The Supreme Court today heard an appeal of “great consequence” to business rates, in particular the calculation of rateable value for office premises undergoing refurbishment.
A 2015 Court of Appeal ruling that sent a shockwave through the industry is under attack from the British Property Federation and the Rating Surveyors Association, which are supporting the affected ratepayer, solicitors’ firm SJ & J Monk. The firm was initially successful at the Upper Tribunal (Lands Chamber) in securing a nominal rateable value of only £1 for property it owns, before the Court of Appeal overturned that decision last year.
The Court of Appeal found that works being carried out on the premises fall within the definition of “repair”, and that the UT was wrong to rule that the refurbishment – which includes reconfiguration as three separate units – went beyond that.
The Supreme Court is being asked to decide, where a commercial property has been stripped out for renovation, what physical state it is assumed to be in for the purpose of liability for rates.
Such is the importance of the issue that the BPF and RSA have been granted permission to intervene, and will be represented in the appeal.
Opening the appeal on behalf of Monk this morning, David Reade QC said the Court of Appeal had departed from “long established” principles in relation to the valuation of property.
He said: “Those long settled principles reflect the fact that the valuation exercise depends upon the condition of the property at the date of valuation.”
In this case, he said that, at the key date of 6 January 2012 the offices – on a single floor of a three-storey block known as Avalon House at Sunderland Enterprise Park – constituted a “building undergoing works of reconstruction”, reconfiguring a single office into three separate units. As a result, he said, they had no beneficial rateable value and the UT had been correct to assess the rateable value – formerly £102,000 –at the nominal amount of £1.
Richard New, real estate litigation partner at Eversheds said that, following the decision in Woolway (VO) v Mazars LLP [2015] UKSC 53; [2015] EGLR 56, this is another Supreme Court case of “great consequence to the business rates world”.
He said: “Prior to this case, general thinking was that a property undergoing extensive refurbishment is incapable of rateable occupation and would therefore be removed from the rating list until such time as the works were substantially complete. The Court of Appeal tore that thinking to shreds in its decision last year, together with swathes of the Valuation Office’s own rating manual.
“The Court of Appeal decided that the ratepayer’s intentions for the property and any alteration in the nature of the property were irrelevant; in accordance with the statutory rating assumptions, if the property could be put back into repair economically then it would be assessed as if it were in reasonable repair. This would cover the majority of non-structural works involved in refurbishment.
“The Court of Appeal’s judgment potentially affected all ratepayers who were considering refurbishment or redevelopment of their properties, as they would be liable for full rates during the period of works, and it was no surprise that there was an intervention and further appeal to the Supreme Court.”
New expressed the hope that the Supreme Court’s ultimate decision will reinstate the previously understood position, or at least clarify the position for ratepayers.
He said: “Although it may be months before the decision is handed down, there is much anticipation from ratepayers and a real hope that the Court of Appeal decision will be reversed. There are many outstanding appeals awaiting the outcome of the case and, with the revaluation around the corner, it would be a further blow to ratepayers’ pockets if the decision is upheld. Either way, the Supreme Court will hopefully bring clarity to this difficult area.”
• For more on the case, Roger Cohen explains why the BPF and the RSA felt the need to intervene. Read it here.
SJ & J Monk (a firm) v Newbigin (VO) Supreme Court (Lord Neuberger, Lord Kerr, Lord Reed, Lord Carnwath, Lord Hodge) 7 November 2016
