Landmark business rates case for property developers

A milestone ruling on an important business rates case, considered extremely good news for property developers, is beginning to have far reaching implications for owners and developers of vacant property.

In a test case last March, Monk v Newbigin, the Supreme 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 resulting in a much reduced rates bill for the developer concerned.

Background

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.

Implications

In what was seen as an important test case, the ruling was 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 recognised the importance of development and emphasised that potential business rates liability should not be a deterrent.

Caution

Whilst the case is deemed good news for developers, experts believe that ratepayers should remain vigilant as there may be some resistance from the Valuation Office in light of the decision and test cases that challenge current thinking are anticipated.

Although the Valuation Office's ratings manual suggests it accepts the decision, it will undoubtedly continue to scrutinise each case carefully to determine whether to accept a reduction is appropriate, probably suggesting a rating specialist will be best placed to handle any appeal.

So developers thinking of doing any work on a building are advised to consider their business rate liability and seek early advice, prior to the scheme of works starting if possible, especially as a new appeals process is now up and running with strict timescales.

Contact a member of the Wards Solicitors' Commercial Property team for more information.