Holmes investigates: A significant ruling on rateable value; Birmingham's very own property super sleuth, Theo Holmes from CBRE, dusts off his deerstalker and gets out his magnifying glass to investigate property refurbishment and the implications for business rates.
Byline: Theo Holmes
The case The Court of Appeal recently overturned an Upper Tribunal (Lands Chamber) decision to reduce the rateable value of an office property to PS1 while it was undergoing a substantial refurbishment.
What impact could this landmark case have on the commercial property sector? The evidence Businesses are entitled to a rates reduction if refurbishment means the building is unfit for occupation while works are ongoing. Ratepayers can appeal to reduce their rateable value of the property to PS1. In this case, the property was a vacant office built in the late 1990s, which had been partially stripped out by the landlord in 2010. The landlord then commenced a scheme of works to refurbish the floor in January 2012, including the removal of the lighting, power and cooling systems, sanitary fitting, ceiling tiles and a large part of the existing raised floor.
The landlord appealed against the existing rateable value of PS102,000 on January 6, 2012 on the basis that the property was undergoing a scheme of refurbishment and as such was incapable of beneficial occupation However, the court ruled that, based on the facts, the works, which were non-structural, could be classed as repairs at the valuation date because the property could be put back economically into its full state of repair. As such, rates should be assessed and paid on that basis.
Conclusion Whether the work required to repair the property can be fairly described as "repairs", and whether it is economic, will depend upon the particular facts of the case.
The Court of Appeal's decision to overturn the Upper Tribunal's ruling in favour of the landlord last year could have repercussions for both landlords and tenants.
The decision will make it much harder for landlords to mitigate their rates liability during schemes of refurbishment unless they can prove that the works required to bring the property back into repair would be considered uneconomic by a reasonable landlord.
At present there is no clarity on when works of refurbishment will exceed the repair assumption and as such it is still a very grey area.
Valuation officers have been delaying making decisions on existing appeals pending the outcome of this case. It is likely that they will look to apply this decision across the board on appeals for reductions during refurbishment unless substantial structural works or demolition takes place.
In future, ratepayers of vacant commercial premises undergoing refurbishment should not assume their assessments will be reduced to a nominal rateable value, which may well deter investors from upgrading stock.
Landlords will have to carefully consider the rating position and likely challenges ahead in advance of the start of any works.
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|Publication:||The Birmingham Post (England)|
|Date:||Mar 12, 2015|
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