Value of buildings
LegalTax & AccountingOctober 20, 2021

Value of buildings should be included in annual value of property

The High Court has upheld the Valuation Review Board’s decision that the value of buildings on a property should be included in computing the annual value of the property for the purposes of determining the property tax payable on the property.

Background
The appellant, Bollywood Veggies, leased a property from the government, comprising a vegetable farm and various buildings, which included a bistro, event space, office, and workers’ quarters.
For the land, the respondent, the Chief Assessor, took the annual rent payable by Bollywood Veggies for the lease of the land as representative of the annual value of the land.
For the buildings, as there was no evidence of their rental value, the Chief Assessor adopted 5% of the total building costs, which had been provided by Bollywood Veggies’ architect for certain alteration and addition works at the property.
The assessed annual value was therefore a summation of the annual land rent and the estimated value of the buildings.
Bollywood Veggies argued that the value of the buildings should not be included in computing the annual value of the property as it was not allowed to sublet the buildings without approval. Bollywood Veggies argued that even if the value of the buildings was to be included in computing the annual value of the property, the building costs provided by the architect should not be relied upon.

The Valuation Review Board’s findings
The Valuation Review Board dismissed Bollywood Veggies’ appeal on the basis that Bollywood Veggies was unable to establish that the Chief Assessor had erred in the assessment of the property’s annual value. The Chief Assessor also did not err in assessing the value of the buildings at 5% of the building costs.

High Court’s findings
The High Court held that a prohibition against renting out a property does not prevent a hypothetical rental value from being ascribed to it. Valuation under a hypothetical tenancy has been possible even where it is clear that there could be no hypothetical tenant other than the actual occupier.

The Chief Assessor in the present case had not relied on hypothetical tenancy but had exercised the option under s 2(3)(a) of the Property Tax Act to assess the annual value based on the capital value of the property.

The High Court determined that the existence of a connection between building costs and the value of property was readily apparent: generally, the addition of a building would be expected to add value to the property, and the cost of the erection of that building would influence the value of the property as a whole. Even with many years of use of the building, it would be expected that there would still be some connection between the 2 values. In fact, there were several economic activities in the buildings on the property.

The High Court also found that the Chief Assessor was entitled to use the building costs as a proxy or indication of the value of the buildings since Bollywood Veggies did not put forward any alternative method to determine the estimated value of the buildings. Bollywood Veggies did not contest the accuracy of the figure provided by the architect, and had not clarified the building costs when asked by the Chief Assessor in 2014 and 2015 to do so. The Chief Assessor’s decision to use the figure provided by the architect in determining the building costs was not unreasonable or unfair: the figure used was only for 2 buildings and did not include the cost of other buildings on the property.

Bollywood Veggies benefitted from a lower annual value from the Chief Assessor’s decision to use the building costs only in respect of 2 of the buildings on the property. The estimated value of these 2 buildings was also only included in the assessment of annual value from 2015 although the buildings on the property had been constructed in 2001, 2004 and 2009. This was a further benefit to Bollywood Veggies.

The General Division of the High Court dismissed Bollywood Veggies’ appeal and upheld the Valuation Review Board’s decision.
Source: Bollywood Veggies Pte Ltd v Chief Assessor (2021) MSTC ¶70-573, General Division of the High Court, Singapore, 15 October 2021.
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