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. Rating valuations are based on a statutory assumption that hereditaments are in reasonable repair (although repairs that a reasonable landlord would consider uneconomic are excluded from this assumption).
Even so, 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, until the Court of Appeal ruling in SJ & J Monk v Newbigin. But the ratepayer appealed to the Supreme Court and won: [2017] UKSC 14.
Following the decision, paragraph 8.5 of the Valuation Office’s Rating Manual suggests that, in cases such as Monk, valuation officers should consider whether premises are being redeveloped/reconstructed. Paragraph 9.8 goes on to say: “A programme of reconstruction works may include stripping out what was there before. The work undertaken by the building contractors in both stripping out what was there before and the new work will constitute the programme. However, mere stripping out on its own does not of itself constitute or evidence a programme of reconstruction”. The Rating Manual indicates that this constitutes “simple damage, putting the hereditament in a state of disrepair”.
Hence the litigation in Jackson v Canary Wharf Ltd [2019] UKUT 136 (LC). The case concerned a tower of offices at Canary Wharf. When a tenant moved out, the owner’s practice was to strip out and market the vacant space as a shell, so that an incoming tenant could fit out the space in accordance with its own requirements. Two floors of the tower were in that state, and were incapable of beneficial occupation, between February 2011 and November 2014. Consequently, the owner argued that they had a rateable value of £1.
The rating authority took the view that the premises should be valued as offices in an assumed state of repair, with a rateable value of £1,830,000. It argued that, in Monk, the programme of work set out how the hereditament was going to be reconstructed. In other words, the programme was not limited to stripping out the premises. It included a “construction” element too. Furthermore, the construction element of the work was, to some extent, physically evident at the hereditament, and was, therefore objectively ascertainable. However, that was not the case here – and the subjective intentions of the owner were irrelevant.
The Upper Tribunal disagreed. It accepted that the subjective intentions of the owner are irrelevant. But the objective facts to which those intentions have given rise are not – and any pattern of behaviour, whether by the owner himself in relation to other floors in the same building, or by the owners of similar high-quality office buildings, is relevant.
Monk did not establish a “building under reconstruction exception” to the repair assumption. And the Supreme Court did not say that the existence of a detailed programme of works or physical evidence of the eventual form of the reconstructed premises are required before a property in disrepair can be distinguished from a building undergoing reconstruction. The question is whether a property is capable of beneficial occupation at all. The rating authority had accepted that the offices were not capable of beneficial occupation and that was the beginning and end of the case.
Allyson Colby, property law consultant
