Ascertainment of the rateable values of business premises is based on a hypothesis enshrined in the Local Government Finance Act 1988 that equates their rateable value with the rent at which it is estimated that the premises might reasonably be expected to be let from year to year. In short, the valuer must imagine a hypothetical negotiation between a willing landlord and tenant and arrive at the rent that best represents the resulting compromise.
In Telereal Trillium v Hewitt [2019] UKSC 23; [2019] PLSCS 90, the rateable value of Mexford House in Blackpool had been recorded as being £490,000. But, on appeal to the Valuation Tribunal, this was reduced to £1 because there was evidence to suggest that the premises were unlettable. They had been occupied by HMRC, but had been vacant for several years. There had been no new lettings of offices of a similar size (or anywhere near it) in Blackpool or in the wider geographical area, and there was no demand for the premises, even on a floor-by-floor or wing-by-wing basis.
The rating authority appealed to the Upper Tribunal, arguing that the premises should be rated by reference to the rents paid for comparable properties. The fact that there was no demand for Mexford House was not because of any intrinsic lack of merit or obsolescence in the premises. Mexford House was just “unlucky” not to have occupants. The Upper Tribunal accepted the rating authority’s arguments and ruled that the rateable value of the premises was £370,000 (which was the amount agreed by the parties if the rating authority’s interpretation of the legislation was correct). But the ratepayer appealed to the Court of Appeal, which overturned the decision.
So the question for the Supreme Court was: did the rating hypothesis require the valuer to assume a demand that did not, in reality, exist? Ratepayers will be disappointed to hear that the majority of the court ruled in favour of the rating authority, despite dissenting judgments from two members of the court who considered that the hypothesis does not require a departure from the real world merely because a property is, in theory, capable of beneficial occupation and that a letting at a nominal rent is a safety valve that accommodates the statutory requirement to assume a willing tenant in cases such as this.
The majority noted that the statutory hypothesis does not refer in terms to a “market” and was designed to set a fair standard for comparable properties across the country. The Court of Appeal had referred to several cases, including Tomlinson v Plymouth Argyle Football Co Ltd [1960] 31 DRA 788, in which Pearce LJ warned that “the court must not assume hypothetical tenants… if there is… no reasonable possibility of such tenants existing”. But the absence of tenants in those cases was due to the burdensome nature of the properties, rather than the state of the market, and there was a distinction between properties that are unoccupied because the market is oversupplied and properties that have reached the end of their economic lives.
Even if the market is saturated, the rating hypothesis assumes a willing tenant who, by implication, is one who is sufficiently interested to enter negotiations to agree a rent on the statutory basis. And there was no reason why the level of that rent should not be assessed by reference to the general demand for comparable properties that were let.
Allyson Colby, property law consultant
