The Supreme Court has overturned the decision of the Court of Appeal in a business rates case that has important implications for commercial property owners.
The Newbigin v Monk case revolved around office premises that were in the process of being redeveloped on the day that they were also due for valuation. The Valuation Office argued that the rateable value should be assessed on the amount that a willing tenant would pay a willing landlord for the property. Therefore, although the redevelopment works in question were significant, it would be economic for the property to be made useable on the relevant date, and so the property should be valued in its previous state and for its previous use.
The main question placed in front of the Court was whether the reality principle applied, in which case the property's rateable value should be based on the physical condition it was in on the particular rating day. Or, even though redevelopment works were underway, should the valuation officer assume that the property was in a reasonable state of repair on the material date?
The Court ruled that if a property is undergoing redevelopment and is therefore incapable of occupation, the assumption of repair does not displace the principle of reality. In Newbigin, the property was, due to the ongoing redevelopment works, incapable of occupation, and accordingly the rating list should reflect this.
The Supreme Court's approval of the reality principle means that when a property is being redeveloped or reconstructed, the crucial question is whether the property is capable of rateable occupation. If the works taking place at a property prevent it from being occupied, it is not necessary to consider whether the property is in a state of repair.
However, it remains important for businesses to consider the extent of works necessary to rule a property ”incapable of occupation” and to remember that during the process of redevelopment a property/part of a property may become capable of beneficial ownership, and consequently become rateable.
Business rates moved to new valuations from 1st April 2017, although the government did announce some relief for those hardest hit by the increases in the Spring Budget earlier this month.