Part 3: unoccupied hereditaments and completion notices
The Valuation Office Agency's (VOA) technical manual for the rating of business (non-domestic) property.
1.1 Rates since their inception have been a tax on occupation rather than ownership and up to 1966 there was no liability for rates on hereditaments that were vacant. Since then in most instances where a property is vacant the ‘owner’ may become liable for unoccupied rates. ‘Owner’ and the ‘class of property’ to which unoccupied rates apply are defined in the Local Government Finance Act 1988 and subsequent Regulations.
1.2 If a property comes within the ambit of the Empty Property Rate, its owner will be liable to pay empty property rates.
1.3 Although there are differences between the legislation contained in the 1988 Act and that for previous rating systems they are sufficiently similar for cases decided under the former legislation to continue to be relevant.
2.1 The Local Government Finance Act 1988 makes provisions in sections 45 and 46 for the rating of unoccupied hereditaments. It defines who is liable to pay rates if a property is vacant and that the unoccupied liability only applies to those hereditaments prescribed by Regulations.
2.2 The Non-Domestic Rating (Unoccupied Property) Regulations 2008 SI 386 defines the classes of hereditament liable for unoccupied property rates.
2.3 The Rating (Empty Properties) Act 2007 removes the 50% empty property relief from 1 Aril 2008.
3. Unoccupied hereditaments: liability
3.1 Owners of hereditaments will be liable for unoccupied rates if all the conditions in the LGFA 1988 s45(1) are met. These are;
- on the day none of the hereditament is occupied
- on the day the ratepayer is the owner of the whole hereditament
- the hereditament is shown for the day in a local non-domestic rating list in force for the year, and
- on the day the hereditament falls within a class prescribed by the Secretary of State by regulations
Therefore no part of a hereditament must be occupied, the hereditament must be in the local list and be one of the classes prescribed by Regulations. Owner of the hereditament is defined in section 65(1) as ‘the person entitled to possession of it’.
4. Relevant Non-domestic hereditament
4.1 The class prescribed in s45(1) are all ‘relevant non-domestic’ hereditaments. ‘Relevant non-domestic’ hereditaments are defined in Reg 2 Non-Domestic Rating (Unoccupied Property) Regulations 2008, SI 2008 No. 386. They are ‘any non-domestic hereditament consisting of, or part of, any building, together with any land ordinarily used or intended for use for the purposes of the building or part.’ The first part of the test is that the hereditament must consist of buildings. As the definition relates to buildings or buildings with land then hereditaments that do not primarily consist of buildings cannot be relevant non-domestic hereditaments under these regulations and will not be liable to the unoccupied rate.
Having defined the class of hereditaments prescribed as being liable to empty property rates Reg 4 of S! 2008 No 386 sets out a list of hereditaments that do not fall within the prescription and are therefore not subject to unoccupied rate.
5. Property liable for unoccupied rates
5.1 Reg 4 of SI 2008 No. 386 lists hereditaments not prescribed for the empty property rate. These are, in effect, exempt from the empty property rate. They are any hereditament:
(a) which… has been unoccupied for a continuous period not exceeding three months. Properties vacant for up to three months (or 6 months in the case of defined industrial property including warehouses – see below) are not subject to empty property rates for that period. The unoccupied rate is not applied until three months has elapsed since the property became vacant. Reg 5 covers the possibility that an owner might seek to gain additional three month void periods by quickly re-occupying and then vacating. Any occupation of less than six weeks duration is ignored when determining whether a property has been continuously unoccupied for three months. Therefore successive three months periods cannot be claimed after short periods of occupation. Where a hereditament has been unoccupied for a period of three months is divided (e.g. if part is let) into two or more hereditaments, the unoccupied liability is payable on the vacant parts from the date of division without any further three months of non-liability (see Brent London Borough Council v Ladbroke Rentals Ltd 1981 CA RA 153).
A hereditament which has not previously been occupied shall be treated as becoming unoccupied on the day determined under Schedule 4A to LGFA 1988 (completion notice procedure), or where this does not apply, on the day for which the hereditament is first shown in the local rating list. Changes of ownership do not trigger a fresh three months exemption from unoccupied rates.
(b) which is a qualifying industrial hereditament that… has been unoccupied for a continuous period not exceeding six months.
A ‘qualifying industrial hereditament’; which means any hereditament other than a retail hereditament in relation to which all the buildings comprised in the hereditament are-
(i) constructed or adapted for use in the course of a trade or business; and (ii) constructed or adapted for use for one or more of the following purposes, or one or more such purpose and one or more purposes ancillary thereto:-
- a) the manufacture, repair or adaptation of goods or materials, or the subjection of goods or materials to any process;
- b) storage (including the storage or handling of goods in the course of their distribution;
- c) the working or processing of minerals;
- d) the generation of electricity
‘Retail hereditament’ any hereditament where any building or part of building comprised in the hereditament is constructed or adapted for the purpose of the retail provision of-
- a) goods, or
- b) services, other than storage for distribution services, where the services are to be provided on or from the hereditament;
Up until 1 April 2008 empty property rates were not chargeable on qualifying industrial buildings at all. Since that date they have been brought within the ambit of the empty property rate but are given an extra three months void period compared to other properties ie they have a six months period.
The test of what is a qualifying industrial hereditament has two limbs;
- the property must be used for trade or business and
- it must be constructed or adapted for one of the mentioned purposes.
For example an animal breeding station owned by a pharmaceutical company may have fallen under the first limb (used for trade or business). It does not fall under the second limb, as it was not one of the mentioned uses.
It is a matter for the Billing Authority whether a property is a qualifying industrial hereditament and the description in the local rating list is not conclusive of this.
For example a garage and premises comprising car showroom, repair shop, stotes etc. is not an industrial hereditament. It is constructed for the purposes of enabling the occupier to supply goods and services directly to the public. This is a commercial use similar to that of a shop not a factory (see Post Office v Oxford City Council 1980 CA RA 129).
Owners of vacant property may wish to avoid liability by bringing their hereditament under the classification of ‘relevant industrial hereditament’. To this end they may wish to have the description of their property in the List amended. The List description is a means of identifying the hereditament and must be accurate. It should not be altered without good reason simply so a ratepayer can use it to persuade the Billing Authority that the property is a qualifying industrial hereditament. Unless the description is incorrect, it should not be altered unless some overt act of occupation or physical alteration to the building or change of planning permission has taken place, which would indicate that the description was no longer appropriate. The regulations do not mention the actual use of the hereditament, the description or analysis codes. The test is solely concerned with the construction or adaption for use of the building. The description in the Rating List is not conclusive and not binding on the Billing Authority.
a) whose owner is prohibited by law from occupying it or allowing it to be occupied. For example under London Building Acts (Amendment) Act 1939 a building was required to have a means of escape in case of fire. As the property does not have a fire escape no unoccupied rates were liable as the occupation of the property was prohibited by law (Tower Hamlets v St Katherine by the Tower 1982 QBD RA 261).
b) which is kept vacant by reason of action taken by or on behalf of the Crown or any local or public authority with a view to prohibiting the occupation of the hereditament or to acquiring it. Note that a planning restriction does not necessarily prevent occupation. For example in Westminster City Council v Hailbury Investments Ltd (1985 CA RA 1) planning restrictions prevented the use for office purposes of four empty hereditaments described in the list as offices. The hereditaments were not exempt from unoccupied rates since occupation was not prevented only limited by planning restriction.
c) which is the subject of a building preservation notice within the meaning of the Planning (Listed Buildings and Conservation Areas) Act 1990 or is included in a list compiled under section 1 of that Act;
d) which is included in the schedule of monuments compiled under section 1 of the Ancient Monuments and Archaeological Act 1979. If only part is listed it will liable to unoccupied rates (Providence Properties Ltd. v Liverpool City Council 1980 QBD RA 189).
e) its rateable value is less than £2,600 (from 1 April 2011);. £1000 for the 1990 Lists [SI 1989/2261 reg 2(2)(g)]; £1500 for 1995 Lists [SI 1995/549 reg 2], £1900 for 2000 Lists [SI 2000/520 reg 2] and £2,200 for the 2005 lists except the last year which was at £15,000.[SI 2009/353] The first year of the 2010 lists was at £18,000. [SI 2010/408]
f) the owner is entitled to possession only in his capacity as the personal representative of a deceased person;
g) where, in respect of the owner’s estate, there subsists a bankruptcy order within the meaning of section 381(2) of the Insolvency Act 1986;
h) whose owner is entitled to possession of the hereditament in his capacity as trustee under a deed of arrangement to which the Deeds of Arrangement Act 1914 applies;
*i) whose owner is a company which is subject to a winding-up order made under the Insolvency Act 1986 or which is being wound up voluntarily under that Act;
j) whose owner is a company in administration within the meaning of paragraph 1 of Schedule B1 to the Insolvency Act 1986 or is subject to an administration order made under the former administration provisions within the meaning of article 3 of the Enterprise Act 2002 (Commencement No. 4 and Transitional Provisions and Savings) Order 2003
k) whose owner is entitled to possession of the hereditament in his capacity as liquidator by virtue of an order made under section 112 or section 145 of the Insolvency Act 1986.
7. Calculation of Rates Payable under Unoccupied Liability
7.1 From 1 April 2008 unoccupied liability is 100% of the occupied liability [The Rating (Empty Properties) Act 2007 ] unless the property is subject to an order by the Secretary of State in England or the Welsh Ministers in Wales.
Property previously used by a charity or a registered community amateur sports club will be zero rated whilst empty, if it appears that when next in use it will be occupied by a charity or used as a registered community amateur sports club.
8. Other Powers
8.1 The Secretary of State is given powers to prescribe such classes of unoccupied properties that will be liable to unoccupied liability as the Secretary sees fit [s45 (9)] These classes may be prescribed by reference to the following [s45(10)];
(I) the physical characteristics of the hereditament;
(ii) the fact that the hereditaments have been unoccupied at any time,
(iii) the fact that the owners fall within a prescribed description
9. Valuation of unused hereditaments
9.1 All hereditaments are valued vacant and to let so non-occupation should normally have no effect on valuation. In exceptional circumstances the fact that a hereditament is vacant may have an effect on the valuation. This will only be the case where the hereditament is of a specialised type. The following tests will need to apply;
(i) the hereditament was vacant at or before the AVD with no intention of resumption of occupation, or
(ii) the premises were vacated post AVD as a direct consequence of a material change of circumstances.
In extreme cases it may be accepted that no demand exists at the AVD and hence no beneficial occupation arises. See also Rat Man Vol 4 Section 5; Rental Adjustment Practice Note 2 Valuation of Space where a Supply/Demand Imbalance exists at AVD.
10.1 Any unoccupied liability may also be subject to Transitional Arrangements.
10.2 The functions of the Secretary of State have been transferred to the National Assembly of Wales [National Assembly for Wales (Transfer of Functions) Order 1999, SI 1999/672, art 2, Sch1].
- in general the liability for unoccupied rates is a matter for the billing authority
- caseworkers should be aware that empty properties may be liable to rates in the circumstances described above
- caseworkers should not amend descriptions merely to assist in a claim that a hereditament is a qualifying industrial hereditament
- see also RM for rental adjustment for the treatment of hereditaments where supply exceeds demand
12. Completion notices
12.1 There are circumstances in which the owner may leave a new building incomplete (not capable of occupation), perhaps until a tenant can be found. In these circumstances the billing authority can serve a completion notice on the owner stating the date it considers a building can be expected to be completed. A building which is a ‘shell’ without any services is likely to be incapable of beneficial occupation and therefore cannot be entered into the list without a completion notice.
12.2 The serving of a completion notice has four implications;
- it sets the date at which the building is deemed to be complete and should be entered into the rating list
- it sets the effective date
- it sets the date for unoccupied liability
- it determines the date of deletion for any hereditament from which the new hereditament is created
12.3 The primary legislation is contained in s46A of Local Government Act 1988 and Schedule 4A of Local Government Finance Act 1988. These were inserted into the Act retrospectively by Local Government Housing Act 1989 s139, Schedule 5, paras 25, 79(3) and by the Local Government Housing Act 1989 s139, Schedule 5, paras 36, 79(3) respectively.
12.4 The Appeals Regulations include provisions relating to completion notices in respect of effective dates and proposals. The Non-Domestic Rating (Material Day for List Alterations) Regulations 1992 SI No. 556 make provisions for determining the material day in connection with a completion notice.
13. Altering the rating list following a completion notice
13.1 S46A says that Schedule 4A shall have effect where:
(i) a completion notice is served under Schedule 4A, and
(ii) the building to which the notice relates is not completed on or before the ‘relevant day’,
then, for the purposes of s42 (contents of local lists) and Schedule 6 (Non-Domestic Rating: Valuation) the building shall be deemed completed on that day [S46A(2)].
The completion date is therefore the date at which the property is deemed complete for the purposes of making a rating list alteration.
14. ‘Relevant day’
14.1 The ‘relevant day’ in relation to a completion notice is:
(i) where there is an appeal against the notice (under para 4 of Schedule 4A) the day stated in the notice, and
(ii) where there is no appeal, the day determined under that Schedule as the completion day in relation to the building to which the notice relates [S46(3)]
15. Unoccupied property
15.1 Where a day is determined under Schedule 4A as the completion day and that building is not occupied on that day, then it shall be deemed for the purposes of s45 (Unoccupied hereditaments: liability) to become unoccupied on that day [S 46A(4)].
16. Structural alterations to existing building
16.1 Where a completion day is determined under Schedule 4A and that building is produced by structural alterations to an existing building, then the existing building shall be deemed to have ceased to exist and to have been omitted from the list from this day.
17.1 ‘Building’ for the purposes of these regulations includes part of a building. New buildings include buildings produced by structural alterations to an existing building which becomes a different hereditament as a result of the alterations.
18. Service of completion notices
18.1 The billing authority can serve completion notices on the owner of a new building where:
(i) it comes to the notice of a BA that the work remaining to be done on a new building is such that the building can reasonably be expected to be completed within three months [Schedule 4A par 1(1)],
(ii) it comes to an authority’s notice that a new building has been completed [Schedule 4A para1 (2)].
18.2 The authority must serve the notice as soon as is reasonably practical unless the VO directs otherwise in writing. The VO can direct the BA not to serve a completion notice if the VO is to take action.
18.3 The three months time period should not be confused with the three month exemption period between the completion day and the commencement of unoccupied rate liability. The two run consecutively, so there could be six months between the service of the completion notice and the commencement or unoccupied rate liability.
19. Withdrawal of completion notice
19.1 A completion notice may be withdrawn by serving a subsequent notice on the owner. This is prevented in two instances;
(i) where an appeal has been made against the completion notice the notice can only be withdrawn with the consent in writing of the owner
(ii) a subsequent notice cannot be issued once a day has been determined as the completion day
20. Contents of completion notice
20.1 The completion notice shall specify the building to which it relates and state the day which the authority proposes as the completion day in relation to the building [Schedule 4A para 2].
20.2 If when the completion notice is served the building is not completed, the completion day shall be such a day, not later than three months from the day on which the notice is served, as the authority considers is a day by which the building can reasonably be expected to be completed. However, if the building is complete the authority shall propose the day on which the notice is served as being the completion day.
20.3 It is possible to agree a different day as being the completion day [Schedule 4A para 3].
21. Appeals against completion notices
21.1 A person on whom a completion notice is served has the right of appeal to the Valuation Tribunal under Schedule 4A para 4(1). The appeal must be on the grounds that the building is not or cannot be completed by the completion date on the notice.
21.2 The owner has four weeks from the date of service of the completion notice in which to make such an appeal [Reg 29 SI 1993/291]
21.3 There are no provisions for the VT to notify the VO that an appeal has been made. However, DOE Practice Note 2 para 3.11 indicates the VT will acknowledge receipt of any appeal against a completion notice to the VO as well as to the ratepayer and the BA.
The VO is not a party to any such proceedings and should not be involved in any stage of the appeal.
The VTE will send a notice of any VT decision to the VO.
21.4 Whilst the appeal is pending then empty property liability (under s45) shall apply (by virtue of s46A(4)) as if the day stated in the notice has been determined under this Schedule. This does not actually determine the completion day [Schedule 4A para 6].
22. Duty to inform VO
22.1 A billing authority shall supply the VO with a copy of a completion notice [Schedule 4A 7(1)]. They shall also inform the VO if they withdraw the completion notice, or agree a different day as the completion day.
22.2 The VO should be prepared to liaise with the BA over whether a building is capable of being entered into the rating list. However, the VO has no statutory power in the completion notice proceedings and it is ultimately the BA decision whether to issue a notice and at what date.
23. Service of completion notices
23.1 There are rules in the Regulation for the serving of completion notices [Schedule 4A para 8].
24. Works done after building complete (Fitting out)
24.1 In the case of work which is customarily done after the building is substantially completed, then it is assumed 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 [Schedule 4A para 9].
This would apply to buildings which are fitted out as a separate occupation to the completion of the building (often after a tenant is found). This provision allows for the serving of a completion notice on hereditaments where the fitting out will not be completed within the three months period required for a completion notice.
24.2 Where work remains to be done to a substantially completed building of a kind customarily done after substantial completion, the building may be treated as completed for unoccupied rates on a date arrived at by adding on to the date of substantial completion (not the date of the notice) the time reasonably required for carrying out that work (Graylaw Investments Ltd v Ipswich 1979 QBD RA 111)
24.3 The period ‘reasonably required’ for carrying out work remaining to be done does not include time for finding a tenant willing to occupy the building (see J.G.L. Investments v Sandwell DC 1977 CA RA 78)
24.4 Therefore if a building is substantially complete the BA can set a completion date at the end of the period starting with the date of substantial completion and allowing such time as is reasonably required for carrying out the post substantial completion works. This allows for such buildings which are finished to a shell and are not fitted out until a tenant is found. As this work may take longer than three months, the completion notice procedure without para 9, would be ineffective. The time required for planning the work must be disregarded (see JGL Investments Ltd v Sandwell District Council (1977) RA 78 CA).
25. Valuations for completion notices
Following the service of a completion notice there are three issues the VO must address;
(i) the unit of assessment
(ii) the assumed standard of completion
(iii) the timing of alterations and effective dates
25.2 The Unit of Assessment
It will be for the VO to determine the unit of assessment in relation to what appears to be the most likely pattern of future occupation. This is regardless of whether the Billing Authority serves one completion notice for the whole building or several notices for each part. The VO determines the number of hereditaments. See British Railways Board v Hopkins (VO) 1981 RA LT and Camden LBC v Post Office 1978 CA RA 57.
25.3 Assumed Standard of Completion
If the building subject to the completion notice is not actually complete, it will be assumed to be ready for, or capable of, occupation for the use appropriate to that particular hereditament. A building should be ready for occupation for the purpose for which it was intended (as a shop, office, factory etc.) and not only when the furniture and equipment necessary for its actual occupation is installed when occupation will have commenced (see Post Office v Nottingham City Council 1976 1 WLR 624 CA.) However, a newly erected building is completed for the purpose of a completion notice only when it is ready for occupation and not when it is structurally complete (see Ravenseft Properties Ltd.v Newham LBC 1975 CA RA 410 and London Merchant Securities PLC and Trendworthy Two Ltd v Islington LBC 1987 RA 99 Difficulties may be encountered as to what standard and final design will the building eventually be completed to. In determining the standard of the final finish the VO should liaise with the Billing Authority as to what was assumed by the authority in setting the completion notice date. It would seem prudent to assume the most basic finish which could be revised once the building is actually complete.
25.4 Altering the List
The VO must alter the list in accordance with the completion notice as soon as practical after the ‘relevant day’ and regardless of whether any appeal remains outstanding. It may be subsequently necessary to make a further alteration to the List for that hereditament to amend the effective date when the completion notice dispute has been resolved. This further alteration does not give a right of appeal (Reg 4 (12)(d) SI 1993/291). Problems can arise as to what description to use for an empty property. A decision should be made based on the facts taking into account how the property is marketed, the predominant use of existing occupied units, planning situation etc. In British Railways Board v Hopkins (1981 LT RA 328) the Tribunal supported the VO’s right to make judgements as to a properties future use.
25.5 Material Day and Effective Day for List Alteration
There are provisions in the Material Day Regulations and the Alteration of the List and Appeals Regulations to cover valuations following the serving of completion notices. See Rat Man Vol 2 Section 2 Material Day and Rat Man Vol 2 Section 4 Effective Dates.
The material day for such a valuation will be the day proposed in the notice as the completion day or the day agreed or determined by the VT as the completion day. [Reg 3(5) SI 1992/556].
The effective date for such a valuation will be the day specified in the notice or determined by agreement, tribunal decision or pursuant to an appeal.
In the unlikely event the completion date determined under appeal is later than the present date the assessment should be deleted.
If the alteration to the list does not occur until after occupation the alteration should still be made in respect of the completion notice and the effective date determined.
Conversely if completion occurs before the date on the completion notice the deemed completion date no longer applies and the effective date will be the actual date of completion [S46A(2)(b)LGFA 1988].
Billing authorities can serve a completion notice in respect of a completed building. However, if the VO is aware that a building is complete it should alter the list accordingly regardless of whether a completion notice has been served. The VO should take extra care when inspecting premises where there may be a dispute as to whether a building is actually complete or not. [See Rating Index section 10 for case law on whether a building is complete.] If the VO is in any doubt as to whether a building is complete, then it would be prudent for the VO to ask the BA to consider serving a completion notice.
the LGFA 1988 provides a mechanism for ascertaining the day on which a new building is deemed to be complete and therefore entered into the list
the billing authority has powers to serve completion notices on owners of new buildings
the matter is primarily the BA’s responsibility but VO should be prepared to liaise with the B A
the VO should take extra care when inspecting new property where the date of completion may be in dispute