Supreme Court Upholds Reality Principle in Property Valuation

Property valuations can be a live issue for many reasons, not just on sale. Differences of opinion on the value put on property when businesses are being broken up are common, insurers are known to contest claims if a property is wrongly valued, and a revaluation can prop up a sagging balance sheet. However, on a day-to-day basis, one of the most common issues surrounding the value of property is the tax bill it carries in the form of business rates.

So it was when a dispute over the value of a property for business rates purposes went all the way to the Supreme Court. The dispute was based on the appropriate value to place on a building which, at the time of its rateable value assessment, was still in the course of redevelopment and could not be occupied.

In such cases, should it be valued as it is, or as it ‘should be’? The Supreme Court put it thus – ‘Does a commercial building which is in the course of redevelopment have to be valued for the purposes of rating as if it were still a useable office?’

When the rateable value was being assessed in January 2012, the premises were vacant and could not be occupied as the renovations still required to make them fit for occupation were extensive. The owners’ agent suggested to the local valuation officer (LVO) that the rateable value should therefore be reduced from £102,000 to £1. The LVO refused, citing legislation which required the LVO to assume a property is in ‘reasonable repair’ for valuation purposes. The Valuation Tribunal sided with the property owner, holding that the condition of the building precluded the conclusion that it was in reasonable repair.

The Court gave weight to the ‘reality principle’, which establishes that ‘the property must be valued as it exists at the relevant date’. Accordingly, the presumption that it was in reasonable repair could not stand.

The decision overturned an earlier ruling by the Court of Appeal which had cast doubt on the applicability of the reality principle. It will come as a considerable relief to developers who are refurbishing properties.

For advice on the conduct of any dispute with the local planning or valuation authorities, contact us.