United Kingdom Upper Tribunal (Lands Chamber)
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URL: http://www.bailii.org/uk/cases/UKUT/LC/2012/RA_19_2010.html
Cite as: [2012] UKUT 5 (LC), [2012] RA 1
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UPPER TRIBUNAL (LANDS CHAMBER)
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UT Neutral citation number: [2012] UKUT 5 (LC)
UTLC Case Number: RA/19/2010
TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
RATING – valuation – contractor’s basis – value of occupation to hypothetical tenant – public conveniences – appeal allowed
IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE
WHITECHAPEL VALUATION TRIBUNAL
BY
MRS JO COLL, GVO SOUTH EAST GROUP
(VALUATION OFFICER)
Re: Public Conveniences near 55 High Street
Steyning,
West Suss ex,
BN44 3RE
Before: His Honour Judge David Mole QC
Sitting at 43-45 Bedford Square, London, WC1B 3AS
on 7 December 2011
Timothy Morshead QC for the Valuation Officer
The Respondent was not represented
The following cases are referred to in this decision:
Erith Borough Council v Draper (VO) [1952] 45 R & ITR 315
Poplar Assessment Committee v Roberts [1992] 2 AC 93
Allen v English Sports Council [2009] RA 289
John Laing & Son v Kingswood Assessment Committee [1949] IKB 344
LCC v Wilkins [1957] AC 362
Orange PCS v Bradford [2004] EWCA Civ 155; [2004] 2 All ER 651
Poplar Metropolitan Borough Assessment Committee v Roberts [1992] 2 AC 93
Dawkins (VO) v Ash Bros & Heaton [1969] 2 AC 366
Robinson Brothers (Brewers) Ltd v Houghton and Chester Le-Street Assessment Committee [1937] 2 KB 445
Roxburghe Estates v Scottish Borders Council Assessor [2004] RA 15
Hodgkinson (VO) v Strathclyde Regional Council Superannuation Fund [1996] RA 129
DECISION
Introduction
1. This case is about three public lavatories at 55, High Street, Steyning, West Sussex. They are part of a building consisting of a large brick-built covered bus shelter, the three lavatories in question and a store, at the entrance to the Council car park in the centre of Steyning, a small town approximately 5 miles north of Worthing.
2. The Horsham District Council (hereafter 'the HDC') has a power, but not a duty, to provide public conveniences within its area. It was decided after consultation with the Steyning Parish Council (hereafter 'the PC') that the existing toilet and bus shelter should be refurbished. The cost of £75,000 was divided between the HDC and the PC. The existing male, female, and disabled toilet facilities were replaced with three unisex toilets. The lavatories are all designed for use by the disabled but only one of them is restricted to such use; the other two are available to the public in general. The refurbished building opened on 16 February 2009. The annual cost of maintenance is said to be around £10,000 per annum. The HDC, as owner, let the building to the PC for a peppercorn rent, which makes the building available for the convenience of the public.
3. The previous building had been entered into the 2005 rating list with a rateable value of £2750, with effect from the 1 April 2005. On 26 October 2000 the PC made a proposal on the basis that a material change of circumstances had occurred to the hereditament, because "it now incorporated three disabled public toilets and should be exempt."As this proposal was not withdrawn or resolved by agreement it went as an appeal to the Whitechapel Valuation Tribunal.
4. The VT rejected the argument that the appeal premises were exempt, noting that they were not wholly for disabled use. The VT also rejected the arguments firstly that the conveniences were not for the exclusive use of the PC because they were for use by the general public and secondly that the conveniences were simply ancillary to the car park. Then the VT turned to the question of the rateable value.
"28. It remained, therefore whether the rateable value at present in the Rating List was correct or whether it should be reduced to a nominal value as suggested by the appellant.
29. It was noted that the public conveniences in the decision of Hodgkinson (VO) v Strathclyde had been reduced to a rateable value of £1. Whilst the panel accepted the differences between the public conveniences in the shopping centre and the appeal premises, it took the view, as in that decision, that a hypothetical landlord would accept a nominal rent for the appeal premises to avoid the burden of continuing to maintain the conveniences.
30. The Panel concluded that the rating of public conveniences of this more modern type did not appear to take account of the high overheads. Whilst the Panel appreciated that one of the duties of the Council was to provide services, it was of the opinion that in this case there was no statutory duty incumbent on the Council to provide Public Conveniences. In those circumstances, the Panel did not consider that a hypothetical landlord would be prepared to spend £10,000 per year in maintenance for little or no return.
31. The appeal is, therefore, allowed."
Submissions
5. Mr Timothy Morshead QC submitted on behalf of the Valuation Officer that the VT's decision was wrong. Firstly it was inconsistent with the decision of the Lands Tribunal in Erith Borough Council v Draper (VO) [1952] 45 R&ITR 315. Secondly it wrongly simulated the negotiations which might take place on a hypothetical letting of the hereditament, on the false basis that the hypothetical landlord would be obliged to "spend £10,000 per year in maintenance for little or no return", unless he secured a letting. There was no basis for that assumption which, anyway, risked making the mistake of evaluating the premises to the hypothetical landlord rather than to the hypothetical tenant. That would be contrary to the principle in Poplar Assessment Committee v Roberts [1922] 2AC 93. Thirdly, it wrongly treated "high overheads" as a factor diminishing rateable value; in fact this factor is either neutral or inflationary of rateable value because a willingness to incur overheads in relation to a hereditament indicates that its occupation is of value to the occupier. The expenditure of £75,000 on refurbishing the lavatories cannot have had the effect of reducing their rateable value from the previous unchallenged value of £2,750 to £1. Mr Morshead drew my attention to the decision of the Lands Tribunal in Allen v English Sports Council [2009]RA 289, (see particularly the President at paragraph 77 (page 315)). Finally, the VT was wrong to rely on the decision of the Lands Tribunal in Hodgkinson (VO) v Strathclyde Regional Council Superannuation Fund [1996] RA 129. Whether or not this case was rightly decided, and Mr Morshead did not accept that it was, he submitted that it ought to be distinguished on its unusual facts.
6. In Mr Morshead's submission the rateable value of the hereditament should be determined in accordance with Mr Forbes' valuation and the list should be altered to show a rateable value for the hereditament of £600 with effect from 16 February 2009.
Valuation Evidence
7. Mr Morshead called Mr Simon Forbes MRICS to give evidence on behalf of the Valuation Officer. Mr Forbes described the hereditament, its location, use and occupation and set out its rating history. He explained the rating principles that, in his view, applied to public conveniences. He acknowledged that the hereditament is incapable of being occupied for monetary profit, but that is not a requirement for rateable occupation. His view was that the Parish Council is in beneficial occupation of the hereditament. However he regarded the cubicle reserved exclusively for disabled persons as exempt under paragraph 16(1)(b) of Schedule 5 of the Local Government Finance Act 1988 and made an allowance for that in his valuation at stage five. He noted that the annual rent paid by the PC to the HDC is £1 but did not find that a useful indication of value. In the absence of any open market rents his view was that the Contractor's Basis was the appropriate valuation method. He applied the approach set out in the Rating Manual and Practice Note. At stage 1 he estimated the replacement cost of a modern substitute building as £21,062. From that, at stage 2, he deducted 19.5% for age and obsolescence and adjusted the replacement cost to £16,995. He then added 5% of the adjusted replacement cost as land value, giving £17,803. This he decapitalised at 5% to £890. Finally, at stage 5, he deducted 30% to take account of the disabled cubicle with poor access. His resulting valuation was £623, which he rounded to a rateable value of £600. Mr Forbes’ valuation was unchallenged.
Law
8. It is useful in the consideration of this matter to start with the basics of rateable occupation. The four necessary ingredients have long been established to be: actual occupation or possession; possession that is exclusive for the purposes of the possessor; possession that is of some value or benefit to the possessor; and possession that is not too transient. (John Laing & Son v Kingswood Assessment Committee[1949] 1KB 344; LCC v Wilkins [1957] AC 362.) Although it does appear that there was some argument in the VT about whether the public conveniences were in the exclusive occupation of the Parish Council, the VT rejected that submission. It appears to have been accepted by the VT that the PCs occupation was beneficial, or at least beneficial enough for the premises to be rateable. The issue is whether or not the premises should be valued at a nominal rent.
9. The rating hypothesis is the means of establishing the value of the occupier's occupation. The rent for the purpose of this hypothesis is the value of the occupation to a hypothetical tenant. The actual rent paid, or the fact that no actual rent or a peppercorn rent is paid, is no criterion. Neither are the actual personal circumstances of the landlord or the tenant.
10. An authoritative recent summary of the law relating to be rating hypothesis is to be found in the judgement of Thomas LJ in the case of Orange PCS v Bradford [2004]EWCA Civ 155; [2004] 2 All ER 651. After an analysis of the cases of Poplar Metropolitan Borough Assessment Committee v Roberts [1922] 2 AC 93 and Dawkins (VO) v Ash Bros & Heaton [1969] 2 AC 366, he turned to the hereditament in the Orange case. This was a telecommunications mast, installed in the highway without the need to make any payment by virtue of the provisions of the Telecommunications Act 1984. He said:
“22.The occupation of the land on which a mast was erected was a right that would ordinarily be of value to the occupier; that followed from the operation of any market. The value of the right was illustrated by the fact that telecommunications operators had to pay for the right to occupy land in private ownership on which they erected masts. For the purpose of determining the value of the occupation under the hypothesis, the rent payable by the tenant should be that value.
23. The statutory right that Orange had to occupy the land without payment was not determinative of that value in the same way as an actual rent is not determinative; I accept the submission made on behalf of the valuation officer that the code operated to determine that the price paid for the occupancy was nil; it did not operate to determine the value of the occupation.”
11. After pointing out that the right to occupy free of charge was personal to Orange and that the benefit, absent that right, had been agreed, Thomas LJ continued:
"26.The submission, in the case advanced on behalf of Orange, that a nil value was the value to be derived applying the "principle of reality" was, in my view, in fact not grounded in reality. There could have been as a matter of reality no hypothetical negotiations of the kind outlined in [15], above. If a telecommunications operator was entitled to occupy land along or adjacent to the highway for the purpose of siting a mast without charge, there would never be a negotiation with the hypothetical landlord; if the operator was entitled to free occupation, he would utilise the right to place the mast anywhere else on or adjacent to the highway; it was only if topographical or other conditions impelled him to place the mast on privately-owned land, that he would not utilise that right; on privately-owned land, he would have to pay. The whole argument summarised in[15], above was unreal, because if the statutory right to free occupation of the land was brought into account, there would ex-hypothesi, have been no negotiation as there would have been nothing to negotiate about. The suggestion that in the negotiations the tenant might have been influenced by his ability to go to another location along the highway was entirely circular, as he had a right of free occupation anywhere on the highway; that was an incident of the statutory regime. It is quite unlike the position is summarised by Scott LJ in Robinson Bros (Brewers) Ltd v Houghton and Chester-le-Street Assessment Committee [1937] 2 KB 445 at 470:
"... the rent to be ascertained in is the figure at which the hypothetical landlord and tenant will, in the opinion of the value or the tribunal, come to terms as a result of bargaining for that evidence, in the light of competition or its absence in both demand and supply, as a result of "the higgling of the market"..."
As Scott LJ went on to point out, the enquiry is primarily economic and not legal; it is impossible, for the reasons given, to understand in economic terms how there could ever be, as Orange contended, the "higgling of the market" in relation to a site on or adjacent to the highway where all such sites could be occupied free of charge under the code."
12. Another explanation of the principle, which is apposite to the facts of the present case, is to be found in the case of Roxburghe Estates v Scottish Borders Council Assessor [2004] RA 15, a case before the Lands Tribunal for Scotland, concerning Floors Castle, one of the most important historic houses of Scotland. (The facts of that case are not particularly relevant) The explanation of principle was given by Lord McGhie (at page 34) in these words:
"Further and in any event, it can be observed that we heard nothing to justify an assumption that a tenant who was prepared to take a tenancy of subjects which ran at a commercial loss, would not pay more than the cost of repairs. If a tenant, for his own purposes would be prepared to occupy subjects at an annual net cost of £80,000, there is no firm basis for saying that he would not be prepared to occupy at a higher cost if this was necessary to secure the tenancy.
It was suggested that a landlord would be glad to have a tenant who would relieve him of the cost of repairs and would not seek any payment of rent in addition. This, however, begs the question. Landlords do not habitually treat acceptance of liability for repairs as adequate return from their tenants. The proposition depends on an assumption that the cost of repairs is in the particular circumstances equal to or in excess of, the amount which a tenant might be expected to pay for the benefit of occupation. It does not seem to us that the problem of assessment is assisted by an unquestioning acceptance of the division into categories such as the cost of repairs; liability for a proportion of expenditure; or the expense of rent. These are all payments by the tenant in exchange for the benefit of occupation. They provide little guidance as to the total figure a hypothetical tenant would agree to pay for that benefit in the whole circumstances."
13. The rateability of a public convenience provided under a power rather than a duty was considered by the Lands Tribunal ( Mr Erskine Simes) as long ago as 1952, in the case of Erith Borough Council v Draper (VO) [1952] 45 R&ITR 315. The Tribunal noted that the annual cost of maintaining and cleaning the convenience considerably exceeded the revenue obtained. The town clerk had contended that it was inconceivable that any tenant could be found to pay any rent for the building and the council could not be regarded as a hypothetical tenant since the council had no statutory duty to provide the convenience. Mr Erskine Simes said:
"Nor, I think, does the fact that the Council are exercising a statutory power and are not under any statutory duty preclude me from considering them as possible tenants. As the Council have deemed it worth while to expend money from the rate fund to provide this convenience, it is, I think, obvious that they would be willing to rent it, were it vacant and to let. The occupation by the Council is in my judgement beneficial, since it affords them the facility to exercise their statutory power; an exercise which they obviously deemed desirable, as shown by the action they have taken.”
14. The VT relied in its decision on the case of Hodgkinson (VO) v Strathclyde regional Council Superannuation Fund [1996] RA 129. In that case HHJ Rich QC referred with approval to the judgement of Mr Erskine Simes in Erith in rejecting a submission that there was no beneficial occupation. HHJ Rich also rejected the valuation approach of the VT. This appears to have taken the valuers in the case by surprise somewhat, but they rallied and justified their valuations. I think it would be helpful to set out Judge Rich’s conclusion (at page 140) on the valuation point in full.
"The appellant valuation officer, in giving evidence in support of a valuation other than nominal, maintained that if the conveniences were vacant and to let that there would be at least two potential tenants who would have an interest in bidding for a lease: the owner of the centre and a consortium of tenants. I think that the issue as to whether a value more than nominal is to be attributed to the appeal property depends upon whether such potential bidders would, between them, bid the rent up. I think that Mr Keen gave the right answer to that question in his evidence in cross examination. He pointed out that the tenants of the retail units have to pay any service charge equal to the cost of providing the services including the conveniences. Any rent which the owner of the centre had to pay will be charged back to the tenants. It would not be in the interest of the tenants to bid against the owner, who would therefore either be the only potential tenant or would agree with the consortium that they should be the only bidders for the tenancy. In the hands of the hypothetical lessor, or of any third party, the premises, subject to the rights of the tenants of the retail premises would be burdensome and incapable of producing any income for him was not exceeded by the expense of collecting it. The hypothetical lessor would not, therefore, be able to insist on more than a nominal rent."
Consideration and Conclusion
15. I have to confess, with great respect, that I do have some difficulty in following the reasoning in that passage from Hodgkinson and reconciling it with the principles of law I have set out above. However it seems that the matter turned on upon the view of the Tribunal that, on the facts of that case, the contractual rights of the tenants to use the lavatories somehow exhausted the value of the lavatories to the occupier. However that may be, in my view Mr Morshead is right to submit that the facts of that case have nothing to do with the present case. There are in the present case no tenants, nor anybody else, who holds rights to use the hereditament comparable to those in Hodgkinson. In so far as that case is in conflict with Erith, I prefer to follow the clear expression of principle in the latter, which seems to me to be directly to the point.
16. The fact is that these public lavatories are a facility that the Parish Council in the exercise of its powers has chosen to provide. It has spent a large amount of money to refurbish them and is evidently prepared to spend £10,000 a year on their maintenance. It clearly regards them as a useful facility for the inhabitants of their area. It seems to me that the PC must think that use of the premises is valuable. I find the commonsense approach of the Lands Tribunal in Erith and Allen apt and compelling.
17. The hypothetical negotiation is between a hypothetical landlord who has a property he wishes to let and a hypothetical tenant who wishes to occupy it. It does not matter why he wishes to occupy it. The personal motives of real landlords and tenants have nothing at all to do with the valuation of the hereditament. It makes no difference that the occupier will not make any money out of occupying it. The principle is the same whether the occupier is a local authority acting under a duty, a local authority acting under a power, a trustee seeking to advance a trust, a sympathetic local philanthropist or a wealthy person wishing to live somewhere beautiful but high maintenance. In every such case the real occupier puts a real value on his occupation. That would be powerful evidence that a hypothetical tenant could be assumed to be prepared to pay a more than nominal rent.
18. Nor does it make any difference to the hypothetical tenancy what, if anything, the landlord's liabilities are. As Lord McGhie in effect pointed out (in Roxburghe Estates above) the value to the tenant is the same whether he pays the landlord £10,001 a year in order to cover the landlord’s maintenance costs of £10,000, plus a nominal £1, or whether he takes on the annual maintenance cost of £10,000 himself and then pays the landlord a nominal £1. In either case, when the hypothetical tenancy has to be considered, ‘real-life’ transactions of either sort may well be convincing indications that to a hypothetical tenant the hereditament would have real value. Accordingly I agree with Mr Morshead’s submission that occupying premises with ‘high overheads’ is likely to be an indication that the occupation has value to the occupier, rather than the reverse.
19. For these reasons I conclude that the VT erred in law. The hypothetical tenancy of this hereditament has a value that is more than nominal.
20. As to the valuation of that tenancy, I accept the approach of Mr Forbes and find that his rateable value for the hereditament is correct.
21. I therefore allow the appeal, determine that the rateable value of the appeal hereditament be £600 with effect from 16th February 2009, and order that the list be altered to that effect.
Dated 12th January 2012
His Honour Judge David Mole QC