Rating – Non-domestic rates – Rateable value – Valuation Tribunal for England determining that respondent’s office building to be listed in rating list with nominal rateable value of £1 – Decision based on lack of demand for the property on the open market – Whether that factor justifying nominal valuation – Whether property to be valued instead by reference to “general demand” for other properties with similar characteristics – Appeal allowed
The respondent was the ratepayer in respect of a 1970s, purpose-built office building in Blackpool which the appellant valuation officer listed in the non-domestic rating list with a rateable value of £490,000 with effect from April 2010. The property was in the North Shore area of Blackpool, in a primarily residential area approximately two miles from the town centre.
At the antecedent valuation date (AVD) of April 2008, the property was subject to a lease to the secretary of state for the environment for a term of 42 years from September 1972, although the respondent had taken a virtual assignment of that lease under which it took commercial ownership of the lease and had responsibility for the rent, for running the property and acting as the tenant in any rent review negotiations. The lease was subject to seven-yearly, upwards-only rent reviews and the current rent was £417,000 pa. The respondent also held a reversionary lease of the property, dating from 2002, to run from the expiry of the original lease in September 2014 until March 2018.
The property had been occupied continuously since 1972 by HM Revenue and Customs and the Department for Work and Pensions. However, shortly before the AVD, both announced that they would be vacating the premises. The property was formally handed back to the respondent in March 2009 and was unoccupied at the material day in April 2010.
In October 2011, the respondent made a proposal to alter the entry in the rating list on the grounds that the appellant’s assessment was inaccurate on the day that the list was compiled. The appellant rejected the proposal but it was accepted by the Valuation Tribunal for England (VTE), which determined that the property should be listed with a rateable value of £1 with effect from April 2010. The VTE based its decision on the fact that, as at the AVD, a decision had been made to vacate the property and there was no demand for the property on the market.
The appellant appealed. He did not dispute that, had the property been on the market at the AVD, no one in the real world would have been willing to occupy it or pay a positive price. However, he contended that the fact that a property was unoccupied did not, of itself, justify a lesser value than that of comparable premises which were occupied.
Held: The appeal was allowed.
(1) Under the rating hypothesis laid down in para 2 of Schedule 6 to Local Government Finance Act 1988, the tribunal was obliged to determine the amount at which the hereditament might reasonably be expected to let on the statutory terms. It had to be assumed that a hypothetical landlord and a hypothetical tenant would agree terms for such a letting and it was not possible to conclude that no bidder could be found to take the tenancy: Hoare (VO) v National Trust [1998] RA 391; [1999] 1 EGLR 155 applied. The basic question was whether the occupation under the hypothetical tenancy was such as to be of value.
(2) A valuation for rating purposes was based upon the concept of the value of the occupation. The rental value had to be assessed by reference to the value of the beneficial or profitable occupation of the hereditament. When determining whether a property was capable of beneficial occupation, the true test was whether the occupation was of value and not whether pecuniary profit could be made from it. If there was here is something in the hereditament which made occupation of it intrinsically valueless in anybody’s hands, then a nil value would be appropriate: London County Council v Church Wardens and Overseers of the Poor of the Parish of Erith in the County of Kent [1893] AC 562, Poplar Metropolitan Borough Assessment Committee v Roberts [1922] AC 93 and Ladies Hosiery & Underwear Ltd v West Middlesex Assessment Committee [1932] 2 KB 679 applied.
A nil value might be appropriate where the physical nature of the premises was such as to render them valueless to any occupier or where, although occupation might be beneficial in the physical sense, the responsibilities of a tenancy would be so great as to result in the occupation being burdensome rather than beneficial in the commercial sense: Lambeth London Borough Council v English Property Corporation [1980] RA 297 and Hoare considered.
(3) While the rating analysis should not depart from the real world any further than was demanded by the rating hypothesis, there had to be a transaction. It did not necessarily follow from the fact that, in the real world, no one would take a tenancy of the property, that the hypothetical tenant would successfully obtain the hypothetical tenancy for a bid of £1 or a peppercorn.
(4) Once it was accepted that there had to be a tenancy granted on the statutory terms between the hypothetical landlord and the hypothetical tenant after negotiation, it was not possible to attribute to the hypothetical tenant the characteristic of not wanting the tenancy. That could not be justified by saying that, as a matter of fact, no one in the open market would have been prepared to pay any positive price for the property. It was only permissible to attribute that characteristic to the hypothetical tenant where the hereditament was intrinsically valueless or where the responsibilities were such that no beneficial occupation was possible in a commercial sense. It was not permissible to attribute that characteristic to the hypothetical tenant where the premises were capable of beneficial occupation and where comparable premises were beneficially occupied at substantial rents.
(5) Applying those principles to the instant case, the VTE had erred in valuing the respondent’s property at £1. A landlord of the property would not be happy to accept a nominal rent in return for passing on the repairing and insuring liabilities to a tenant. There existed at the AVD several broadly comparable offices that were beneficially occupied and for which substantial rents were being paid. There was no reason why the public-sector occupants of those comparable premises, if not already accommodated, would not have been able to enjoy beneficial occupation of the respondent’s property and find such occupation to be of substantial value. Where the hereditament was not intrinsically valueless, and where comparable premises were being beneficially occupied at substantial rents, it was unlikely that a hypothetical landlord and hypothetical tenant, acting prudently and making the best use that they could of their bargaining positions, would agree on a rent of £1 for the tenancy.
(6) Instead, the tenancy would be granted at a rent which was more than nominal and which represented the value of the occupation. The rent would be negotiated between the hypothetical tenant and the hypothetical landlord by reference to the “general demand” for such properties as evidenced by the occupation of other office premises with similar characteristics. That being so, the rateable value should be determined at £370,000, that being the figure that the parties had agreed was appropriate if the appellant’s appeal was allowed.
Hui Ling McCarthy (instructed by the legal department of HM Revenue and Customs) appeared for the appellant; Richard Glover QC (instructed by Bilfinger GVA, of Manchester) appeared for the respondent.
Sally Dobson, barrister
Click here to read transcript: Hewitt (VO) v Telereal Trillium
