Rateable Value

March 2nd, 2017 by James Goudie KC

Does a commercial building which is in the course of redevelopment have to be valued for the purposes of rating as if it were still a useable office. Paragraph 2(1) of Schedule 6 (“Non-domestic rating: valuation”) to the Local Government Finance Act 1988, as amended by the Rating (Valuation) Act 1999, provides that the rateable value of a property is an amount equal to the rent at which it is estimated it might be expected to be let from year to year, subject to the assumption, in para 2(1)(b), that, immediately before the tenancy begins, the property is in a state of reasonable repair, but excluding from that assumption any repairs which a reasonable landlord would consider uneconomic. The issue of general public importance to the law of rating and valuation in Newbigin (Valuation Officer) v SJ & J Monk (2017) UKSC 14 was whether a property should be rated in accordance with the para 2(1)(b) assumptions or in accordance with its physical condition on the relevant date for determining rateable value on an application to alter the rating list.  On that date the property was stripped to a shell in the course of renovation works.  The Supreme Court held, allowing an appeal from the Court of Appeal, that the property had been stripped out beyond reasonable repair and should be rated as a “building undergoing reconstruction” and the rateable value reduced to the nominal amount of £1 from £102,000, not on the assumption that it was in reasonable repair as “offices and premises”.

Before Parliament enacted Schedule 6 to the 1988 Act it had long been an established principle of rating law that property should be valued as it in fact existed on the material day. That principle is referred to as “the reality principle”.   The reality principle continues to be a fundamental principle of rating.  It is manifested in Schedule 6, in particular para 2(6) and (7).  They provide that certain matters relating to the property, including matters affecting its physical state and the mode or category of its occupation, shall be taken to be as they are assumed on the material day.  The legislative history shows that the repairing assumption introduced by para 2(1)(b) of Schedule 6 did not supplant the reality principle by requiring that the premises are to be assumed to be in a reasonable state of repair for the mode of occupation listed on the rating list.

The para 2(1)(b) assumption of reasonable repair at the outset of a hypothetical tenancy is not addressing the question of whether the premises were capable of beneficial occupation. In the context of a building undergoing redevelopment that is a question that requires to be asked first. Therefore, the repair assumption applies to matters affecting the physical state of the property (para 2(7)(a)) but not to its mode or category of occupation (para 2(7)(b)). A Valuation Officer must assess objectively whether a property is undergoing reconstruction, and therefore incapable of beneficial occupation, rather than simply being in a state of disrepair.  In carrying out that objective assessment of the physical state of the property on the material day, the Valuation Officer can have regard to the programme of works being undertaken on the property. If the works are assessed as involving redevelopment, there is no basis for applying the para 2(1)(b) assumption to override the reality principle and to create a hypothetical tenancy of the previously existing property in a reasonable state of repair. This is both because a building under redevelopment, like a building under construction, is incapable of beneficial occupation and because the hypothetical landlord of a building undergoing redevelopment would not normally consider it economic to restore it to its prior use.

There is no statutory bar preventing an application to alter the rating list to reflect the actual state of the property undergoing redevelopment. There is also no bar to implementing a proposal to alter the description of a property on the rating list from “offices and premises” to “building undergoing reconstruction” and consequently to reduce the listed rateable value to a nominal amount if the facts, objectively assessed, support that alteration. Furthermore, there is no basis for the argument that a property can be listed as being under reconstruction only once the works have proceeded so far that it is no longer economic to undertake repairs to restore the property to its former state.

On the facts, the building was undergoing reconstruction on the relevant date. The Upper Tribunal was entitled to alter the rating list to reflect that reality.  Its determination was restored.


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