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Closed for repairs, but not for business rates

In Newbigin (Valuation Officer) –v- SJ and J Monk (a firm) (2015) the Court of Appeal ruled that even a vacant building undergoing redevelopment will be liable for rates unless the building is beyond economic repair.

In 2010 the owners of a vacant floor of an office building planned to redevelop the floor into three self contained units.  In order to carry out these works the air conditioning system, ceiling tiles and sanitary fittings were removed and the electrical wiring was stripped out.

The owner and the rating valuation officer, Mr Newbigin, disagreed on a rateable value of the property.  The owner argued that, due to the physical state of the property, it should not be liable for rates.

When assessing the rateable value of a property the rating officer is to consider the factors set out in the Local Government Finance Act 1988 (the 1988 Act).  These include the fact that the property is in a reasonable state of repair.  However, any repairs that a reasonable landlord would consider to be uneconomic are excluded.  As a result, the Upper Tribunal (Lands Chamber) held that, as the property was not capable of beneficial occupation, the property had a rateable value of just £1.

Mr Newbigin appealed to the Court of Appeal arguing that on the date that he had valued the property it was indeed in a state of disrepair but that a hypothetical owner would rather carry out the necessary repair work than leave the building in its state as at the date of valuation.  Therefore he argued that the repairs would be economic and should be assumed to have been carried out in order to satisfy the 1988 Act.

Despite the owner’s arguments that the redevelopment works were alterations and improvements that went far beyond repairs, the Court of Appeal agreed with Mr Newbigin.  In the court’s view the replacement of the items which had been removed (the air conditioning system etc) would constitute repairs.  It did not matter if these items were going to be replaced just that it would constitute economic repairs if they were to be replaced.

The Court of Appeal ruled that the property had to be assumed to be in a reasonable state of repair and as such was liable to rates.

The case is now subject to further appeal in the Supreme Court.  For now the impact of the Court of Appeal decision is that landlords are far more likely to be charged rates whilst redeveloping empty properties.  Only if the costs of redevelopment works exceed those of the economic repair will landlords perhaps avoid liability for rates.