ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
The Upper Tribunal (Lands Chamber)
RA/62/2012,  UKUT 14 (LC)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE DAVIS
LORD JUSTICE LEWISON
| KEITH NEWBIGIN
|- and -
|S J & J MONK (A FIRM)
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
David Reade QC & Dominic Bayne (instructed by S J & J Monk) for the Respondent
Hearing date : 4 February 2015
Crown Copyright ©
Lord Justice Lewison:
i) Removing all internal elements, excluding only the lift and staircase enclosure which give access to the upper floor, but including stripping out the existing cooling system including all internal and external plant, the lighting and power installations, the fire alarm system, the suspended ceiling, all sanitary fittings and drainage connections, the timber joisted and modular raised flooring, and existing masonry walls and metal stud partitions.
ii) Constructing new common parts to the first floor of the building and new communal sanitary accommodation, including new solid partitioning, raised floor, new sanitary fittings, new drainage and plumbing systems, new electric metering, lighting, alarm and heating.
iii) Constructing three proposed new letting areas within the property, including the provision of three self-contained electrical distribution circuits and three self-contained air conditioning and heating systems.
i) The first floor was vacant.
ii) The majority of the ceiling tiles and suspended ceiling grid and light fittings had been removed.
iii) Approximately 50% of the raised floor had been removed.
iv) The comfort cooling system including all internal and external plant had been removed.
v) The sanitary fittings had been removed and the block walls to the WCs demolished.
vi) The electrical wiring had been stripped out.
vii) Plasterboard partitions had been erected and plastered to form the outline for the WCs and a partition had been erected and plastered across the floor at the east side of the building.
viii) First fix electrical installations to the WC area had been completed and alterations made to the drainage.
"(1) 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 tenant's 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."
(6) Where the rateable value is determined with a view to making an alteration to a list which has been compiled (whether or not it is still in force) the matters mentioned in sub-paragraph (7) below shall be taken as they are assumed to be on the material day.
(7) The matters are
(a) matters affecting the physical state or physical enjoyment of the hereditament,
(8A) For the purposes of this paragraph the state of repair of a hereditament at any time relevant for the purposes of a list shall be assumed to be the state of repair in which, under sub-paragraph (1) above, it is assumed to be immediately before the assumed tenancy begins."
"Now I will go to the second covenant, which is to keep in thorough repair. Here we get more into the realm of previous decisions by reason of the fact that in some of them it has been treated as a covenant the language of which pointed to the mode in which or the means by which the covenantor is to perform his duty. They leave it, however, a matter on which one is free to express one's opinion, and personally I think that to keep in thorough repair does not in any way confine the duty of the person who is liable under the covenant to the doing of what are ordinarily called repairs. A house is spoken of as being in thorough repair when it is a house to which no repairs have to be done. But it is a description of a state and not of a mode by which that state has been arrived at, and, therefore, in my own mind I draw no wide distinction between keeping in thorough repair and keeping in good condition; they both appear to me to describe the condition of the house. What a surveyor would call in good condition and what a surveyor would call in thorough repair may differ somewhat, but they would be something very like, the one to the other. As I have said, the legal obligation is to keep the house in that state, and I confess that I do not think that from the legal point of view there is much difference between the nature of the two obligations."
" an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year if the tenant undertook to pay all usual tenant's 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 that rent."
"It is this lacuna, and this alone, that the Bill seeks to address."
"That is to ensure that the assumption as to repair is that which was established by earlier case law and made by the VOA in preparing rating valuations before the Lands Tribunal decision in Anston. It is nothing more and nothing less than that."
"The rateable quality of land is not to be determined by what it once was, or by what it may hereafter become."
"The principle that the property must be valued as it exists at the relevant date is an old one, certainly older than the Parochial Assessments Act, 1836. It has been spelt out in modern terminology in Poplar Metropolitan Borough Assessment Committee v Roberts  2 AC 93, 120, and in Robinson Bros (Brewers) Ltd v Houghton and Chester-le-Street Assessment Committee  2 KB 469 in passages which have been cited. The principle was mainly devised to meet, and it does deal with, an obvious type of case where the character or condition of the property either has undergone a change or is about to do so: thus, a house in course of construction cannot be rated: nor can a building be rated by reference to changes which might be made in it either as to its structure or its use."
"Where the landlord has incurred, or hereafter incurs, expenditure on the improvement or structural alteration of the dwelling-house (not including expenditure on decoration or repairs) "
"I find great difficulty in framing a definition of what is an "improvement" as distinct from a "repair." It seems to me that the test, so far as one can give any test in these matters, is this: if the work which is done is the provision of something new for the benefit of the occupier, that is, properly speaking, an improvement; but if it is only the replacement of something already there, which has become dilapidated or worn out, then, albeit that it is a replacement by its modern equivalent, it comes within the category of repairs and not improvements." (Emphasis added)
"Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion."
"(i) Whether the alterations went to the whole or substantially the whole of the structure or only to a subsidiary part;
(ii) Whether the effect of the alterations was to produce a building of a wholly different character than that which had been let;
(iii) What was the cost of the works in relation to the previous value of the building, and what was their effect on the value and lifespan of the building."
"82. I do not accept the respondent's argument that paragraph 2(1)(b) of Schedule 6 requires the assumption (provided the cost is not uneconomic) that the hereditament has been reinstated from its actual physical state on the material day to its former physical state prior to the commencement of the works that gave rise to the proposal.
83. I am satisfied that at the material day the hereditament was not capable of beneficial occupation as an office and premises due to its actual physical state, the details of which are substantially agreed. The hereditament had been stripped out to such an extent that to replace major building elements such as an entire electrical circuit and heating and air conditioning systems would go beyond the meaning of repair, regardless of whether such works were economic. This conclusion echoes paragraph 8.5 of Section 1, Volume 4 of the VOA's Rating Manual:
"In such cases [schemes of reconstruction/refurbishment] the works required to make the property capable of beneficial occupation are clearly not works of repair and therefore fall outside the repair assumption."
The hereditament is assumed to be in a state of reasonable repair but this assumption does not extend to the replacement of systems that had been completely removed. In my opinion a hypothetical tenant would not pay more than a nominal amount for the hereditament in its assumed physical state under paragraph 2(1)(b) at the material day. The hereditament was affected by a material change of circumstances and the rating list should be altered to show a nominal (£1) value with a description of "building undergoing reconstruction".
"In common English usage the word "repair" has a meaning that is not appropriate in circumstances such as those in this appeal where the subjects of repair have effectively ceased to exist, eg electrical circuitry, heating and air conditioning."
"Where extensive alterations are being carried out, and in the course of these the existing building has been stripped out to such an extent that to simply reinstate it would now be uneconomic, then the repairing assumption will no longer apply and the hereditament will fall to be valued in its present physical state. Each case will fall to be considered on its own facts."
Lord Justice Davis:
Lady Justice Arden: