[2025] UKUT 104 (LC)

The appellant’s case, in summary, is that the Property was incapable of beneficial occupation on the material day, therefore it was not a hereditament and should not be shown in the rating list. That incapability was due to a scheme which amounted to a scheme of redevelopment in the sense used by the Supreme Court in Monk. The substantial nature of the scheme was evident from its cost, which was more than five times the rateable value of the Property, and from the extent of the works which included the removal of a sizable mezzanine floor.

In support of this case, Mr Wilcox submitted that the works should not be characterised as repairs and to treat them as such would contradict assurances given to Parliament when changes were made to the statutory repairing assumption in 1999. As Lord Hodge had observed in Monk, at [21], the speech of Baroness Farrington “negatives a suggestion that the 1999 Act was addressing any mischief caused by the established distinction between works to correct a lack of repair on the one hand and what she called “renewal, refurbishment or improvement” on the other.” As Mr Wilcox put it, there should be no eliding of refurbishment and disrepair. The valuation assumption that the hereditament is in a state of reasonable repair is engaged only if a hereditament is found to exist and has no part to play in deciding whether or not a property is a hereditament.

Mr Wilcox observed that in Monk the Supreme Court had compared buildings undergoing refurbishment with buildings under construction and he suggested that case law relating to the inclusion of new buildings in the rating list was a useful point of reference. In Porter (VO) v Trustees of Gladman SIPPS [2011] UKUT 204 (LC) the Tribunal (George Bartlett QC, President and N J Rose FRICS) confirmed that, where no completion notice has been served, a building under construction became a hereditament when it became capable of beneficial occupation for its intended use.

At [66] the Tribunal summarised its conclusions:

“The authorities, in our judgment, establish the following.  A building is only a hereditament if it is ready for occupation, and whether it is ready for occupation is to be assessed in the light of the purpose for which it is designed to be occupied.  If the building lacks features which will have to be provided before it can be occupied for that purpose and when provided will form part of the occupied hereditament and form the basis of its valuation it does not constitute a hereditament and so does not fall to be shown in the rating list.  There is in consequence no scope for including in the list a building which is nearly, even very nearly, ready for occupation unless the completion notice procedure has been followed.”

Porter was followed in AVIVA Investors Property Developments Ltd and PPG Southern Ltd v Whitby (VO) [2013] RA 61. Four newly erected warehouses as yet had no small power distribution and no lighting, and only limited lighting in the warehouse areas. Additionally, the office space had not yet been partitioned and one unit was not connected to a gas supply. The warehouses had been entered in the rating list but the Tribunal (the Deputy President and N J Rose FRICS) ordered their deletion, saying this:

“We are satisfied that the absence of electric lighting and small power in all four warehouse areas, and of a gas connection to provide hot water in the w.c.s in Unit 11, mean that they all lacked features which would have had to be provided before they could be occupied as modern warehouses or workshops and ancillary office purposes.”

Mr Wilcox pointed out that in coming to its decision the Tribunal had not regarded the buildings as capable of beneficial occupation notwithstanding that they had reached the point in their construction where they could be used for basic storage purposes.

Mr Wilcox relied finally on what he called the ‘fundamental principal of equality’ identified by Lord Wilberforce in Dawkins v Ash [1969] 2 AC 366:

“a decision in favour of one ratepayer necessarily affects others, and it is important that the law of rating should be both uniform in its application and rational in principle.”

Mr Wilcox’s argument was that where two buildings are identical the taxation consequences of owning them should be the same. The test of capability of beneficial occupation should be applied in the same way to a new building as to one undergoing redevelopment. He submitted that the ability to occupy must be assessed on the material day having regard to the nature of the building and what the occupier requires of it.

The respondent VO’s case on the facts was that the Property was capable of beneficial occupation on the material day. At the material day it was not undergoing a programme of radical alteration such as in Monk. The only works that had been completed were the removal of lights and small power to the warehouse and the removal of lighting in the offices. Replacing those items would have involved only minor works which could be assumed to have been completed prior to the start of the hypothetical tenancy. Further, and in principle, the mere fact that a hereditament is incapable of beneficial occupation does not mean that it is no longer a hereditament. If the incapability is the result of disrepair, the repair assumption applies and requires that it be valued as if it was in a reasonable state of repair.

In support of the proposition that the restoration of lighting and small power to the building should be assumed to have been completed prior to the grant of a hypothetical tenancy, Mr Donmall referred to Scottish & Newcastle Retail Ltd v Williams where, at [74], RobertWalker LJ observed:

“[T]he Lands Tribunal was clearly right, following Fir Mill, to allow for the possibility of minor alterations in the hereditament on the occasion of its hypothetical letting. The absurdity of any other view appears vividly from the circumstances of these appeals, with numerous very well-known retail chains seeking to establish their identities and brand loyalties by distinctive fascias and fittings installed in uniform, featureless units. The first limb cannot be applied so rigidly as to prevent (for instance) Burger King being considered as a possible bidder in competition with McDonald’s (which occupies a large unit just opposite the City Fayre/City Duck).”

Mr Donmall regarded as absurd, the notion that the property was incapable of beneficial occupation simply because it lacked some light fittings. The reality principle, he said, was not intended to apply in such absolute terms. He also rejected Mr Wilcox’s reliance on Porter and his attempt to draw an analogy between buildings entered in the list which are undergoing works, and new buildings which are subject to a separate regime to determine whether they are ready to be included.

Mr Donmall resisted the suggestion that incapability of beneficial occupation alone determined whether a hereditament should be deleted from the rating list. He drew attention to Lord Hodge’s comments in Monk, at [20]:

“In my view the Court of Appeal goes too far in interpreting the 1999 Act as completely displacing the reality principle in relation to both the physical state and the mode of occupation of a hereditament which is undergoing redevelopment… the repair assumption (para 2(1)(b)) applies to matters affecting the physical state of the hereditament (para 2(7)(a)) but not to the mode or category of occupation of the hereditament (para 2(7)(b)”.

And at [23]:

“If the works are objectively assessed as involving such redevelopment, there is no basis for applying the assumption in para 2(1)(b) to override the reality principle and to create a hypothetical tenancy of the previously existing premises in a reasonable state of repair.”

Mr Donmall suggested that there was an implicit corollary in these statements: if works did not involve redevelopment, but were instead repair, then the repairing assumption applied. He considered the need to distinguish between repair and redevelopment to be the decisive point and one recognised by the Supreme Court in their analysis. He also noted the Supreme Court’s reference to De Silva v Davis (VO) [1983] 1 EGLR 211 a case in which, at the relevant date, the hereditament (a maisonette) was incapable of beneficial occupation, but the Lands Tribunal (W H Rees FRICS) found the work needed to make it capable of occupation involved the renewal or replacement of defective parts and dismissed the appeal which sought an assessment of rateable value £1.