Finally, a victory in the on-going battle against business rates

Following a successful Supreme Court challenge against a business rates ruling, is there now an appetite for more fundamental change to the rating system?

Property developers across the UK are breathing a sigh of relief after the Supreme Court this week overturned a ruling which had stipulated that business rates should be charged as if a property undergoing refurbishment was fully useable.

The case of Newbigin (Valuation Officer) v S J & J Monk https://www.supremecourt.uk/cases/docs/uksc-2015-0069-judgment.pdf concerned a building owned by S J & J Monk (SJJM) which had been occupied by a single tenant as office space. SJJM opted to redevelop the property for use as either a single office or as 3 separate offices. 

On 6 January 2012, the property was vacant and had been stripped back to a shell. This date (6 January 2012) was key because it was the date for determining the rateable value on an application to alter the rating list.

The rateable value for the property had been £102,000 but SJJM proposed a nominal value of £1 on the basis that the property description should be a "building undergoing reconstruction", which could not be occupied.

The case turned on whether the property should be rated based on its actual physical condition (i.e. shell) or whether legislation should be applied to assume that the property was in reasonable repair (the "repairing assumption"). 

After consideration in the Valuation Tribunal, Upper Tribunal and Court of Appeal, the Supreme Court finally held that rating law was underpinned by the reality principle – that a property should be valued as it was on the material date. The repairing assumption referred to above did not override the reality principle. In addition the Supreme Court noted that the repairing assumption did not address the question of whether the property is capable of beneficial occupation.  

What the Supreme Court has done is provide that the first question to be asked on a rating assessment is whether a property is capable of beneficial occupation – if the answer is no, then the property cannot be assumed to be in a state of repair and the rating value should reflect that.

This decision offers not only clarity to developers but a welcome relief from business rates liability whilst buildings are being re-developed.  

Clearly this is an important decision for the whole of the UK property market, particularly in London and the south east where values are at their highest, but developers should be mindful of the comments made in the Supreme Court judgment which suggest that, if at any time during the development part of the property becomes capable of beneficial occupation, then that part could be separately valued for the purposes of applying business rates.

So, a welcome victory in this particular set of circumstances, but with the government pressing ahead with its revaluation of business rates and resisting widespread calls to overhaul what is largely regarded as an outdated and unfair system, it is clear that business rates will continue to be a burden for most UK property stakeholders.