Bunyan (VO) v Acenden Ltd

Rating – Non-domestic rates – Valuation – Modern headquarters office building let in “Category A” condition before fitting out by respondent tenant to “Category B” – Respondent successfully appealing against rateable value – Appellant valuation officer appealing – Whether rateable value being increased by respondent’s fitting out works –– Appeal allowed Modern high quality office buildings were usually offered to the letting market in a category A condition. If the building had been newly constructed or recently refurbished, its owner would typically have installed raised floors and suspended ceilings, basic mechanical and electrical services, including lighting and air-conditioning, a fire detection system and basic internal finishes. Once a letting had been achieved, the new tenant would be free to fit the building out to meet its own requirements to bring it into a category B condition and was likely to include the installation of kitchens and tea points, partitioning, the re-routing of air-conditioning and power points to accommodate its preferred layout and the addition of IT infrastructure. The respondent ratepayer spent £3.4m on fitting out Ascot House, a building on the Maidenhead Office Park at Westacott Way outside Maidenhead. The property was originally entered in the 2017 rating list as “offices and premises” with a rateable value of £1,110,000 with effect from 1 April 2017. The respondent challenged that entry but the appellant valuation officer confirmed the original rateable value. The respondent appealed to the Valuation Tribunal for England (VTE) on the grounds that the valuation was unreasonable. The VTE issued a decision substituting a rateable value of £875,500 based largely on the rent at which the building had been let in category A condition, making very little allowance for the category B fit out. The appellant appealed. Held: The appeal was allowed. (1) In accordance with paragraph 2(1) of schedule 6 to the Local Government Finance Act 1988 the rateable value of the property was an amount equal to the rent at which it was estimated the hereditament might reasonably be expected to let from year to year on a date which was agreed to be 1 April 2015 (the antecedent valuation date (AVD)), on the assumption that the property was in a state of reasonable repair when let and on the basis that the tenant undertook to pay all usual tenant’s rates and taxes and to bear the cost of the repairs, insurance and other expenses necessary to maintain the property in a state able to command that rent. By paragraph 2(6) and (7)(a) of schedule 6 matters affecting the physical state or physical enjoyment of the hereditament were taken to be as they were on 1 April 2017, the date on which the 2017 rating list came into effect (the material day). Subject to that qualification, all matters capable of affecting the valuation were to be taken to be as they really were on the AVD. (2) The valuer had to imagine a hypothetical negotiation between a willing landlord and a willing tenant and arrive at the rent which best represented the resulting compromise. The rent to be ascertained was 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. That was the true rent because it corresponded to real value: Hewitt (VO) v Telereal Trillium [2019] UKSC 23; [2019] EGLR 28 applied. The notional letting was assumed to be on the basis that the use to be made of the hereditament would be within the same mode or category of occupation as the ratepayer’s actual use. The hypothetical tenant was not required to put out of its mind the possibility that “minor alterations of a non-structural character” might make the premises more suitable for its occupation and use without changing the general mode or category of that use. Those “minor alterations” could include “a fair amount of ‘rebranding’ in fascias and fittings appropriate to the same category of business”: Williams (VO) v Scottish & Newcastle Retail Ltd [2000] 2 EGLR 171 considered. The parties to the hypothetical negotiation were taken to be willing to transact on the assumed terms for the property in its assumed condition. There was no question of the tenant being reluctant to take the tenancy or requiring an inducement to persuade it to do so despite the property not being suitable for its purposes. In the absence of some specific statutory justification for attributing no value to a particular feature, everything which formed part of the hereditament had to be valued, irrespective of who provided it: FR Evans (Leeds) Ltd v English Electric Co Ltd [1978] 1 EGLR 93 considered. (3) No statutory provision generally excluded the value of fitting out by a tenant from being taken into account in determining rateable value. Where the value of some specific feature was required to be disregarded, it was by way of exception to the general direction to take account of matters affecting the physical state or physical enjoyment of the hereditament as they were on the material day. There was an assumption that the tenant’s expenditure had increased the rent at which the hereditament could reasonably be expected to be let because a tenant would be prepared to pay more for premises which were already fitted out. The only question was by how much the rental value of the premises had been increased: Edma (Jewellers) Ltd v Moore (VO) (1975) RA 343 (LT) and Dorothy Perkins Retail Ltd v Casey [1994] RA 391 considered. (4) The tribunal was satisfied that the respondent’s category B fit out was, in the main, sufficiently generic and unexceptional and that it would have had what both sides referred to as general market appeal. In any event, it had to be assumed that in its fitted-out condition the hereditament met the needs of the hypothetical successful bidder who was willing to take it at the market rent without requiring an allowance or inducement to reflect its condition. Considering fully the comparable evidence and basis of valuation, the hypothetical parties would conclude agreement on a tenancy of the property fitted-out to category B standard at £212 per sq m, equivalent to an annual rent of £1m. Accordingly, the appeal would be allowed and the rateable value of property valued at £1m with effect from 1 April 2017. Jenny Wigley KC and Sarah Sackman (instructed by HMRC Solicitors) appeared for the appellant; Cain Ormondroyd and Horatio Waller (instructed by Osborne Clarke LLP) appeared for the respondent. Click here to read a transcript of Bunyan (VO) v Acenden Ltd>> Eileen O’Grady, barrister