In this section
Summary: PN 4 has been amended to reflect the law as expounded in the ‘repair’ case of Wilson v Coll LO 2011
1. Practice Note 1 (Definition of Dwelling and Basis of Valuation for Council Tax) sets out the basis of the dwelling, as being a hereditament from Section 3 LGFA 1992. Para 4.4 of PN1 deals with the assumption that the dwelling to be banded is in a "state of reasonable repair". This Practice Note 4 covers all aspects of disrepair, including whether a hereditament exists at all, (truly derelict properties), the effect on banding of dwellings undergoing works of repair or improvement and temporary disabilities external to the dwelling.
2. Since April 2013, the Council Tax (Exempt Dwellings) Order 1992 has been amended by the abolition of Class A which gave mandatory relief for a set period of up to 12 months for properties awaiting or undergoing structural repair. In addition billing authorities have been given total discretion on setting periods of empty property relief under Class C, and each will have their own policy. Generally, empty property relief has been greatly restricted with a consequently greater number of enquiries and proposals seeking deletion for properties in poor repair.
3. Appendix 1 to PN6 summarises when a band change is possible due to disrepair and building works, and when any subsequent band change is possible on completion of any remedial or other works. Appendix 2 is a summary of the basic principles to be applied and can be included as information for taxpayers. Appendix 3 is a practical guide to assist in deciding whether a property is derelict or not.
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, and then the matter of valuation considered as a separate consideration. The question posed by the hereditament test 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?”
See para 5.2 below.
In PN 1 it is explained that if a dwelling exists, then the assumption that the dwelling is in a state of reasonable repair becomes valid. The standard of repair to be assumed is that which would be appropriate having regard to the dwelling's age, locality and character. The importance of determining the "character" of the dwelling is considered, in particular how in, say, a Victorian terrace, the character of the various properties might vary considerably either due to general neglect or because substantial improvements have been made. In some circumstances the character of a property might be so different from the majority of other properties in the street that it would not, necessarily, be appropriate to assume the same state of repair to exist.
5.1 What constitutes a dwelling
Providing a property constitutes a dwelling it is required to be shown in a Valuation List. As Band A includes dwellings with "values not exceeding" £40,000 for England and £44,000 for Wales even if a dwelling's capital value is nominal it will still be at least banded as "A".
To be a dwelling a property has to satisfy the definition in S.3 LGFA 1992 (see CTM:PN1). This particularly includes S.3 (2)(a) LGFA 1992: -
".... 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....”
The effect of this is that behind the concept of the dwelling and Council Tax itself lies the rating concept of the hereditament. As with post-1990 rating, the definition of the hereditament refers back to what would have been a hereditament under the pre-1990 rating system. (See RM4: 2 for a detailed examination of the concept of the hereditament for rating purposes).
One of the valuation assumptions for Council Tax is that the dwelling is to be assumed to be in a state of reasonable repair having regard to the age, locality and character of the dwelling. This reasonable repair assumption, however, only applies after it is established that a property constitutes a dwelling. To be a dwelling it must first qualify as a hereditament.
5.2 The "Hereditament Test"
To establish for Council Tax whether a property in poor order constitutes a hereditament (and therefore, providing the other requirements of S.3 LGFA 1992 are satisfied, a dwelling) its character should be examined and the question posed.
“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?".
The judgement in Wilson v Coll LO 2011 examined the validity of the hereditament test (the whole of PN4 being included in the LO case papers) and the Judge confirmed in para 40
“I accept that as a 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 (…as a dwelling) by undertaking a reasonable amount of repair works . The distinction, which was correctly drawn by the respondent…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 purpose for which it is intended”.
These initial ‘repair’ considerations are entirely separate from the valuation assumptions as to repair.
The character of a truly derelict property e.g. with most roof tiles missing etc, is one of dereliction and to make it habitable a substantial amount of repair would need to be undertaken. This would change its character and be more than a reasonable amount of repair.
Alternatively where a property, though in poor order, would be habitable if say the broken sanitary fittings were replaced, some window glass repaired and general tidying up/redecoration carried out, the character would be that of a run-down property and the works of repair would be reasonable.
Character is not merely confined to the view which a passer-by would form from an external inspection but also involves the internal state.
In some situations houses are deliberately made uninhabitable to prevent domestic occupation e.g. where a housing association purchases a property to convert to flats but does not intend to start work for a year. To prevent squatters it removes the services, sanitary fittings, kitchens and plumbing, floorboards, ceilings etc. Before deletion in such a case, the LO needs to be satisfied that the extent of the damage is so severe, that, having regard to its character (i.e. that of a, probably, run-down house), the amount of repair work needed is not reasonable and the property does not constitute a hereditament.
5.3 Not an economic test
The Wilson v Coll LO judgement confirmed that the hereditament test was not an economic one. “The crucial distinction in that regard is not between repairs which would be economic to undertake or uneconomic to undertake”. The Judge accepted that an ‘economic test’ was not applicable as a matter of law, as it was entirely absent from council tax legislation, unlike the regime which governs non-domestic rating.
It should be appreciated that this test of whether a reasonable amount of repair would be undertaken to make a property habitable is separate from the assumption of reasonable repair having regard to age, locality and character. The first test is only to establish whether the property constitutes a hereditament, the second is an assumption applied after it is established it is a dwelling and may having regard to age, locality and character assume a degree of repair well in excess of that required merely to make the dwelling habitable.
The "hereditament test" simply establishes whether a property may be required to appear in a valuation list. If it is wholly domestic or composite, then providing the domestic property is not merely a private garage, private storage premises or garden etc (as defined in S.3 (4) LGFA 1992) the property will constitute a dwelling and require banding.
Once it is concluded that a dwelling exists, then the assumption of ‘state of reasonable repair’ for the whole dwelling becomes mandatory, and cannot be set aside by the facts, as per the judgement in R v East Sussex VT ex parte Silverstone (1996) RVR 203-205.
5.4 Decline/Improvement in state of repair post commencement of a list
If a property fails the hereditament test it cannot be included in a valuation list and if appearing in a list should be deleted.
The worsening of disrepair after the start of a list would not constitute a material reduction, unless it also involves demolition of any part of the dwelling, because a reduction in value due to disrepair does not fall within the definition of 'material reduction' in S.24 (10) LGFA 1992. Unless, due to the state of disrepair, the property ceased to be a hereditament an alteration to the list would not be possible.
The remedying of disrepair might be such as to alter the character and in some cases justify a higher valuation band. Whilst this would constitute a "material increase" an existing band cannot be altered without a "relevant transaction".
In the case of Burke v Listing Officer for Camden 2009 (unreported) the High Court held that disrepair to a dwelling is not a relevant matter affecting valuation of a dwelling, owing to the ‘reasonable repair’ assumption of Regulation 6(2)(e) of the Council Tax (Situation and Valuation of Dwellings) Regulations 1993. If a dwelling existed the Judge held that any repair argument involving costs was superfluous. In that case there was no evidence to suggest that the dwelling, though neglected and in poor repair, was not a hereditament for the purposes of Section 3 of Local Government Finance Act 1992.
In the context of determining what is domestic property, S.66 (5) LGFA 1988 states “Property is domestic if it appears that when next in use it will be domestic”.
This has become more relevant in recent years where 1950s and 1960s tower blocks are being redeveloped, by public social landlords, and tenants are decanted prior to demolition. This paragraph does not apply to blocks awaiting refurbishment or repair.
The application of the S66(5) principle as applicable to property destined for demolition comes from a completely different legal angle to that considered above, and can have a fundamental effect on the approach to dwellings which are vacant and awaiting demolition. The question is whether the property is domestic or not. If a property is not domestic property, it should not appear in a CT list. In such a case it may appear that a property vacant, sealed off and boarded up, will never again be used for living accommodation even though it may be otherwise structurally sound. If this is the case it should be removed from the council tax list.
Before such an approach is adopted, however, LOs should be satisfied that evidence exists to show that the dwellings are intended for demolition, as evidenced by a proposed scheme or planning permission etc.
It is important, however, that this provision should not be used as a device to avoid liability where a mere assertion that vacant property will be demolished is made. The criteria, as evidenced by fact and degree may include:-
• Consideration of any planning permissions for redevelopment:- e.g. whether outline only (low weight), detailed (medium), or published regeneration scheme (high).
• Physical works:- e.g. property curtilage fenced off; property secured/tinned/boarded; floors or wings sealed off; the degree of constructive vandalism; removal of services; building/demolition contract signed.
When the above factors satisfactorily apply to a whole blocks, or whole floors or wings, the position should be clear. The position may be less clear when considering individual flats which have simply been vacated and are still surrounded by other occupied flats. When considering individual flats, where it appears that the vacant flat may easily be brought back into use, then it will still be domestic.
As the standing property may well still be a hereditament, consideration needs to be given as to whether it would have a positive rateable value as an unoccupied non domestic property, and the NDR section responsible should be alerted. In most cases it is considered unlikely that a positive RV would result.
In any cases of difficulty advice should initially be sought through the Technical Adviser.
7.1 Conversion *
Where an existing dwelling is undergoing works to split it into a number of dwellings it will usually not constitute a hereditament. It would fail the "hereditament test" described above and is, in any case, in an in-between stage being neither one dwelling nor several. The same applies where a number of dwellings are undergoing works to merge them. The existing entry or entries should be deleted from the List.
The exception will be where one part remains capable of occupation as a dwelling. This will usually only be the case where someone is in fact in residence e.g. a person converting a four storey house into a number of flats whilst living in part. Where that person occupies a distinct part as the living accommodation, e.g. the top floor, this will form a different hereditament from the original house and a new dwelling with appropriate banding should be entered into the list with the old entry deleted, the rest of the property not now constituting a hereditament or dwelling. Where, however, there is no clear unit of occupation then the whole property will remain the dwelling and, unless demolition work is involved, the requirement of a "material reduction" will not be satisfied and no band reduction will be appropriate until the building is reconstituted as a number of flats.
*In the case of R v East Sussex valuation Tribunal Ex parte Silverstone 1996 (R&VR 1996 203) Carnwath J. quoted from this paragraph, down to the first sentence in the second paragraph, and therefore gave credence to the working rule of the ‘hereditament test’ with the comment “I mention this, not because it arises directly in the case presented either before the tribunal or before me, but it does show that the legislation and the practice recognise that, where major works are being undertaken, some modification of the ordinary rule is required.”
In some cases where an existing dwelling is being renovated or extended the works will be so extensive that the property becomes uninhabitable. As with conversions this will usually indicate that the property is not a hereditament. Normal repair works being undertaken will not affect the status of the property as a dwelling. However, care should be taken to differentiate between repair and improvement works. The hereditament test (see para 3.2) looks at whether the property is capable of occupation assuming a reasonable amount of repair work has been undertaken. It is, therefore, necessary in applying the hereditament test, to consider whether the state of the premises during these improvement works (e.g. removed walls) is such that given a reasonable amount of repair being undertaken the property would or would not be capable of occupation as a dwelling. If not capable, then it is not a hereditament and consequently not a dwelling.
7.3 Material reduction and demolition
For a reduction in the capital value of a dwelling to affect its banding there has to be a "material reduction". This is defined in S.24 (10) LGFA 1992 and means in relation to the value of the dwelling: -
"any reduction which is caused (in whole or in part) by:-
i. the demolition of any part of the dwelling
ii. any change in the physical state of the dwelling's locality
iii. any adaptation of the dwelling to make it suitable for use by a physically disabled person."
7.4 No reduced band for demolition during works
Assuming a property remains a dwelling during works it may be that its capital value is temporarily depressed because of the works e.g. the demolition of a small rear wing to clear the ground to build a larger extension, or the demolition of a garage to the side prior to its replacement by a two storey side extension, or the gutting of part prior to renovation.
A reduced band is prohibited in these circumstances by Reg 3(3) of the 2009 Alteration of lists & Appeals Regulations (England) which states:-
(3) Where a material reduction in the value of a dwelling is caused wholly by the demolition of any part of the dwelling, the valuation band shall not be altered if the works of demolition are part of, or connected with, a building, engineering or other operation carried out, in progress or proposed to be carried out in relation to the dwelling.
(4) The reference in paragraph (3) to an operation does not include the repair of any damage caused to the dwelling in the course of demolition.
This provision prevents a reduced band forming the basis for a material increase, for which a relevant transaction would be required to correct the list.
It will usually be apparent when the demolition works are "part of, or connected with" other works underway. Determining whether the demolition is "part of, or connected with" proposed works may be more difficult. It will be necessary to establish the purpose of the demolition and establish if it is part of, or connected with a future scheme. The future scheme merely needs to be "proposed" and whilst it should be more than a possibility that there will be connected future building, engineering or other operations it is not essential that there be a firm intention to carry out a fixed designed scheme. The regulation does not provide a time period in which any proposed works are required to be expected to start or finish.
Whether the works are "in progress or proposed" should be established as at the date of the demolition i.e. the date of the "material reduction". The later abandonment of a project will not permit any reduction in value to be given effect to by reducing the band. This is because the works of demolition were in fact part of, or connected with works in progress or proposed at the date of the material reduction even though they were later abandoned.
Reg 3(3) provides that an 'operation' in 3(2), i.e. 'a building, engineering or other operation', does not include works proposed or in progress which are merely works to repair damage caused to the dwelling during the course of the demolition. This allows band reductions to be made where part of a dwelling is demolished and the only associated works are those to make sound the damage caused e.g. a poor rear brick extension is demolished and the old rear wall of the house is reinstated. These works would not bring Reg 4(2) into operation as they would come within Reg 4(3) as 'repair of any damage caused in the course of demolition'.
8.1 What is repair?
Repair is simply replacing an element already there but which is worn out. Improvement, however, introduces a new feature which was not part of the structure before.
In a Rent Act case Morcom v Campbell-Johnson 1956 the Court of Appeal considered the difference between repairs and ‘improvements’. The same principles must apply to a dwelling:-
Lord Denning said: “It seems to me that the test, so far as one can give any test in these matters, is this: if the work which is done is the provision of something new for the benefit of the occupier, that is, properly speaking, an improvement; but if it is only the replacement of something already there, which has become dilapidated or worn out, then, albeit that it is a replacement by its modern equivalent, it comes within the category of repairs…”
In the majority of cases where a property is empty and is disrepair, proposed works will not stop at repair, but will include elements of improvement. Where it is relevant to consider such a list of works it will be necessary to distinguish between works of repair and improvement.
8.2 Recognising the difference between lack of modernisation and disrepair
It is possible for the ‘character’ of a dwelling to be unmodernised, and therefore a different character from one which may superficially appear the same externally, but be completely different inside, owing to extensive improvements.
Example1: A terraced house in an ‘as built’ condition. A property with no insulation, no felted roof, original single glazed windows, bath under worktop in kitchen, WC in the old washroom with single skin 100mm(4 inch) brick, no central heating, no or inadequate DPC, no modern kitchen, old plumbing possible lead, lath and plaster ceilings which have been cracked for many years and covered with polystyrene tiles. Tapping plaster around windows reveals extensively perished under the layers of wallpaper around windows, but overall accommodation is quite liveable. Where electrical alterations have been done, to render circuits safe, wiring has been surface mounted.
It is quite possible, however, that such a dwelling has been kept in ‘reasonable repair’ taking into account its age and character. If it has been allowed to deteriorate, then the state of repair to be assumed for CT is no better than what was there originally, or a modern equivalent – but NO improvement can be assumed – it is a dwelling of unmodernised character, subject to the valuation assumptions.
Example 2: Adjoining house, of similar original design, but completely renovated & improved. New re-tiled, felted and fully insulated roof, upstairs bath/shower created. Full central heating, new boiler and radiators, DPC installed, rear washhouse demolished & rebuilt across back of house to form new kitchen extension, opened up with a lintel in the rear wall to form a large kitchen/diner. New ceilings with spot lights, fully rewired and re-plumbed to latest specification. New double glazed windows & doors and enclosed storm porch, re-plastered throughout.
This property has not just been ‘repaired’. It is of different character and quality to the adjoining one, though superficially they may look the same from the outside. The fixtures / fittings and alterations have gone far beyond normal repair and into the realms of structural improvement, which would qualify as a material increase (defined as ‘any building engineering or other operation carried out in relation to a dwelling, whether or not constituting development for which planning permission is required;’).
The state of repair expected in this type will be that expected of this improved type, all the improvements will be assumed to be kept in repair.
When a street manifests varying degrees of the above two extremes, it is probable that the original banding will have consistently adopted a ‘modernised’ assumption, where it was considered that the dwellings in the locality had kept up with ‘normal’ improvements to their structure services, fixtures and fittings etc over the years, as reflected by the mode of evidence and appearance of the street. Where the evidence reflected central heating, and a reasonably modern kitchen & bathroom, then the trend of prices would have been higher than an ‘as built’ property. Thus an unmodernised property might be an exception, but one which may affect value and therefore banding. There may have been evidence which pointed to unmodernised properties selling in a lower band.
In these circumstances Band reductions may have been correctly conceded in the early years of the lists on those dwellings which fall into the ‘unmodernised’ category, where this was band sensitive.
Not infrequently, such properties will subsequently have been subject to improvements comprising ‘material increases’ and a subsequent sale may trigger a band increase. Problems may occur where no detailed notes still exist, and the reason why a band was conceded is not obvious. Where such a dwelling now appears no different from others in the street or locality, it will be apparent that the dwelling has subsequently been improved and a CR10 report should be raised so that the band can be reviewed on the next sale. Where it is apparent that a sale of an improved dwelling has already taken place the band should be corrected, following an explanation to the taxpayer of the reasoning behind the decision to review.
It will be apparent from the above, that as ‘reasonable repair’ is an essential assumption, bands cannot be conceded merely for lack of repair, and if such concessions have been made in error the bands should be corrected.
Where at the commencement of a list a dwelling suffers from an inherent structural defect this will form part of the character of the property and is not something which is deemed to be remedied by the assumption of a "state of reasonable repair" (see CTM:PN1). The state of reasonable repair to be assumed is that appropriate to dwellings which are similar in character (i.e. dwellings with similar inherent structural defects) as opposed to those in the immediate neighbourhood which do not have those structural defects.
10.2 During lists
The worsening of a structural defect of itself, however, or the manifestation of a new structural defect which was not apparent at list commencement, after the start of a list would not of itself justify re-banding as this would not constitute a "material reduction". Material reduction under S24(10) LGFA 1992 is limited to 3 elements: demolition of whole or part, change to physical state of locality and disabled persons adaptations which reduce value. Structural problems to the hereditament itself are not covered.
Providing the defect does not affect the ability to occupy the dwelling (even though it may affect value) it will remain a dwelling subject to the ‘reasonable repair’ assumption. The need for underpinning or underpinning actually being carried out, depending on fact and degree, may not affect the ability to occupy a property and therefore the dwelling will still exist.
10.3 When band reviews may be possible
Circumstances may arise where a valid proposal can be made for sound a reason under ‘material increase’ or ‘material reduction’ provisions, which will necessitate taking into account the character of a property at the relevant date, eg a change to the physical state of the locality. If it is judged that the structural defect does not come within the scope of normal repair, but is inherent to the dwellings character, then in those circumstances it will be possible to reflect the new damaged state of the hereditament in the band value.
It is likely that validity of proposal issues will arise, and questions be raised as to the ability to alter lists in relation to the above. Where difficulties arise, or where defects are claimed to be associated with physical changes to the state of locality advice should be sought from Technical Advisers in the first instance.
The definition of "material reduction" includes "any reduction which is caused in whole or in part by any change in the physical state of the dwelling's locality".
Reg 3(2) which prevents reductions in banding due to the demolition of part of a dwelling where the reduction in capital value will only be temporary, due to planned building work, does not apply to nuisances beyond the dwelling's boundaries which might temporarily affect capital value.
The situations where a temporary nuisance, (such as street works), as opposed to a permanent one (such as a motorway being built and opening adjoining the dwelling), will have a significant effect on capital value, are likely to be much fewer than where a temporary nuisance would have affected the rental value on an annual tenancy under the old domestic rating system. The purchaser on the market will take a longer view, and capital values are much less likely to be affected by temporary factors. However, in rare circumstances where it can be established that such a material reduction does sufficiently reduce the value of a dwelling to change its band then this reduction should be conceded.
Where such a reduced banding is agreed it will not be possible to restore the band on the cessation of the nuisance as a change in the physical state of a dwelling's locality does not constitute a "material increase".
If conceded, the only way in which the band can be reinstated would be reviewing for some other reasons e.g. a material increase and relevant transaction. In arriving at the banding for this other reason the "physical state of its locality" will be taken as being the same as at the effective date for that alteration and will therefore take into account the fact that the temporary nuisance has ceased.
Freak weather conditions from time to time cause flooding, affecting low-lying areas near rivers. Usually even severe floods only last a few days before they subside, but cause havoc to a dwelling and can render it uninhabitable, at least temporarily. Extreme flooding is not something that is a “change to the physical state of the dwelling’s locality”, and so flooding cannot give rise to a “material reduction in the value of the dwelling” for s24(10) 1992 Act. Deletion from the list may be appropriate where the flooding means that the dwelling is no longer a hereditament.
The approach to altering the list in these circumstances is summarised as follows:
12.1 Reliefs: Since April 2013, the former Class A exemption under the Council Tax (Exempt Dwellings) Order 1992, for properties awaiting or undergoing structural repair no longer exists. BAs have powers to apply their own policies regarding empty property relief. In cases of emergency evacuation of dwellings, like flooding, it is possible that BAs will have their own discretionary policy on the liability for CT, and should be contacted immediately to enquire as to whether they will be granting relief. This will clearly affect the number of requests to take damaged properties out of lists. Where enquiries or proposals are received they should be dealt with under the principles outlined above following Wilson v Coll, and a judgement made on whether the property is repairable.
12.2 Hereditament test: A proposal can be made when a dwelling ceases to exist because it is rendered incapable of beneficial occupation. In this case the hereditament test (referred to above) will be applied. If the property remains uninhabitable because damage has rendered it beyond normal repair, thus failing the hereditament test, then it is not a dwelling and should be removed from the list. It would then go back as a new dwelling complete with any improvements once it has been re-instated. If the dwelling is simply damaged but capable of repair, then it must remain in the list at its existing band.
12.3 Material reduction: This is very strictly defined under Section 24(10) of LGFA 1992, meaning “any reduction which is caused (in whole or in part) by the demolition or any part of the dwelling, and any change in the physical state of the dwelling’s locality…” The phrase concerning physical state envisages something fixed and permanent, not essentially transient like a flood or the short-term effects of a flood. It is not considered that the locality changes after freak weather conditions. The flood is a manifestation of a greater or lesser risk according to its proximity to a rivers flood plain. Inundation of a dwelling is not a change to the locality. In a similar way a freak winter could inundate the locality and dwelling with ice and snow, freezing rivers, and even drains. When the snow melts; all returns to normal. Proposals made for material reduction are unlikely to be valid unless there has been a resulting physical change in the locality e.g. the washing away of a bridge.
Thus temporary reductions are inappropriate due to flooding, and any proposal seeking a temporary reduction should be treated as invalid.
There is no provision for re-instatement of a band reduced for disabilities of a temporary nature.
12.4 Known risk not reflected: There could be circumstances where a valid proposal cannot be made, but where all the evidence points to the conclusion that the known risk of flooding as at 1 April 1991 has not been reflected in the band. In that case the LO can correct the list. A one off flood post AVD that has never happened before is unlikely to lead to that conclusion.