Units occupied by property guardians could be excluded from the valuation of the composite hereditament and the reality principle applies to the valuation exercise.
Ludgate House Ltd v Ricketts (valuation officer) and London Borough of Southwark [2023] UKUT 36 (LC) is a further decision in an ongoing dispute concerning the correct rating of a former office block which had been occupied by property guardians.
Ludgate House had been an office building near Blackfriars Bridge London owned by Ludgate House Ltd (LHL). It was last tenanted in March 2015. Between 1 July 2015 and May 2017 it was occupied by a number of licensees under arrangements made between LHL and a property services company specialising in supplying property guardians. In the 2010 rating list the building appeared as two separate hereditaments (reflecting occupation by two different entities). When the property became vacant and following inspections in 2015, the valuation officer accepted LHL’s proposal and deleted the building from the ratings list. Southwark was unhappy with this deletion and proposals and negotiations followed. By a unilateral notice in 2017, the valuation officer decided to enter all but the first and second floors of the building as offices with a rateable value of £3,390,000. The valuation officer then had second thoughts about excluding the first and second floors and served a second unilateral notice. In LB Southwark v Ludagte House and another [2020] EWCA Civ 1637 the Court of Appeal decided the property was a single hereditament with no part falling under domestic rates and that decision resulted in further matters having to be decided by the upper tribunal. Those issues primarily concerned the correct approach to valuation and correct valuation figures under the Local Government and Finance Act 1988 and the effective date of changes to the list under The Non-Domestic Rating (Alteration of Lists and Appeals) Regulations 1993.
In relation to the valuation issues, when applying the valuation provisions of Schedule 6 of the 1988 Act the reality principle applies, which necessitates looking at a property’s physical state and its use on the material date. Units within the building which were occupied by guardians (or intended to be occupied by guardians) were capable of being treated as domestic property (and therefore excluded from the valuation of the composite hereditament constituted by the building). However, while the agreement to provide guardians was for the robust protection that could be provided by 32 guardians, at the agreed material date only four guardians were in place. The correct assumption was that the guardian scheme was a temporary arrangement and that it would be for the hypothetical tenant to decide whether to continue with that scheme or not and, if it continued, to decide the number of guardians or where they should be accommodated. Applying those principles the rateable value would be £3,390,000 (it could not exceed the figure entered by the valuation officer).
Regulation 14 contains provisions which govern the time from which alterations to the rating list have effect. The UT rejected LHL’s argument that a consequence of regulation 14(7) was that the effective date of the variations correcting inaccuracies meant the building was not listed for commercial rates. Lamb & Shirley Ltd v Bliss [2001] EWCA Civ 562 was correctly decided and as the list had previously contained not one but two hereditaments, regulation 14 did not apply. The UT’s interpretation of the regulations was not a breach of LHL’s human rights and/or did not give rise to a capricious result.
The UT noted LHL has judicial review proceedings afoot to additionally argue that the regulations are unlawful.
Elizabeth Haggerty is a barrister
