Practice Note 1 (Definition of Dwelling and Basis of Valuation for Council Tax) in 4.4 deals generally with the assumption that the dwelling to be banded is in a "state of reasonable repair". It explains the standard of repair to be assumed ie 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.
This Practice Note covers the other aspects of disrepair (including derelict properties, the effect on banding of dwellings undergoing works of repair or improvement) and temporary disabilities external to the dwelling.
The attached Appendix summarises when a band change is possible due to disrepair, building works and temporary disabilities and when any subsequent band change is possible on completion of any remedial or other works.
Class A of the Council Tax (Exempt Dwellings) Order 1992 SI 558 (as amended by the 1993 Order SI 150 and 2000 Order SI 424) provides with effect from 1 April 2000:-
A dwelling is an exempt dwelling for the purpose of section 4 of the Act (ie a dwelling for which Council Tax is not payable) on a particular day if on that day it falls within one of the following classes;
Class A
(1) a dwelling which satisfies the requirement set out in paragraph (2) unless it has been such a dwelling for a continuous period of twelve months or more ending immediately before the day in question;
(2) the requirement referred to in paragraph (1) is that the dwelling is vacant and -
(a) requires or is undergoing major repair work to render it habitable, or
(b) is undergoing structural alteration, or
(c) has undergone major repair work to render it habitable, if less than 6 months have elapsed since the date on which the work was substantially completed and the dwelling has continuously remained vacant since that date, or
(d) has undergone structural alteration, if less than six months have elapsed since the date on which the alteration was substantially completed and the dwelling has continuously remained vacant since that date."
(3) For the purpose of paragraphs (2) above, "major repair work" includes structural repair work.
The effect of the 2000 Order is to limit to a maximum of twelve months the exemption for a vacant dwelling subject to structural alteration or requiring or subject to major repair work. It revokes 1999 Order SI 1522 .
"Major repair work" must be of a nature which either prevents habitable occupation of the dwelling or significantly effects the use of the dwelling over a significant period of time. Replacement of windows would not therefore fall within this category but replacement of the roof cladding and timbers or removal of load bearing sections of wall would.
The greatest area of difficulty is likely to be vacant dwellings which are in a poor state of repair but are not undergoing structural alteration or major repair. Many local authority dwellings such as a flats in out dated tower blocks have been left vacant pending demolition, and Billing Authorities have treated them as falling within class A. In many cases after 1 April 2000 when relief from Council Tax is removed the Listing officer will be asked by Billing Authorities to delete the entry from the list on the grounds of 'disrepair'. Proposals will also be made by other taxpayers who no longer receive Class A relief.
The tests to be applied in deciding whether the dwelling no longer constitutes a hereditament, and therefore a dwelling within section 3 of the LGFA 1992, are set out in paragraph 3 & 4 below and in paragraphs 4.4 and 4.5 of CTM Practice Note 1.
In the majority of cases a full internal inspection of the property will be required in order to decide whether it is capable of beneficial occupation. Each case must be dealt with on its own facts which must be fully recorded on the survey sheet. Photographs will be useful when the state of disrepair is in dispute. General disrepair will not fall within the scope of Class A, or justify deletion of the entry from the valuation list.
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.
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 character of a truly derelict property eg 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 eg 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. In such a case, the extent of the damage would have to be so severe, that, having regard to its character (ie that of a (probably) run-down house), the amount of repair work needed would not be reasonable and the property would not constitute a hereditament.
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.
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. Where, however, the banding requires altering for some other reason it may then be possible to take the worsened state of repair into account. This will depend on the date at which the state of the character/repair is to be taken under the Council Tax (Situation and Valuation of Dwellings) Regulations 1992 SI 550 (See CTM:PN 3).
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".
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 occupiable as a dwelling. This will usually only be the case where someone is in fact in residence eg 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, eg 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 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. 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 (eg 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.
Assuming a property remains a dwelling during works it may be that its capital value is temporarily depressed because of the works eg 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.
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."
Material reductions are reductions in value due in whole or in part to any one of the above circumstances. Providing the reduction in value to a dwelling is at any time at least partly caused by one of these factors then there will be a material reduction. If the reduction is not at all due to any of the factors then it is not a ground for a reduction in banding because it does not constitute a `material reduction'.
Once it is established there is a material reduction the reduction in value to be considered is not limited merely to those flowing from the specified factors.
Where works are being undertaken to a dwelling the most likely factor to cause, or be a part cause of, a reduction is "the demolition of any part of the dwelling". However by no means all building works to a dwelling will involve demolition eg stripping out a house will not usually involve "demolition" and by itself any reduction in value due to such works will not constitute a "material reduction" and therefore not permit any reduction in banding. (If demolition does occur then any gutting which has taken place at the valuation date can be taken into account along with the effect of any demolition).
Reductions in banding are prevented in certain cases of "material reduction" by Regulations 4(2) and (3) of the Council Tax (Alteration of Lists and Appeals) Regulations 1993 SI 290 as amended. These state:-
4(2) "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(3) The reference in paragraph (2) to an operation does not include the repair of any damage caused to the dwelling in the course of the demolition."
The object of this regulation is to prevent temporary reductions in value resulting from the demolition of part of the dwelling (together with any other works) becoming permanent reductions in banding. This would otherwise have happened because of the restriction on increasing bands on account of a "material increase" until there is a subsequent sale ie "relevant transaction".
Reg 4(2), preventing a reduction, is only effective where the works of demolition are undertaken at the same time as, or as a precursor to, associated work eg the demolition of a side garage as part of a building contract to erect a side extension. 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 ie 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.
The regulation only applies to material reductions involving part demolition and not to those involving temporary nuisances outside the dwelling's boundary.
Reg 4(3) provides that an 'operation' in 4(2), ie '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 eg 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'.
Where 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 (ie dwellings with similar inherent structural defects) as opposed to those in the immediate neighbourhood which do not have those structural defects.
The worsening of a structural defect after the start of a list would not justify re-banding as this alone would not constitute a "material reduction".
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 4(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. However if 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".
Including the effect of the cessation of a temporary nuisance in the valuation for banding will only be possible when there is an alteration to the banding for some other reason. 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. The approach to altering the list in these circumstances is summarised as follows:
7.1 Reliefs: Under Class A of the Council Tax (Exempt Dwellings) Order 1992, a BA has power to grant discretionary relief up to 12 months where property requires or is undergoing major repair works to make it habitable. Relief may also be available under Class C if the dwelling is vacant for a period of up to 6 months because of flooding. If relief in granted, it is unlikely that proposals will be made and the list need not be altered and the issues referred to below may not arise. BAs should be contacted at an early date to enquire as to whether they will be sympathetic to granting relief.
7.2 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 economic repair, 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 at reasonable cost, then it must remain in the list at its existing band.
7.3 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.
7.4 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 1/4/91 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.