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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Telereal Trillium v Hewitt (Valuation Officer) [2018] EWCA Civ 26 (19 January 2018) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2018/26.html Cite as: [2018] WLR 3463, [2018] WLR(D) 32, [2018] 1 WLR 3463, [2018] RA 111, [2018] EWCA Civ 26 |
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ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
[2016] UKUT 258 (LC)
Strand, London, WC2A 2LL |
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B e f o r e :
THE SENIOR PRESIDENT OF TRIBUNALS
and
LORD JUSTICE HENDERSON
____________________
TELEREAL TRILLIUM |
Appellant |
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- and - |
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KEVIN HEWITT (VALUATION OFFICER) |
Respondent |
____________________
Ms Hui Ling McCarthy (instructed by HM Revenue and Customs Solicitor's Office) for the Respondent
Hearing date: 1st November 2017
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Crown Copyright ©
Lord Justice Henderson:
Introduction and background
"(1) The rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating 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 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 the rent mentioned above."
The day referred to in sub-paragraph 2(1)(a) is the AVD, and so in the present case is 1st April 2008: see paragraph 2(3).
"The Act of Parliament requires the assumption of a tenancy from year to year to be made, and you can no more impugn the hypothesis of such a tenancy in rating matters than in logic you are permitted to deny your opponent's hypothetical premiss. You must assume a landlord willing to let, and a tenant willing to take by the year; and having done so, you must get in the best way you can at the rent which, under an agreement brought about by the compromise of the conflicting interests of the man who wants to receive as much as he can and the man who wants to pay as little as he can, would be arrived at under such circumstances."
"(a) matters affecting the physical state or physical enjoyment of the hereditament,
(b) the mode or category of occupation of the hereditament,
…
(d) matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are none the less physically manifest there, and
(e) the use or occupation of other premises situated in the locality of the hereditament."
"However, the panel noted that the occupiers of those other offices were mainly public sector organisations. Was there a demand for large offices to be situated [in] Blackpool from public sector organisations or businesses at the AVD of 1 April 2008? Would they be interested in occupying the appeal property? On the evidence available, the panel was not convinced. The panel found Mr Stevens' evidence persuasive. He had shown that between 2005 and 2009, there were no new lettings for offices anywhere near the size of the appeal property in Blackpool or the wider geographical area. In addition, there had been no demand for the appeal property in over 5 years of marketing it. Mr May acknowledged that there had been no new lettings in the area for offices of that size and admitted, during questioning, that the appeal property was currently unlettable as offices."
"In conclusion, the panel was satisfied that by the AVD of 1 April 2008, the actual occupier of the appeal property had decided to vacate it. The evidence from lettings in the area between 2005 and 2009 clearly showed that there was no market demand for the appeal property in its current layout as three storey offices over 6000 sq.mts. The appeal property had been on the market for more than five years which further showed that there was no demand, even on a floor by floor or wing by wing basis. As valuation officers had placed nominal values on other large offices where there was no demand, the panel decided to reduce the appeal property's assessment to a nominal value, say rateable value £1."
"(1) An appeal shall lie to the Upper Tribunal in respect of a decision or order given or made by the VTE on an appeal under the NDR Regulations…
…
(5) The Upper Tribunal may confirm, vary, set aside, revoke or remit the decision or order, and may make any order the VTE could have made.
… "
The facts in more detail
The hearing before the Upper Tribunal
"During the course of his cross-examination Mr Hewitt accepted that as at the AVD he could not identify in the real world any person who would put in a bid for a tenancy of Mexford House on the statutory terms; that there was no demand for such accommodation from the private sector; and that all public sector demands as at the AVD were being met by the occupation of other premises which the public sector already enjoyed. He accepted the opinion expressed by Mr Baldwin [the surveyor instructed for Telereal Trillium] in paragraph 11.1 of Mr Baldwin's first report, namely that "vacant and to let" at the AVD there would be no demand for Mexford House."
"Leaving aside any detailed comparisons (some favourable some unfavourable) between Mexford House on the one hand and Hesketh House and the other comparables on the other hand, [Mr Hewitt] expressed the view that there was a quantity of broadly comparable office accommodation which was in beneficial occupation and for which substantial rents were paid at the AVD. He said that the fact that as at the AVD there was in the real world no demand for Mexford House (because all the demand had been absorbed in the other comparable properties) was not because of any intrinsic lack of merit (or obsolescence) in Mexford House as compared with these other properties but because Mexford House could be considered as "unlucky" not to have occupants in beneficial occupation when comparable office premises did have occupants in beneficial occupation."
"1. The parties are content that the issue can be decided as a point of law.
2. The Respondent [i.e. Telereal Trillium] contends that the correct approach requires the valuer to consider whether, had the subject hereditament been on the market at the AVD (1 April 2008), anybody would have been prepared to occupy the property and pay a positive price.
3. The parties agree that had the subject hereditament been on the market at the AVD (1 April 2008), nobody in the real world would have been prepared to occupy the property and pay a positive price. Thus, if the correct approach under the rating hypothesis is as formulated in paragraph 2 above, the appeal should be dismissed and the decision of the [VTE] confirmed.
4. The [Valuation Officer] accepts that there was nobody in the real world who would be prepared to pay or bid a positive price for Mexford House at 1 April 2008.
5. If, however, the correct approach is, as the [Valuation Officer] contends, that (notwithstanding the absence of anybody who would be prepared to pay or bid a positive price for Mexford House at 1 April 2008), the rating hypothesis:
(a) requires the existence of a hypothetical tenant to be assumed and;
(b) requires the rateable value to be assessed by reference to the "general demand" as evidenced by the occupation of other office properties with similar characteristics,
then the parties agree that the appeal should be allowed and the [rateable value] determined at £370,000.
6. The Respondent accepts the proposition at 5(a) but does not accept the proposition at 5(b).
7. If the [Valuation Officer] is right, [his rateable value] of £370k is confirmed.
8. If the Respondent is right, the Respondent's [rateable value] of £1 is confirmed."
Footnotes to paragraphs 2 and 3 of the Joint Position Paper also recorded the parties' agreement that the factors in paragraph 2(7) of Schedule 6 to the 1988 Act were to be taken as they were at the material date, i.e. 1st April 2010.
"(a) We expressed interest in hearing more detailed evidence (i.e. more details than as revealed in Mr Baldwin's reports) as to what steps were taken when and by whom to let Mexford House upon what terms. We thought it of potential interest to investigate the extent to which the property had been exposed to the market.
(b) In particular, we expressed an interest in hearing evidence as to whether Mexford House could have been let at a rent which was very much lower than the £59 per square metre contended for by Mr Hewitt but which was more that nil. We asked whether we would be addressed upon the question of whether the DWP or HMRC might have reversed their decision to remove from Mexford House (so as to consolidate their operations at other office buildings in the public sector) and might instead have chosen to consolidate at Mexford House itself if Mexford House had been made available on the hypothetical statutory terms at such a very much lower rent."
(a) the Tribunal set out matters of relevance which they derived from the authorities cited to them, at paragraphs 38 to 65;
(b) recorded the submissions of counsel on each side, at paragraphs 66 to 94; and
(c) in a section headed "Discussion", running from paragraphs 95 to 108, gave their reasons for allowing the Valuation Officer's appeal.
(a) the hypothetical parties will agree terms for the lease of the hereditament;
(b) the question is whether occupation of the hereditament would be of value;
(c) if somebody wanted to occupy the hereditament it is capable of use as offices;
(d) a nominal rateable value is only permissible where either (i) the hereditament is incapable of use, or (ii) "where the responsibilities of a tenancy are so great as to result in the occupation being burdensome rather than beneficial in the commercial sense" (paragraph 99 of the UT Decision);
(e) if demand were not already met elsewhere, it would be met at Mexford House;
(f) Telereal Trillium "attributes to the hypothetical tenant" the characteristic of "not wanting the tenancy at all" (paragraph 104);
(g) it is only permissible to attribute such a characteristic to the hypothetical tenant "where the hereditament is intrinsically valueless (struck with sterility) or where the responsibilities are such that no beneficial occupation is possible in a commercial sense" (ibid);
(h) occupation of Mexford House on the hypothetical tenancy would be of value to the occupier;
(i) once it is decided that the occupation would be of value, it is impermissible as a matter of law to determine a nominal rateable value; and
(j) it is therefore necessary to determine a rateable value which represents the value of the occupation, even though no demand for such occupation exists in the real world.
"The appeal raises an issue of principle which is likely to recur in connection with substantial vacant buildings with significant rateable values. Where the evidence shows that there is no demand to occupy a hereditament which is capable of occupation, does the rating hypothesis require the valuer to assume demand that does not in reality exist?"
The grounds of appeal
(1) It being accepted that there was no demand to occupy the hereditament on the statutory terms and conditions at a positive rent, the Tribunal was wrong to conclude that the rating hypothesis requires the valuer to assume demand that did not in reality exist.
(2) In the circumstances as found, the rating hypothesis requires that the valuer does not assume demand that in reality did not exist. The Upper Tribunal erred in concluding otherwise.
(3) In the circumstances as found, the Tribunal should have concluded that the rateable value of the appeal hereditament was £1.
The rating hypothesis: relevant principles
"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 "the higgling of the market." I call this the true rent because it corresponds to real value."
Scott LJ added (ibid):
"The objective being the real value of the actual hereditament, the inquiry is primarily economic and not legal; it is only legal in so far as logical relevance is the measure of legal admissibility … On such an inquiry every factor, intrinsic or extrinsic, which tends to increase or decrease either demand or supply is economically relevant and is, therefore, admissible evidence for the assessment committee or its valuer or the quarter sessions on appeal to consider."
"In all other respects, the theme which runs through the authorities is that one assumes that the hypothetical vendor and purchaser did whatever reasonable people buying and selling such property would be likely to have done in real life. The hypothetical vendor is an anonymous but reasonable vendor, who goes about the sale as a prudent man of business, negotiating seriously without giving the impression of being either over-anxious or unduly reluctant. The hypothetical buyer is slightly less anonymous. He too is assumed to have behaved reasonably, making proper enquiries about the property and not appearing too eager to buy. But he also reflects reality in that he embodies whatever was actually the demand for that property at the relevant time. It cannot be too strongly emphasised that although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place. The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable. The practical nature of this exercise will usually mean that although in principle no one is excluded from consideration, most of the world will usually play no part in the calculation. The inquiry will often focus on what a relatively small number of people would be likely to have paid. It may have to arrive at a figure within a range of prices which the evidence shows that various people would have been likely to pay, reflecting, for example, the fact that one person had a particular reason for paying a higher price than others, but taking into account, if appropriate, the possibility that through accident or whim he might not actually have bought. The valuation is thus a retrospective exercise in probabilities, wholly derived from the real world but rarely committed to the proposition that a sale to a particular purchaser would definitely have happened. "
"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."
After referring to the matters which the Lands Tribunal had taken into account, Schiemann LJ then said at 409 that, had the Tribunal taken the characteristics of the hypothetical landlord into account, it would have found:
"no reason to suppose that the hypothetical landlord would have been in a position where he would have been able to drive the Trust to accept rental as well as repairing responsibilities. One must bear in mind that the hypothetical landlord in the present cases would be faced with a situation in which, on the Tribunal's findings, there are no other bidders for the tenancy. All this points to a nominal hypothetical rent."
Again, I would observe that the same conclusion would seem to follow, a fortiori, if there were no potential bidder for the tenancy in the real world.
"The court must not assume hypothetical tenants for the hereditament if there is in respect of that particular hereditament no reasonable possibility of such tenants existing. In Great Western and Metropolitan Railway Cos. v Hammersmith Assessment Committee Lord Buckmaster said ([1916] 1 AC 23 at 35):
"The phrase "hypothetical tenant", which has for a long time described the character of the tenancy, must not be allowed to introduce the idea of creating hypothetical competitors or hypothetical circumstances by which to fix the rent."
In this case it is clear that there could be no hypothetical tenant other than the ratepayers for a league football ground with its large grandstand accommodation and other equipment needing some thousands of pounds to be spent annually in maintenance. There was no evidence that some tenant might be found for some alternative use and without such evidence it is wrong to assume it."
"The appellants here, however, say that besides the principle of independent valuation, there is another vital principle: that as between different classes of hereditaments, and as between different hereditaments in the same class, the valuation should be fair and equal. I agree, but in my view there is a third important qualification, that the assessing authority should not sacrifice correctness to ensure uniformity, but, if possible, obtain uniformity by correcting inaccuracies rather than by making an inaccurate assessment in order to secure uniform error."
"it would be impermissible to conclude that the value shown for Mexford House in the valuation list should be an incorrect larger figure for the purpose of securing uniformity with other office buildings shown in the list."
Discussion
Conclusion
The Senior President of Tribunals:
Davis LJ: