UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2013] UKUT 35 (LC)

UTLC Case Number: RA/8/2012

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

RATING – valuation – 2010 list – self catering holiday units – receipts and expenditure approach – whether actual receipts represented fair maintainable trade – held they did not –comparable assessments – appeal allowed – RV reduced from £9,900 to £7,750

 

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION

OF THE VALUATION TRIBUNAL FOR ENGLAND

 

 

 

BETWEEN MR AND MRS N DENNETT Appellants

 

and

VICTORIA JOANNE CRISP MRICS Respondent

(Valuation Officer)

 

 

Re: Talehay

Pelynt

Looe

Cornwall

PL13 2LT

 

 

Before: N J Rose FRICS

 

Sitting at: Social Security and Child Support Appeals Tribunal, St Catherine’s House,

5 Notte Street, Plymouth, PL1 2TS

on 13 December 2012

 

 

Alan Morrish BA (Hons), MRICS, IRRV of Alder King LLP for Appellants

Respondent in person

 

The following case was referred to in argument:

 

Andrews and Andrews v Russell (VO) [2001] RA 333

 

DECISION

Introduction

1.           This is an appeal by the ratepayers, Mr and Mrs N Dennett, against the decision of the Valuation Tribunal for England, confirming the assessment in the compiled 2010 rating list of a complex of five self catering units known as Talehay, Pelynt, Looe, Cornwall, PL13 2LT (Talehay) at RV £9,900.  The ratepayers contended that the correct assessment was £7,550.  The Valuation Office Agency issued a notice on 25 October 2011 to increase the assessment to RV £11,750 from the date of the notice.  This appeal is not concerned with that assessment.  The respondent valuation officer, Ms Victoria Crisp MRICS, considered that the assessment confirmed by the VTE was not excessive.

2.           The appeal was conducted in accordance with the Lands Chamber’s simplified procedure.  Mr Alan Morrish BA (Hons), MRICS, IRRV, a partner in the rating department of Alder King LLP of Bristol, appeared for the appellants and gave evidence.  Ms Crisp appeared in person and gave evidence.  Following the hearing I inspected Talehay externally and internally accompanied by the two experts.  By agreement with the parties I also inspected externally the three self-catering complexes, situated closest to Talehay, which had been cited as comparable evidence.

3.           The material day and the effective date is 1 April 2010.  The antecedent valuation date is 1 April 2008.

Facts

4.           In the light of an agreed statement I find the following facts.  Talehay is located approximately one mile north east of the village of Pelynt within open countryside.  The amenities of Pelynt include village shops, a public house and a restaurant.  Talehay lies approximately 4.5 miles north of Polperro and 5.5 miles north west of Looe, both of which are on the south east Cornish coast and provide a range of seaside shops and tourist attractions.  Plymouth and St Austell are some 16 miles to the east and 11 miles to the west respectively.

5.           Talehay is accessed from the B3359 and then via a short stretch of narrow unclassified road.  It consists of a period farmhouse (proprietor’s accommodation) and a range of cottages and outbuildings which have been converted to self catering holiday cottages.  The cottages are arranged around a courtyard.  They are period buildings of local stone elevations, incorporating timber framed windows beneath pitched slate and tile covered roofs.  With the exception of a fairly large meadow there are no other guest facilities at the property.

6.           At the material day Talehay provided fourteen single bed spaces (SBS) arranged as follows:

 

 

Unit No. Sleeps

1                                                                                        2

2                                                                                        2

3                                                                                        2

4                                                                                        4

5                                                                                    4

  14

 

The receipts and expenditure method of valuation

7.           It is common ground that, in the absence of any reliable rental evidence, the best method of assessing the RV of  Talehay is the receipts and expenditure (R & E) method of valuation (formerly known as the profits method).  The method was defined in a Guidance Note prepared by the Joint Professional Institutions Rating Valuation Forum as

“A method to ascertain the rental value of a property, for the purposes of rating, by reference to the receipts and expenditure, adjusted as necessary, of an undertaking carried out at that property.”

8.           The experts agreed the components of the R & E calculation for Talehay, with one exception.  The exception was the estimated fair maintainable trade (FMT) that should be adopted – that is the annual level of trade that the property can be expected to achieve assuming a reasonably efficient operator.  The VO’s estimated FMT was £65,000 and Mr Morrish’s figure was £50,000.  The experts differed as to the figure which should be deducted in respect of wages and cleaning costs.  They agreed, however, that such figure should be based on 10 per cent of the FMT.

Case for the appellants

9.           Mr Morrish considered that the FMT of Talehay at the AVD was lower than the actual receipts during the period of the appellants’ occupation between 21 July 2006 – the date of their purchase of the freehold – and 31 March 2009.  The actual receipts were as follows:

8 months to 31 March 2007 £37,869*

Year to 31 March 2008 £68,648

Year to 31 March 2009 £65,079

* Equivalent to £56,800 for 12 months

10.        In Mr Morrish’s view the FMT was below the level of the actual receipts for five reasons.  Firstly, the actual expenses between July 2006 and March 2009 were much higher than those adopted by both experts in their R & E valuations.  The actual expenses were £50,064 in the eight months to 31 March 2007, £83,812 in the year to 31 March 2008 and £62,558 in the year to 31 March 2009.  By contrast, the agreed expenses of the hypothetical tenant were £34,874 or £36,374, depending on whether the figure for wages and cleaning was based on the FMT suggested by Mr Morrish or by Ms Crisp.  Since the actual expenses were very different from the agreed hypothetical expenses, the actual accounts provided limited assistance as to the appropriate level of gross receipts.  Secondly, the VO who gave evidence at the VT hearing, Mr Dale, who had considerable local experience, had deducted 10% from the average actual income, producing FMT of £56,500, to reflect the fact that the present operator was very competent.  Thirdly, the appellants employed a manager, which was highly unusual in businesses of this nature, at a cost of £15,183 in the year to March 2008.  Fourthly, almost all the marketing carried out by the appellants had been internet based, which was unusual in 2008.  It also, exceptionally, had the benefit of a database containing 10,000 live e-mail addresses, supplied by Mr Dennett’s previous employer.  Finally, there had been considerable expenditure on non-rateable fixtures and fittings -  amounting to £15,700 in the year 2008.  This was well in excess of the allowance of £5,900 which had been agreed in the hypothetical valuation and was likely to have had a positive effect on the actual level of turnover.

11.        Although these factors explained the difference between FMT and actual turnover, Mr Morrish said that the most cogent evidence of FMT was provided by the actual turnover of comparable properties.  In this connection he referred to the agreed analyses based on gross receipts per SBS of eight other properties in the south-west.  Of these he attached particular weight to the actual receipts in 2008 of Hendra Farm Cottages, Pelynt (5 units – sleeps 2: 2: 2: 4: 4, turnover £3,311 per SBS), and Summercourt Cottages, St Martin, near Looe (6 units – sleeps 2: 3: 3: 4: 4: 5, turnover £2,247 per SBS).  In addition, he obtained some assistance from Waylands Farm Cottages, Looe (3 units – sleeps 3: 4: 11, turnover £2,573 per SBS), whilst noting that the complex was unusual in that one of the three units sleeps eleven persons.

12.        Mr Morrish said that he attached the most weight to Hendra, because it is located approximately 1.25 miles from Talehay; it has the same configuration and number of cottages, and the units are converted farm buildings with the same star rating (4 Star Gold Award).  He attached significant weight to Summercourt, approximately 10 miles from Talehay, because it comprises six 17^th century converted barns and hay lofts; it is located in a coastal position next to the SW Coastal Path and all cottages are graded 4 Star.  The third relevant comparable, Waylands Farm, consists of three former period barns/cottages, located on a working farm approximately 10 miles from Talehay.

13.        In Mr Morrish’s opinion the highest possible figure he could adopt in the light of all the comparable evidence of gross receipts was £3,500 per SBS.  This produced £49,000 FMT, which he rounded up to £50,000 (£3,571 per SBS).

14.        As a check Mr Morrish produced analyses of the rating assessments of nine holiday units.  Of these six had been the subject of settled appeals.  No proposals had been made to reduce the remaining three.  He considered that the best evidence was provided by the agreed assessments of Summercourt Cottages and Tremaine Green.  The location of and accommodation at Summercourt has been referred to in paras 11 and 12 above.  The RV had been agreed at £538 per SBS.  Tremaine Green has eleven units (sleeping 2: 2: 2: 2: 3: 4: 4: 5: 5: 5: 5).  It is situated next door to Talehay and is graded 3 Star.  The interior specification of the cottages is inferior, but the facilities are superior, and include a games room, children’s play area, pets area and tennis court.  The assessment was agreed at £596 per SBS.  In the light of these settlements Mr Morrish considered that the “tone” evidence supported a range of between £538 and £569 per SBS.

15.        Mr Morrish’s valuation was as follows:-

Gross Receipts (Fair Maintainable Trade)	£50,000	(£3,571 per SBS)
Working Expenses	(£28,974)
Depreciation (non rateable assets)	(£  5,900)
Divisible Balance	£15,126
Tenant Share @ 50%	£  7,563
Landlord Share @ 50%	£  7,563
RV - say	£  7,550	(£   539 per SBS)

 

Case for the Valuation Officer

16.        Ms Crisp produced two valuations.  The first (Appendix F1) was a full R & E valuation, including figures for FMT and wages/cleaning of £65,000 and £6,500 respectively.  Otherwise the components of the valuation were identical to those in Mr Morrish’s R & E valuation.  It produced a rateable value of £14,313.  This showed, said Ms Crisp, that neither the current entry in the list (£11,750) nor the compiled list entry of £9,900 which formed the subject of the appeal was excessive.

17.        The second valuation (Appendix F2) was described by Ms Crisp as a valuation on tone.  It produced a value of £11,780, as follows:

  RV

1 unit (2SBS) @ £2,000 £2,000

2 units (2SBS) @ £2,400 £4,800

2 units (4SBS) @ £2,800 £5,600

£12,400

Less voids and management @ 5% £11,780

 

18. These values were taken from a schedule which Ms Crisp said set out the basis which had been adopted for valuing holiday homes in the St Austell 2010 rating list.  The schedule divided such properties into eight categories, each of which was sub-divided into four categories of quality/location.  Ms Crisp’s second valuation adopted the figures in this schedule for barn/chapel conversions, as follows:

2SBS - average quality/location - RV £2,000

2SBS - good quality/location - RV £2,400

4SBS - good quality/location - RV £2,800

19. Ms Crisp pointed out that the RV of £14,313 derived from her R & E valuation was equivalent to 22% of her estimated FMT of £65,000.  She said that it was generally to be expected that the RV would be between 17.5% and 22.5% of FMT and she produced in support details of a number of assessments of other self catering cottages where the assessments had been agreed or not appealed against.  In each case the assessment was consistent with the general basis in the St Austell 2010 list.

20. Ms Crisp observed that, although the actual takings at Talehay for the eight months to 31 March 2007 indicated a turnover for the full year of £56,800 which she had used in her valuation it could be argued that, since the missing months of April to July were amongst the busiest of the year, the actual yearly turnover in the year to 31 March 2007 could have been higher.  In view of this, and given that the turnover for the year to March 2008 was £68,648 and for the year to March 2009 was £65,079, Ms Crisp considered that her estimated FMT as at 1 April 2008 – £65,000 – was not unreasonable.

21. In the course of her oral evidence Ms Crisp made the following points.  Whilst she understood that the actual gross receipts of pubs and hotels might have to be adjusted downwards to reflect overtrading, she had immense difficulty in accepting that the same consideration applied in the case of holiday units.  She did not think that the employment of a manager had resulted in an exceptionally high turnover.  It was unusual to employ a manager on site in properties such as Talehay.  If the £15,000 paid to the manager was included in the R & E valuation, the tenant’s share of the divisible balance would have to be correspondingly reduced, because the landlord would not be prepared to subsidise the manager’s salary.  In any event, the employment of a manager would not have increased the turnover compared with a property which was managed by the owner.  Many tenants used the internet to attract tenants and employed marketing companies.

Conclusions

22.        I consider firstly Ms Crisp’s suggestion that it is not appropriate, when valuing holiday cottages, to make an overtrading adjustment.  That suggestion was rather surprising, bearing in mind that such an adjustment – albeit smaller than that suggested by Mr Morrish – was made at the VT hearing by Ms Crisp’s predecessor, Mr Dale, the VOA team leader for Cornwall, who had been responsible for the 2000, 2005 and 2010 rating lists.  In my judgment it is self-evident that the revenue from the cottages at Talehay – situated on a narrow country lane – must be influenced by the extent and quality of the marketing operation.  If, because of the employment of a manager  and effective internet marketing, the actual turnover was greater than would be expected from a reasonably efficient operator, it should be adjusted downwards to reflect the difference.

23.        I turn to consider the evidence of FMT.  Ms Crisp relied on the actual turnover at Talehay in the years to 31 March 2007, 2008 and 2009.  She did not produce any other turnover evidence, although she agreed the facts relating to the eight turnover comparables cited by Mr Morrish.  The actual gross revenue per SBS at those comparables in 2008 ranged from £2,247 (Summercourt Cottages, see para 11 above) to £4,814 (Tregongeeves Farm, St Austell, 7 units, sleeps 2: 2: 3: 4: 4: 4: 5).  I discount the evidence of Tregongeeves Farm.  It is a much superior property, comprising a Five Star, Gold award winning complex with indoor swimming pool, spa, games room, gym, children’s outdoor play area and laundry.  I also discount the comparable with the second highest turnover, £4,298 per SBS (Fox Valley Cottages, Lanlawren, Looe, 11 units, sleeps 2: 2: 2: 3: 3: 3: 4: 4: 4: 4: 5).  Fox Valley is approximately 3 miles from Talehay and is superior to it in quality.  Its amenities include a heated indoor swimming pool, spa, games room, outdoor play area, reception and laundry.

24.        The remaining six comparables produced gross revenue per SBS ranging from £2,247 to £3,438.  I accept Mr Morrish’s evidence that the best evidence is provided by the takings at Hendra, which is only 1¼ miles from Talehay, has the same 4 Star Gold Award, the same configuration and the same number of cottages.  In my judgment the gross receipts at Hendra - £3,311 per SBS in 2008 – strongly suggest that Mr Morrish’s estimated FMT of Talehay based on £3,571 per SBS is not too low.

25.        The only evidence of turnover produced by Ms Crisp to support a higher FMT consisted of the actual takings at Talehay.  I accept Mr Morrish’s evidence that there are special circumstances about the marketing arrangements at Talehay which mean that the revenue figures between 2007 and 2009 are not representative of those to be expected from a reasonably competent operator.

26.        Both experts agreed that the R & E method was the most appropriate method of valuation.  In view of my conclusion that Mr Morrish’s estimated FMT of £50,000 is not too low, it follows that the experts’ preferred valuation method produces an RV of £7,550.

27.        The experts also referred to the rating assessments of certain other holiday complexes.  These did not produce an entirely uniform pattern of values.  For example, whilst Mr Morrish’s suggested RV of £539 per SBS was broadly in line with the agreed assessments of Summercourt Cottages and Tremaine Green, it appears low by comparison with the assessment of Hendra, which is equivalent to £632 per SBS.  Mr Morrish attached little weight to the Hendra RV because, although he accepted that it was a good comparable in terms of location and specification, no appeal had been submitted and therefore the correctness of the assessment had not been tested.  I accept that evidence.

28.        I have concluded that the parties’ preferred method of valuation – receipts and expenditure – produces a rateable value of £7,550 and the evidence of the other assessments does not lead me to reach a significantly different conclusion.  The appeal therefore succeeds.  I direct that the assessment of the self catering holiday units and premises at Talehay in the 2010 rating list be amended to Rateable Value £7,550 with effect from 1 April 2010.

 

29.        The appeal having been conducted under the Tribunal’s simplified procedure and in the absence of any exceptional circumstances I make no order as to costs.

 

 

Dated 24 January 2013

 

 

 

N J Rose FRICS

Addendum

30.        Notwithstanding my decision not to award costs, the appellants have applied for their costs and I have received written submissions from the parties on the matter. 

31.        On 15 February 2013 Mr Morrish wrote to the Tribunal.  He pointed out that the appellants had served a Calderbank offer upon the respondent on 9 November 2012, offering to compromise the appeal at RV £9,300, with each party bearing its own costs.  Whilst recognising that costs were not normally awarded under the Lands Chamber’s simplified procedure, Mr Morrish submitted that the service of a Calderbank offer could be considered to be an exceptional circumstance justifying the award of costs.  He added that, since the hearing would have been avoided if the offer had been accepted, it would be iniquitous if the appellants were not awarded their reasonable costs from 1 December 2012, the offer having been expressed to be open for acceptance until 30 November 2012.  The conduct of the VOA should also be taken into account, having increased the RV from £9,900 to £11,750 from 25 October 2011 without supporting evidence.

32.        In reply, Mr Hickman of the VOA said that neither he nor Ms Crisp had received a copy of Mr Morrish’s e-mail of 15 February 2013.  He accepted that the Calderbank offer had been received on 12 November 2012 and that it had been decided not to accept it.  He pointed out that the appellants had not complied with para. 12.7 of the Lands Chamber’s Practice Directions dated 29 November 2010, which required such offers to be sent to the Tribunal.  Mr Hickman did not consider there were any exceptional circumstances in this case, nor any reason for a costs order to be made.

33.        Para. 12.8 of the Tribunal’s Practice Directions dated 29 November 2010 provides as follows:

“Where proceedings are determined in accordance with the simplified procedure or the written representations procedure, costs will only be awarded if there has been an unreasonable failure on the part of the claimant to accept an offer to settle, or if either party has behaved otherwise unreasonably, or the circumstances are in some other respect exceptional.”

34.        It is to be noted that the award of costs in the event of an unreasonable failure to accept an offer is expressed only to apply to a failure by a claimant.  In this case the party who failed to accept the Calderbank offer was the respondent.  Even assuming in the appellant’s favour, however, that regard should be had to the response to an offer made to the respondent to an appeal, I do not consider that Ms Crisp’s decision to reject the offer can properly be described as unreasonable.  A valuation is an expression of opinion and I do not think that Ms Crisp acted unreasonably in this case, even though I did not accept her valuation.  Nor, in my view, did the VO behave unreasonably in increasing the RV to £11,750.  Contrary to Mr Morrish’s suggestion, that decision was supported; it was supported by a valuation based on Ms Crisp’s interpretation of the tone (see decision para 17).  The fact that I did not accept that interpretation does not mean that the increase in the assessment amounted to unreasonable behaviour.

35.        Since there are in my view no other exceptional circumstances, I reaffirm my decision not to award costs.

 

Dated 20 March 2013

 

 

N J Rose FRICS