Newbigin (Valuation Officer) v S J & J Monk (a firm)

For non-domestic rating under the Local Government Finance Act 1988, the statutory assumption that a hereditament is in reasonable repair requires an objective valuation on that hypothesis. It extends only to work properly characterised as repair and excludes repairs a reasonable landlord would regard as uneconomic.

A partly stripped building may therefore be assumed restored where it can be economically reinstated. Replacement of removed services is not excluded merely because they were removed before valuation. The owner’s future refurbishment intentions are irrelevant.

The appeal concerned the first floor of an office building undergoing refurbishment. By the material date, substantial parts of its internal systems and fittings had been removed. The Valuation Tribunal had treated the works as economically reversible, but the Upper Tribunal held that the hereditament was incapable of beneficial occupation and reduced its rateable value to £1: [2014] UKUT 14 (LC).

The Valuation Officer appealed on the interpretation and application of Schedule 6 paragraph 2(1)(b) of the Local Government Finance Act 1988, particularly the extent of the reasonable-repair assumption.

1. Appeal allowed. The Upper Tribunal’s conclusion that the hereditament should have a nominal rateable value could not stand.
2. Schedule 6 paragraph 2(1)(b) requires the hereditament to be assumed, immediately before the hypothetical tenancy, to be in reasonable repair. The assumption is counter-factual and displaces the ordinary reality principle to that extent. It does not, however, extend to works which cannot properly be described as repairs. The exclusion for uneconomic repairs colours the whole assumption.
3. Reasonable repair is assessed by reference to the age, character and locality of the property and whether it would be reasonably fit for occupation by a reasonably-minded tenant of the relevant class. The description in the rating list is the natural starting point. Repairs in the statutory hypothesis bear their traditional landlord-and-tenant meaning.
4. Disrepair involves deterioration from an earlier physical condition. The cause of deterioration is immaterial, and an objective comparison with the earlier condition may be made notwithstanding the general reality principle. The intentions of the actual owner or ratepayer are irrelevant.
5. The distinction between repair and renewal may be assessed using the approaches identified in Lurcott v Wakely [1911] 1 KB 905 and McDougall v Easington BC (1989) 58 P & CR 201: whether the work affects the whole or subsidiary parts, whether it creates a building of wholly different character, and its cost and effect on value and lifespan. The works here concerned non-structural subsidiary parts and could be carried out economically. Replacing systems removed before valuation was not materially different from replacing worn-out systems still in situ.
6. The actual owner’s intended future refurbishment did not determine the issue. The hereditament could be economically reinstated as offices and premises, so the repair assumption applied.

Lewison LJ gave the leading judgment. Davis LJ concurred, and Arden LJ agreed with both judgments.

1. Court of Appeal (Civil Division) allowed the Valuation Officer’s appeal.
2. Upper Tribunal (Lands Chamber), in [2014] UKUT 14 (LC), held that the hereditament was incapable of beneficial occupation in its actual physical state and reduced its rateable value to £1.
3. Valuation Tribunal had reached the contrary conclusion on the repair issue, including that the hereditament could be economically restored to its former state.