England and Wales Lands Tribunal

 


Futures London Ltd v Stratford [2005] EWLands RA_47_2005 (02 December 2005)

RA/47/2005

LANDS TRIBUNAL ACT 1949

RATING – valuation – offices – rent – assessments – tone of the list – greater weight given to assessments – appeal dismissed.

IN THE MATTER of an APPEAL against a DECISION of the

CENTRAL LONDON VALUATION TRIBUNAL

BETWEEN FUTURES LONDON LIMITED Appellants

and

DAVID LLOYD STRATFORD Respondent

(Valuation Officer)

Re: Seventh Floor, Windsor House,

39 King Street,

London EC2V 2DQ

Before: P H Clarke FRICS

Sitting at Procession House, London EC4

on 28 November 2005

The following cases are referred to in this decision:

Lotus and Delta Limited v Culverwell (VO) and Leicester City Council [1976] RA 141

H J Banks & Co Limited v Speight (VO) and Snowball (VO) [2005] RA 61

Mr Adrian Johnson for the appellants

The respondent in person

DECISION

1. This is an appeal heard under the simplified procedure regarding the assessment in the 2000 rating list of offices in the City of London.
2. Mr Adrian Johnson FRICS of London EC2 appeared for the appellants with permission of the Tribunal and gave evidence. The respondent valuation officer, Mr David Lloyd Stratford FRICS Dip Rating, appeared in person with permission of the Tribunal and gave evidence.
3. I have inspected the offices under appeal and the locality.

Facts

4. The appeal hereditament was originally entered in the 2000 rating list as offices and premises, 7^th Floor, Windsor House, 39 King Street, London EC2V 2DQ, with a rateable value of £30,250. On 29 March 2003 a proposal was made on behalf of the occupiers, Futures London Limited, seeking a reduction in the assessment. The Central London Valuation Tribunal heard the resultant appeal on 20 June 2005 and on 18 July 2005 gave a decision reducing the assessment to £29,000 RV. On 8 August 2005 Futures London Limited appealed to this Tribunal. The appeal was heard under the simplified procedure.
5. The appeal hereditament is on the seventh floor of Windsor House, 39 King Street, which is situated on the corner of King Street and Cheapside in the City of London. Windsor House is a purpose-built office block developed in 1987 and incorporates the eastern section of 107 Cheapside, a post-war building completed in the late 1950s or early 1960s. The appeal hereditament comprises floorspace that was originally part of a 107 Cheapside. Windsor House has accommodation on ground to eighth floors, with shops on the ground floor and offices on the upper floors. All floors except the top floor are served by two passenger lifts. There is a ground floor entrance hall with a porter. The lifts at seventh floor level give access to a landing with communal toilets. The appeal hereditament has an agreed floor area of 109.5 sq m. It originally had a solid concrete floor and now has a fully accessible raised floor. There is a suspended ceiling and a partial air-conditioning system which provides cooling and filtration. The windows are metal-framed; those to the north are single glazed and those overlooking Cheapside have secondary double-glazing.
6. The appellants occupy the appeal hereditament on an underlease dated 4 December 1997 for a term of 10 years from 4 December 1997 at an initial rent of £25,740 per annum with a rent review at the fifth year of the term. A rent free period of 9 months was given. The tenants also pay a service charge and insurance rent. The underlease includes a tenants' break clause at the fifth year of the term. The tenancy is outside the security of tenure provisions in the Landlord and Tenant Act 1954. The tenants are responsible for internal repairs and decorations and the landlords for structural and external repairs and for repairs to the common parts, lifts, etc, the tenants reimbursing the costs in a service charge representing a fair proportion of the service costs, subject to a maximum charge in the first year of £9,360 (exclusive of VAT) index linked to the retail price index for succeeding years.

Appellants' case

7. Mr Johnson said that the issue in this appeal is the tone for the fourth to eighth floors of 39 King Street. The correct figure should be based on the rent of the appeal hereditament, producing a RV of £25,275 (109.5 sq m at £230.80 per sq m).
8. In June 1997 the appellants instructed agents to seek new offices. Inspections were made and, following negotiations from August 1997, a lease was signed for the appeal hereditament in the following December. The rent devalues to £219.82 per sq m. The property was let more or less equipped as it stands today, although the appellants installed partitioning and air-conditioning and redecorated. The only other letting in 39 King Street close to the antecedent valuation date (AVD) is the fifth floor but it is agreed that this rent is not reliable as a comparable.
9. 39 King Street and 107 Cheapside should not be valued on the same basis. They are in separate locations and the floorplates are larger in 107 Cheapside. Market conditions are different in each location. 39 King Street has split accommodation. King Street is an older-style street with much redevelopment and refurbishment. The tone varies from £180 to £339 per sq m with a settled tone of £204 to £240 per sq m for older hereditaments. None of the assessments of the other upper floors at 39 King Street have appealed and therefore the tone for these floors has not yet settled. The assessments for the first to eighth floors range from £221 to £278 per sq m (or at base level £215 to £249.85). There seem to be discrepancies. An appeal relating to the first and second floors was withdrawn but no great weight should be given to this. The tone for the building has not been established.
10. The rent of the appeal hereditament devalues to £208.74 per sq m without the raised floor and £230.71 per sq m with this floor and air-conditioning. It is not normal for a service charge to be considered when devaluing a rent for rating purposes, except where the charge is included in the rent, which is not the position here. The valuation tribunal misinterpreted his evidence on this point. The service charge is capped under the lease at £9,360; the charge for the year to December 1997 was £8,610. These figures are not high and are unlikely to influence the rent. At the rent review in December 2002 only a nominal increase of £250 per annum was agreed. From December 1997 to December 2002 the hereditament did not attract rent at the level of the RV. Direct market evidence is best and the rent as at December 1997 of £230.71 per sq m is the best evidence of value. The appeal hereditament should be assessed at £25,275 RV.
11. In a supplementary report Mr Johnson referred to photographs of the appeal hereditament taken in December 1997 which he said show a reasonable 1980s interior in generally good condition. The existing air-conditioning plant was defunct and replaced by a new system at a cost of £17,933 plus VAT. This work was not a condition of the lease and does not fall to be devalued and added the lease rent: only 5% should be added.
12. The agreed assessments showed discrepancies and the rent of the appeal hereditament is helpful in resolving the two tones which have emerged for unrefurbished space (£238.50 and £215 per sq m). The appeal hereditament was let with a raised floor and no air-conditioning. If the raised floor is discounted at 5% the rent devalues to £208.82 per sq m at the tone date. The difference between this figure and the tone figure of £215 (£6.16 per sq m) is about 3% of the latter, well within normal valuation tolerances. The higher tone of £238.50 shows a 14.2% increase over the market rent. If the appeal hereditament is valued on the £215 per sq m tone the additions for raised floor and two parts air-conditioning produce a RV of £25,896 or £25,900, only £625 higher than the suggested RV of £25,275.
13. Mr Johnson referred to a settlement at 28 King Street which the ratepayers' surveyors devalued to show £204.50 per sq m before adding for air-conditioning, a substantial reduction from £268 per sq m originally adopted. This shows that the King Street market is not at the same level as Cheapside.

Respondent valuation officer's case

14. Mr Stratford said that the issue in this appeal is the weight to be given to the rent of the appeal hereditament and to settled assessments respectively.
15. Although the rent of the appeal hereditament was negotiated at arms-length in the open market and was the best rent obtainable, only limited weight should be attached to it for two reasons. First, the air-conditioning in the let accommodation was in poor repair and required replacement. Mr Stratford was given the expense of installing air-conditioning and amended the agreed analysis of the rent to add this cost, rentalised at 8% over the first five years of the term, to produce a revised rent in terms of RV of £29,351 (£268 per sq m). Second, there is a service charge of £11,264 per annum referred to in the rent return, equivalent to 43.5% of the rent, higher than to be expected in the City (15-25%). The service charge may include an element of rent. Mr Stratford said that he has considered the rent of the fifth floor of 39 King Street, but, although this dates from 1 January 1998, it devalues to £434 per sq m, a figure considerably in excess of rental value. It should be treated with caution.
16. Rents are of only limited assistance. There are no other relevant rents in the building. The most reliable evidence of value is agreed assessments in 39 King Street and 107 Cheapside.
17. Mr Stratford gave details of eight assessments, one in 39 King Street and the remainder in 107 Cheapside. These establish a tone for the combined building of £238.50 per sq m for unrefurbished space with central heating, £265 per sq m for refurbished space with full air-conditioning or refurbished space with part air-conditioning and a raised floor, and £278 per sq m for refurbished space with full air-conditioning and a raised floor. The assessments for the rear part of the fourth, fifth and sixth floors at 39 King Street are too low (£215 and £221 per sq m) and will be corrected in the 2005 list. The assessments have either been agreed or appeals have been withdrawn. Having regard to these settlements the appeal hereditament should be assessed at £265 per sq m (refurbished space with part air-conditioning and raised floor), producing a RV of £29,000.
18. There is no rental evidence to assist on the question of any difference in value between small and large units (quantum adjustment). Although there is a possibility that an allowance could be expected for large units this would not normally arise for areas of less than 5,000 sq m. The units in 107 Cheapside are larger than those in 39 King Street but there are no grounds for making a quantum adjustment; these units are not worth more than those in King Street. The properties have the same specification and should be assessed at the same rate.

Discussion

19. This appeal concerns the RV of the appeal hereditament, that is to say the rent on a yearly tenancy on the assumptions that the hereditament is in reasonable repair (excluding repairs which a reasonable landlord would consider uneconomic) and that the tenant pays all usual tenant's rates and taxes and bears the costs of repairs, insurance and other expenses necessary to maintain the hereditament in a state to command the rent. The rent is assessed by reference to values at 1 April 1998 (the AVD) with the property and locality as at 1 April 2000. Mr Johnson says that the RV should be based on the actual rent and is £25,275. Mr Stratford supports the decision of the VT that the RV is £29,000; he relies on comparable assessments. The underlying issue is therefore the weight to be given to these two categories of value evidence. The VT preferred assessments to rent. The burden of proof is on Mr Johnson to show that this decision is wrong.
20. I was referred to the decision of this Tribunal (J H Emlyn Jones FRICS) in Lotus and Delta Limited v Culverwell (VO) and Leicester City Council [1976] RA 141, where he formulated six propositions for dealing with value evidence (at 153-4):-

"In the light of the authorities, I think the following propositions are now established:

(i) Where the hereditament which is the subject of consideration is actually let that rent should be taken as a starting point.

(ii) The more closely the circumstances under which the rent is agreed both as to time, subject matter and conditions relate to the statutory requirements …… the more weight should be attached to it.

(iii) Where rents of similar properties are available they too are properly to be looked at through the eye of the valuer in order to confirm or otherwise the level of value indicated by the actual rent of the subject hereditament.

(iv) Assessments of other comparable properties are also relevant. When a valuation list is prepared these assessments are to be taken as indicating comparative values as estimated by the valuation officer. In subsequent proceedings on that list therefore they can properly be referred to as giving some indication of that opinion.

(v) In the light of all the evidence an opinion can then be formed of the value of the appeal hereditament, the weight to be attributed to the different types of evidence depending on the one hand on the nature of the actual rent and, on the other hand, on the degree of comparability found in other properties.

(vi) In those cases where there are no rents available of comparable properties a review of other assessments may be helpful but in such circumstances it would clearly be more difficult to reject the evidence of the actual rent."

I propose to follow this approach.

21. I start with the rent of the appeal hereditament and take the first two propositions together. The rent relates to a tenancy which commenced on 4 December 1997, only four months before the AVD, and is broadly on the full repairing and insuring terms envisaged in the statutory definition of RV. Mr Stratford gives less than full weight to this rent for the two reasons set out above, namely air-conditioning costs and the high service charge. During the hearing, Mr Stratford acknowledged that the rent was negotiated in the open market and was the best rent obtainable.
22. I do not find that these criticisms stop the rent being taken as a starting point in this valuation exercise. The valuers originally agreed that it devalued to £230.80 per sq m overall (or £230.71 on my calculation using the correct rent of £25,740). Subsequently, Mr Stratford revised his analysis of the rent in terms of RV, to reflect the tenants' expenditure on air-conditioning, to £268 per sq m or £29,351 RV (on the correct rent of £23,740 per annum I recalculate these figures to be £267.95 per sq m or £29,341 RV).
23. The third proposition in Lotus and Delta is that rents of similar properties (where available) should be looked at "to confirm or otherwise the level of value indicated by the actual rent of the subject hereditament." It is in this proposition that much of the weight which would otherwise be given to the rent is diminished. There are no other rents in evidence suitable for comparison purposes. I was referred to the rent of the fifth floor of Windsor House, but both valuers agree that it is of no assistance, being greatly in excess of market value. It is not possible therefore to test the rent of the appeal hereditament against other rents. In short, a single rent, even of the appeal hereditament, can, at best, be only of limited assistance as evidence of market value.
24. I look now at comparable assessments in the 2000 rating list, proposition (iv) in Lotus and Delta (see also H J Banks & Co Limited v Speight (VO) and Snowball(VO) [2005] RA 61 at 131-3 paras 235-9). It is now well-established that assessments of comparable properties in the list may be evidence of value. I have been referred to assessments in Windsor House and 107 Cheapside, some agreed and some unchallenged. This is relevant to the weight to be given to these assessments as evidence of value and requires consideration of the concept of tone of the list. Rateable value is based on market rents but these usually vary, sometimes considerably, and it is often difficult to find a general pattern. When preparing a rating list the valuation officer is required to value each hereditament individually and to have regard to the underlying principle of uniformity, fairness and equality. Although rents may vary greatly assessments must show a uniform pattern. This has led to assessment by the use of common unit figures for classes of hereditament, location, finish, size etc, often with individual adjustments for particular characteristics.
25. There are three stages leading to the establishment of tone of the list. At first, when a new rating list is put on deposit, assessments will carry relatively little weight: they are opinions of value by the valuation officer, as yet unchallenged and untested by negotiation. Over time assessments will be challenged and agreed or determined by a VT or this Tribunal or accepted by lack of challenge. Finally, a stage will be reached when enough assessments have been agreed or determined or are unchallenged to establish a pattern of values, a tone of the list. The list is then said to have settled: rents will be largely subsumed into assessments. At this stage rating surveyors will have little regard to rents and pay considerable attention to assessments. The position at any time regarding the tone of the list is a question of fact. When an assessment is challenged before a tribunal the correct time for deciding whether the tone of the list has been established is immediately before the hearing. The weight to be given to comparable assessments as evidence of value will depend on the circumstances in each case. These may indicate that little or no weight should be given to comparable assessments, eg where acceptance of value is more acceptance of rate liability or where a body of settlement evidence rests on a single agreed assessment.
26. It is against this background that I consider the assessments relied upon in this appeal. Mr Stratford originally included in his evidence details of eight assessments, one in Windsor House and seven in 107 Cheapside, where there has been agreement and/or appeals have been withdrawn. Mr Johnson cast doubt on these assessments, particularly because none related to the upper floors of Windsor House. He referred to other assessments in the building, which he said revealed a lack of tone and discrepancies in the assessments. It seemed to me that it would be helpful to have a schedule showing an agreed devaluation of all office assessments in Windsor House and 107 Cheapside. This was provided before the hearing.
27. From this schedule the following pattern can be seen. There are four assessments (all in Windsor House) where the hereditament has a raised floor but no air-conditioning, all unchallenged. The fourth floor (front), part fifth floor (front) and eighth floor (rear) are all valued at £250 per sq m. Part of the sixth floor (front) is assessed at the higher figure of £263 per sq m. These assessments indicate that the appeal hereditament, with a raised floor and part air-conditioning, should have an assessment above the range of £250 - £263 per sq m. These figures are above the analysed rent.
28. Five hereditaments have raised floors and full air-conditioning, two in Windsor House and three in 107 Cheapside, all assessed at £278 per sq m. The three assessments in 107 Cheapside have been agreed, one of the assessments in Windsor House is unchallenged and on the other an appeal was made and later withdrawn.
29. Three hereditaments have full air-conditioning but no raised floors, one in Windsor House (unchallenged) and two in 107 Cheapside (both appeals withdrawn), all assessed at £265 per sq m.
30. Six hereditaments are unrefurbished, four in Windsor House (three unchallenged and one appeal withdrawn) and two in 107 Cheapside (both agreed). These assessments devalue to £215 per sq m (two in Windsor House) and £238.50 per sq m (two in Windsor House and two in Cheapside). These assessments indicate that the value of the appeal hereditament is above the range of £215 - £238.50 per sq m.
31. Finally, there is one hereditament (in Windsor House) which has one element of air-conditioning but no raised floor where the unchallenged assessment is £221 per sq m.
32. Some of the hereditaments referred to above have different specifications on different parts of the accommodation and have therefore been referred to twice under their different specifications. A total of 16 hereditaments has been considered.
33. The 2000 list was compiled on 1 April in that year and therefore more than five years have elapsed since the list came into force. Eight assessments have not been challenged; in respect of three assessments appeals were made and later withdrawn; and in respect of five assessments values were agreed with the ratepayers' surveyors. On this evidence – as to lapse of time, agreements and lack of challenge – I find that the list has settled in respect of Windsor House and 107 Cheapside. A pattern of values has emerged (although not wholly complete) and a stage has been reached when rents are largely subsumed into assessments.
34. The pattern of assessments does not, however, exactly correspond to the specification of the appeal hereditament, a raised floor with part air-conditioning. The value of accommodation with this particular specification must be found by reference to the range of values for the different types of accommodation. The tone value for unrefurbished space at the lowest level is £215 (two assessments) or £238 per sq m (four assessments) and at the highest level (raised floors and full air-conditioning) the tone value is £278 per sq m for all five hereditaments within this category. It is therefore clear that, by reference to settled assessments, the rate per sq m for the appeal hereditament must be within the broad range of between £215 and £278 per sq m. There are four assessments of accommodation with raised floors and no air-conditioning where three are assessed at £250 per sq m and one at £263 per sq m. These indicate that the assessment of the appeal hereditament must be above £250 per sq m and (less conclusively) above £263 per sq m. Overall, the settled assessments indicate that the appeal hereditament should be assessed above £250 and below £278 per sq m. I am not persuaded that the settlement at 28 King Street referred to by Mr Johnson is helpful. This building, although only a short distance away, is in a poorer location than Windsor House.
35. I now arrive at propositions (v) and (vi) in Lotus and Delta and the formation of an opinion of value. In my judgment, the rent indicates a RV of £248.40 per sq m. I arrive at this figure by adopting the agreed adjustments for rent-free period and uplift to the AVD and then adding the cost of the air-conditioning but rentalised over the full 10 year term of the lease (not the first five years as suggested by Mr Stratford). This indicates a RV of £27,200. The rent, however, suffers from the disadvantage that it cannot be checked against comparable rents. The only other rent I have been referred to is well above this figure, but both valuers agree that it is not reliable evidence of value. The comparable assessments indicate a value for the appeal hereditament of above £250 but below £278 per sq m, less conclusively above £263 per sq m.
36. It is now a matter of judgment as to how this evidence is used to find the correct assessment of the appeal hereditament. I have reached the conclusion that, at the present time, more than five years after the list was compiled, assessments are the best evidence of value, the rent standing in isolation, without any external check. Before the list had settled the rent would have carried much greater weight but at this later stage rents can now be taken to be subsumed into assessments. These indicate that hereditaments with a raised floor but no air-conditioning are valued at £250 (3 hereditaments) and £263 (1) per sq m. The benefit of part air-conditioning in the appeal hereditament indicates a higher figure than £250 per sq m. The hereditaments with full air-conditioning but no raised floors are assessed at £265 per sq m. Hereditaments with raised floors and full air-conditioning are valued at £278 per sq m. The assessment of the appeal hereditament, with raised floor and part air-conditioning, must be above £250 and below £278 per sq m. The valuation officer has adopted £265 per sq m and this has been accepted by the VT. The burden of proof is on the appellants to show that the decision of the VT is wrong but I am not persuaded by Mr Johnson that I should disturb that decision.
37. I have reached this conclusion with some hesitation. The rent of the appeal hereditament is at variance with the tone of the list. If I assess the appeal hereditament (with raised floor and part air-conditioning) by reference to the rent at £248.40 per sq m it would clearly be too low by comparison with the unchallenged assessments in Windsor House for accommodation with raised floors and no air-conditioning of £250 and £263 per sq m and also, I suggest, with the five assessments in Windsor House and 107 Cheapside with raised floors and full air-conditioning (£278 per sq m). My overall conclusion is that, at this stage in the 2000 list, I should give greater weight to the assessments than to the rent.
38. For the above reasons I dismiss the appeal. The assessment of the appeal hereditament is confirmed at RV £29,000.
39. Neither party asked for costs and I make no order as to costs.

Dated: 2 December 2005

(Signed) P H Clarke