UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2013] UKUT 101 (LC)

UTLC Case Number: RA/23/2012

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

RATING – valuation – MOT test centre – rebus sic stantibus – use of comparable warehouse rents – effect of business relocation from Olympics site – low emission zone – vehicle scrappage scheme – use of adjoining property as a waste transfer and recycling depot  – appeal allowed in part – rateable value assessed at £14,500 – Local Government Finance Act 1988 Schedule 6 para 2(7)

 

 

IN THE MATTER OF AN APPEAL

AGAINST A DECISION OF THE VALUATION TRIBUNAL FOR ENGLAND

 

 

 

BETWEEN JOHN BURVILL Appellant

and

GARETH DAVID JONES Respondent

(Valuation Officer)

 

 

 

Re: Unit 4,

K9 Estate,

Ferry Lane,

Rainham,

Essex RM13 9YH

 

 

 

Before: A J Trott FRICS

 

Sitting at: 45 Bedford Square, London WC1B 3AS

on 15 February 2013

 

The appellant in person

John Harding, Chartered Surveyor of the Valuation Office Agency, for the respondent

 

The following cases are referred to in this decision:

Williams (Valuation Officer) v Scottish and Newcastle Retail Limited [2001] EWCA Civ 185

Scottish and Newcastle Retail Ltd v Williams (VO) [2000] RA 119

Cheale Meats Limited v John Philip Ray (VO) [2012] UKUT 61 (LC)

Chilton-Merryweather v Hunt [2008] RA 357

Re The Appeal of Kendrick (Valuation Officer) [2009] RA 145

East Midlands Airport Joint Committee v Coppin (VO) (1971) 17 RRC 31

Gregory v Biddle (VO) (1983) 23 RVR 177

The following further case was referred to in argument:

Wilson-Smith v Attrill (VO) [2011] RA 499

DECISION

Introduction

1.           This is an appeal by Mr John Burvill (the appellant), the freehold owner-occupier of Unit 4, K9 Estate, Ferry Lane, Rainham, Essex RM13 9YH (the appeal hereditament), against the decision of the Valuation Tribunal for England (VTE) dated 2 May 2012 determining the rateable value of the appeal hereditament at £20,300 with effect from 1 April 2010.

2.           The appeal hereditament was shown in the compiled 2010 local non domestic rating list as a “warehouse and premises” with a rateable value of £27,500.  The appellant made a proposal on 28 May 2010 to alter the compiled list assessment to £5,000.  The Valuation Officer (VO) did not consider this proposal to be well-founded and, the proposal not being withdrawn, the disagreement was referred to the VTE on 19 August 2010 as an appeal by the proposer against the VO’s refusal to alter the list.

3.           Before this Tribunal the appellant argues that the rateable value of the appeal hereditament should be £4,451.  The respondent VO, Mr Gareth Jones MRICS, accepts and defends the VTE’s determination of the rateable value at £20,300.

4.           The hearing took place under the simplified procedure.

5.           The appellant appeared in person.

6.           The respondent was represented by Mr John Harding MRICS, of the Valuation Office Agency, who called Mr Jones as an expert witness.

Facts

7.           I determine the following facts from the evidence.

8.           The appeal hereditament is located on the K9 Estate in Ferry Lane, Rainham in an established industrial area between the A13 to the north and the River Thames to the south.  Junction 30 of the M25 is approximately 1.5 km to the east.  The estate comprises 12 warehouse units of varying age and size.  Units 1 to 6 are larger buildings located to the east of the site.  Units 7 to 11, and the unit known as Eagle House, are located to the west.  Units 2 and 3 are a single hereditament.  Vehicular access to units 1 to 4 is from Coldharbour Lane (notwithstanding their postal address) while that to the remaining units is from Ferry Lane.  The access route to the appeal hereditament from Coldharbour Lane leads around the side of units 1 and 2/3.  At its narrowest point this access is approximately 6m wide.  The entrance to unit 2/3 is close to, and at right angles to, that of the appeal hereditament.  There is a triangular tarmacadam parking and manoeuvring area outside of the appeal hereditament that also serves the entrance of unit 2/3.

9.           The appeal hereditament comprises a single space warehouse of 424.51 m²  gross internal area (GIA) and an eaves height of approximately 6.6m.  It is of portal frame construction with a concrete base and brick and block infill panels.  Externally there is profiled steel cladding to the walls and roof.  The unit is part of a larger sub-divided building that was built in 1996.  There is a small internal block built WC but no supply of drinking water.  The accommodation was unheated. 

10.        The appellant purchased the freehold of the appeal hereditament in August 2008 and, having obtained the appropriate Vehicle and Operator Services Agency licences, began operating as an MOT test centre on 5 January 2009.  In or around March 2009 a company called Juniper Refuse took a lease on the neighbouring unit 2/3 and began trading as a waste transfer and recycling depot.  Juniper Refuse collected food waste from restaurants and brought it to unit 2/3 in 3.5 tonne open cage lorries throughout the day, six days a week.  It then sorted the material on the floor of the unit and twice, sometimes three times, a day a compactor lorry would come and remove waste material that could not be recycled.  This use of unit 2/3 caused difficulties for neighbouring occupiers in terms of obstructing the access road, unpleasant smells and fly infestation.

11.        The landlord of unit 2/3 secured vacant possession of that unit in March 2011.  It was then let shortly afterwards to a company called Motorfix.

12.        Unit 1 was occupied by HMV Paints until they vacated the unit shortly after Juniper Refuse moved into unit 2/3.  A company called BMW Spares then occupied unit 1 before vacating late in 2012.

13.        The material day and the effective date are 1 April 2010. 

Statutory Provisions

14.        Rateable value is defined in Schedule 6, paragraph 2(1) of the Local Government Act 1988 (as amended) (the 1988 Act) and is an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on three assumptions:

(a)     that the tenancy begins on the day by reference to which the determination is to be made;

(b)    that immediately before the tenancy begins the hereditament is in a reasonable state of repair, but excluding from this assumption any repairs that a reasonable landlord would consider uneconomic; and

(c)     that the tenant undertakes to pay all usual tenant’s rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command that rent.

15.        The hereditament is to be valued by reference to values pertaining at the Antecedent Valuation Date (AVD) (1 April 2008).  It is also necessary to take into account as at the material day (1 April 2010) those matters set out in Schedule 6, paragraph 2(7)(a) to (e) of the 1988 Act.  Insofar as relevant to this appeal these matters are:

(a)     matters affecting the physical state or physical enjoyment of the hereditament;

(b)    the mode or category of occupation of the hereditament;

…

(d)  matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless manifest there; and

(e) the use or occupation of other premises situated in the locality of the hereditament.

The VTE’s decision

16.        The VTE said that the evidence supporting the VO’s figure of £68.25 per m² to value the main space of the appeal hereditament was “inconclusive”.  They acknowledged that the VO had been right to consider comparable rental evidence from the K9 Estate and had been correct in principle in his adjustments for the age and size of the different buildings on the estate.  But they considered that the VO’s actual adjustments seemed to be “quite arbitrary” and showed too great a difference in the price adopted to value properties above and below an area of 500 m² .  They continued:

“The panel was not persuaded that such a difference could be warranted in the case of the appeal property’s valuation and having regard to the [property’s] size and layout, and it being all ‘main space’.  The panel consider that a ‘premium’ of 25% should apply to the rate applied to what would, in some cases, only be slightly larger units, rather than over 50% as was suggested by Mr Jones in evidence.”

17.        The VTE took as a starting point for their valuation the rate of £45 per m² that the VO had adopted in the compiled 2010 list for the assessment of unit 1 (which was built in the 1960s and had a GIA of some 736 m² in terms of main space).  They then added 25% “to reflect the appeal property’s different [smaller] size and [younger] age” to give a rate of £56.25 per m².  They then reduced this by 2.5% (to reflect the lack of heating at the appeal hereditament) to give a rate of £54.84 per m². 

18.        The VTE then considered the various problems that the appellant had identified at the appeal hereditament.  They said the following about the occupation of Juniper Refuse in the neighbouring unit 2/3:

“Clearly, the occupation nearby by the refuse company was severely unpleasant for the appellant.  However, the panel had to consider whether a landlord would reduce the rent for this factor.  In this case the evidence was that the landlord took action to limit the problems emulating [sic] from the use of this nearby unit with the tenant therein eventually vacating.  This suggests that the landlord decided it was better to address the problem at source than to try and address concerns by offering rent reductions to tenant[s] [a]ffected.  The panel felt that, in the hypothetical world of rating, it could fairly be assumed that this is what the hypothetical landlord might be expected to do.  Alternatively, were he unable to do so, any [a]ffected hypothetical tenant would look to other avenues, such a[s] local authority enforcement action to address what would seem to be unacceptable hygiene and ‘pollution’ disturbances caused by this occupier.  In other words, the panel did not find persuasive evidence for them to show that the hypothetical rent the property could reasonably have been expected to realised [sic] at the material day for this appeal would be reduced because of this disturbance and consequently no allowance should be made in the rating assessment for this factor.”

19.        The VTE said that access to the appeal property was poor and was exacerbated by neighbouring occupiers obstructing the roadway with their vehicles.  They doubled the VO’s allowance for this disability from 5% to 10%.  They also made an allowance of 2.5% for the lack of drinking water.  No adjustment was made in respect of the additional competition in the area arising from the relocation of users from the Olympic site in and around Stratford.

20.        The VTE’s valuation was:

Warehouse: 424.51 m² @ £54.84 per m² = £23,280

Less 10% for access = £2,328

Less 2.5% for no drinking water = £ 582

£  2,910

£20,370

They rounded this figure down to a rateable value of £20,300 with effect from 1 April 2010.

The case for the appellant

21.        The appellant’s arguments may be summarised as follows:

(i)             Vehicular access to the appeal hereditament was very poor.  The entrance was from Coldharbour Lane and involved going past two other units.  There was a pinch point at the corner of unit 2/3 and the appellant’s customers were frequently blocked by other vehicles when entering and leaving the appeal hereditament.  The VTE’s allowance of 10% for this disability was insufficient and should be increased to 20%.

(ii)           The VTE were wrong not to reduce the rateable value of the appeal hereditament to reflect the problems caused by Juniper Refuse in unit 2/3. 

(iii)         The allowance for the lack of drinking water was too low and should be increased from 2.5% to 10%. 

(iv)          The appellant purchased the freehold interest in the appeal hereditament with the aid of an interest only mortgage, the payments for which amounted, as at January 2013, to £8,902 per annum.  The appellant argued that this was effectively the rental value of the appeal hereditament. 

(v)            A comparison between the rateable values and the rents payable on the units on the K9 Estate for which data was available showed that in five cases the rateable value was less than the annual rent paid.  Both unit 1 and unit 2/3 had rents payable that were £3,750 more than the rateable value.  But the appeal hereditament had a rateable value that was £17,900 more than its rental value as represented by the annual mortgage payment.  The appellant’s analysis on this point, which appeared in his statement of case, was based upon the rateable value before its reduction by the VTE and upon historic mortgage payments.  The equivalent figure using the rateable value under appeal before this Tribunal and the revised mortgage payments as stated in the appellant’s witness statement dated 21 January 2013 is £11,398.

(vi)          Businesses that were moved from the Stratford area of east London as part of the redevelopment for the Olympic Games had been relocated to the Rainham area.  Part of their relocation package was that their rent and rates would be paid for them by the acquiring authority for the next four years.  This had two effects upon the appellant: firstly, it inflated rental values (and thus rateable values) as landlords were able to name their price and, secondly, it meant an increase in competition for the appellant’s MOT testing business as several other such facilities were relocated into the surrounding area.  These competitors were able to undercut the appellant’s prices because their rent and rates were subsidised.

(vii)        In 2009 Transport for London erected signs in Ferry Lane and elsewhere marking the boundary of the Greater London Low Emission Zone that would come into effect in January 2012.  Drivers of designated diesel vehicles that were first registered before July 2000 and which did not have an appropriate exhaust filter fitted could not enter the zone without paying a £100 daily charge.  If they failed to pay the charge they were liable to a penalty of £500.  The appellant said that the new 2012 regulations applied to a large number of vehicle types including vans, minibuses and light 4 x 4 utility vehicles.  This affected his business across the complete range of MOT testing, repairs and servicing.  His clientele were drivers of older vehicles that were likely to be affected by the LEZ and would therefore not visit his premises which were located inside the zone.  He estimated that 20% of his business was so affected.

(viii)      In 2009 the Government introduced a vehicle scrappage scheme to encourage older vehicles to be taken off the road.  This had adversely affected the appellant’s MOT business which relied upon the custom of drivers of such older vehicles.

(ix)          At the end of every month the police checked for untaxed vehicles in Ferry Lane, some 300 yards from the appeal hereditament.  This discouraged customers from visiting the appellant’s premises.

(x)            The material day should be taken as 1 April 2008.

22.        The appellant concluded that there should be a discount of 50% to reflect the impact of the above factors.  Taking the rental value as £8,902 per annum (see subparagraph (iv) above) this meant that the rateable value of the appeal hereditament should be £4,451.

The case for the respondent

23.        Mr Jones explained that this was an appeal against a compiled 2010 list assessment and that the material day was therefore 1 April 2010 with an AVD of 1 April 2008.

24.        Mr Jones relied upon rental evidence from lettings on the K9 Estate.  He acknowledged that the results of his analysis showed a variation in rental values.  The dates of lettings, lease renewals and rent reviews were different as were the age, size and physical characteristics of the units on the estate.  He concluded from the evidence that the relevant range of rental values at the AVD was £38 per m² (unit 1) to £71.50 per m² (unit 6).  The rate adopted for the rating assessment of these two units was £45 per m² and £65 per m² respectively (heated).  Unit 1 was a larger and older unit than unit 6 although both units had a GIA in excess of 500 m².  Mr Jones allowed a 10% discount for size in respect of unit 1.

25.        The appeal hereditament was built at the same time as unit 6 (1996) and had a similar eaves height (6.6m).  It had a GIA that was less than 500 m² but had a worse vehicular access (from Coldharbour Lane rather than Ferry Lane).

26.        The more modern, and smaller, units on the estate showed higher rental values, from £72 per m² (unit 8) to £145.54 per m² (unit 9 – a figure that Mr Jones considered to be unusually, and unreliably, high).  The rating assessment of these units generally reflected an adopted rate of £75 per m² (heated).

27.        In reviewing all the evidence Mr Jones said that the figure of £54.84 per m² (unheated) adopted by the VTE fell within the realistic range of values as evidenced by the comparables and he therefore accepted this rate which gave a value for the appeal hereditament, as determined by the VTE, of £23,280.

28.        Mr Jones said that it was necessary to value the appeal hereditament by reference to the matters set out in Schedule 6, paragraph 2(7)(a) to (e) of the 1988 Act.  Paragraph (a) and (b) required the appeal hereditament to be valued rebus sic stantibus as at the material day.  Mr Jones considered that there were two matters which affected the physical state or physical enjoyment of the appeal hereditament under subparagraph (a).  These were the restricted access and the lack of a drinking water supply.  Mr Jones adopted the VTE’s allowances of 10% and 2.5% respectively.  This gave a rateable value for the appeal hereditament of £20,300 (rounded) as determined by the VTE.

29.        When considering the mode or category of occupation of the appeal hereditament under paragraph 2(7)(b) Mr Jones said that he considered an MOT test centre with associated service and repair facilities to be a sui generis planning use, although he had been unable to find any planning permission in respect of the appeal hereditament despite having made enquiries of the local planning authority.  Mr Harding submitted that it would be possible to use the appeal hereditament for a range of warehouse and light industrial purposes by undertaking only minor physical works to the property.  The actual mode or category of occupation might be distinct but it was not so different from the neighbouring uses on the K9 Estate as to sound in a difference in rental values.  The rental comparables from the other units on the estate were therefore good evidence when valuing the appeal hereditament for rating purposes.

30.        In his reply to the appellant’s statement of case Mr Jones said that:

“It is accepted that there was a nuisance directly associated with the occupation of units 2 and 3 but the respondent believes that the Valuation Tribunal has correctly considered and allowed for that matter in its decision.”

In his expert report Mr Jones added:

“The Valuation Tribunal addresses this issue in S30 of its decision, and I concur that persuasive evidence has not been presented to show that the hypothetical rent would have been affected”.

Mr Jones therefore made no adjustment to the rateable value under paragraph 2(7)(e) of Schedule 6 to the 1988 Act.

31.        Mr Jones said that he had “no reason to dispute” the appellant’s statement that the introduction of the LEZ to the locality in January 2012 had led to a fall in his trade.  But this occurred after the material day and therefore was not a factor that could be taken into account.  There was no evidence to show that any anticipation of the LEZ scheme at or before the material day had affected rental values.

32.        Site preparation for the Olympic Games took place between 2005 and 2008 and Mr Jones said that it was logical to conclude that any displaced businesses would have been actively seeking alternative premises in the market by the AVD.  This factor would therefore be reflected in the rental evidence and in the adopted rate.  Mr Jones asked several local agents whether they had encountered the kinds of financial incentive that the appellant claimed had been offered to displaced occupiers from the Olympic site by the acquiring authority.  None of the agents could confirm the existence of any such arrangement.

33.        The Government’s vehicle scrappage scheme and the police check of untaxed vehicles in Ferry Lane were matters that had only recently been identified by the appellant.  With regard to the scrappage scheme Mr Jones said that this was a post material day event and, in any event, was not a matter that was likely to affect rental value.  Mr Harding submitted that, as a matter of law, the scrappage scheme was an economic matter that affected the whole country and was not a physical factor that needed to be taken into account.  He submitted that the effects, if any, of the scrappage scheme were not evident at the AVD.  The appeal hereditament was assumed to be vacant and to let even if that was on the basis of a mode and category of occupation that was restricted to an MOT service centre and there was no evidence of any specific adverse effect upon the value of the appeal hereditament.

34.        Mr Jones said that he had never heard of police checkpoints for untaxed vehicles having affected property values and he did not believe that such checks in Ferry Lane would have affected the rental value of the appeal hereditament.

Conclusions

35.        I deal firstly, and shortly, with the appellant’s arguments about the material day and the adoption of his annual mortgage payment as a proxy for rental value.

36.        For the purpose of compiling a local non domestic rating list the matters listed in Schedule 6, paragraph 2(7) of the 1988 Act (see paragraph 15 above) are to be taken as they are on the day on which the list must be compiled (namely 1 April 2010).  Rateable values are to be determined by reference to the AVD (1 April 2008) as specified by order of the Secretary of State under paragraph 2(3)(b) of the said Schedule 6.  The VTE had no discretion to determine an earlier date as being the material day.

37.        Rateable value is defined in Schedule 6, paragraph 2(1) of the 1988 Act (see paragraph 14 above).  It is a rental value based upon specified assumptions.  The fact that the appellant ratepayer is a freehold owner-occupier who took out a mortgage to fund the acquisition of the appeal hereditament has no bearing on the need to assess the rateable value by reference to the statutory assumptions.  The amount of the ratepayer’s mortgage payments is not relevant to the statutory valuation exercise and I place no weight on this aspect of the appellant’s evidence. 

38.        Before considering the rental evidence from the other units on the K9 Estate I deal with the question of how the appeal hereditament should be valued under the rebus sic stantibus rule.  This rule requires the valuation to be made “taking the thing as it is”.  There are two limbs to the rule which are now contained in Schedule 6, paragraph 2(7)(a) and (b) of the 1988 Act (see paragraph 15 above).  The first limb requires matters affecting the physical state or physical enjoyment of the hereditament to be taken into account as they were on the material day.  It is permissible to take into account alterations that the hypothetical tenant might make to the hereditament if, taken overall, those works are minor (per Walker LJ in Williams (Valuation Officer) v Scottish and Newcastle Retail Limited [2001] EWCA Civ 185 at paragraph 74).  I accept that only minor works would need to be undertaken by a hypothetical tenant to make the appeal hereditament suitable for use as a warehouse; such work comprising the infilling with concrete of the recessed ramps in the floor.

39.        The second limb of the rebus sic stantibus rule requires the assumption that the hereditament could only be occupied for a purpose within the same mode or category of occupation as that for which it was being occupied on the material day.  Any perspective change of use outside of that mode or category is to be ignored.  In my opinion the use of the appeal hereditament on the material day as an MOT test centre with associated servicing and repairs is not the same mode or category of occupation as a warehouse.  It is a sui generis use for planning purposes and although this does not determine the mode or category of occupation it is, in my opinion, a relevant consideration.  The primary function of a warehouse is storage and that is not the primary use of the appeal hereditament.

40.        I must therefore consider whether the rental values of physically comparable and proximate units used as warehouses can be used to value the appeal hereditament which must be valued as an MOT test centre.  In Cheale Meats Limited v John Philip Ray (VO) [2012] RA 145 the respondent VO sought to value an abattoir by reference to industrial values.  The Tribunal, the President and Mr A J Trott FRICS, said at paragraph 44:

“An abattoir, as the parties agree is a sui generis use.  It is not in the same mode or category of occupation as an industrial building.  While evidence of industrial values is not on that account rendered irrelevant (see Scottish and Newcastle Retail Ltd v Williams (VO) [2000] RA 119 at paragraph 152, approved sub nom Williams (VO) v Scottish and Newcastle Retail Limited [2001] RA 41) care clearly needs to be taken when having regard to values of hereditaments in another mode or category of use or, where the use is sui generis, to values of hereditaments outside that more restricted class.  Underlying the rebus sic stantibus rule relating to the mode or category of use is the recognition that the value to the owner of the subject hereditament – which is what has to be determined – may be different from the rent that the hereditament might command if let in the open market for some other purpose.”

The Tribunal said in Scottish and Newcastle that:

“Any evidence relating to the rents or assessments of other hereditaments may be taken into account provided it is relevant to the valuation.  There is no rule that evidence relating to another hereditament is irrelevant if that other hereditament is in a different mode or category of occupation.”

41.            In my opinion the rental evidence from the other units on the K9 Estate is relevant to the valuation of the appeal hereditament as vacant and to let.  They immediately adjoin the appeal hereditament, their rents reflect the locational and many of the physical characteristics shared by the subject property and the appeal hereditament could be used other than an MOT test centre by undertaking minor physical works.

42.        The rental evidence from the units on the K9 Estate is difficult to analyse given that it is derived from a mixture of new lettings, rent reviews and lease renewals that took place at various dates between April 2005 and May 2009.  In the case of unit 2/3 the evidence of the rent passing is taken from the appellant’s statement of case and is uncorroborated.  Neither party provided any information about the date the rent was fixed, whether it was a new letting, a renewal or a rent review or the terms upon which the property was let.  Under these circumstances I place no weight upon this comparable.  Nor do I place any weight upon the letting of unit 9 for £145.54 per m² which is significantly more (by some £50 per m²) than the next highest rent on the estate (unit 10).

43.        Units 1 and 2/3 are older and larger than the appeal hereditament and have a lower eaves height but they have the same access from Coldharbour Lane.  The rental value of unit 1 was £38.72 per m².  The adopted rates (heated) for the compiled list assessment were £45 per m² for unit 1 and £50 per m² for unit 2/3.

44.        Units 7 to 11 and Eagle House are more modern, smaller units and with better access (onto Ferry Lane) than the appeal hereditament.  Their rental values vary from £67.97 per m² to £96.29 per m² (excluding Unit 9) and the adopted rates (heated) for the compiled list vary from £70 to £75 per m².

45.        I agree with Mr Jones that an appropriate starting point to value the appeal hereditament is the new lease of unit 6 (see paragraph 25 above).  This was analysed at £71.59 per m² in terms of main space and the adopted rate (heated) for the compiled list was £65 per m². 

46.        In my opinion the evidence supports the VTE’s conclusion that the adopted rate (heated) for the appeal hereditament should be £56.25 per m² which is higher than the rates for units 1 and 2/3 but less than the units at 7-11 and Eagle House.  It is also less than the adopted rate on unit 6 which is appropriate given unit 6’s superior access to Ferry Lane.  Adjusting this figure onto an unheated basis (by deducting 2.5%) gives a rate of £54.84 per m².

47.        The VTE then made two adjustments to this figure which reflected matters affecting the physical state or physical enjoyment of the hereditament.  Firstly, they deducted 10% to allow for the poor access to the appeal hereditament within the estate.  The relative benefit of the entrance from Ferry Lane compared to that of Coldharbour lane is already reflected in the adopted rate for the units on the K9 Estate that are served by those respective entrances.  I am satisfied that the need for the occupiers of both the appeal hereditament and unit 2/3 to gain vehicular access through the 6m wide pinch point at the corner of the latter unit, as well as the need to travel past unit 1, has led to chronic problems of vehicles obstructing the route to and from the appeal hereditament.  Those problems existed at the material day and have (foreseeably) persisted subsequently.  It is a key requirement of an MOT test centre (or a warehouse) that there is good vehicular access.  The lack of such access to the appeal property is a significant disadvantage.  Mr Harding correctly pointed out that the photographic evidence also showed that there were times when the access way was unobstructed and I do not understand the appellant to dispute that.  But the appeal hereditament is, in effect, in a cul-de-sac with a narrow entrance that is easily blocked, whether by lorries serving units 1 and 2/3 or by parked cars.  The appellant’s evidence, which I accept, was that this is a persistent and serious problem.  In my judgment a hypothetical tenant, fresh to the scene, would reduce his rental bid by 15% to reflect this factor.

48.        The second adjustment made by the VTE was in respect of the lack of drinking water, for which they made a deduction of 2.5%.  The appeal hereditament appears to be the only unit on the K9 Estate that does not enjoy such a drinking water supply.  There is a mains supply of water to the appeal hereditament which is piped directly to the WC and hand basin.  The appellant did not explain why this supply was not potable or why an alternative supply as enjoyed by the other units is not available.  But Mr Jones did not dispute the allowance made by the VTE which he said would fairly reflect the discount that the market would adopt.  The appellant said that such a discount should be 10%.  I do not consider that there is any justification for such a high figure and I adopt the figure of 2.5% which the VTE determined and which is accepted by the respondent.

49.        The appellant raised four matters which, in my opinion, are matters that need to be considered under Schedule 6, paragraph 2(7)(d) of the 1988 Act. These matters affect the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there.

50.        The first such matter is the effect of the relocation of businesses from the site of the Olympic Games in Stratford to the locality of the appeal hereditament on, so the appellant asserts, financially advantageous terms and at inflated rents.  This, he says, increased rental and thus rateable values and introduced competition that could trade on subsidised terms as to rent and rates.  The appellant says that the acquisition of the Olympic site and the removal of businesses that were located there led to the Rainham area being “saturated” with the same type of business as his own, with “from five to fourteen MOT garages within a one mile radius plus a large number of vehicle related repair workshops.”  Apart from that general observation the appellant produced no detailed evidence about which businesses moved into the locality, what rents they were paying or what were the terms of their compensation package to relocate from the Olympic site.

51.        The respondent produced a timeline for the preparation of the Olympic Games site at Stratford.  I accept Mr Jones’s evidence that by the AVD existing businesses at the Olympic site had been displaced and were either resettled after compulsory acquisition or were actively seeking alternative accommodation.  This is a matter that was reflected in the rental evidence at the AVD and is not, in my opinion, a matter that only became known subsequently and by the material day.  It is therefore not necessary for me to consider this matter in the context of Schedule 6, paragraph 2(7)(d) of the 1988 Act.

52.        The second matter is the LEZ Scheme in Greater London.  The evidence about the history of the scheme was inconsistent.  The appellant said that the LEZ road sign had been erected in Ferry Lane in 2009 but that he was not aware until 2010 that the scheme would take effect from January 2012.  The respondent understood from the appellant’s statement of case dated 11 May 2012 that:

“The Greater London Low Emission Zone (and therefore associated number plate cameras) were introduced to the area in January 2012, which led to a fall in trade” (emphasis added).

The VTE recorded the appellant’s evidence as being that the LEZ was introduced in 2011 and, in their conclusions, they said that they understood that the scheme had been introduced at the beginning of 2012. 

53.        The appellant’s evidence about the erection of the LEZ road sign was not challenged and, in my opinion, this sign is likely to have been seen by a hypothetical tenant coming fresh to the scene at the material day (1 April 2010).  Such a hypothetical tenant, proposing to use the appeal hereditament as an MOT test centre, would, in my opinion, have made diligent enquiries about the implementation of the LEZ, the vehicles, if any, that were affected at that time and any proposals to extend the scheme to include other vehicles in the future.  Such enquiry would have revealed that the legal authority for the LEZ charging scheme was the Greater London Low Emission Zone Charging Order 2006, made by Transport for London on 13 November 2006 and confirmed by the Mayor of London on 3 May 2007.  The LEZ was a charging scheme with the stated aim of reducing the pollution emissions of diesel-powered commercial vehicles (excluding cars) in London.  There was a planned phased introduction of the scheme commencing on 4 February 2008 (restricted to heavy goods vehicles exceeding 12 tonnes gross vehicle weight) with extensions to the range of vehicles included within the scheme to take effect on 7 July 2008 and 3 October 2010.  The implementation of the third phase was deferred to 3 January 2012 by order of the Mayor of London dated 16 September 2010.  This deferral was foreshadowed in a press release dated 2 February 2009 in which the Mayor of London announced his intention, due to the economic downturn and the detrimental impact that the third phase of the LEZ scheme would have on London’s small businesses, to defer full implementation of the scheme until January 2012.

54.        At the material day the hypothetical tenant would have ascertained that the appeal hereditament was within the LEZ and that the LEZ was in operation at phase 2 level with phase 3 (full implementation) due to take place at the deferred date of 3 January 2012.

55.        In my opinion the LEZ, although not affecting the physical state of the locality of the appeal hereditament (except in the nominal sense of the erection of a road sign), is a matter that is physically manifest there, that is to say it is observable on the ground, by virtue of its demarcation by road signs.  Furthermore the consequences of the implementation of the LEZ, said by the appellant to be fewer old commercial diesel vehicles going to the appeal hereditament, could also constitute a matter for the purposes of Schedule 6, paragraph 2(7)(d) of the 1988 Act. 

56.        There is no evidence that the appellant was losing trade due to any such reduction in vehicle movements at the material day; indeed it seems that the appellant was not aware of the extent and phasing of the LEZ scheme until 2010.  He said in his statement of case:

“LEZ Low Emissions Zone diesel vehicles first registered before July 2000 cannot come into the LEZ without paying £100.00 per day if not pre-booked £500 per day fine.  From 1^st of JAN 2012 not aware of this till 2010. loss of customers, diesel vans, 4 x 4 diesels. class 4, Minibuses class 5 and transit type vans class 7.  that effects my business across the complete range of MOT testing repairs and serving.” [sic]

The class of vehicles referred to in the above quotation are those that were brought into the LEZ scheme under phase 3 in January 2012.  The appellant said that he had lost trade as a result of the LEZ and Mr Jones said that he had “no reason to dispute this, though this was post material day, and is a factor that should not therefore be taken into account.”

57.        In my opinion the appellant has not demonstrated that the introduction of the LEZ in its first two phases led to a reduction in vehicle movements that resulted in a loss of trade or that the hypothetical tenant coming fresh to the scene would have reduced his rental bid to reflect such matters. 

58.        I accept Mr Jones’s opinion that the (unchallenged) loss of trade identified by the appellant took place after the material day (upon the introduction of phase 3 of the LEZ in January 2012, which extended the scheme to a range of smaller and lighter vehicles).  Mr Jones went on to say:

“Any anticipation of the scheme which existed at the material day or earlier is something that can only be demonstrated with evidence, and I have not been presented with such information.”

59.        The hypothetical tenant looking to occupy the appeal hereditament as an MOT test centre at the material day would have known, upon diligent enquiry, that the LEZ scheme was going to be extended under its third phase in January 2012; this having been deferred from October 2010.  But the anticipation of a matter which may become physically manifest (in terms of a reduced number of vehicles) in the locality of the appeal hereditament in the future is not a matter, in my opinion that falls to be considered under subparagraph 2(7)(d).  That subparagraph is concerned with matters that are physically manifest (observable) there at the material day.  It might be possible to argue that the introduction of phase 3 of the LEZ constituted a material change of circumstances in 2012 but that, as the VTE correctly pointed out, is not a relevant matter for the purposes of this appeal against the compiled list assessment.

60.        The third matter to be considered under paragraph 2(7)(d) is the Government’s vehicle scrappage scheme that the appellant said was introduced in 2009.  Mr Harding submitted that the scrappage scheme applied to the whole country and was an economic matter and not a physical factor.  I do not exclude the scrappage scheme on the point of principle relied on by Mr Harding.  In Chilton-Merryweather v Hunt [2008] RA 357 Rix LJ said at paragraph 42:

“In particular, Schedule 6 paragraph 2(7) of the 1988 Act distinguishes between both the “physical state” and “physical enjoyment” of the hereditament itself on the one hand, and on the other hand between “the physical state of the locality” and other matters which are “physically manifest” there without themselves affecting the physical state of the locality.  Those matters would appear to include such matters as were discussed by the Court of Appeal in Addis v Clement, such as “alterations in economic conditions” which “result in changes in the locality which are capable of being observed “on the ground” in the locality” (per Woolf LJ at 10).”

61.        The car scrappage scheme could qualify as a subparagraph 7(d) matter provided it was physically manifest in the locality of the hereditament at the material day.  The scheme started on 18 May 2009 and applied to cars and light commercial vehicles that were first registered in the UK on or before 31 August 1999 (later extended to 29 February 2000).  The scheme was originally scheduled to run until 28 February 2010 or until the Government funding was all spent.  It was extended until 31 March 2010, the day before the material day.

62.        By the material day the scrappage scheme was a past happening and one which could not constitute a “matter” for the purposes of subparagraph 2(7)(d).  But as the President of the Lands Tribunal said in Re The Appeal of Kendrick (Valuation Officer) [2009] RA 145 at 155:

“While past events could not constitute matters for this purpose [sub-paragraph 2(7)(d)], I can see that the consequences of such events if they endured at the material day could be said to do so.”

63.        The appellant said that the scheme had replaced old vehicles by new ones that did not require an MOT for three years and that therefore a number of potential customers had been lost.  But apart from this general comment the appellant produced no evidence to support any loss of trade.  The scheme, which was short-lived (less than a year), had finished by the material day and although an unquantified number of older vehicles in the locality had (presumably) been scrapped and therefore removed from the market for MOTs, this is not a matter, in my opinion, which the hypothetical landlord and tenant would have considered to be material. 

64.        The fourth matter to be considered under sub-paragraph 2(7)(d) is the police check for untaxed vehicles in Ferry Lane.  Mr Jones said in answer to a question from the Tribunal that the presence of the police was a matter that was physically manifest (that is to say observable on the ground) in the locality of the appeal hereditament.  The mere presence of the police from time to time (in the last week of every month for the last three years according to the appellant) is not of itself a reason that would lead to the hypothetical landlord and tenant agreeing a reduction in the rent.  The appellant said that he had cancellations and non-arrivals in the last week of the month which he attributed to the police presence.  No figures were given of the number of vehicles involved and nor was any comparison made with cancellation/non-arrival rates for periods when the police were not present.  The appellant’s evidence appears to refer to pre-booked appointments where, provided it is insured, a vehicle may be driven to an MOT test centre even if it is not taxed.  In my opinion there is no substantive evidence to support the appellant’s claim that the transitory police presence, assuming that it was observable on the material day, would have led to a quantifiable reduction in vehicle movements in the locality of the appeal hereditament and I make no allowance for this matter.

65.        The use at the material day of the adjoining unit 2/3 is a matter which falls to be considered under Schedule 6, paragraph 2(7)(e) of the 1988 Act.  Those premises were occupied by Juniper Refuse between March 2009 and March 2011.  There is no dispute about the facts of Juniper’s occupation which is described at paragraphs 10 and 11 above.  The VTE said in its decision:

“Clearly, the occupation nearby by the refuse company was severely unpleasant for the appellant.”

The respondent acknowledged this problem in his reply to the appellant’s statement of case where he accepted that there was a nuisance directly associated with the occupation of unit 2/3.

66.        The VTE’s reasoning on this point is recorded at paragraph 18 above.  In my opinion that reasoning was wrong.  The VTE said that the (actual) landlord of unit 2/3 addressed “the problem at source” by taking action against Juniper Refuse under their lease.  The VTE said that such action suggested the landlord thought that it was better to do this than to offer rent reductions to affected tenants.  The VTE went on to say that “it could be fairly assumed that this is what the hypothetical landlord might be expected to do”.  Alternatively, the VTE said that the hypothetical tenant would have looked to other remedies such as “local authority enforcement action”.

67.        The error in this reasoning is that the VTE appears to have assumed that the actual landlord of units 2/3 is also the hypothetical landlord of the appeal hereditament.  That is wrong as a matter of fact – the appellant owned the freehold of the appeal hereditament on the material day and another party owned the freehold of unit 2/3.  In any event there is no requirement to assume that the landlord of hereditaments which are complementary to each other is one and the same person: see East Midlands Airport Joint Committee v Coppin (VO) (1971) 17 RRC 31, per Lord Denning MR at 35.

68.        In my opinion the VTE should have considered how the hypothetical landlord and tenant of the appeal hereditament would have taken account of the “severely unpleasant” use of the neighbouring unit 2/3 at as the material day.  The hypothetical landlord had no control over that use since it cannot be assumed that he was also the landlord of unit 2/3. 

69.        At the material day the hypothetical landlord and tenant would be faced with an established unneighbourly user in the adjoining premises.  As Mr Harding pointed out at the hearing it would be in the interests of both those parties to try and eliminate or remove that use.  But the hypothetical landlord had no remedy under a contractual landlord and tenant relationship and could do nothing directly about it.  All that either the hypothetical landlord or tenant could do would be to approach the landlord of unit 2/3 and ask him to take appropriate action under the lease of that unit or alternatively they could contact the local authority to see whether there was a remedy available under environmental health or planning legislation.

70.        In my opinion the hypothetical tenant would not be prepared to pay the full rental value for the appeal hereditament on the assumption that either of these two approaches would be successful; either in the near future or at all.  There was a risk at the material day that the unneighbourly user next door would continue for the foreseeable future.  Under these circumstances I do not accept the VTE’s conclusion, which the respondent adopts, that there was no “persuasive evidence” that the hypothetical rent should be reduced.  On the contrary, in my opinion, the hypothetical tenant would either refuse to take a tenancy of the appeal hereditament until the problem was resolved or, alternatively, would expect a substantial reduction in the rent.

71.        A similar situation arose in Gregory v Biddle (VO) (1983) 23 RVR 177 in which the Lands Tribunal, Mr W H Rees FRICS, considered the ratepayer’s appeal to reduce the rateable value of her house which was located opposite a double garage that was used, in breach of planning, for repairing vehicles and carpentry work.  The Tribunal said:

“On the evidence supported by my view I come to the conclusion that a hypothetical tenant would reduce his bid for the subject house on account of the activity carried on in this garage.  Although this Tribunal has on a number of occasions, including Pollard, held that no reduction in the rating assessment can be given where the ratepayer has a remedy elsewhere, I am not prepared to so hold here.  It seems to me that no tenant of the subject house from year to year would go to the trouble of starting an action for nuisance or of referring the matter to the Public Protection Department of the local authority: the latter might have no result.  I think that any potential tenant would approach the hypothetical landlord for a reduction in the rent of the subject house and that any potential tenant, whose request for a reduction was met by the suggestion from the hypothetical landlord that he (the potential tenant) should take action in nuisance or should refer the matter to the Public Protection Department, would decide that he would not take a tenancy of the subject house until the landlord had remedied the matter.”

I consider that the same reasoning applies in this appeal. 

72.        An allowance of 15% has already been made for the chronic problem of vehicular access to the appeal hereditament and it is necessary to avoid double-counting this factor.  But I am satisfied that the use of unit 2/3 and the access road by Juniper Refuse was especially problematic given the nature of its business and the significant daily number of large vehicle movements that it generated.  In my judgment a hypothetical tenant would not have taken a tenancy from year to year of the appeal hereditament on the material day, given the presence next door of Juniper Refuse, unless a further 20% reduction was made from the rent.

Determination

73.        The rateable value of the appeal hereditament is determined as follows:

MOT test centre: 424.51 m² @ £54.84 per m² = £23,280

 

Less:

(i) 15% for access = £3,492

(ii) 2.5% for no drinking water = £582

(iii) 20% for use of adjoining unit 2/3 = £4,656

£8,730

£14,550

I round this figure down to £14,500, being the nearest £250, in accordance with the practice adopted by the Valuation Officer for the other units on the K9 Estate.

74.        The appeal succeeds in part and I determine that the appeal hereditament must be entered in the local non domestic rating list as “MOT test centre and premises” with an assessment of £14,500 with effect from 1 April 2010.

75.        The appeal was heard under the simplified procedure where, as I reminded the parties at the hearing, costs are not awarded unless under exceptional circumstances.  Neither party suggested that there were any such circumstances in this appeal and I therefore make no award as to costs.

Dated 25 March 2013

 

A J Trott FRICS