S J & J Monk (A Firm) v Newbigin (Valuation Officer)

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Hodge,Lord Neuberger,Lord Kerr,Lord Reed,Lord Carnwath
Judgment Date01 March 2017
Neutral Citation[2017] UKSC 14
Date01 March 2017

[2017] UKSC 14

THE SUPREME COURT

Hilary Term

On appeal from: [2015] EWCA Civ 78

before

Lord Neuberger, President

Lord Kerr

Lord Reed

Lord Carnwath

Lord Hodge

Newbigin (Valuation Officer)
(Respondent)
and
S J & J Monk (a firm)
(Appellant)

Appellant

David Reade QC

Dominic Bayne

(Instructed by S J & J Monk (a firm))

Respondent

Sarabjit Singh

Matthew Donmall

(Instructed by HMRC Solicitor's Office)

Interveners (Rating Surveyors Association and British Property Federation)

Daniel Kolinsky QC

Luke Wilcox

(Instructed by Berwin Leighton Paisner LLP)

Heard on 7 November 2016

Lord Hodge

(with whom Lord Neuberger, Lord Kerr, Lord Reed and Lord Carnwathagree)

1

Does a commercial building which is in the course of redevelopment have to be valued for the purposes of rating as if it were still a useable office? That is the question raised in this appeal. An analogous question would arise if the building were a former hospital which was in the process of conversion into flats. Should it be valued as if it were still available for occupation as a hospital? The question is of general public importance to the law of rating and valuation.

2

The appellants ("SJJM") own the freehold of the first floor ("the premises") of a three-storey office building built in the 1990s, known as Avalon House, at St Catherine's Court, Sunderland Enterprise Park, Sunderland. In the past the premises were occupied by tenants as a single office suite of 795.73 square metres. In 2006 the tenants vacated the premises and in December 2009 SJJM accepted the surrender of the lease of the premises. On 9 March 2010 SJJM entered into a contract with Jomast Developments Ltd for the renovation and improvement of the premises with a view to making them more adaptable for use as either three separate suites of offices or as a single suite, in order to attract replacement tenants.

3

The contracted building works involved the removal of all internal elements, except for the enclosure for the lift and staircase by which people gained access to other floors. This entailed stripping out the cooling system including all internal and external plant, the lighting and power installations, the fire alarm system, the suspended ceiling, all sanitary fittings and drainage connections, the timber joisted and modular raised flooring, and existing masonry walls and metal stud partitions. The contract also provided for the construction of new common parts to the premises and new communal sanitary facilities, which involved new solid partitioning, a raised floor, new sanitary fittings, new drainage and plumbing systems, and new electric lighting, alarm and heating systems. Finally, the contract envisaged the construction of three new letting areas within the premises with three self-contained electrical distribution circuits and air conditioning and heating systems.

4

After entering into the building contract and until at least 6 January 2012 SJJM had the premises marketed as available for rental either as three separate office suites or as a whole. On 6 January 2012, which is the relevant date for assessing the facts and applying the statutory assumptions discussed below when determining the rateable value of the premises on an application to alter the rating list ("the material day"), the premises were vacant. Contractors had removed the majority of the ceiling tiles and the suspended ceiling grid and light fittings and also 50% of the raised floor. They had also removed the cooling system and the sanitary fittings, demolished the block walls of the lavatories and stripped out the electrical wiring. The contractors had erected and plastered plasterboard partitions to form the outline of the proposed communal lavatories and had erected and plastered a partition across the floor at the east side of the premises. They had completed first fix electrical installations to the lavatory area and had altered the drainage to accommodate the new location of the lavatories.

5

SJJM wished to reduce its liability to local authority rates on the premises while they were being reconstructed. Local authority rates are a tax on property and the unit of assessment is the "hereditament". A "hereditament" is defined as "property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item in the valuation list": section 64(1) of the Local Government Finance Act 1988 ("the 1988 Act") which refers to this definition in section 115(1) of the General Rate Act 1967 ("the 1967 Act"). Each hereditament is separately identified on the rating list (which formerly was called the valuation list). The premises were so listed on the 2010 rating list as "offices and premises" with a rateable value of £102,000.

6

On 6 January 2012 SJJM's agents proposed to the respondent, who is the valuation officer for Sunderland ("the VO"), that the description of the premises on the rating list should be altered with effect from 1 April 2010 to "building undergoing reconstruction" and that the rateable value should be reduced to £1. The agents justified their proposal on the basis that the premises were undergoing building works which rendered them incapable of beneficial occupation on the material day. They explained that the scheme of building work was "remodelling and refurbishing the floor plate to allow subdivision into up to three separate offices served by communal W/Cs". The VO did not accept the proposal and referred it to the Valuation Tribunal for England ("the Valuation Tribunal") as an appeal against his refusal to alter the rating list.

The relevant legislation
7

The central issue in this appeal is whether the premises should be rated by having regard to the physical condition they were in on 6 January 2012 or whether para 2(1)(b) of Schedule 6 to the 1988 Act as amended by the Rating (Valuation) Act 1999 ("the 1999 Act"), which I set out below, requires a valuation officer to assume that they were in reasonable repair as "offices and premises" on that date.

8

Schedule 6 to the 1988 Act, which is headed "Non-domestic rating: valuation", provides so far as relevant:

"1. This Schedule has effect to determine the rateable value of non-domestic hereditaments for the purposes of this Part.

2.(1) The rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions —

(a) the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;

(b) the second assumption is that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic;

(c) the third assumption is that the tenant undertakes to pay all usual tenant's rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above.

(6) Where the rateable value is determined with a view to making an alteration to a list which has been compiled (whether or not it is still in force) the matters mentioned in sub-paragraph (7) below shall be taken to be as they are assumed to be on the material day.

(7) The matters are —

(a) matters affecting the physical state or physical enjoyment of the hereditament.

(b) the mode or category of occupation of the hereditament.

(c) the quantity of minerals or other substances in or extracted from the hereditament.

(cc) the quantity of refuse or waste material which is brought onto and permanently deposited on the hereditament.

(d) matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there, and

(e) the use or occupation of other premises situated in the locality of the hereditament.

(8A) For the purposes of this paragraph the state of repair of a hereditament at any time relevant for the purposes of a list shall be assumed to be the state of repair in which, under sub-paragraph (1) above, it is assumed to be immediately before the assumed tenancy begins."

The prior proceedings
9

On 19 October 2012 the Valuation Tribunal dismissed SJJM's appeal. It identified the material day as 6 January 2012 and concluded that on that day there was nothing to prevent the economic repair of the premises. It held that the premises were an office suite in disrepair and were to be rated as if they were in reasonable repair.

10

SJJM appealed to the Upper Tribunal (Lands Chamber) ("UT"), which heard evidence, as the appeal proceeded as a re-hearing. The UT confirmed the Valuation Tribunal's finding that the material day was 6 January 2012, and that decision has not been appealed. Otherwise, the UT allowed SJJM's appeal, holding that the premises had been stripped out to such an extent that to replace its major building elements would go beyond the meaning of repair. The assumption in para 2(1)(b) of Schedule 6 to the 1988 Act that a hereditament was in a state of reasonable repair did not extend to the replacement of systems that had been completely removed. The alterations had rendered the premises incapable of beneficial occupation as an office and accordingly the premises were to be rated as a "building undergoing reconstruction". As a result, the rateable value of the premises should be reduced to the nominal amount of £1.

11

The VO appealed to the Court of Appeal, which allowed his appeal and therefore dismissed SJJM's underlying appeal. The Court of Appeal reasoned as follows. It...

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