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

May 2014.

This is a subject close to my heart since the passing of the 1999 Act, not least of all because I followed the passage of the Bill through both Houses of Parliament, on behalf of the Institute, on a strictly non-party basis. It transpired that I wrote, unwittingly, the Liberal Democratic speech on Report in the Commons, and the Conservative speech on Third Reading, when the Bill as a whole was nearly defeated. More significantly, perhaps, I had a major hand in the writing of the Minister’s speech in Committee in the Lords, which is enshrined in “Hansard” and the Rating Manual, among other places, and of which various interpretations and reinterpretations crop up, from time to time.

The latest mention comes in the February 2014 decision of the Lands Chamber in the case of S&J Monk –v- Keith Newbigin (Valuation Officer [2014] UKUT 0014 (LC) or (RA/62/2012). This case related to first-floor offices in a building in Sunderland Enterprise Park, and there wee two proposals which reached the Lands Chamber, both being of general interest.

The first of these sought a deletion from the List with effect from 1st April 2010 on the ground that the hereditament had been subject, from that date, to: ‘….. a major refurbishment scheme including structural alterations and the premises [were] incapable of beneficial occupation”. That proposal was withdrawn prior to the hearing of the appeal against the resultant disagreement.

The second proposal, however, (using the standard Agency proposal form) sought a reduction in assessment to RV £1 with effect from the date of compilation, and claiming a material change of circumstances as at the compilation date (Question 15 D), the reasons being expanded in response to Question 16. Again, the Agency did not well-found the proposal and the resultant dispute went to a Valuation Tribunal, which dismissed the ratepayers’ appeal, finding that the material day had been 6th January 2012, being the date of the second proposal.

Notwithstanding that the parties had agreed the issues for determination by the Chamber as:-

  • “(i) Whether the VTE erred in finding that the correct date of the material day, for the purposes of considering the physical state of the appeal hereditament, was 6th January 2012; and
  • (ii) Whether the VTE erred in upholding the respondent’s position that the appeal hereditament has a rateable value of £102,000, or whether (as contended by the appellant) it ought to have been a rateable value of £1 because the material day it was undergoing a scheme of refurbishment that altered the hereditament”

The judge (Mr A J Trott FRICS) held that the second issue was wrongly stated, and that what had emerged from the hearing before him was that the necessary preliminary question which needed to be answered was: “What physical state should the hereditament be assumed to have been in on the material day?”

It is unnecessary, here, to traverse all of the facts, but suffice it to say that the works were in progress, that the value of the contract was said to be £332,000 (more than three times the rateable value) and that, among other things, the hereditament was vacant, all wiring had been stripped out as had the comfort cooling system, the sanitary fittings and the block walls to the WCs, as well as the majority of the ceiling tiles, suspended ceiling grid and light fittings, and about half of the raised floor. As against that, plasterboard partitions had been erected and plastered to form the outline for the WCs, a further partition had been erected and plastered across the floor on one side of the building, alterations had been made to the drainage from the new WCs, and first fix electrical installations to that area had also been completed.

Both parties were represented by counsel; and the ratepayer had been legally represented when the proposals had been made. Thus, the whole case may be said to have been fully and carefully argued, through out, by both parties.

The judge’s first task was to determine the material day for the purpose of the appeal, which he did by reference to Regs 3 and 4 of the 1992 Material Day Regulations. The Appellant sought a material day of 1st April 2010 on the basis that by its proposal of 6th January 2012 its declaration therein that there was an ongoing scheme of works as at the date of compilation enabled the material day to be determined as 1st April 2010; but that, if that was wrong, and the material day was determined as 6th January 2012, then the Appellant’s position would be stronger as a greater proportion of the scheduled works would have been carried out by that date. In any event, it was submitted, the effective date (under Reg 14 of the 2009 Regulations) would have to be 1st April 2010.

Although its submissions as to material day failed, the Appellant succeeded on the effective date point, having regard to the decision by the judge as to what the correct formulation of the second issue for his determination should be. Nevertheless, there is an object lesson for practitioners in this part of the decision, for which readers are referred to paragraphs 32-36, where the judge analyses the proposal form and the answers to the questions therein given. Great care must be taken to word a proposal by ticking the right boxes on the form – if it is used, which, as a matter of law, is not necessary. On this occasion, it worked against the ratepayer, even though the financial situation was recovered in the second part of the decision.

Here we come to the effect on proceedings of the 1999 Act, and the state of “reasonable repair” which is deemed to come into effect immediately before the commencement of the hypothetical tenancy.

There was a difference of view between the two valuers, Mr Farr and Mr Newbigin, both of whom had inspected the property at the material time, as to the exact nature of the work being carried out. Mr Farr was quite clear hat there was an alteration to the floorplate of the hereditament, thereby, together with the substitution of air conditioning for comfort cooling, rendering the hereditament materially different from what had been there before the works commenced: Mr Newbigin was equally adamant that there was no change, and that the works carried out (the valuers were not particularly far apart in relation to cost) were no more, really, than works of refurbishment and repair.

Lack of space forbids a detailed review of the arguments deployed; but the judge summarises the Valuation Officer’s argument (at para 75) as follows:-

“The respondent’s argument as presented at the hearing is that, in every case, one must determine whether the hereditament can be repaired economically given its physical condition at the material day. Provided a reasonable landlord would not consider such repairs to be uneconomic then the hereditament must be assumed to be in a state of reasonable repair at that time. The respondent says that it is not relevant if a programme of works is under way at the material day since the intention of the landlord and the existence of a contract are not relevant. The respondent argues that paragraph 2(1)(b) of Schedule 6 does not require (or allow) a distinction to be made between the causes of the physical state in which the hereditament exists at the material day; all one has to do is to determine whether, given that state, it can be repaired economically. If the answer is yes then it must be assumed to be in a state of reasonable repair.”

That argument was comprehensively rejected, the judge observing that the Respondent’s submissions run contrary to more than one decree in the Rating Manual (that Law of the Medes and the Persians which changeth not), while adding that it represented a “…considered and informed commentary on the law which merits attention”, adding that should not be adopted if it is found to be mistaken, and that: “…the Tribunal is not bound by it and it is not relevant to the construction of the statutory provisions.”

Turning then to consider the meaning of the “physical state” of the hereditament under para. 2(7)(a) of Schedule 6, the judge held this to mean the physical condition of the hereditament in an assumed state of (economic) repair under para. 2(1)(b). The Appellant sought to distinguish works of repair from works of alteration and that works of alteration go beyond para. 2(1)(b) and cannot thereof re be assumed to have ben undertaken. This argument was rejected, on the ground that there is no footing in statute for distinguishing repairs from alterations in this way. All that the legislation requires is that the hereditament be taken at the material day as it is and on the assumption that it is in a ste of reasonable (economic) repair.

Equally the Respondent’s argument that para. 2(1)(b) requires the assumption (provided that the cost is not uneconomic) that the hereditament has been reinstated from its actual state on the material day to its former physical state prior to the commencement of the works which gave rise to the proposal. Such a finding, it is submitted, is only consistent with the principles of rebus.

On that footing, and observing that his finding echoed para.8.5, Section 4, Volume 4 of the Rating Manual, the judge held that, at the material day, the appeal hereditament in its actual physical state was incapable of beneficial occupation as “offices and premises” and thus would command no more than a nominal value under the rating hypothesis: while a hereditament is assumed to be in a state of reasonable repair, this assumption could not extend to systems which have been completely removed. So, even if Mr Farr’s altered floor plate did not clinch the matter, the removal of the plumbing, electrical and sanitary systems, did – a finding perhaps consistent with recent decisions of the Tribunal in completion notice cases.

Alternatively, while not specifically adopting the Appellant’s submission in this regard, the judge said:-

“…In my opinion the starting point in this analysis is that Schedule 6 paragraph 2(1)(b) does not apply unless and until there is a hereditament that is capable of beneficial use. The alterations had rendered the hereditament incapable of such use. I do not consider that it would be correct to read paragraph 2(1)(b) as, in effect, changing the law by imposing an assumption that a hereditament that is incapable of beneficial occupation is to be assumed capable of beneficial occupation if it can be made so at reasonable cost. If that is what was meant then the 1999 Act would have said so plainly. In my opinion the use of the words “reasonable repair” suggests a more limited objective. In common English usage the word “repair” has a meaning that is not appropriate in circumstances such as those in this appeal where the subjects of repair have effectively ceased to exist, eg electrical circuitry, heating and air conditioning.”

The results of both analyses having been found to be the same, the appeal was allowed and the assessment reduced to £1 with effect from 1st April 2010. So the Appellant, not having won all the battles, won the war.

The Agency is considering the decision and, at the time of writing (late March 2014) we do not know whether leave to appeal will be sought. If it stands, it will place a brake on what might think to be an overenthusiastic application of the principles of the 1999 Act and the explanation thereof provided by the then Minister whose speech in Committee in the Lords, as I have remarked, I helped to write.

Peter Scrafton

©J.P. Scrafton, 2014

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