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Repair or Refurbishment? How would you rate it?

The Supreme Court have handed down judgement of significance to developers and freehold owners in Newbigin (Valuation Officer) v S J & J Monk [2017] UKSC 14 confirming whether or not Non Domestic Rates are payable on commercial property during a significant period of refurbishment.

Rateable value for a property should be adjudged as an amount equal to the rental value, on the assumption the property is in a reasonable state of repair and condition.

The position before judgement was for Valuation Officers to strictly interpret the legislation surrounding Non Domestic Rates (section 2(1)(b) of Schedule 6 Local Government Finance Act 1988) setting out a assumption a property is in reasonable repair for its previous use on the date of valuation, without reference to the actual condition of the property.

This assumption meant a property undergoing substantial refurbishment was to be deemed fit for occupation by a tenant without reference to any further facts, therefore, subject to Non Domestic Rates for the full period of the refurbishment.

The impact of the stance taken by the Valuation Office was that many landlords and developers were liable to pay Non Domestic Rates (often considerable sums) for properties which were unsuitable for beneficial occupation during substantial works.

S J & J Monk’s case took this matter through two levels of the Valuations Tribunal, the Court of Appeal and eventually to the highest court in England and Wales, the Supreme Court.

In the case S J & J Monk’s property was subject to substantial refurbishment and had been taken back to a bare shell. They had applied to the Valuation Office for the rateable value to be set to a nominal figure of £1.00 (down from over £100,000) and to be described as “building undergoing reconstruction” to reflect the substantial works being undertaken.

The Valuation Officer refused their application applying the assumption the property was in “reasonable repair” despite the fact it could not be occupied.

The Supreme Court dismissed the assumption made by the Valuation Office and instead imposed a “reality principle” in such matters. For properties subject to substantial refurbishment Valuation Offices must now assess the property objectively and determine whether it is undergoing significant reconstruction and is therefore incapable of beneficial occupation. In such instances the rateable value should be nominal for the period of reconstruction, with rates only becoming payable once the property (or part) can be beneficially occupied.

Valuation Officers will look at a number of factors, including the schedule of works being undertaken, whether the property is capable of occupation, what use the property is intended and finally whether the property is in a state of reasonable repair consistent with the intended use of the property.  

To discuss development of your property or commercial property matters generally please contact William Warnock, Bar Graduate Lawyer in our Poole office (01202 052042).

NB This article does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Dutton Gregory LLP.