UT Neutral citation number: [2012] UKUT 32 (LC)

UTLC Case Number: RA/15/2009

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

RATING – valuation – airport business centre – lease containing restrictions on use to meet requirements of airport operator landlord – whether use as business centre in same category or mode of use as office use – held it was not – rent payable better evidence of value than tone of value for offices – appeal dismissed –  RV confirmed at £170,000

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

WEST SUSSEX VALUATION TRIBUNAL

By

ANDREW MOULAND

(Valuation Officer)

Re: Rooms 701-745,

Building 20204,

Gatwick Airport,

Gatwick,

RH6 ONN

Before: N J Rose FRICS

Sitting at: 43-45 Bedford Square, London WC1B 3AS

on 11 November 2011

Sarabjit Singh, instructed by HMRC Solicitor, appeared for the Appellant.

The following cases are referred to in this decision:

Coppin (VO) v East Midlands Airport Joint Committee [1971] RA 31

Williams (VO) v Scottish and Newcastle Retail Limited and another [2001] RA 41

Fir Mill Limited v Royton UDC and Jones (VO) (1960) 7 RRC 171

The following cases were referred to in argument:

Lotus & Delta Limited v Culverwell (VO) and Leicester City Council [1976] RA 4

Hoare (VO) v National Trust (1998) 77 P&CR 366

Railtrack Plc v Guinness Limited [2003] EGLR 124

DECISION

Introduction

1. This is an appeal by the valuation officer, Mr Andrew Mouland Dip Surv, MRICS, against the decision of the West Sussex Valuation Tribunal, reducing the assessment in the 2005 rating list of a business centre described as Rooms 701 to 745 in Building 2024 at Gatwick Airport from RV £292,500 to £170,000.  The material day is 1 April 2005 and the antecedent valuation date is 1 April 2003.

2. At the time of the VT hearing the appeal hereditament was occupied by United Business Centres Plc (UBC). UBC responded to the VO’s appeal, but subsequently liquidators were appointed to the company, who indicated that they did not wish to take part in the appeal.  The proceedings were subsequently stayed to enable the freeholder to decide whether it wished to take part in the proceedings.  In the event the appeal was unopposed.

3. Mr Sarabjit Singh of counsel appeared for the appellant.  He called expert evidence from the appellant, who is employed as a chartered surveyor in the Worthing Valuation Office.

Facts

4. From the evidence I find the following facts.  The appeal hereditament comprises the seventh floor of a concrete framed office block built in the 1960s, known as Norfolk House and located at the centre of the South Terminal at the airport, with direct access to the arrivals and departures area.  Its floor area is 774.54m²  in terms of main space.

5. At the material day the appeal hereditament was used for the provision of fully serviced meeting, conference and touchdown facilities and fully serviced office accommodation on short term contracts.  It was held on lease from the airport authority at a rent of £177,888 per annum with effect from 1 October 2004.

6. The lease contained a number of unusual covenants.  The permitted use was as

“a high quality conference centre providing meeting rooms, conference rooms, training rooms and touchdown facilities (including executive lounge facilities) for passengers at and, at the tenant’s discretion, other users of the airport; and use for the provision of high quality serviced offices for airport-related customers, provided that no more than 30% of the net internal area of the premises shall be put to such use.” 

The tenant covenanted to use all reasonable endeavours to keep the premises open for business between 0800 and 1800 from Monday to Friday inclusive throughout each year, excluding any such days which are not working days; to carry out a quarterly review with the landlord of the operation of the conference centre and serviced office business conducted at the premises; and to carry out an annual review with the landlord of the conference centre business.  The tenant also covenanted at a time to be agreed between the parties, and at least once in each quarter, to evaluate the services offered, the cleanliness of the premises and the appearance and attitude of its staff and supply the landlord with a written record of the result of such evaluation.

Case for appellant VO

7. Mr Mouland said that, in his opinion, the terms of the lease under which the appeal hereditament was occupied at the material day were so far removed from those of the hypothetical tenancy which must be assumed for rating purposes that the rent payable was of no assistance in arriving at RV.  He considered that the requirement to limit to 30% the proportion of the floor area which could be used as serviced offices was onerous, given that UBC’s main business was the provision on a short term basis of serviced office accommodation.  In Mr Mouland’s view, the requirements to provide lounge facilities for executive passengers at the airport and to remain open for business during office hours were both highly unusual.  The restrictions in the lease were imposed for the benefit of the landlord in order to secure a tenant who would provide conferencing and executive lounge facilities for passengers using the airport in exchange for a concessionary rent.

8. Mr Mouland considered that a useful starting point for the valuation was provided by the Gatwick Airport rental guidelines from April 2003.  These guidelines are produced annually and set out the level of rents required for accommodation at the airport for the coming year.  Norfolk House was shown as having space available to let for £398 per m²  .

9. Mr Mouland also had regard to five rents which had been agreed for offices in Norfolk House between January 2003 and April 2006.  The rents paid ranged from £378.13 to £414.65 per m².  In no case was the lessee subject to the use restrictions or required opening hours which appeared in the lease of the appeal hereditament.

10. Mr Mouland acknowledged that the floor area of the appeal hereditament was much larger than any of the five units in Norfolk House in respect of which rental evidence was available.  He said that there was no evidence to show that the many larger office units in Crawley were worth proportionately less than small office units, and no allowance for quantum had been made in valuations for the 2005 list.  Looking further afield in West Sussex, there were still few office units whose valuations incorporated an allowance for size.  He had, however, been able to find ten cases where a size allowance between 5% and 18% had been granted for units varying between 3,543m² and 11,349m^2.  In one case, in Durban Road, Bognor Regis, with a floor area of 5,043m² an allowance of 33% had been made.

11. Mr Mouland observed that these examples were of limited evidential value as the properties were in different markets compared with the appeal hereditament.  Nevertheless, he felt that they provided a useful indication of the general levels of allowance which had been made for quantum.

12. In arriving at his valuation Mr Mouland started, not from the £398 per m² asked for Norfolk House, but from the £360 per m² quoted for another modern office building at the airport close to Norfolk House and known as Concorde 2000.  He then added 5% to reflect the benefit of air conditioning and arrived at a valuation basis of £378 per m² .  His valuation of RV £248,000 was:

13. Mr Singh submitted that the VT had been wrong to regard the passing rent as significant to the rating valuation of the appeal hereditament, because it placed weight on the commercial intentions of the actual landlord, who happened to own the whole of Gatwick Airport.  He said that the VT’s error was to ignore the fact that under the hypothetical tenancy it cannot be assumed that there will be only one landlord of both the appeal hereditament and the airport.  In support of that proposition he relied on Coppin (VO) v East Midlands Airport Joint Committee [1971] RA 31.  Once it was assumed that there might be two landlords it could not be said that the hypothetical landlord of the appeal hereditament would necessarily desire the same kind of tenant as the current actual landlord.

14. In Mr Singh’s submission the business centre use, to which the appeal hereditament was restricted by the terms of the lease to UBC, was not significantly different from an office.  The lease restrictions did not fundamentally alter the mode or category of use of the hereditament.  It remained a particular kind of office.  In support of this submission he relied on the decision of the Lands Tribunal in Fir Mill Ltd v Royton Urban District Council and Jones (VO) (1960) 31 RA 375.

Conclusions

15. The appeal hereditament was entered in the 2005 rating list with the description “Offices and Premises”.  At the VT hearing the parties agreed that this should be altered to “Business Centre and Premises”.  In its decision, the VT concluded that “a business centre is significantly different from a straightforward office use.”  In order to decide whether the VT was right to reach that conclusion I consider that assistance is to be gained from two cases where the question of rebus sic stantibus was in issue, namely Fir Mill and Williams (VO) v Scottish and Newcastle Retailing Ltd and another [2001] RA 41.

16. In Fir Mill the Tribunal said this:

“In our opinion only two assumptions are permitted.  The first assumption is that the hereditament is vacant and to let – vacant in the physical sense and in the sense that the existing business has ended and any process machinery has been removed.  The second assumption – and here we accept the second proposition of counsel for the respondents – is that the mode or category of occupation by the hypothetical tenant must be conceived as the same mode or category as that of the actual occupier.  A dwellinghouse must be assessed as a dwellinghouse, a shop as a shop, but not as any particular kind of shop, a factory as a factory, but not as any particular kind of factory.”

In Williams Robert Walker LJ said (para 70):

“Counsel for the valuation officer criticised the formulation in Fir Mill as unhelpful in that it was referring only to general categories of use.  He urged the court not to treat its language (“ a shop as a shop, but not any particular kind of shop; a factory as a factory, but not any particular kind of factory”) as if it were a statutory text.  But Parliament’s adoption of the expression “mode or category of occupation” must be taken as recognising that the formulation in Fir Mill is on the right lines, even if its precise scope has to be worked out on a case by case basis.”

17. The Court of Appeal judgment in Williams was on appeal against a decision of the Lands Tribunal (George Bartlett QC, President and P H Clarke FRICS), [2000] RA 119.  In para 111 the Tribunal had said:

“we believe that Fir Mill identifies with adequate clarity the basis on which hereditaments are to be characterised for the purpose of the rebus sic stantibus rule.  The assumption is that the premises will continue to be used for the same general purpose as that for which they are used at the material date, so that a dwelling house is assessed as a dwelling house, a shop as a shop, but not as any particular kind of shop, a factory as a factory, but not as any particular kind of factory.  For the purposes of the rebus sic stantibus rule it is thus the principal characteristics of the actual use that are relevant – those features of the occupation that reflect the general purpose of the use – rather than the particular operations of the individual occupier.”

18. The question therefore is whether the use to which the appeal hereditament was put – up to 30% as serviced offices and the remainder as a conference centre providing meeting rooms, conference rooms, training rooms and touchdown facilities (including executive lounge facilities) – can be properly characterised as an office use.  In my judgment it cannot.  Although some of the actual uses might be found in what otherwise would be office premises, taken overall they constitute a different category of use.  On any view one of the uses – the provision of touchdown facilities including executive lounge facilities – would not be found in an office and there was no evidence advanced by the appellant VO as to the amount of space that was devoted to that use.

19. Mr Mouland did not suggest that the VT’s decision was wrong if the appeal hereditament did not fall to be valued as offices.  The appeal is therefore dismissed.  I order that the assessment

in the 2005 rating list of Rooms 701 to 745 in Building 2024 at Gatwick airport be confirmed at RV £170,000.

Dated 6 February 2012

N J Rose FRICS