Rating — General Rate Act 1967, section 21(1)(b) — Construction of provision that ‘no account shall be taken of the value of any plant or machinery in or on the hereditament’ (not coming within the categories mentioned in section 21(1)(a)) — In the present case the issue concerned the valuation of textile factory premises on which production had ceased but where process plant and machinery (coming within section 21(1)(b)) remained on the site, covering the greater part of the site area — A small part of the site area was used for the storage of loose chattels consisting of finished goods, tools, stores, furniture and equipment — The question was whether the valuation of the premises in this condition should be on the basis that the hereditament could be used only for the purpose of the storage of such loose chattels, the unused process plant merely occupying otherwise valuable space, or whether the hereditament should be valued on the assumption that all the process plant and machinery and loose chattels had been removed and that the hereditament was vacant and to let for use as a factory — The former basis was put forward by the appellant ratepayers and had been accepted by the local valuation court, but rejected by the Lands Tribunal, from whose decision the ratepayers now appealed — The respondent valuation officer supported the latter basis — The appellants’ basis produced a rateable value of £1,250, the respondent’s basis a rateable value of £44,800 — The Court of Appeal were divided, Ackner and Oliver LJJ being in favour of dismissing the appeal, May LJ for allowing it — The appeal was accordingly dismissed — As a result the premises fell to be valued on the assumption that the process plant and machinery and the loose chattels formed no part of it — A number of authorities were considered, including the Townley Mill case and Kennet District Council v British Telecommunications — Leave to appeal to the House of Lords was refused
This was an
appeal by the ratepayers, Teesside Textiles Ltd, from a decision of the Lands
Tribunal (Mr J H Emlyn Jones FRICS), reported at (1983) 267 EG 263, allowing an
appeal by the valuation officer, George Eric Edmondson ARICS, for the Borough
of Stockton-on-Tees from a decision of the Cleveland Local Valuation Court. The
premises concerned were a factory at the Teesside Industrial Estate, Thornaby.
Michael Rich
QC and Christopher Lewsley (instructed by Harvey Ingram, of Leicester) appeared
on behalf of the appellants; Alan Fletcher QC and David R P Mole (instructed by
the Solicitor of Inland Revenue) represented the respondent.
Giving the
first judgment at the invitation of Ackner LJ, OLIVER LJ said: This is an
appeal by way of case stated from a decision of the Lands Tribunal on May 20
1983 allowing the appeal of the valuation officer for the Borough of
Stockton-on-Tees from a decision given on June 4 1981 by the Cleveland Local
Valuation Court.
The
appellants, Teesside Textiles Ltd, were at the material time the occupiers of a
factory at the Teesside Industrial Estate, Thornaby, which had been let to them
in or about 1970 for a term of 21 years. As their name suggests, they carried
on there the business of manufacturing textiles. Those premises were shown in
the valuation list for the borough as assessed to a rateable value of £44,800,
but on March 19 1980 the appellants made a proposal for the alteration of the
list on the ground that the existing assessment was unfair, incorrect and
excessive, that they had ceased production on March 7 1980 and that the
decision of the House of Lords in Townley Mill Co (1919) Ltd v Oldham
Assessment Committee [1937] AC 419 applied. Notice of objection having been
given, a hearing before the local valuation court ensued, the outcome of which
was that it was decided that the assessment should be reduced to a rateable
value of £1,250.
The factual
background to this was that until production ceased on March 7 1980 the factory
had been used by the appellants for the processing of artificial fibres.
Thereafter, process plant and machinery, which occupied some 11,072 sq m of the
total internal area of 17,464 sq m, remained in situ until it was finally
removed in December 1980. The use made of the premises by the appellants was
for the storage of loose chattels consisting of finished goods, tools, stores,
furniture and equipment and it was agreed before the Lands Tribunal that the
area used for such storage did not exceed 500 sq m. The basis for the decision
of the local valuation court was that the hereditament was to be valued on the
assumption that it could be used only for the purpose of storage of such loose
chattels, not being process plant and machinery, over the area mentioned. For
the purposes of this appeal it has been agreed that if that is the correct
approach to valuation, the hereditament should be assessed at the figure found
by the local valuation court. The respondent’s contention, however, is that
that is not the correct approach and that the hereditament should be valued as
at the date of the proposal on the assumption that all the process plant and
machinery and loose chattels had been removed and that the hereditament was
vacant and to let for use as a factory. On that footing, it is agreed for the
purposes of the appeal that the rateable value of the hereditament was £44,800.
The respondent having appealed from the local valuation court to the Lands
Tribunal, the respondent’s contention was accepted and the appeal was
accordingly allowed, the member holding that section 21 of the General Rate Act
1967 (formerly section 24 of the Rating and Valuation Act 1925) compelled the
assumption that process plant and machinery in or on the hereditament had been
notionally removed.
Section 21 is
in these terms, so far as material:
(1) For the
purpose of the valuation of any hereditament under section 19 of this Act
otherwise than on the profits basis —
(a) subject to any order under subsection (5) of
this section, all such plant or machinery in or on the hereditament as belongs
to any of the classes set out in the statement for the time being having effect
under subsection (4) of this section shall be deemed to be a part of the
hereditament;
(b) except as provided in the foregoing
paragraph, no account shall be taken of the value of any plant or machinery in
or on the hereditament.
This
subsection is a re-enactment of section 24(1) of the Rating and Valuation Act
1925, which was in substantially the same terms, and it divides plant and
machinery, for valuation purposes, into two categories, that is to say rateable
(or ‘motive’) machinery, which
accordingly, and other, non-rateable (or ‘process’), plant and machinery the
value of which is not to be taken into account. It is common ground that the
plant and machinery remaining in the factory after March 7 1980 and occupying
the 11,000 odd sq m above referred to is ‘process’ plant and therefore falls
under paragraph (b) of the subsection. Section 19 of the Act defines the
rateable value of a hereditament by reference to its annual value ‘ascertained
in accordance with subsections (2) to (4) of this section’ and the important
provision of the section for present purposes is subsection (3), which provides
that the net annual value of a hereditament other than such as is described in
subsection (2) (non-industrial buildings) shall 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.
That is, of
course, an entirely unreal basis of valuation because tenants of industrial
buildings do not normally take such premises on yearly terms and, if they did,
would not be likely to take them with a full repairing and insuring liability.
One is, therefore, at the outset, being invited to step into a make-believe
world and it is the respondent’s submission that there is nothing particularly
startling about further assumptions not only that the hereditament is vacant
(in the sense of untenanted) and to let but also that it is emptied of process
plant and machinery, even though it is in fact there and is affixed to the hereditament
in such a way as, in the absence of a statutory hypothesis to the contrary,
would render it part of the freehold. It is true that section 21(1)(b) requires
only that no account shall be taken of ‘the value’ of process plant, but the
respondent submits that the effect of judicial interpretation of the section is
that the plant itself is to be ignored for rating purposes and simply assumed
not to be there.
The current
valuation practice for rating purposes which, we are told, has been universally
followed for the last 24 years is summarised in the following passage from the
decision of the Lands Tribunal in Fir Mill Ltd v Royton UDC
(1960) 7 RRC 171 at p 185:
In our
opinion only two assumptions are permitted. The first assumption is that the
hereditament is vacant and to let — vacant in the physical sense that the
existing business has ended and any process machinery has been removed
[emphasis supplied].
This is based
upon the decision of the House of Lords in Townley Mill Co (1919) Ltd v Oldham
Assessment Committee [1937] AC 419, a case relied on by both sides in the
present appeal. The case was one in which a company which occupied a cotton
spinning mill had stopped working. They had sold the stores and let the
basement, the remainder of the building being put in the charge of a caretaker
with a view to sale or lease as occasion presented. About 80% of the total
floor area was occupied by process plant but would otherwise have been suitable
for warehousing purposes. The company occupied to some extent for the purpose
of keeping plant and machinery in repair but otherwise the only use made of
that part of the premises which was in hand was for the storage of loose
chattels of little value. The assessment committee valued the premises at £1,437
on the basis of a hypothetical clearance of the plant and machinery and on the
letting value of the premises, so cleared, for other purposes including their
use as a warehouse. The argument on behalf of the company was that it was not
in beneficial occupation and it appears to have been agreed, upon some basis
which does not clearly emerge from the report except by inference, that if the
assessment committee’s contentions were wrong, the proper valuation was a
nominal £7. The argument for the company in the Divisional Court (reported in
[1936] 1 KB 585 at p 593) indicates that this figure was probably arrived at on
the footing that the only beneficial occupation was that represented by the
presence of the loose chattels on the premises and this derives further support
from the speech of Lord Maugham ([1937] AC at p 435) where he describes the £7
as the agreed figure of the rent which a tenant would pay for storage of the
loose chattels.
The arguments
seem to have changed direction somewhat as the case progressed, the company’s
original contention being simply that it was not in beneficial occupation.
Before the justices that failed and it was held that there was beneficial
occupation ‘by reason of the warehousing therein of the process plant and
machinery, accessories thereto, and loose chattels’. In the Divisional Court,
the company’s primary argument was that the process plant was part of the
hereditament and could not therefore be regarded as being warehoused in the
hereditament, but there was advanced a secondary contention that since section
24 provided that no account was to be taken of the value of the process plant,
it could not be treated as being warehoused. The argument for the assessment
committee was that since the machinery was there and thus being stored in fact
on the premises, they could be rated not as a warehouse but as a store for
housing machinery. The Divisional Court unanimously rejected this approach.
Lord Hewart CJ reviewed the cases prior to 1925 in which it had been held that
account was to be taken of such plant and it is worth quoting his analysis of
the purpose of the section ([1936] 1 KB 585 at p 602). He said:
Now what
exactly were those cases? It is not necessary for me to refer to them. They are
quite familiar. They were cases where by the accident of circumstances . . .
there had been a cessation of work. It was said that it was quite wrong in
those circumstances, when war had put an end to the commercial value of a mill,
to rate it as a prosperous going concern. But, on the other hand, it was said
‘Be it so; nevertheless there is something here besides the land and the four
walls and the roof: there is here useful machinery, and when the time comes to
resume the manufacture which was carried on in those premises, the hypothetical
tenant from year to year may well be expected to take into account — that
expression occurs again and again in the decided cases on this matter — the
fact that the machinery is there ready to turn when the moment comes’. It was
not that those places were rated as warehouses. Being what they were — namely,
mills, they were subject to the view that although they were not doing any of
the work of a mill, nevertheless they provided a convenient warehouse for the
machinery in them. But why convenient? Because a time would come, or was
expected to come, when the ordinary operations of the mill would be resumed. In
other words, the point of the cases is that the hypothetical tenant is deemed
to take into account the worth, the utility of the process plant and machinery.
But is not that the very thing which now, since the year 1925, is excluded from
the ambit of things which may be taken into account? The words seem to be
designed with reference to the phrase which occurs again and again in the cases
upon this matter: ‘no account’ shall be taken of the value of any plant or
machinery in or on the hereditament. I think, therefore, that the effect of
this Act, intended to be an Act beneficial to those interested in the carrying
on of industry, was to get rid of all the doctrine of enhanced value and to lay
it down that what is called process plant and machinery must henceforth be
disregarded where the problem is to ascertain the rateable value of the
hereditament where plant and machinery are used . . . We are concerned with the
rating of a hereditament which contains machinery and plant for the purpose of
the carrying on of the work in that hereditament. The statute, in my opinion,
makes it quite plain that in such a case and for such purposes, process plant
and machinery are to be excluded.
The decision
of the Divisional Court was reversed by this court on grounds which do not
matter for present purposes and one can go straight to the House of Lords,
which unanimously reversed the Court of Appeal and restored the Divisional
Court decision. There is an important passage in the speech of Lord Russell
upon which considerable reliance is placed by Mr Fletcher in seeking to uphold
the conclusion of the Lands Tribunal that the hereditament is to be assumed to
be stripped of the process plant. Lord Russell ([1937] AC 419 at p 430)
observed:
My Lords. I
agree with the opinion of the Lord Chief Justice. It was said that the section
only referred to the value of the process plant and machinery, and did
not forbid the taking into account its existence and presence in the
hereditament; and that accordingly the section in no way interfered with the
application of the old authorities, with the result that the appellants could
be rated in respect of their occupation of the hereditament for the purpose of
housing the process plant and machinery. This contention is too subtle for me:
for I am unable to see how the value of the occupation for this purpose to a
hypothetical tenant can be assessed without some consideration of the value of
the plant and machinery housed. Indeed, that this is so appears from the case
stated, in which occurs this passage:
‘the capital
value of the loose chattels on the premises was very small and the rent which
the hypothetical tenant would pay to store them would be insignificant’.
Thus it is
argued, if value is to be equated with presence, and if the presence of process
plant cannot be taken into account to increase the value of the hereditament,
equally its presence — or its ‘negative value’, in the sense that it encumbers
otherwise usable floorspace — cannot be taken into account to decrease the
value. Reliance is also placed upon the recent decision of the House of Lords
in Kennet District Council v British Telecommunications [1983] RA
43, and in particular upon the following passage from the speech of Lord Keith
at p 46 where, after referring to section 21, he observed:
The
subsection provides that it is for purposes of valuation that plant and
machinery within para (b) is to be left out of account, but it must, I think,
follow that it is impossible to treat such plant and machinery as part of the
hereditament for any rating purpose, even though it be so fixed or attached
that it would have fallen to be valued as part of the hereditament under the
law prevailing before the statutory ancestor of section 21 was enacted in the
form of section 24 of the Rating and Valuation Act 1925. Nothing can be rated
which is not capable of being valued for the purpose of rating, and nothing
which is not so capable can be the subject of rateable occupation. So it was
rightly conceded by counsel for the respondents that the hereditament in issue
here was land with the bare shell of the building on it, excluding all of the
equipment therein.
This formed, I
think, the substantial basis for the conclusion of the Lands Tribunal. At p 9
of the decision [(1983) 267 EG at p 263] the member said:
it seems to
me that in the light of that authority the rateable hereditament in the instant
case can now be clearly identified as the land with the bare shell of the
buildings on it, excluding all the equipment therein, except for the items
agreed to be covered by section 21(1)(a). The process plant and machinery and
the loose chattels, whether or not fixed or attached, are to be deemed to form
no part of the appeal hereditament. Their presence there can be taken as
evidence of beneficial occupation, as in Kennet: but not being part of
the hereditament, they are to be ignored in considering whether the
hereditament, vacant and to let, is available for use as a factory.
This may or may
not be right — that is the question that we have to decide — but for my part I
do not think that it follows from Kennet. That case was concerned only
with rateable occupation, and Lord Keith, in the passage referred to, was
dealing with the argument which was advanced by the respondents that the
hereditament was an incomplete telephone exchange of which the equipment formed
an essential part and that, being incomplete, it could not be beneficially
occupied. It is no part of the appellants’ argument in the instant case that
the process plant forms part of the hereditament. It is their argument that it
is here in situ and occupying otherwise valuable space. Speaking for myself, I
do not think that Kennet has any real bearing on the question which we
have to decide and one is driven back simply to the question of whether, on the
true construction of section 21 and in the light of the observations of Lord
Russell in the Townley case, the hereditament has to be valued not simply
without taking account of the value of the process plant but on the footing
that it has been magically removed leaving an empty building available for
letting for any purpose for which a hypothetical tenant may wish to use it.
Mr Rich, for
the appellants, argues that one has only to look at the statute (which refers
only to the ‘value’ of the process plant) and at the purpose for which this
provision was introduced in order for it to become clear that it cannot apply
to a case where the process plant is of no value and simply has the effect of
actually depreciating the hereditament as a letting proposition because the
hypothetical tenant is put in the position either of accepting that the space
occupied by process plant is unusable or that, to render it useful, he will
have to incur the expense of removal. The Townley case, he submits, does
not touch this argument for two reasons. First what was rejected in that case,
when properly analysed, was the contention that the value of the hereditament
was to be enhanced by the presence of process plant. That was rejected
not simply as a matter of construction of the words used but in the light of
the manifest purpose of the section, which was to relieve relieve ratepayers
from being rated on the basis previously established that the annual value was
to be treated as enhanced by the presence of potentially valuable machinery.
Secondly, Mr Rich submits that when one looks at the actual decision, one sees
that the presence of the process plant was actually accepted as a depreciatory
factor which could be taken into account because both the Divisional Court and
their Lordships upheld the agreed valuation of £7 arrived at on the basis that
the only purpose for which the hereditament could be used was for the storage of
the loose chattels.
Neither Townley
nor Kennet, so far as relevant at all, is, it is submitted, authority
for the proposition that the actual presence of process plant in the
hereditament is, as the respondent contends, to be ignored altogether. The
ordinary rule in rating is that the valuation should be conducted rebus sic
stantibus and that involves, Mr Rich submits, paying regard to the actual
physical conditions which exist at the relevant time in or on the hereditament,
including the presence of unused process plant which occupies otherwise
valuable floorspace.
Mr Fletcher on
behalf of the respondent bases his argument upon a number of propositions most
of which are not in dispute. In the first place, it has to be borne in mind
that section 21 applies to all hereditaments which do not fall to be assessed
on a profits basis — that is not simply factories, but all premises, including,
for instance, shops, offices and the like, in which plant falling within the
broad description of process plant may be used. There is no dispute here that
what falls to be valued is the hereditament and not what is inside it or
attached to it except in so far as what is inside or attached constitutes
motive plant. Thus, it is common ground that, however the value is to be assessed,
the process plant is not included as a part of the hereditament being
valued. If it can be treated as relevant at all, it can only be because of the effect
which it may have on the letting value of the shell (including motive plant) to
the hypothetical tenant.
Mr Fletcher’s
second proposition is that in assessing the annual value of the premises to the
hypothetical tenant, the actual owner and occupier is himself to be treated as
a potential hypothetical tenant but on the footing that the premises are deemed
to be vacant and to let: see London County Council v Erith Parish
(Churchwardens, etc) [1893] AC 562. Moreover, the test of beneficial
occupation is not whether the occupier could make a profit out of the use of
the hereditament but whether the occupation is of value (see same case, per
Lord Herschell LC at p 588). Knitting these propositions together Mr Fletcher
submits that what one has to envisage is a hypothetical tenant who may be the
owner of the hereditament and to whom the occupation will be of value for any
of the purposes for which it is lawfully possible to use the hereditament and
for which it is possible to use it having regard only to its structure and
position. Such a hypothetical tenant is to be assumed to come to a hereditament
which is vacant and to let and the use of which is not restricted to the
purpose for which it is actually occupied. To put it another way, you are to
assume the actual hereditament (including motive plant) in its actual situation
and with all such advantages and disadvantages as may be inherent in its actual
structure and situation, but you are to ignore its actual use except as one of
the potential uses to which a hypothetical tenant may wish to put it. This
approach is conveniently encapsulated in the following passage from the speech
of Lord Pearce in Almond v Ash Brothers & Heaton Ltd [1969] 2
AC 366 at pp 381-2:
Rating seeks
a standard by which every hereditament in this country can be measured in
relation to every other hereditament. It is not seeking to establish the true
value of any particular hereditament, but rather its value in comparison with
the respective values of the rest . . . This standard must be universal even
though in many cases it demands various hypotheses. In practice, sewage works,
portions of railway lines, shops and factories where heavy and valuable
machinery is installed are not let from year to year. So one must assume a
hypothetical letting (which in many cases would never in fact occur) in order
to do the best one can to form some estimate of what value should be attributed
to a hereditament on the universal standard, namely a letting ‘from year to
year’. But one only excludes the human realities to a limited and necessary
extent, since it is only the human realities that give any value at all to
hereditaments. They are excluded in so far as they are accidental to the
letting of a hereditament. They are acknowledged in so far as they are
essential to the hereditament itself. It is, for instance, essential to the
hereditament itself that it is close to the sea and that humans will pay more
highly for a house close to the sea. One can therefore take that into account
in the hypothetical letting. It is, however, accidental to the house that its
owner was shrewd or that the rich man happened to want it and that therefore
the rent being paid is extremely high. In the same way I think it would be
accidental to the hereditament that its owner intended to pull it down in the
near future. For the hereditament might have had a different owner who would
not pull it down. So the actual owner’s intentions are thus immaterial since it
is the hypothetical owner who is being considered . . . .
Thus, Mr
Fletcher argues, the accidental fact that the actual owner has chosen to use or
permit the premises to be used for a particular purpose which involves the
introduction into and the fixing within the hereditament of process plant,
whether valuable or valueless, is entirely immaterial. An occupier can, of
course, increase or reduce his liability for rates by making structural
alterations to the hereditament — for instance, by demolishing part of it: but
he cannot reduce his liability simply by choosing to occupy only a part. That
is not a feature of the hereditament which can affect its value but merely an accidental
fact dependent upon the idiosyncratic desire of the particular occupier.
Equally if, for his own particular purposes, he introduces into the premises
process plant and machinery which takes up space, this again is accidental and
cannot be prayed in aid either as increasing or as reducing the amount which
the hypothetical tenant can reasonably be expected to pay. Thus if one supposes
two identical shop premises in a parade, one of which is empty and one of which
has been equipped by the occupier as a launderette, the hereditament to be
valued in each case is the same and section 21 precludes the valuer from taking
into account that a tenant for the
pay a higher rent because he would be taking premises already equipped.
Equally, supposing that the trade of a launderette in the area is generally
recognised as a thoroughly unprofitable one, the existence of launderette
equipment which requires to be removed before the hereditament can profitably
be used for any other purpose is, logically, equally irrelevant. There is, Mr
Fletcher submits, nothing in the Townley case which compels one to a
contrary conclusion. The case is a difficult one because so much of the
argument centred on the question whether the company was in beneficial
occupation of the whole factory rather than upon the valuation of the factory
as a whole. Thus because of the way the case had proceeded and the concessions
made, one finds the words ‘beneficial occupation’ being used in argument wrongly
in the context not of the liability of the occupier for rates but of the value
of the premises for rating purposes. The two questions are logically quite
distinct. The respondents’ argument was that because the appellants derived an
advantage from the fact that their process plant was in the factory and
therefore under cover they were in beneficial occupation of a hereditament used
for storing plant and therefore liable for rates assessed on the basis of a
storehouse. That was rejected because one could only arrive at an assessment of
the value of a storehouse for process plant by taking into account the value of
the plant stored, which was precluded by the section. That left as the only
alternative basis for assessment the valuation as a store for the loose
chattels, which had been agreed at £7. It had already been found as a fact that
there was no beneficial occupation of the hereditament as a cotton mill and the
possibility that it could be assessed as available for use not as a warehouse
for storing the process plant (which was what the justices found) but as a
general warehouse was never pursued, it having been conceded in the Divisional
Court ([1936] 1 KB 585). Coming back simply to the wording of the section, Mr
Fletcher submits that you cannot arrive at a conclusion that the annual value
of a hereditament to the hypothetical tenant is reduced by the presence of
process plant without ‘taking account of’ the value of that plant.
The rival
contentions are finely balanced and I have to confess to more than one change
of opinion as the argument progressed. In the end, however, I, for my part,
find myself persuaded by Mr Fletcher’s argument, and that not simply because Mr
Rich’s proposition involves a radical departure from a valuation practice which
has been consistently adopted without challenge certainly for the last 24
years.
If the
practice is not capable of being justified, an argument ab inconveniente
is no ground for upholding it. But in my judgment the section, on its true
construction, does involve an assumption, in valuing for rating purposes, that
process plant and machinery is to be ignored and treated as if it were not
there, whether the actual effect of its presence in the hereditament is that a
tenant would pay more or less. The section forms part of a fasciculus of
sections which are, in effect, directed to the valuer. They tell him how he is
to approach the valuation of the hereditament; first in general (section 19)
and then in relation to particular situations (sections 22-25). One has therefore
to envisage a valuer approaching any given hereditament for the first time and
asking himself what rent might reasonably be expected to be paid by a
hypothetical tenant on the statutory basis. Let it be assumed that the
hereditament contains process plant and machinery. Mr Rich accepts, as indeed
he must, that if that plant is such that it would in fact lead a tenant to pay
a higher rent for the premises, it is to be ignored in arriving at the rateable
value. But he contends that if it is a worthless plant which merely takes up
floorspace and involves the tenant’s incurring expense in removing it so that
its presence actually detracts from the value of the premises, then its
presence is to be taken into account and a negative value attached to it in the
sense that there has to be assessed the sum by which the rent which the
hypothetical tenant could be expected to pay is reduced as a result of the
plant’s being there. (I observe in passing that in the instant case there is no
evidence that there was any particular difficulty in removing the plant and it
was in fact removed in December 1980.) But then, one asks, how does the valuer
reach a conclusion about whether he is to ignore the presence of the plant and
machinery altogether or to treat it as a factor which reduces the hypothetical
rent and, if it is to be so treated, how does he reach a conclusion about how
much the rent is to be reduced? All that he knows on his first introduction to
the hereditament is that a certain square footage of floorspace is occupied by
process plant, which may be more or less valuable. He can, on Mr Rich’s
hypothesis, reach a conclusion about how he is to treat it only by forming a
view as to its value, for (again on this hypothesis) it is only if its value
might otherwise enhance the value of the premises that he can, as the statute
enjoins him to, ignore it altogether and treat the floorspace as available for
general use. So, as it seems to me, one can arrive at the position that the
appellants seek to establish only by the very process which the statute says
shall not be gone through, namely taking account of the value of the process
plant. Once arrived at the position posited by Mr Rich, that the presence of
the plant may now be looked at for the purpose of seeing how far it compels a
reduction in the rent which the hypothetical tenant is to pay, there has to be
a further process of putting a figure upon the presence of the plant. Again
this seems to me necessarily to be doing what the statute forbids. It is said
that to assess the quantum of the presence of process plant as a depreciatory
factor is not to put a ‘value’ on the plant but merely to assess, in pecuniary
terms, the effect which it has on the hypothetical rent. That is a subtlety
which I feel unable to accept. The statute in speaking of ‘the value of’
process plant is not referring to the ascertainment of a precise
costless-depreciation figure for each item of equipment but is referring to the
effect of the presence of process plant on the value of the hereditament. Once
again Lord Hewart’s words in the Divisional Court in Townley ([1936] 1
KB 585 at p 601) are in point. He said:
I cannot
imagine any way in which account can be taken of plant or machinery for the
purpose of valuation if the rating authority is prohibited, by statute, from
taking account of the value of that plant and machinery. The argument appeared
to be — it was not expressly put in these terms — that ‘value’ here meant
either some figure related to cost and diminished by depreciation, or the present
worth of the machinery, and that the rating authority, notwithstanding this
Act, could say that they would not look at the price of the machinery and the
depreciation or the then current worth of the machinery, and yet in some other
way they would take that plant and machinery into account as having a value
capable of being expressed in terms of pounds shillings and pence for the
purpose of determining the full rateable value of the hereditament. If indeed,
that is the true conclusion, it seems to me an unfortunate conclusion, and I am
clearly of the opinion that these words, in this Act, mean exactly what they
say . . .
However it is
expressed, it seems to me that the process through which the valuer is to go on
Mr Rich’s formulation is one which involves ascribing a value to the process
plant and machinery, first for the purpose of seeing whether its presence is an
appreciatory or depreciatory factor and secondly, on the latter hypothesis, for
the purpose of assessing the quantum of the depreciation due to the process
plant. For my part, I am unable to escape the conclusion that that is ‘taking
into account’ the value of process plant in valuing the hereditament and I find
nothing in the Townley case which points against such a conclusion. That
case proceeded on certain concessions and the point raised on this appeal was
simply not argued. In my judgment, therefore, the Lands Tribunal reached the
right conclusion and I would dismiss the appeal.
Dissenting,
MAY LJ said: The basis of the Lands Tribunal’s decision in the present case, as
appears from the case stated, was that although the presence of process plant
and machinery can be taken as evidence of beneficial occupation, it is
nevertheless to be ignored when considering whether the relevant hereditament is
available for use as a factory.
The Lands
Tribunal reached this decision, first, in reliance on the decision of the House
of Lords in Kennet District Council v British Telecommunications
[1983] RA 43. Secondly, on the familiar phrase known to all practitioners in
this particular field, namely that the hereditament to be valued must be
considered to be ‘vacant and to let’. Thirdly, it followed its earlier decision
in Fir Mill Ltd v Royton UDC (1960) 7 RRC 171, in which it held
that that phrase meant ‘vacant in the physical sense and in the sense that the
existing business has ended and any process machinery has been removed’.
In so far as
the decision in the Kennet District Council case is concerned, I
respectfully agree with Oliver LJ that for the reasons which he gave in the
judgment which he has just delivered this decision has no real bearing on the
question which we have to decide in this appeal.
Next, the
phrase ‘vacant and to let’ originated in the speech of Lord Herschell in London
County Council v Erith Parish (Churchwardens, etc) [1893] AC 562. It
is unnecessary for present purposes to set out the particular facts of that
case, but at p 588, in the course of his speech, the learned Lord Chancellor
said:
It has never
been doubted that the rent which is actually being paid by the occupier does
not necessarily indicate what is the rent which a tenant might reasonably be
expected to pay, or that an owner who is in occupation, and
described by the statute has always been spoken of by the Court as ‘the
hypothetical tenant’. Whether the premises are in the occupation of the owner
or not, the question to be answered is: Supposing they were vacant and to let,
what rent might reasonably be expected to be obtained for them?
In my opinion,
it is quite clear from the context in which the learned Lord Chancellor used
the phrase that all he was meaning was that when a hereditament had to be
valued for rating purposes, it should be deemed to be untenanted and
unoccupied. In my view, the dictum itself is no support for Mr Fletcher’s
contention that in general, and apart from particular statutory provisions, a
valuation officer coming to value a particular hereditament must in all cases
consider only the four walls and roof of the premises, possibly with some
structural walls within dividing those premises into separate areas, but
otherwise wholly empty. In any event, the Erith case was decided well
before the enactment of section 24 of the 1925 Act, which has now been replaced
by section 21 of the 1967 Act.
Next, I think
that it is apparent from the judgment of the Lands Tribunal in the Fir Mill
case that that part of their decision which I have already quoted was in its
turn based upon Lord Herschell’s dictum to which I have just referred. For the
reason I have given, I do not think that the dictum itself was sufficient to
justify that decision. In any event, whether it was right or wrong, the Fir
Mill judgment is not binding upon this court, although being a decision of
three members presided over by the then President it is of course entitled to
the highest respect.
Before the
Lands Tribunal the ratepayers relied on the decision in Townley Mill Co
(1919) Ltd v Oldham Assessment Committee [1937] AC 419 and both
sides sought to rely upon it at the hearing before us. In the case stated the
member said that he found difficulty in identifying the ratio decidendi
of that case and continued — ‘But it does not appear to have been argued that
the occupation of the premises was impeded by the presence of the process
machinery’ — which of course is the point which is being argued in the instant
appeal. I again respectfully agree with Oliver LJ’s view that this is correct,
in the light of his analysis of the Townley Mill decisions both in the
Divisional Court and the House of Lords.
In my opinion,
therefore, the decision in the instant appeal must depend upon a pure question
of construction of the relevant statutory provisions. As I have said, section 21
of the General Rate Act 1967 replaced, with immaterial variation, section 24 of
the Rating and Valuation Act 1925. For present purposes the only relevant
provision of the 1967 Act is section 21 which, in so far as is material, is in
these terms:
21(1) For the
purpose of the valuation of any hereditament under section 19 of this Act . . .
(a) all such
plant or machinery in or on the hereditament as belongs to any of the classes
set out in the statement for the time being having effect under subsection (4)
of this section
the ‘motive
plant and machinery’
shall be
deemed to be part of the hereditament;
(b) except as
provided in the foregoing paragraph, no account shall be taken of the value of
any plant or machinery in or on the hereditament
the ‘process
plant or machinery’.
In particular,
in the instant case, the phrase which has particularly to be construed is ‘. .
. . no account shall be taken of the value of any [process] plant or machinery
in or on the hereditament’.
In both the
Divisional Court and the House of Lords in the Townley Mill case it was
pointed out that in order to construe what was then section 24 of the 1925 Act,
it was necessary to ascertain what had been the law laid down in the decided
cases before that Act came into force. In his speech, starting at p 429 of the
report of the case in the House of Lords, Lord Russell of Killowen said:
The Lord Chief
Justice (with whom Hawke and Lawrence JJ agreed) thought that on the
construction of s 24 the matter was plain, and that on its clear language the
object of the section was to get rid of the old doctrine that although
machinery not forming part of a hereditament could not be rated, nevertheless
the rateable value of a hereditament was to be enhanced by reference to the
machinery which was in it, and which made it appropriate to the particular
industry carried on therein. Under the section motive plant and machinery is to
be deemed part of the hereditament which is being valued; as to process plant
and machinery, no account is to be taken of its value with respect to the
valuation of the hereditament.
My Lords, I
agree with the opinion of the Lord Chief Justice. It was said that the section
only referred to the value of the process plant and machinery, and did
not forbid the taking into account its existence and presence in the
hereditament; and that accordingly the section in no way interfered with the
application of the old authorities, with the result that the appellants could
be rated in respect of their occupation of the hereditament for the purpose of
housing the process plant and machinery. This contention is too subtle for me;
for I am unable to see how the value of the occupation for this purpose to a
hypothetical tenant can be assessed without some consideration of the value of
the plant and machinery housed.
Further, in
his speech at p 440, Lord Maugham said:
Then comes s
24 as to the valuation of any hereditament which happens to contain any plant
or machinery. It is not confined to mills and factories, and it seems to me
therefore to do considerably more than merely to alter the law as approved in
the Hunslet case. It was suggested that the words ‘no account shall be
taken of the value’, etc, do not mean ‘no account shall be taken of the presence‘,
etc, but, after all, the section is only dealing with values of machinery and
plant for the purpose of fixing the rateable value of the hereditament under
s22, subsection 1(c) of the Act.
At first
sight, it might be thought that these two passages from the two principal
speeches in the House of Lords in the Townley Mill case are good
authority for the wide meaning of the phrase ‘vacant and to let’ adopted both
in the Fir Mill case and in the case stated in the present appeal and
that thus the latter should be dismissed. With respect I cannot agree. In the
first place, as I have said, the point in the instant appeal was never argued
in the Townley Mill case. Consequently, I think that the passages from
their Lordships’ speeches which I have quoted must be considered to have been obiter
if one seeks to apply them to the facts of the case before us. Secondly, the
old law which section 24 of the 1925 Act was intended to supersede was, as Lord
Russell of Killowen said, that ‘although machinery not forming part of a
hereditament could not be rated, nevertheless the rateable value of a
hereditament was to be enhanced by reference to the machinery which was in it,
and which made it appropriate to the particular industry carried on therein’.
That is to say, that although machinery in a hereditament, but not forming part
of it, could not be rated, nevertheless if its value was such that it increased
the hypothetical worth of that hereditament, by making it especially
appropriate to the particular industry carried on in the hereditament, then it was
legitimate to take account of the more attractive proposition that that
hereditament constituted when valuing it for rateable purposes. This doctrine,
with a view to relieving the rating of industrial property in this and other
respects, section 24(1) of the 1925 Act swept away. It did so by enacting that
‘no account’ was to be taken of the ‘value’ of any process plant or machinery.
In my opinion, therefore, the intention and proper construction of section
24(1) of the 1925 Act was to provide that although the presence of process
plant or machinery in an industrial building might well enhance the rent which
a hypothetical tenant might pay for it, just because its presence would enable
that tenant the more easily, the more quickly and, indeed, the more cheaply to
start the particular manufacture for which that plant or machinery was
designed, this enhancement was to be ignored for rating purposes. In my opinion
the use of the word ‘account’ in the subsection has, at the least, a sense
closer to that of some form of figuring, evaluating or, indeed, ‘accounting’
than, for instance, some such phrase as no ‘regard’ shall be had to the
relevant factor. Further, in this context at any rate it is I respectfully
think incorrect to construe the word ‘value’ in the subsection as being capable
of having a negative sign, that is to say a minus value. The whole purpose of
the subsection was to assist occupiers of this type of property by taking out
of the rating valuation any increase in gross value due to the presence in or
on the hereditament of useful plant or machinery which the hypothetical tenant
would have been in a position to take over and use immediately he moved in. I
have no doubt that Parliament, in enacting section 24(1), never intended that
if there was on or in a particular hereditament process plant and machinery
which not only would be of no value to the hypothetical tenant, but would
indeed lead that tenant to offer less rent because of the obstacle that that
plant or machinery created, and thus reduce the rateable value, then regard was
not to be had to that fact. Further, for the reasons which I have sought to
indicate, I do not think that the actual wording of section 24(1) in any way
forces one to this conclusion. I do not think that on its proper construction
the subsection requires one not only to disregard any positive value of process
plant and machinery that it may have but also any negative value, if that
phrase — ‘negative value’ — is not in itself, at least in the context of the
statutory provision we have to construe, a contradiction in terms.
For these
reasons I am respectfully driven to the conclusion that the Lands Tribunal was
wrong and that this appeal should be
court did not have only two possible approaches open to it, namely a valuation
on the basis of the storage of the loose chattels on the one hand or as an
assumed vacant factory on the other. It would have been legitimate to have
considered a hypothetical tenant leasing the hereditament for the purposes of a
factory, but paying a less rent for it at least in the first year because of
the encumbrance comprised by the process plant and machinery until this could
have been removed. I do not think that this would do violence to any basic
principle of rating law, nor do I think that it would be taking into account
something accidental to the hereditament in the sense used by Lord Pearce in Almond
v Ash Brothers & Heaton Ltd [1969] 2 AC 366 in the passage from his
speech at pp 381-2 which my Lord has quoted. However, it was not so argued
below and I do not think that the point is now open to the valuation officer.
For my part, therefore, I would allow this appeal and restore the local
valuation court’s figure of £1,250.
ACKNER LJ
agreed with Oliver LJ that, for the reasons given by him, the appeal should be
dismissed.
The appeal
was dismissed with costs. Leave to appeal to the House of Lords was refused.