Businesses are entitled to a rates holiday if refurbishment means the building is unfit for occupation while works are ongoing. In such cases, ratepayers can request that the rateable value of the property is reduced to £1. But they might not be successful – as demonstrated by the recent Court of Appeal decision in the case of Newbigin (Valuation Officer) v S J & J Monk (a firm) [2015] EWCA Civ 78.
The rateable value of vacant business property is based on the amount of annual rent reasonably obtainable for it assuming the property is in a state of reasonable repair, regardless of the actual state of the property, and assuming the tenant is responsible for repair. But where the repairs would not be economic, the valuation is based on the annual rent reasonably obtainable for the property in its unrepaired state. When ascertaining whether works being undertaken constituted repair works, the court held it was necessary to compare the property in its actual state with its previous state and apply the normal common law test of what constituted repairs.
In this case the owner had stripped out the air conditioning system, electrical wiring, sanitary fittings and most of the ceiling tiles preparatory to redeveloping the property as three new letting units but the court rejected the view that the replacement of major building elements went beyond repair. The court held that, on the facts, replacement of the stripped out elements (none of which was structural) were repairs, as they required replacement of subsidiary parts of a whole and that as at the valuation date, the property could be put back economically into its former state of repair and so rates should be assessed and paid on that basis. It was irrelevant that the ratepayer intended to create a different kind of property ultimately.
This judgment aims to clarify the meaning of 'repairs' and notes that certain aspects of the Valuation Office Agency's Rating Manual on the subject are misleading. Whether the work required to put property into repair can be fairly described as 'repairs', and whether it is economic, will depend upon the particular facts. In doing so the Court of Appeal has overturned the Upper Tribunal’s decision in favour of the ratepayer last year, which had been welcomed as giving landowners reassurance that they could undertake refurbishments without having to factor empty rates into their costs budgets. Following this decision, owners or tenants of vacant non-domestic premises undergoing refurbishment should not assume that their properties will be assessed at a nominal rateable value, which may well deter some investment in upgrading stock.
For more information please contact Ross Polkinghorne in our Real Estate Development team or Matt Sims in our Real Estate Investment team.