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5 May 1999 : Column 781

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Rating (Valuation) Bill

Wednesday, 5th May 1999.

The Committee met at half-past three of the clock.

[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]

The Deputy Chairman of Committees (Lord Ampthill): Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee stage. Except in one important respect, our proceedings will be exactly the same as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard. The one difference is that the House has agreed that there shall be no Divisions in the Grand Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.

I should explain what will happen if there is a Division in the Chamber while we are sitting. This Committee will adjourn as soon as the Division bells are rung and will then resume after 10 minutes, although the likelihood of such an event is small.

Title postponed.

Clause 1 [Rateable value]:

The Earl of Lytton moved Amendment No. 1:

Page 1, line 8, after ("etc)") insert--
("(a) after the words "year to year" there shall be inserted the words ", taking into account the physical state or physical enjoyment of the hereditament and its locality and the mode and category of occupation and use of the hereditament," and

The noble Earl said: I rise to move the amendment but before doing so I gather that the noble Baroness the Minister has a statement which she wishes to make. Therefore, if I may, I will defer to her statement. I beg to move.

Baroness Farrington of Ribbleton: I am most grateful to the noble Earl, Lord Lytton, not only for formally moving his first amendment but in particular for the constructive and helpful way in which he has addressed his concerns about the Bill, both in this House and in meetings outside it. I am grateful to him and to his advisers who have also attended for the assistance that they have given me in considering the Bill and to ensuring that we have it right.

I apologise for the fact that the statement I am about to make is slightly lengthy, but it is my understanding, following the meetings since Second Reading, that it

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should be helpful. The first amendment, and the others which have been tabled for discussion today, are aimed at addressing the noble Earl's concerns. I believe that those concerns are misplaced and I hope that we will persuade him of that.

Before I deal with the effect of his first amendment it may be helpful to the noble Earl, and more widely to the Committee, if I explain the background and purpose of the Bill. This, together with a number of examples, will I hope serve to illustrate why the Bill will not alter well-established current valuation practice and reassure noble Lords about its effects. I apologise in advance for length of the remarks.

It is a well-known and accepted principle of rating valuation that the hereditament to be valued is always the actual property for the occupation of which the occupier is to be rated, and that hereditament is to be valued as it in fact is--rebus sic stantibus. This was stated by Lord Justice Scott in his decision in Robinson Brothers (Brewers) Ltd. v. Houghton and Chester-le-Street Assessment Committee 1937, reaffirming a principle long accepted by valuers and the courts.

An exception to this principle, however, was the treatment of disrepair. The effect of the two landmark decisions of Wexler v. Playle and Saunders v. Maltby was that whatever the actual state of repair of the property the landlord under the hypothetical tenancy was to be deemed to have put the property in a state of reasonable repair. It is that principle which has been applied by valuation officers in consequence of those decisions. Taken together, the two cases set out very clearly how disrepair was to be treated for valuation purposes and it is this position that we are seeking to restore. I shall refer to these cases briefly.

First, Wexler v. Playle confirmed a limited exception to the doctrine that a hereditament has to be valued in its actual physical state. That exception is that the notional rent of a hereditament should be assessed on the basis that the premises had, before the tenancy began, been put in a state of repair such as to make them reasonably habitable having regard to the class of property in question. This served to override the actual condition of the property.

Next, Saunders v. Maltby built on the principles established in Wexler v. Playle, but emphasised further the economic aspect of disrepair, establishing expressly that it could not be assumed that a reasonable landlord would be prepared to undertake repairs where it was not economic to do so. In such circumstances, he would let the premises at a reduced rent. The premises would accordingly be valued so as to reflect this.

The effect of these decisions, as summarised in the leading textbook on this matter, Ryde on Rating and the Council Tax, led to the principle that a hereditament was to be valued on the assumption that it was in reasonable repair, even if in fact it was not, unless the repairs would be regarded as uneconomic.

As the noble Earl will be aware, the 1988 Act does not contain any express reference to the hereditament's state of repair. I am aware that the noble Earl, Lord Lytton, regards this as a lacuna. I agree with him that this lacuna lies at the heart of the Lands Tribunal

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decision in Benjamin v. Anston Properties which determined that valuers should take account of disrepair in rating valuations. It is this lacuna, and this alone, that the Bill seeks to address.

The Bill seeks to build on the 1988 Act as it stands. We see no need to complicate matters by importing concepts which derive from gross value. So long as the premises are deemed to be in a similar state of repair for the purposes of the 1988 Act hypothetical tenancy, as they would have been deemed to be for the purposes of valuations to gross value under the General Rate Act 1967, it is of no matter who may hypothetically have been responsible, before the tenancy is assumed to have begun, for getting them into that state.

The Bill re-establishes the practical effects of previously decided cases, notwithstanding that these were decided in the context of gross value under the pre-1990 legislation. Case law going back well before 1990, and practice resulting from that case law, establishes that what it is reasonable to expect in relation to the repair condition of any hereditament will depend on the age, type and use of the property, the locality in which it is situated and all the surrounding circumstances.

This follows necessarily from the fundamental principles of valuation, to which I referred earlier, that matters which relate to the physical state of the property being valued are to be taken as they stand. In the case of Saunders v. Maltby, for example, in which it was established by the Court of Appeal that uneconomic repairs provided an exception to the usual assumption as to reasonable repair, the paramount question was what the reasonable landlord could be expected to do having regard to the value of the property. It was clear that the age, type and use of the property, and its locality, were highly relevant to applying this economic test--a test of what the reasonable landlord would do in the particular circumstances.

So, for example, in the case of a shop in a run-down inner city area, the standard of repair to be assumed, and the rateable value attributed to it, would reflect both the nature of the property and its locality. Neither the standard of repair to be assumed, nor the valuation itself, would be based on a similar shop in a prime retail area.

A further matter of concern was how, following enactment of the Bill, valuation officers would treat properties that would previously have had rateable values reduced--sometimes for short periods only--to take account of circumstances affecting the property. Examples are of a property which has been damaged by fire so that part of it becomes unusable, or a property undergoing substantial building works. There are others to which I shall refer in a moment.

I understand those concerns. However, the Government and the Valuation Office Agency have made it clear that they have only one intention. 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.

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The current position is that if a property is incapable of beneficial occupation, in other words it is unusable, it will be removed from the rating list altogether and no rates will be payable. If only part of the property is rendered incapable of beneficial occupation, it has generally been the practice of valuation officers to reduce the rateable value of the premises for the period during which the damaged part of the property cannot be used. Furthermore, if the value of the part of the property remaining in use is reduced in consequence of the damage elsewhere, that too will continue to be reflected in the valuation.

I recognise the concerns expressed by the professional bodies that the Bill may affect this position. It is not the Government's intention to do so. I do not believe that it does so, and in discussions the Valuation Office Agency has made it clear that affected properties will continue to be valued in precisely the same way as before.

I offer the Committee some illustration. For example, let us consider a fire or other act of God--though this may not be the most appropriate term for such unfortunate circumstances. If a property is rendered incapable of beneficial occupation as a result of that fire the property will be removed from the rating list until the damage is repaired. If the property suffers only relatively minor damage and no part of it is put out of action, perhaps because the property requires little more than a coat of paint to bring it back up to standard, then the repair assumption in the Bill would bite and the rateable value would be unaffected. But this is no different from what would have happened by virtue of past practice.

As I have said, where part of a property is incapable of beneficial use, the rateable value has normally been reduced for the relevant period. An example would be where a store within an industrial site is substantially destroyed by fire. A reduction would be made in the rateable value to remove the store from the assessment until it is capable of use again. That is the general position now, and it is the general position that we expect to continue following enactment of this Bill.

Matters are not, of course, always in such black and white terms. There will, I am sure, be shades of grey but then there always have been. The action taken by the valuation officer will naturally depend on the facts and the degree of damage to the property, and the question of whether or not the cost of carrying out the repairs would be economic as set out in Saunders v. Maltby. However, it is not anticipated that the new provisions will result in any change of practice. Ratepayers, of course, also have the safeguard that if they are not satisfied with the action taken by the valuation officer in these cases, they can appeal to an independent body--the Valuation Tribunal--to have their rating assessment reduced.

As regards buildings undergoing works, where such works are being carried out on a building, the valuation approach will vary according to whether the works are internal or external to the hereditament. I shall deal first with works taking place within the hereditament.

The valuation officer will need first to distinguish whether the works being carried out are to correct a lack of repair. Where this is the case, the need for repair may

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be disregarded in the valuation, subject as always to the question of whether or not the cost of carrying out the repairs would be economic as set out in Saunders v. Maltby.

3.45 p.m.

In some cases, the work required to make the property capable of beneficial occupation will involve the replacement and renewal of damaged parts. This work may go beyond repair and constitute an improvement to the property. It is well established in case law that repairs may contain an element of renewal and it is therefore a matter of fact and degree whether the work should be properly classed as repairs, renewal or improvement.

If the works are not considered to be repairs, the repair assumption in the Bill will not be appropriate and the property will be valued in its actual state on the material day.

I turn to buildings undergoing alterations and refurbishment. In a programme of extensive alterations, the works required to make the property capable of beneficial occupation are clearly not repairs. In many cases, properties are stripped back to the shell so that substantial reconstruction or improvement works can be carried out. In such cases, the property will be considered in its actual state on the material day and, if it is incapable of beneficial use, removed from the rating list.

A hereditament may also be affected by works taking place in the locality but external to the hereditament itself. Matters in the locality are not affected by this Bill. The assumption as to repair applies only to the hereditament itself. The locality will continue to be considered as it is on the compilation or material day as appropriate, and in combination with all other matters as at the valuation date.

There will be no change of valuation approach in respect of, for example, a development of new shops which results in a change in the pattern of value, the nuisance from construction work, the liability to flooding in an area, or the run-down state of an area both before and during a comprehensive redevelopment scheme. To the extent that these factors affect rental values, they will continue to be reflected in rateable values as material changes occur during the life of the list.

The assumption in the Bill relates solely to the state of repair. The meaning of "repair" in the context of property and property valuations is well understood by professionals in that field including, of course, the noble Earl, Lord Lytton, himself. In particular, the differentiation between repair on the one hand and renewal, refurbishment or improvement on the other, is well established. The Bill will not make any changes in this area. This, I hope, answers any outstanding concerns over the comparison of refurbished hereditaments with similar properties that have not been refurbished.

Neither will the Bill make any change to current valuation practice in terms of taking into account the intrinsic qualities of the hereditament such as, to use

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the examples mentioned by the noble Earl during our discussions, the presence of high alumina cement, or retail potential being restricted by the absence of a means of escape from fire.

Whether a property is refurbished or not will continue to be regarded as an intrinsic quality of the hereditament. Similarly, if significant works of refurbishment to a property are being undertaken on the material day, such works would continue to be taken into account in the valuation as they would not be works of repair.

As I explained previously to the House, it would not be appropriate to seek to address all of these issues, and possibly many others to be found in rating practice, specifically on the face of the Bill. They are genuine concerns and I concede that clarity is essential--I accept that totally--but it would simply not be a workable proposition.

The Bill deals with a single issue of principle in the field of valuation for rating by way of correcting a lacuna. The Government are anxious that what is in effect an old principle governing rating valuation should merely be restated and incorporated with the minimum of disturbance to the corpus of law and valuation practice, which has grown up and developed over the passage of time. It would be wholly impractical to legislate for all possibilities. In order to ensure a smooth reintroduction of the pre-1990 approach to the state of repair, to take account of the provisions of the Local Government Finance Act 1988 and subsequent legislation, to aid the construction of this Bill when enacted, and to provide some reassurance to the House and to professionals in this field, the VOA has prepared a practice note, as I said at Second Reading. I have arranged for a current draft of the practice note to be placed in the Library of the House; it deals solely with the issues flowing from the principle restated by the Bill, drawing on existing valuation practice and law, none of which is affected by the Bill.

Discussions on the practice note are continuing with the wider profession and it may be amended in the light of comments received. I shall ensure that any revised drafts are placed in the Library as they become available. It is the intention of all concerned that a final version--which is intended for wide publication--will be available before Third Reading and I shall ensure that a copy of this is placed in the Library before the Bill completes its passage through your Lordship's House.

In concluding these remarks, I apologise again most deeply for the length of them. However, I hope that the noble Earl and the Committee have found them helpful in reassuring them about the effect of the Bill. I await the noble Earl, Lord Lytton, speaking to his amendment.

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