Vacant buildings and sites used not to be subject rates, the UK national tax on business property. The Rating (Empty Properties) Act 2007 removed this exemption. We were sceptical about the legislation at the time and events have proved us right. Property owners have been trying to challenge the legislation and have now got their way. The owner of a building in Sunderland took the Valuation Office Agency to court. The case, Newbigin v Monk, went to the Court of Appeal in 2015 and then to the Supreme Court. The decision of this test case, announced on 1st March, was in favour of the owners.
Despite what the judges claim, we would argue that this pulls the rug from under the vacant rating legislation. It gives the green light to owners to leave buildings unoccupied and sites derelict, under the pretext that they are "under redevelopment". At first sight, one might expect that owners would be keen to avoid having sites vacant. Because of the way the land market and the banking system interact, however, it is often financially advantageous to hold premises and sites vacant, especially at the low points in the land price cycle; there are instances of sites which have been through two cycles whilst remaining vacant for the entire period, despite development consents. This promotes urban decay and ensures that economic recoveries will be retarded when the cycle begins to pick up.
The judges summarised the point at dispute as follows: "Does a commercial building which is in the course of redevelopment have to be valued for the purposes of rating as if it were still a useable office? That is the question raised in this appeal. An analogous question would arise if the building were a former hospital which was in the process of conversion into flats. Should it be valued as if it were still available for occupation as a hospital? The question is of general public importance to the law of rating and valuation."
The central issue in this appeal was whether the premises should be rated by having regard to the physical condition they were in on 6 January 2012 (the date of assessment) or whether para 2(1)(b) of Schedule 6 to the 1988 Act as amended by the Rating (Valuation) Act 1999 (“the 1999 Act”), requires a valuation officer to assume that "that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic. As the Act puts it: "Where the rateable value is determined with a view to making an alteration to a list which has been compiled (whether or not it is still in force) the matters mentioned (in sub-paragraph 7 below of the decision summary) shall be taken to be as they are assumed to be on the material day."
In making a judgement in favour of the landlord, the discussion specifically mentions the principle of rebus sic stantibus, referring to a series of cases as far back as Poplar Assessment Committee v Roberts , and to the principles set out the Rating and Valuation Act 1925
The judges argue that their decision would not undermine the provisions of the Rating (Empty Properties) Act 2007, which increased the unoccupied business rate to make owners of unoccupied property liable for the same rate as those payable on occupied properties, since parliament had also introduced into the 1988 Act, in section 66A, an anti-avoidance power, which, to date, had not been used. The judges inferred that the practice before the Court of Appeal’s decision had not caused a serious problem and that the power could be exercised, if needed, for example to prevent avoidance by the partial implementation of a scheme of works and its deliberate non-completion.
In the light of the law as it is, this outcome was inevitable; the judges' decision was correct. It is what happens when valuations are based on anything other than site values only. Anti-avoidance powers just add another layer of uncertainty and provide endless scope for dispute; it remains to be seen whether they will ever be invoked.
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