Should the rating list entry for a building undergoing a scheme of refurbishment be reduced to £1 for the duration of the works?
The Upper Tribunal (Lands Chamber) in BNPPDS(J) Ltd and another v Hitchings (VO) [2025] UKUT 104 (LC) said yes for the particular property in question drawing on statute and relatively recent case law.
This decision may be of interest to landlords and tenants presently undergoing a scheme of substantial refurbishment works to premises which are subject to business rates.
It should be noted at the outset that rateable value cases are highly fact sensitive though some general principles can be drawn from this decision which have been established in previous case law.
Facts
Warehouse premises were to be fitted out as a kitchen to support McDonald's delivery business.
The landlord and tenant completed programmes of works. The combined strip out and fit out began in November 2022 and completed in March 2023, costing circa. £171,000.
The warehouse premises were assessed with a rateable value of £31,250.
Legal principles
Units of land are divided into hereditaments and given a rateable value of "an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year" (Schedule 6, paragraph 2(1) of the Local Government Finance Act 1988, as amended) applying certain assumptions and accepting certain matters as they existed on a 'material day' which is calculated by reference to the statutory framework.
In assessing the rateable value, a relevant matter is the mode or category of occupation of the hereditament as it in fact existed at the material day. But what if the premises were incapable of occupation at the material day due to ongoing refurbishment works?
In this case, the material day was 15 December 2022, at which time works were underway but incomplete. Lighting and heating had been removed from the premises, but a mezzanine platform has been retained which would make it "too dark to occupy safely" (at paragraph 48 of the Decision).
Decision
In reaching its decision, the UT referred to the leading Supreme Court decision of Newbigin (VO) v Monk [2017] 1 WLR 815 ('Monk') which established a three stage approach (at paragraph [22] of that judgment):
- To determine whether a property is capable of rateable 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.
The UT then referred to its decision in Jackson (VO) v Canary Wharf Limited [2019] UKUT 136 (LC) which established that if the premises are not capable of beneficial occupation, they are not a hereditament and would therefore fail the first of the three stages set out in Monk.
The UT stated that the distinction between works to remedy a lack of repair and redevelopment works are critical in cases such as this. This is because statute assumes that before the tenancy begins, the hereditament is in a state of reasonable repair, regardless of what state of repair the particular property is actually in. A tenant/landlord's actual repair works are discounted from the rateable value assessment process.
The UT went on to conclude:
"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."
As such, the UT confirmed that the rating list entry in this case should be reduced to £1 for the duration of the works.
Statute provides that business premises which are incapable of beneficial occupation may be subject to a rateable value reduction or removal from the rating list.
This UT decision offers further guidance to landlords and tenants seeking to challenge a Valuation Office decision not to reduce the rateable value of a business premises which is incapable of beneficial occupation due to redevelopment works.
