A property fitted out to category B specification – including the tenant’s fit-out works – is more valuable than one fitted-out to category A specification – ready for the tenant’s fit-out works – and this should be reflected in its rateable value.
The Upper Tribunal (Lands Chamber) has allowed an appeal by the Valuation Office in Dawn Bunyan (Valuation Officer) v Acenden Limited [2023] UKUT 17 (LC). The case concerned an office building in Maidenhead with a rateable value of £1.1m with effect from 1 April 2017. That was reduced by the Valuation Tribunal for England in April 2021 to £875,500 based on the rent at which the building had been let in category A condition.
The ratepayer had spent £3.4m on fitting out the premises to category B specification of which £1.6m was on alterations and fit out of the building, which was capable of being used by another occupier. The property was let to the ratepayer in 2015 for an 11-year term on standard institutional terms at an annual rent of £1.123m per annum following a rent free/reduced rent period.
Under schedule 6 to the Local Government Finance Act 1988 the rateable value of the property is an amount equal to the estimated rent the hereditament might reasonably be expected to let from year to year on the antecedent valuation date – 1 April 2015 – assuming a reasonable state of repair when let and that the tenant pays all usual rates and taxes and bears the cost of repairs, insurance and other expenses necessary to command that rent.
Valuers imagine a hypothetical negotiation between a willing landlord and willing tenant for a letting on the same basis as the ratepayer’s actual use and there is no exclusion for fitting-out periods. All expenditure must be looked at on its merits to identify whether it increases the rent.
The Tribunal concluded that the letting of the property on a category A basis produced an agreed effective rent of £166 per sq m. The tone of comparable lettings was £165-£175 per sq m. The equivalent for category B lettings, although rare, was consistently more than £200 per sq m with most over £230 per sq m, reflecting a willingness in the market to pay more for category B space than category A.
The Tribunal, having fully considered the comparable evidence and basis of valuation, decided that the hypothetical parties would conclude agreement on a tenancy of the property fitted-out to category B standard at £212 per sq m equivalent to an annual rent of £1m.
Louise Clark is a property law consultant and mediator
