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UPPER TRIBUNAL
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UT Neutral citation number: [2011] UKUT 204 (LC)
UTLC
Case Number: RA/63/2008
TRIBUNALS,
COURTS AND ENFORCEMENT ACT 2007
RATING
– hereditament – newly erected office buildings – entered in rating list by VO
– units lacking small power points and partitioning – whether rateable
hereditaments to be entered in the list – held they were not – appeal dismissed
– Local Government Finance Act 1988 s 42(1)
IN
THE MATTER OF AN APPEAL AGAINST A DECISION OF THE
GLOUCESTERSHIRE
VALUATION TRIBUNAL
BETWEEN MICHAEL
JOHN PORTER Appellant
(Valuation
Officer)
and
TRUSTEES
OF GLADMAN SIPPS Respondent
Re: Units
1-12 and 14-20
Miller
Court
Severn
Drive
Tewkesbury
Gloucestershire
GL20
8DN
Before:
President and N J Rose FRICS
Sitting
at 43-45 Bedford Square, London, WC1B 3AS
on
28 March 2011
Galina Ward, instructed
by HMRC solicitor for Appellant
Daniel Kolinsky,
instructed by PricewaterhouseCoopers LLP by direct professional access, for the
Respondent
The following cases are referred
to in this decision:
R v Malden Overseers
(1869) LR 4 QB 326
Watford Borough Council v
Parcourt Property Investment Co Limited [1971] RA 97
Ravenseft Properties Ltd v
Newham London Borough Council [1976] QB 464
Post Office v Nottingham City
Council [1976] 1WLR 624
French Keir Property
Investments Limited v Grice (VO) and Liverpool City Council [1985]
RA 202
Spears Brothers v Rushmoor
Borough Council [2006] RA 86
Arbuckle, Smith & Co Ltd
v Greenock Corpn [1960] AC 813
The following cases were also
cited:
London Merchant Securities
PLC v Islington Borough Council 2 EGLR 168
Henderson v Liverpool
Metropolitan District Council [1980] RA 238
DECISION
Introduction
1.
This appeal by the valuation officer, Mr Michael John Porter FRICS,
against a decision of the Gloucestershire Valuation Tribunal, concerns nineteen
speculatively built office premises, known as units 1 to 12 and 14 to 20 Miller Court, Severn Drive, Tewkesbury, Glos, GL20 8DN. Before any completion
notice had been served in respect of any of the units the VO entered each of
them in the rating list for the Borough of Tewkesbury with effect from 1 May
2006. The VT held that none of them satisfied the requirements necessary for
inclusion in the list and directed the deletion of the entries.
2.
Ms Galina Ward of counsel appeared for the appellant, whom she called as
an expert witness. Mr Daniel Kolinsky of counsel appeared for the respondent
potential ratepayers, the Trustees of Gladman SIPPS. He called expert evidence
from Mr Simon Tivey IRRV (Hons).
Facts
3.
In the light of an agreed statement of facts we find the following
facts. Miller Court is situated approximately 1km north of junction 9 of the
M5 motorway and about 3km east of Tewskesbury. The site was developed by Gladman
Developments as a speculative office scheme in 2005 and 2006.
4.
The development comprises 20 units all of which, with one exception,
form the subject of this appeal. They are of three different sizes, known
respectively as G2K, G6K and G10K.
5.
Units 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14 and 20 are G2K units, with
the following floor areas:
Ground floor: 97.40 m2
First Floor 119.30 m2
Total area 216.70 m2
Units 1, 16, 17 and 18 are G6K
units, with the following floor areas:
Ground Floor 274.90 m2
First Floor 291.10 m2
Total area 566.00 m2
Units 15 and 19 are G10K units,
with the following floor areas:
Ground Floor 304.70 m2
First Floor 314.80 m2
Second Floor 315.10 m2
934.60 m2
6.
At the material day, 1 May 2006, the appeal units were all unoccupied.
7.
All units have plastered walls, suspended ceilings with recessed
fluorescent lighting and air conditioning cassettes installed in a grid
layout. There are raised floors with voids below to accommodate wiring, pipes
and fixtures. A stand-alone security alarm system has been fitted to the G2K
units, but not the G6K and G10K units. Wcs are installed in all units.
8.
Tea points are installed on the ground floor of the G2K units. There
are no tea points in the G6K and G10K units. Passenger lifts are installed in the
G6K and G10K units but not in the G2K units. Power has been installed as far
as the central core to each floor. There is one double power point on each
floor within the office area close to the entrance. Small power, floor boxes
and outlet sockets are not installed in the office areas.
9.
External doors and external double glazed windows are installed. In the
G2K units an internal fire door is fitted between the core and the office area,
on the ground floor only. In the G6K and G10K units a fire door is fitted on
every floor.
10.
There is no full height partitioning in the office areas, nor data
cabling for IT or telephone equipment. Car parking is available to each unit.
11.
Various costs have been agreed as at the antecedent valuation date, 1
April 2003. The agreed construction costs of each unit, including air
conditioning, lighting, lifts, fully finished core and toilet areas are
£207,667.52 (G2K), £506,737.33 (G6K) and £763,877.08 (G10K). These costs
exclude the costs of any small power installation to the office areas. They
include the provision of the necessary cabling etc to one point on the
perimeter of each office area for the subsequent installation of these works.
12.
In terms of price per m2, the agreed construction costs of
the units are £958.32 (G2K), £895.29 (G6K) and £817.33 (G10K).
13.
The cost of installing the small power system into the office areas has
been agreed at £12.50 per m2, resulting in the following total costs
for this item: £2,712.50 (G2K), £7,075.00 (G6K) and £11,687.50 (G10K). These
costs are notional, on the basis that the developer does not do the work
because each tenant’s requirement is different. In order to avoid abortive
works they are left for the individual tenants to carry out themselves.
14.
The agreed cost of installing a tea point on each floor of the G6K and
G10K units is £2,800 per point. The total costs for the tea points for the
various units are therefore £5,600 (G6K) and £8,400 (G10K). This item is
included in the agreed cost for G2K units.
15.
Available quotations for fitting out works by tenants in some of the
units on the estate indicate that the cost of carrying out the tenant fit out
works, including small power installation, additional air conditioning,
internal partitions etc varied from just over £96 per m2 to nearly
£210 per m2.
16.
All the appeal properties were entered in the rating list with effect
from 1 May 2006 following a report from the billing authority, Tewkesbury
Borough Council. The billing authority did not serve a completion notice.
Units 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14 and 20 were each entered at RV
£27,750, units 1, 16, 17 and 18 at RV £73,000 and units 15 and 19 at RV
£120,000. Unit 21, the semi-detached unit adjoining No.20, was also part of
the development. It is a G2K design. It was entered in the list with effect
from 4 July 2006. That date was provided by the billing authority in a report
to the VO.
17.
Effect was given to the VT’s decision by a list alteration, made by the
VO on 26 November 2008, deleting the entries with effect from 1 May 2006.
Various units were re-entered into the list by the VO, using dates provided by
the billing authority in reports. The billing authority subsequently issued
completion notices, giving a completion date of 11 March 2009. The VO then used
that date to enter in the list the offices which, at that date, were still
vacant.
18.
The values of the 19 appeal properties are not in issue. It is agreed
that, should the Tribunal find that any or all of the units should appear in
the rating list from 1 May 2006, they should be reinstated at the original RVs
and from the original effective date.
The VT’s decision
19.
In its conclusions the VT said:
“The tribunal were mindful that the test for rateable
occupation/ownership was reliant on the following four criteria, in this
particular case, beneficial occupation was at issue in deciding whether there
is a hereditament.
1.
actual possession
2.
exclusive occupation
3.
beneficial occupation
4.
occupation that is not too transient
The tribunal noted that the properties were advertised
‘vacant and to let’ in the state that they existed at the material date and
that the incoming tenant, would need to carry out further work, in conjunction
with the owners, to make the premises capable of occupation for the purpose
that they were intended.
In this case, the tribunal considered that the owners, the
Trustees of Gladman SIPPS, had actual and exclusive occupation and control of
the buildings and that control had a degree of permanence. The ingredient that
the tribunal did not consider that the appeal property met fully was regarding
beneficial occupation, in so far as the tribunal agreed with the agent’s
contention, that a prospective occupier could not derive beneficial occupation
from the appeal properties in their current state as the works needed to be
carried out was prohibitive.
The tribunal considered that although the case law
referred to in the hearing addressed various issues in relation to the state of
properties in anticipation of occupation, including the necessity for partitioning,
the amount of works necessary to enable occupation and factors involved in
determining if properties are complete.
From the facts of this case, the tribunal considered that
the amount of work necessary to make the appeal property capable of beneficial
occupation was more than ‘de minimus’ as contended by the VOA . …
On re-examination of the evidence and both parties
interpretation of the remaining work, the tribunal felt that the work left to
be completed was more than de minimis. It was established during questioning
that the largest of the three types of units would take in the region of six
week’s to ‘fit out’ and this was not disputed.
In conclusion, the tribunal found
that as the appeal properties were incapable of beneficial occupation they were
not hereditaments at the material day, not withstanding that completion notices
had not been served by the Billing Authority.”
Evidence for the appellant
VO
20.
Mr Porter has had over 30 years rating experience. He is employed as
rating team leader in the Gloucester Valuation Office. He said that, where the
billing authority has not served a completion notice, it is necessary to
consider whether the building is practically complete and ready for occupation
for the purpose for which it was intended. If it is not, the building cannot
be described as a hereditament and cannot be entered in the rating list. If
rateable items are absent, but would not prevent beneficial occupation for the
intended purpose, the hereditament should be entered in the list. The main
test was whether the property could be occupied beneficially for its intended
purpose in its current physical state. If the building was ready for
occupation it was a hereditament. The same would apply if the lack of certain
facilities was de minimis.
21.
Mr Porter accepted that any new occupier would require some fitting out
work to be undertaken before the appeal properties could be used. The amount
of work required depended on the size of the unit under consideration. The G2K
units had everything necessary for occupation except for small power, that is a
ring main and power points. Whilst some occupiers might choose to install full
height partitioning, this was not an essential requirement. In his opinion the
cost of and amount of work involved in installing small power into a building
designed with a raised floor to allow for flexibility could be considered as
minor. Furthermore, it was arguable that small power beyond the first
distribution board was a tenant’s chattel and not part of the hereditament and
thus not relevant to the issue under consideration. Even if it was relevant,
the cost of installing small power into a G2K unit was about 1.3% of the total
cost of the building. It was about 1.4% of the cost of constructing G6K units
and 1.5% of the cost of G10K units. The necessary work could be completed
within a short time and was minor or de minimis. Data cabling for telephones
and IT equipment were tenants’ chattels, which were not rateable and not
relevant.
22.
The larger G6K and G10K units lacked tea points. Mr Porter said that,
although staff refreshments could be provided by alternative means such as
vending machines, in reality most office buildings did contain tea points or
kitchens. The actual requirements would vary between different occupiers. He
suggested that the provision of the necessary facilities was part of the
tenants’ fit out after they had taken possession. The cost of providing tea
points in G6K and G10K units was about 1.1% of the total cost of constructing
the buildings.
23.
Mr Porter said that office user requirements had changed over the years
and developers had responded to these changes. Purpose built offices were
generally finished to the specification of the prospective owner or occupier.
Speculatively built offices constructed without a particular occupier in mind
were frequently finished to the standard found at the appeal properties. The
need for IT equipment and associated cabling had led to the provision of raised
floors, enabling power and data cabling to be installed to satisfy the needs of
individual occupiers. During the same period there had been a move away from
cellular offices to open plan layouts, often divided by demountable partitions
which provided a more flexible working space and enabled occupiers to reduce
costs through higher occupation densities.
24.
On balance, Mr Porter felt that the appeal properties were complete at
the material day and were hereditaments properly entered in the rating list.
Evidence for the respondent
ratepayers
25.
Mr Tivey has 30 years professional rating experience, starting in local
government as a rating officer, and subsequently as principal revenues officer,
and later in private practice. Since 1991 he has been a rating adviser with
PricewaterhouseCoopers, where he is now head of rating. He is the editor of
“IRRV Rating Law and Practice”, a publication for local government rating
officers, and the author of the business rates chapter of “Tolleys Property
Taxation”.
26.
In Mr Tivey’s opinion the appeal properties were not capable of
occupation as offices at the material day, because they lacked essential small
power, tea points and computer and telephone cabling. Moreover, any occupier
of modern offices of this standard would require a degree of partitioning. The
air conditioning system in place was only on a basic grid pattern to support
the environment of an open empty space. It would need reconfiguration and
upgrading to satisfy the needs of an occupied unit, since the presence of
computer equipment and people generated considerable heat.
27.
In Mr Tivey’s experience the work needed to install the final tiers of
infrastructure such as power, and the other fit out works of partitioning with
associated lighting and air conditioning modification, access systems, fire
detection and alarms would be substantial. Such contracts would take a
significant amount of time, for example approximately six weeks in the case of
unit 15, and the cost would be substantial. In his experience billing
authorities followed the completion notice procedure if they considered that a
new building was substantially complete and that the remaining customary fit
out works could be undertaken within three months. Billing authorities were
aware that the use of a completion notice fixed the date from which a new
property was deemed to become unoccupied for empty rates purposes and deemed to
be capable of occupation and appropriate for entry in the rating list. They
were also aware that the completion notice procedure carried appeal rights for
the building owner, so that the appropriate date for entry in the list could be
determined if the content of the notice was disputed.
28.
The Department of Environment Non-Domestic Rates Practice Note of
December 1989 advised billing authorities and valuation officers to ensure that
completion notices were issued on new buildings. The Valuation Office Agency
Rating Manual stated that a property was not a hereditament simply because it
was substantially complete. If it lacked the expected level of tenant’s fit out
it was not a hereditament and therefore not rateable without a completion
notice (volume 4, section 2, paragraph 4.2).
29.
From his 30 years rating experience, Mr Tivey did not recognise the
concept of a building which required work for it to be ready for occupation
being treated as complete without the service of a completion notice. If a
building was near completion, the appropriate statutory process was the service
of a completion notice to deem it to be complete. It was not appropriate to
enter the property in the list on the basis that it was nearly ready for
occupation.
30.
In his experience, a modern office occupier could not and would not
occupy buildings such as those at the appeal properties without substantial fit
out works and the installation of missing infrastructure. These were the type
of works that billing authorities envisaged under the completion notice
procedure when establishing a deemed completion date.
31.
The British Council of Offices Guide divided offices into three
categories of finish, namely shell and core, category A (background fitting
out) and category B (bespoke fitting out). In his opinion the appeal
properties fell below category A finish in that they lacked small power and IT
cabling. Small power was not installed by developers, because the future
occupier would wish to design the location of sockets, floor boxes and cable
layout to match its new room layout. The cables were required to be fixed to
the cradling, which was in turn fixed to the concrete floor of the building. It
would be wasteful for a developer to install these before marketing the
building. Similar fixing regimes were required for telephone, IT cabling, hot
and cold water pipes and waste pipes. That was why new office buildings were
constructed with raised floors to allow for the installation of additional
infrastructure by the future occupier.
32.
Modern office occupiers required a range of separate rooms and service
areas. He had never seen any modern office occupiers operating without
partitioned rooms. In 2006 office technologies and health and safety
requirements meant that the use of cellular offices and full height
partitioning was now the norm and office occupiers provided tea points to their
employees on every floor.
Appellant’s submissions
For the appellant VO Miss Galina
Ward submitted that the question was whether the G2K, G6K and/ G10K units were
as at 1 May 2006 complete and ready for occupation and therefore liable to be
entered in the list as individual hereditaments. The authorities (and Miss
Ward referred to Watford Borough Council v Parcourt Property Investment Co
Limited [1971] RA 97, Ravenseft Properties Ltd v Newham London Borough
Council [1976] QB 464, Post Office v Nottingham City Council [1976]
1WLR 624 and French Keir Property Investments Limited v Grice (VO)
and Liverpool City Council [1985] RA 202) recognised that this was a matter
of fact and degree and that standards might change with time. The offices were
constructed in the modern style, with suspended ceilings and (in particular)
raised floors enabling easy configuration and reconfiguration of electrical
fittings. In the late 1970s a building without small power beyond the core on
each floor might well not have been ready for occupation because major work
would have been required to install the wiring and plug sockets. With floor
plates such as the ones here, however, the work was simple and any tenant
taking occupation would expect to rearrange the electrical fittings to suit
their own needs.
33.
Neither tea points nor partitioning were on the evidence necessary for
occupation of these units, said Miss Ward. They might well be works that would
be likely to be undertaken by any tenant, but they were not essential to the
use of the units as open plan offices or as a call centre (as suggested in the
marketing material). Much of the work that had in fact been carried out to the
individual units, and all of the most significant, appeared to have been
consequential on the partitioning, which was not itself necessary. Accordingly
the buildings were capable of occupation as they were on 1 May 2006 and were
properly entered in the list.
Respondent’s submissions
34.
For the ratepayer Mr Daniel Kolinsky submitted that in the light of the
authorities (and he referred to those to which Miss Ward had referred and also
to Spears Brothers v Rushmoor Borough Council [2006] RA 86) the right
approach to determining whether a new unoccupied building should be entered in
the list was to ask:
(a)
On the material day, is the building capable of beneficial occupation
for the purpose for which it is intended? and
(b)
If not, can it be made ready for occupation by the addition of
facilities which were lacking and which would not then become part of the
hereditament?
If both questions were answered in the negative, then the
building should not be entered in the list in the absence of a completion
notice that fixed the date of completion.
35.
The VO in his approach to the appeal, said Mr Kolinsky, was seeking to
undermine the established case law and introduce a lower threshold for entry in
the list (outside the completion notice provisions in the Act) where a new
building was almost complete or complete but for minor works. There was no
support for such an approach. The statutory scheme provided a specific
mechanism for facilitating the early entry in the list of new unoccupied
buildings (where, for example, they are not yet complete but could be made
ready for occupation in a short time) but that mechanism had not been used
prior to the material day (1 May 2006).
36.
The appeal units, said Mr Kolinsky, were built as office units.
Therefore the first question that the tribunal must consider was whether they
were capable of occupation as office units on 1 May 2006. On the basis of Mr
Tivey’s evidence it was clear that they were not. Any prospective tenant would
need further work carried out. For example, on any view small power would be
needed to be installed for any tenant to operate offices; tea points would need
to be provided; and partitioning (and the reconfiguration work that would
follow from it) would have to be installed to create realistic office areas.
To make the units capable of beneficial occupation work was required that would
result in alterations to the building that would subsequently become part of
the hereditament. In order to supply small power, IT, telephones, security and
access systems it would be necessary to provide cabling, which would have to be
fixed to the structure of the buildings using cradles attached to the concrete
floors or ceilings. The works to install partitioning would also require
physical alterations to the hereditament as the partitions were fixed to the
walls, ceilings and floors, and further work would be required once the
partitions had been installed. They would moreover become fixtures and thus
part of the building. On the facts, therefore, the units were plainly not
capable of beneficial occupation as offices on 1 May 2006.
37.
Mr Kolinsky submitted that the statutory scheme supported the view that
a building of this type, where the works of fitting out had not taken place,
was not capable of beneficial occupation. This type of speculative development
was constructed in two distinct phases. First the main structure of the
building was built; and then, once an occupier had been identified, fitting out
works were carried out to meet the occupier’s requirements. Paragraph 9 of
Schedule 4A to the 1988 Act made special provision for such buildings. It
applied “in the case of a building to which work remains to be done after the
building has been substantially completed”; and it provided the assumption for
the purposes of the Schedule “that the building has been or can reasonably be
expected to be completed at the end of such period beginning with the date of
its completion apart from the work as is reasonably required for carrying out
the work.” Thus a new building of this type was only complete once fitting out
works had been carried out.
38.
Finally Mr Kolinsky referred to the completion notices served in respect
of units 8, 9, 12, 14B, 19 and 20. They were served by Tewkesbury Borough
Council in its role as billing authority on 12 January 2009, long after the
material day for the entries made by the VO. Mr Kolinsky argued that not
only did the service of these completion notices reveal a factual inconsistency
but it determined the date of entry in the rating list at the dates stated in
those notices, 18 March 2009 in the case of unit 14B and 11 March 2009 for the
others.
Conclusions
39.
Under section 42(1) of the Local Government Finance Act 1988 a local
non-domestic rating list must show each hereditament in the authority’s area
which is “a relevant non-domestic hereditament” (and is not one that must be
shown in a central rating list). Under section 64(1) a hereditament “is
anything which, by virtue of the definition of hereditament in section 115(1)
of the 1967 Act, would have been a hereditament for the purposes of that Act
had this Act not been passed. And, under section 115(1) of the 1967 Act
“hereditament” means “property which is or may become liable to a rate, being a
unit of property which is, or would fall to be, shown as a separate item in the
valuation list”.
40.
Liability to the non-domestic rate in respect of unoccupied
hereditaments is imposed by section 45(1) of the 1988 Act, which provides as
follows:
“Unoccupied hereditaments: liability.
(1)
A person (the ratepayer) shall as regards a hereditament be subject to a
non-domestic rate in respect of a chargeable financial year if the following
conditions are fulfilled in respect of any day in the year –
(a) on the day none of the hereditament is occupied,
(b) on the day the ratepayer is the owner of the whole
of the hereditament,
(c) the hereditament is shown for the day in a local
non-domestic rating list in force for the year, and
(d) on the day the hereditament falls within a class
prescribed by the Secretary of State by regulations.”
Liability thus only arises in respect of property that
constitutes a hereditament, and it is necessary also that the hereditament
should be shown in the rating list. The sole question in this case is whether
at the material date each of the office units constituted a hereditament. If
it did not, it did not fall to be entered in the list under section 42(1).
41.
In its decision the VT addressed itself to this question by considering to
what extent the ingredients of rateable occupation were satisfied. This was
not, we think, a helpful exercise, given that the hereditament was unoccupied.
It concluded that the owners had exclusive and actual occupation of each of the
units. That, however, was erroneous. There is no actual occupation of a
building that is being constructed or altered because it cannot be occupied for
the purpose for which it exists: see Arbuckle, Smith & Co Ltd v Greenock Corpn [1960] AC 813. It is nevertheless the case that the notion of what
constitutes a hereditament is closely bound up with the concept of occupation.
That is because before the Local Government Act 1966 introduced the rating of
unoccupied buildings, liability to the rate was in all cases dependent on
occupation. It was a unit of property in respect of which the occupier was
liable to the rate, and the physical extent of the occupation in general
determined the extent of the hereditament. It was necessary for each occupied
hereditament to be shown in the list, therefore, if the rate was to be levied
in respect of it. As far as the collection of the rate was concerned it did
not matter if an unoccupied hereditament was not shown in the valuation list. Unoccupied
property would, however, become liable to a rate in the event of its
occupation; and it would then fall to be shown in the valuation list in
accordance with the extent of its occupation. The definition in section 115(1)
thus made clear that, though unoccupied, such a unit of property was
nevertheless a hereditament. But what made it a hereditament was the fact that
it would when occupied become liable to the rate. Thus it would not constitute
a hereditament if it was incapable of occupation.
42.
Although, before the introduction of the rating of unoccupied property,
it did not matter if an unoccupied hereditament was not shown in the valuation
list, from the time of the 1966 Act it became necessary for the list in an area
where the rating authority had resolved that the unoccupied rate provisions
should apply to show all hereditaments if they were occupied and all unoccupied
buildings. The 1966 Act also introduced provisions for determining whether a
newly erected or altered building was complete or should be deemed to be
complete. As contained in Schedule 1 to the consolidating General Rate Act
1967 the key provision, which provided for the service of completion notices
was this:
“8. – (1) Where a rating authority are of opinion –
(a)
that the erection of a building within their area has been completed; or
(b)
that the work remaining to be done on a building within their area is
such that the erection of the building can reasonably be expected to be
completed within three months,
and that the building is, or when
completed will be, comprised in a relevant hereditament, the authority may
serve on the owner of the building a notice (hereafter in this paragraph
referred to as ‘a completion notice’) stating that the erection of the building
is to be treated for the purposes of this Schedule as completed on the date of
the service of the notice or such later date as may be specified in the
notice.”
43.
Paragraph 15 of Schedule 1 defined “relevant hereditament” to mean any
hereditament consisting of, or of part of, a house, shop, office, factory, mill
or other building. The liability to the unoccupied rate arose under paragraph
1(1), which provided:
“1. – (1) Where, in the case of any rating area in which
by virtue of a resolution under section 17 of this Act, this Schedule is in
operation, any relevant hereditament in that area is unoccupied for a
continuous period exceeding three months, the owner shall, subject to the
provisions of this Schedule be liable to be rated in respect of any relevant
period of vacancy; and the provisions of this Act shall apply accordingly as if
the hereditament were occupied during that relevant period of vacancy by the
owner.”
What is clear from these provisions is that liability to the
unoccupied rate only arose in respect of a building that constituted a
hereditament and that the completion notice provisions applied only if the
building was or when completed would be comprised in a hereditament.
44.
We have set out these provisions under the pre-1988 Act law, because it was
in the light of them that the cases relied on by the parties in this case were
decided. Those cases are, in our view, the relevant authorities. They start
with Watford Borough Council v Parcourt Properties Ltd [1971] RA
97, which concerned an office building that had been constructed by developers
but had not been let. The entrance hall, staircases, passenger lifts,
staircase and lift landings and also the lavatories were completed to the last
detail that an occupier would require and were separated from the office areas
by fully decorated walls. However, the office areas of the five floors of the
building, 63,000 sqft in total area, were open from wall to wall and devoid of
partitioning. They also lacked electrical fittings, although power points had
been provided all round the external walls and electric wires hung loose from
points in the ceiling. The issue in the case was whether the owner was liable
for the unoccupied rate for the period July to December 1967. The building was
not at that time entered in the valuation list and no completion notice had
been served. The owner’s contention was that the building as it was during the
period in issue was not a hereditament (and thus not a relevant hereditament
for the purposes of Schedule 1), and Bridge J concluded that it was not.
45.
At 105 he said:
“Both sides accept that the
appropriate test of what constitutes a hereditament is whether or not it is
ready for occupation. But, of course, many a hereditament qua hereditament may
be ready for occupation and yet, before it is in fact occupied, will require to
be suitably furnished. The real issue on which this first point in the case
depends is whether that which was lacking to render the office block at 60
Exchange Road, Watford, ready for occupation was of such a character that when
provided it would, on the one hand, as the ratepayers submit, necessarily be
part of the hereditament, or whether it could be expected, as the rating
authority on the other side submit, to be provided in a form and manner which
would enable it to be regarded as mere furniture, not part of the hereditament
at all.”
46.
It was argued by the owners that the absence of facilities subsequently
provided by the tenants who entered into occupation – air conditioning for the
computer, a goods lift and a kitchen and canteen – facilities which, the judge
accepted, would necessarily form part of the hereditament, were themselves
necessary to the occupation of the building. The judge said that he was unable
to take that view. He said (at 106-107):
“It may be very usual in these days for
the occupier of an office building of this calibre to provide a kitchen and
canteen on the premises for his staff, but it is impossible to say that it is
essential and a fortiori it is impossible to say that it is an essential
feature of any office building to render it ready for occupation that it should
be furnished with a goods lift or with an air conditioning plant appropriate to
the needs of a computer.
The more difficult questions are
whether the lack of electrical fixtures and fittings and the total absence of
any partitioning dividing up the large office areas rendered this an incomplete
building, not ready for occupation as an office hereditament. The issue as
regards electrical fittings is a difficult one, and since it is not necessary to
my decision that I should reach a conclusion about it, I do not propose to do
so. I have reached a clear conclusion as regards the lack of any partitioning,
and that conclusion is to the effect that this rendered the building an
incomplete building. Without partitioning it was not, in my judgment, a
hereditament.”
47.
At 108 Bridge J rejected the rating authority’s contention that it would
have been possible for internal partitioning to be provided in a form which
would not make it a part of the rateable hereditament but rather part of the
furniture. It was, he said, “totally unrealistic…to contemplate that any
ordinary occupier would dream of entering into occupation without a substantial
measure of partitioning in the form of internal walls.”
48.
The second authority, Ravenseft Properties Ltd v Newham London
Borough Council [1976] QB 464 was a completion notice case, an appeal to
the Court of Appeal against the decision of a county court judge quashing 15
completion notices on the ground that the two new office blocks to which they
related were not completed buildings and so could not be the subject of
completion notices under paragraph 8. The Court of Appeal held that the test
of whether a building was “completed” for the purpose of the provision was
whether it was ready for occupation (see Lord Denning MR at 474H, James LJ at
477E and Bridge LJ at 479C). It rejected the contention of the rating
authority that the test was whether it was structurally complete. At 477D-E
James LJ said:
“One looks forward at the time, in
considering a newly erected hereditament, to the type of hereditament which is
being required and sees whether at the date of the notice there is anything
lacking which ought to be there in order to satisfy the nature of that
hereditament. If there is something lacking and that which is lacking would,
when done, fall to be part of the hereditament and to be taken into account for
the purposes of the valuation, then there is no completion in the sense of
capability of occupation.”
49.
Bridge LJ, having referred to the definition of “relevant hereditament”
in paragraph 15 of Schedule 1 to the 1967 Act, said (at 478D-E):
“Bearing in mind that, under the
law as it stood for centuries before unoccupied property became capable of
rating, occupation was always the test of liability, I should, if I were
construing this provision without having regard to its wider context, say
without hesitation that what was contemplated was that the building should be
completed so as to be capable of occupation for the appropriate purposes of the
particular hereditament, that is, as a house, shop, office etc. If the
building lacks features which before it can be occupied will have to be
provided and when provided will form part of the occupied hereditament and form
the basis of valuation of that hereditament, then I would not take the view,
unless I was constrained to the contrary, that that building was not within the
meaning of the relevant provision a completed building.”
50.
The facts in Ravenseft were that the two blocks were structurally
complete, but there was no partitioning on any floor; central heating and air
conditioning plants were installed or being installed; wiring for a power
circuit had been installed but there were no points in any outlet position;
there were no Post Office cables connected to the blocks apart from a single
security line, and an office telephone system could take up to nine months to
install after it had been ordered. The judge had concluded, following the
decision in Watford v Parcourt, that the lack of partitioning
rendered each building an incomplete building. In the Court of Appeal only
Lord Denning MR addressed the facts. He said (at 473E) that it seemed to him
that the “enormous floors” “could not be occupied or ready for occupation until
they had been divided up by partitions and rooms and so forth”; and at 475 D he
said:
“We had considerable discussion
about the telephone cables and the electric wiring, and how far an office
building could be said to be complete if the electric wiring had not been
completed and the telephones were not installed. I think that may give rise to
difficult questions on which I should like to have further evidence as to the
condition of a particular building before giving a ruling on that matter.”
51.
Post Office v Nottingham City Council [1976] 1 WLR 624 was
another decision of the Court of Appeal in an appeal against a decision of a
county court judge on a completion notice appeal. It concerned a purpose-built
telephone exchange to which work remained to be done. The judge held that the
work remaining to be done to the building was such that the building could
reasonably be expected to be completed on 1 August 1975. He found that the
work remaining to be done was: (a) electric wiring; (b) the installation of a
transformer (until that was done there was no permanent or satisfactory supply
of electricity to the building); (c) the installation of the ventilation
system; (d) the installation of the kitchen equipment; (e) the installation of
three or four partitions; and (f) the installation of the telephone equipment
itself. In determining what work was required to complete the building he took
into account the wiring, the transformer and the partitions; and he ignored the
ventilation equipment, the kitchen equipment and the telephone equipment. The
ratepayers contended that the judge wrongly distinguished between building work
and work on plant and equipment, in particular through failing to take into
account that that plant could form part of a hereditament although it might not
be rateable and some plant might be rateable. The Court of Appeal rejected
this contention.
52.
At 635D Browne LJ said that he did not think that the legislation
dealing with the rating of plant and machinery was relevant under Schedule 1
because it was enacted to deal only with valuation problems; nor did he think
it necessary to introduce into this context the highly technical problems of
when articles brought onto land do or do not become part of the freehold (see
635H). He went on:
“In my judgment, in deciding under
Schedule 1 whether a building is, or will be, completed on some date a broader
and common sense test must be applied. I think the test is: as a matter of
fact and degree, is or will the building, as a building, be ready for occupation,
or capable of occupation, for the purpose for which it is intended? For
example, I think that in the present case the judge was entitled to find that
the building would not be completed until the transformer and the electric
wiring had been installed, whether those items in themselves are or are not
rateable plant and machinery, because until these had been installed the
building, as a building, was not ready for occupation. I should myself be
inclined to think (without deciding) that the same would apply to the
ventilation system, but this is of no practical importance in this case,
because the judge found that its installation would be completed by about
August 1, 1975. The vital distinction, I think, is between the time when the
building is ready for occupation as a building, and the subsequent installation
in it of equipment or furniture which is necessary for its use for the purpose
for which it was intended.
The judge did not have the
advantage of knowing the decision in Ravenseft, but, in my view, he
applied in substance the same test as that laid down by this court in that
case. I think that his findings of fact amount to a finding that on August 1,
1975, this building, as a building, would be capable of occupation as a
telephone exchange, even though it could not actually be used as a telephone
exchange until further equipment had been installed, and that this finding is
fully justified by the evidence.”
53.
Cairns LJ agreed, and he added:
“I cannot accept the proposition that a
building intended for a telephone exchange is only complete when it is capable
of immediate use as a telephone exchange. If that were the test, a house could
not be said to be complete until it had been furnished, or a factory until the
necessary tools for its use were available.
When Lord Denning MR in the Ravenseft
case [1976] QB 464, 473 and 474 referred to the building being ‘ready for
occupation’, I am sure that he did not mean that it must be so equipped that
use for the intended purpose could be begun immediately. The same applies to
the phrase ‘capable of occupation’ used by James and Bridge LJJ. If the
building is, in the ordinary sense complete, so that it is ready to be equipped
for the intended purpose by introducing some equipment which is not to be part of
the building, then, in my opinion, the building is ready for occupation for
that purpose. When James LJ referred at p 477 to ‘something lacking…which when
done, would fall to be part of the hereditament,’ I do not think he intended to
include something which might be deemed to be part of the hereditament for the
purpose of valuation. This is perhaps still clearer in the judgement of Bridge
LJ at p 478, where he used the words ‘If the building lacks features which
before it can be occupied will have to be provided…’
I am satisfied that the judge was
right in regarding at least the kitchen equipment and telephone equipment as
not being work which was reasonably required to be done to complete the
building or the work which remained to be done to the building.”
54.
Sir Gordon Willmer agreed with both judgments.
55.
French Keir Property Investment Ltd v Grice (VO) [1985] RA 202
was a decision of the Lands Tribunal (J H Emlyn Jones FRICS) on an appeal
arising from a proposal by the VO to bring into assessment for the first time
three new hereditaments in a building that had undergone reconstruction and
refurbishment. There had previously existed three separate entries in the
valuation list for the building in parts that were not the same as the
hereditaments proposed, and during the period of reconstruction the VO had by a
proposal caused the assessment of each of these to be reduced to a nominal £1.
Following the works two parts of the building became occupied, one part
comprising the basement, ground, mezzanine and first floors, and the other the
seventh floor. The appeal concerned the rest of the building, the 2nd
to 6th floors, which was unoccupied. The VO’s proposal was to bring
into assessment for the first time as new hereditaments these three parts of
the building at substantial values and to delete the existing three entries on
the grounds that “the present assessments are incorrect and do not coincide
with the present occupations”.
56.
The case for the ratepayers was stated (at 206) to be that the appeal
premises were not completed at the valuation date and did not constitute a
rateable hereditament, so that the VO’s proposal was premature and of no
effect. But the Member later said (at 207) that the question he was asked to
determine was whether the premises at the date of the proposal were complete
and capable of occupation as offices and that, if he were to find that the
premises were not complete, he was asked by the ratepayers to determine an
assessment of £1.
57.
At the date of the proposal the walls were plastered and covered with
woodchip wallpaper and painted with white emulsion paint; there were suspended
acoustic tiled ceilings to each of the floors; the floors were fitted with
carpet; the windows were fitted with vertical louvre drape blinds; doors were hung
on each floor separating the lift lobbies and main landings from the main
accommodation; there were 38 electrical power points per floor; central heating
radiators were installed; and there was access to the external fire escape from
each of the floors. The following works had not been carried out: (i) no
lighting had been installed apart from the lifts and staircase and lavatories;
(ii) no office partitioning had been installed; (iii) no telephones had been
installed, although there was a British Telecom frame rig in the basement, from
which lines were taken to those parts of the building that were occupied; and
(iv) a final coat of paint to the wall surfaces had not been applied (they
received this after the date of the proposal). The contention of the
ratepayers was that the premises were not completed at the valuation date and
did not constitute rateable hereditaments.
58.
The VO’s proposal was made in March 1981. About four months later, in
July 1981, the rating authority served a completion notice, which stated that
in the opinion of the council the premises could reasonably be expected to be
completed within seven days and that the building should be regarded as
completed on 31 July 1981. There was no appeal against the notice.
59.
The Member said (at 212) that the question was one of valuation. He
said that it was clearly open to the VO to propose an entry in the valuation
list in respect of the unoccupied parts of the building “if it was a unit of
property that might become liable to a rate and would fall to be shown as a
separate item in the valuation list, so long as it was completely finished and
ready for occupation.” The first part of this quotation was in the words of
the definition of “hereditament” in section 115(1) of the General Rate Act 1967;
and the Member identified as the authority for the second part R v Malden
Overseers (1869) LR 4 QB 326. He rejected as authority for this purpose Watford v Parcourt and Ravenseft on the basis that the former was
concerned with liability to the unoccupied rate and the latter was concerned
with a completion notice rather than, in either case, with valuation (see at
214 and 216). He also referred to Drake Investments Ltd v Lewisham London
Borough Council [1983] RVR 150, and pointed out (at 217) that this was
another case concerned with completion and liability under Schedule 1 to the
1967 Act. He did not refer to Post Office v Nottingham in this context,
but it would appear that, as a completion notice case, he would have rejected
that as authority also. Nothing, however, appears to have turned on his
rejection of the unoccupied rate cases as authority since the test derived from
R v Malden Overseers – is the unit of property completely finished and
ready for occupation? – was effectively the same as the test found to be
conclusive in those cases. At the time of French Keir it was the
practice of VOs, as, before 1949, it had been the practice of the rating
authorities responsible for maintaining valuation lists, to include in the
valuation list as hereditaments assessed at a nominal value premises that were
incapable of occupation because they were undergoing works of alteration or
refurbishment. There was good reason to do this when valuation lists were
maintained manually in order to ensure that such premises were not lost sight
of and could be restored to a full rateable value when they became capable of
occupation again. It was, it appears, this practice, and the potential for
entering parts of the building at a nominal value that led the Member to say
that the question in the case was one of valuation.
60.
On the facts the Member referred to the four works that still required
to be carried out, and he said (at 212-213) that the telephones and the last
coat of paint could be disregarded, the former because they were in the nature
of furniture and could be connected to the frame in the basement without
structural alteration of the building, and the latter because it was de minimis
and would in any event constitute a repair for which the hypothetical landlord
was deemed to be responsible. As far as the partitioning and lighting were
concerned he did not think that the premises in the state they were in were
incapable of occupation. The size of the separate floors was not inappropriate
for open plan use, and separation of smaller areas could be achieved by
lightweight screens or partitions which would not form part of the
hereditament. He said that, applying the ordinary law of rating, the appeal
premises constituted a separate hereditament liable to be entered in the
valuation list. They were complete and ready for occupation, and the correct
assessment was the one that had been agreed on that basis. The Member then
went on to consider whether the statutory provisions for the rating of
unoccupied property had altered the way in which the ordinary law of rating was
to be applied, and his conclusion was that they had not because they were not
concerned with valuation.
61.
Spears Brothers v Rushmoor Borough Council [2006] RA 86 was a
decision of the Lands Tribunal (N J Rose FRICS) in an appeal against a decision
of a valuation tribunal on a completion notice appeal. The appeal concerned a
small workshop unit, forming part of the second phase of a development
containing a total of seven small workshops. Phase 1 was constructed in 1998
and consisted of three units on the ground floor and one on the first floor.
The three ground floor units were occupied as a single workshop and the first
floor unit was separately occupied. The main structure of the remaining units,
Phase 2, was completed early in 2000. In March 2000 Southern Electric Plc
informed the appellant that the total capacity available on the cables
supplying electricity to the site had been utilised by the two existing
workshops and the neighbouring houses and it was not possible to provide an
independent supply to any of the units in Phase 2. There had been some
interest in those units from prospective tenants, but no letting had been
effected because of the absence of an independent electricity supply.
62.
The appellant ratepayer submitted that there were several reasons why,
on the date stated in the completion notice, the appeal property was not
completed and could not reasonably have been expected to be completed within
three months of that date. The Tribunal followed the judgments in Ravenseft
and Post Office. The factors which proved crucial to its decision
related to the electricity supply. The billing authority’s case had been that,
although the electricity supply to the property was only of a temporary nature
at the relevant date, the important point was that there was a supply. The
extent of the power that could be obtained from that supply was irrelevant, as
was the fact that payment for the electricity used – taken from an adjoining
unit with a permanent supply – would be borne by the occupier of another
property.
63.
On inspection the Member found that no electric wiring was fitted inside
the appeal property. In particular there was no wiring for a lighting system.
That fact, together with the absence of any prospect of an independent
electricity supply being provided to the appeal property within the statutory
three month period, was conclusive. In the absence of any requirement for the
appeal property from the occupier of the adjoining workshop, or the possibility
of a market letting without an independent supply of electricity, there was no
reason to suppose that the necessary wiring would have been provided within the
three month time-scale. The Member found that a building without electric lighting
was incapable of occupation as a workshop. He also found on the evidence that
the property could not be occupied without a fire alarm system, which also
required an electricity supply. The completion notice was therefore quashed.
64.
It was in our judgment necessarily the case that under the 1967 Act the
test for whether a new building was completed for the purpose of the completion
notice procedure and the question whether it was a hereditament were the same
since a notice deeming completion could only be served where the building was,
or when completed would be, comprised in a relevant hereditament. The
provisions for the rating of unoccupied hereditaments and the completion notice
procedure in the 1988 Act differ from those in section 17 of and Schedule 1 to
the General Rate Act 1967. We have set out above section 45(1), which deals
with liability. The completion notice provisions are contained in Schedule 4A,
which is applied by section 46A. Subsection (2) of that section provides:
“(2) – Where
(a) a completion notice is served under Schedule 4A below,
and
(b) the building to which the notice relates is not
completed on or before the relevant day,
Then for the purposes of section
42 above and Schedule 6 below the building shall be deemed to be completed on
that day.”
65.
Section 42, which we have referred to above, requires the rating list to
show each relevant non-domestic hereditament, and Schedule 6 has effect to
determine the rateable value of hereditaments. It follows that the test of
whether a building is a hereditament and whether it is completed for the
purpose of the completion notice procedure is the same. Thus Watford
v
Parcourt, Ravenseft and Post Office v Nottingham are good authority for the question that arises in the present case – whether
at the material date each of the units constituted a hereditament. The fact
that the Member in French Keir thought it inappropriate to base his
decision upon those cases (because, it would seem, he saw the issue in that
case as one of valuation) does not in our view detract from the force of his
decision as guidance on the question of when a building is capable of
occupation.
66.
The authorities, in our judgment, establish the following. A building
is only a hereditament if it is ready for occupation, and whether it is ready
for occupation is to be assessed in the light of the purpose for which it is
designed to be occupied. If the building lacks features which will have to be
provided before it can be occupied for that purpose and when provided will form
part of the occupied hereditament and form the basis of its valuation it does
not constitute a hereditament and so does not fall to be shown in the rating
list. There is in consequence no scope for including in the list a building
which is nearly, even very nearly, ready for occupation unless the completion
notice procedure has been followed.
67.
We are here concerned with buildings that are intended to be occupied as
offices. In the course of cross-examination Mr Porter – a surveyor with
lengthy rating experience – fairly accepted that he had no knowledge of any
offices which were occupied entirely in open plan layout or without small power
or staff refreshment facilities. We are entirely satisfied on the evidence
that a potential occupier of any of the appeal properties would have required
small power (a ring main and power points), tea points and at least some full
height partitioning to be installed before occupying them as offices. The
installation of partitioning would involve further consequential fitting out.
In our judgment these items, when provided, would be part of the hereditament.
It follows, in our judgment, that the units were not ready for occupation on
the material day. The VT was right, therefore, to conclude that the appeal
properties did not satisfy the requirements for entry in the rating list as
hereditaments, and the appeal must be dismissed.
68.
For completeness we should deal with Mr Kolinsky’s argument that the service
of completion notices in respect of units 8, 9, 12, 14B, 19 and 20, specifying
completion days on 11 and 18 March 2009, was conclusive as to the time when
they became rateable hereditaments. We do not accept this contention. Under section
46A(2), which we have set out above, the effect of a completion notice is that
the building is deemed to be completed on the relevant day (under subsection
(3) the day stated in the notice where an appeal against it is made; or, if no
appeal is made, the date determined under the provisions of the Schedule). But
this deeming provision only applies where “(b) the building to which the notice
relates is not completed on or before the relevant day”. If it is completed this
provision does not operate to deem it to be incomplete, or not to constitute a
hereditament.
69.
We would add that the problem that has arisen in this case would have
been avoided if the billing authority had served completion notices at the time
that the units reached the state in which they were at the material date. This
would have enabled the questions of whether they were complete, and if they
were not, when completion might reasonably be expected, to be determined, if
necessary on appeal, and for a completion date to be established for the
purpose of the operation of section 46A(2).
Dated
20 May 2011
George
Bartlett QC, President
N
J Rose FRICS
