It is a well-known principle of valuation that a valuer must value property as it stands on the valuation date. However, this principle can be displaced by contrary instructions in the statute or contract pursuant to which a valuation is made. For rating purposes, the Local Government Finance Act 1988 includes a statutory assumption that hereditaments are in reasonable repair (although repairs that a reasonable landlord would consider uneconomic are excluded from this assumption).
Despite the assumption, it was generally understood that properties would be assessed in their actual state and condition if they were incapable of beneficial occupation because they had been stripped out in readiness for development or improvement. But the Court of Appeal torpedoed this understanding in SJ & J Monk v Newbigin [2015] EWCA Civ 78; [2015] PLSCS 57. The court applied tests used in landlord and tenant law and ruled that premises with a rateable value of £102,000, which had been used as offices but which had been stripped out and were being redeveloped, should be rated as if they were offices in reasonable repair. The Court of Appeal reasoned that the premises could be put back into reasonable repair at an economic cost.
The decision sent shockwaves through the property industry and the ratepayer appealed to the Supreme Court, which has overturned the decision: [2017] UKSC 14. It explained that there is a distinction between disrepairs that do not affect rateable value and redevelopment work that renders a building uninhabitable. The statutory assumption that premises are in repair applies to matters affecting the physical state of a hereditament. It does not apply to the mode or category of its occupation and does not negate or supplant reality. Consequently, the principle of reality remains a fundamental principle of rating law.
Therefore, if works are objectively assessed as involving redevelopment and the premises are incapable of beneficial occupation, one cannot ignore reality and apply the statutory assumption that the premises are in repair. Indeed, the hypothetical landlord of a building undergoing redevelopment would not normally consider it economic to restore it to its previous use. Furthermore, there was 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.
How does a valuation officer ascertain that premises are undergoing reconstruction, rather than simply being in a state of disrepair? The court confirmed that the subjective intentions of the owner are irrelevant. But, in assessing the physical state of the property, the valuation officer can have regard to the works that are, in fact, being undertaken on the property.
On the facts found by the Upper Tribunal, the premises were undergoing reconstruction and the rating list should be altered to reflect that reality. So, instead of recording that the premises were offices, the description of the premises on the rating list should be altered to “building undergoing reconstruction” and the rateable value should be reduced to £1.
Allyson Colby is a property law consultant
