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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.

2.2 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 [2019] 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 in Monk; there is, however, an exception for those hereditaments that are incapable of beneficial occupation because they are undergoing redevelopment, as held in the subsequent Supreme Court judgment.

2.3 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 has two limbs:

(i) 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), and, if so,

(ii) has that damage rendered the hereditament incapable of beneficial occupation?.

This Practice Note addresses both the general position, and the redevelopment exception.

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:

• the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;

• 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;

• 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 RM Section 2 Part 4.

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 sub-paragraph 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).

4.1 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, as a whole, incapable of beneficial occupation then it ceases to be a hereditament and the repairing assumption for valuation purposes cannot be applied.

4.2 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.,

the Tribunal went on to consider the facts in relation to the Canary Wharf building and concluded that, based on the background, the parties acceptance that it was not capable of beneficial occupation in its state at the Material Day and the evidence of the landlords or markets normal practice of stripping out between tenants, the application of the Supreme Court test showed that it was undergoing reconstruction.

4.3 Although in Monk the Supreme Court concluded that it was a useful practice to keep an entry in the rating list in respect of a building which is not a hereditament, this is not now considered to be the proper approach and qualifying list entries should be deleted from the list rather than simply reduced to 1 or nil RV.