At what point does a domestic property's condition become so bad, that the property ceases to qualify as a dwelling/hereditament for council tax valuation list purposes? A connected question is whether, during a period of extensive redevelopment works, the property will still qualify as a dwelling/hereditament for council tax valuation list purposes?

This article will consider these questions, in light of the cases of: (1) the relevant sections of the Local Government Finance Act 1992 ('LGFA 1992'); (2) Wilson v Coll (LO) [2012] RA 45; [2012] PTSR 1313 (QB) ('Wilson'), a decision of Singh J; and (3) Bunyan (LO) v Patel [2022] EWHC 1143 (Admin ('Patel'), a decision of Lang J.

Council Tax

Section 1 of the LGFA 1992 is entitled 'Council tax in respect of dwellings' and subsection 1 provides:

'(1) As regards the financial year beginning in 1993 and subsequent financial years, each billing authority shall, in accordance with this Part, levy and collect a tax, to be called council tax, which shall be payable in respect of dwellings situated in its area.' [bold added]

Council tax is therefore due in relation to 'dwellings'. Section 3 of the LGFA 1992 is entitled 'Meaning of "dwelling" and subsections 3(1) and 3(2) provide:

'(1) This section has effect for determining what is a dwelling for the purposes of this Part.

(2) Subject to the following provisions of this section, a dwelling is any property which-

(a) by virtue of the definition of hereditament in section 115(1) of the General Rate Act 1967, would have been a hereditament for the purposes of that Act if that Act remained in force; and

(b) is not for the time being shown or required to be shown in a local or a central non-domestic rating list in force at that time; and

(c) is not for the time being exempt from local non-domestic rating for the purposes of Part III of the Local Government Finance Act 1988 (“the 1988 Act” ); and in applying paragraphs (b) and (c) above no account shall be taken of any rules as to Crown exemption.'[1] [bold added]

For present purposes then, a dwelling is a property which would have fallen within the definition of 'hereditament' in s.115(1) of the General Rate Act 1967, had that Act of Parliament remained in force (and is not shown/required to be show on a local or a central non-domestic rating list and is not exempt). Focusing then on section 115(1), materially, this provides:

'In this Act, except where the context otherwise requires, the following expressions have the following meanings respectively, that is to say

"hereditament" means property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item in the valuation list'.

Council Tax Valuation List - Entry Deletion

The Valuation Office Agency ('VOA') maintain a council tax valuation list ('CTVL'), listing all the (qualifying) dwellings for a local authority area. A property should only appear on the CTVL, as a dwelling, if it qualifies as a dwelling under sections 1 and 3. For a property to properly appear on the CTVL, it must (amongst other things), come within section 115(1)'s definition of a 'hereditament':

(1) Where a property does come within that definition, then a hereditament 'exists'. Conversely,

(2) Where a property does not come within that definition, then a hereditament does not 'exist' and the entry ought to be deleted.

Turning to the authorities, though there are some earlier authorities which readers might find useful[2], it is convenient to start with Wilson.

Wilson

In Wilson, the property owner contended that the entry on the CTVL for his property, ought to be deleted, because the property was not in a reasonable state of repair.

Singh J:

(1) rejected the property owner's submission that the concept of hereditament continuing to exist necessarily imported a requirement in law that any repair that may be needed must be a repair which it was economic to carry out (paragraph 10). Singh J concluded that such a requirement was not supported by the terms of the statutory scheme, nor by the case law (paragraph 41).

(2) accepted the listing officer's submission (paragraph 16), as summarised by Singh J, that:

'...there may come a point at which a property is so derelict as to be incapable of repair. The important distinction ... is not between economic repair and uneconomic repair, but rather a distinction between repair, or at least a reasonable amount of repair, which is still repair, as distinct from a complete reconstruction or replacement of a building. The latter...will mean that the original hereditament no longer continues to exist. The former, even if repairs which are uneconomic are required, will mean that the property is not derelict because it is capable of being rendered suitable for occupation for its purposes by some repair even if in fact that is repair which it would be uneconomic to undertake.' [bold added]

(3) concluded, at paragraphs 39-40:

(a) as a general matter, the correct question for whether or not an entry should be deleted, was 'Having regard to the character of the property and a reasonable amount of repair works being undertaken could the premises be occupied as a dwelling?' (paragraph 39). Singh J noted that this was the question that the Practice Note 4: Disrepair, Building Works, Temporary Disabilities and Flooding to the Council Tax Manual, already (correctly) required a listing officer to ask themselves.

(b) that '...as a general matter of law the crucial distinction for the purposes of deciding whether there is, or continues to be, a hereditament should focus upon whether a property is capable of being rendered suitable for occupation (in the present context occupation as a dwelling) by undertaking a reasonable amount of repair works. The distinction... in my view, is between a truly derelict property, which is incapable of being repaired to make it suitable for its intended purpose, and repair which would render it capable again of being occupied for the purposes for which it is intended' [bold added]

Patel

Lang J held that Wilson sets out the correct test in this area. In doing so, Lang J held that the first instance tribunal (VTE) in Patel had been wrong to depart from the test set out in Wilson, in reliance on the decision of VTE in Tewari v Virk (2020) (appeal no MO826076) (which, Lang J said, had been founded upon a 'misreading' (Patel, paragraph 45) of Wilson). Lang J summaried the correct test, from Wilson, to be '...applied when determining whether a hereditament was still in existence...' (paragraph 48) - as:

'...whether a property is capable of being rendered suitable for occupation as a dwelling by undertaking a reasonable amount of repair works, or whether it is a truly derelict property, which requires reconstruction or replacement to make it suitable for occupation as a dwelling.' (paragraph 48).

Suitable for occupation means the property would be in the state/condition to be rateably occupied. In particular, somebody could obtain beneficial occupation from it ('beneficial occupation' being one of the 4 ingredients for rateable occupation)[3].

Areas of Confusion

It is important appreciate that there are a series of questions, or steps/stages, to be gone through, under the Council Tax statutory scheme. Each must be kept separate, to avoid confusion and the application of the wrong test or integration of the wrong assumptions. The question of whether or not a hereditament 'exists', is the first step/stage, under the statutory scheme, and it is distinct from the other, later step/stages (Lang J said, in Patel, at paragraph 20 '...under the statutory scheme, the first step is to determine whether a hereditament exists'). Thus, for instance:

(1) there is a sharp distinction between the question of: (a) whether a hereditament exists; and (b) what is the proper valuation of the hereditament. In Wilson, Singh J made this point where, at paragraph 17, he accepted the submission that:

'...there is a crucial distinction in law between the valuation of a hereditament and the prior question of whether a hereditament exists.' and '...that confusion has sometimes entered this area of law between these two legally distinct concepts...'

(2) it would be wrong to apply, at stage one (the 'whether a hereditament exists' stage), assumptions imposed at the second[4] stage (the 'valuation of a hereditament' stage). One such assumption is the statutory assumption contained in reg 6(2)(e) of the Council Tax (Situation and Valuation of Dwellings) Regulations 1992 "that the dwelling was in a state of reasonable repair". That statutory assumption only applies at the 'valuation of a hereditament' stage, as the title to reg 6 and the terms of reg 6(1) makes clear. Applying this assumption, from the 'valuation of a hereditament' stage, to the earlier (and conceptually separate) stage of 'whether a hereditament exists', was the mistake that the first instance tribunal (VTE) had made in Wilson[5].

At the stage when the question must be answered: 'whether a hereditament exists', the reality principle applies. That is, the question must be answered on the actual state/condition of the property, rather than, as applies to the 'valuation of a hereditament' stage, a (statutorily mandated) basis founded on certain assumptions (like the state of repair assumption).

In Patel, Lang J said that certain VOA guidance issued to listing officers in the Council Tax Manual', was '...consistent with the legal principles...' (Patel, paragraph 33). Lang J then quoted from Practice Note 4. To provide a few extract[6]:

'1. Introduction

...This Practice Note 4 covers all aspects of disrepair, including whether a hereditament exists at all (truly derelict)...

2. A hereditament must exist

It is important to understand that a dwelling must exist before repair assumptions can be invoked. Thus the 'hereditament test' must be applied and satisfied first, then the matter of valuation considered separately.

...

3. Reasonable repair assumption

In Practice Note 1 it is explained that if a dwelling exists, then the assumption that the dwelling is in a state of reasonable repair becomes valid...'

Property undergoing scheme of works (extensive redevelopment works)

While not the focus of this article, an interesting, and related, scenario is where a property is: (a) vacant; and (b) undergoing extensive redevelopment / renovation / extension works. 

In S J & J Monk (A Firm) v Newbigin (VO) [2017] UKSC 14, [2017) RA 95 (a business rates case), the Supreme Court held that an empty office building which was undergoing major reconstruction, was incapable of beneficial occupation. It was not simply in a (mere) state of disrepair.

In the VOA Council Tax Manual, Practice Note 4, it provides:

'2. A hereditament must exist

... Where a hereditament is vacant and undergoing a scheme of works, the hereditament may cease to exist ... As a dwelling cannot exist without first identifying a hereditament, vacant domestic property evidenced as undergoing a scheme will be deleted from the council tax list.

...

4. Scheme of works

If a vacant property is shown to be undergoing a scheme of works, then the decision in Newbigin (VO) v Monk must be considered ...The Supreme Court examined a series of rating cases and found case law: distinguished between a mere lack of repair, which did not affect rateable value because of the hypothetical landlord's obligation to repair, and redevelopment works which made a building uninhabitable' (Monk, [para 17]). The Supreme Court identified a 'logically prior question' that needed to be asked when a building was undergoing redevelopment: requiring the valuation officer to ascertain whether the premises were undergoing reconstruction rather than simply being in a state of disrepair'. If so, the premises would be incapable of beneficial occupation and cease to be a hereditament. The same principle should be applied when considering a case for council tax. If a property is simply in poor repair, then listing officers should follow Wilson v Coll (LO). If there is a scheme of works, then listing officers will need to consider the evidence and make a judgment if the works made a building uninhabitable. Clearly this will only apply to vacant property and generally where there is a major renovation and extension underway. It is not envisaged works to replace a kitchen or bathroom, which may temporarily render a property incapable of beneficial occupation will be sufficient to delete a property from the valuation list' [bold added]

It is also noteworthy, that attached to Practice Note 4, is Appendix 3, which Practice Note 4 describes as containing, a practice guide to assist in deciding whether a property is derelict or not.

The above extract from the VOA Council Tax Manual, Practice Note 4, was quoted (along with other extracts) by Lang J in Patel, at paragraph 33, after Lang J said that it was '...consistent with the legal principles...' (paragraph 33)). On the facts in Patel, the issue was not in dispute. Such a situation had arisen in Patel, but there was no dispute between the parties in Patel on whether the property should have an entry on the CTVL for the relevant period. The VOA rating officer had accepted that, from the date construction works had started (23.9.20), the property had no longer been capable of beneficial occupation and so the CTVL entry needed deleting from this date (23.9.20).

Conclusion

A property should only have an entry on CTVL where it is a qualifying 'dwelling', which in turn, requires (amongst other things) that the property would have been a hereditament in accordance with s.115(1) of the General Rates Act 1967, were that provision to still be in force. Case law shows that a hereditament exists, or does not exist, in relation to a property, depending on the (poor) state/condition of the property; that:

(1) there will come a point at which a property is so derelict such that it ceases to qualify as a hereditament, and so will cease to be a 'dwelling' for the purposes of council tax. Where a property is not a hereditament, and so not a 'dwelling', it should not have an entry on the CTVL; any entry must be deleted;

(2) the law draws the line between a (run down) property being a hereditament, and not being hereditament, based on a distinction between whether, in order to put the property into a state/condition suitable for occupation (that is, capable of beneficial occupation) for its intended purposes (here, as a dwelling), the property needs:

(a) repair, or at least a reasonable amount of repair, which is still repair; as distinct from,

(b) a complete reconstruction or replacement of a building.

(3) The question to ask is: 'Having regard to the character of the property and a reasonable amount of repair works being undertaken, could the premises be occupied as a dwelling?' (Wilson, paragraph 39). The question is, what would it take, to put the property into the state/condition where it would be suitable for occupation for its purposes (i.e. as a dwelling)? to render it the property suitable for occupation for its purposes? That is, to put it into a state/condition where it would be capable of being beneficially occupied, as a sub-ingredient of rateable occupation. Would this require:

(a) (merely) a 'reasonable amount of repair'; or

(b) 'a complete reconstruction or replacement of a building'

Where it would require 'a complete reconstruction or replacement of a building', the property (pre-any works being undertaken on it) is properly to be described as 'derelict' or 'truly derelict'. It is '...incapable of being repaired to make it suitable for its intended purpose' (Wilson, paragraph 40). It is not a hereditament and should not have a CVTL entry.

Where (merely) a 'reasonable amount of repair' is all that would be required to bring it up to a state/condition where it could be beneficially occupied, then the property (pre-any works being undertaken on it) cannot properly be described as 'derelict' or 'truly derelict'. In other words, a property is not derelict where, through a 'reasonable amount of repairs', it would be rendered suitable for occupation for its purposes (as a dwelling). Here, one can say that 'repair ... would render it capable again of being occupied for the purposes for which it is intended' (Wilson, paragraph 40). In such circumstances, the property is a hereditament, and so a dwelling, and so should have a CVTL entry.

(a) The test therefore pivots on what a 'reasonable amount of repair' is. The guidance is that limited. It can be stated that:

(i) 'reasonable' or unreasonable does not depend on whether or not necessary repairs are economic repairs and uneconomic repair; and

(ii) 'reasonable amount of repairs' is to be contrasted, with a 'complete reconstruction or replacement of a building'.

Separately, where property is vacant and undergoing a scheme of works, the CTVL entry might require deletion[7] if the scheme of works amounts to a major reconstruction, extensive development work ongoing (i.e. more than merely that the property has temporarily lost its ability to be beneficially occupied for rateably occupation purposes, because something like a replacement kitchen or bathroom is being installed).

UPDATE Readers might be interested to read a couple of blog posts, published on the VOA's website, written by Diane Thomson - CT and Rent Officer Functions Unit Head. They are:

(a) 'Council Tax band deletions: renovations and repairs', published on 8 May 2024, available here.

(b) 'Council Tax band deletions: properties in disrepair', published on 21 February 2024, available here.

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