March 8th, 2017 / Insight posted in Articles

Common sense prevails: Ratings liabilities for properties during refurbishment

While there is a furore over the changes to business rates coming in from 1 April 2017, a recent Supreme Court decision over the ratings liability of property under refurbishment will be welcomed as “common sense”.

On 1 March 2017 the Supreme Court unanimously overturned what it called the Court of Appeal’s “novel” interpretation of the ratings legislation from two years earlier in the case of SJ & J Monk (a firm) v Newbigin (Valuation Officer) [2015] EWCA Civ 78. This new decision allowed the ratings liability of a property under extensive refurbishment works to be reduced to £1.

In the original case the Court of Appeal judged that in deciding the rateable value a statutory assumption that premises are in a state of repair (unless such repairs were uneconomic) should apply to all premises, even ones in the process of being refurbished or redeveloped. This meant that a ratings liability would be imposed on property owners whose premises were in the process of being refurbished – even though the property was clearly incapable of occupation. From the man on the street’s view point this was clearly unfair.

The Supreme Court’s decision endorsed the approach submitted by the Rating Surveyors’ Association and the BPF, which is that a valuation officer must:

  1. Determine whether premises are capable of rateable occupation;
  2. If they are, determine that mode or category of occupation; and
  3. Only if they are capable of occupation should they consider whether the premises are in a state of reasonable repair for use consistent with that mode or category.

Thus properties that are not capable of occupation should not be subject to the same ratings liability as those that are.

Those with ideas of exploiting this decision by removing certain features of the building (for example plumbing parts) and claiming their premises are incapable of beneficial occupation should be aware that the Local Government Finance 1988 Act contains anti-avoidance powers.

Each case must be decided on its own merits but we would recommend that businesses that have paid rates on properties which have been refurbished or redeveloped should seek professional advice on whether they can appeal against the charge levied.

If you would like to discuss this further, please contact your partner at Kingston Smith or a member of the Property team.