[2025] UKUT 104 (LC)

The Property is part of a terrace of 8 similar warehouse units at Brough Park, a small industrial estate in Byker, about 2 miles east of Newcastle city centre, just off the A187 Fossway which links the city centre to Wallsend and North Shields.

The Property dates from 1977 and is of steel portal framed construction with external walls of fair faced brickwork to a height of about 2 metres and box profile insulated metal cladding above. The roof covering is corrugated sheets interspersed with double skinned translucent roof lights. It has an eaves height of approximately 7 metres and is equipped with a 4 metre roller shutter door. At the front of the Property is a concrete apron which can accommodate 4 vehicles.

Internally, the ground floor warehouse was originally laid out as clear space, but the previous tenant had installed a timber mezzanine floor supported on a steel framework with stanchions bolted to the floor slab. This was still in place prior to the commencement of the works. The ground floor also contained a reception/entrance room, kitchen, and toilets. The first floor above this ancillary space was arranged as open plan offices. The ground floor gross internal area is 680.4m² and the first floor is 62.1m². The mezzanine floor extended to 510.8m², which is equivalent to about 83% of the warehouse space on the ground floor.

The property is entered in the rating list as a warehouse and premises with an assessment of rateable value £31,250. When that assessment was made the VO was unaware that a mezzanine floor had been installed and any value attributable to it was not included.

The tenancy granted to McDonald’s commenced on 24 March 2023, the same day that practical completion of the landlord’s works was achieved. We understand that the kitchen opened for trading during April 2024, although we have not been supplied with the precise date.

The VO’s challenge decision shows that a ‘check’ was submitted on 10 January 2023 and completed on 23 February 2023. The ‘challenge’ was submitted on 21 March 2023 and the VO issued her decision on 7 September 2023. We have not seen a copy of the ‘challenge’ form itself, but the supporting statement provided by the appellant’s agent, Altus Group, was submitted in evidence. The grounds of the challenge were that, from 15th December 2022 the hereditament was undergoing a major programme of refurbishment which rendered it incapable of beneficial occupation as a matter of fact. Reliance was placed on the decision of the Supreme Court in Newbigin (VO) v Monk [2017] 1 WLR 851 (‘Monk’) and it was proposed that the Property should be valued at RV £1 for the duration of the scheme and the resultant period of incapability.

In her response the VO disagreed and considered that the Property should not be deleted from the rating list as the works undertaken were no more than standard dilapidations works that would be undertaken at the end of a lease. The assessment should therefore remain in the rating list at rateable value £31,250.

We will return to the parties’ detailed arguments after we have looked into the works themselves, the timeline of events and the statutory background.

The programme of works began on 28 November 2022 and by 15 December 2022 the following had been completed:

During January 2023 scaffolding was erected to facilitate further works. Contractors then completed the following:

The whole project was originally scheduled to take 10 weeks, but it was concluded in the week commencing 20 March 2023 with a practical completion date of 24 March 2023. At the hearing the delay was said to have been caused by the Christmas break and delays in sourcing some building materials.

The works were costed at £171,916.46 which can be broken down as follows:

Neither party submitted evidence about the works carried out by McDonald’s to convert the Property from a warehouse to a delivery kitchen. The Property was inspected on behalf of the VO by Mr Oliver Ridley MRICS on 26 April 2024. He observed that McDonald’s had installed an ‘integral food preparation area’ in the warehouse as well as meeting rooms and break out areas. The manager of the kitchen informed him that McDonald’s had opened for business approximately a year earlier which suggests that they had completed their fitting out works at the end of April or the beginning of May 2023.

We infer from the fact that McDonald’s lease began on the date of practical completion and only four or five weeks then elapsed until they opened the new kitchen for business, that McDonald’s must have agreed to take a lease of the Property well before the end of March 2023. The use of the Property as a kitchen would, in planning terms, be ‘sui generis’ which would have required a change of use application to the planning authority. McDonald’s would have needed time to plan the layout of the kitchen, book the contractors to do the work and source the materials and appliances to complete the scheme. They may have needed Building Regulations approval. The landlord would be unlikely to have removed the mezzanine floor unless they were sure it would not be required by an incoming tenant. Otherwise, the opportunity to charge rent for it on a future letting might be passed up. It is reasonable to conclude therefore that McDonald’s must have been secured as a tenant either before, or very soon after, the works undertaken by the landlord began and that the two schemes were undertaken one immediately after the other or with only a very short break between them.