Business Rates – Good news for ratepayers at last
Newbigin v S J & J Monk (a firm)
The Supreme Court has handed down a unanimous judgment in favour of the ratepayer overturning the Court of Appeal decision. This is good news for developers and reinstates the practice of altering the rating list to reflect a building being in the course of refurbishment. In the context of forthcoming changes to business rates bills this judgment will provide some timely reassurance.
What is it all about?
The ratepayer stripped out their offices as a part of a redevelopment. This included removing sanitary fittings, plant and machinery, electrical wiring and taking up much of the flooring. The ratepayer proposed an amendment to the rating list from ‘offices and premises’ with a rateable value of £102,000 to ‘building undergoing refurbishment’ with a nominal value of £1 to reflect the fact that the premises were not capable of being used as offices. However, the valuation officer did not agree and the matter went to the Valuation Tribunal which decided against the proposal to alter the list. The matter went to the Upper Tribunal who found for the ratepayer but the Court of Appeal subsequently found for the valuation officer.
The case concerns the physical state in which rateable premises are assumed to be in when valuing the property. The Local Government Finance Act 1988 provides that rateable premises are in most cases valued as a tenancy from year to year on certain assumptions. One assumption is that immediately before the tenancy begins the premises are in a state of reasonable repair (the ‘repair assumption’). There is excluded from that assumption any repairs which a reasonable landlord would consider uneconomic.
The Court of Appeal determined that the premises (offices as stated in the list) would be valued in a reasonable state of repair and so there should be no alteration in the list. Replacement of the stripped out parts of the premises was described as replacement of the subsidiary parts of the whole and could fairly be described as repairs. On the facts the court determined that reinstating the premises was not uneconomic.
The Supreme Court
The unanimous decision of the Supreme Court was that the earlier decision of the Court of Appeal was ‘novel’, being a departure from the long established principle of reality. The judgment approves of the 3 stage approach submitted by the British Property Federation and Rating Surveyors’ Association as interveners in the appeal to the Supreme Court;
- Is the property is capable of rateable occupation?
- What is the mode or category of occupation?
- Is the property in a state of reasonable repair for use consistent with the mode of occupation?
The Supreme Court decided that the repair assumption applies at the third stage. At the material time the premises were not capable of beneficial occupation as offices and in accordance with the practice at the time the valuation officer should have retained an entry in the list as ‘building undergoing refurbishment’ with a nominal value.
Why does this matter?
This has an impact on the financial assessments of many construction projects. Rating surveyors can now advise their clients to propose an alteration in the rating list in appropriate cases to reduce the business rates bill whilst a property is undergoing significant works of refurbishment.
The Wider Context
The Supreme Court decision is just one of a number of recent developments. The business rates revaluation comes into force on 1 April 2017 which will mean a change in the amount that businesses pay. Many businesses, particularly in London will face a significant rise in their bills, some reporting increases of 400%. On the other hand many areas of the country will see businesses receive reduced bills, particularly in the North of England.
To help businesses adjust the government is proposing transitional measures to stagger the rises over 5 years but any reductions will also be staggered. This will be helpful to some businesses but those who would otherwise see a significant drop in their bills will see this as unfair.
There will also be changes to the way a ratepayer can challenge their bill. If a ratepayer disagrees with the rateable value, at present it proposes a new rateable value and any disputes are ultimately determined by the Valuation Tribunal. However the right to challenge rateable values is to be restricted to where it is outside reasonable professional judgment. It is not as yet clear what that means.
Other recent decisions that have affected rates bills include;
The result in Woolway v Mazars will mean that separate floors in a building leased by one tenant but accessed through common parts will often be separately assessed. Separate assessment will often increase the overall charge.
Sainsburys and others v VOA determined that ATMs within stores will be separately assessed, again usually resulting in a higher business rates charge. The judgment on appeal in the Upper Tribunal is awaited.
A complaint often heard in these cases is that the VOA is now approaching the assessment of rates in a new way from previous practice, departing from its own guidance. One explanation is that local authorities retain 50% of locally collected business rates. For cash strapped local authorities it means that they will work with the VOA to try to maximise income. There are proposals to increase the percentage that local authorities retain to 100%.
There is pressure on the government to look at wholesale reform of business rates but in the short term we will have to see if Philip Hammond can help ratepayers in the budget on 8 March.
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