16 March, 2016
The long standing confusion as to how to value a building undergoing substantial refurbishment has come before the Court of Appeal in Newbigin v SJ and J Monk.
The statutory framework prescribes that the rateable value is calculated by reference to rental value in a reasonable state of repair ‘but excluding from this assumption any repairs which a reasonable landlord would consider economic.’
In Newbigin, the Court of Appeal ruled that the Valuation Tribunal had made an error by attributing a rateable value of £1 to offices which lacked almost all internal elements, electrical wiring and sanitary fittings. Whilst Newbigin has provided clarity on what ‘repairs’ are, the judgment does not assist developers and investors in establishing what their rates liability could be during refurbishment works being undertaken.
So how is rateable value assessed?
It is assessed by reference to rental value, assuming a reasonable state of repair.
Repair has the common law meaning; the property is reasonably fit for occupation by a reasonably minded tenant of the class who would be likely to take the lease, having regard to the characteristics of the property (including age).
If a property is in disrepair, this means that the property has deteriorated. The reason for the deterioration is irrelevant.
The whole property has to be considered when considering ‘what constitutes repair.’ The outcome of Newbigin demonstrates that the reinstatement of services which previously have been stripped out, may not constitute a building that was substantially different, but rather are likely to constitute repairs.
What does this mean?
When investors and developers are refurbishing empty properties, it is vital that they consider whether the property will be different in kind to avoid rate liabilities being triggered whilst refurbishment works are being undertaken. Newbigin does not assist in clarifying what constitutes refurbishment over repair and so the debate over liability for business rates lives on another day.
Developers and investors will need to review their position to ensure that, if they wish to benefit from business rates mitigation schemes whilst the building is under refurbishment, they are able to do so. What may have previously proved sufficient may no longer do so, and it is important to be aware of recent case law and its effect on existing business rate mitigation strategies and their applicability.
If you would like any further information on this subject please don’t hesitate to contact Peter Rolph, a Partner in the dispute resolution team specialising in property litigation on 01202 204 507 or firstname.lastname@example.org.