The recent surprise court ruling in relation to Newbigin and Monk, which found in favour of the appeal by the Valuation Office concerning an office building undergoing refurbishment, raises a question mark over the interpretation of Schedule 6 of the Local Government Finance Act 1988 in relation to what constitutes ‘improvement’ and ‘repairs’.
In the original case, the Upper Tribunal decided that the office was not capable of occupation as offices due to its actual physical state and in consequence its rateable value should be a nominal amount of £1. The Valuation Office appealed and won on the grounds the work was more general repair, rather than improvement, so the initial rating assessment should apply.
There are a number of worrying precedents set by the result of this case. Major works, where the office cannot be occupied, would usually be considered as an improvement which adds value to the property, in which case the nominal assessment of £1 would be applied over the period of the works up until the hereditament is reassessed following the completion of the works.
The ruling from Lady Justice Arden concludes that the rateable value of £102,000 should be reinstated on the premises over the period of the works as they are not ‘improvements’. The replacement of the false ceiling, raised floors, air conditioning and sanitary fittings, together with electrical wiring does not sound like general office maintenance or repairs, but a substantial improvement to a 1990s building. This ruling seems to conflict with common practice and previous case law.
This successful appeal not only means rating surveyors will have to rethink the advice they have previously given or offered to clients, but the conclusion also represents a departure from the guidance given in the Valuation Office Rating Manual. This will require a review of the manual and may require it to be rewritten.
One assumes that if this case remains unchallenged, the value applied to this building will remain the same following completion of the works. If, however, the Valuation Office seeks to increase the value to reflect these alterations, this would appear to conflict with this decision and suggest that the works were in fact improvements.
The ruling has not helped the rating profession in deciding what constitutes works of repair or improvements. It is unlikely to assist rating surveyors in private practice or the Valuation Office in resolving the number of cases awaiting the outcome of this decision and is likely to see additional cases brought before the courts.
Peter Chapman is head of rating and compensation at Cluttons