The Upper Tribunal (Lands Chamber) has allowed an appeal from a decision of the Valuation Tribunal for England reducing the 2017 list rateable value of property because little demand for it substantially affected its value in Ballcroft Estates Ltd v Virk (Valuation Officer) [2022] UKUT 153 (LC), a decision which illustrates the difficulties faced by many high street traders.
The appeal property was in Kidderminster, the largest town in north Worcestershire, which, like many towns, has in recent years seen the development of an out-of-town retail park – Weavers Wharf – with many of the town’s larger retailers relocating to it from the town centre. The appeal property formed the ground floor and basement of the four-storey former Marks and Spencer store on High Street. The upper floors of the appeal property – which were separately rated – were in poor repair and assessed at a rateable value of £22,250 in both the 2010 and 2017 rating lists. The appeal property was assessed at £92,000, which the VTE reduced to £57,000 with effect from 1 April 2017.
All floors were let to the retailer Pavers at an annual rent of £125,000 when Marks and Spencer relocated to Weavers Wharf in 2008. Further identical leases followed, either side of the antecedent valuation date of 1 April 2015: a term of two and a half years in 2012 and a three-year term from August 2016. Both leases were for an annual rent of £70,000, were contracted out of the Landlord and Tenant Act 1954 and provided for termination on short notice. Pavers received some income from sub-letting over these periods.
The appellant argued that the effect of Weavers Wharf and the general market decline was such that there was little if any demand from mainstream retailers for large town centre retail properties. The lease and that of a small number of comparable transactions showed that rental values were purely nominal. The VO argued that there was sufficient evidence of positive rents from comparable transactions to apply a positive rateable value, although when further evidence came to light during the hearing the VO made further adjustments, finally settling on an annual figure of £37,500.
The appeal turned on whether there was sufficient evidence of general demand to indicate that the hypothetical tenant would pay a positive rent, and if so at what level. The VO accepted that, in principle, if there were no general demand, a nominal rateable value might theoretically be appropriate. The evidence was patchy. An analysis of the rent on the appeal property was questionable, and that of the three relevant comparable transactions translated to values of between £11 and £15 per sq m, although without total confidence in the figures. All three lettings involved significant inducements – rent caps, exclusivity clauses, inclusive service charges, waived dilapidations or rent-free periods.
The UT was satisfied that there was evidence of positive rents being paid even after the inducements and that there was general demand for large stores. The UT applied £11 per sq m to the appeal property, resulting in a rateable value of £17,750 with effect from 1 April 2017.
Louise Clark is a property law consultant and mediator
