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Housing development showhouses not 'dwellings' and so liable for business rates, says Scottish court


'Showhouses' on new housing developments are not 'dwellings' and should therefore be liable for business rates during the period that they are used as such, a Scottish court has ruled.

It made no difference that the properties were fully furnished and decorated as residential properties, and would ultimately be used as dwellings once the sale of other properties in the housing development was complete, according to the Lands Valuation Appeal Court. Rather, the courts and local assessors had to consider not only the physical characteristics and circumstances of the property, but also the uses to which that property was put, the court said.

Property law expert Rodney Whyte of Pinsent Masons, the law firm behind Out-Law.com, called on the Scottish Government to react to the decision by introducing an exemption from business rates for showhouses. The case was the first appeal against the entry of a showhouse in the valuation roll to have gone to a hearing and would have significant repercussions for house builders, he said.

"Although the logic of the decision is clear, the outcome is not a helpful one in terms of the Scottish Government's ambitious targets for new housing delivery throughout Scotland," he said.

"The showhouse is an important tool both for developer and purchaser in terms of any house building or buying process. Any additional financial burden applied by virtue of this decision will ultimately be a development cost, that may require to be ultimately reflected in the cost of the houses that the showhouses seek to promote," he said.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. 'Dwellings', as defined by the 1992 Local Government Finance Act, are instead subject to the council tax rules and excluded from business rates.

Showhouses have traditionally been entered in the valuation roll and therefore subject to business rates "for many years", according to Lord Docherty, who gave the judgment of the court. This case was the first appeal against any such entry and was brought by The Old Golf Course Ltd, developer of a suite of luxury apartments overlooking the Old Course in St Andrews, Fife.

In his judgment, Lord Docherty said that it was "elementary" that when characterising subjects for the purposes of valuation for rating, it was "proper to look not only to their physical circumstances but also to the use to which they are put". Despite the arguments put forward by the developer, this was still the case regardless of whether the subjects were business premises or a 'dwelling house' for the purposes of the exemption, he said.

"In my opinion the short answer to this appeal is that [the 1992 Act] does not say that the existing use of subjects is to be irrelevant to the issue whether the subjects are a 'dwelling house'," he said. "It does not provide that the only relevant consideration is to be the physical characteristics of the subjects."

"[The developers'] suggested construction is not the natural and ordinary reading of the provision. On the contrary, it is a rigid and restrictive gloss on the subsection … It is an interpretation which would produce absurd results. Lands and heritages with the physical characteristics of a dwelling house but used only for another purpose or purposes (e.g. as a commercial office or store) would be a 'dwelling house', and therefore a 'dwelling'. In my view it is plain that it was no part of the statutory purpose that such subjects should be excluded from the valuation roll and entered in the valuation list," he said.

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