Sanity restored: business rates on properties being redeveloped

Posted on 28 February 2017

Sanity restored: business rates on properties being redeveloped

At a time when next month's business rates revaluation is causing much dissatisfaction in the property industry, landlords and developers did at least receive some welcome news from the Supreme Court last week.

In the case of Newbigin v SJ & J Monk, the Supreme Court has confirmed everyone's previous understanding that a commercial building which is in the course of redevelopment does not have to be valued for business rates purposes as if it is still a useable office.

SJ & J Monk, a firm of solicitors, was carrying out substantial refurbishment works to its offices. At the valuation date for calculating business rates liability, the property was stripped to a shell. The firm argued that, as the property could not be occupied due to the building works, the rateable value should be reduced from £102,000 to £1.

The valuation officer, and then the Court of Appeal, disagreed. They said that the replacement of the stripped-out elements at the property should be classed as repairs which could be economically carried out by the ratepayer. This meant that the property should be valued as if it were in a state of reasonable repair and that full business rates were payable.

This caused an outcry in the property industry, as it would make many developments financially unviable. It was seen as a matter of such importance that the British Property Federation and the Rating Surveyors Association became involved in the appeal to the Supreme Court.

Thankfully, the property industry can now breathe a sigh of relief. The Supreme Court has unanimously upheld the appeal and has ruled that where a property is undergoing refurbishment works and cannot be occupied, only nominal rates are payable. The actual state of the property trumps the statutory valuation assumption that any necessary repairs have been carried out.

In his March budget speech, the chancellor announced some measures aimed at cushioning the rates increases for smaller businesses. For details, please see our budget briefing as circulated yesterday (8 March).