Telereal Trillium (Respondent) v Hewitt (Valuation Officer) (Appellant)
SC (Lord Reed DPSC, Lord Carnwath JSC, Lady Black JSC, Lord Lloyd-Jones JSC, Lord Briggs JSC) 15/05/2019
The "rating hypothesis" in the Local Government Finance Act 1988 Sch.6 para.2 (http://www.lawtel.com/MyLawtel/Documents/AF4000027) required the valuation officer to assume the existence of a hypothetical tenant and to assess the rateable value of a property by reference to the general demand, as evidenced by the occupation of similar properties in the area. That was so even if, in the real world, there was nobody who was prepared to pay to occupy the property.
A valuation officer appealed against a decision that the rateable value of an office block leased by the respondent was £1.
The property had been occupied as public sector offices from 1972, but by 1 April 2010 it was empty. On that date, the 2010 non-domestic rating list came into force pursuant to the Local Government Finance Act 1988 s.41(2) (http://www.lawtel.com/MyLawtel/Documents/AF4000027), and the rateable value of the property was listed as £490,000. That figure was arrived at by applying the principles in Sch.6 para.2 (http://www.lawtel.com/MyLawtel/Documents/AF4000027) of the Act, which required the rateable value to be calculated by reference to the "antecedent valuation date" (1 April 2008) and to be based on an estimate of the rent at which the property might reasonably be expected to let from year to year (the rating hypothesis). It reflected the valuation officer's view that, on the antecedent valuation date, comparable local office buildings were occupied by public sector tenants at a similar rent. On appeal, the valuation tribunal reduced the property's rateable value to £1 on the basis that there was no market demand for it. Before the Upper Tribunal, the parties prepared a joint position paper (JPP), agreeing that the matter could be decided as a point of law. The respondent contended that the rating hypothesis required the valuer to consider whether, as at the antecedent valuation date, anybody would have been prepared to pay a positive price to occupy the property. It argued that if there was no such person, the rateable value had to be £1. The valuation officer accepted that, at the antecedent valuation date, there was nobody who was prepared to pay to occupy the property. However, he argued that the rating hypothesis nevertheless required him to assume the existence of a hypothetical tenant and to assess the rateable value by reference to the "general demand" as evidenced by the occupation of similar properties. On that basis, he argued that the correct rateable value was £370,000. The UT agreed, but the Court of Appeal overturned its decision and restored the £1 valuation.
HELD: (Per Lords Carnwath, Reed and Lloyd-Jones) Did the rating hypothesis require the rateable value to be assessed by reference to the general demand, notwithstanding the lack of anybody prepared to pay to occupy the property as at the antecedent valuation date? The parties were in dispute about whether the lack of an actual tenant was because the property had reached the end of its economic life and was obsolete. However, the issues for the instant court were delineated by the JPP, which said nothing about the reasons for the lack of a tenant. Any differences between the parties in that respect had therefore been left unresolved by the UT, and the instant court could not attempt to resolve them (see paras 27-31 of judgment). It was established law that the valuation officer had to assume that a hypothetical landlord and tenant would agree terms, and that the basic question was whether the occupation under that hypothetical tenancy was of value, Hoare (Valuation Officer) v National Trust for Places of Historic Interest or Natural Beauty  10 WLUK 187 (http://www.lawtel.com/MyLawtel/Documents/AC8600257) applied and Poplar Assessment Committee v Roberts  2 A.C. 93 followed. From the decision in London CC v Parish of Erith, Kent (Churchwardens and Overseers of the Poor)  A.C. 562, the UT had extracted the proposition that where there was no general market for the property, the test was whether its occupation was of value or whether it was "struck with sterility". The Court of Appeal had criticised the UT's reliance on Erith, suggesting that it had been wrongly influenced by passages directed to the logically prior question of whether the property was in rateable occupation at all. However, that criticism was misplaced; the passages on which the UT relied sought to clarify the principles of both rateability and assessment, Erith followed (paras 32, 36, 41-41). Contrary to the Court of Appeal's view, Hoare was authority for the proposition that a nil value might be appropriate where, although occupation might be beneficial in a physical sense, the responsibilities of the tenancy meant that it would be commercially burdensome. The Court of Appeal had also referred to Tomlinson v Plymouth Corp, Plymouth Argyle Football Co and Plymouth City Council  1 WLUK 12, but that did not assist the respondent either. In that case, the absence of a tenant was due to the poor quality of the building, not to a surplus of similar properties, Tomlinson considered. The mere fact that premises were unoccupied did not of itself justify a lower rateable value than that applicable to similar, occupied, premises in the area. The cases of Lambeth LBC v English Property Corp  1 WLUK 188 and Shiel (Valuation Officer) v BorgWarner Ltd  R.A. 36 distinguished between properties that were unoccupied because there was a surplus of similar properties in the area, and those that were unoccupied because they had reached the end of their economic lives, Lambeth and Shiel approved. Whether the property was occupied or unoccupied at the relevant date, or whether an actual tenant had been identified, was not critical. Even in a saturated market, the rating hypothesis assumed a tenant willing to agree a rent on the statutory basis. In the absence of other material evidence, there was no reason why the level of that rent should not be assessed by reference to general demand derived from occupation of other similar properties (paras 46-48, 51-61).
(Per Lord Briggs and Lady Black dissenting) The question of law for which the UT had given permission to appeal was whether, where the evidence showed that there was no demand to occupy a property that was capable of occupation, the rating hypothesis required the valuer to assume a demand that did not exist in reality. The answer was no. It would be a very rare for the evidence to show no demand at all for the subject property when comparables in the locality were let at substantial rents. However, if that was what the evidence showed, or it was what the parties had agreed, the rating hypothesis did not require a departure from that real-world conclusion (para.83).
For the appellant: Hui Ling McCarthy QC, Hugh Flanagan
For the respondent: Richard Glover QC, Cain Ormondroyd
For the appellant: In-house solicitor
For the respondent: DLA Piper UK LLP (Sheffield)