JUDGMENT
Newbigin (Valuation Officer) (Respondent) v S J &
J Monk (a firm) (Appellant)
before
Lord Neuberger, President
Lord Kerr
Lord Reed
Lord Carnwath
Lord Hodge
JUDGMENT GIVEN ON
1 March 2017
Heard on 7 November 2016
Appellant Respondent
David Reade QC Sarabjit Singh
Dominic Bayne Matthew Donmall
(Instructed by S J & J
Monk (a firm)
)
(Instructed by HMRC
Solicitor’s Office
)
Interveners (Rating
Surveyors Association and
British Property
Federation)
Daniel Kolinsky QC
Luke Wilcox
(Instructed by Berwin
Leighton Paisner LLP
)
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LORD HODGE: (with whom Lord Neuberger, Lord Kerr, Lord Reed and
Lord Carnwath agree)
1. Does a commercial building which is in the course of redevelopment have to
be valued for the purposes of rating as if it were still a useable office? That is the
question raised in this appeal. An analogous question would arise if the building
were a former hospital which was in the process of conversion into flats. Should it
be valued as if it were still available for occupation as a hospital? The question is of
general public importance to the law of rating and valuation.
2. The appellants (“SJJM”) own the freehold of the first floor (“the premises”)
of a three-storey office building built in the 1990s, known as Avalon House, at St
Catherine’s Court, Sunderland Enterprise Park, Sunderland. In the past the premises
were occupied by tenants as a single office suite of 795.73 square metres. In 2006
the tenants vacated the premises and in December 2009 SJJM accepted the surrender
of the lease of the premises. On 9 March 2010 SJJM entered into a contract with
Jomast Developments Ltd for the renovation and improvement of the premises with
a view to making them more adaptable for use as either three separate suites of
offices or as a single suite, in order to attract replacement tenants.
3. The contracted building works involved the removal of all internal elements,
except for the enclosure for the lift and staircase by which people gained access to
other floors. This entailed stripping out the cooling system including all internal and
external plant, the lighting and power installations, the fire alarm system, the
suspended ceiling, all sanitary fittings and drainage connections, the timber joisted
and modular raised flooring, and existing masonry walls and metal stud partitions.
The contract also provided for the construction of new common parts to the premises
and new communal sanitary facilities, which involved new solid partitioning, a
raised floor, new sanitary fittings, new drainage and plumbing systems, and new
electric lighting, alarm and heating systems. Finally, the contract envisaged the
construction of three new letting areas within the premises with three self-contained
electrical distribution circuits and air conditioning and heating systems.
4. After entering into the building contract and until at least 6 January 2012
SJJM had the premises marketed as available for rental either as three separate office
suites or as a whole. On 6 January 2012, which is the relevant date for assessing the
facts and applying the statutory assumptions discussed below when determining the
rateable value of the premises on an application to alter the rating list (“the material
day”), the premises were vacant. Contractors had removed the majority of the ceiling
tiles and the suspended ceiling grid and light fittings and also 50% of the raised
Page 3
floor. They had also removed the cooling system and the sanitary fittings,
demolished the block walls of the lavatories and stripped out the electrical wiring.
The contractors had erected and plastered plasterboard partitions to form the outline
of the proposed communal lavatories and had erected and plastered a partition across
the floor at the east side of the premises. They had completed first fix electrical
installations to the lavatory area and had altered the drainage to accommodate the
new location of the lavatories.
5. SJJM wished to reduce its liability to local authority rates on the premises
while they were being reconstructed. Local authority rates are a tax on property and
the unit of assessment is the “hereditament”. A “hereditament” is defined as
“property which is or may become liable to a rate, being a unit of such property
which is, or would fall to be, shown as a separate item in the valuation list”: section
64(1) of the Local Government Finance Act 1988 (“the 1988 Act”) which refers to
this definition in section 115(1) of the General Rate Act 1967 (“the 1967 Act”). Each
hereditament is separately identified on the rating list (which formerly was called
the valuation list). The premises were so listed on the 2010 rating list as “offices and
premises” with a rateable value of £102,000.
6. On 6 January 2012 SJJM’s agents proposed to the respondent, who is the
valuation officer for Sunderland (“the VO”), that the description of the premises on
the rating list should be altered with effect from 1 April 2010 to “building
undergoing reconstruction” and that the rateable value should be reduced to £1. The
agents justified their proposal on the basis that the premises were undergoing
building works which rendered them incapable of beneficial occupation on the
material day. They explained that the scheme of building work was “remodelling
and refurbishing the floor plate to allow subdivision into up to three separate offices
served by communal W/Cs”. The VO did not accept the proposal and referred it to
the Valuation Tribunal for England (“the Valuation Tribunal”) as an appeal against
his refusal to alter the rating list.
The relevant legislation
7. The central issue in this appeal is whether the premises should be rated by
having regard to the physical condition they were in on 6 January 2012 or whether
para 2(1)(b) of Schedule 6 to the 1988 Act as amended by the Rating (Valuation)
Act 1999 (“the 1999 Act”), which I set out below, requires a valuation officer to
assume that they were in reasonable repair as “offices and premises” on that date.
8. Schedule 6 to the 1988 Act, which is headed “Non-domestic rating:
valuation”, provides so far as relevant:
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“1. This Schedule has effect to determine the rateable value
of non-domestic hereditaments for the purposes of this Part.
2.(1) The rateable value of a non-domestic hereditament none
of which consists of domestic property and none of which is
exempt from local non-domestic rating shall be taken to be an
amount equal to the rent at which it is estimated the
hereditament might reasonably be expected to let from year to
year on these three assumptions –
(a) the first assumption is that the tenancy begins on
the day by reference to which the determination is to be
made;
(b) the second assumption is that immediately before
the tenancy begins the hereditament is in a state of
reasonable repair, but excluding from this assumption
any repairs which a reasonable landlord would consider
uneconomic;
(c) the third assumption is that the tenant undertakes
to pay all usual tenant’s rates and taxes and to bear the
cost of the repairs and insurance and the other expenses
(if any) necessary to maintain the hereditament in a state
to command the rent mentioned above.
…
(6) Where the rateable value is determined with a view to
making an alteration to a list which has been compiled (whether
or not it is still in force) the matters mentioned in sub-paragraph
(7) below shall be taken to be as they are assumed to be on the
material day.
…
(7) The matters are –
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(a) matters affecting the physical state or physical
enjoyment of the hereditament.
(b) the mode or category of occupation of the
hereditament.
(c) the quantity of minerals or other substances in or
extracted from the hereditament.
(cc) the quantity of refuse or waste material which is
brought onto and permanently deposited on the
hereditament.
(d) matters affecting the physical state of the locality
in which the hereditament is situated or which, though
not affecting the physical state of the locality, are
nonetheless physically manifest there, and
(e) the use or occupation of other premises situated
in the locality of the hereditament.
…
(8A) For the purposes of this paragraph the state of repair of
a hereditament at any time relevant for the purposes of a list
shall be assumed to be the state of repair in which, under subparagraph (1) above, it is assumed to be immediately before the
assumed tenancy begins.”
The prior proceedings
9. On 19 October 2012 the Valuation Tribunal dismissed SJJM’s appeal. It
identified the material day as 6 January 2012 and concluded that on that day there
was nothing to prevent the economic repair of the premises. It held that the premises
were an office suite in disrepair and were to be rated as if they were in reasonable
repair.
Page 6
10. SJJM appealed to the Upper Tribunal (Lands Chamber) (“UT”), which heard
evidence, as the appeal proceeded as a re-hearing. The UT confirmed the Valuation
Tribunal’s finding that the material day was 6 January 2012, and that decision has
not been appealed. Otherwise, the UT allowed SJJM’s appeal, holding that the
premises had been stripped out to such an extent that to replace its major building
elements would go beyond the meaning of repair. The assumption in para 2(1)(b) of
Schedule 6 to the 1988 Act that a hereditament was in a state of reasonable repair
did not extend to the replacement of systems that had been completely removed. The
alterations had rendered the premises incapable of beneficial occupation as an office
and accordingly the premises were to be rated as a “building undergoing
reconstruction”. As a result, the rateable value of the premises should be reduced to
the nominal amount of £1.
11. The VO appealed to the Court of Appeal, which allowed his appeal and
therefore dismissed SJJM’s underlying appeal. The Court of Appeal reasoned as
follows. It recognised that the principle of reality, which I discuss in para 12 below,
could be displaced by contrary statutory instructions. The question was the extent to
which para 2(1)(b) applied to create a counterfactual assumption. The Court
concluded as a matter of statutory construction that the para did create such an
assumption and so displaced the reality principle. The premises were described in
the rating list as “offices and premises”. On the facts found by the UT, the
hereditament so described was not in a reasonable state of repair. It was not correct
to look to the future to see what the premises might become when works were
completed. In applying the statutory assumption in para 2(1)(b), the court had to
compare the hereditament in its actual state with its previous state as listed, namely
as offices and premises. In order to decide whether the replacement of the stripped
out elements could fairly be described as repairs as distinct from improvements or
alterations, the court should look to the tests applied in the common law of landlord
and tenant: Camden London Borough Council v Langford [1980] R A 369. Applying
those tests, the court concluded that the replacement of the stripped out elements
would amount to repairs. On the facts found by the UT, those repairs would
economically return the premises to their former state. Therefore the statutory
assumption applied and the premises should be valued as if they were in a state of
reasonable repair.
Discussion
12. For many years and long before Parliament enacted Schedule 6 to the 1988
Act, it had been an established principle of rating law that a hereditament is to be
valued as it in fact existed at the material day. This principle, which in the past was
described by the Latin phrase, rebus sic stantibus (ie as things stand), and is often
referred to as “the principle of reality” or “the reality principle”, was stated by Lord
Buckmaster in Poplar Assessment Committee v Roberts [1922] 2 AC 93, 103, thus:
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“[A]though the tenant is imaginary, the conditions in which his
rent is to be determined cannot be imaginary. They are the
actual conditions affecting the hereditament at the time when
the valuation is made.”
Similarly, in Townley Mill Co (1919) Ltd v Oldham Assessment Committee [1937]
AC 419, 437, Lord Maugham, when explaining the legal context in which the Rating
and Valuation Act 1925 was enacted, said:
“The hypothetical tenant was assumed to be a tenant from year
to year with a reasonable prospect of continuing in occupation;
but the hypothetical rent which the tenant could give was
estimated with reference to the hereditament in its actual
physical condition (rebus sic stantibus), and a continuance of
the existing state of things was prima facie to be presumed.”
13. In Dawkins (VO) v Ash Brothers and Heaton Ltd [1969] 2 AC 366, in which
the House of Lords held that the Lands Tribunal had been correct to take account of
an existing demolition order in assessing the hypothetical rent, Lord Pearce stated
(382):
“one must assume a hypothetical letting (which in many cases
would never in fact occur) in order to do the best one can to
form some estimate of what value should be attributed to a
hereditament on the universal standard, namely a letting ‘from
year to year’. But one only excludes the human realities to a
limited and necessary extent, since it is only the human realities
that give any value at all to hereditaments. They are excluded
in so far as they are accidental to the letting of a hereditament.
They are acknowledged in so far as they are essential to the
hereditament itself.”
In the same case, Lord Wilberforce described the reality principle thus (385-386):
“The principle that the property must be valued as it exists at
the relevant date is an old one … The principle was mainly
devised to meet, and it does deal with, an obvious type of case
where the character or condition of the property either has
undergone a change or is about to do so: thus a house in course
of construction cannot be rated: nor can a building be rated by
Page 8
reference to changes which might be made in it either as to its
structure or its use.”
In this passage Lord Wilberforce referred to each of what is generally regarded as
the two limbs of the reality principle, namely the physical state of the property and
its use.
14. The reality principle continues to be a fundamental principle of rating and is
manifested in Schedule 6 to the 1988 Act, in particular in para 2(6) and (7). In
Scottish & Newcastle Retail Ltd v Williams (VO) [2001] 1 EGLR 157 the Court of
Appeal upheld the decision of the Lands Tribunal that the reality principle meant
that it was assumed that a hereditament was in the same physical state as upon the
material day, save for minor alterations, and could be occupied only for a purpose
within the same mode or category of purpose as that for which it was occupied on
the material day. Thus in that case two public houses in a shopping centre had to be
valued as public houses and not as retail units.
15. The decision appealed against interprets Schedule 6 to the 1988 Act as
entailing a major departure from the reality principle by requiring that the
hereditament be assumed to be in a reasonable state of repair for the mode of
occupation listed in the rating list, namely as “offices and premises”. I do not agree
with that approach. In my view, the legislative history shows that the repairing
assumption which para 2(1) of Schedule 6 introduced did not supplant the reality
principle to that degree.
16. Before the enactment of the 1988 Act the statutory hypothetical tenancy of
non-industrial property required that the landlord bear the cost of repairs. For
example, section 2 of the Valuation for Rating Act 1953 provided that the
hypothetical tenancy of a dwelling house was one in which the “landlord had
undertaken to bear the cost of the repairs and insurance, and the other expenses, if
any, necessary to maintain the hereditament in a state to command that rent”. In
Wexler v Playle (VO) [1960] 1 QB 217 the Court of Appeal held that the statutory
hypothesis was that the reasonable landlord, when contracting with the tenant for
the let of a dwelling house, undertook to put the property in repair and would do so
by removing “readily remediable defects” (Wilmer LJ 239) or “reparable and
temporary defects” (Harman LJ 240). Thus the existence of such defects in the
property did not affect its value for rating purposes. This reflected what might
reasonably be expected in reality (Morris LJ 235). See also, on the equivalent
provisions in section 19(6) of the 1967 Act, the similar view in relation to
commercial offices expressed by Eveleigh LJ in Camden London Borough Council
v Langford (VO) in which he distinguished between repairs needed to make good
decay, which fell within the hypothetical landlord’s repair obligation, and structural
work on reinforced concrete columns and beams to preserve the stability and
Page 9
duration of the building, which went beyond repair and rendered the building
unlettable. Further, in Saunders v Maltby (VO) (1976) 19 RRC 33 the Court of
Appeal held that the landlord’s repair obligation in the statutory provision did not
extend to uneconomic repairs which were disproportionate to the value of the
property; instead the landlord would let the property at a lower rent.
17. Case law distinguished between a mere lack of repair, which did not affect
rateable value because of the hypothetical landlord’s obligation to repair, and
redevelopment works which made a building uninhabitable. Thus, for example, in
Paynter (VO) v Buxton [1986] RVR 132, the Lands Tribunal upheld a nil valuation
of two flats on the first and second floors of a terraced house in London which, along
with the third floor flat, were undergoing a programme of refurbishment works,
which were progressing from the top down. At the relevant time, there were
extensive alterations to the third floor flat, which had been valued at nil and was not
the subject of appeal, but lesser activity in the other flats in which there had been
some re-plastering, some sanitary ware had been removed, some floorboards lifted
and skirting boards and a door had been removed. The Lands Tribunal accepted
evidence that a programme of alterations on the three floors was being carried out
on all three flats and concluded that the works amounted to “alteration and
modernisation” and not repair. Thus the tribunal upheld the nil valuation. See also
De Silva and Another v Davis (VO) [1983] 1 EGLR 211 and Hounslow London
Borough Council v Rent Audio Visual Ltd & Bryant (VO) [1970] RA 535 for other
applications of the distinction.
18. The 1988 Act ended domestic rating, replacing it with the Community
Charge. It also removed from the hypothetical tenancy the assumption that the
landlord carried the repairing obligation by providing in Schedule 6 that all nondomestic hereditaments be rated by reference to a hypothetical tenancy in which the
tenant bore the repairing obligation. As originally enacted para 2(1) of Schedule 6
to the 1988 Act provided:
“The rateable value of a non-domestic hereditament shall be
taken to be an amount equal to the rent at which it is estimated
the hereditament might reasonably be expected to let from year
to year if the tenant undertook to pay all usual tenant’s rates
and taxes and to bear the cost of the repairs and insurance and
the other expenses (if any) necessary to maintain the
hereditament in a state to command that rent.”
19. Following the decision of the Lands Tribunal in Benjamin v Anston
Properties Ltd [1998] 2 EGLR 147 that, because, under the 1988 Act, the
hypothetical tenant bore the obligation to repair, the rental value of the hereditament
would be adversely affected by a state of disrepair, Parliament, by section 1 of the
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Rating (Valuation) Act 1999, amended the 1998 Act to reinstate the prior law as to
the assumption that the building was in a state of repair. It did so (a) by deleting the
words in para 2(1) of Schedule 6 (para 18 above) from “if the tenant” to the end and
replacing them with the three assumptions in the current para 2(1) and (b) by
introducing para 2(8A). For both the current para 2(1) and para 2(8A) see para 8
above. As a general rule those amendments took effect retrospectively on 1 April
1990 (the date on which Part III of the 1988 Act first required the compilation of
rating lists) in relation to rating lists compiled before the 1999 Act was passed.
Paragraph 3 of the 1999 Act’s explanatory notes stated that the Act was designed to
put on a statutory footing the law as it was widely believed to apply before the
Benjamin decision.
20. The 1999 Act can thus be seen as applying principles analogous to those in
Wexler, Camden London Borough Council and Saunders (para 16 above) to a
hypothetical lease in which the tenant bore the obligation to put the hereditament in
repair. In my view the Court of Appeal goes too far in interpreting the 1999 Act as
completely displacing the reality principle in relation to both the physical state and
the mode of occupation of a hereditament which is undergoing redevelopment. The
1999 Act, by introducing the assumption of reasonable repair at the outset of the
hypothetical tenancy (“the repair assumption”), is not addressing the question of
whether the premises were capable of beneficial occupation, which, in the context
of a building undergoing redevelopment, is a logically prior question. Thus the
repair assumption (para 2(1)(b)) applies to matters affecting the physical state of the
hereditament (para 2(7)(a)) but not to the mode or category of occupation of the
hereditament (para 2(7)(b)).
21. I derive support for this view from the speech of Baroness Farrington, who
identified the mischief which the 1999 Act addresses when she promoted it as a Bill
in the Grand Committee in the House of Lords (Hansard 5 May 1999, CWH2-3).
After referring, with apparent approval, to Wexler v Playle and Saunders v Maltby
she stated:
“the 1988 Act does not contain any express reference to the
hereditament’s state of repair. I am aware that the noble Earl,
Lord Lytton, regards this as a lacuna. I agree with him that this
lacuna lies at the heart of the Lands Tribunal decision in
Benjamin v Anston Properties which determined that valuers
should take account of disrepair in rating valuations. It is this
lacuna, and this alone, that the Bill seeks to address.”
She went on to state (CWH6):
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“The Bill deals with a single issue of principle in the field of
valuation for rating by way of correcting a lacuna. The
Government are anxious that what is in effect an old principle
governing rating valuation should merely be restated and
incorporated with the minimum of disturbance to the corpus of
law and valuation practice, which has grown up and developed
over the passage of time.”
This statement, in my view, negatives a suggestion that the 1999 Act was addressing
any mischief caused by the established distinction between works to correct a lack
of repair on the one hand and what she called “renewal, refurbishment or
improvement” on the other.
22. In a helpful intervention, the Rating Surveyors’ Association and the British
Property Federation submitted that, where works were being carried out on an
existing building, the correct approach was to proceed in this order: (i) to determine
whether a property is capable of rateable occupation at all and thus whether it is a
hereditament, (ii) if the property is a hereditament, to determine the mode or
category of occupation and then (iii) to consider whether the property is in a state of
reasonable repair for use consistent with that mode or category. The first two stages
of that process involve the application of the reality principle. At the third stage the
valuation officer applies the statutory assumption in para 2(1)(b) if the reality is
otherwise. In my view, this is a helpful approach where a building is undergoing
redevelopment. But it is subject to the useful practice, which I discuss in para 31
below, of reducing the rateable value of a building, which is incapable of rateable
occupation because of such temporary works, to a nominal figure rather than
removing it from the rating list altogether.
23. How does a valuation officer ascertain that premises are undergoing
reconstruction rather than simply being in a state of disrepair? The subjective
intentions of the freehold owner of a property are not relevant to the reality principle.
The matter must be assessed objectively. But, in carrying out that objective
assessment of the physical state of the property on the material day, the valuation
officer can have regard to the programme of works which is in fact being undertaken
on the property. It is clear on the UT’s findings of fact, which I have summarised in
para 4 above, that on 6 January 2012 the premises had been largely stripped out in
the course of a redevelopment and an outline of the future development (the
communal lavatory facilities) had been created. The premises were incapable of
beneficial occupation, because, as an objective fact, they were in the process of
redevelopment and no part of them was capable of beneficial use. If the works are
objectively assessed as involving such redevelopment, there is no basis for applying
the assumption in para 2(1)(b) to override the reality principle and to create a
hypothetical tenancy of the previously existing premises in a reasonable state of
repair. This is both because a building under redevelopment, like a building under
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construction, is incapable of beneficial occupation and, in any event, the
hypothetical landlord of a building undergoing redevelopment would normally not
consider it economic to restore it to its prior use.
24. When in the course of a redevelopment some part of the developed property
becomes capable of beneficial occupation, and thus becomes a separate
hereditament, the assumption in para 2(1)(b) might apply to that part. Thus, if, in the
course of the conversion of a hospital into offices, a part of the development became
capable of beneficial occupation as flatted accommodation, para 2(1)(b) might apply
to deem a hole in the roof of that part to have been repaired immediately before the
beginning of the hypothetical tenancy of that part. But para 2(1)(b) neither deems
the development to be complete nor assumes that the building in whole or in part is
in a state of repair to be let as a hospital.
25. It is necessary to examine other statutory provisions and the cases to which
counsel for the VO referred to see whether they contradict this approach. He
referred, first, to the statutory provisions relating to the completion of a building
under structural alteration. Section 46A(5) of the 1988 Act provides that, where a
completion day has been notified, the hereditament which comprised the existing
building is deemed to have ceased to exist on the day of completion of the new
building which results from the structural alteration. The VO argued that this meant
that a building undergoing structural reconstruction continued to be liable to rates
until the new building was completed. There was thus, he submitted, no scope for
an entry in the list as a transitory “building undergoing reconstruction” either when
the reconstruction involved structural alteration or, by analogy, when it did not. He
submitted that this was supported also by para 2(7)(b) of Schedule 6 to the 1988 Act
which required the identification of “the mode and category of occupation”, which
under para 2(6) was to be taken “as they are assumed to be on the material day”. On
SJJM’s approach, there was and could be no such mode or category of occupation.
In the alternative, the VO argued that, if there were such a thing in the world of
rating as a transitory “building under reconstruction”, a hereditament could achieve
that status only once it had become uneconomic to repair the building to its former
status.
26. Again, light is shed on the effect of the statutory provisions by referring to
historical developments on the rating regime. Before 1966 liability for occupier’s
rates depended upon a building being occupied. A building undergoing
redevelopment was not occupied in the relevant sense by the carrying out of
alterations or by the presence of the workmen who were doing so: Arbuckle Smith
& Co Ltd v Greenock Corpn [1960] AC 813. The Local Government Act 1966
introduced liability for rates on premises which were not occupied, if a rating
authority so resolved, and its provisions were repeated in the consolidating General
Rate Act 1967 in section 17 and Schedule 1. Paragraph 1 of Schedule 1 to the 1967
Act created the liability of an owner to be rated in respect of an unoccupied
Page 13
hereditament at one-half of the amount payable if the hereditament were occupied.
Paragraph 8 of that Schedule empowered a rating authority to serve a completion
notice on the owner of a newly erected or altered building. The notice had the effect
that the building was to be treated for the purpose of the schedule as completed on
the date specified in the notice and the owner thereafter became liable to be rated in
respect of the property. Paragraph 10 of the Schedule contained a precursor of
section 46A(5) of the 1988 Act, deeming a relevant hereditament to have ceased to
exist on the completion of the structural alteration. The paragraph stated in its
concluding words that it was not to be construed as affecting any liability for rates
under para 1 in respect of the hereditament for any period before that date.
27. Section 46A of the 1988 Act was thus not a novelty. It was introduced
retrospectively into the 1988 Act by the Local Government and Housing Act 1989
(section 139 and Schedule 5 paras 25 and 79(3)). While section 46A(5) does not
contain the concluding words of para 10 of Schedule 1 to the 1967 Act, I see no
reason to give the section a different interpretation from its precursor in this respect.
28. Counsel for the VO sought to support his position by referring to the
judgment of the Divisional Court in Easiwork Homes Ltd v Redbridge London
Borough Council [1970] 2 QB 406. In that case, the owners chose to modernise a
block of flats. During the modernisation works, the flats were uninhabitable, as the
plumbing had been removed and all the essential services were being renewed. The
Council assessed each flat for rates while unoccupied. The owners did not pay and
the Council applied for a distress warrant to enforce the liability. The Justices
decided that the owners were liable to pay rates and issued a distress warrant. The
Divisional Court dismissed the owners’ appeal on the question whether section 17
of the 1967 Act could apply to premises which were unoccupiable. The Court held
that the statute contemplated that liability to rates might arise when an owner was
carrying out alterations and improvements which temporarily rendered a property
incapable of occupation because para 10 of Schedule 1 to the 1967 Act provided for
the payment of rates when more radical structural alterations were being carried out.
But, in my view, the case does not assist the VO because the owners had not applied
to have the valuation list altered during the period of the works; they had challenged
their liability only at the stage of enforcement. Indeed, the Council had contended
before the Justices that the owners could have applied for a reduction of the rateable
values for the period when the premises were unoccupiable.
29. It is clear that para 10 of Schedule 1 to the 1967 Act and its successor, section
46A(5) of the 1988 Act, did not and do not bar an application to alter the rating list
to reflect the actual state of a hereditament undergoing redevelopment. In Ravenseft
Properties Ltd v Newham London Borough Council [1976] QB 464 the Court of
Appeal considered an appeal by the owners of offices, which were in the course of
erection, against completion notices under para 8 of Schedule 1 to the 1967 Act. The
court held that the test for completion of a new building or an existing hereditament
Page 14
undergoing structural alteration was whether it was ready for occupation. Lord
Denning MR in the course of his judgment said that Easiwork had been correctly
decided because the old valuation list, unless it was altered, continued to apply (p
474) (emphasis added). Bridge LJ, who had sat in the Easiwork appeal, was of the
same view. He stated (p 479)
“It is clear that in a situation where an old existing hereditament
has a valuation based on its occupiable value and is undergoing
radical structural alterations, it can be the subject of a proposal
for an alteration in the valuation list for, at all events, any
substantial period when by reason of the alteration it is
incapable of occupation. That seems to me to provide the
answer to the problem of hardship to an owner which in the
Divisional Court we felt could arise in the Easiwork case.”
30. Bridge LJ expressed that view in the context of section 68(4)(b) of the 1967
Act which defined the expression “material change of circumstances” as a change
in value of the hereditament caused by the making of structural alterations or the
total or partial destruction of the building. Now, the Non-domestic Rating
(Alteration of Lists and Appeals) (England) Regulations 2009 list as a ground for
making a proposal to alter a rating list that “the rateable value shown in the list …
is inaccurate by reason of a material change of circumstances” (regulation 4(1)(b))
and define “material change of circumstances” as “a change in any of the matters
mentioned in para 2(7) of Schedule 6 to the [1988] Act” (regulation 3). I consider,
therefore, that radical alterations, whether or not they are structural, which render
the hereditament unoccupiable, may justify a proposal to alter the rating list.
31. I also do not accept the point made by counsel for the VO (para 25 above)
about paras 2(6) and 2(7)(b) of Schedule 6 to the 1988 Act. The location of the
reality principle in para 2(7) of Schedule 6 does not require a valuation officer to
disregard the fact that a building is incapable of occupation because it is undergoing
reconstruction. In my view the assumption in para 2(1)(b), which para 2(6) brings
into the assessment of the reality in para 2(7), can operate in the manner set out in
para 24 above. But it does not negate the reality principle to the extent that counsel
for the VO contended. Further, while a building which is undergoing reconstruction
may be incapable of occupation for a time, it has been the practice of the Valuation
Office to treat the property as a hereditament with only a nominal value rather than
to remove the property from the rating list temporarily: see, for example, Hounslow
London Borough Council v Rank Audio Visual Ltd and Paynter v Buxton. There is
no bar to implementing a proposal to alter the description of the hereditament on the
rating list from “offices and premises” to “building undergoing reconstruction” and
consequently to reduce the listed rateable value to a nominal amount if the facts,
objectively assessed, support that alteration. There is also, for the reasons given
above, no basis for the alternative argument that a building can be listed as being
Page 15
under reconstruction only once the works have proceeded so far that it is no longer
economic to restore the hereditament to its former state by means of repair.
32. Does the interpretation advanced by SJJM create a danger of ratepayers
abusing the system, for example, by removing sanitary facilities or windows and
then claiming that the hereditament was incapable of beneficial occupation? The
Court of Appeal saw their approach as preventing such abuse: Lewison LJ para 30.
But the Court of Appeal’s interpretation was novel. Prior practice, which had been
reflected in the non-statutory guidance in the Rating Manual produced by the
Valuation Office, had been consistent with the approach which SJJM advocates. It
was not suggested to this Court that the administration of rates had not been effective
in the past. Further, when Parliament in the Rating (Empty Properties) Act 2007
increased the unoccupied business rate to make owners of unoccupied property
liable for the same rate as those payable on occupied properties, it also introduced
into the 1988 Act, in section 66A, an anti-avoidance power which enables the
Secretary of State and the Welsh Ministers to make regulations to disregard changes
in the state of an unoccupied hereditament. This power can be used to undermine
attempts by owners to avoid unoccupied rates through causing or allowing the state
of their property to change. To date neither government have used the power: I infer
that the practice before the Court of Appeal’s decision had not caused a serious
problem. In any event, the power can be exercised, if it is needed, for example to
prevent avoidance by the partial implementation of a scheme of works and its
deliberate non-completion.
33. On the facts found by the UT, which I summarised in paras 2-4 above, I
conclude that the premises were undergoing reconstruction on the material day and
that the UT was entitled to alter the rating list as it did to reflect that reality.
Conclusion
34. For these reasons, which differ in some respects from those of the Upper
Tribunal, I would allow the appeal and restore the determination of the Upper
Tribunal set out in paras 88 and 90 of its decision.
