What a relief!
On 1 March 2017, the Supreme Court decided that property owners seeking to carry out refurbishments can claim business rates relief.
The Supreme Court has reversed the Court of Appeal decision in Newbigin (VO) v S J & J Monk and reinstated the previously well-worn principle that premises should be valued for the purposes of business rates with regard to the actual physical condition of the premises (without a hypothetical assumption that the premises are in repair).
The result of this decision is that if a property owner is carrying out works which make the premises incapable of "beneficial occupation", the landlord is likely to be eligible to apply to have the premises listed with a rateable value of £1, depending on the nature and extent of the works.
The case concerned an owner of a three-storey office block, who was seeking business rates relief whilst it gutted, refurbished, and re-let one of the floors. At the relevant valuation date, the floor in question was a shell, leading the landlord to apply to the Valuation Office to have the property description listed as a "building undergoing reconstruction", which would result in the premises attracting a rates liability of £1.
The Court of Appeal ruled that the landlord was not entitled to rates relief on the basis that premises must be assumed to be in a state of reasonable repair and capable of "beneficial occupation", except where a reasonable landlord would not consider it economic to carry out those repairs. Part of the Court of Appeal's reasoning appears to have been aimed at tackling business rates avoiders – those landlords who had been abusing the relief by removing windows or toilets and claiming that the premises were not capable of beneficial occupation.
The decision was extremely unpopular as it ignored the condition of premises as they existed in reality, and flew in the face of established practice that premises undergoing improvement works (rather than mere repairs) were entitled to rates relief.
The Supreme Court's reversal is a welcome relief for property owners.