Rating – Valuation – Purpose-built GP surgeries – Appellant valuation officer advocating valuation according to “rental method” by reference to evidence of lettings of comparable properties – Respondents arguing for alternative “contractor’s basis” of valuation – Whether reliable evidence for rental method available in form of “current market rents” determined in relation to other purpose-built GP surgeries for purpose of determining practitioners’ entitlement to reimbursement of rent – Whether such values unreliable as failing to accord with rating hypothesis – Appeal dismissed
These were three appeals from decisions of the Valuation Tribunal for England (VTE) determining the rateable value of three purpose-built general practice doctors’ surgeries in Sheffield. The appellant valuation officer contended for the “rental method” of valuation, under which the rateable value was determined by evidence of lettings of comparable properties. It relied on lettings of other purpose-built GP surgeries at the “current market rent” (CMR), which figure was determined on an independent valuation by the District Valuer Services (DVS) pursuant to government guidance currently contained in the National Health Service (General Medical Services – Premises Costs) (England) Directions 2004. The rent so determined was reimbursed to the practitioner by the National Health Service under the Doctors’ Rent and Rates Reimbursement Scheme (DRRS).
The respondents submitted that the CMR values were not consistent with the rating hypethesis under para 2(1) to Schedule 6 of the Local Government Finance Act 1988, requiring the rateable valued to be determined according to the rent at which it was estimated that the hereditament might reasonably be expected to let, on given assumptions.
Accepting that argument, the VTE held that, in the absence of any open-market rents against which to compare the CMR values, it could not be satisfied that they equated to the rent at which the property might reasonably be expected to let from year to year, in accordance with the definition of rateable value. It accordingly valued the hereditaments on the alternative “contractor’s basis” suggested by the respondents, by reference to the assumption that a tenant could build its own alternative premises and so would not be willing to pay more in rent to a landlord than the amount of interest that it would incur or forego on the capital sum expended on providing that alternative.
The appellant appealed. It was agreed that parties agreed that the appeals should be regarded as a “test case” since there were a significant number of other rating appeals on purpose-built GP surgeries awaiting the outcome of the case.
Held: The appeal was dismissed.
In determining the rent at which it was estimated that a hereditament might reasonably be expected to be let, the best evidence would be evidence of lettings of comparable premises in the open market. Use of the rentals method depended on sufficient, appropriate and reliable comparable evidence being available from the marketplace. If it was available, it would be top of the evidential hierarchy. However, in any case where there was a question over the availability, reliability or usefulness of rental evidence, there was no disagreement that the contractor’s basis should be used.
The CMR values were not reliable comparables for the purposes of the rental method. The valuation of the CMR emerged from a value-for-money appraisal to determine the economic viability of the development and was therefore linked to development costs. Rents based on development appraisals were unreliable for rating purposes and did not accord with the strict requirements of the rating hypothesis.
The CMR was not an actual rent but was a valuation undertaken by the district valuer for the purposes of calculating reimbursement under the DRRS scheme. Rents underpinned by the DRRS were not open-market rents. Although the CMR might be based on the rent actually payable under the lease, those rents were not based on transactions in the open market, or any other actual market, and were not the subject of a willing negotiation between landlord and tenant. There was no evidence to suggest that the parties were acting on the basis of prudent lessor and lessee within the meaning of the rating hypothesis, and the district valuer’s role was compromised by the practical pressure to get the surgery built in order to cater for the demands of the populace for GP services. The CMR values were matters of the district valuer’s opinion and, since the relevant hereditaments were never vacant and to let, could not be tested outside the DRRS scheme. Where CMR values were based on other CMRs, the whole issue became a matter of opinion on opinion, which was self-sustaining and unreliable because of the potential for “error piled on error”.
Accordingly, the assessment of CMRs was too far outside the rating hypothesis to provide reliable evidence on which to base a valuation using the rentals method. Such values were not based on the “vacant and to let” assumption of the rating hypothesis and did not reflect the value of occupation to the occupier: Lotus & Delta Ltd v Culverwell (VO) [1976] RA 141 and R v Paddington Valuation Officer, ex parte Peachey Property Corporation Ltd [1965] RA 177 considered.
Daniel Kolinsky (instructed by the legal department of HM Revenue and Customs) appeared for the appellant; Christopher Lewsley (instructed under the licensed access scheme by GVA commercial property consultants, of Leeds) appeared for the respondents.
Sally Dobson, barrister
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