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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Orange PCS v Bradford (Valuation Officer)  EWCA Civ 155 (17 February 2004)
Cite as:  2 All ER 651,  RA 61,  EWCA Civ 155
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LANDS TRIBUNAL
(George Bartlett QC, President)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE THOMAS
LORD JUSTICE JACOB
| ORANGE PCS
|- and -
|ALAN ROY BRADFORD
Timothy Morshead (instructed by Solicitor to the Inland Revenue) for the Respondent
Hearing date: 27th November 2003
Crown Copyright ©
LORD JUSTICE THOMAS :
The issue in this appeal is the correct approach for the purposes of rating to the valuation of a hereditament comprising a very small piece of land within the limits of the public highway on which a mobile phone aerial mast had been sited together with its associated equipment and cabling. The matter is of some importance to telecommunications operators such as the appellants (Orange) who have constructed networks which include similar sites across England and Wales.
"The operator shall, for the statutory purposes, have the right to do any of the following things, that is to say
(a) install telecommunication apparatus, or keep telecommunication apparatus installed, under, over, in, on, along or across the street
(b) inspect, maintain, adjust, repair or alter any telecommunication apparatus so installed; and
(c) execute any works requisite for or incidental to the purposes of any works falling within paragraph (a) or (b) above, including for those purposes the following kinds of works, that is to say
(i) breaking up or opening a street
(ii) tunnelling or boring under a street
(iii) breaking up or opening a sewer, drain or tunnel."
Under the Code no payment or compensation is made either to the highway
authority or to the owner of the land within the lateral limits of the highway
which is not vested in the highway authority.
The approach to valuation
"The rateable value of a non-domestic hereditament shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions
(a) the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;
(b) the second assumption is that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic;
(c) the third assumption is that the tenant undertakes to pay all usual tenant's rates and taxes and to bear the cost of the repairs and insurance"
It was common ground that the specific assumptions were not material to the dispute in the present appeal. The valuation is to be made at a given date.
"In particular I would emphasise the necessity to adhere to reality subject only to giving full effect to the statutory hypothesis, so that the hypothetical lessor and lessee act as a prudent lessor and lessee. I would call this the principle of reality"
Scheimann LJ made clear the importance of this (at 408);
"The statutory hypothesis is only a mechanism for enabling one to arrive at a value for a particular hereditament for rating purposes. It does not entitle the valuer to depart from the real world further than the hypothesis compels."
The dispute in this appeal
"The essence of the decision in Poplar v Roberts in my judgment is that the statutory hypothesis is the means of establishing the value of the occupier's occupation and that the amount that the occupier actually pays in the real world in order to occupy the hereditament, whether that amount arises from an agreement or by force of statute, will not be evidence of this value unless it accords, or can be adjusted to accord, with the statutory hypothesis."
He concluded at paragraph 22 of his judgment:
"The fact that under the Code the operator makes no payment for the right to locate his equipment in the highway and could thus locate it in any suitable position free of charge is no evidence that on the rating hypothesis the hypothetical tenant (who would be such an operator) and the hypothetical landlord would agree that the tenant's occupation was valueless. On the contrary the fact that, when similar equipment performing a similar function is located on private land, rental payments are normally made very strongly suggests that the land, as well as the equipment on it, is of value to the occupier, and I so find"
The contentions of Orange
i) The only potential tenants for the hereditament were telecommunication operators as they alone had the statutory right under the statutory Telecommunications Code to place masts in the location.
ii) The hereditament the subject of the appeal was not the only location at which Orange could site its mast, because as set out at paragraph 2, there was a degree of latitude as to the exact positioning of the mast.
iii) Thus in negotiating for the rent for the site of the mast, the tenant would have had a strong negotiating position in that he would be able to say that he could site the mast elsewhere, if the demands were excessive; the landlord would have had to take into account the fact the only tenant would be someone who had the statutory right under the Code, that the tenant could use another location and that the tenant would not pay more by way of rent than the alternatives available through the use of the statutory powers under the Code.
The decision in Poplar
i) Rates are levied on the basis of the value of the occupation of the hereditament to the occupier; at page 104 Lord Buckmaster said:
"From the earliest time, it is the inhabitant that has to be taxed. It is in respect of his occupation that the rate is levied, and the standard in the Act is nothing more but a means of finding out what the value of that occupation is for the purposes of the assessment. In my opinion, the rent that the tenant might reasonably be expected to pay is the rent which, apart from all conditions affecting or limiting its receipt in the hands of the landlord, would be regarded as a reasonable rent for the tenant who occupied under the conditions which the statute of 1869 imposes."
Lord Parmoor at page 118 said:
" Under 43 Eliz.c.2, rates are to be levied upon every occupier of lands, houses etc. The distinction between occupier and owner, in this connection, is of primary importance. The occupation of property may be, and often is, distinct from its value to the owner. This distinction would probably be emphasised where an artificial statutory maximum is fixed and a statutory restriction prevents an owner from recovering from any tenant a greater amount, as rent, than the statutory maximum."
ii) The rent for the purposes of the statutory hypothesis is the value of the occupation to a hypothetical tenant; the actual rent paid by the actual tenant is not determinative. This principle was set out by Lord Buckmaster at pages 103 and 104:
"The tenant referred to is, by common consent, an imaginary person; the actual rent paid is no criterion, unless, indeed it happens to be the rent the imaginary tenant might reasonably be expected to pay in the circumstances mentioned in the section. (103)"
"Just as the tenant is hypothetical, so also is the rent; it is only used as a standard which must be examined without regard to the actual limitation of the rent paid by virtue of the covenant as between the landlord and tenant, and also, as I regard it, to statutory restrictions that may be imposed upon its receipt. (104)"
Lord Atkinson used very similar terms at pages 108 and 113:
"but the actual rent paid by the actual tenant is not and cannot be, treated as a measure of, or a substitute for, the hypothetical rent which conceivably be expected from a hypothetical tenant.(108)
To make rateability depend on the fact that the person to be rated is, in fact, an actual tenant, or to make the rent payable by the actual tenant the measure of the rateable value of premises would be an absolute innovation, in direct conflict with the principles of the law of rating as established for over a century. (113)"
As did Lord Parmoor at page 118 and 21:
"It has long been recognised that actual rents based on the contractual relationship between tenant and landlord are not the test of the value of a property for rating purposes. I do not think that there is any difference in this respect between a contractual and a statutory rental. In either case the rateable value must be assessed in accordance with statutory directions. (118)
The fundamental distinction remains that the assumed rental, based on statutory directions for the purposes of ascertaining occupation value, is in itself a different thing from an actual rental which denotes the liability between an owner and tenant, and which may depend on a variety of conditions other than those affecting the beneficial or profitable occupation of property. (121)"
iii) In ascertaining the value, although all factors have to be taken into account, the value of the occupation to the occupier has to be ascertained without reference to any specific circumstances personal to the occupier. This principle was expressed by Lord Buckmaster at page 103:
"But although the tenant is imaginary, the conditions in which his rent is to be determined cannot be imaginary. They are the actual conditions affecting the hereditament at the time the valuation is made. those words related entirely to determining the value of the occupation to the occupier, excluding, of course, any element due to his skill, industry, or other strictly personal qualifications. In the present case the respondent seeks to introduce into these words the conditions which regulate the value of the hereditament to the landlord.
Lord Parmoor's description of the principle at page 121 was:
"In ascertaining this annual value, all that can reasonably influence the judgment of an intending occupier ought to be taken into consideration, including not only the natural conditions, but any statutory provisions which may tend to enhance or diminish the value of the beneficial occupation or its profit earning capacity. The special skill or industry of a particular occupier is not one of the natural conditions which attach to property and on this ground it is excluded from consideration of rateable value "
A further useful illustration of this principle was given by Lord Pearson in Dawkins (Valuation Officer) v Ash Brothers & Heaton  2 AC 366 at page 381:
"But one excludes 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 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 " "
iv) As far as an occupier was concerned, the occupation was not made less beneficial by the operation of the statutory restriction; as Lord Sumner said at page 116
"I think that the word "rent" must now be held to mean something which at any rate is not conditioned by the legal relations which exist between an actual landlord and an actual tenant. An occupier under a beneficial lease cannot require the annual value to be cut down to the rent actually reserved. Equally a hypothetical occupier, although he will occupy, if he occupies at all under a beneficial statute, must not be supposed to limit what he is prepared to give in order to get the occupation of the hereditament merely to the amount, the giving of which will enable him to retain it in the face of anything that an actual landlord could legally do against him."
v) The principle of equality applicable in rating is a material factor in considering the effect of a statutory regime; Lord Parmoor stated at page 119:
"It has long been recognised, as a matter of principle in rating law, that to make actual rentals the basis of rateable value would be to contravene the fundamental principle of equality, both between the rate contributions from individual ratepayers, and between the totals of rate contributions levied in different contributory rating areas. In effect the result would be to make the amount on which the occupier of property is liable to pay rates dependent in many cases upon on the contractual relationship between a particular landlord and tenant, whereas it is dependent in all cases on a statutory direction applicable on the same principles to all hereditaments, and intended to insure equality of treatment as between the occupiers of rateable property and the rating authority"
Lord Sumner provided at page 116 an illustration of the principle of equality by showing that it would be unfair to enable an occupier who derived a benefit from the 1920 Act by way of restricted rent to gain the collateral advantage of lower rates:
"Rating is a process between an occupier and a rating authority, to the determination of which the landlord and the lessee are strangers. If as is contended "rent" is throughout rigidly restricted to its meaning as a term of art, and the measure of value thus applied by hypothetical hands is the real thing, the result would be that the occupier, who already has been enriched under the Rent Restriction legislation by receiving a statutory present of part of the value of his landlord's property, would profit still further and equally unmeritoriously by escaping from the rates, which the hereditament ought to bear, to the prejudice of less fortunate occupiers. I say "ought to bear" because the only justification for the restriction is that the hereditament is really worth more by the year in the market than the landlord is allowed to charge, but that it is inexpedient that he should have the benefit of it. As a matter of fact, not only does the Act not deal with rating expressly except in another connection, but it actually (s.2(1)(b)) enables the landlord to pass on to the tenant an enhanced burden of rates falling on himself, without discriminating between an enhancement due to increased rateable value and one only due to increased poundage."
vi) The specific purpose of a statute has to be taken into account. Lord Atkinson considered that the 1920 Act was not intended to interfere with the system of valuation set up under the rating legislation; he said at page 108:
"It therefore appears to me that where you find a statute dealing exclusively with actual rent paid by actual tenants, actual increases of such rent, the natural conclusion to arrive at is that this statute was not designed or intended to deal with the rating of hereditaments at all . It is plain, I think, from the provisions of the Act, that the evil it was designed to cure was not excessive or defective rating. The evil it was obviously designed to prevent was the exploiting by landlords of the great demand for dwelling houses, of which the supply was inadequate, in order to exact excessive rents for the dwelling houses they owned".
After referring to the consequences of the Act, he concluded at page 109:
" Results such as these seem to show that it was never designed to supersede by this Act the old system of rating dwelling houses. Again it cannot, I think, be disputed that equality of rating is and should be one of the main object of all rating systems "
The hereditament in this appeal
"The rent to be ascertained is the figure at which the hypothetical landlord and tenant would, in the opinion of the valuer or the tribunal come to terms as a result of bargaining for that hereditament in the light of competition or its absence in both demand and supply, as a result of 'higgling in the market.'"
As Scott LJ went on to point out, the enquiry is primarily economic and not legal; it is impossible, for the reasons given to understand in economic terms how there could ever be, as Orange contended the "higgling in the market" in relation to a site on or adjacent to the highway where all such sites could be occupied free of charge under the Code.
i) The effect of the 1920 Act was to provide a statutory restriction on the amount that a tenant would otherwise have been prepared to pay and the landlord otherwise permitted to accept; it was a statutory intervention in the market which affected some dwellings and not others.
ii) The power under the Code was a statutory intervention in the market; absent the right under the Code to occupation of the land on which the mast was situated without payment, payment would ordinarily have been made, just as payment was made when the mast was placed on private land.
iii) In my view, it made no difference that, under the regime created by the Telecommunications Act and the Code set out in Schedule 2, the only potential tenants who could occupy the land for the purpose of erecting a mast were entitled to occupy the land without charge. The fact that they were entitled to free occupation was an incident particular to Orange and other telecommunications operators and not to the occupation of the land.
iv) There was no meaningful distinction between the circumstances in Poplar and in the present appeal by reason of the fact that the speeches in Poplar discussed the issues in terms of the restriction placed on the landlord and not the tenant. In Poplar the legislation restricted the amount that could be recovered by the actual landlord. In the present appeal, the legislation provided that nothing could be charged to the actual tenant by the highway authority; in both instances, the legislation affected the actual parties and not the value of the beneficial occupation of the hereditament.
v) The illustrations used by Lord Pearce in Dawkins did not assist Orange. It was argued on their behalf that it was essential that the hereditament be located on the highway and that the tenant would pay less for a hereditament located on the highway because the statutory powers under the Code provided them with an alternative. However, for the reasons given at paragraph 25, this submission was circular. Orange's argument that the only hypothetical tenant of the hereditament the subject of the appeal could be a licensed telecommunications operator begged the question for the same reason.
LORD JUSTICE JACOB:
LORD JUSTICE AULD: