (VO) 1980 applied. Accordingly, the only kind of works that could be assumed to be carried out were works of repair, works going beyond repair did not have to be assumed.
A property that requires repair within a worse condition than it had been at some earlier time. Why it was in that condition did not matter in the intentions of a particular property owner or ratepayer were irrelevant, since value had to be assessed objectively: Post Office v Aquarius Properties Ltd (1986) applied. The relevant part of the building was in worse condition on the material day in January 2012 than it had been previously owing to the decision to strip out the interior. The replacement of the stripped-out elements, none of which was structural, could fairly be described as repairs, since they amounted to the replacement of subsidiary parts of the whole: Lurcot v Wakely (1911) and McDougall v Easington District Council (1989) applied.
On the findings of the Valuation Tribunal, the hereditament could economically be put back into its former state. Whether anyone would actually wish to do so was irrelevant, since the question was whether it could, not would, be done. Accordingly, the repair works were not excluded on uneconomic grounds. It was not uneconomic to reinstate the building and the assumption of reasonable repair was therefore applied.
Whilst this has made life more difficult, there are other ways of mitigating rates liabilities, please let us know if you need any further information.
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24 February 2015