Rating – Alteration of list – Material change of circumstances – Refurbishment works –Hereditament shown in rating list as office and premises – Appellant valuation officer rejecting respondent’s proposal to reduce rateable value of hereditament to £1 – Respondent relying on scheme of refurbishment rendering premises incapable of beneficial occupation while works carried out – Upper Tribunal finding in favour of respondent and allowing amendment – Para 2(1)(b) of Schedule 6 to Local Government Finance Act 1988 – Whether works to be assumed to be in state of reasonable repair at material date – Appeal allowed
The respondent owned a hereditament comprising the first floor of a modern three-storey office block in Sunderland. In March 2010, it engaged a contractor to carry out renovation and improvement works which included stripping out the interior and remodelling it to provide three separate office suites, serviced by new communal WCs, in place of the single office suite that had previously existed. When the 2010 non-domestic rating list was compiled in April 2010, the hereditament was listed as “office and premises” at a rateable value of £102,000.
In January 2012, the respondent made a proposal, under regulation 4 of the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009, to alter the entry in the list to reduce the rateable value to a nominal figure of £1. It relied on the scheme of refurbishment works as being a material change in circumstances which made the list inaccurate by affecting the rateable value of the hereditament; in that regard, it argued that its premises were incapable of beneficial occupation while the refurbishment works were being carried out.
The proposal was rejected by the appellant valuation officer and by the Valuation Tribunal for England (VTE). The VTE considered that the assumption in para 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 at the material date in January 2012 where the repairs necessary to put it into repair were not uneconomic. It upheld the rateable value of £102,000.
That decision was reversed on appeal to the Upper Tribunal, which held that para 2(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 list should be altered to reflect that fact: see [2014] UKUT 14 (LC); [2014] PLSCS 91. The appellant appealed.
Held: The appeal was allowed.
The principle that a property should be valued as it stood on the valuation date could be displaced by contrary instructions in the statute or contract under which the valuation took place. The assumption required by para 2(1)(b) of the 1988 Act was potentially counter-factual so far 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 reasonably fit for the occupation of a reasonably-minded tenant of the class that would be likely to take it: Proudfoot v Hart (1890) 25 QBD 42 applied. The valuation officer therefore had to begin by asking whether the hereditament, in its actual condition, was in such a state. The natural starting point in identifying the nature of the hereditament was to look at its description in the rating list. The respondent’s hereditament was described in the rating list as “office and premises”. It was not in reasonable repair as an office and premises as at January 2012 owing to the ongoing works. However, 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 landlord and tenant: Camden London Borough Council v Langford (VO) [1980] RA 369 applied. Accordingly, the only kind of works that could be assumed to have been carried out were works of repair; works going beyond repair did not have to be assumed.
A property that required repair was in a worse condition than it had been at some earlier time. Why it was in that condition did not matter and the intentions of the particular property owner or ratepayer were irrelevant, since value had to be assessed objectively: Post Office v Aquarius Properties Ltd (1986) 54 P&CR 61; [1987] 1 EGLR 40 applied. The respondent’s hereditament was in a worse condition at the material date, namely January 2012, than it had been previously owing to the decision to strip out the interior. Comparing its actual state to its previous state, it was properly described as an office suite in disrepair.
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] 1 KB 905 and McDougall v Easington District Council (1989) 58 P&CR 201; [1989] 1 EGLR 93 applied. Repair could encompass the replacement of systems that had been completely removed; the repair was of the hereditament as a whole, not the particular system. Moreover, contrary to suggestions in the Valuation Office Rating Manual, the fact that an ongoing scheme of works would result in the creation of a different hereditament did not necessarily mean that the works were not works of repair: Metropolitan Board of Works v Overseers of West Ham (1870) LR 6 QB 193 applied.
On the findings of the VTE, 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 economic grounds. It was not uneconomic to reinstate the building and the assumption of reasonable repair therefore applied.
Sarabjit Singh and Matthew Donmall (instructed by the legal department of HM Revenue and Customs) appeared for the appellant; David Reade QC and Dominic Bayne (instructed by SJ & J Monk) appeared for the respondent.
Sally Dobson, barrister
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