Supreme Court case has seismic implications for property sector

An interesting court case is currently at the Supreme Court with property developers attempting to overturn a change to a business rates’ ruling that has forced them to pay millions in unexpected charges over recent months.

Arguments are being heard on whether rate payers should pay full business rates on vacant office premises which are being refurbished and what kind of condition the offices need to be in to trigger that liability.

The case originally rested on a dispute between a Sunderland office owner and the Valuation Office, but other interested parties and lobby groups joined the fray because of the wider implications for the sector and their members.

Lawyers are currently arguing that a Court of Appeal ruling in 2015 threatened the viability of some urban regeneration and upgrading projects. London developments, in particular, are being hit with some attracting up to £8m in additional rates.

Until last year rate payers paid virtually nothing when rateable premises were demolished or stripped out in preparation for redevelopment. Payments only became due when the new premises were complete.

The saga began in Sunderland, where some office premises were stripped to a shell ahead of conversion, but, in this case, the VO concluded that full business rates were still applicable. That decision was overturned by the Upper Tribunal, but the VO appealed to the Court of Appeal last year and won. 

The last judgement found that the work amounted to more general “repair”, rather than improvement, so the initial rating assessment should apply. The VO’s argument maintained that owners should pay the rates unless they can demonstrate it was “uneconomic” to carry out the repairs.

The property sector has warned that if the Court of Appeal decision is upheld by the Supreme Court, owners might find it harder to argue that their properties should be exempt from business rates, especially where the works are non-structural.

Not surprisingly this latest hearing is being watched carefully by property pundits and the sector as a whole across the UK, with the implications being so far reaching – and we’re not talking about just the pricier London development projects here but across the country.

I do, however, find it rather ironic, that a small office block in Sunderland is causing these seismic waves that are currently hitting London and the South East the hardest. It could be some weeks before we get the result but it will have repercussions whichever argument prevails.