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Reality Check!

The Supreme Court has just given judgment in an appeal by a property owner against a rating assessment by the local Valuation Officer.  The Supreme Court has upheld what is known as the reality “principle” which in effect means that a property should be valued in the state in which it existed on the material day rather than in the hypothetical state upon which the Valuation Officer had based the rateable value. 

The Appellant owned the first floor of a three storey building.  The premises had been occupied by tenants as a single office suite but the owner entered into a contract for the refurbishment of the property to make it more adaptable for use as either three suites of offices or a single unit.  The property was marketed as being available in either configuration.  On 6 January 2012, which was the date for determining the rateable value, the property was vacant and works had already started and the premises had been stripped back to a shell. 

The owner wanted to reduce the liability for rates during the construction period.  The rating list showed the property as “offices and premises” with a rateable value of over £100,000.  On 6 January 2012, the owner proposed that the description should be altered to “building undergoing reconstruction” and the rateable value reduced to £1 because the premises could not be occupied whilst the works were ongoing. 

The Supreme Court had to decide whether the property should be rated having regard to its physical condition on the relevant day, or whether rating law required the Valuation Officer to assume the property was in reasonable repair in its previous state as “offices and premises”.  The Valuation Officer rejected the owner’s proposal to alter the description on the rating list.  That decision was upheld by the Valuation Tribunal, although the property owner succeeded on an appeal to the Upper Tribunal which said that the property had been stripped out beyond reasonable repair.  It substituted a rateable value of £1.  The Court of Appeal allowed the Valuation Officer’s appeal, deciding that the relevant legislation created an assumption that the repairs would return the property to its former state, provided that the repairs were economic.  The Court of Appeal displaced the reality principle and said the property should be valued as if it was in reasonable repair.

The Supreme Court disagreed and restored reality deciding that the property should be valued in the state in which it existed on the relevant day.  The Valuation Officer had to assess objectively whether a property was undergoing reconstruction and therefore was incapable of beneficial occupation rather than simply being in a state of disrepair.  The Valuation Officer should have regard to the programme of works being undertaken and if those were properly assessed as involving redevelopment, there is no basis for displacing the reality principle to create a hypothetical tenancy.  That was because it was both incapable of beneficial occupation and the hypothetical landlord of a building undergoing redevelopment would not normally consider it economic to restore it to its prior use.

Further detail can be obtained from James Staton, Partner, Litigation.

About the Author

James Staton

Partner

James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…

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