Newbigin (Valuation Officer) v. S J & J Monk (a firm) - (01 Mar 2017)
A hereditament is to be valued as it in fact existed at the material day
Appellants (“SJJM”) own the freehold of first floor of a three-storey office building built in the 1990s. In past, premises were occupied by tenants as a single office suite. In 2006, tenants vacated premises and in December 2009 SJJM accepted surrender of lease of premises. On 9 March 2010, SJJM entered into a contract with Jomast Developments Ltd. for renovation and improvement of premises with a view to making them more adaptable for use as either three separate suites of offices or as a single suite, in order to attract replacement tenants.
On 6 January 2012, SJJM’s agents proposed to Respondent, who is the valuation officer for Sunderland (“the VO”), that the description of the premises on the rating list should be altered with effect from 1 April 2010 to “building undergoing reconstruction” and that the rateable value should be reduced to £1. The agents justified their proposal on the basis that the premises were undergoing building works which rendered them incapable of beneficial occupation on the material day. They explained that the scheme of building work was “remodelling and refurbishing the floor plate to allow subdivision into up to three separate offices served by communal W/Cs”. The VO did not accept the proposal and referred it to the Valuation Tribunal for England (“the Valuation Tribunal”) as an appeal against his refusal to alter the rating list.
Valuation Tribunal dismissed SJJM’s appeal. It identified the material day as 6 January 2012 and concluded that on that day there was nothing to prevent the economic repair of premises. It held that, premises were an office suite in disrepair and were to be rated as if they were in reasonable repair. SJJM appealed to the Upper Tribunal (Lands Chamber) (“UT”). The Upper Tribunal held that the property had been stripped out beyond reasonable repair. Para 2(1)(b) assumption did not extend to the replacement of systems which had been completely removed. The property should be rated as a “building undergoing reconstruction” and the rateable value of the premises reduced to £1. Court of Appeal allowed the VO’s appeal and held that para 2(1)(b) created an assumption that the repairs would return the premises to their former state, provided that they were economic. This displaced the reality principle that the property should be valued as it existed on 6 January 2012. The property should be valued as if it were in a state of reasonable repair.
For many years and long before Parliament enacted Schedule 6 to Local Government Finance Act 1988, it had been an established principle of rating law that a hereditament is to be valued as it in fact existed at the material day. Reality principle continues to be a fundamental principle of rating and is manifested in Schedule 6 to the 1988 Act, in particular in para 2(6) and (7). Legislative history shows that the repairing assumption which para 2(1) of Schedule 6 introduced did not supplant the reality principle to that degree.
The Rating (Valuation) Act 1999, by introducing assumption of reasonable repair at the outset of hypothetical tenancy (“repair assumption”), is not addressing the question of whether the premises were capable of beneficial occupation, which, in context of a building undergoing redevelopment, is a logically prior question. Thus, repair assumption (para 2(1)(b)) applies to matters affecting the physical state of the hereditament (para 2(7)(a)) but not to the mode or category of occupation of the hereditament (para 2(7)(b)).
When in course of a redevelopment some part of developed property becomes capable of beneficial occupation, and thus becomes a separate hereditament, assumption in para 2(1)(b) might apply to that part. Thus, if, in course of the conversion of a hospital into offices, a part of development became capable of beneficial occupation as flatted accommodation, para 2(1)(b) might apply to deem a hole in the roof of that part to have been repaired immediately before the beginning of the hypothetical tenancy of that part. But para 2(1)(b) neither deems the development to be complete nor assumes that the building in whole or in part is in a state of repair to be let as a hospital.
The location of the reality principle in para 2(7) of Schedule 6 does not require a valuation officer to disregard the fact that a building is incapable of occupation because it is undergoing reconstruction. While a building which is undergoing reconstruction may be incapable of occupation for a time, it has been the practice of Valuation Office to treat the property as a hereditament with only a nominal value rather than to remove the property from rating list temporarily. There is no bar to implementing a proposal to alter the description of the hereditament 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. There is also, no basis for the alternative argument that a building can be listed as being under reconstruction only once the works have proceeded so far that it is no longer economic to restore the hereditament to its former state by means of repair. Premises were undergoing reconstruction on material day and that the UT was entitled to alter the rating list as it did to reflect that reality.
Relevant : Para 2(1)(b) of Schedule 6 to Local Government Finance Act 1988; Rating (Valuation) Act 1999
Tags : PROPERTY VALUATION REALITY PRINCIPLE