28th March 2017
Revised values for business rates will come into effect on 1 April 2017. At the end of last year specialist Real Estate Litigator Martin McKeague published his tips and tactics for landlords and tenants ahead of the ratings revaluation, particularly for those who could see the changes impact their lease renewal or recovery of possession proposals. In this briefing, Martin explains why a recent, high profile Supreme Court decision on business rates is good news for property owners and developers, and he offers some practical advice ahead of the imminent rate revaluation date.
Back in 2015  the Court of Appeal held that, for business rates assessment purposes, a statutory assumption  that premises are in a reasonable state of repair should apply to all premises, even those in the process of being redeveloped. That decision meant that property owners and developers faced a ratings liability on even those premises which were incapable of occupation as a result of ongoing works.
The property owner in the case was a company called S J & J Monk. The premises in question had been valued as offices on the assumption they were in repair even though, on the relevant ratings assessment date, the premises were in fact stripped to a mere shell as a result of ongoing redevelopment. S J & J Monk appealed that decision to the Supreme Court, with support from the Rating Surveyors Association and the British Property Federation.
In a comprehensive judgment  which overturns the Court of Appeal decision, the Supreme Court unanimously concluded that the statutory assumption should not displace the long-standing and statutorily-endorsed “reality principle”, which requires premises to be valued as they actually exist on the relevant ratings assessment date. It confirmed that the correct approach is for a valuation officer first to determine whether premises are capable of rateable occupation (and, if so, to determine the mode or category of occupation); and, only then, if they are able, to apply the statutory assumption as to reasonable repair . The result is that for premises which are not capable of occupation as a result of ongoing redevelopment, the ratings liability will be nominal only.
The Supreme Court’s decision is being welcomed by property owners and developers as a victory for common sense. It is sensible that a building that in reality cannot be occupied as offices should not be assessed as offices capable of occupation for rating value purposes.
There is scope for future dispute as to the extent of the disrepair required to render a property incapable of rateable occupation; and as to the point at which properties subject to refurbishment may become, in part at least, capable of occupation again (and, in such cases, the extent and calculation of any business rates liability).
The Supreme Court noted that this decision does not pave the way for ratings avoidance or evasion by the implementation of spurious schemes such as temporarily removing sanitary facilities so as to claim that a property is incapable of rateable occupation at any relevant date. Anti-avoidance legislation is already in place to prevent any such abuse.
In addition, in terms of the 2017 assessment, the relevant date for ratings assessment was 1 April 2015, and so it was the state of premises on that date which will determine ratings liability.
 S J & J Monk v Newbigin (Valuation Officer)  EWCA Civ 78
 para 2 (1) of Schedule 6 to the Local Government Finance Act 1988 as amended by the Rating (Valuation) Act 1999 provides that the rateable value of a property is an amount equal to the rent at which it is estimated it might be expected to be let, subject to the assumption (para 2 (1) (b)) that immediately before the tenancy begins, the property is in a state of reasonable repair (but excluding repairs which might reasonably be considered to be uneconomic)
  UKSC 14
 Ibid paras 22 and 23