Rating – Valuation – Self-catering holiday cottages – Receipts and expenditure – Composite hereditament – Fair maintainable trade – Whether ratepayer’s performance better than that of reasonably competent tenant – Whether allowance for notional tenant’s labour appropriate – Appeal allowed in part
The appellant ratepayer appealed against a decision of the Valuation Tribunal for England (VTE) concerning the rateable value of a property described in the 2010 rating list as a “self-catering holiday unit and premises” at “Cottages r/o Elmfield, Stone Street, Stelling Minnis, Canterbury, Kent”. The property was a composite hereditament which comprised a three-bedroom bungalow occupied by the appellant and his wife as their family home, the adjoining 28 acres of grazing land and four self-catering holiday units. It was occupied as a single unit from which the appellant conducted a small-scale farming and holiday enterprise. The four holiday units were the only part of the composite hereditament within the scope of non-domestic rating.
The rateable value of a hereditament was represented generally by the estimated rent at which it might reasonably be expected to let from year to year from the date of determination, on the assumption that it was in a state of reasonable repair and that the notional tenant would be responsible for maintaining it in that state (para 2(1) of Schedule 6 to the Local Government Finance Act 1988). The valuation was to be undertaken as if the letting took place at the antecedent valuation date (AVD), in this case 1 April 2008. The parties agreed that the appropriate method of estimating that rent in the case of the holiday units was by adopting the receipts and expenditure method of valuation.
A dispute arose concerning the application of that method, in particular with respect to the level of income which the notional landlord and tenant, negotiating the rent, would assume a reasonably competent operator of the holiday units would be capable of achieving over a sustained period (fair maintainable trade (FMT)) and the level of working expenses reasonably expected to be incurred in order to achieve that level of income. The appellant appealed against the valuations made by the respondent valuation officer. The VTE reduced the rateable value in part but the appellant appealed. The valuation officer responded but did not cross-appeal.
Held: The appeal was allowed in part.
(1) A local non-domestic rating list had to show every relevant non-domestic hereditament at least some of which was neither domestic property nor exempt from local non-domestic rating Agricultural land was exempt. Under section 64(8) of the 1988 Act, a hereditament was non-domestic if it consisted entirely of property which was not domestic, or was a composite hereditament, only part of which consisted of domestic property. The whole of a composite hereditament fell to be entered in the local rating list, notwithstanding the domestic element. The hereditament in this appeal comprised exempt, domestic and non-domestic elements. The agricultural acreage was exempt, the bungalow was domestic and the holiday units were non-domestic. The effect of para 2(1B) of Schedule 6 to the 1988 Act was that, where part of a hereditament was exempt, the rateable value of the hereditament was to be determined by identifying the extent to which the rent which would be agreed for a letting of the whole hereditament would reasonably be attributable to non-domestic use. Paragraph 2(1B) was not prescriptive about how an assumed rent for the whole property was to be apportioned, or attributed, to different uses. However, it was essential to respect the statutory hypothesis of a single letting of the whole of the hereditament. Where the value of the non-domestic part was to be ascertained by a receipts and expenditure valuation, the attribution of a separate value to the non-domestic use of property required careful consideration, especially where the domestic and exempt parts of the hereditament each contributed to the success of the business conducted from the non-domestic part. On the statutory hypothesis the residential accommodation was included in the letting as being available for occupation by the tenant who would carry on the business of letting the holiday units; the exempt agricultural land was also included, and might contribute to the character of the business, for example by allowing guests using the holiday cottages to have access to livestock kept on the exempt part.
(2) Much of the difficulty in applying the statutory valuation hypothesis of a letting from year to year to self-catering holiday cottages arose from the fact that, in practice, such units were not let (whether on annual tenancies or at all) but were owned by the operator on a freehold basis. The absence of a letting market might be taken to indicate that self-catering businesses could not be run in such a way as to provide both an acceptable rental return for a landlord and an acceptable income return for a tenant and no evidence would be available of how parties negotiating an annual tenancy might behave, which left a great deal to the judgment of the valuer. Nevertheless, the statutory hypothesis had to be applied, no matter how difficult the exercise or how artificial the result. The motivation of an owner occupier of self-catering accommodation to grow the business and thus to enhance the capital value of the property had to be taken to be absent in the notional case of a letting to an annual tenant whose only return from the business would be in the sharing of the net profit. On the statutory hypothesis any capital growth from the efforts of the tenant would accrue to the landlord, who would also be spared the expense of maintaining the premises, and would incur none of the risks of the business being undertaken from them. As a matter of principle, it was necessary when undertaking a receipts and expenditure valuation of a composite hereditament from which a small self-catering holiday cottage business was run to include a credible return for the operator’s own efforts, either by treating them as an expense of the business, or by reflecting them in an unequal division of net profit. The appellant’s agreement that the divisible balance should be shared equally was conditional upon an adjustment being made in his own accounts in respect of the work he had contributed to the running of the business: Beaconside Country House & Cottages vGidman (VO)[2016] UKUT 497 (LC)andRedrose Ltd vThomas (VO)[2014] UKUT 311 (LC) followed.
(3) In the present case, the court assessed the total costs as 76% of the FMT which was well supported by the evidence and the rateable value of the appeal hereditament would be reduced accordingly.
The appellant appeared in person; the respondent was represented by the technical advisor at the Valuation Office Agency.
Eileen O’Grady, barrister
