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Ms Armstrong: As the hon. Gentleman says, there is some dispute among the professions. They are suggesting that the Bill goes further than we are suggesting; that is the area to which the hon. Gentleman alludes. I do not agree with that. Obviously, I am not qualified to say what valuers believed or did not believe the 1988 Act to mean, but the leading authority on rating, the book "Ryde on Rating and the Council Tax" clearly says that properties should be valued on a common repair assumption.
It may help the hon. Gentleman if I quote from the current edition, which says:
Mr. Burns:
I thank the Minister for what was clearly a helpful intervention. I do not want to be churlish or to start quibbling, and I appreciate the time that she took to
As the IRRV points out in its submission to the Department, although there are guidelines contained in the explanatory notes, those have no force in law. The Bill itself is silent on that issue. The concern is that the Bill will have the opposite effect to that intended. Clearly, it has been introduced to clear up what the Government see as a potential problem in the shape of the Benjamin v. Anston case. The Government are worried that that will lead to further litigation along those lines, and see the Bill, not unreasonably, as a way of preventing that. However, in addition to the professions' concerns about the rebus sic stantibus rule, both the IRRV and the RSA have expressed serious concern that the Bill's drafting will lead to more, not less, litigation, because of the uncertainties surrounding the introduction of the assumption of a reasonable state of repair, especially in relation to the use of the term "reasonable".
Ministers may want to return to that matter at a later stage, but I hope that they will appreciate the professional bodies' concerns.
Ms Armstrong:
Clearly, we have to discuss the issue. It is the Government's intention to make it clearer, especially for the ratepayer, precisely on what basis rates are to be paid, and to produce a workable system. I appreciate the fact that hon. Members will want to discuss what we mean by "reasonable", and I would consider that a valid subject for discussion in Committee.
Mr. Burns:
To continue our bipartisan approach, I thank the Minister for making that point. She is absolutely right, and we will certainly want to raise the issue in Committee and hear more about the Government's view and the way in which they intend to ensure that the legislation does not create problems that they have not so far anticipated.
Conservative Members want the Bill to provide a fair and clear basis for the levying of business rates, and I am sure that the Government would agree with us. We have some doubts whether the Bill as drafted will achieve that aim. We do not oppose the Bill and we understand why the Government felt that they had to act, but, as a responsible Opposition, we want to work with them to iron out any possible flaws that could render the operation of the legislation unfair or unworkable and could achieve the exact opposite of what was intended.
Mr. David Borrow (South Ribble):
I declare a non-pecuniary interest as a member of the Institute of Revenues, Rating and Valuation of more than 20 years' standing, and an honorary member of the Society of Clerks of Valuation Tribunals.
The legislation is necessary and sets down in law what was always assumed to be the situation. Under previous legislation, it was always assumed that the repair liability existed when a valuation took place. Valuation related directly to rateable value was made on the assumption that the tenant would keep the property in a good state of repair.
The Bill places responsibility for repair on the landlord before occupation of a property--that is sensible and straightforward, but it introduces a new concept to statute by making the assumption that, when it is uneconomic to return a dilapidated property to a good state of repair, the valuation will be based on the unrepaired property, rebus sic stantibus.
The origins of rating go back to the poor relief laws of 1601, and a whole series of case law has developed valuation for rating. In this century, we have for the first time arrived at a system whereby valuations are made on the assumption that the property is not in a good state of repair. Many of the initial cases involved something exceptional about the property--often structural repairs, subsidence or some other major defect affecting rental values--that meant that the cost of repair would be disproportionate to the additional rental value that it would create.
The Bill's wording may lead such cases to involve not only properties with major structural defects, but ones that have simply not been kept in good repair. The property in the Benjamin v. Anston Properties Ltd. case, which was in Brighton, became unoccupied in the late 1980s, largely for economic reasons, and fell into disrepair. It is my understanding that there were no major structural problems.
There are problems associated with properties in certain age groups or areas when they have fallen into disrepair. There was an interesting article by Tom Dixon in the IRRV journal, referring to the problems of the empty property rate and the fact that there was a disincentive to repair such properties. I am sure that the provisions will be used extensively to avoid paying rates.
There is a problem in that many properties have leases of 14 or 21 years, with upward-only rent reviews. When properties become less desirable or popular, tenants cannot bring about a rent reduction. That was never a problem when there was rapid inflation but, over the past 10 years, certain classes of properties have had minimal changes in cash rental values and, with upward-only rent reviews, tenants are trapped into paying more than the market rent.
That is an incentive for the tenants not to fulfil their obligation to keep the property in a good state of repair, and they may pass on the lease to sub-lessees to avoid their responsibilities. There is a danger that properties that could be put into a good state of repair and let at a realistic rent will be left in disrepair because of the effect of upward-only rent reviews and the fact that rates are based on rental values that are themselves tied to such reviews. The rates may be excessive, because there is no downward review for most commercial rents.
Should Government managers give me the opportunity, I look forward to exploring more extensively in Committee some of the points that have been made by professionals.
6.19 pm
Mr. Paul Burstow (Sutton and Cheam):
The hon. Member for South Ribble (Mr. Borrow) has done an excellent job in the cause of seeking a place on the Committee. Other hon. Members have ably demonstrated how confusing and complicated the matter is; I say not that they have confused us, but that the subject matter is confusing.
We could be forgiven for thinking that the Bill is non-controversial and that it will simply ensure that the law is as everyone had understood it to be and as Parliament had intended it to be. The Bill should therefore be only a technical matter that should not long be delayed in its passage. However, I should say that, in trying to get to grips with the issues raised in the Bill, and the case law that has already been mentioned in the debate, I found the matter to be quite challenging. Some formidable terminology is used, and plain English is absent.
My understanding is that the impetus for the Bill's passage started with the March 1998 Lands Tribunal decision in the case known as Benjamin v. Anston Properties Ltd., which seems to have boiled down to an argument of administrative convenience versus some long-established principles underpinning the way in which the rateable value of business premises has been determined.
Under current law, all non-domestic properties must be assessed individually. However, as the Minister told us earlier, that is largely a desk-top exercise and, in practice, similar properties are considered to obtain an average level of rental value for those properties. I have been told by those in the profession that the tone of the rating list is determined in that manner--by reference to types of properties.
Properties of the same type--shops, for example--in a specific location will therefore have a similar value. Subsequently--at least until now--the rating list has been susceptible to further refinement through the appeal process and by reference to differences between properties materially affecting their value. The principle that a property should be valued as it is in fact was clearly stated in case law as long ago as 1937, in Robinson Brothers v. Houghton and Chester le Street assessment committee. Moreover, the precedent established in that case had been established in previous law.
In Robinson Brothers, it was made clear that, in weighing up the evidence bearing upon value, the valuer has a duty to take into consideration every intrinsic quality and intrinsic circumstance that tends to push the rental value either up or down. The proposition is known as rebus sic stantibus and goes to the heart of the valuation system. I think that the Bill, at the very least, weakens that basic proposition of the valuation system. Moreover, as drafted the Bill would make it possible for the proposition to be abandoned entirely.
It has been argued by the Minister, and in consultations between the various professional institutes and officials in the Department of the Environment, Transport and the Regions, that the rebus rule does not apply to repairs, and that is what the Anston case was all about. However, studies of the textbooks have shown that the law on the matter is somewhat vague because, until now, the proposition that rebus does not apply to repairs has been made in the context of valuations made on gross values. That is not the situation that we are debating today.
I have been informed by the various professional interests in the matter that the decision in the Anston case came as no surprise to them. In their view, the decision simply confirmed what was already generally understood to be established practice and precedent. The valuation officer in the Anston case argued that all economically feasible repairs had been performed prior to the hypothetical letting.
I should say that the issue in the Anston case was that the previous tenants had left the premises in a rather bad state of repair, and that the rateable value in the 1990 list was £272,000. However, it was agreed in the tribunal hearing that, on the material day, repairs would have cost at least £300,000.
The Lands Tribunal president, Judge Marder, described the proposition made by counsel for the Valuation Office--that a semi-derelict property should be valued on the basis that it might reasonably be expected to be let at full value--as extending the meaning of
As the Local Government Finance Act 1988 placed the obligation of repair on the hypothetical tenant, surely it is unreasonable to assume that a tenant would take a property in substantial disrepair and expend large sums on it simply to increase his rent liability. Counsel for the Valuation Office made it clear that the effects of its success in the appeal would have been to make it easier to administer the valuation process. In other words, it was an argument as much about ease of administration as about equity and fairness in how the system was being applied to individual businesses.
The Valuation Office argued that the Anston decision would open the floodgates on appeals. Where are those appeals? I asked the Minister earlier whether statistics on such appeals were available, but was told that statistics are not gathered in that manner. My understanding is that a floodtide of appeals has not been unleashed because of the Anston decision.
"The rule that the hereditament must be valued in its existing physical state does not apply to defects which are due to ordinary lack of repair. The cases in which this exception to the rebus sic stantibus rule has been established and applied arose largely in the context of the definition of 'gross value' under previous legislation, in which the burden of repair was placed by statute upon the hypothetical landlord. Nevertheless, it is submitted that the principles established are equally applicable when, as now, the obligation to repair falls upon the tenant."
It was on that basis that we introduced the legislation. The case this time was that, because the basis had changed from the landlord to the tenant, that meant that the whole basis of assumptions had changed. We are saying that that was not the intention. Indeed, the major book and guide on the issue affirms that.
"'reasonably' to an unreasonable degree".
We shall undoubtedly return later to that issue, as the Bill will provide new opportunities to explore what is meant by "reasonable". We should be concerned about the definition, which certainly the profession believes could lead to more rather than fewer cases.
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