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Opportunity to reclaim business rates on refurbishment projects

A landlord has won a dispute over rates liability in a case which has implications for developers undertaking significant refurbishments says commercial property agent Prop-Search.

A recent court decision by the Upper Tribunal (land) in the case of Monk (SJ & J) v Newbigin held that a hereditament where building works were being carried out was affected by a material change of circumstances and the rating list must be altered to show a nominal (£1) value with a description of ‘building undergoing reconstruction’.

Samantha Jones, a Surveyor at Prop-Search, said: “Until the introduction of unoccupied property rating in 1996, the rating of premises undergoing building works was relatively uncontroversial because the liability for rates depended on occupation and it was established early in the evolution of rating that occupation by builders was not the kind of occupation which was rateable.  As there was no liability during building works, then valuation during building works were not generally controversial either.”

This latest case concerned an empty office property in Sunderland where the landlord had stripped the office back to its shell.  This included the removal of heating, air-conditioning, and electrical systems, and sanitary fittings having been removed in preparation for a comprehensive refurbishment and possible sub-division. 

The landlord lodged an appeal which sought to delete the offices from the rating list on the grounds that it was subject to major refurbishment.  This appeal was subsequently withdrawn prior to the Valuation Tribunal for England’s (VTE) hearing.  A second proposal, made six months before the first, was withdrawn which sought to alter the rating list with effect from 1 April 2010 at £1 rateable value on the grounds of a material change of circumstances, in that the property was undergoing a scheme of work which made it incapable of beneficial occupation.  The works referred to included remodelling and refurbishing the floor plate to allow subdivision into three office units.  The VTE had dismissed the appeal, but in doing so held that the material day was 6 January 2012, the date the proposal was served on the Valuation Officer (VO).  The landlord’s representative had argued that the material day was 1 April 2010.

Trott J residing, confirmed that the material day was 6 January 2012.  As the proposal had been completed, including the wording of the reasons, this was not a proposal on the grounds of a material change and fell to be determined under the Non-Domestic Rating (Material Day for List Alterations) Regulations 1992.

The parties were in agreement about the physical condition of the hereditament on 6 January 2012 but did not agree the extent of the works completed by 1 April 2010.  Nor did they agree that the first fix air conditioning installations were completed by 6 January 2012.

Trott J was satisfied that at the material day the property was not capable of beneficial occupation as an office due to its actual physical state.  It had been stripped out to the extent that replacing the major elements would go beyond the meaning of repair.  In essence, if something was not there, there was nothing to repair.  His opinion was that a hypothetical tenant would not pay more than a nominal amount for it at the material day.  He accepted the appellant’s evidence about the work that had been completed by 1 April 2010 and determined that the RV should be £1 from that date.

Samantha added: “The ‘Monk’ case is useful as it provides evidence which may enable other landlords or developers to be able to look back to as far as 1st April 2010 to obtain a refund on overpaid rates if a refurbishment scheme has taken place.  However, it will be surprising if it is the last word on this topic.

Further information or advice can be obtained from Prop-Search - Tel: 01933 223300 / 01604 492000 or its website:

Thursday, August 21, 2014