Non-domestic rating – Alteration of list – Ratepayer obtaining alteration of rating list to reduce rateable value of its restaurant and wine bar for period of Occupy London protest – Whether that event a material change of circumstances justifying alteration of list – Whether too transient to affect rental bid for premises on statutory rating hypothesis – Whether correction to be made to original listing to reflect error as to value per square metre – Appeal allowed in part
On an appeal to the Valuation Tribunal for England (VTE), the ratepayer obtained an alteration in the 2010 non-domestic rating list to reduce the rateable value shown for its wine bar and restaurant in Paternoster Square, London EC4, from £175,000 to £135,000 for the period from mid-October 2011 to late February 2012. The VTE accepted the ratepayer’s contention that the restricted access to the square during that period, as a result of the Occupy London protest outside St Paul’s cathedral, represented a material change of circumstances justifying the alteration of the list.
In reaching its decision, the VTE found that the closure of Paternoster Square for an indefinite and unpredictable period, in the immediate run-up to the busiest trading period of the year for a wine bar and restaurant, would affect the rental bid that a hypothetical ratepayer would be prepared to make for the premises. It noted that the ratepayer’s landlord had in fact agreed a rent reduction for the quarter’s rent falling due in the period of restricted access to the square and had deferred payment of the balance to the next quarter day.
The appellant valuation officer appealed against the VTE’s decision. His primary ground of appeal was that the Occupy London protest was too transient an event for a hypothetical landlord and a hypothetical tenant to agree a lower rent under the statutory rating hypothesis. He argued that Occupy London was the type of occasional disruptive event which was to be expected in a major capital city and which would already be reflected in the market’s attitude to risk and rental values.
The appellant also sought a correction in the original rateable value of the hereditament to a lower figure on the grounds that the original valuation had been based on an incorrect value per square metre.
Held: The appeal was allowed in part.
(1) In the circumstances of the appeal, where the ratepayer did not object to the correction of the valuation per square metre, it was appropriate to correct that figure so as to alter the compiled list entry to £164,000.
(2) In determining whether the rental bid would be affected by matters affecting the physical state of the locality on the material day, it was relevant to take into account those matters originating from the Occupy London protest, namely a protest that, at the material day, had been established for three weeks by the erection of tents, the obstruction of public highways, the associated noise and commotion from protesters and the landlord’s erection of barriers and security checks at Paternoster Square. The cultural, social and economic significance of the period leading up to Christmas could not be said to be a matter affecting the physical state of the locality on the material day. However, the weather could be a matter affecting the physical state of the locality, since a hypothetical tenant would have regard to the possibility that the longevity of the Occupy London protest might be affected by the weather and the prospect of winter. Nonetheless, a hypothetical tenant would not have considered that the end of the protest was imminent at the material day. A tenant fresh to the scene on that date would have taken into consideration the nature and serious intent of Occupy London and would have placed it in the context of similar contemporary protests in major cities around the western world. Such a tenant would have asked itself how long it would take for the protestors to make their point and, on the facts, would not reasonably have supposed that, the weeks after the protest began, it was likely to disperse in the near future.
In all the circumstances, the nature and likely duration of the protest meant that the hypothetical tenant would not be prepared to pay the same annual rent as he would in the absence of Occupy London, notwithstanding the attractive nature of the opportunity and the strength of the market. The protest was not too transient to have affected the rent at which the appeal hereditament might reasonably be expected to have let from year to year.
(2) When considering the effect of the protest on the hypothetical rental bid, no weight should be given to any reduction in the ratepayer’s actual trade figures since such information was too limited to establish any trend and would not have available to the hypothetical landlord and tenant. The hereditament should be valued not by reference to receipts but by rental comparables. However, the actual rent concession made by the landlord, representing about one-twelfth of the annual rent, was a relevant factor to take into account. A hypothetical tenant would probably have had been in a stronger bargaining position than the actual tenant since it choose to look elsewhere or wait and see how the situation with Occupy London developed before committing to a lease. The rent concession that was agreed between the actual landlord and tenant fairly represented what a hypothetical tenant would be able to negotiate coming fresh to the scene with the matters affecting the physical state of the locality being as they were on the material day: Stopenbach & Delestre Ltd v Probert (VO) [1991] RVR 8 applied.
(3) The fact that the agreed rent concession was referenced to the payment of a quarterly rent, and that payment of the balance was deferred until the next quarter day, suggested that both landlord and tenant expected the protest to be over by the March quarter day. The effect of the rent concession should therefore be analysed for the period from mid-October 2011, when the protest began, and the March quarter day. The concession was likely to have been divided 50:50 between rental value and goodwill. Applying that approach, a hypothetical landlord and tenant would have agreed an annual rent of £148,420. It followed that the rateable value of the hereditament in the 2010 non-domestic rating list should be reduced to £148,000 with effect from mid-October 2011, reverting to £164,000 when the Occupy London protest ended in late February 2011.
Zack Simons (instructed by the legal department of HM Revenue and Customs) appeared for the appellant; the ratepayer did not respond to the appeal.
Sally Dobson, barrister
Click here to read the transcript of Re Pavlou (VO)’s appeal
