Waters v Cox (VO)

Rating – Valuation – Receipts and expenditure method – Alteration of rating list – Appellant operating seasonal farm attraction in part-exempt hereditament – Farm entered in rating list with valuation of £100,000 – Appellant seeking reduction in assessment of rateable value – Valuation tribunal dismissing appellant’s appeal – Appellant appealing – Whether rights reserved having effect on rateable value – Appeal dismissed The appellant owned Finkley Down Farm, situated 1.5 miles north east of Andover, adjacent to open countryside and an industrial estate. The northern most site contained a farm attraction which extended to about 5.5 acres. The farm attraction contained three principal elements: activity areas, animal pens and buildings, and a large play barn. The appellant had previously lived on site in a large, two storey detached house, using three rooms in connection with the farm attraction business. The farm attraction previously extended to about nine acres but, in 2008, a triangular parcel of land of some 3.5 acres was sold to TW for a housing development. The sale included a clause granting TW the right to construct an access road through part of the farm, for a period of 20 years, subject to conditions aimed at minimising disruption to farming operations. Following the sale, the hereditament changed materially in terms of size and configuration between the antecedent valuation date (AVD) (1 April 2015) and the material day (1 April 2107). The respondent valuation officer made an entry in the 2017 rating list for the farm with a rateable value of £100,000. The appellant sought a reduction in the assessment to a rateable value of £54,500 and the respondent sought to maintain the existing rateable value. The Valuation Tribunal for England dismissed the appellant’s appeal against the respondent’s The appellant appealed. Held: The appeal was dismissed. (1) Paragraph 2(1) of schedule 6 to the Local Government Finance Act 1988 (as amended), defined rateable value as an amount equal to the rent at which it was estimated the hereditament might reasonably be expected to let from year to year on three assumptions: (i) the tenancy began on the day by reference to which the determination was to be made; (i) immediately before the tenancy began the hereditament was in a state of reasonable repair (excluding any repairs which a reasonable landlord would consider uneconomic); and (iii) the tenant undertook to pay all the usual tenant’s rates and taxes and bear the cost of repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state fit to command the stated rent. Statute required that the appeal property be valued reflecting certain matters as they existed on the material day, and by reference to values pertaining at the AVD. The matters to be taken at the material day were set out in paragraph 2(7) of schedule 6 and included: matters affecting the physical state or physical enjoyment of the hereditament; the mode or category of occupation; matters affecting the physical state of the locality in which the hereditament was situated or which were nonetheless physically manifest there; and the use or occupation of other premises in the locality of the hereditament. (2) There was no dispute between the parties that the receipts and expenditure method of valuation was the appropriate means by which to arrive at the rateable value of the hereditament, ie, to arrive at the annual rental value of premises by assessing the gross receipts which a prospective tenant would expect to achieve from a business carried on there, and deducting operating expenses, including the cost of repairs, and a sum to reflect the return on capital and profit the tenant would require, to determine the surplus which it was assumed the tenant would be prepared to pay to the landlord in rent for the annual tenancy (fair maintainable trade): Hughes (VO) v York Museums and Gallery Trust [2017] UKUT 20 (LC) considered.  The first stage was the ascertainment of a net profit (divisible balance) which might then be apportioned between the tenant, to provide a return on capital and a profit (in aggregate, the tenant’s share) and the landlord, as the rent in return for the annual tenancy (the landlord’s share): Hughes (VO) v York Museums and Gallery Trust [2017] UKUT 20 (LC) considered. (3) It remained correct to regard the hypothetical landlord as an abstraction, an anonymous but reasonable person who went about the letting as a prudent man of business, without giving the impression of being either over-anxious or unduly reluctant. Likewise, it should be assumed that the hypothetical tenant behaved reasonably, making proper enquiries about the property, and not appearing too anxious to take the letting: Hughes (VO) v Exeter City Council [2020] UKUT 7 considered. (4) The rights reserved by TW were an essential characteristic of the hereditament. The power to exercise the option lay with TW and was out of the control of the hypothetical tenant. They remained an essential characteristic of the hereditament regardless of the owner or the owner’s intentions and should therefore be taken into account when considering the assessment of the property. In terms of its effect on value, the rights were reserved in 2008 for a period of 20 years and were only likely to be activated if TW obtained planning permission for the site to the east of the farm and took up their option to buy it. At present, that land was not zoned for development. The actual occupier regarded the potential loss of the land as a matter that was a distant possibility or, if it came to pass, something which the business would withstand. The assumed tenancy was from year to year with a reasonable prospect of continuance and a remote contingency such as the exercise of the rights reserved was unlikely to feature in the hypothetical tenant’s thinking. It followed that there was no need to have regard to it in the valuation: Robinson Bros (Brewers) Ltd v Houghton and Chester-le-Street Assessment Committee [1937] 2 KB 445; Dawkins v Ash Brothers [1969] 2 AC 382; Williams (VO) v Scottish and Newcastle Retail Ltd [2001] EWCA Civ 185; [2001] 1 EGLR 157 and Coll (LO) v Waters [2016] EWHC 831 (Admin) considered. (5) The accounting information supplied in evidence demonstrated a rising pattern of gross receipts and a stable level of gross profit. In all the circumstances, a fair maintainable trade of £1,325,000 would be adopted. The tenant’s share would be 68% and the outcome was a rateable value of £123,750. For the purposes of the 2017 list, the farm was under assessed and the appeal would be dismissed. Cain Ormondroyd (instructed by Direct Access) appeared for the appellant; Hugh Flanagan (instructed by HMRC Solicitors) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Waters v Cox (VO)