Carey Group plc v Ricketts (VO)

Rating – Non-domestic rates – Alteration of rating list – Repair assumption – Appellant holding lease of commercial property – Premises temporarily incapable of beneficial occupation due to water penetration – Appellant proposing removal from rating list or value reduction to £1 – Valuation tribunal confirming rating list entry – Whether premises to be removed from list – Whether remedial work was “repair” assumed to be completed – Appeal dismissed A property at 1 Hand Axe Yard, London WC1 was part of an office and residential development completed in 2018. It was situated about 200 metres south-east of Kings Cross railway station. The property was the only commercial element in the scheme and occupied the ground and basement levels at the southern end of the development. Access to all parts of the scheme was by an elongated central courtyard. The appellant was granted an occupational underlease of the property in December 2017 and, after fitting out works were completed, took up occupation in October 2018. It was agreed that the property was incapable of beneficial occupation between March 2020 and April 2021 when water penetrated the basement through a joint in the exterior wall and ponded beneath the raised office floor, creating damp conditions in which mould and fungi flourished, giving rise to an unacceptable hazard to health. The property had a 2017 rating list valuation of £372,500 (effective from 1 October 2018) and the appellant proposed that it should be taken out of the list from the date it was vacated on 27 March 2020; alternatively, it sought an assessment of the rateable value as £1 and a description of the property as a “building undergoing construction/repair”. The respondent valuation officer confirmed the rating list entry and the Valuation Tribunal for England dismissed the appellant’s appeal against that decision. The appellant appealed. Held: The appeal was dismissed. (1) Paragraph 2(1) of schedule 6 to the Local Government Finance Act 1988 provided that the rateable value of a hereditament was taken to be equal to the rent at which it might reasonably be expected to let from year to year if let on the material day on certain assumptions. The second assumption, in paragraph 2(1)(b), was that “immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic”. In SJ & J Monk v Newbigin [2017] EGLR 211, the Supreme Court held that the rating list could be changed where office premises were being radically altered by extensive works, so that their mode or category of occupation could no longer be described as “offices and premises” and had become a “building undergoing reconstruction”. The statutory valuation assumption that the hereditament was in a state of reasonable repair did not require that reality to be ignored. What was or was not repair was to be decided according to the common law that applied as between landlord and tenant. A state of disrepair connoted a deterioration from some previous physical condition. (2) Before the enactment of the 1988 Act, the assessment of rateable value was undertaken on an assumption that the hypothetical landlord would bear the cost of repairs. That assumption entailed that the landlord must be taken first to have put the premises into repair at the start of the notional new letting. In making that assumption, the cases distinguished between a mere lack of repair, which did not affect rateable value because of the hypothetical landlord’s obligation to repair, and redevelopment works which made a building uninhabitable: Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055 and Hounslow London Borough Council v Waaler [2017] EGLR 19 and Monk considered. Under the statutory rating hypothesis, the repair assumption applied to the whole of the hereditament, not simply the structure and exterior. It followed that if, as a result of defective design or poor workmanship or some other latent defect, any part of the hereditament had become damaged, and the only realistic way of remedying that damage was to carry out additional work which went further than putting it back into its original condition, the repair assumption required that the rateable value of the hereditament be determined on the basis that those works had been carried out at the material day. For a hereditament to be assumed to be in a state of reasonable repair, any deterioration must have been arrested, corrected and restored to a former, better condition from which it had declined. (3) In the present case, it was common ground that the property was incapable of beneficial occupation due to the propensity for water to enter the basement. The only issue concerned the joint between the concrete floor and the concrete wall through which water had penetrated and the consequences of that penetration. The concrete joint was identified as the likely source of the problem by March 2020. The remedial work was relatively simple, took only a few weeks to complete and was unlikely to have been particularly expensive. The critical question was whether the consequence of applying the repair assumption was that the defective joint was assumed to have been remedied and the basement dry on the material day. Despite the absence of detailed evidence, the penetration of water gave rise to a state of disrepair. At the very least that included damage to the internal partitions in the basement. Repair need not simply involve returning a damaged element to its former condition. It might also include prophylactic measures to avoid the recurrence of the deterioration: Elmcroft Developments Ltd v Tankersley-Sawyer [1984] 1 EGLR 47 and Stent v Monmouth District Council [1987] 1 EGLR 59 considered. (4) Paragraph 2(1)(b) required that the hereditament be assumed to be in a “reasonable” state of repair, so it was also relevant to bear in mind the general standard of repair which the law required. Whether property was in a state of reasonable repair was traditionally described as repair which, having regard to the age, character and locality of the property, would make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it: Monk and Gibson Investments Ltd v Chestertons plc [2003] 1 EGLR 142 considered. In the present case, the repair assumption required that the property be valued on the basis that, at the material day, damage caused by the ingress of water had been repaired, including the joint being sealed so that it no longer allowed water to enter the premises. Cain Ormondroyd (instructed by Charles Russell Speechlys) appeared for the appellant; Matthew Donmall (instructed by HMRC Solicitors) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Carey Group plc v Ricketts (VO)