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David Reade QC successful in Supreme Court

David Reade QC was successful in the Supreme Court in an important decision on rateable values for commercial properties. David was leading counsel for the appellants in the case. In an article written for The Times, David explains the details of the case and the impact it will have on business rate payers.

The original article can be accessed here.

Some Good News for Business Rate Payers

The Supreme Court has restored order on rateable values for commercial properties before the business rates overhaul next month

Business ratepayers were banking on a reprieve from the chancellor this week after the widespread outcry over the re-evaluation that’s to take place from April. Under the revised rates, many businesses will experience steep rises as the rateable value of commercial properties are re-evaluated for the first time since 2010.

The move comes when there had already been concern in the world of business rates about the financial impact of the decision of the Court of Appeal (Newbigin v SJ & J Monk) on the valuation of business properties undergoing redevelopment.

Messrs Monk, ratepayers and freehold owners of an office block appealed to the Supreme Court, and earlier this month the justices overturned the Court of Appeal judgment, restoring both a decision of the Upper Tribunal and the previous long-settled approach to buildings undergoing redevelopment to the anticipated relief of business property owners, developers and rating surveyors alike.

The appeal concerned the first floor of a three-storey office building in Sunderland. In the past, it had been occupied by a single tenant, but in 2009 the ratepayer accepted a surrender of the lease; and in 2010 it entered into a contract for 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.

By January 2012, which was the date on which it was to be valued, the majority of its internal elements had been stripped out, work had begun on newly located communal sanitary facilities, and some partitioning had been erected to form the separate letting areas. In the intervening period the premises were unsuccessfully marketed as available for rental either as three separate office suites or as a whole.

It was possible for the property to be economically repaired back to its former state, even though the obvious intention was not to do so. The core issue was whether the valuation officer was correct that the property should continue with the original value in the rating list, ignoring the works, or whether the ratepayer was correct and the list should be amended to show that the property was undergoing redevelopment and the value amended to £1.

The Court of Appeal had overturned a decision of the Upper Tribunal (Lands Chamber) following an appeal by the valuation officer; and reversed the long-settled practice, reflected in the valuation manual, that where business premises were unusable, because they had been stripped out for the purposes of redevelopment, their rateable value would be reduced to a £1.

The effect of this decision was that unless the property was incapable of being economically returned to its former state, it would remain at its original rateable value. Business rates would therefore continue to be due on the premises, as if they could be used or let for the original purpose, even though they could not be used at all through the period of redevelopment.

This clearly significantly increases the costs of redevelopment, both for property owners and developers. Such was the concern about the effect of the Court of Appeal decision that the British Property Federation and the Rating Surveyors Association intervened in the appeal before the Supreme Court.

The decision of the Court of Appeal interpreted the effect of Schedule 6 to the 1988 Act to mean that only if the condition of the premises was such that it was beyond economic repair or return to its former description should the property be valued on the basis of its actual state.

However, the Supreme Court decision means that one has to look at the actual mode or category of occupation of the property first before considering whether the property is in a state of reasonable repair for use consistent with that mode or category of occupation. Here, on the facts found by the Upper Tribunal, the property was incapable of beneficial occupation as offices because it was undergoing redevelopment work. So it was properly described as premises undergoing reconstruction rather than offices in disrepair, with the result that it had only a nominal rateable value.

The Court of Appeal ruling had caused wide concern as it overturned years of settled practice. The decision of the Supreme Court restores the old order and it provides some good news for business ratepayers and property developers in advance of the April increases in business rates.

David Reade, QC, of Littleton Chambers, and Dominic Bayne, of Parklane Plowden, jointly acted for the appellants

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