Property developers carrying out building renovation work have been given welcome news on the level of business rates they may pay in the future by a landmark Supreme Court ruling.
In a test case, the court ruled that a Sunderland property – given a rateable value of £102,000 in 2012 – should not have been charged business rates as if it were fully usable when it was undergoing major renovation and refurbishment work to attract new tenants.
Instead, it should pay a nominal £1 to reflect the fact that the property could not be occupied whilst the building works were ongoing.
The result – a much reduced rates bill for the developer concerned – is also thought likely to reduce business rates bills for property developers in the same situation in the future.
Property developer S J and J Monk from the North East of England owned the freehold of a three-storey office building and was in the process of redeveloping the property into three different office suites on the date that the rateable value of the property was set.
Arguing that the property was stripped out, empty and unusable, the owner said it should be categorised as a ‘building undergoing reconstruction’ when it came to determining its rateable value.
The Valuation Office disagreed alleging that the property was in reasonable repair and the purpose of the works was purely economic. S J and J Monk took the case to the Court of Appeal which agreed with the Valuation Office. Undeterred, the owner appealed again – this time successfully – to the Supreme Court.
In what is seen as an important test case, the ruling is perceived as the court adopting a ‘common sense’ approach to business rates liability when a property is unusable due to the renovation work being carried out.
The judgement recognises the importance of development and emphasises that potential business rates liability should not be a deterrent.
With a significant number of similar cases eagerly awaiting the outcome of this case, there is a feeling that these will be settled quickly now that there is greater clarity on the issue.
In addition, the Valuation Office has since amended its practice note on how a property will be assessed when it is undergoing refurbishment or redevelopment.
Contact a member of the Wards Solicitors’ Commercial Property team for more information.