Refurbishment or repair? Should the rateable value for a building undergoing refurbishment be reduced to £1 whilst works are ongoing?
BNPPDS(J) LIMITED and BCI LIMITED v AMANDA HITCHINGS (VALUATION OFFICER) [2025] UKUT 104 (LC)
Summary
In a welcome judgment for property developers, the Upper Tribunal has restated the key principles from Newbigin v Monk in holding that the property which had undergone refurbishment works was not capable of beneficial occupation and should have its rateable value reduced to £1 for the duration of the works. Whilst the judgment does not establish any new legal principles, the Tribunal offered helpful guidance on the application of the reality principle and how this interacts with the assumption that the property is in a state of reasonable repair on the material day.
Facts and history
The proceedings concerned a warehouse in Newcastle which was subject to works by its owners for a period starting from 28 November 2022 until practical completion on 24 March 2023. The purpose of the works was to put the property into a state suitable for a new tenant to undertake fit-out works necessary for their own occupation.
Following the completion of the works the property was occupied by McDonald’s Restaurants, who fitted it out as a “dark kitchen” (one that supplies items just for delivery).
The tenancy granted to McDonald’s commenced on 24 March 2023, the same day that practical completion of the landlord’s works was achieved. The McDonald’s kitchen opened for trading during April 2024.
The property was entered in the 2017 rating list as a warehouse and premises with a rateable value of £31,250.
The appellant issued a check and subsequent a challenge on 10 January 2023 and 21 March 2023 respectively. The basis for the challenge was that from 15th December 2022 the property was undergoing a major programme of refurbishment which rendered it incapable of beneficial occupation. In this respect, the challenge relied upon the principles in the Supreme Court decision of Newbigin v Monk. Accordingly the appellant submitted that the rateable value should be £1 for the duration of the scheme of works and the resultant period in which the property was incapable of occupation.
It was agreed that for the purpose of the appeal the material day was 15th December 2022, by which time certain works had been completed.
Legal framework
Having recapped the relevant statutory authorities, the Upper Tribunal focussed upon the analysis of the “reality principle” in Newbigin v Monk in that the property is to be valued as it existed at the material day. It emphasised that the reality principle had two limbs: (i) the physical state of the property and (ii) its use.
If the property was incapable of beneficial occupation on the material day because the property was in a state of disrepair, then the “repair assumption” would apply and the property would be valued as if it was in a reasonable state of repair. However, if the works being undertaken were wider works of redevelopment, changing the use of the property, the repairing assumption would not come into play.
The appellant asserted that the property was incapable of beneficial occupation because the works were wider works of redevelopment, pointing to the cost at just over £171,000. The VO argued that these works were not a significant programme of works (as had been the case in Newbigin v Monk) and the repairing assumption should apply.
The Upper Tribunal’s decision
The Tribunal emphasised that distinguishing between works to remedy a lack of repair and redevelopment works was key in cases of this nature. The distinction was to be one of fact, assessed objectively, taking account of the condition of the building and the works which are being undertaken to it.
The Tribunal felt there was no real doubt that at the material day the property could not have been beneficially occupied as a warehouse. This was of critical importance when applying the “use” limb of the reality principle.
It elaborated that the preparation of the internal parts of the building in readiness for McDonald’s phase of the works were not works of repair, since they involved the removal of items which were not replaced and it involved the significant remodelling of the interior parts. As such, the property was not simply being subjected to a programme of repairs at the end of a tenancy, its use was being changed to a delivery kitchen.
The Tribunal held that although the landlord undertook initial preparatory works (preparing the building for McDonald’s to fit out) the object and timing of the two projects meant that they should be viewed as a single scheme. It would therefore be contrary to reality to consider the works which had already been completed by the material day out of context as if they could easily be reversed.
The Tribunal therefore allowed the appeal and reduced the rateable value to £1 with effect from the date the landlord’s works commenced. It elaborated however that as the works were completed in April 2023, the VO had the ability to make a list alteration on the 2023 rating list.
Wider application
In handing down judgment the Tribunal was keen to emphasise that determining whether a building is capable of beneficial occupation requires an exercise of judgment about the facts of each case.
