Following in the footsteps of Monk on rateable values

Blake Penfold considers a decision on the rateable value of stripped-out premises in Canary Wharf. The decision of the Upper Tribunal (Lands Chamber) (the UT) in Jackson (VO) v Canary Wharf Ltd [2019] UKUT 136 (LC); [2019] PLSCS 102 determines an issue that has been 20 years in the making. The Rating (Valuation) Act 1999 introduced the statutory assumption of a “reasonable state of repair” for most properties, when valuing for rating purposes. During the passage of that Act, professional bodies and others raised concerns that the statutory assumption might have unexpected and undesirable consequences, particularly where buildings were undergoing works of redevelopment or refurbishment. While there were some difficulties operating the statutory assumption for properties undergoing works, it was not until liability for empty rates doubled in 2008, from 50% to 100%, that these became acute. Things take a while to come to a head in rating matters, and it was not until 2017 that the case of SJ & J Monk v Newbigin [2017] UKSC 14; [2017] EGLR 211 was determined by the Supreme Court, and appeared to resolve the question. Monk determined that, if a property was not capable of beneficial occupation, it was not a hereditament, and that this “logically prior” question had to be determined before the “reasonable state of repair” could be applied. That decision was reviewed in these pages (“Restoring the status quo,” EG, 11 March 2017, p118: www.egi.co.uk/legal/monk-restoring-the-status-quo). However, it transpired that Monk did not resolve all such cases. The Valuation Office Agency (VOA) considered that the case applied only where properties were undergoing a “scheme of works” and were incapable of beneficial occupation by virtue of those works. The VOA considered that Monk did not apply where properties were stripped out, but not undergoing works. This scenario provided the background to the latest case. Background The appeal in Jackson concerned the 45th and 46th floors of 1 Canada Square, a landmark office block in London’s Canary Wharf. The floors became vacant in 2011 and were stripped out, as was the landlord’s practice in such circumstances, pending refitting to the particular requirements of a new tenant when one was found. The works to strip out the property commenced in February 2011 and it was agreed that the property was stripped out and was incapable of beneficial occupation between 17 February 2011 and 30 November 2014. The owner of the property made a proposal in 2013 seeking a reduction to a nominal assessment during this period. The proposal could not be agreed and was referred to the Valuation Tribunal for England (VTE), which determined an assessment of rateable value £1 during the relevant period, on the basis that it was incapable of beneficial occupation. The valuation officer (VO) appealed against that decision to the UT. Before the UT, the VO contended that the exception to the normal “reasonable state of repair” assumption determined by the Supreme Court in Monk would apply only if it was ascertainable that at the relevant date the property was a “building undergoing reconstruction”. In the event that the property could not objectively be ascertained to be a building undergoing reconstruction, then the statutory repairing assumption would apply and the property should be valued as though it was in a reasonable state of repair. The VO contended that there were two matters from which the property in Monk could reasonably be ascertained to be a building undergoing reconstruction. The first of these was the contract of works, which existed at the relevant date in that case, and the second was that in that case the works were, to some extent, physically evident at the relevant date. The VO’s contention was that neither of these things applied to the appeal property at the relevant date, because the strip-out works were complete, and no contract of works was in place for the refitting of the property. This meant that there was no contract of works in place at the relevant date and no evidence of refitting works being carried out. The VO acknowledged that, at some point, a programme of reconstruction was likely to have been in the mind of the landlord but that, in the light of the decision in Monk, the “subjective intentions” of the actual owner could not be taken into account. Finally, the VO submitted that, if the appeal property was taken to be a building undergoing reconstruction, there would be nothing to prevent ratepayers of other properties from stripping out in this way so as to avoid empty rates. The decision The UT did not accept any of the VO’s contentions, and considered that they were “plainly contrary to the decision of the Supreme Court in Monk”. There was nothing in that decision to suggest that the Supreme Court had created a “building undergoing reconstruction” exception to the repairing assumption. Instead, the logically prior question was whether the property concerned was capable of beneficial occupation. The suggestion that the actions of the actual landlord must be ignored, because only those of the hypothetical landlord could be considered, was also wrong. This was because the question of whether a building was capable of beneficial occupation was a matter of objective fact, rather than one of hypothesis. The UT dismissed the VO’s appeal and confirmed the assessment of rateable value determined by the VTE. It is hard for the external observer to understand the reasoning that led the VO to pursue this appeal. There is, apparently, little distinction in fact between this case and that determined in Monk. As Albert Einstein is believed to have said: “The definition of insanity is doing the same thing over and over again and expecting a different result.” The UT seemed to think the same, giving short shrift to the VO’s submissions as to the difference between this case and Monk. We must hope that the VOA will now rewrite its rating manual, and that any remaining cases on this topic can be disposed of without further delay or dispute. Main image © Nicholas Bailey/Shutterstock Blake Penfold is a business rates consultant at blakepenfold.com