Rates and rating — Local Government Finance Act 1988, Schedule 6 — Hereditament in disrepair — Whether premises must be valued in state of disrepair on material date
On April 30
1993 the East Sussex Valuation Tribunal issued its decision reducing the assessment
of an office building in Brighton from £272,000 to £11,751 with effect from
April 1 1990. The reduced assessment represented £11,750 as the agreed value of
car parking spaces, and a nominal £1 for the building. The premises consisted
of a 1964/1965 speculative office building which, on the material date of
September 21 1990, was vacant and in disrepair. The parties agreed that it
would cost not less than £300,000 to put the premises into repair to command a
rent of £272,000. The valuation officer appealed that decision and the Lands
Tribunal ordered that a point of law be determined at a preliminary hearing:
‘whether it is to be assumed for the purposes of para 2(1) of Schedule 6 to the
Local Government Finance Act 1988… (a) that the hereditament should be valued
as it physically was on the material date, taking into account any disrepair
then existing; or (b) that any disrepair which was in existence at the material
day had in fact been remedied by the hypothetical landlord save only for any
disrepair which falls to be excluded from that assumption by virtue of the
economic test referred to in Saunders v Maltby (VO) [1976] RA 109
and Civil Aviation Authority v Langford (VO) [1979] RA 1′.
appeal was dismissed. The basic valuation propositions in Robinson Brothers
(Brewers) Ltd v Assessment Committee for the no 7 or Houghton and
Chester-le-Street Area of the County of Durham [1937] 2 KB 445 and the
statutory assumptions as to the nature of the hypothetical tenancy, now
contained in Schedule 6 to the 1988 Act, led to the inevitable conclusion that
the hereditament must be valued as it exists on the material date, including
such want of repair as affects rental value. The preliminary decision was
determined in favour of the respondent ratepayer. The declaration should read:
‘It is to be assumed for the purposes of para 2(1) of Schedule 6 to the 1988
Act that the hereditament should be valued as it physically was on the material
date, taking into account any disrepair then existing, so far only as such
repair affected the rental value of the hereditament’.
The following
cases are referred to in this report.
Birchenwood
Gas & Coke Co v Hampshire (VO) (1959) 52
R&IT 226
Camden
London Borough Council v Civil Aviation
Authority [1980] RA 369
Civil
Aviation Authority v Langford (VO) [1978]
EGD 692; (1978) 247 EG 957; [1979] JPL 316; [1979] RA 1, LT
Clement
(VO) v Addis Ltd [1988] 1 All ER 593; [1988]
1 EGLR 157; [1988] 10 EG 129
Dawkins
(VO) v Ash Brothers & Heaton Ltd [1969]
2 AC 366; [1969] 2 WLR 1024; [1969] 2 All ER 246; (1969) 67 LGR 499, HL
Foote v Gibson (VO) LVC/725/1980, LT
Myddleton
& Myddleton v Charles (VO) (1957) 51
R&IT 106
Nicholson v Allsop (VO) (1971) 17 RRC 143; [1971] JPL 526
Ravenseft
Properties Ltd v Davstone (Holdings) Ltd
[1980] QB 12; [1979] 2 WLR 897; [1979] 1 All ER 929; (1978) 37 P&CR 502;
[1979] 1 EGLR 54; [1979] EGD 316; 249 EG 51, DC
Robinson
Brothers (Brewers) Ltd v Assessment Committee
for the no 7 or Houghton and Chester-le-Street Area of the County of Durham
[1937] 2 KB 445; [1937] 2 All ER 298, CA
Saunders v Maltby (VO) [1976] RA 109; (1976) 19 RRC 33; 239 EG 205,
CA
Snowman
Ltd v McLean (VO) (1979) 251 EG 859
Townley
Mill Co (1919) Ltd v Oldham Assessment Committee
[1937] AC 419; [1937] 1 All ER 11; (1937) 156 LT 81; 53 TLR 205; 6 DRA 77, HL
Wexler v Playle [1960] 1 QB 217; [1960] 2 WLR 187; [1960] 1 All ER
338, CA
David Holgate
QC (instructed by the solicitor to the Inland Revenue) appeared for the
appellant; Richard Glover (instructed by Stephenson Harwood) represented the
respondent.
Giving his
decision, JUDGE MARDER QC said: This is a rating appeal which raises an
issue of considerable practical importance in the law of rating valuation. The
appeal is brought by the valuation officer against a decision of East Sussex
Valuation Tribunal issued on April 30 1993 in respect of an office building,
Anston House, 137/139 Preston Road, Brighton. The valuation tribunal reduced
the assessment for this hereditament from £272,000 to £11,751 with effect from
April 1 1990. The reduced assessment represents £11,750 as the agreed value of
car parking spaces, and a nominal £1 for the building.
By order of
the tribunal dated June 20 1997 made by consent, the following point of law was
ordered to be determined at a preliminary hearing:
Whether it is
to be assumed for the purposes of para 2(1) of Schedule 6 to the Local
Government Finance Act 1988 (hereinafter called the 1988 Act)
(a) that the
hereditament should be valued as it physically was on the material date, taking
into account any disrepair then existing; or
(b) that any
disrepair which was in existence at the material day had in fact been remedied
by the hypothetical landlord save only for any disrepair which falls to be
excluded from that assumption by virtue of the economic test referred to in Saunders
v Maltby (VO) [1976] RA 109 and Civil Aviation Authority v Langford
(VO) [1979] RA 1.
Para 2(1) of
Schedule 6 to the 1988 Act provides:
2. (1) The rateable value of a non-domestic hereditament shall be taken
to be an amount equal to the rent at which it is estimated the hereditament
might reasonably be expected to let from year to year if the tenant undertook
to pay all usual tenant’s rates and taxes and to bear the cost of the repairs
and insurance and the other expenses (if any) necessary to maintain the
hereditament in a state to command that rent.
It appears
that this is the first time since the passing of the 1988 Act that the issue
raised in this appeal has come before the Lands Tribunal for determination. The
parties agreed a comprehensive statement of facts, which I can summarise for
present purposes as follows:
1. The appeal
hereditament is situated in Preston Road, Brighton, which is part of the A23
London to Brighton trunk road. It is about 1 mile north of Brighton town
centre.
2. The
hereditament consists of a 1964/1965 speculatively built office block
constructed of brick with concrete floors under a flat roof. The building is T
shaped and on a sloping site. It has nine storeys at the front, seven storeys
at the rear and a basement. The building has a central service core, two
passenger lifts and an external service lift. All three lifts were out of
service at the material date. There is a car park at the front and sides of the
building. There are agreed plans of the hereditament.
3. The
respondent company is and at all material times was the freehold owner of the
hereditament. The building was first occupied in 1966 and became vacant in
1987. It has remained empty since that time.
4. The
material date is agreed to be September 21 1990 when the respondent’s agents
served a proposal to reduce the assessment of £272,000 rateable value to a
nominal £1 rateable value with effect from April 1 1990 (the effective day).
5. It is
agreed that at the material date Anston House was suffering from disrepair.
Repairs were required in order to put the property into a condition to command
an annual rent of £272,000.
6. There is
disagreement as to the physical state of the building at the material date and
thus as to the nature and extent of the repairs then required. It is, however,
agreed that the works (which the valuation officer contends are repairs)
required to put the property into a condition to command a rent of £272,000
would cost not less than £300,000; the respondent believes the actual cost
would be far in excess of £300,000.
7. The
appellant valuation officer accepts that if it cannot be assumed that these
deficiencies have been remedied, then the rateable value as determined by the
valuation tribunal is correct and the appeal should be dismissed.
8. The
hereditament was entered in the rating list at April 1 1990 as ‘offices, car
park and premises’ at rateable value £272,000. As stated above, the
respondent’s agent served a proposal on September 21 1990 to reduce that
assessment to rateable value £1 with effect from April 1 1990 and that the
entry in the rating list be amended to ‘vacant offices and premises’. The
valuation officer being of the opinion that this proposal was not well founded,
it was referred as an appeal to East Sussex Valuation Tribunal. The appeal was
heard on February 16 1993 and the decision of the valuation tribunal was issued
on April 30 1993. Notice of appeal to the Lands Tribunal was given on May 18
1993.
At the hearing
before me the appellant valuation officer was represented by Mr David Holgate
QC and the respondent company was represented by Mr Richard Glover, of counsel.
Both counsel presented written skeleton submissions, which I found most
helpful. It was agreed that I would not be assisted by an inspection of the
premises.
Mr Holgate,
opening the case, stated that the contention of the valuation officer was
represented by the second alternative. He referred to the summary of case law
appearing in Ryde on Rating E294–297 as establishing four propositions,
namely:
1. The rebus
sic stantibus rule does not apply to defects due to ordinary disrepair;
2. The cases
in which that exception was established arose ‘largely’ in the context of
assessment to gross value under the General Rate Act 1967;
3. Those
principles nevertheless ‘are equally applicable when, as now, the obligation to
repair falls upon the tenant’;
4. The
assumption that the landlord is to be taken to have carried out the necessary
repairs does not apply if the cost of such repairs would be out of all
proportion to the value of the property, so that a reasonable landlord would
not do them, but would instead accept a lower rent.
Mr Holgate reviewed
the relevant legislative history, referring first to the Rating and Valuation
Act 1925. Under section 22(1)(a) the majority of hereditaments including
houses, buildings and land were assessed to gross value, meaning that under the
hypothetical tenancy the landlord bore the costs of repairs. A statutory
deduction was then made in accordance with the Second Schedule to ascertain the
net annual value (NAV). Under section 22(1)(b) all other hereditaments
were assessed direct to NAV, on the basis that the tenant bore the cost of
repairs and insurance, etc.
The Valuation
for Rating Act 1953 section 2 had provided that the gross value of
dwelling-houses and garages was to be taken as the rental value under a
hypothetical letting as at June 30 1939, with the landlord responsible for
repairs, etc, or (if lower) the gross value at the date of valuation for the
new valuation list. The statute required the assumption to be made that the
hereditament was subsisting on June 30 1939 in the state in which it actually
was at the time of valuation, and similarly that the locality as respects other
premises, transport facilities, etc, were the same in 1939 as at the time of
valuation.
Mr Holgate
then referred to section 5 of the Rating and Valuation (Miscellaneous Provisions)
Act 1955 and to section 19 of the General Rate Act 1967, the effect of which
was to define rateable value as NAV, which in the case of houses and
non-industrial buildings was to be assessed by making the statutory deduction
from gross value. Gross value was defined by reference to a hypothetical
letting where the landlord bears the cost of repairs and insurance etc. Other
hereditaments were to be assessed directly to NAV with the assumption that the
hypothetical tenant bore the cost of repairs, insurance, etc.
Under the
Local Government Planning and Land Act 1980 section 29, the assessment to gross
value with a deduction to determine NAV was confined to dwelling-houses and
private garages and storage.
Mr Holgate
finally referred to section 56 of and Schedule 6 to the Local Government
Finance Act 1988 (the 1988 Act), which has the effect of valuing non-domestic
hereditaments direct to a rental value under a hypothetical tenancy which
assumes that the tenant bears the cost of repairs, insurance, etc. He drew
particular attention to para 2(5) and (7) of Schedule 6, which requires that
certain physical factors ‘shall be taken to be as they are assumed to be on the
day on which the list must be compiled’. Those factors include the physical
state or physical enjoyment of the hereditament, the mode or category of
occupation, the physical state of the locality and the use or occupation of
other premises in the locality.
Against that
legislative background Mr Holgate referred to the authorities commencing with Wexler
v Playle [1960] 1 QB 217, a decision of the Court of Appeal upon the
construction of section 2(1)–(3) of the 1955 Act. He analysed the report of the
case in detail, submitting, first, that the court’s doubt as to whether the
word ‘state’ in section 2(3) included the state of repair, and as to whether
the phrases in section 2(2) ‘necessary to maintain the hereditament in a state
to command that rent’ referred to ‘the cost of repairs and insurance’ or only
to ‘the other expenses’, were not decisive and were obiter dicta.
Second, he
submitted that the true ratio rested on the formula that what was to be
assessed was the rent at which the hereditament ‘might reasonably have been
expected … to let’ between a landlord and a tenant acting reasonably. On that
basis the Court of Appeal held that the hypothetical landlord acting reasonably
would carry out repairs prior to commencement of the tenancy, not by virtue of
his repairing covenant or statutory obligation. Thus the decision did not
depend on the fact that the hereditament was assessed to gross value rather
than direct to NAV, where the tenant is assumed to be liable to repairs.
In Saunders
v Maltby (VO) [1976] RA 109, a case relating to a dwelling-house
assessed to gross value, the Court of Appeal considered Wexler v Playle,
holding that the explanation of that case was that a hypothetical landlord
would do such repairs as it was economically sensible for him to do;
accordingly, the decision did not rest simply on the scope of the landlord’s
repairing covenant. It was necessary to cost the repairs and to determine
whether the expenditure was such that ‘it would be out of all sense to do the
repairs’ — per Lord Denning MR. If so, the hypothetical landlord would
let at a low rent. The case was remitted to the Lands Tribunal on that basis.
Mr Holgate
referred to Foote v Gibson (VO) (unreported — LT ref
LVC/725/1980) as an instance of this principle in practice. The Lands Tribunal
(Mr CR Mallett frics) held the
cost of repairs to be such in relation to the prospective rent that the
reasonable hypothetical landlord would carry them out in order to obtain the
rent.
He referred
next to Camden London Borough Council v Civil Aviation Authority
[1980] RA 369, the Space House case. The Lands Tribunal had applied Wexler
by assuming that works of ‘repair’ were carried out at the valuation date, but
held that other works were not repairs but substantial structural defects which
could not be ignored under the rebus sic stantibus principle. The
building was unlettable. This decision was upheld by the Court of Appeal. There
were other instances where the Wexler approach was applied in the case
of hereditaments assessable direct to NAV under the pre-1988 legislation: see Myddleton
& Myddleton v Charles (VO) (1957) 51 R&IT 106; Birchenwood
Gas & Coke Co v Hampshire (VO) (1959) 52 R&IT 226; and Nicholson
v Allsop (VO) (1971) 17 RRC 143.
Mr Holgate
quoted the dictum of Scott LJ in Robinson Brothers (Brewers) Ltd
v Assessment Committee for the no 7 or Houghton and Chester-le-Street Area
of the County of Durham: see [1937] 2 KB 445, at p469 — ‘It is the duty of
the valuer to take into consideration every intrinsic quality and every intrinsic
circumstance which tends to push the rental value up or down …’. He submitted
that a repairing covenant embraced all items of work which do not involve
giving a landlord or a tenant something ‘wholly different’ from the demise: see
Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12*,
at p21. Works which go beyond the bounds of repair as so defined are not
‘repairs’. Thus, an assumption that repairs have been carried out does not
alter the fundamental or intrinsic nature of the hereditament. In reality,
therefore, the principle in Wexler does no violence to the rebus
principle or no violence of any consequence. In this context Mr Holgate also
referred to passages in the speeches of Lord Pearce and Lord Wilberforce in Dawkins
(VO) v Ash Brothers & Heaton Ltd [1969] 2 AC 366.
*Editor’s
note: Also reported at [1979] 1 EGLR 54
Mr Holgate
submitted that in any letting the landlord will seek to obtain the best
available economic return. If it is sensible to repair before letting in order
to maintain the rental value, it is reasonable to assume the landlord will do
so. Both Wexler and Saunders v Maltby simply give effect
to that economic fact of life. The advantage of this approach is that it
enables all properties to be assessed on a common basis, namely that they are
assumed to be in reasonable repair irrespective of the precise stage in the
individual cycle of repair. To require all assessments to be on the basis of
the actual state of repair for each building would impose a huge burden on
valuation officers, valuers and tribunals throughout the country. Mr Holgate
pointed to the scale of the valuation exercise and that almost by definition
the Lands Tribunal would see only the marginal cases. There was no reason to
suppose parliament intended that evidence on the state of repair, the cause of
disrepair, the nature and cost of remedial work should be necessary, and not
only for the individual hereditament, but also for relevant comparables. He
referred to the principle of statutory construction that where parliament uses
in an Act a legal term which has received judicial interpretation, it must be
assumed that the term is used in the same sense unless a contrary intention
appears: see Craies on Statute Law, 7th ed, at p167. Mr Holgate
submitted that this principle applies to the use of the phrase ‘might
reasonably be expected to let’ in the 1988 Act, Schedule 6. The draftsmen must
be assumed to be aware of such decisions as Wexler.
Schedule 6 had
adopted the former NAV formula, where the tenant is assumed liable for repairs
and insurance, because that was the basis on which comparable evidence for
non-domestic purposes is most likely to be available: see Hansard
extract (May 15 1980, col 1115). He submitted that it was not intended to
change the approach in the Wexler line of authority, and no ‘contrary
intention’ was shown. Thus, it is to be assumed that a reasonable landlord will
carry out economically sensible repairs before the hypothetical tenancy starts.
Mr Richard
Glover, on behalf of the ratepayer, referred to the rebus sic stantibus
rule, as defined by Lord Wilberforce in Dawkins v Ash Brothers &
Heaton Ltd, by Scott LJ in the Robinson Brothers’ case and Lord
Maugham in Townley Mill Co (1919) Ltd v Oldham Assessment Committee
[1937] AC 419, at pp436–437. The general principle is that a hereditament is to
be valued ‘warts and all’ in the physical state in which it is found on the
material date. This general rule was recognised in para 2(5) and (7) of
Schedule 6. The deficiencies in this particular hereditament, which he pointed
out affect the physical state and enjoyment of the premises to the tune of
rateable value £260,249, clearly fell within the wording in para 2(7)(a) as
‘matters affecting the physical state or physical enjoyment of the
hereditament’. It followed that the hereditament was to be valued on the basis
that its physical state (including all the advantages and disadvantages) is as
it is taken to have been on the material day, as to which the facts are in
substance agreed.
Mr Glover
submitted that the decision in Wexler v Playle and subsequent
cases depended on the fact that the repairing obligation was on the landlord,
and thus the tenant could require the landlord to put the hereditament into a
reasonable state before the tenancy commenced. He referred to passages in each
of the judgments in Wexler, and summarised the effect of the decision of
the Court of Appeal as:
(a) the
repairing obligation is to keep the hereditament in a state of good and
reasonable repair; and
(b) as that
obligation was in that case on the landlord, one assumed that the landlord
would comply with his obligation and put the hereditament into such a state.
Mr Glover said
that Saunders v Maltby proceeded on a similar basis: see per
Goff LJ (1976) 19 RRC 33, at pp40–41.
In the present
case the obligation to repair is on the tenant, and applying the same analysis
will produce a different result. If the tenant’s repairing obligation is to put
the hereditament in repair, that will reduce his rental bid. He would not pay
the same for a hereditament in a poor state of repair as he would for a
hereditament in good repair. This was so even assuming the obligation on the
tenant were no more onerous than to maintain the hereditament in the existing
poor state of repair. The rental bid would be even less if the tenant took on
the obligation to put and keep the hereditament in good repair and to use part
or all of the term for that purpose.
Mr Glover
referred to Snowman Ltd v McLean (VO) (1979) 251 EG 859 (LT).
This was a case where the valuation was on the basis that the tenant bore the
repairing obligation. The tribunal rejected an argument of the valuation
officer based on Wexler v Playle and Saunders v Maltby
that visible defects could be assumed to have been remedied by the outgoing
tenant, and accepted that these defects would reduce the hypothetical tenant’s
bid. He referred also to Myddleton & Myddleton v Charles (VO),
the sporting rights case, pointing out that this decision did not depend on the
hypothesis that the landlord had remedied defects of repair prior to
commencement of the tenancy.
Mr Glover
described the proper interpretation of Wexler as the essential issue in
this case. He submitted that the phrase ‘physical state of the hereditament’
where it appeared in para 2(7)(a) of Schedule 6 included the state of repair of
the hereditament, and that Wexler was not authority to the contrary. All
three lord justices in that case had declined to decide whether the word
‘state’ in section 2(3)(a) of the 1953 Act included ‘state of repair’.
Furthermore, the leading speech of Lord Keith in Clement (VO) v Addis
Ltd [1988] 1 All ER 593* as to the meaning of ‘state’ in section 20(1)(b)
of the 1967 Act is inconsistent with that interpretation of Wexler. In
consequence of the decision in Clement v Addis, the word ‘state’
must bear a wider meaning than was contemplated by the Court of Appeal in Wexler.
*Editor’s
note: Also reported at [1988] 1 EGLR 157
The decision
of the Court of Appeal in Camden v CAA (the Space House case)
also meant that of necessity the state of repair came within the rebus
principle.
Mr Glover
submitted that the transfer of the repairing obligation to the tenant under the
1988 Act inevitably meant that the state of repair must affect a tenant’s bid.
Thus ‘physical state or condition’ where referred to in Schedule 6 clearly
included the state of repair.
He said that
Mr Holgate had emphasised the phrase ‘shall be taken to be as they are assumed
to be’ in para 2(5). The same phrase occurred also in para 2(6) and was used in
respect of all the items referred to in para 2(7). Mr Glover submitted that it
was obvious from the nature of the matters to be considered that the assumption
would rest on evidence, and there was no basis in the statutory provisions for
making any assumption as to the physical state of the hereditament otherwise
than on the basis of evidence.
On analysis of
Wexler v Playle Mr Glover submitted that the case was not a
justification for assuming in negotiation that the hereditament is in a
fictitious state of repair. The case proceeded on the basis that the
hereditament was offered by the landlord in its existing state of repair and
that the terms of the offer included acceptance by the landlord of the
obligation to put and keep it in repair. On that basis the tenant would require
the landlord to accept the obligation and would pay the market rent on the
assumption that the landlord did fulfil the obligation. There was no
justification in case law nor in statute for any other assumption.
In the present
case, following the statutory transfer of the obligation to repair, the
hypothetical negotiation required a different analysis, namely:
(a) the
hereditament is in an existing state of poor repair and offered by the landlord
in that state;
(b) the
landlord does not offer to put or keep in repair, but offers a letting
requiring the tenant to bear the obligation to repair; and
(c) the
parties act reasonably.
Upon that
analysis the valuation officer conceded that the tenant would only offer £1. On
the other hand, Mr Holgate’s analysis required the assumption that the landlord
never offers to let the hereditament in its existing state of repair. This
assumption contrasted sharply with the views expressed by all the judges in Wexler
v Playle and in Saunders v Maltby.
Accordingly,
he submitted that the statutory obligation imposed on the hypothetical landlord
in the gross value cases was crucial to the decisions. The statutory obligation
remained crucial, but it had now been transferred from the landlord to the
tenant. Mr Glover referred also to: Nicholson v Allsop (1971) 17
RRC 143 (LT); Camden v CAA [1980] RA 369 (LT); and Snowman Ltd
v McLean (VO) (1979) 251 EG 859 (LT) and pointed out that Myddleton
& Myddleton v Charles and Birchenwood Gas & Coke Co v
Hampshire, to which Mr Holgate had referred, preceded Wexler v Playle.
The Birchenwood Gas case rested on a valuation by the contractors test.
Neither case was authority against his submission.
As to the
argument advanced by Mr Holgate on practicality, Mr Glover contended that if
his analysis was correct, it was not for the Lands Tribunal to alter the law in
the interest of convenience. But, in any event, the valuation officer’s
submission was overdramatic and his fears misplaced. For many years a valuation
to NAV had required the valuer to have regard to the existing state of a
hereditament, and only in a minority of cases had the particular detailed state
of repair had a material affect on rental value. The market was not as
sensitive as had been suggested and differential rates would apply only where
the market would recognise marked differences of repair. In the existing
situation, the market reflected differences such as the presence or absence of
central heating, but where nuances of repair had no effect on rents there was
no effect on rateable values. Where rental evidence demonstrated allowances for
the state of repair, then the valuation officer was bound to make such
allowances. This was no different from what the Court of Appeal said had to be
done in Saunders v Maltby. The facts of Wexler v Playle
were wildly different because of the need to refer back to 1939 values.
In reply, Mr
Holgate said it was assumed, without conceding the point, that the word ‘state’
in para 2(7) of Schedule 6 included the state of repair of the hereditament.
The same assumption was made by the Court of Appeal in Wexler. The
effect of that assumption was only to take the starting point as April 1 1990
instead of paying regard to the condition of the hereditament at April 1 1988.
As in Wexler, where the 1957 dilapidations could be assumed to exist in
1939, so in the present case the reasonable hypothetical landlord could be
assumed to remedy wants of repair as at April 1 1990.
The reasoning
of the Court of Appeal in Wexler hinged on the phrase ‘might reasonably
have been expected to let’; the same phrase was used in Schedule 6 para 2(1)
and there was no material distinction between the 1953 Act and the 1988 Act,
which could assist the respondent. The insertion in the 1988 Act of the phrase
‘as they are assumed to be’ only emphasised in the valuation officer’s favour
that assumptions may be made and one was not confined to consideration of the
actual facts.
The principle
derived from Saunders v Maltby is that if the cost of repairs is
out of all proportion to the value of the house, the landlord will not do them,
but instead will take a lower rent. He submitted that the reasoning in that
case and in Wexler was not based on the liability of the landlord to
comply with his repairing covenant, but with the steps which the reasonable
hypothetical landlord will take before letting the premises. Those steps taken
or not taken in order to let the hereditament were unaffected by the transfer
of repairing liability in the statutory hypothesis.
As to the rebus
principle, Mr Holgate referred to the Robinson Brothers’ case and
submitted that in determining what is logically relevant to the valuation,
account could only be taken of the intrinsic characteristics of the
hereditament and not extrinsic qualities. In a valuation to gross value, Wexler
and Saunders could only be correct on the basis that economically
remedial disrepair is not an intrinsic characteristic. The provisions of
subparas (5) to (7) in Schedule 6 did not provide a complete definition of the rebus
principle. Otherwise, for example, account would have to be taken of decorative
condition.
Mr Holgate
accepted that Wexler and Saunders both remained good law. It
remained necessary to distinguish between extrinsic and intrinsic factors.
Where the state of repair is so bad that it is not worth the landlord’s while
to remedy it in order to let, then that is ‘intrinsic’. The hereditament is
‘branded’ as Lord Pearce put it in Dawkins v Ash, and in that
condition the tenant will pay the lower rent. That distinction between
extrinsic and intrinsic factors was rational if the disregard of want of repair
is confined to the situation prior to the hypothetical letting. Thus, it was
immaterial whether the burden of repair fell on the landlord or on the tenant.
The landlord still would obtain the higher rental bid by carrying out repairs
before letting.
There was a
requirement of uniformity between ratepayers. This requirement was best served
by disregard of ordinary want of repair. In the real world disrepair was
cyclical. To relate disrepair to value was arbitrary and fixed in time. There
may be a need to consider evidence of disrepair in some extreme cases, but the
respondent’s argument would require an arbitrary assessment to be made in all
cases. If there was any ambiguity, it was right to look at the practical
consequences.
Decision
This appeal
concerns a vacant office block in Brighton, but the decision may be of
widespread significance in valuation for rating. It is agreed that at the
material date for valuation purposes in September 1990 the building was vacant
and in disrepair. The parties are not agreed as to the extent of disrepair nor
as to what would be required to put the building in good repair nor as to the
costs of any necessary works. Furthermore, although reference was made in the
course of argument to a distinction between ‘ordinary want of repair’ and
‘structural defects’, there are no facts agreed or proved as to whether the
state of the building is in consequence of ordinary disrepair or structural
defects or indeed both.
It is against
that background that I approach the question of law which the parties
themselves formulated for preliminary decision. If the property is to be valued
as it physically existed on the material date, taking account of the disrepair
then existing, the appellant valuation officer concedes that the rateable value
is nominal. If, on the other hand, it is to be assumed that existing disrepair
would be remedied by the hypothetical landlord prior to the material date, then
there remain the questions:
(a) whether
the disrepair was ‘ordinary want of repair’ or defects of a structural nature;
and
(b) whether it
was economically reasonable for the landlord to put the building in repair in
order to let it at a more than nominal rent.
It seems to me
that the basic question in this case may be posed thus: whether the decisions
of the Court of Appeal in Wexler v Playle (1960) and Saunders
v Maltby (1976), both of which concerned hereditaments which required to
be assessed to gross value, ie on the assumption that the hypothetical landlord
bore the burden of repairs, are affected by the transfer of the assumed
repairing liability to the tenant under the 1988 Act.
Wexler v Playle [1960] 1 QB 217 concerned a flat which required to
be assessed to gross value under the Valuation for Rating Act 1953, which
involved a reference back to the rent ‘which might reasonably have been
expected’ in June 1939. Saunders v Maltby (VO) [1976] RA 109
concerned a dilapidated house to be assessed to gross value under the General
Rate Act 1967 and was a case in which the Court of Appeal explained and applied
Wexler v Playle.
Mr Holgate
subjected the judgments in these cases to a detailed and subtle analysis, but I
am in no doubt as to what they decided. The principle is perhaps most plainly
expressed in Wexler v Playle by Morris LJ, at p235:
I think we
must bear in mind the opening words of subsection (2): ‘The said rent is that
at which the hereditament ‘in question might reasonably have been expected … to
let”. There is, therefore, introduced what might be expected and what might
reasonably be expected … it seems to me that the section is contemplating that
the landlord will do repairs, and it must be remembered that if a landlord is
to maintain premises in repair or to keep premises in repair, he has the
obligation to put premises in repair. So it seems to me, if one postulates that
a hypothetical landlord and a hypothetical tenant went into a flat which had
the defects to which I have referred … and if we are considering what might
reasonably have been expected by way of rent, I would say that it would be such
rent as would be payable on the basis that the landlord would then do the
necessary repairs to make the flat reasonably habitable and would do such later
repairs as would be reasonable in all the circumstances.
The same
principle is referred to by Willmer LJ, at p239:
For my part I
should have thought it is clear that subsection (2) is to be construed on the basis
of what normally does happen in everyday life. I infer that from the
incorporation of the word ‘reasonably’ at the beginning of subsection (2). The
subsection speaks of the rent which might ‘reasonably’ have been expected. That
imports the notion of a reasonable landlord and a reasonable tenant, behaving
reasonably and making a reasonable arrangement. If that is the right approach,
then I entirely agree … that one would expect a reasonable landlord and a
reasonable tenant, when contracting for a tenancy, if it appeared that there
were readily remediable defects such as those we have in this case, to proceed
on the basis that the landlord’s covenant to repair would include an obligation
not only to keep the premises in repair but to put the premises in repair. That
seems to me the common sense application of the subsection.
In Saunders
v Maltby, the case was remitted to the Lands Tribunal to consider
whether the extent of the dilapidation was such that it would be uneconomic for
the hypothetical reasonable landlord to carry out repairs. It was explained
that the obligation on the landlord which had been discussed in Wexler v
Playle was not an absolute obligation to put the premises in repair
regardless of the relationship between the cost of repairs and the rental value
of the premises. Goff LJ said, at [1976] RA 109, p114:
In my
judgment, the hypothetical landlord is one who undertakes some liability to do
repairs, and that imports an obligation to put the premises into such a state
as accords with the ambit of his liability to do repairs. In my judgment,
however, it is not an unqualified liability to do all repairs. The question is:
What is the extent of the obligation which ought to be imputed to the
hypothetical landlord? …
When I look
at the decision, (of the Lands Tribunal) it seems to me with respect … plain
that the member has misdirected himself because he has treated the liability to
repair as being unqualified and requiring the hypothetical landlord to repair
everything capable of being repaired …
I agree …
that the matter should be remitted for the member to reconsider the position …
and to consider what extent of liability to repair it would be economically
reasonable to attribute to the hypothetical landlord in all the circumstances
of this case …
Mr Holgate has
submitted that the ratio decidendi in both these cases did not depend on
the fact that the hereditament was to be valued on a gross value basis, but on
the basis that a hypothetical landlord acting reasonably would carry out
necessary repairs to the extent that such repairs were economically reasonable
or sensible, prior to commencement of the tenancy in order to secure a
reasonable rent. In the light of the judgments I have just referred to, I am
unable to accept that submission. As it seems to me, all the judgments in the
two cases proceeded from the starting point that the statute required the
assumption to be made that the hypothetical landlord undertook to bear the cost
of repairs, including the cost of putting the premises in reasonable repair.
The same
starting point, ie the statutory assumption that the cost of repairs is to be
borne by the landlord, appears to me to underlie the decision of the Lands
Tribunal in the later case of Civil Aviation Authority v Langford
(VO) [1979] RA 1 (the Space House case). This is apparent from the decision
of Mr JH Emlyn Jones frics, at
p26. Similarly, this is clearly the basis for the judgment of the Court of
Appeal dismissing an appeal from Mr Emlyn Jones’ decision: see [1980] RA 369,
and in particular the judgment of Eveleigh LJ, who in reference to the
statutory formula in section 19 of the General Rate Act 1967 said, at p378:
That section
requires assessment to be made on the basis that the landlord is responsible
for repairs, and it is assumed that he will do them and that the tenant will be
content to pay the rent that the premises will, in consequence, command.
Therefore, the fact that repair will be required will not affect the assessment
so as to produce a lower rent. See Wexler v Playle.
What, then, is
the consequence of the ‘transfer’ of repairing obligations effected by the 1988
Act? Para 2(1) of Schedule 6 now provides that the rateable value of a
non-domestic hereditament shall be taken to be an amount equal to the rent at
which it is estimated the hereditament might reasonably be expected to let from
year to year:
if the tenant
undertook to pay all usual tenant’s rates and taxes and to bear the cost of the
repairs and insurance and the other expenses (if any) necessary to maintain the
hereditament in a state to command that rent.
Mr Holgate’s
submission, in short, is that the principle expressed in Wexler and in Saunders
remains intact, that it is to be assumed that such repairs as are economically
reasonable will be carried out prior to the hypothetical letting. Mr Glover
contends that the transfer of the repairs burden to the tenant produces the
need for a different analysis. The rebus sic stantibus rule requires the
hereditament to be valued in its existing state, as he put it, ‘warts and all’.
The hereditament is in an existing state of poor repair. The landlord is not
assumed to offer to put it in good repair or keep it in repair, but is assumed
to offer a letting imposing on the tenant the obligation to put and keep it in
repair. In that situation, with the parties acting reasonably, the poor state
of repair would inevitably affect the tenant’s rental bid. In this particular
case, the valuation officer concedes that if that analysis is correct, a deal
would be struck at a nominal £1.
Mr Glover
illustrated the point by referring to the tribunal’s decision in Snowman Ltd
v McLean (VO) (1979) 251 EG 859, a case of a factory which by virtue of
section 19(3) of the General Rate Act 1967 fell to be assessed direct to NAV,
ie assuming the tenant to bear the cost of repairs, etc. The member (Mr Eric
Strathon frics) said in the
course of his judgment, at p861:
the
hypothetical tenant who sees the defects, including the floor in a state of
‘heave’, would have no doubt that in making his bid of rent he should allow for
repairs above the normal cost of repairs in factories without defects … these
are matters which the hypothetical tenant would consider when measuring his bid
of rent against the known level of rents of factories which are not so affected
by physical defects.
In my
judgment, Mr Glover’s submission is correct. I can find no justification in the
present statutory provisions for the assumption that a landlord will put
premises into repair before negotiating the hypothetical tenancy, which is the
current basis of valuation. Mr Holgate suggests that the justification lies in
the phrase ‘might reasonably be expected to let …’ with emphasis on the
word reasonably. With respect, that seems to me to extend the meaning of the
word ‘reasonably’ to an unreasonable degree, and to add an implied hypothesis
to the clearly expressed hypothesis in para 2(1).
Nor do I find
justification for the assumption that the landlord will carry out repairs prior
to letting in the authorities to which I have been referred. As I indicated
earlier, in my opinion, the decisions in Wexler v Playle and Saunders
v Maltby rested fairly and squarely on the statutory assumption then in
force in respect of dwelling-houses, that the obligation to repair fell on the
landlord.
As it appears
to me, therefore, the rebus sic stantibus rule requires that if the
existing state of repair is such as to affect the rental value of the
hereditament to the hypothetical tenant on whom the repairing obligation will fall,
then that effect is to be taken into account.
Mr Holgate
resists this conclusion by inviting consideration of the practical
consequences. The advantage of assuming that all economically reasonable
repairs have been carried out prior to the hypothetical letting is to ensure a
high degree of uniformity and ease of valuation. To take account of the actual
state of repair of each hereditament would impose a huge burden on valuers and
a burden which, in his submission, parliament never intended to impose.
In response,
Mr Glover said in effect that it was not for the tribunal to alter the law in
the interests of administrative convenience, and that, in any event, the fears
expressed by the valuation officer were exaggerated and far fetched.
I agree with
Mr Glover. It is necessary to recall the oft-quoted judgment of Scott LJ in Robinson
Brothers (Brewers) Ltd v Assessment Committee for the no 7 or Houghton
and Chester-le-Street Area of the County of Durham [1937] 2 KB 445, in
which he set out the basic propositions, at p468. So far as relevant to the
present case, they are:
(1) The
hereditament to be valued … is always the actual house or other property for
the occupation of which the occupier is to be rated, and that hereditament is
to be valued as it in fact is — rebus sic stantibus…
and
(5) in
weighing up the evidence bearing upon value, it is the duty of the valuer to
take into consideration every intrinsic quality and every intrinsic
circumstance which tends to push the rental value either up or down …
To these basic
propositions, which lie at the heart of valuation for rating, must be added the
statutory assumptions as to the nature of the hypothetical tenancy now
contained in Schedule 6 to the 1988 Act, including the tenant’s obligation to
repair imposed by para 2(1) and the further assumptions to be made under para 7
as to the physical state of the hereditament, the mode of occupation, the
physical state of the locality, etc.
Taking all
these relevant factors into account leads to the inevitable conclusion, in my
judgment, that the hereditament must be valued as it exists on the material
date, including such want of repair as affects its rental value. If that
valuation is difficult and inconvenient to make, that is a matter for the
legislature and not for this tribunal.
However, I
also agree with Mr Glover that the huge burden which this construction is said
to impose is more apparent than real. The present law of rating requires all
non-domestic hereditaments to be separately and individually assessed, although
there are various proposals for reform presently in the air. In practice, of
course, there are large numbers of similar hereditaments for which an average
level of rental value can be established. Perhaps the most obvious example is
the zoning method invariably adopted for the rating valuation of shops in a
town centre. If the shops are identical, then subject to possible locational
differences, they will bear a similar value. Nevertheless, it is commonplace in
this situation for the valuers to recognise individual differences in so far as
they affect value, for example an inconvenient shape, the presence or absence
of a return frontage, the presence or absence of a loading bay, or of air
conditioning, etc. It does not seem to me that disrepair would present any
greater difficulty. Minor defects, such as cracked windows or stained
wallpaper, seem unlikely to affect a rental bid, whereas a serious state of
disrepair may well do so.
In this
context, I bear in mind that Mr Emlyn Jones in the course of his decision in
the Space House case — see [1979] RA 1, at p24 — said:
what happens
in everyday life? The carrying out of repairs would normally be done by a
landlord before a tenant went into occupation so that at the time when the
premises become occupied it is to be assumed that the repairs have been done.
The same principle has been applied by the Lands Tribunal in a number of cases,
but I think it is right to say that they have all been concerned with dwelling
houses. If such repairs were not assumed to have been done, and valuations were
made taking into account the actual state of repair, then the situation would
arise where the gross value of properties would fluctuate from year to year as
the state of repair got worse or was put right; and this in practice would lead
to insuperable difficulties. So the principle is that a constant state of
reasonable repair is to be assumed …
As previously
discussed, however, this was a case in which the actual assessment was to gross
value, and Mr Emlyn Jones’ remarks were specifically directed to
dwelling-houses requiring the same assumptions as to repairing obligations.
I bear in mind
also that in the course of argument in Wexler v Playle, Harman LJ
is recorded as asking, at p225:
a ratepayer
could steal a march on his fellow ratepayers by having his property in a bad
state of repair at the time of valuation?
If my view of
the law is correct, it may well follow that two otherwise identical
hereditaments will bear different rateable values according to their state of
repair. This may cause difficulty for the valuer, but I do not regard it as
necessarily ‘stealing a march’. The valuation is of course confined to
non-domestic property, and if an occupier chooses to carry on business in
premises so decrepit as to affect the rental value, he may properly be
compensated for the discomfort of his occupation by a reduction in rateable
value.
For these
reasons, I conclude that the preliminary issue must be decided in favour of the
respondent ratepayer, although I would qualify the declaration which is sought
to read as follows:
It is to be
assumed for the purposes of para 2(1) of Schedule 6 of the Local Government
Finance Act 1988 that the hereditament should be valued as it physically was on
the material date, taking into account any disrepair then existing, so far only
as such disrepair affected the rental value of the hereditament.
In view of the
concession made on behalf of the appellant valuation officer as recorded above
in para 7 of the agreed facts, it appears to me that this decision on the
preliminary issue effectively disposes of the appeal. In accordance with r 43(2)
of the Lands Tribunal Rules 1996 I therefore order that the preliminary hearing
be treated as the hearing of the appeal. The appeal will be dismissed, and the
entry in the valuation list affirmed as ‘Offices, Premises and car park RV
£11,751’.
This decision
determines the substantive issues raised between the parties and the tribunal’s
award is final. The parties are invited to make such submissions as they are
advised as to the costs of the hearing, and a letter accompanies this decision
as to the procedure for submissions in writing. The tribunal will, in due
course, incorporate an order as to costs in an addendum to this
decision. Rights of appeal under section 3(4) of the Lands Tribunal Act 1949
and Rules of the Supreme Court Ord 61 will not accrue until the decision has
been thus completed, ie from the date of the addendum.
Addendum
as to costs
I have
received and considered the submissions of both parties as to costs. The
appellant valuation officer is ordered to pay the respondent’s costs of the
appeal including costs reserved, such costs if not agreed to be taxed by the
registrar on the High Court standard basis. I make no specific order as to
interest on costs. Liability to pay interest should follow automatically as
from the date of this order.
