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AN ARTICLE by Peter Scrafton FIRRV, FCIArb, MRSA(Hon) Solicitor (Non-Practising)

April 2015.

The much-awaited judgment of the Court of Appeal in Monk –v- Newbigin (VO) [2015] EWCA Civ 78 has been given, and it contained unpleasant surprises for just about everybody. The Valuation Officer’s appeal was allowed (which upset the ratepayer); but then the true law of rating (namely the Rating Manual) was criticised by the Court of Appeal! Horrors all round! How could this have come about?

The case is about the state of deemed “reasonable repair” introduced into rating by the provisions of the Rating Act 1999, which amended the provisions of Paragraph 2 of Schedule 6 to the Local Government Finance Act 1988. The object of the exercise, we were assured when the 1999 Bill was passing, was to rectify a lacuna in the 1988 Act, identified by the case of Benjamin (VO) –v-Anston Properties Ltd [1988] 2 EGLR 147.

Under the regime of the General Rate Act 1967, it was assumed that the landlord had undertaken the repairs before possession was given, so that the hereditament was assumed to be in the state in which it would have been, had the repairs been carried out. This assumption was later qualified to the extent that, if the repairs required were such that the cost would be uneconomic, then the hypothetical landlord would reduce the rent demanded.

The 1988 Act shifted the burden of execution of ongoing repairs to the hypothetical tenant; and therefore there was no room for an assumption that the landlord had executed any works before the start of the hypothetical tenancy. The Anston case exposed this, and thus, what the Court of Appeal described as “the reality principle” prevailed, and hereditaments fell to be valued in their actual state of repair, even if that state could be remedied, at economic cost.

The Court of Appeal was not prepared to give any weight to Baroness Farrington’s speech, because they held that the meaning of the statutory provisions was clear – in which case the Pepper –v- Hart principle (by which Hansard may be referred to if he meaning of a provision is not clear) does not apply. As Lady Farrington, the minister responsible, spoke to a meaning of the provisions which was not accepted by the Court, it would seem that Parliament enacted something different from that which legislators intended! How often does that happen, I wonder? And how?

The Rating Manual next comes in for a beating, in that parts of it suggest that regard should be had to whether or not an ongoing scheme of works would, when completed, produce a different hereditament, on the basis that, if there would be a different hereditament, the works required to complete that programme would not be works of repair, and should be disregarded. Not so, said the Court: such an approach violated a principle established in 1870 in Metropolitan Board of Works –v- West Ham (in effect, the rebus principle).

The Manual comes in for more criticism, when it is said to take a mistaken view of the words of Lord Wilberforce in Dawkins (VO) –v- Ash Brothers and Heaton Ltd [1969] 2 AC 366 at 385. The judgment (at para. 20) corrects those misunderstandings, in detail.

Not yet finished with the Manual, the Court go on to say that the book is wrong to distinguish between works of repair and works of improvement, as it does, and that Valuation Officers and Valuation Tribunals should apply the common law, which the Court then proceeds to do. In summary:-

  • The hereditament must be valued as it stands
  • The first question to be asked is whether it is in such a state of repair, having regard to its age, character and locality as would make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it.
  • The starting point for this test is the description in the rating list.
  • The statutory assumption means that the only work which can be assumed to have been carried out is work of repair
  • The principle of reality must yield to any counter-factual assumption which the valuation framework requires, and it is necessary to compare the hereditament in its actual state with its previous state
  • The three tests laid down in McDougall –v- Easington BC (1989 58 P&CR 281 must then be applied:-
  • Whether the alterations went to the whole, or substantially the whole of the structure or only to a subsidiary part
  • Whether the effect of the alterations was to produce a building of a character entirely different from that which was originally let
  • What was the cost of the works in relation to the previous value of the building and what was their effect on the value and lifespan of the building

Applying these three tests to the matter before them, the Court held that the Lands Chamber erred in law, and upheld the appeal.

The outcome is not, perhaps, what either party expected. To quote W.S.Gilbert from “The Mikado”:-

This stern decree, you’ll understand, caused great dismay throughout the land; For young and old and shy and bold were equally affected

Nobody seems happy with it – so what next? The Supreme Court? A Bill following the General Election? The problem may not yet be resolved….

Peter Scrafton

©J.P. Scrafton, 2015

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