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Business rates – Reality trumps: Newbigin (VO) v S J & J Monk (a firm) [2017] UKSC 14

In Monk the Supreme Court had to determine whether a commercial building in the process of redevelopment had to be valued for the purposes of rating as if it was still a useable office?

The principle issue was whether the property should be rated having regard to the physical condition of the property at the valuation date (“the Reality Principle”) or in accordance with the statutory assumption that the property was in a state of reasonable repair when valued for rating purposes as set out in para. 2(1)(b) of Schedule 6 to the Local Government Finance Act 1988 as amended (“the Repairing Assumption”)?

The property was a vacant first floor office space that was being redeveloped into separate offices at the date of valuation. The appellant, Monk, argued that as the property was incapable of beneficial occupation, it should be categorised as a “building undergoing reconstruction” for the purposes of rates calculation.

The Court of Appeal considered that the works constituted works of repair rather than improvement, and accordingly should not attract a reduction in rates. The Supreme Court disagreed. It held that the Reality Principle had not been displaced by the Repairing Assumption. In the context of a property undergoing development, the logical prior question was whether the property was capable of beneficial occupation. The Repairing Assumption was not engaged in answering that question. It applied to matters affecting the physical state of the premises, and did not require a property to be valued as though its mode or category of occupation were otherwise than they were in reality.

To assist valuers in reaching decisions, the Court considered the correct approach was:

  • to determine whether the property was actually capable of rateable occupation at all and thus whether it was a hereditament;
  • to determine the mode and category of occupation if it was a hereditament;
  • to consider if the property was in a state of reasonable repair to for use consistent with that mode of category.

An objective test was to be applied by valuation officers when ascertaining whether premises were undergoing reconstructions rather than being in a state of disrepair. However, regard could be had to the programme of works being undertaken at the premises.

This decision should come as welcome news to commercial developers and property owners and act as an incentive to redevelop.

Elizabeth Dwomoh / 22nd Mar 2017


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