Where the market was saturated, and there was no evidence of any demand at all for empty premises, their rateable value was £1

The Rating Valuation Act 1836 stipulates that the rateable value of premises shall be an amount equal to the rent at which it is estimated they might reasonably be expected to be let from year to year. In Hewitt (VO) v Telereal Trillium [2018] EWCA Civ 26; [2018] PLSCS 10, the rateable value of Mexford House in Blackpool had been recorded as being £490,000. But, on appeal to the Valuation Tribunal, this was reduced to £1. Which was correct? The premises, previously occupied by HMRC, had been vacant for several years. Indeed, there was evidence to suggest that they were unlettable. There had been no new lettings of offices anywhere near the size of the premises in the Blackpool area – and there was no demand for the premises, even on a floor-by-floor or wing-by-wing basis. Even so, the valuation officer took the view that the premises should be rated at a value obtained by reference to rents paid for comparable properties. He argued that the fact that there was no demand for Mexford House (because all the demand had been absorbed by the other comparable properties) was not because of any intrinsic lack of merit or obsolescence in the premises. Mexford House was simply “unlucky” not to have occupants. So the question for the Court of Appeal was: did the rating hypothesis require the valuer to assume a demand that does not, in reality, exist? The court noted that in Tomlinson v Plymouth Argyle Football Co Ltd [1960] 175 EG 1023, Pearce LJ warned that “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”. And in Great Western and Metropolitan Railway Cos v Hammersmith Assessment Committee [1916] 1 AC 23, Lord Buckmaster said “the phrase ‘hypothetical tenant’…. must not be allowed to introduce the idea of creating hypothetical competitors or hypothetical circumstances by which to fix the rent”. The only relevant assumption inherent in the rating hypothesis was that an agreement would be reached between the notional lessor and the notional lessee. But that requirement was satisfied by assuming a letting at a nominal rent, and there was no need to depart further from reality than the statutory hypothesis. On the factual basis agreed by the parties, that nobody in the real world would have been prepared to occupy Mexford House on the valuation date and to pay a positive price for doing so, it was impossible to say that there was any demand in the market for such occupation. And, in the absence of any actual demand, there is no principle of law that requires demand to be assumed. So now we know. The notional tenant embodies demand in the actual market. If the market is saturated, the rating hypothesis cannot be used to manufacture non-existent demand. In a saturated market, there is still a proper basis for a substantial rateable value while the existing tenant remains in occupation and pays a substantial rent. But that situation changes once the property becomes vacant, because there is no longer a potential tenant available to take it on the statutory terms required by the rating hypothesis. Allyson Colby is a property law consultant