In the case of Newbigin (Valuation Officer) v SJ&J Monk (A Firm)  EWCA Civ 78. The Supreme Court confirmed that vacant buildings undergoing refurbishment are not necessarily liable for business rates.
Background to the Newbigin Case
In 2010 SJ & J Monk, the ratepayer 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 unit was stripped back to a shell prior to creating three office suites.
The ratepayer argued that, due to the physical state of the property i.e. that it was “beyond repair”, it should be deleted from the rating list whilst works were ongoing and therefore it should not be liable for rates.
The valuation officer argued that the building was capable of being put back into its former state economically and thus it should remain liable to pay business rates. Initially, the Valuation Tribunal found for the Valuation Office and that decision was appealed to the Upper Tribunal (Lands Chamber). The Upper Tribunal held that, as the property was not capable of beneficial occupation, the property had a rateable value of just GBP 1.
Court of Appeal Decision
The Valuation Office appealed to the Court of Appeal.
Despite the ratepayer's arguments that the redevelopment works were alterations and improvements that went far beyond repairs, the Court of Appeal agreed with the Valuation Office. 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 Supreme Court Decision
The Supreme Court unanimously allowed the ratepayers appeal confirming that buildings undergoing significant works of refurbishment or development to an alternative use will not be liable to pay rates whilst the works are being undertaken.
- The Supreme Court placed an emphasis on the presumption of reality which underpins the rating hypothesis. The starting point should be to determine whether or not the property was capable of being beneficially occupied, before going on to determine whether or not it is in a state of disrepair.
- The decision is good news for developers who want to avoid the cost of paying rates during works. The wise developer should speak to a building surveyor if they are unsure whether the extent of works being undertaken qualify or not. The small-scale refurbishment is unlikely to be sufficient.