Property under refurbishment may not be exempt from business rates

25 Feb 2015

The Court of Appeal has recently held that a property that had been undergoing internal refurbishment was not exempt from business rates. On the valuation date, various major building elements such as the air conditioning system, electrical wiring, sanitary fittings and most of the ceiling tiles, had been removed.

The Local Government Finance Act 1988 (LGFA 1988) provides that, where non-domestic property is vacant, the rateable value of the property is based on the amount of annual rent reasonably obtainable for the property, on the assumptions that:

  • The tenancy commences on the relevant valuation date.  
  • Before the tenancy commences the property is in a state of reasonable repair, but excluding any “repairs” that a reasonable landlord would consider to be uneconomic.
  • The tenant undertakes to bear the cost of the repairs.

Overturning the decision of the Valuation Tribunal, the Court of Appeal agreed with the Valuation Office and held that, on the facts, the property could be put back economically into its former state of repair. In determining this, it was irrelevant whether a ratepayer intended to create a different kind of property ultimately, or that the scheme of works would result in such a property.

The judgment aims to clarify the meaning of "repairs" and notes that certain aspects of the Valuation Office Agency's Rating Manual are misleading. Whether the work required to put property into repair can be fairly described as "repairs", and whether it is economic, will depend upon the particular facts. When ascertaining whether works constituted repair works, the court held that, on the facts, replacement of the stripped out elements (none of which was structural) were “repairs”, as they required replacement of subsidiary parts of a whole. It appears that although the works were deemed to be “repairs”, they were not deemed to be uneconomic and therefore not excluded. Therefore, for those who own vacant non-domestic premises that are undergoing refurbishment works should not assume automatically that their properties will be assessed at a nominal rateable value. Interestingly, the case coincides with a government consultation on ways to tackle business rates avoidance, which closed on 28th February 2015.

*(Newbigin (Valuation Officer) v S J & J Monk (a firm) [2015] EWCA Civ 78).)”

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