Part 8B: Buildings undergoing schemes of reconstruction or redevelopment which are incapable of beneficial occupation
The Valuation Office's technical manual for the rating of business (non-domestic) property.
1.1 This practice note considers schemes of reconstruction and redevelopment referred to in a number of decisions of the courts listed below:
Newbigin (VO) v Monk [2017] UKSC 14
Jackson (VO) v Canary Wharf Limited [2019] UKUT 136 (LC)
Colour Weddings v Roberts (VO)
Carey Group v Mr A Ricketts (VO)
BNPPDS(J) LIMITED and BCI LIMITED v Amanda Hitchings (VO)
Aviva Investors v Dawn Bunyan (VO)
1.2 The leading case is the Supreme Court (SC) decision in Monk v Newbigin in which the SC discussed the repairing assumption and considered in depth a question of: Is there is a hereditament in existence before the valuer can consider the assumptions in schedule 6 to the LGFA 1988?
The SC referred to this as the ‘logically prior question’. The SC decided that the application of the repairing assumption was not appropriate for a building undergoing reconstruction and which was consequently incapable of beneficial occupation (IBO). The ‘logically prior question’ which has to be answered, has two limbs:
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i. whether the ‘damage’ that has occurred is indicative of a scheme of reconstruction (which includes significant refurbishment/refitting in addition to complete demolition and new building)
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ii. has that damage rendered the hereditament IBO?
2.1 The 1988 Act as amended by the Rating (Valuation) Act 1999 — ‘the 1999 Act’ — sets out, in Schedule 6, how properties are to be valued for rating.
2.2 Following the 1999 Act, paragraph 2(1) of Schedule 6 to the 1988 Act reads:
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the rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions:
- the first assumption is that the tenancy begins on the day by reference to which the determination is to be made
- the second assumption is 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
- the third assumption is that the tenant undertakes to pay all usual tenant’s rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above
2.3 In determining rateable value the legislation requires a valuation at the antecedent valuation date (AVD) on the statutory basis but taking into account particular stated physical circumstances as they are on the compilation day or, where the rateable value (RV) is being determined with a view to making an alteration to a list, the Material Day. The physical circumstances are set out in Schedule 6 sub-paragraph 2(7) and are to be taken to be as they are assumed to be on the compilation or Material Day, as appropriate. Read more at section 2 Part 4 for information about the Material Day.
2.4 Schedule 6 sub-paragraph 2(8A) makes it clear that the state of the hereditament at any time relevant for the purposes of a list shall be the assumed state of repair under sub-paragraph 2(1). The first assumption simply explains the hypothetical tenancy begins on the AVD. The effect of the second assumption is to override the actual situation at the compilation date or Material Day and replace it with an assumption of reasonable repair (subject, as further explained below, to the question of whether the hereditament is undergoing reconstruction).
3.1 The Supreme Court decided that the application of the repairing assumption was not appropriate for a building undergoing reconstruction which rendered it IBO.
20. The 1999 Act can thus be seen as applying principles analogous to those in Wexler, Camden London Borough Council and Saunders (paragraph 16 above) to a hypothetical lease in which the tenant bore the obligation to put the hereditament in repair. In my view the Court of Appeal goes too far in interpreting the 1999 Act as completely displacing the reality principle in relation to both the physical state and the mode of occupation of a hereditament which is undergoing redevelopment. The 1999 Act, by introducing the assumption of reasonable repair at the outset of the hypothetical tenancy (‘the repair assumption’), is not addressing the question of whether the premises were capable of beneficial occupation, which, in the context of a building undergoing redevelopment, is a logically prior question. Thus the repair assumption (paragraph 2(1)(b)) applies to matters affecting the physical state of the hereditament (paragraph 2(7)(a)) but not to the mode or category of occupation of the hereditament (paragraph 2(7)(b)).
3.2 The prior question which has to be answered is whether the ‘damage’ that has occurred is indicative of a scheme of reconstruction (which includes significant refurbishment or refitting in addition to complete demolition and new building). Where it is accepted that these works have rendered the hereditament, as a whole, IBO then it ceases to be a hereditament and the repairing assumption for valuation purposes cannot be applied. The question is also relevant if part of a hereditament that is undergoing extensive works and is considered in paragraph 8.
3.3 The logically prior question, is the question a valuer must answer prior to valuing the property in line with Schedule 6. Is there a hereditament? Or has the hereditament ceased to exist because of a scheme rendering it IBO?
3.4 A valuer should only engage the repairing assumption in-line with Schedule 6 once they are satisfied:
- there is a hereditament in existence
- the hereditament is not undergoing a scheme, that has rendered it IBO
4.1 In the SC decision, the wording used by the Lords to describe the works at the property was both reconstruction and redevelopment. For the purposes of this practice note, caseworkers are advised to treat those words as meaning the same thing.
4.2 In paragraph 22 of the Monk decision, Lord Hodge stated:
In a helpful intervention, the Rating Surveyors’ Association and the British Property Federation submitted that, where works were being carried out on an existing building, the correct approach was to proceed in this order:
(i) to determine whether a property is capable of rateable occupation at all and thus whether it is a hereditament
(ii) if the property is a hereditament, to determine the mode or category of occupation
(iii) to consider whether the property is in a state of reasonable repair for use consistent with that mode or category
The first two stages of that process involve the application of the reality principle. At the third stage the valuation officer applies the statutory assumption in paragraph 2(1)(b) if the reality is otherwise. In my view, this is a helpful approach where a building is undergoing redevelopment. But it is subject to the useful practice, which I discuss in paragraph 31 below, of reducing the rateable value of a building, which is incapable of rateable occupation because of such temporary works, to a nominal figure rather than removing it from the rating list altogether.
The Lords found favour with the approach suggested by the interveners:
- to determine whether the property is capable of beneficial occupation at all and thus whether it is a hereditament
- if the property is a hereditament, to determine the mode or category of occupation and then
- to consider whether the property is in a state of reasonable repair for use consistent with that mode or category
4.3 The SC sought to advise how to deal with scenarios such as these in paragraph 23 of their decision:
How does a valuation officer ascertain that premises are undergoing reconstruction rather than simply being in a state of disrepair? The subjective intentions of the freehold owner of a property are not relevant to the reality principle. The matter must be assessed objectively. But, in carrying out that objective assessment of the physical state of the property on the material day, the valuation officer can have regard to the programme of works which is in fact being undertaken on the property. It is clear on the Upper Tribunal’s findings of fact, which I have summarised in para 4 above, that on 6 January 2012 the premises had been largely stripped out in the course of a redevelopment and an outline of the future development (the communal lavatory facilities) had been created. The premises were incapable of beneficial occupation, because, as an objective fact, they were in the process of redevelopment and no part of them was capable of beneficial use. If the works are objectively assessed as involving such redevelopment, there is no basis for applying the assumption in paragraph 2(1)(b) to override the reality principle and to create a hypothetical tenancy of the previously existing premises in a reasonable state of repair. This is both because a building under redevelopment, like a building under construction, is incapable of beneficial occupation and, in any event, the hypothetical landlord of a building undergoing redevelopment would normally not consider it economic to restore it to its prior use.
4.4 Firstly a distinction needs to be made between works of reconstruction and a property simply being in a state of disrepair. If a property is in a state of disrepair the approach the valuer must take is different. The approach is covered in Section 2 Part 8A.
4.5 The SC advise that the subjective intentions of the freehold owner are not relevant to the reality principle and that the matter must be assessed objectively. The reality principle is discussed in depth in Section 2: Part 7 . However, regard can be had to the physical state of the property at the material day, if a programme of works is being undertaken, it appears the Valuation Officer is able to project forward how that programme will proceed into the future.
4.6 The property in Monk as a matter of fact at the material day was undergoing a scheme of redevelopment it had largely been stripped out and an outline of the future development had been created. Because of this redevelopment work, the office had become IBO which entailed that it was no longer a hereditament.
The Canary Wharf decision
4.6 In Jackson (VO) v Canary Wharf Limited the Upper Tribunal (UT) decided that a modern office building which was fully stripped out to a shell condition, as part of a periodic refurbishment between tenancies, did fall within the definition of being a building undergoing reconstruction to which the prior question applied. Due to the property being completely stripped out and IBO, the UT decided that the offices were no longer a hereditament.
4.7 In paragraph 11 of the UT’s decision they described the works that went on:
The previous occupier of floors 44, 45 and 46 surrendered its lease on 17 February 2011. The floors had not been comprehensively refurbished for 20 years and, in anticipation of the space becoming vacant, CWCL was instructed on 20 January 2011 to strip out the floors to a shell and core condition. The works were carried out between 14 February and 18 September 2011, and involved the removal of raised flooring, suspended ceilings, partition walls, and mechanical and electrical services, at a cost of £740,254. Additional expenditure of £42,852 was incurred in stripping out the common parts of the three floors, comprising lift lobbies and wc’s. As part of the work, new fire-detection systems and sprinklers were installed. The opportunity was also taken to introduce an element of future-proofing, in the form of a new riser which was added to the core to accommodate any additional mechanical or electrical infrastructure that might be required in the future.
4.8 Paragraph 12 explains the Valuation Office’s acceptance of the property being fully stripped out and IBO:
Marketing of the three vacant floors commenced in February 2011. It is specifically accepted by the Valuation Office that at the material day in this appeal, 16 January 2013, the appeal property was fully stripped out to a concrete shell and was incapable of beneficial occupation as an office.
Offices
4.9 For offices stripped back to a shell condition in a similar manner to the offices in the Canary Wharf case, they will be subject to the logically prior question and as they are IBO due to a scheme of reconstruction or redevelopment, they should be deleted from the list.
4.10 There will be cases that colleagues deal with which the tenant’s fit out is removed and the premises are returned to Category A (offices) ready for the subsequent tenant to refit to their requirements. Following the guidance in Monk, Canary Wharf it is likely that a strip back to Category A will render the premises as a whole IBO as it will remove key elements required for beneficial occupation (small electrics, welfare facilities, partitioning). In these circumstances the assessment may be deleted pending reconstruction or refitting works to bring it back into assessment.
Shops
4.11 When dealing with cases on shops it will be very important to identify what works have gone on and what fittings have been removed. If a shop has undergone a scheme of reconstruction or redevelopment and been returned to a shell condition so becoming IBO, it is possible that it should be deleted from the rating list as no longer being a hereditament. Each case must be considered on its facts, but if the staff welfare facilities remain, then the shop unit may be regarded as ready for occupation by a new tenant and requiring only the installation of their non-rateable fit out or minor alterations. For small shop units in retail centres with public toilets available, a lack of WC within the shop unit will not necessarily prevent beneficial occupation.
4.12 Where it is clear that the damage or disrepair is not part of a scheme of reconstruction (whether or not it renders the hereditament IBO), the statutory repairing assumptions should be applied. Read Section 2 Part 8A for more detail on property in disrepair.
Industrial or warehouse premises
4.13 The UT determined in BNPPDS(J) LIMITED and BCI LIMITED v Amanda Hitchings (VO) (also referred to as Blackrock and Brough Park) that a warehouse and offices which were refurbished by the landlord ready for occupation by the new tenant (McDonalds), should be deleted from the start of the landlord works. The UT decided that the scheme which included the removal of a previous tenant’s large mezzanine floor, rendered the property IBO. A planning application for a change of use from warehousing to obnoxious processing was made prior to McDonald’s occupation.
A summary of the works is below.
- removal of existing gas heater and purge of heating system
- removal of all asbestos and flues to the roof
- replacement of the exterior security lighting
- replacement of the external rooflights and cleaning of internal rooflights
- replacement of 24 damaged roof panels
- replacement of 8 external wall panels
- exterior redecoration
- cleaning and making good of guttering
- repointing of brickwork to a corner of the warehouse
- replacement of windows to the offices
- replacement of a fire door and pedestrian access door
- replacement of the roller shutter door with an electric equivalent
- renewal of toilet and kitchen facilities
- installation of lighting and small power to the warehouse
- dismantling and removal of the mezzanine floor
- installation of lighting and small power to the offices
- making good of the warehouse floor
- flushing out of the drains
- cleaning and decorating prior to new tenant taking the building
- installation of an external vehicle charging point
At paragraph 47, the UT stated:
There is no real doubt that, having regard to the circumstances on the ground at the material day and the programme of works, the property could not have been beneficially occupied as a warehouse.
5.1 The differentiation between the ‘ordinary’ situation of disrepair and when there is a programme of works of redevelopment means it is essential to identify whether there is, or is not, a programme of works of redevelopment (such term to include a substantial refurbishment or a comprehensive repair scheme that renders the hereditament, as a whole, IBO). The Supreme Court identified that this had to be ‘assessed objectively’ and that the subjective intentions of the freehold owner are not relevant. It is for the valuer to make a judgment, based on objective evidence, about whether the building is undergoing redevelopment. In the light of the UTLC decision in Jackson (VO) v Canary Wharf Limited, this judgment must reflect a range of evidence about the circumstances, and it is not conclusive that no specific plans to refit or reconstruct the building have been drawn up.
5.2 The easiest situation to consider is when, on inspection, it is found on the ground that the hereditament is being changed, perhaps converted to something different at the Material Day, for example, offices to flats; being significantly improved; extended so the existing accommodation cannot be used or the boundaries of the existing hereditaments are being changed.
5.3 The phrases used by the Supreme Court — ‘redevelopment works’, ‘undergoing reconstruction’, in a ‘process of redevelopment’ or undergoing ‘radical alterations, whether or not they are structural’— indicate that what it considered constituted a programme of works of redevelopment was not simply redecoration, basic refurbishment or the sort of works an existing tenant might choose, or be obligated, to do during the course of a lease. The prior question which has to be answered is whether the ‘damage’ that has occurred is indicative of a scheme of reconstruction. It includes significant refurbishment or refitting in addition to complete demolition and new building.
5.4 When Valuation Officer’s are satisfied a property is undergoing a programme or scheme of works which renders it IBO, the correct action is to delete the hereditament from the list. The former practice of reducing the rateable value to £1 or £nil is no longer considered appropriate, or useful, as the courts have ruled that such properties undergoing a programme of works are no longer a hereditament.
5.5 On completion of the works, and following the appeal in Aviva v Whitby (VO) RA/3/2011, the hereditament should only be brought into the list if it is 100% complete and ready for occupation, is actually occupied, or the billing authority has served a completion notice.
5.6 Even if the extent of the new hereditament is the same as the former list entry, the rating value as a result of the changed character and/or use will need to be determined by evidence from comparable properties of similar character and use in the locality. For example where the level of value may have been £100 per m2 pre-works, reflecting the absence of air conditioning and lift, and comparable properties in the locality with air conditioning and lifts may be at £120 per m2 then on completion of the works the subject property would fall to be assessed in accordance with the new character created by the improvements at a similar value. It will usually be the case that if the works will result in an increase in the GBP per m2 used for the rating value on their completion then the works probably go beyond minor refurbishment and are creating something materially different.
5.7 A programme of reconstruction may include stripping out what was there before. The work undertaken by the building contractors in both stripping out what was there before and the new work will constitute the programme. Mere stripping out on its own does not of itself constitute or evidence a programme of reconstruction but rather simple damage, putting the hereditament in a state of disrepair. However, it is clear from Jackson v Canary Wharf Limited that it is not a requirement for the reconstruction phase to be explicitly planned, and as long as it is tolerably clear that the hereditament is being redeveloped or reconstructed then it may be deleted.
5.8 The Supreme Court appeared content to examine all the facts surrounding the case in deciding whether there was a programme of works of redevelopment. This included not just the actual physical position on the ground but also facts such as whether any building contract had been agreed, the existence of an approved planning consent or building control application etc. At first sight this appears contrary to the statutory valuation scheme which requires certain matters which are broadly physical in nature (Schedule 6 paragraph 2(7) matters) to be taken as at the Material Day and the other matters at the AVD. However, the Supreme Court ruled that deciding whether or not there is a programme of works is a prior question to be answered before considering valuation. The limitations of the valuation assumptions do not apply until this is decided and therefore all facts can be objectively considered. The subjective intentions of the actual owner are not to be considered as determinative, although as in Jackson v Canary Wharf, they may be indicative of the existence of a programme of reconstruction. If the property is in a location where the behaviour of that sector of the market is objectively ascertainable and it is common practice to periodically fully refurbish buildings, then it would seem that this can properly be taken into account.
5.9 A project of demolition, if objectively evidenced that it is a project of demolition and not simply some stripping out with the vague expectation of future demolition, is similar to a programme of redevelopment works.
5.10 The Upper Tribunal in at paragraph 49 in BNPPDS(J) LIMITED and BCI LIMITED v Amanda Hitchings (VO) decision stated:
- We see some force in Mr Wilcox’s reliance on the principle of equality of treatment between the owners of properties in a similar condition. The fact that the completion notice regime enables buildings to be brought into the list on a deemed basis, whether or not they are in fact capable of beneficial occupation, does not undermine the point. The Tribunal’s decisions in Porter and Aviva were not concerned with completion notices. They support the proposition that a building which, for reasons other than disrepair, lacks attributes and features that are a prerequisite for beneficial occupation is not a hereditament. We do not see why a building which has never been in the list should be treated more favourably than one which has, when both are in substantially the same condition.
This observation did not crucially impact upon the UT decision and the Valuation Office considers that this view has not yet been tested in the courts.
Offices and shops
6.1 In the UT decision of Carey Group v Mr A Ricketts (VO), the UT referred to the Canary Wharf decision in paragraph 39 and stated:
The only case to which we were referred in which Monk has been applied was the Tribunal’s decision in Jackson (VO) v Canary Wharf Ltd [2019] UKUT 136 (LC), which concerned office premises undergoing reconstruction which had been stripped back to a shell condition and which were awaiting agreement with a new tenant before they would be fitted out. There was no doubt that, by reason of their undergoing redevelopment, the premises were incapable of beneficial occupation, and that was enough to dispose of the appeal on the basis that they were not a hereditament….
At paragraph 60 of the Carey Group decision, the Tribunal said:
It is common ground that the Property was incapable of beneficial occupation due to the propensity for water to enter the basement between March 2020 and April 2021. The length of that period should not be allowed to create an impression that the solution to the problem was complex or required extensive works. The concrete joint was identified as the likely source of the problem by March 2020. The remedial work was relatively simple in its design, took only a few weeks to complete and is unlikely to have been particularly expensive.
And then at paragraph 76 the Tribunal decided:
For these reasons we are satisfied that the repair assumption requires that the Property be valued on the basis that, at the material day, damage to the basement which had been caused by the ingress of water had been repaired and that the repair included sealing the joint between the basement floor and the adjoining wall so that it no longer allowed the entry of water into the premises.
6.2 In Carey Group it was agreed as an objective fact that beneficial occupation was not possible in the property between March 2020 and April 2021. The UT decided that because the issue preventing the lack of beneficial occupation was a lack of repair, the property should be valued as if the repairs to the basement had been carried out under the repairing assumption in paragraph (2)(1)(b) of Schedule 6 of the LGFA 1988.
6.3 Valuation Officers will likely come across proposals or appeals which request a property is deleted from the list due to being IBO, that alone is not sufficient and the repair assumption may still apply. It is important to note that the SC in Monk decided the property was IBO due to it undergoing a scheme of reconstruction or redevelopment. The Canary Wharf decision followed the Monk decision by deciding the offices were IBO by reason of their undergoing redevelopment.
Industrial and warehouse properties
6.4 The Valuation Tribunal for England President heard Aviva Investors v Bunyan (VO) with both sides represented by Counsel. The appeal concerned an industrial unit that was having end of lease type light refurbishment works that were largely met by the outgoing tenant’s dilapidations payment. The works involved were:
- installation of fencing externally to form yard
- roof cleaning and localised repairs
- external cleaning and removal of signs
- clean and redecoration of warehouse
- clean of warehouse floor
- new LED lights to warehouse
- removal of tenant’s partitions to offices
- repairs and redecoration to offices
- new floor coverings to offices
- new LED lights to offices
- new sanitaryware and duct panels and vanity units to WCs
- new floor finishes and mirrors to WCs
- new LED lights to WCs
- replacement of kitchen units and floor finishes
- service of heating system
- service of comfort cooling
- electrical tests
6.5 The President commented that he did not consider the property to be IBO due to the works that had been carried out, see paragraphs 57 to 59 of his decision:
57.I found it significant that the warehouse area of the building which it was agreed comprised around 88% of the accommodation was only subject to minor repairs. It was not stripped back like the situation in Monk and Canary Wharf. In both of the latter cases, the properties were stripped back, so they could not be occupied for use as offices. In contrast, the warehouse area at the appeal property was capable of beneficial occupation. As previously explained, the vacation of the tenant would not have any impact upon the valuation of this area and any minor repairing issues that could easily be remedied fell to be disregarded, as it had to assumed that the landlord would do the necessary repairs before re-letting it.
58.Nevertheless, Mr Wilcox still argued that the warehouse area was incapable of beneficial occupation because without any kitchenette or toilet facilities, you would not be able to have any people working there. I rejected this argument because it was possible for toilet and kitchen areas to be stripped back and replaced whilst the tenants remained in occupation and making use of the warehouse. Normally such replacement works would take a short period of time, maybe a fortnight or a month at most. Even if I accept the appellants’ contention that the toilets and the kitchenette areas were stripped back for a period just over two months, that does not justify a deletion of the whole assessment because the hereditament continues to exist.
59.The lack of any toilet facilities was not as Mr Wilcox would have me to believe justification for deleting the whole assessment. Whilst I accept that a warehouse without any staff toilets would have a lower rental value, in comparison to one with those facilities, the property was not incapable of being used for storage. Its mode or category of use remained a warehouse with or without toilets. The facts in this appeal were different to those in Monk and Canary Wharf where it was accepted that no part of the premises was capable of beneficial use as offices. The lesson from Monk was that if the premises were stripped out you could not value what was not there. In this case, the Warehouse area remained intact. I therefore upheld the Valuation Officer’s argument that Mr Wilcox was creatively attempting to push the boundaries too far. In my opinion, whilst a well argued and interesting proposition, it would be a nonsensical situation if in order a secure a deletion of the list entry or a nominal assessment, all the owner had to do on the vacation of a tenant was to remove the toilet facilities.
6.6 It should be noted that the appellant in this case sought a deletion of the assessment. In his decision, the Valuation Tribunal President, at paragraph 60, suggested that had they requested a reduction on the basis of a Material Change of Circumstances, then he may have adjusted the valuation for individual parts that were rendered IBO whilst the works were ongoing.
60.Had the challenge that ultimately gave rise to this appeal been made on the grounds of a material change of circumstances and had the appellants satisfied the evidential burden of proof by providing factual evidence which confirmed when the stripping out works took place and when the new units were installed, I would have given consideration to whether it was appropriate to reduce the assessment to reflect the fact that a minor part of the property 21 was temporarily incapable of beneficial use. However, as the challenge sought a deletion of the whole assessment, this course of action was not open to me.
6.7 The distinction between a scheme of redevelopment and works that fell within the repairing assumption has been explored in the decision of the Upper Tribunal in Colour Weddings v Roberts (VO) RA-12-2018. In this case an industrial property was being converted into a wedding venue. The UT member at paragraphs 36 to 39, commented:
36.Stage 1, scheduled to take place between 20 January 2015 and 20 February 2015, comprised fixing a crack to the wall, bricking in windows, replacing a shutter door and fitting a new entrance door. In my judgment the property was capable of beneficial occupation throughout that period.
37.Stage 2 involved making a wooden frame around the inside one of the buildings, to be insulated and lined with plasterboard. This work was said in the schedule to have taken place between 23 February 2015 and 1 April 2015. [The ratepayer] submitted a photograph showing this stud work, prior to it being insulated and lined. I am not persuaded that the property would have been incapable of beneficial occupation while the partitioning was being installed. The wooden frame was around the inner perimeter of only one of the buildings but would not in my view render it unoccupiable.
38.Stage 3 involved the construction of seven customer toilets and a ‘bridal suite’, plumbing work, drainage work, central heating and something described as ‘involution’. It was shown as having taken place between 6 April and 15 May 2015. Stage 4 involved plastering the entire interior of the building, between 30 May and 15 July 2015. Stage 5 involved making a wooden ceiling frame and ceiling, between 15 July and 15 September 2015. The remaining 15 stages were to take place up to February 2017.
39.On the evidence available to me, I consider that the property had already become incapable of beneficial occupation some time before that date. Doing the best I can with the evidence, in my judgment the correct date falls within during stage 3 — the construction of customer toilets, a bridal suite, drainage and central heating would have involved sufficiently extensive work to make the occupation of any part of the building impossible.’
As can be seen the earlier works of stage 1 and 2 in this case were not considered by the UT member to be works of reconstruction and were not considered part of the ‘scheme’.
7.1 Where an owner is substantially refurbishing and altering an existing building assessed in parts, each hereditament should be considered individually and the prior question, as well as the test of what would be economically reasonable applied to the hereditaments individually not collectively. If not actively part of the scheme and simply damaged or in disrepair and it is economically reasonable to undertake repairs then the subject hereditament will be deemed to be in repair. However, the other parts should be viewed as they actually are at the Material Day. This may have a detrimental effect on the value of the hereditament being considered in the same way as other external material change of circumstances (MCCs). The effect may vary over time and require successive amendments to the rating list to reflect a significant change in disability.
8.1 Where a programme of works of redevelopment is underway for only part of a hereditament similar considerations will apply. It is always a question of fact and degree whether what is being done can be described as repair or whether in fact a scheme of reconstruction is taking place.
8.2 Reconstruction works to a significant part of a hereditament (a wing or floor of offices for example) will result in the boundaries of the hereditament changing in the same way as a whole hereditament undergoing reconstruction works ceases to be a hereditament if it is IBO as a result of the works. As the part is outside the hereditament, consideration can be given to applying an allowance for disturbance on an ‘external building works’ basis reflecting the ‘real world’ presence of the builders, for example, dust and noise; as well as consideration of how the physical state of those parts affects the whole and this may or may not be value significant. If the work is, say, to only one floor of an office block, unless this is the reception floor it is unlikely having one floor out of use will damage the value of the remaining floors.
8.3 However, if, for example, access is prevented through the main reception due to works to install a glass atrium and lift; this may affect the value of the occupation of the remainder provided that, under the principle of rebus sic stantibus, the part is physically unusable. Each case must be judged on its merits. Any reduction in value for the loss of the part undergoing alterations will reflect the hypothetical rental bid for the hereditament reflecting the works going on around it.
8.4 It is not likely that works to only a small part of a hereditament (room by room redecoration or upgrading works for example) will alter the boundaries of a hereditament and may be works that a tenant may do during the course of a tenancy with no effect on the rental bid. It is unlikely to meet the conditions of the prior question and render the hereditament, as a whole, IBO. The ratepayer may wish to apply for temporary partial relief from the billing authority under S44A of the LGFA 1988.
8.5 Where the boundaries of the hereditament are reviewed, care must be taken to properly identify the remaining hereditaments and to value them appropriately having regard to the revised areas.
9.1 The effective date for a rating list alteration is usually found by looking back from the Material Day to the earliest date that those circumstances first arose. In some cases the Material Day and effective date are the same.
9.2 The valuer needs to consider the physical factors listed in Schedule 6 paragraph 2(7) as they are on the Material Day but envisaged as at the AVD. If it is considered the hereditament is IBO and therefore has ceased to exist, the Material Day will be the day those circumstances first arose and the effective date will, subject to any other restrictions, be the same day.
9.3 It should be noted that where Valuation Officers take early action to delete an entry on the grounds that stripping out works constitute the commencement of a scheme of conversion or reconstruction or demolition, but this is subsequently found not to be the case and the works therefore are merely soft stripping or damage to the hereditament, then the entry can be reinstated at its original level with effect from the date of the original deletion.
9.4 If the programme of works has not commenced, then the hereditament is by definition not subject to such a programme of works, will not be IBO for that reason, and the assessment in the rating list should remain unaltered, subject to the usual tests of demand and economic repair.
9.5 The Supreme Court in Monk regarded the retention of a nominal figure in the rating list rather than deletion as a ‘useful practice’ (paragraphs 22 and 31), notwithstanding that the basis of their decision was that a building undergoing redevelopment and IBO is not a hereditament. In the light of that reasoning, Valuation Officers should adopt the orthodox approach of deleting such entries in line with the law. There is no benefit in continuing with the previous practice endorsed by the Supreme Court and which was followed because the VOA previously understood that, even if it had a nil value, the hereditament continued to exist and consequently should be shown in the list.
9.6 In instances where a £0 RV has remained in the list for a building undergoing redevelopment and that development is now complete, the £0 RV entries should be deleted from the date the £0 RV applied and new entries inserted in the list from the date of completion (noting the strict requirements in paragraph 13.4 below). This is to emphasise that the ‘increase’ in RV to reflect the new building is not caught by Regulation 14(7) and date of schedule increases.
9.7 In other cases where the ongoing works may result in a decrease in the rateable value of the hereditament and/or a change in its description; the hereditament should remain in the rating list until it is evidenced that it has ceased to exist.
9.8 Reinstatement of a list entry may be necessary following completion of the works. When doing so, consideration should be given to the principles in Rating Manual: Section 2 Part 3. Notably, following the Upper Tribunal decision in Aviva v Whitby (VO) RA/3/2011, it is important to establish by inspection that the hereditament is 100% complete and ready for occupation, is actually occupied or a completion notice has been served before a new entry is made in the rating list, otherwise the list should not be amended.
9.9 When agreeing a deletion during the life of a previous list and that list is closed for the purposes of Valuation Officer alterations, that prevents the reinsertion of an entry after works are completed. In these cases, the Valuation Tribunal have the power to end date the deletion after the works have finished. This is endorsed by the Court of Appeal in Avison Young Ltd v Jackson (Valuation Officer) [2021] EWCA Civ 969 (01 July 2021). Valuation Officers are advised to make this sort of request if after the works are finished:
- the property is occupied again
- there has been a Completion Notice served
- based upon an inspection the property is known to be 100% complete and ready for immediate occupation
More information on this is available in section 6 of this manual.