Valuation Office Agency
1. The practice note
1.1 This practice note has been amended following the decisions of the Court of Appeal and Supreme Court in Newbigin (VO) v Monk  UKSC 14 and of the Upper Tribunal (Lands Chamber) in Jackson (VO) v Canary Wharf Limited  UKUT 136 (LC) and replaces the previous practice note in its entirety.
2.1 The Local Government Finance Act 1988 (the 1988 Act) requires non-domestic property in England and Wales to be valued for rating purposes on a number of assumptions, including 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. This practice note addresses how this assumption operates, in the light of Newbigin (VO) v Monk and of the Upper Tribunal (Lands Chamber) in Jackson (VO) v Canary Wharf Limited  UKUT 136 (LC). In short, the statutory repair assumption as set out in para. 2(1) of Schedule 6 to the Local Government Finance Act 1988 generally operates as set out in the Court of Appeals judgment; there is an exception however for those hereditaments that are incapable of beneficial occupation because they are undergoing redevelopment, as held in the Supreme Court judgment. This practice note addresses both the general position, and the redevelopment exception, in turn.
3. The statutory provisions
3.1 The 1988 Act as amended by the Rating (Valuation) Act 1999 (the 1999 Act) sets out, in Schedule 6, how properties are to be valued for rating.
3.2 Following the 1999 Act, paragraph 2(1) of Schedule 6 to the 1988 Act reads:
The rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions:
(a)the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;
(b)the second assumption is 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;
(c)the third assumption is that the tenant undertakes to pay all usual tenants rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above.
3.3 In determining rateable value the legislation requires a valuation at the AVD on the statutory basis but taking into account particular stated physical circumstances as they are on the compilation day or, where the RV is being determined with a view to making an alteration to a list, the Material Day. The physical circumstances are set out in Schedule 6 sub-paragraph 2(7) and are to be taken to be as they are assumed to be on the compilation or Material Day, as appropriate (see the Material Day section of the Rating Manual).
3.4 Schedule 6 sub-paragraph 2(8A) makes it clear that the state of the hereditament at any time relevant for the purposes of a list shall be the assumed state of repair under subparagraph 2(1). The first assumption simply explains the hypothetical tenancy begins on the antecedent valuation date (AVD). The effect of the second assumption is to override the actual situation at the compilation date or Material Day and replace it with an assumption of reasonable repair (subject, as further explained below, to the question of whether the hereditament is undergoing reconstruction).
4. The statutory assumption of a state of reasonable repair in practice
4.1 The following is the general approach to the operation of the repair assumption (where the hereditament in question is, or is said to be, undergoing redevelopment, the guidance that follows below is to be adopted in the first instance, unless and/or until it is determined that the hereditament is not undergoing redevelopment). As per the lead judgment of Lewison LJ in Newbigin (VO) v Monk  EWCA Civ 78 to operate the statutory assumption, the following questions arise:
Is the hereditament in a state of reasonable repair?
If not, can the works which are required to put the property into a state of reasonable repair properly be described as repairs? (the repair question), and
Would a reasonable landlord consider the repairs to be uneconomic? (the economic question)
4.2 If the answer to question 1 is that the hereditament is already in a state of reasonable repair, then there is nothing to be assumed, and the hereditament can be valued in its actual state. If it is not in such a state, however, then it must be assumed to be in such a state providing the works which would be required to put the property into reasonable repair can properly be described as repairs, and providing such works are not uneconomic.
4.3 At the outset, five points are to be noted.
The assumption relates to the whole hereditament and not its component parts. So the complete re-installation of an electrical system may still be repair even if that system had been completely removed.
Inherent to the notion of repair is disrepair, i.e. deterioration from some previous physical condition.
What needs to be considered is whether it would be economically reasonable to restore the hereditament to a former state.
A hereditament that is incapable of beneficial occupation in its actual state still falls to be valued according to the statutory approach, if the works required to enable occupation fall within the definition of repair and providing that it is not a building undergoing redevelopment.
Whether a building is undergoing redevelopment is to be determined having regard to all the circumstances of the case and no single qualifying test is to be applied.
a). State of reasonable repair
4.4 The question of whether the hereditament is in a state of reasonable repair will fall to be answered in light of the state of the hereditament on the compilation or Material Day, as appropriate.
4.5 The valuation officer must begin by asking whether the hereditament in its actual state is in a condition such as to make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it: Proudfoot v Hart (1890) 25 QBD 42, Monk (CA) para. 24. The starting point is an objective assessment of the likely mode or category of the former occupation which, although not determinative, may be indicated by the description in the list.
4.6 The valuer must consider the hereditament in the physical state in which it existed at the Material Day. It follows that where a property is deliberately damaged with a view to reducing or avoiding rate liability, (i.e. so-called constructive vandalism or soft-stripping), the factual position and approach to valuation should be regarded in the same way as for any other cause of damage. However, where that damage is part of a redevelopment scheme, regard must be had to the prior question of whether the hereditament is incapable of beneficial occupation. In Monk (SC) para. 20, Lord Hodge said: the assumption of reasonable repair at the outset of the hypothetical tenancy (the repair assumption), is not addressing the question of whether the premises were capable of beneficial occupation, which, in the context of a building undergoing redevelopment, is a logically prior question.
The Prior Question
The Supreme Court decided that the application of the repairing assumption was not appropriate for a building undergoing reconstruction and which was consequently incapable of beneficial occupation. The prior question which has to be answered is whether the damage that has occurred is indicative of a scheme of reconstruction (which includes significant refurbishment/refitting in addition to complete demolition and new building). Where it is accepted that these works have rendered the hereditament incapable of beneficial occupation then it ceases to be a hereditament and the repairing assumption cannot be applied.
In Jackson (VO) v Canary Wharf Limited the Upper Tribunal decided that a modern office building which was stripped out as part of a periodic refurbishment between tenancies did fall within the definition of being a building undergoing reconstruction to which the prior question applied. Although the Tribunal said, at para. 37, that The VOs acceptance in this case that the appeal property is not capable of beneficial occupation is therefore the beginning and end of the appeal., this dicta is not considered to be extending the Supreme Court judgment to circumstances where the hereditament is not objectively ascertained to be undergoing reconstruction. The Tribunal went on to consider the facts in relation to the Canary Wharf building and concluded that, based on the b