Grand Committee Report of 5 May 1999

Official Report of the Grand Committee on the Rating (Valuation) Bill
Wednesday, 5th May 1999.
The Committee met at half-past three of the clock.
[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]
The Deputy Chairman of Committees (Lord Ampthill): Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee stage. Except in one important respect, our proceedings will be exactly the same as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard. The one difference is that the House has agreed that there shall be no Divisions in the Grand Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.
I should explain what will happen if there is a Division in the Chamber while we are sitting. This Committee will adjourn as soon as the Division bells are rung and will then resume after 10 minutes, although the likelihood of such an event is small.
Title postponed.
Clause 1 [Rateable value]:
The Earl of Lytton The Earl of Lytton moved Amendment No.1:
Page 1, line 8, after ("etc)") insert—
("(a) after the words "year to year" there shall be inserted the words ", taking into account the physical state or physical enjoyment of the hereditament and its locality and the mode and category of occupation and use of the hereditament, " and
(b)")
The noble Earl said: I rise to move the amendment but before doing so I gather that the noble Baroness the Minister has a statement which she wishes to make. Therefore, if I may, I will defer to her statement. I beg to move.
Baroness Farrington of Ribbleton: I am most grateful to the noble Earl, Lord Lytton, not only for formally moving his first amendment but in particular for the constructive and helpful way in which he has addressed his concerns about the Bill, both in this House and in meetings outside it. I am grateful to him and to his advisers who have also attended for the assistance that they have given me in considering the Bill and to ensuring that we have it right.
I apologise for the fact that the statement I am about to make is slightly lengthy, but it is my understanding, following the meetings since Second Reading, that it
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should be helpful. The first amendment, and the others which have been tabled for discussion today, are aimed at addressing the noble Earl's concerns I believe that those concerns are misplaced and I hope that we will persuade him of that.
Before I deal with the effect of his first amendment it may be helpful to the noble Earl, and more widely to the Committee, if I explain the background and purpose of the Bill. This, together with a number of examples, will I hope serve to illustrate why the Bill will not alter well-established current valuation practice and reassure noble Lords about its effects. I apologise in advance for length of the remarks.
It is a well-known and accepted principle of rating valuation that the hereditament to be valued is always the actual property for the occupation of which the occupier is to be rated, and that hereditament is to be valued as it in fact is— rebus sic stantibus. This was stated by Lord Justice Scott in his decision in Robinson Brothers (Brewers) Ltd. v. Houghton and Chester-le-Street Assessment Committee 1937, reaffirming a principle long accepted by valuers and the courts.
An exception to this principle, however, was the treatment of disrepair. The effect of the two landmark decisions of Wexler v. Playle and Saunders v, Maltby was that whatever the actual state of repair of the property the landlord under the hypothetical tenancy was to be deemed to have put the property in a state of reasonable repair. It is that principle which has been applied by valuation officers in consequence of those decisions. Taken together, the two cases set out very clearly how disrepair was to be treated for valuation purposes and it is this position that we are seeking to restore. I shall refer to these cases briefly.
First, Wexler v. Playle confirmed a limited exception to the doctrine that a hereditament has to be valued in its actual physical state. That exception is that the notional rent of a hereditament should be assessed on the basis that the premises had, before the tenancy began, been put in a state of repair such as to make them reasonably habitable having regard to the class of property in question. This served to override the actual condition of the property.
Next, Saunders v. Maltby built on the principles established in Wexler v. Playle, but emphasised further the economic aspect of disrepair, establishing expressly that it could not be assumed that a reasonable landlord would be prepared to undertake repairs where it was not economic to do so. In such circumstances, he would let the premises at a reduced rent. The premises would accordingly be valued so as to reflect this.
The effect of these decisions, as summarised in the leading textbook on this matter, Ryde on Rating and the Council Tax, led to the principle that a hereditament was to be valued on the assumption that it was in reasonable repair, even if in fact it was not, unless the repairs would be regarded as uneconomic.
As the noble Earl will be aware, the 1988 Act does not contain any express reference to the hereditament's state of repair. I am aware that the noble Earl, Lord Lytton, regards this as a lacuna. I agree with him that this lacuna lies at the heart of the Lands Tribunal

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decision in Benjamin v. Anston Properties which determined that valuers should take account of disrepair in rating valuations. It is this lacuna, and this alone, that the Bill seeks to address.
The Bill seeks to build on the 1988 Act as it stands. We see no need to complicate matters by importing concepts which derive from gross value. So long as the premises are deemed to be in a similar state of repair for the purposes of the 1988 Act hypothetical tenancy, as they would have been deemed to be for the purposes of valuations to gross value under the General Rate Act 1967, it is of no matter who may hypothetically have been responsible, before the tenancy is assumed to have begun, for getting them into that state.
The Bill re-establishes the practical effects of previously decided cases, notwithstanding that these were decided in the context of gross value under the pre-1990 legislation. Case law going back well before 1990, and practice resulting from that case law, establishes that what it is reasonable to expect in relation to the repair condition of any hereditament will depend on the age, type and use of the property, the locality in which it is situated and all the surrounding circumstances.
This follows necessarily from the fundamental principles of valuation, to which I referred earlier, that matters which relate to the physical state of the property being valued are to be taken as they stand. In the case of Saunders v. Maltby, for example, in which it was established by the Court of Appeal that uneconomic repairs provided an exception to the usual assumption as to reasonable repair, the paramount question was what the reasonable landlord could be expected to do having regard to the value of the property. It was clear that the age, type and use of the property, and its locality, were highly relevant to applying this economic test—a test of what the reasonable landlord would do in the particular circumstances.
So, for example, in the case of a shop in a run-down inner city area, the standard of repair to be assumed, and the rateable value attributed to it, would reflect both the nature of the property and its locality. Neither the standard of repair to be assumed, nor the valuation itself, would be based on a similar shop in a prime retail area.
A further matter of concern was how, following enactment of the Bill, valuation officers would treat properties that would previously have had rateable values reduced—sometimes for short periods only—to take account of circumstances affecting the property. Examples are of a property which has been damaged by fire so that part of it becomes unusable, or a property undergoing substantial building works. There are others to which I shall refer in a moment.
I understand those concerns. However, the Government and the Valuation Office Agency have made it clear that they have only one intention. That is to ensure that the assumption as to repair is that which was established by earlier case law and made by the VOA in preparing rating valuations before the Lands Tribunal decision in Anston. It is nothing more and nothing less than that.
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The current position is that if a property is incapable of beneficial occupation, in other words it is unusable, it will be removed from the rating list altogether and no rates will be payable. If only part of the property is rendered incapable of beneficial occupation, it has generally been the practice of valuation officers to reduce the rateable value of the premises for the period during which the damaged part of the property cannot be used. Furthermore, if the value of the part of the property remaining in use is reduced in consequence of the damage elsewhere, that too will continue to be reflected in the valuation.
I recognise the concerns expressed by the professional bodies that the Bill may affect this position. It is not the Government's intention to do so. I do not believe that it does so, and in discussions the Valuation Office Agency has made it clear that affected properties will continue to be valued in precisely the same way as before.
I offer the Committee some illustration. For example, let us consider a fire or other act of God—though this may not be the most appropriate term for such unfortunate circumstances. If a property is rendered incapable of beneficial occupation as a result of that fire the property will be removed from the rating list until the damage is repaired. If the property suffers only relatively minor damage and no part of it is put out of action, perhaps because the property requires little more than a coat of paint to bring it back up to standard, then the repair assumption in the Bill would bite and the rateable value would be unaffected. But this is no different from what would have happened by virtue of past practice.
As I have said, where part of a property is incapable of beneficial use, the rateable value has normally been reduced for the relevant period. An example would be where a store within an industrial site is substantially destroyed by fire. A reduction would be made in the rateable value to remove the store from the assessment until it is capable of use again. That is the general position now, and it is the general position that we expect to continue following enactment of this Bill.
Matters are not, of course, always in such black and white terms. There will, I am sure, be shades of grey but then there always have been. The action taken by the valuation officer will naturally depend on the facts and the degree of damage to the property, and the question of whether or not the cost of carrying out the repairs would be economic as set out in Saunders v. Maltby. However, it is not anticipated that the new provisions will result in any change of practice. Ratepayers, of course, also have the safeguard that if they are not satisfied with the action taken by the valuation officer in these cases, they can appeal to an independent body—the Valuation Tribunal—to have their rating assessment reduced.
As regards buildings undergoing works, where such works are being carried out on a building, the valuation approach will vary according to whether the works are internal or external to the hereditament. I shall deal first with works taking place within the hereditament.
The valuation officer will need first to distinguish whether the works being carried out are to correct a lack of repair. Where this is the case, the need for repair may

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be disregarded in the valuation, subject as always to the question of whether or not the cost of carrying out the repairs would he economic as set out in Saunders v. Maltby.
3.45 p.m.
In some cases, the work required to make the property capable of beneficial occupation will involve the replacement and renewal of damaged parts. This work may go beyond repair and constitute an improvement to the property. It is well established in case law that repairs may contain an element of renewal and it is therefore a matter of fact and degree whether the work should be properly classed as repairs, renewal or improvement.
If the works are not considered to be repairs, the repair assumption in the Bill will not be appropriate and the property will be valued in its actual state on the material day.
I turn to buildings undergoing alterations and refurbishment. In a programme of extensive alterations, the works required to make the property capable of beneficial occupation are clearly not repairs. In many cases, properties are stripped back to the shell so that substantial reconstruction or improvement works can be carried out. In such cases, the property will be considered in its actual state on the material day and, if it i. s incapable of beneficial use, removed from the rating list.
A hereditament may also be affected by works taking place in the locality but external to the hereditament itself. Matters in the locality are not affected by this Bill. The assumption as to repair applies only to the hereditament itself. The locality will continue to be considered as it is on the compilation or material day as appropriate, and in combination with all other matters as at the valuation date.
There will be no change of valuation approach in respect of, for example, a development of new shops which results in a change in the pattern of value, the nuisance from construction work, the liability to flooding in an area, or the run-down state of an area both before and during a comprehensive redevelopment scheme. To the extent that these factors affect rental values, they will continue to be reflected in rateable values as material changes occur during the life of the list.
The assumption in the Bill relates solely to the state of repair. The meaning of "repair" in the context of property and property valuations is well understood by professionals in that field including, of course, the noble Earl, Lord Lytton, himself. In particular, the differentiation between repair on the one hand and renewal, refurbishment or improvement on the other, is well established. The Bill will not make any changes in this area. This, I hope, answers any outstanding concerns over the comparison of refurbished hereditaments with similar properties that have not been refurbished.
Neither will the Bill make any change to current valuation practice in terms of taking into account the intrinsic qualities of the hereditament such as, to use
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the examples mentioned by the noble Earl during our discussions, the presence of high alumina cement, or retail potential being restricted by the absence of a means of escape from fire.
Whether a property is refurbished or not will continue to be regarded as an intrinsic quality of the hereditament. Similarly, if significant works of refurbishment to a property are being undertaken on the material day, such works would continue to be taken into account in the valuation as they would not be works of repair.
As I explained previously to the House, it would not be appropriate to seek to address all of these issues, and possibly many others to be found in rating practice, specifically on the face of the Bill. They are genuine concerns and I concede that clarity is essential—I accept that totally—but it would simply not be a workable proposition.
The Bill deals with a single issue of principle in the field of valuation for rating by way of correcting a lacuna. The Government are anxious that what is in effect an old principle governing rating valuation should merely be restated and incorporated with the minimum of disturbance to the corpus of law and valuation practice, which has grown up and developed over the passage of time. It would be wholly impractical to legislate for all possibilities. In order to ensure a smooth reintroduction of the pre-1990 approach to the state of repair, to take account of the provisions of the Local Government Finance Act 1988 and subsequent legislation, to aid the construction of this Bill when enacted, and to provide some reassurance to the House and to professionals in this field, the VOA has prepared a practice note, as I said at Second Reading. I have arranged for a current draft of the practice note to be placed in the Library of the House; it deals solely with the issues flowing from the principle restated by the Bill, drawing on existing valuation practice and law, none of which is affected by the Bill.
Discussions on the practice note are continuing with the wider profession and it may be amended in the light of comments received. I shall ensure that any revised drafts are placed in the Library as they become available. It is the intention of all concerned that a final version—which is intended for wide publication—will be available before Third Reading and I shall ensure that a copy of this is placed in the Library before the Bill completes its passage through your Lordship's House.
In concluding these remarks, I apologise again most deeply for the length of them. However,][hope that the noble Earl and the Committee have found them helpful in reassuring them about the effect of the Bill. I await the noble Earl, Lord Lytton, speaking to his amendment.
The Deputy Chairman of Committees: Before inviting the noble Earl to speak to his amendment, I should point out that the corrections to which I was referring were to Amendment No.2. However, as the whole batch of amendments is being spoken to in one group, I hope that was clear at the time.
The Earl of Lytton: In speaking to Amendment No.1, I really wish to speak in generic terms to all the

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other amendments in this group. I would stress that they are all probing amendments, so there is no dispute about that.
I thank the Minister most warmly for her statement which enormously helps the proceedings here this afternoon. It was a very comprehensive explanation of the Government's position, for which I am most grateful. For reasons which I shall explain a little later, I would perhaps wish that the Minister had gone a little further in one or two areas. I apologise to the Committee for the fact that my comments may, to some extent, cover points that have already been made. It is in the nature of the animal, but this is a technical issue and it is important that points are conveyed in the terminology which befits it and which itself is fairly technical.
The Minister has been as good as her word at Second Reading in that she has provided an opportunity for meeting her and her officials to discuss the issues. Only last week there was a further meeting with her departmental officials, enabling me and various advisers to go through issues in much greater detail. That was of enormous value and I wish to pay tribute to that process. I am also extremely grateful to the noble Earl, Lord Courtown, the noble Baroness, Lady Hamwee, and her noble friend Lady Miller of Chilthorne Domer, and the noble Lord, Lord Monkswell, for their support and interest in this matter. It is a very technical issue, although, in global terms, it is quite straightforward in many respects.
I would also like to express my thanks to those in the various professions involved with rating valuation for their support and back-up in attending meetings, liasing with interested parties and answering technical queries of mine. This has been of incalculable worth, and, as a part-time parliamentarian, I have found this extremely important. The candid and constructive manner in which officials in the DETR and the Valuation Office Agency have answered queries has also been enormously helpful, and I should like to record publicly my appreciation of that.
The issues at stake, as I said, are essentially practical and to that extent they are simple, but the way in which they may be affected by the Bill are of course immensely technical. I apologise again for burdening the Committee with some further detail, but it is important to set out the matters for the record. I am sure the Minister will agree with that principle.
The concern with the Bill has throughout revolved around its apparent lack of transparency of purpose. This is important, for the certainty which has hitherto lain behind the assessment of annual value of non-domestic property for the purposes of a local tax is central to every business occupier. However, I recognise that the case of Anston Properties Limited v. Benjamin potentially gives rise to a valuation lacuna referred to by the Minister, which could be misinterpreted and with which the Government quite properly seek to deal. The fear was that the case was being used as a pretext for the alteration of the previous understandings on which the basis of valuation was arrived at with particular respect to the treatment of disrepair.
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In another place, the various professions lobbied for changes to be made to the Bill because of this fear, but the understandings reached and the reassurances given in discussions with officials outside that place were not in the event translated into an amendment to the Bill nor into words of comfort given by the Minister on the Floor of the Chamber, for reasons which I entirely understand. I cast no aspersions about that. However, it has been left to this Chamber to remedy the situation.
I certainly accept that the intention of the Government has been no more or less than to recite in language relevant to the valuation basis of today—in other words, the post-Local Government Finance Act 1988 terms of phrase—the basis of valuation which has always been understood by valuers in practice. The question was: did the Bill actually do that? Certainly I was not at all sure.
While in rating valuation there is a hypothetical landlord and a hypothetical tenant under an assumed lease, the property of course is always in the real world, as the Minister has said, and the circumstances surrounding its notional rental value follow as near as possible to the real world as can be achieved in practice. That much is common ground, and was common ground at our meetings. In most cases the landlord is deemed to have put the property in a state of repair sufficient to command that rent, but specifically not at any cost. I think again that is a matter of common understanding and agreement.
In terms of alterations to rating valuations, there are four legs. I will deal first with the treatment of disrepair. It has always been the case that normal recurring repairs and maintenance such as decoration, attention to external joinery and the maintenance of a wind and watertight fabric, and indeed a tenantable interior, should not affect the rating assessment. So if the standard of decoration is neglected, for instance, the assessment should not be reduced for that reason alone. Beyond that there will be a need from time to time to carry out much more intrusive overhauls and modernisation to reverse obsolescence or perhaps to deal with serious inherent defects. These may well—but, it should be stressed, this depends on the merits of each case—fall outside the assumption that the property is in good repair and can, but do not invariably, have a bearing on the rating assessment.
As an example I have referred the Minister to situations where there is high alumina cement in reinforced concrete structures. The building is still usable up to a point but is severely devalued and may eventually have to be demolished. I referred also to situations where a terrace of retail properties might all have basements but only some of these basements might be damp-proofed and usable, and perhaps some could never be used because of a lack of adequate means of escape in the event of fire.
My concern was to ensure that these situations were not altered by the Bill. I am pleased to see the Minister nodding in affirmation of that. I wanted to make sure that properties would continue to be valued for what they are, rather than what they might become in the future. I wished to be certain that the real world values would apply reflecting all characteristics, advantages

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and disadvantages and that these would not become the subject of extended statutory assumptions as to circumstances. I was pleased to note the introductory comments from the Minister in that respect.
The second leg relates to total destruction. There has never been any argument that if a property is totally destroyed by, say, a fire, the assessment would be reduced to a nominal level, or more likely still, the entry removed from the valuation list in which case no rates are payable. There is absolutely no issue before us on this point. I wish to make that clear to the Committee.
The third leg is the partial damage or destruction of the property. Just as for repairs, it has long been the practice that where part of a property is damaged or destroyed and cannot be used beneficially in part or in whole for a significant period of time, then the assessment could be reduced to the extent that the benefit of the actual occupation was damaged in reality. This could include, for instance, the consequential effects of destruction of one part of the property on the use and occupation of another part that remained. Here, too, am concerned to ensure that the practice remained intact.
The fourth leg is the deleterious effect on the beneficial occupation of the property. Losses in value because of a general recession are pure economic factors which are only dealt with at quinquennial revaluation, and that I am sure is an accurate and accepted statement of the facts. However, there can be situations during currency of the valuation list where an identifiable physical change not physically touching the property can trigger a loss in economic value. Adjacent development works referred to by the Minister are one example, or there could be specific changes in the locality for other reasons.
Assessments are often adjusted to take account of the duration and severity of such situations, so where sites are being assembled and the property is empty awaiting redevelopment the value of the property is often reduced— I do not say it is always reduced—but often reduced, because each case has to be dealt with on its merits, sometimes to a nominal figure if there is neither de facto beneficial occupation nor the intention to reoccupy in the future prior to redevelopment.
As I have said, each case has to be dealt with on its merits. and the Valuation Office Agency, if I may say so, has acquitted itself with considerable distinction—I do not just say that as a former employee of its predecessor body—in establishing fair and widely accepted ground rules for dealing with this.
I want that to continue. It would be disastrous if the Bill resulted in all that consensus being thrown away and the matter being thrashed out in the courts at enormous cost. That would be a failure of the process in which this Committee is involved.
So the object here is to ensure that the practice of the past, and in particular pre-Anston, is continued in the future in the new legislation when this Bill becomes law. With any change there is a risk of reinterpretation. That should be eliminated as far as possible and I make no apology for dwelling on some of the finer points for that reason.
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My amendments set out to reconfirm on the face of the Bill the wording that would, as closely as possible, transfer the meaning of the General Rate Act 1967 provisions into the present situation in which we are dealing with an amendment of the Local Government Finance Act 1988, and which itself replaced the 1967 Act.
Turning very briefly to Amendment No.1, therefore, the context of this can clearly be seen. It would necessitate the valuation of a property on the facts of the case. It seeks to eliminate as far as possible an interpretation of the Bill that there might be a deemed or assumed state of repair rather than the actual state of repair. But as I now understand and believe, this is a long way from the intentions of the Government. I was very pleased to note that from the statement made by the Minister. I am grateful to the Minister and feel she has put my mind substantially at rest on this issue, although she may have some other comments to make.
I have one question that arises out of her statement. In the light of her comments, would she agree to go a little further and undertake to include what she has said to the Committee in a preface to the practice note?
Perhaps a verbatim account of what I hope will be a reasonably concise debate today could be published as an adjunct to the practice note. I suggested previously that it might be a preface. That may be putting the cart before the horse. I do not mind where it goes, but if it is in there it would certainly be important. I feel that what has been said in this Committee, which is an invaluable and crucial explanation of intent, ought to be an intrinsic part of the practice note and the valuation procedure that follows from that. It should not simply be left to be dug up at some subsequent event following a battle in the courts when, having reached the conclusion that the intention of the Act is uncertain, Hansard is studied in order to try and put in place certainty.
That concludes my remarks on this. I have already begged to move the amendment, but I commend it to the House. There will be an opportunity for other noble Lords to comment, but I would particularly welcome comments from the Minister on that last point about incorporating our deliberations today within the practice note itself.
4 p.m.
The Earl of Courtown: I wish to speak to all the amendments standing in my name and in the name of the noble Earl, Lord Lytton. I was interested to hear what the Minister had to say in her opening statement I shall need to read Hansard carefully before: commenting on that. As I said on Second Reading, when we reach the Committee stage we must ensure that the Bill is made to work properly to enable the property professions clearly to interpret the legislation. The industry needs law that gives certainty, simplicity and consistency and I hope that we are getting some way towards that now. Those are the aims of the amendments. I realise, of course, that the Minister may not agree that they achieve those aims but I look forward to hearing what she says in response.

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The noble Earl, Lord Lytton, has made a very eloquent and informed speech and I do not intend to repeat everything he has already said. However, there are a number of areas in particular that I should like the Minister to explain; for example, definitions. She touched on that subject but I wonder whether she could clarify it a little further, particularly in relation to the definition of the word "reasonable" in respect of repair, and also the definition of the word "repair" itself. I know that this matter concerns many in the industry and I look forward to her reply.
I was also interested to hear what the noble Baroness had to say about the practice note. I wonder whether this could be expanded into a more formal code of practice because it is so important that the interpretation of the Bill is in accordance with what is being said here, as the noble Earl, Lord Lytton, said today.
The Minister will be only too aware of problems concerning codes of practice and practice notes that arose when she was on the other side of the Chamber. It is an important issue and there were many serious debates and Divisions on it in the latter term of the previous government.
Will the noble Baroness also confirm that the Government remain committed to the previously unquestioned principle that every rateable property falls to be valued on an individual basis? Will she also confirm that there are no plans for the computerisation of the rateable value process because that would ignore the individuality of properties and the rating system? We have looked carefully at the various amendments and it is important that we get a clear response from Her Majesty's Government on this issue. I look forward to hearing the Minister's reply.
Baroness Hamwee: The thanks usually come at a later stage of the Bill, but I will add my thanks at this point as well. Of course I thank the noble Earl who has done a sterling job. He was well assisted by the professionals who, to put it colloquially, have "got stuck in there" and "kept stuck in there" and are to be congratulated. I congratulate also the Minister and her officials because it must be quite hard to be challenged in the way they have been. They have dealt with the matter in a dignified fashion.
My honourable friend the Member for Sutton and Cheam, Mr. Burstow, tabled a number of amendments in another place couched in almost exactly the same terms as several of the noble Earl's amendments. Therefore it will be no surprise to the Committee to hear that I support the thrust of these amendments. However, I should like to ask three short questions of very different types. The first, which arises from the first of his amendments, concerns the role of locality in assessments for rating purposes. I was not surprised to see this in the amendment because it seems to me it is part of the normal exercise of rating to take into account the question of locality. I merely ask about this matter because in the debate in another place on 11th January (at col.66 of the Official Report) there seemed to be a suggestion on the part of the Minister that locality was not a matter to be taken into account.
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Secondly, as regards the status of the proposed practice note, the noble Earl, Lord Courtown, referred to a code of practice, as distinct perhaps from a practice note. I would have thought—although I do not know the technical details—that that was what the professionals drew up on the basis of the statute, statutory instruments and so on. I am, however, particularly concerned to know what status the practice note as issued by the Government has, as and when it is issued.
Finally—and I do not wish by any means to detract from the work that has been done by the professionals who have been involved—can the Minister assure the Committee that before the practice note is finalised the three professional organisations will be formally consulted? I think the main organisations are the RICS, the IRRV and the Rating Surveyors Association. Will they be formally consulted and will any comments that they may have be taken into account, at least so far as the Minister and her officials consider to be appropriate? I would like to feel that they have been formally consulted.
Baroness Farrington of Ribbleton: Amendment No.1 would insert into the Bill an express requirement for the valuer to take account of the physical state or physical enjoyment of the hereditament and its locality and the mode, category and use of the hereditament.
I am sure that the noble Earl intends this amendment to be helpful in clarifying the meaning of the Bill. However, and sadly this may well become a recurring theme during our consideration of the Bill this afternoon, the amendment goes slightly further and could have the unintended effect of undermining price rating valuation practice. As the noble Earl will be aware, Schedule 6 to the Local Government Finance Act 1988 sets out the standard rule as to the way rating valuations are to be carried out. Paragraph 2(7) sets out the matters to be taken into account as they are made on the day by reference to which the valuation is to be made. This will either be the day on which the list must be compiled for the forthcoming revaluation—for example, this is 1st April 2000—or the material day for any alterations to the rating list which are made after that day.
These matters include, at paragraph 2(7)(a) and (b):
(a) matters affecting the physical state or physical enjoyment of the hereditament, "
and
(b) the mode or category of occupation of the hereditament".
If that were as far as the amendment went, then it might not affect existing valuation practice. It would, however, be superfluous. There is no question of valuation officers not taking these matters into account and, in so far as the noble Earl is seeking that assurance, I am happy to give it.
The measure might have other unforeseen effects. It is not clear why it is thought that duplicating the existing provision would be helpful. On the contrary, it could lead to confusion and undermine what the Bill is seeking to achieve, which is, of course, to establish a very limited departure from the general principle that a hereditament is to be valued in its actual physical statement.

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However, the amendment would additionally require that the use of the hereditament should be taken into account. While the use of a property is, of course, a relevant consideration when ascertaining its rateable value, it is not entirely clear whether the amendment seeks to change existing practice by limiting consideration to actual use only.
At present valuations for non-domestic rating are carried out on the assumption that the hereditament could be used for a purpose within the same mode or category of use as the existing use to which the property is put. This approach, which within rebus sic stantibus permits limited consideration of alternative uses, is well establashed by case law. If the amendment were accepted, it could lead to a significant departure from present practice. This would create uncertainty and could therefore lead to litigation.
I was asked several specific questions. The noble Earl, Lord Courtown, asked whether I could add to the definition of "reasonable repair" and alongside that "accidental damage". It has been suggested to us that since we are planning to require valuers to assume a state of reasonable repair, we should define what the term means within the Bill and that we should define the circumstances in which any damage should be taken into account in the valuation. Noble Lords may think this would be innocuous, but we believe that it would be dangerous.
There is a body of case law which elucidates what is meant by a reasonable state of repair. I also believe that if we were to try to define what the term means in statute, we would run the significant risk of introducing unintended restriction and so lose the flexibility which valuers and the courts need in deciding what is reasonable in the particular circumstances of each case. Similar arguments apply to the treatment of damaged properties under the rating system.
A further question was put by the noble Earl, Lord Lytton, and I thank him for raising comments about the possibility of including the verbatim from Hansard. As I have said, I believe it is important that. our intentions in bringing forward the Bill are as clear as possible. I am happy for my statement to the Committee today to be incorporated into the practice note and understand that the Valuation Office Agency will arrange for its inclusion in the next draft which, as I have indicated, will be placed in the Library of the House when it becomes available.
The status of the practice note was, I believe, raised by the noble Baroness, Lady Hamwee. There is no need for enhancing the status of the practice note. It expresses how valuation officers will, in fact, carry out their valuations, but it is important that we retain a degree of flexibility. Making it more formal would inhibit the development of practice in the future.
I have dealt with the point about reasonableness. There is no question of locality not being taken into account. It is an integral part of valuation practice and there is nothing in the Bill which will damage this.
I have sought to answer the points raised by noble Lords. Perhaps it would be helpful if I say at this stage that no-one is more grateful than I am for the assistance
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of noble Lords with a deep interest in the Bill and their advisers and the officials. Should there be any need for further clarification between the Committee and Report stages, I would be only too happy to do so by letter if that would be helpful.
I hope that what I have said explains to the noble Earl why I cannot accept an amendment which runs the risks outlined and, therefore, I trust he will feel able to withdraw the amendment.
4.15 p.m.
The Earl of Lytton: I have already spoken to all of these amendments in their generic terms because, of course, they are all linked. Therefore, I have not gone into some of the detail that the noble Baroness has gone into in telling me why it is that Amendment No.1 is not a good amendment.
In light of what she has said, I am very sympathetic to that line of argument, I must admit. I was particularly glad that, in commenting on the amendment, she referred to the physical state and category of occupation and the fact that it would be unnecessary because the amendment would undermine, if anything, current rating practice.
I am not so sure about that but I was comforted by her point that there would be no question of valuation officers not taking these matters into account and therefore it was a duplication, which is something to which I was sympathetic. Also as to whether it would change the existing practice and therefore depart from the rebus sic stantibus rule is, again, perhaps open to doubt. I draw great comfort from the fact that, if we can deal with the large issues then, with a little luck and a fair wind, the small ones will fall into place. At this stage, I could not have asked for either a more cogent account of the Government's intentions or for a clearer explanation of the effects that the Minister thinks the Bill will have in practice. I repeat the words of my ancestor, George Gordon, Lord Byron, who said:
"I deny nothing, but doubt everything".
The noble Baroness will understand that I come from a long line of men with an extremely healthy suspicion of the motives of all official bodies and government organs.
The noble Earl, Lord Courtown, raised two points. One was on the subject of the word "reasonable", and the Minister replied that it was difficult to define "reasonable" in statute. I certainly had concerns about this from inception. I asked myself whether the term "a reasonable state of repair" was in fact the same as "the state of repair reasonably to be expected". I was told at our meeting with the Minister and her officials that the terms were more or less one and the same. I accept the gist of the Minister's answer that, for the purposes of this Bill at any rate, the effect is the same. In my broader professional experience, however, I can conceive of other circumstances where it might be different. However, I am happy to leave that for the purposes of this Bill for the moment.
Baroness Farrington of Ribbleton: I wonder whether the noble Earl would find it helpful if I went

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slightly further. As I have already said, "reasonable" requires having regard to the age, type and use of the property concerned and its locality.
With regard to the noble Earl's reference to his ancestors, occasionally the officials and those in authority have cause to be critical in his direction. There was just the odd bit of vandalism in Greece.
The Earl of Lytton: I am sorry to say that, when I was in Greece over the Easter period, I did not go to Cape Sounion to inspect the inscription of my noble ancestor on the columns of the temple there. However, I do appreciate what the noble Baroness said, and I think and hope we are on the same track here. The whole basket of issues is surrounded by a concept of "reasonableness" and I think that we have got that right. Provided that is the case, then the fact that it attaches itself to one word or the other is of lesser importance so far as I am concerned.
The second point to which the noble Earl, Lord Courtown, referred was that of repair. As I understand it, the Minister used this in her statement in the narrower sense to mean specifically those works which fall within the assumption that they are economic, practical and fall within the normal maintenance obligation and are not exceptional. While I accept that definition for the purpose of the Bill, if I have divined her intention correctly, I can foresee other circumstances where the term "repair" could be taken to cover a much wider category of work, including not only things in the nature of minor maintenance, but also those which are so far reaching as to be uneconomic. The point I am making is that the term "repair" in the wider world is a broad term which covers all sorts of things, and is used fairly loosely. Clearly a more specific meaning is intended here.
Baroness Farrington of Ribbleton: As the noble Earl is aware, the meaning of "repair" is a well understood term in both rating case law and landlord and tenant case law. I am glad he has reminded me that the noble Earl, Lord Courtown, asked about the definition of the word repair, and I apologise to the noble Earl. Repair is well understood to be different from refurbishment and improvement, as I made clear in my earlier statement.
The Earl of Lytton: I am very grateful for that. To some extent, we are doing some "wordsmithing" here. Going back to the graffiti of my noble ancestor, what might be described as a "stopping-up" job with some filler might be described as a "repair", while putting the roof back on that particular monument would not. The difficulty, as the Minister referred to in her statement, is that there is a large grey area here, and we are trying to achieve a degree of certainty in this. I do not want to press the point too far because it is undesirable that consideration of these matters on a case-by-case basis should be fettered unduly. That is important. The only thing I have in mind is that there have been cases in the past where valuation officers have tried to argue, probably unsuccessfully, that inherent structural defects such as degradation due to high alumina cement, for
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instance, were mere repair and so could not be taken into account in valuation. However, in our meetings I was glad to note that the point was clarified in quite different terms. I am pleased to record that.
However, it must never be assumed that simply because something is called "repair" as a general term of art as opposed to some other label, that it thereby has no effect on rating valuation. Clearly it may do so, and that is why the economic test is so important in all this.
The noble Baroness, Lady Hamwee, referred to the question of locality. The locality is simply part of what might be called the environmental circumstance in which a particular property falls to be valued. I do not believe there was ever any question of a shop in a run-down area being valued on the same basis as a prime shop. That is probably not what the noble Baroness had intended to point out, but locality clearly is—and always has been—part of standard valuation practice. Because the whole valuation process follows the real world, the real rents that arise in Peckham as opposed to South Molton Street, to give two examples, are a locality matter which are reflected in the valuation. I have not discerned that there is any question which has arisen over this in discussions with Minister and her officials.
As to the status of the practice note, I would dearly like the practice note to be more firmly cemented in place. I am mindful of the fact that there have been decisions on practice notes in relation to community charge or perhaps council tax valuations where these were held to have no effect. The practice note ought to have a more definite application than that.
If I may go back to the question of locality just for a second, I believe it is taken as the area in which properties of the same kind would let at the same kind of rents. The case of Kay Shoes v. Hardy VO is probably the conclusive precedent.
The final point that the noble Baroness, Lady Hamwee, made, which I support, is whether the Royal Institution of Chartered Surveyors, the Institute of Revenues, Rating and Valuation and the Rating Surveyors Association would be consulted on the final form of the practice note, I believe she said before Third Reading. I ought to declare an interest as a member of all three bodies, which must be of some benefit. I hope they will be part of the discussions.
Baroness Farrington of Ribbleton: I thank the noble Earl for giving way. The Valuation Office is awaiting the response of the Institute of Revenues, Rating and Valuation. The Valuation Office has had a response from the Royal Institution of Chartered Surveyors and the Rating Surveyors Association. Representatives of all three bodies will meet with the Valuation Office soon.
The Earl of Lytton: I thank the Minister; that is wonderful. It sounds as though everyone is being consulted. For the present, I am glad to record that my concerns may have been misplaced as regards the intentions of this Bill, but I make no apology for insisting on having clarity restored to what is a fairly technical aspect of the proposed legislation. I would say in my defence that that is at least one reason for my

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being in this place at all—in the hope that I can apply some of what I have learnt over the past two or three decades to the benefit of legislation. It is to the credit of all concerned that discussions have been conducted in an extremely workmanlike spirit of co-operation and goodwill. That approach should be a benchmark for parliamentary scrutiny generally. As I said earlier, I am enormously grateful to the noble Baroness the Minister for what she said to her officials. Without further ado, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos.2 to 7 not moved.]
Clause I agreed to.
Remaining clauses agreed to.
Title agreed to.
Bill reported without amendment.
The Deputy Chairman of Committees: That concludes the Committee's proceedings on the Bill.
The Committee adjourned at twenty-nine minutes before five o'clock.