Jersey Unreported Judgments

2000/251

15 pages

ROYAL COURT

(Samedi Division)

 

18^th December, 2000;

 

Before: The Deputy Bailiff, sitting alone.

 

 

Between	The Planning & Environment Committee	Representor
And	The Parish Rate Appeal Board	Respondent

 

Whether land used or intended to be used for the construction of buildings or any other structures should be assessed for rate under the provisions of the Parish Rate (Jersey) Law, 1946:-

 

(i)         using a variation of the "contractor's method" formulated as follows:

 

             "If a plot of land used or intended to be used for the construction of buildings or other structures were not available to rent, then a prospective developer/investor would have to purchase such a plot.  The land would need to be acquired using the developer/investor's own funds, and the developer/investor would therefore have to forego the amount of the return which he would otherwise have made had he invested those funds in other property.  The amount of the return foregone would therefore be equivalent to the rent," or

 

(ii)       (a) if construction has not been commenced at the 1st January of the material year, on the basis of the rental value which the land might reasonably be expected to command in rent if it were let from year to year as open land taking into account any potential use other than the construction of buildings or other structures with the tenant undertaking to pay the usual tenant's rates and the landlord undertaking to bear the costs of repairs and insurance and any other expenses necessary to maintain the land in a state to command that rent; and

 

             (b)      if construction has commenced at the 1st January of the material year, on the basis that no tenant would pay rent for such land; or

 

(iii)      by a mode of assessment that the Court may declare."

 

The Solicitor General for the Representor

Advocate N. Langlois for the Respondent

 

 

JUDGMENT

 

THE DEPUTY BAILIFF:

 

1.       This case raises a question as to the correct method of assessing the rental value for the purposes of the Parish Rate (Administration) (Jersey) Law 1946 ("the 1946 Law") of a plot of land intended for development,

 

The Background

 

2.       On a date which does not appear from the papers, the Chairman of the Supervisory Committee issued a statement to the effect that, in accordance with legal advice provided to the Parish Rate Appeal Board ("the Board") in 1997, building sites would, from 1998 onwards, be assessed using "the contractor's method" with assessors applying a net return of 4%.  The legal advice referred to was an opinion by Advocate J.D. Kelleher dated 20th June 1997. 

 

3.       In 1998 three sites, owned by the public of the Island and under the administration of the Planning & Environment Committee ("the Committee"), were duly assessed to rates on the basis of the contractor's method.  These were fields 91, 91(a) and 92, Belle Vue, St. Brelade ("Belle Vue"), Highbury House, St. Saviour ("Highbury House") and Stranton, St. Saviour ("Stranton").  The rental value attributed to these three properties was £192,000, £5,000 and £4,848 respectively. 

 

4.       The Committee appealed to the Board against these assessments on the grounds that it was wrong in law to use the contractor's method.  In decisions dated 24th July the Board maintained the assessments in respect of Belle Vue and Stanton and increased the rental value of Highbury House to £6,400.  In each case the Board applied the contractor's method by taking the price paid for the relevant property by the Committee and applying a return of 4%.  By way of example, the price paid for Belle Vue under the provisions of the Compulsory Purchase of Land (Procedure) (Jersey) Law 1961 was £4.8 million.  The annual rental value was therefore assessed at 4% of this figure, namely £192,000. 

 

5.       On 23rd March 1999 the Committee brought a representation seeking judicial review of the decision of the Board in relation to each of these properties on the basis that the Board had erred in law in applying the contractor's method. 

 

6.       On 20th July 2000, by consent, the Master of the Royal Court ordered, pursuant to Rule 7/8(1) of the Royal Court Rules, that the Court determine as a preliminary issue the following questions of law:-

 

"Whether land used or intended to be used for the construction of buildings or any other structures should be assessed for rate under the provisions of the Parish Rate (Jersey) Law, 1946 [sic] -

 

(i)      using a variation of the "contractor's method" formulated as follows:

 

          "If a plot of land used or intended to be used for the construction of buildings or other structures were not available to rent, then a prospective developer/investor would have to purchase such a plot.  The land would need to be acquired using the developer/investor's own funds, and the developer/investor would therefore have to forego the amount of the return which he would otherwise have made had he invested those funds in other property.  The amount of the return foregone would therefore be equivalent to the rent," or

 

(ii)     (a) if construction has not been commenced at the 1st January of the material year, on the basis of the rental value which the land might reasonably be expected to command in rent if it were let from year to year as open land taking into account any potential use other than the construction of buildings or other structures with the tenant undertaking to pay the usual tenant's rates and the landlord undertaking to bear the costs of repairs and insurance and any other expenses necessary to maintain the land in a state to command that rent; and

 

          (b)   if construction has commenced at the 1st January of the material year, on the basis that no tenant would pay rent for such land; or

 

(iii)    by a mode of assessment that the Court may declare."

 

7.       It is that preliminary issue upon which I have heard argument and in respect of which I am now giving judgment.  At the hearing the parties were further agreed that I should also attempt to give guidance as to when land could be considered to be "intended to be used" for the construction of buildings.  Was this when application for outline planning permission was first made, when final development permission had been granted or at some other stage?

 

The Board's position

 

8.       The Board has in effect adopted the advice of Advocate Kelleher and I have had the opportunity of reading that advice.  The Board argues that it is not possible to obtain comparative rental figures because building plots are not usually let.  One therefore has to consider alternative methods of assessing the rental value.  In Jersey New Waterworks Company Limited -v- The Rate Assessment Committee of Grouville (1994) JLR 197, the Court had approved the principle of looking to English law for guidance on alternative methods of assessing rental value in the absence of comparable rentals.  The two alternatives which had been developed in the United Kingdom were  the "profits method" and the "contractor's method".  The profits method was not applicable in the case of building plots as no one was carrying on a business and there were no profits from the site in question.  This left only the contractor's method. 

 

9.       It is worth interposing at this stage to explain what is meant by the contractor's method.  It is conveniently summarised in Rees Valuation: Principles into Practice, fourth edition at page 374 -

 

          "Contractor's method

 

          This is often described as the "method of last resort".  It is certainly true to say that it is used only where the previous methods are not applicable.  It is based upon the premise that cost approximately equates to value.  If a hereditament were not available to rent, then a prospective tenant would have to construct one.  The land would need to be acquired and the building constructed.  The occupier would have to borrow the capital, in order to construct the building, and pay interest on this loan.  The amount of the annual interest payable would be equivalent to the rent".

 

          An alternative formulation was that of Lord Parker of Waddington in Metropolitan Water Board -v- Chertsey Assessment Committee 1916 1A.C. 337 at 360:-

 

          "If the company is owner as well as occupier, then, inasmuch as it is by reason of its occupation out of pocket to the extent, at least, of interest on its capital expenditure in acquiring and building on the land it occupies, the amount of such interest is good evidence of what the company would be willing to pay by the year for the privilege of continuing its occupation.  In making the calculation interest at 4 per cent has always been allowed in respect of the cost of the land and 5 per cent in respect of the cost of the building, the extra 1 per cent in the latter case representing the annual cost of keeping the building in repair."

 

10.     The Board accepts, quite correctly, that, in the United Kingdom, the contractor's method has only ever been applied to existing buildings.  It has never been applied to plots of land with no buildings thereon.  The Board accepts that there is no direct precedent to help establish the position under Jersey law but argues that a varied contractor's method is the most appropriate way of assessing the rental value in such cases.  The variations are that the estimated value of the land alone should be taken (such value to include any amount attributable to the future development potential) and the return should be calculated by reference to the amount of the return which the owner would otherwise have made had he invested those funds in other assets.  As mentioned earlier, that figure has been taken as 4%. 

 

11.     The view of the Board is that land should be assessed as a building plot (and therefore in accordance with the contractor's method) once it is "intended to be used" for the construction of buildings.  This would have to be determined on the evidence but would often be well before any planning permission or development permission was granted.  (I have used both these phrases in the sense that they are traditionally used by the Planning and Environment Committee notwithstanding that it is only development permission which exists under the Island Planning (Jersey) Law 1964; thus planning permission is the approval of the general principle of a specified development whereas development permission is the detailed consent envisaged by the 1964 Law to the exact and detailed development to be carried out).  Accordingly Miss Langlois submitted that, once there was a clear intention to develop manifested by some outward and visible sign, the site should be assessed as a building plot and rated accordingly.  She gave as an example going on to a site in order to take measurements, stake out areas and prepare a particularised application for development to the Committee.  In the view of the Board the land could, subject to any existing use (as to which see below), then be assessed as land intended for development and the contractor's method would be applicable. 

 

 

 

The Committee's Position

 

12.     The Committee did not accept the validity of this approach.  The Solicitor General argued that the Board's duty was to assess the annual rental value of the land as it was i.e. with its current use if any.  To calculate a rental value by reference to a valuation which included a "hope" value in respect of future development was to assess the rental value by reference to a future activity.  That was incorrect.  Furthermore, it was to fly in the face of reality.  No tenant would take a building plot from year to year at a rental value which reflected the development potential of the land when he could not be certain of retaining the lease of the land for the period required to recover the cost of constructing the development by profiting from the sub-letting of the completed development.  That was why building leases (i.e. leases under which the tenant undertook to carry out a development on the leased land at his cost) were always long leases for a specified term.  The term and the rent were always carefully calculated so as to enable the tenant to make a profit on an amortised basis over the period of the lease, notwithstanding the injection of the necessary capital to carry out the development.  In the Committee's view, until completion of a development, the land had to be assessed on the basis of its existing use or, in the absence of such a use, at a nominal level, that being the rent which, in reality, any tenant would be willing to pay. 

 

The Law

 

13.     One must begin by reminding oneself of the requirements of the statute.  Article 12(2) of the 1946 Law provides that the assessment committee of each parish shall assess the rental value and calculate the ratable value of all land within its parish in accordance with the rules set out in the Second Schedule to the Law. 

 

14.     The Second Schedule of the 1946 Law, so far as material, provides as follows:-

 

"1. - (1)  The rental value of land which is not let shall be the amount which it might reasonably be expected to command as rent if it were let from year to year with the tenant undertaking to pay the usual tenant's rates and the landlord undertaking to bear the costs of repairs and insurance and any other expenses necessary to maintain the land in a state to command that rent.

 

(2)     Subject to sub-paragraphs (3) and (4) of this paragraph, in the case of land let at a rent, the rental value of the land shall be whichever is the greater of -

 

(a)     the rent, or

(b)     the rental value of the land assessed in accordance with sub-paragraph (1) of this paragraph. 

 

(3)     ...

 

(4)     ...".

 

15.     The wording of the relevant statutes in the United Kingdom is not dissimilar.  For example Section 22(1)(b) of the Rating and Valuation Act 1925 provides:-

 

                   "... there shall be estimated the rent at which the hereditament might reasonably be expected to be let from year to year if the tenant undertook to pay all usual tenant's rates and taxes ... and to bear the costs of the repairs and insurance and the other expenses, if any, necessary to maintain the hereditament in a state to command that rent, and the annual rent as so estimated shall, for the purposes of this Part of this Act, be taken to be the net annual value of the hereditament:"

 

          Although there appears to be a difference in relation to the question of who should pay for essential repairs and insurance, the wording as to the basis of assessing the annual rent is very similar.  It is therefore permissible to look to English cases for assistance where appropriate. 

 

16.     The natural implication from the 1946 Law is that the annual rental value is to be assessed by reference to the land in its actual state with its existing use as at the date of assessment.  This is confirmed by reference to English authorities and texts.  Ryde on Rating (Ninth Edition) has this to say at pages 237-239:-

 

          "226.  Existing, not future, value is the measure.

          ...

          Both before and after the Parochial Assessments Act, 1836, was passed, it was held that property must be valued as it exists at the time when the rate is made, with all the then existing circumstances, or as it has frequently been expressed "rebus sic stantibus".  Land without buildings must be valued as such; and when buildings are put up or pulled down, the value of the land will rise or fall accordingly.  So that, to some extent by determining the use to which he will put his land, the occupier can determine the amount at which he shall be rated : and it was early decided that for the hardship laid upon other rate payers by one occupier, who reduces his own rating, there is no remedy.  The rates "do and must depend upon the will of the proprietor.  The owner of a house may, if he pleases, pull it quite down, and convert it into a toft.  The owner of lands may, if he pleases, suffer them to lie barren and unoccupied".  But here a distinction must be noticed.  The owner of a house, if he does not occupy it at all, is not rateable for it.  But, if he occupies it, he is rateable for the full value of the house, although he makes very little use of the house as a whole, and does not use some of the rooms at all.  And the house must be valued as it stands : a dwelling-house must be valued as such, and not at the higher value which it would possess if converted into a shop : and the supposition of a tenancy is only a mode of ascertaining the existing value to the existing occupier.

 

          227.  "The true principle, according to which the value of the occupation to the hypothetical tenant contemplated by the Parochial Assessment Act is to be estimated, is to assume the continuance of those circumstances which constitute the value to the existing occupier, unless it be made to appear that those circumstances are about to undergo a change".  In the language of Lord Denman, C.J. : "Now neither of the appellant's modes are correct, nor were contended so to be : they were in effect to rate land occupied in one mode as if it were occupied in another ; the modes producing different rates of profit and commanding different amounts of rent ; than which nothing can be more unreasonable " ; and as Lord Buckmaster has said, "Although the tenant is imaginary, the conditions in which his rent is to be determined cannot be imaginary.  They are the actual conditions affecting the hereditament at the time when the valuation is made".  Again, as Lord Maugham has put it : "There was thus a hypothetical tenant and a hypothetical rent, but I think a real and concrete hereditament .... The hypothetical rent which the tenant could give was estimated with reference to the hereditament in its actual physical condition (rebus sic stantibus), and a continuance of the existing state of things was primâ facie to be presumed".  The rateable quality of land is not to be determined by what it once was, or by what it may hereafter become ; it must be determined by what it was at the time the rate was made.  So that the tenant of an exhausted coal mine is not rateable, though he may continue to pay rent under his lease.  One must "ascertain the rateable value of a hereditament in a particular parish by ascertaining what that hereditament would let for in its then condition from year to year".  And consequently a house in course of construction cannot be rated .

 

          The question whether land, which is suitable - but not actually used - for building purposes, ought to be rated at its value for building purposes or for the purpose to which it is actually applied for the time being, is therefore covered by authority, and is answered by decisions spread over a period beginning long before the passing of the Parochial Assessment Act, 1836". (emphasis added)

 

17.     The correctness of this approach is confirmed by the dictum of Lord Wilberforce in Dawkins -v- Ash Brothers and Heaton Ltd (1969) 2 A.C. 366 at 385:-

 

          "Let us start from the actual.  The principle that the property must be valued as it exists at the relevant date is an old one, certainly older than the Parochial Assessments Act, 1836.  It has been spelt out in modern terminology in Poplar Metropolitan Borough Assessment Committee v. Roberts [1922] 2 A.C. 93, 120, and in Robinson Bros. (Brewers) Ltd, v. Houghton and Chester-le-Street Assessment Committee [1937] 2 K.B. 469 in passages which have been cited.  The principle was mainly devised to meet, and it does deal with, an obvious type of case where the character or condition of the property either has undergone a change or is about to do so: thus, a house in course of construction cannot be rated: nor can a building be rated by reference to changes which might be made in it either as to its structure or its use".

 

18.     One must bear in mind that the basis for rating in England is that of "beneficial occupation" whereas that is not the case in Jersey.  Nevertheless I do not think that the principles described above are affected by the difference between the United Kingdom and Jersey in this respect.  The property must be assessed on the basis of its current state rather than any future state into which it may be transformed. 

 

19.     It seems to me that the approach of the Board is not only inconsistent with what is done in the United Kingdom but is contrary to the principle which I have described.  The capital value of a site upon which development may take place (whether because it is newly zoned for development or because final development permission has been received) will reflect the anticipated  change of use to a more valuable one.  If the contractor's method is applied by reference to that value, the resulting annual rental value will clearly include an element based upon the anticipated future and more profitable use of the property.  This is because the valuation taken is not a valuation of the property in its current state.  It is a valuation having regard to a possible future use.  I put to Miss Langlois the example raised in paragraph 226 of Ryde of a house which has planning permission for conversion into a shop.  If the contractor's method were to be applied by reference to the value of the land, the value would reflect the possibility of the increased value of the site by conversion into a shop and would therefore not reflect the rental value of a mere house.  She conceded that unless and until the property was converted into a shop, it should be rated as a house. 

 

20.     One can think of many similar examples where the value has increased because of a potentially more profitable future use but where such use has not yet taken place.  Let us take a three bedroomed house with planning permission for an extension to convert it into a six bedroomed house.  Clearly the rental value of the latter, once completed, will be much greater than the rental value of the former.  The capital value of the premises in the meantime could be expected to have increased by reason of the development potential.  Yet it would surely be wholly inappropriate to assess the rental value by reference to this increased valuation.  The fact remains that, on the ground, it is a three bedroomed house and the rental value should be that of a three bedroomed house.

 

21.     Another example would be a field used for agricultural purposes but where development consent has been granted for a housing estate.  Should the rental value of such a field be assessed on the basis of agricultural use or as a building plot by reference to the contractor's method having regard to the greatly increased value of the field?  Miss Langlois informed me that, where there was a current use, the Board would always assess the rental value by reference to the current use, notwithstanding the possibility (or indeed, probability, if all consents had been received) of a future change to a more profitable use.  So, in the example given above, the rental value would continue to be assessed on the basis of agricultural use for so long as that agricultural use continued.  Similarly if a plot in respect of which development permission for the construction of dwellings had been given was used temporarily as a car park pursuant to permission from the planning authorities, the rental value of the plot would be assessed on the basis of its use as a car park for so long as that use continued.  However, she said, once any current use came to an end and the plot was lying empty pending commencement of the development, the Board was of the view that the land should be assessed in accordance with the varied contractor's method. 

 

22.     I then put to Miss Langlois the case of two adjoining plots of land of identical size, characteristics etc. both of which had received development permission for an identical development.  Thus the capital value of the two plots would be the same.  The development work had not yet started.  One plot was being used by its owner as a car park or, perhaps, as agricultural land pending commencement of the development; the other plot was left empty pending commencement of the development.  How were these to be assessed?  Miss Langlois confirmed that the rental value of the first plot would be assessed by reference to the current use (i.e. agriculture or car-parking) whereas the rental value of the second plot would be assessed using the varied contractor's method.  This would result in a very much higher figure because it would be based upon the development value of the site.  Thus the site which was actually being used profitably would be assessed to a comparatively low annual rental figure whereas the site which was lying empty would be assessed at a much higher rental figure.  The Board's justification for this difference was that the second site was being used as a building plot (because nothing else was being done and it was intended to be developed) whereas the first plot was not being used as a building plot; it was being used for agricultural or car parking purposes.

 

23.     I have to say that I find this distinction unconvincing.  In my judgment the second plot is no more being used as a building plot than the first.  They are both capable of development in the future but neither is being used for that purpose at present.  In my judgment the first plot is correctly being assessed by reference to its current use.  The second plot should be similarly assessed.  If it has an existing permitted use which can be currently exercised, it should be rated as such.  If it is simply open land which has never had any other use, it should be assessed as such.  No evidence was produced to me to show how open land has been rated in the Island but I assume that a fairly nominal rental value is taken. 

 

24.     In my judgment the error has arisen because the Board has transposed the use of the contractor's method from a situation dealing with current use of a building in the United Kingdom to a situation of a possible future use of a plot of land in Jersey.  It is quite clear that the contractor's method in the United Kingdom is only used where there is an existing building with an existing use but where it is not possible to obtain comparable rentals e.g. an airport or municipal building.  The valuation is undertaken by reference to the existing building and use and therefore reflects an alternative method (in the absence of comparables) of assessing the rental value for that building.  Thus paragraph B10 of the "Guidance Note to the contractor's method" issued by the Joint Professional Institutions' Rating Forum (November 1995) states:-

 

          "It is the rental value of the actual property which is required and the justification for adopting a cost based approach is that - when properly applied - it provides a guide to the rent which may be paid where no other, more direct, valuation method can be used".

 

25.     Furthermore the Guidance Note goes on to consider the question of the valuation of the land upon which the building in question is situated.  The following extracts are relevant:-

 

"3.3.2  The value adopted for the land should be on the basis that the site is undeveloped, with such services as existed at the relevant date available for connection, and with planning permission for development of the property.  This will have regard to the existing use and should reflect all advantages and disadvantages of the site and its location.  ...

 

3.3.5    Whilst the value of the land should reflect all inherent advantages and disadvantages it should not include any development potential over and above that required for the buildings and/or ratable structures within the property.  Thus, surplus land within the property which is reserved for future expansion should be valued as it stands which may result in only a nominal value being applied.  ....".

 

26.     Thus it is clear that, when applying the contractor's method in the United Kingdom, one is attempting to calculate the rental value of the existing building and land upon which it is built.  One is not attempting to assess rental value  by reference to any possible future use.  Accordingly the capital value taken is based upon the actual building and actual use and any value of the land attributable to development potential is ignored 

 

27.     That is where the Board, and the legal advice upon which it based its decision, has gone wrong.  In my judgment, it is artificial and incorrect to say that a building plot is being used as a building plot and therefore has an annual rental value calculated on the basis of its capital value taking account of development potential.  A building plot is simply a piece of land which has a current use (which may be of nominal worth if it is open or derelict land) and which may, in the future, have a different use once the permitted development has taken place.  Its rental value must be calculated by reference to its current use.  The result of valuing the land by reference to a hoped for or anticipated or even definite future use (depending upon the planning consents which have been received and the ability or inclination of the owner to carry out the development) and assessing rental value using the contractor's method by reference to that future use is to lead to the rental value of the property being assessed not on its actual use but by reference to its possible future use.  The 1946 Law does not require or permit this any more than the United Kingdom statutes.  The rental value of land must be assessed by reference to its state, use etc. at the material time.  In this context there was initially some discussion as to the relevant date for assessing the rental value.  Miss Langlois conceded that 1st January was the material date.  In my judgment she was correct to do so.  Accordingly land should be assessed by reference to the circumstances prevailing on 1st January of the relevant year.

 

28.     Turning therefore to the question of Law posed of me, I hold that the varied contractor's method is not an appropriate method by which to calculate the rental value of land intended to be used for the construction of buildings or any other structures.  In my judgment the correct test is set out in paragraph (ii)(a) of the Preliminary Issue save that I would replace the words "potential use" with the words "permitted use capable of immediate implementation".  This is intended to emphasize that it is the current permitted use which is relevant.  Thus, if a person has been granted permission by the planning authorities for the use of a plot for temporary car-parking purposes, that should be taken into account in assessing the rental value as, when assessing the rent he was willing to pay, a prospective tenant would no doubt have regard to the income potential of such activity even if it was not being undertaken by the owner at the time.  Conversely, if there is no planning permission for such use, the rental value will have to be assessed by reference to the existing use (e.g. agriculture, open land, derelict land).    The substitution of the words which I have suggested would make it unnecessary to retain the words "... other than the construction of buildings or other structures ..." although their inclusion does not do any particular harm.

 

After development begins

 

29.     Does anything change once the bulldozers move in and construction begins?  Miss Langlois argued that, whatever the position earlier, the site is then clearly being used as a building plot.  It is the equivalent of an open air factory for the construction of dwellings or whatever is being built there.  Whilst this argument has superficial attractions I do not find it compelling.

 

30.     First, use of the contractor's method suffers from the same vice as in relation to the pre-construction phase.  The construction of houses is not an end in itself.  It is a means to an end whereby the land is transformed into a condition whereby it can be used for an alternative use e.g. residential or commercial.  Thus one is again calculating rental value by reference to the future use of the property rather than its current use. 

 

31.     Secondly, the result produced by use of the contractor's method is likely to produce results so far removed from reality that the propriety of using it is called into question.  The contractor's method is not an end in itself.  It is a fiction used to assess the rental value where no other method seems applicable.  It must always be related back to the statutory requirement that the rental value is the amount which the land might reasonably be expected to command as rent if it were let from year to year.  As Lord Pearson said in Dawkins at 389:-

 

          "My Lords, in my opinion, there is in the law of valuation for rating a principle that the statutory "machinery" which at the material time was contained in section 22 (1) (b) of the Rating and Valuation Act, 1925, is adaptable and should, whenever this is possible, be so operated as to produce a just and true result, attributing to the hereditament its actual annual value - the real value of the beneficial occupation to the occupier - rather than some artificial and fictitious value".

 

Along similar lines was the comment of Lord Pearce at 381 when he said:-

 

          "My Lords, the question here is whether reduction in value due to an impending demolition order comes within that area of rating where realities are acknowledged or within that where necessarily fiction prevails over fact.  It is near the border-line which separates those areas.  One has a natural inclination to prefer reality to fiction if and where this is compatible with the basis of rating, with the statute, and with the cases".

 

32.     I put to Miss Langlois the proposition that, in reality, no one would ever pay £192,000 per annum for the Belle Vue site unless he had a long fixed term building lease which, after allowing for the rental and the cost of carrying out the development, would last long enough for the tenant to recover the rental and costs and make a profit from the sub-letting of the completed development during the term of the lease.  Miss Langlois accepted that this was so.

 

33.     The position of development land is quite different from that of land where there is an existing building with an existing use.  In the latter case, the notional replacement of the existing building is understandable even if the hypothetical lease is of uncertain duration.  This is because the hypothetical tenant will not actually have to expend any money.  There is an existing building which the tenant can use.  The tenant will therefore not have to construct one.  The notional cost of reconstructing the building is merely a mechanism for assessing the value to the tenant.  There is therefore no real difficulty in the fact that the statute requires the rental value to be fixed by reference to a lease from year to year rather than a fixed term lease.

 

34.     However the position in relation to a building plot is quite different.  There is no building with an existing use. There is merely an empty plot.  The plot is of no use to the hypothetical tenant (other than for its existing use, if any) unless and until he builds a development from which he can derive an income.  It follows that the hypothetical tenant will have to inject the necessary funds for the development.  That is quite different to the hypothetical tenant in the contractor's case in the United Kingdom who has an existing building to use and will not have to inject any monies to reconstruct that building.

 

35.     In these circumstances, the length of the hypothetical lease required to be assumed by the statute becomes far more critical than it does in the United Kingdom.  Even if, in practice, a lease from year to year does not take place in respect of an airport or municipal building, it is possible to contemplate such a lease as required by the statutory provision and to accept that the annual rental for such a lease can be calculated by reference to the contractor's method.  In the case of a building plot, the hypothetical tenant must not only pay the assessed rental but must also contribute the cost of the development.  What would such a tenant pay for a lease from year to year, being the expression used in the Second Schedule?  That requires the Court to ascertain what is meant by the use of the expression "let from year to year".

 

36.     Fortunately this wording has been interpreted in many cases in England.  In R. -v- South Staffordshire Waterworks Company 1885, 16 Q.B.D. 359 Lord Esher M.R. said at 370:-

 

          "A tenant from year to year is not a tenant for one, two, three or four years, but he is to be considered as a tenant capable of enjoying the property for an indefinite time, having a tenancy which it is expected will continue for more than a year, but which is liable to be put an end to by notice".

 

37.     This comment was specifically approved by a number of the members of the House of Lords in Dawkins.  Additional ways of defining a lease "from year to year" were given by the judges in that case as follows:- 

 

          Lord Pearce at 384: "Under the Act one has to give the hypothetical tenant a tenancy from year to year and see what he will pay for it.  In the normal case one tells him that he will have an indefinite prospect of continuance although the tenancy can be determined at the end of one year".

 

          Lord Wilberforce at 387:-  "So we should regard the words "from year to year" as meaning no more than that the tenancy is not a fixed or definite one; it is one of indefinite duration, determinable by notice, but not, I would think, according to the technicalities governing the giving of notice in tenancies of this kind".

 

          Lord Pearson at 393:-  "The statute requires quite simply a tenancy from year to year, and that is a tenancy which may be determined at the end of the first year or may run on for several years or many years.  The circumstances of a particular case may show that the hypothetical tenancy from year to year is likely to be long (e.g., where the subject-matter is or forms part of a waterworks undertaking or a railway undertaking) or that it is likely to be short (as in this case)".

 

38.     What is quite clear from these authorities is that a lease from year to year is a lease whose length cannot be known with certainty and may be brought to an end on notice by the landlord.  Unlike the hypothetical tenant of properties to which the contractor's method is applied in the United Kingdom, a hypothetical tenant of a building plot would have to inject his own funds to carry out the development.  In my judgment therefore, unlike in the United Kingdom hypothesis, he would undoubtedly take into account the fact that a lease from year to year could be terminated at any time on notice.  He might expect the lease to continue for some time (as the authorities suggest) but he would have no entitlement for it to do so.  The landlord could at any time terminate the lease on notice and assume the benefit of the development carried out at the tenant's cost.  The tenant would be left unable to recover the cost of the development.  I therefore agree with the contention of the Solicitor General that the hypothetical tenant would not agree to pay rent of any significance for the lease of a building plot from year to year. 

 

39.     In my judgment, the application of the varied contractor's method to a building plot (to which, as I say, it has never been applied in the United Kingdom) leads to results which are so far removed from a correct application of the statutory formula that it cannot be correct to use the method.  As Miss Langlois conceded, no one would pay anything like £192,000 a year to rent Belle Vue without the security of a fixed term to enable the costs of the development and the rent paid to be recovered during the term of the lease from the profits to be derived from the developed property.  But the statutory formula does not allow for a fixed term lease of appropriate length.  It requires the assumption of a lease from year to year which, on the authorities, is terminable on notice.  The application of the contractor's method leads to a result which is not the amount which the land might reasonably be expected to command as a rent if it were let from year to year.  That is because the contractor's method is being used in a way in which, as developed in the United Kingdom, it was never designed to be used.

 

40.     I hold that it would be an error of law to use the varied contractor's method to assess the annual rental of land used or intended to be used for the construction of buildings or any other structures whether before or during the carrying out of the construction.  Paragraph (ii)(b) of the question of law referred to me suggests that, if I find in favour of the Committee, the annual rental for such property should be assessed, if construction has commenced on 1st January of the material year, on the basis that no tenant would pay rent for such land.  I am reluctant to reach such a firm conclusion during the hearing of a preliminary issue of law, during which I have not had the benefit of any evidence.  In my judgment the correct test is to revert to the wording of the paragraph 1(1) of the Second Schedule and assess the rental value of land where construction has commenced as the amount which it might reasonably be expected to command as rent if it were let from year to year.  It seems to me that, for the reasons set out above and contended for by the Committee, the answer may well be that a tenant would pay no or only a nominal rent because of the need to inject capital to carry out the development with no guarantee of security.  Thus, by terminating the lease on notice, the landlord could take all the profit from the buildings constructed and paid for by the tenant.  If it be the case that no one would pay any substantial rent for a lease from year to year in such circumstances, then the annual rent should be assessed at a nil or a nominal amount.  Nevertheless it seems to me that that is a matter for decision by assessment committees with the guidance from the Board having considered any available evidence on the point. 

 

41.     In the light of my decision, I should address a point which Miss Langlois made, namely that land with development consent was some of the most valuable land in Jersey and it would be inequitable if such land were to pay rate at a level which did not reflect that high value.  I see the force of that argument.  Nevertheless the 1946 Law, in the same way as the relevant legislation in the United Kingdom, does not provide for rates to be payable on the basis of the capital value of the land; it provides for rates to be assessed by reference to the rental value, which is defined in the schedule as the amount which the land might reasonably be expected to command as rent if it were let from year to year.  The Court is bound by the statutory wording and the fact that very valuable land might have a low rental value and therefore be rated at a low level cannot affect the  correct interpretation of the statute.

 

42.     Finally I should add, for the sake of completeness, that, had I found in favour of the Board and adopted the varied contractor's method, I would have found that the material date when land should be rated as land used or intended to be used for the construction of buildings would have been the date of commencement of the works of the construction, rather than any earlier date such as applications for permission or grants of development permission.  In my judgment the test adopted by the Board in paragraph 11 above, would be far too vague to form a satisfactory basis for switching the basis of assessment from current use to the contractor's method.  However, in the light of my ruling, that point is now academic.

 

43.     In the circumstances I answer the question of law in the manner which I have described above.

 

 

AUTHORITIES.

 

Parish Rate (Administration) (Jersey) Law 1946.

 

Jersey New Waterworks Company Limited -v- The Rate Assessment Committee of Grouville (1994) JLR 197.

 

Kingston Union Assessment Committee-v-Metropolitan Water Board [1926] AC 331.

 

Port of London Authority-v-Orsett Union Assessment Committee [1920] AC 273.

 

Rees: Valuation: Principles into Practice, (4^th Ed'n) p.374-375.

 

Metropolitan Water Board -v- Chertsey Union Assessment Committee 1916 1A.C. 337.

 

Rating and Valuation Act 1925: S.22(1)(b).

 

Ryde on Rating (9^th Ed'n) pp.237-239.

 

Dawkins -v- Ash Brothers and Heaton Ltd (1969) 2 A.C. 366.

 

Joint Professional Institutions' Rating Forum (November 1995): Guidance Note to the contractor's method": paragraph B10.

 

R.  -v- South Staffordshire Waterworks Company (1885) 16 Q.B.D. 359.

 

In re Fields (1998) JLR 359.