UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2016] UKUT 68 (LC)

UTLC Case Number: RA/88/2014

 

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

RATING  - Valuation – Private Independent Primary Schools – Method of Valuation – whether Rentals Basis or Contractor’s Method  - Appeal dismissed

 

 

IN THE MATTER OF AN APPEAL FROM A DECISION OF THE

VALUATION TRIBUNAL FOR ENGLAND

 

 

BETWEEN JAMES TURNBULL Appellant

(Valuation Officer)

 

and

 

 

(1) GOODWYN SCHOOL

(2) ANNEMOUNT SCHOOL

(3) GOWER HOUSE SCHOOL Respondents 

 

 

 

Re: Three independent schools in Greater London

 

Before: Elizabeth Cooke, sitting as a Deputy Judge of the Upper Tribunal

and Upper Tribunal Member Paul Francis FRICS

 

Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL

on

7 & 8 January 2016

 

Ned Westaway, instructed by HMRC Solicitors, for the appellant Valuation Officer

Christopher Lewsley, instructed by JMA Chartered Surveyors, for the respondents  

 

 

The following cases are referred to in this decision:

Dawkins v Royal Leamington Spa Corporation and Warwickshire County Council (1961) 8 RRC 241

Fir Mill v Royton UDC (1960) 7 RRC 171

Howarth v Price (VO) 11 RRC 196

K Shoe Shops Ltd v Hardy and anr [1980] RA 333

Leeds University v Leeds City Council and Burge (VO) [1962] RA 177

Garton v Hunter (VO) [1969] 2 QB 37

Shrewsbury Schools (Governors) v Shrewsbury BC and Plumpton (VO) (1960) 7 RRC 313

Williams(VO) v Scottish & Newcastle Retail Ltd [2001] EWCA 185

 

 

 

 

DECISION

Introduction

1.             This decision relates to three appeals (which were consolidated by agreement) from a final, amended, decision of The Valuation Tribunal for England (“the VTE”) dated 28 October 2014 which determined the Rateable Values (in the 2010 Rating List) of three independent privately owned and operated primary schools in north London at £34,250 (Goodwyn School), £8,900 (Annemount School) and £18,750 (Gower House School). 

2.             At the hearing on 7 and 8 January 2016 Mr Ned Westaway of counsel appeared for the appellant Valuation Officer and called Mr James Turnbull B Eng MSc (Eng) PG Dip Surv MRICS of the London Specialist Rating Team of the Valuation Office Agency (“VOA”) who gave expert evidence on valuation and valuation methodology. Mr Christopher Lewsley of counsel appeared for the respondents and called Mr Andrew John Bacon MRICS of JMA Chartered Surveyors, Southend who gave evidence on the same basis as Mr Turnbull.

3.             The appeal is about the basis on which these rateable values were determined by the VTE. The Valuation Officer (“the VO”) contends that the VTE was wrong to do so using the Contractor’s Method (which we explain below at paragraph [7]), and that there was sufficient evidence in the marketplace for them to be determined by looking at comparable rents (the “Rentals Basis”). This would lead to substantially higher rateable values. Not surprisingly, the schools argue that the VTE was right to adopt values arrived at by the Contractor’s Method. This is the only issue between the parties. In what follows we set out the legal background (which is not in dispute) and the agreed factual background before discussing the parties’ submissions about the rental evidence, and the evidence itself, in order to explain why we have upheld the VTE’s decision.

4.             We stress at the outset that this case is not regarded by the VO as a test case. Our decision relates to these three schools alone; it is a decision that turns solely on the facts and does not decide any issues of law, nor does it lay down any principles of valuation. Our task in this appeal is simply to reach the right conclusion in terms of valuation (see Dawkins v Royal Leamington Spa Corporation and Warwickshire County Council (1961) 8 RRC 241 at 247). Future cases relating to independent primary schools will be determined on their own facts.  

The legal background

5.             Rateable Value is determined in accordance with paragraph 2(1) of Schedule 6 to the Local Government Finance Act 1988, which states that “The rateable value of a non-domestic hereditament … shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year.” The paragraph goes on to state that that estimate is to be made on the basis of some assumptions that are not relevant to this appeal. The rental value to be estimated is a hypothetical one; how much would these premises fetch if let from year to year (even if in fact they are not)?

6.             How is that estimate to be made? It is well-established that, where possible, the method known as the Rentals Basis should be used, by examining the evidence of rents obtained from the property itself if possible, and otherwise from similar properties. In Howarth v Price (VO) 11 RRC 196 the Lands Tribunal explained:

“Where, however, there is a paucity of satisfactory direct rental evidence, then the best evidence as to rental value is likely to be the “indirect” evidence provided by the gross values of similar hereditaments; and the greater the similarity between these other hereditaments to the particular hereditament in physical respects such as the nature of the property, type, age, design, size and surroundings, the better is the evidence so provided. Should there be available as comparables a number of hereditaments all equally similar to the particular hereditaments in all material physical respects, then those which are in the same locality as the particular hereditament normally provide better evidence as to rental value than those which are in some other locality, because the former are more likely to be in similar economic sites and therefore the more truly comparable.”

7.             Obviously, not all relevant rental evidence will be of equal value. Properties may be very similar or less so, in their physical characteristics and the way they are used. They may be in the same locality as the property to be valued or they may be more distant but in a similar area – or they may be so far away as to be irrelevant. There are no rules about how close the comparables must be to the property to be valued (Shrewsbury Schools (Governors) v Shrewsbury BC and Plumpton (VO) (1960) 7 RRC 313); nor do the comparables have to be used in exactly the same way (Fir Mill v Royton UDC (1960) 7 RRC 171 at 185; Williams (VO) v Scottish & Newcastle Retail Ltd [2001] EWCA 185). Relevance has to be weighed in each case: Garton v Hunter (VO) [1969] 2 QB 37 at 45). In Reeves (VO) [2007] RA 168, evidence of rent paid for office buildings was found to be relevant in assessing the RV of Truro College. But there will be cases where the Rentals Basis cannot be used, not only where there is no rental evidence but also where there is insufficient rental evidence, whether in the sense that there is too little, or in the sense that the comparable properties are insufficiently similar to the property to be valued to give a real indication of the rental value of the latter. In such situations another method will be needed, and in this case it is agreed that the only alternative is the method known as the Contractor’s Method, which estimates the interest payable on the capital value of land and buildings as a guide to the rent that it might fetch. It is well-known that private independent secondary schools are valued using the Contractor’s Method, as are hospitals, museums and state schools.

The issue

8.      Against that legal background, we are asked to decide the appropriate method for determining the Rateable Value of the three Respondent schools. At first instance in its decision dated 1 August 2013 the VTE made a determination using the Rentals Basis. But it reviewed its decision, and came to the conclusion on 28 October 2013 on different evidence that the Contractor’s Method was appropriate. The VO appeals that decision. He seeks to show – and the burden of proof is on him – that there is a rental market in small private independent primary schools, and that there is sufficient evidence from that market to enable rateable value to be determined in that way for the Respondent schools. The VO has produced what he describes as a sample of rental evidence which can be used as comparables in order to determine the rateable value for these three school sites. The schools, however, say that the comparables provided are insufficient for use for this purpose and that the Contractor’s Method should be used. The Appellant says that these three are the only north London independent schools seeking to use the Contractor’s Method, but the Respondents say that that is not accepted and point out that there is no evidence for that statement.

9.      Mr Westaway observed that the choice of methods need not be binary; it would be possible to supplement the rental evidence with the figures derived from the Contractor’s Method; but neither party argued for this. We were presented with a single issue: rental evidence or Contractor’s Method? The question is: has the VO discharged the burden of proof that there is sufficient satisfactory, appropriate and relevant comparable rental evidence (see Leeds University v Leeds City Council and Burge (VO) [1962] RA 177) available in the market place to persuade us that the rentals basis should prevail?

10.         As we observed above, the Contractor’s Method tends to produce – and does produce in the case of the three Respondent Schools – a lower value than does the Rentals Basis. The Respondents point out that if the VO is right, then it would be possible for a small private school to have a larger rateable value than a larger private school because the VO had valued larger private schools on the Contractor’s Basis. The Respondents say that that is ludicrous. In our judgement such consequences are at least theoretically possible, and are the direct result of the disparity in values produced by the two methods. That result is unavoidable and it is not a reason to ignore a rental market if it exists and if there is sufficient evidence of it to be used.

11.         It was also argued for the Respondents that since state schools are valued by the Contractor’s Method, so should independent primary schools on the basis that the type of use is the same. The differences, they say – namely private funding, the absence of any requirement to follow the National Curriculum, and the absence of a catchment area – are not sufficient to warrant a different treatment; they occupy similar buildings and are competing with one another for those buildings. In our view this is not correct; we accept Mr Turnbull’s evidence that the majority of state primary schools are larger than their private counterparts and occupy purpose-built premises. Even if there are similarities and some use of similar buildings, we do not agree that this is a reason to ignore a rental market in private school premises if it exists.

12.         As we have said, the question we have to decide is whether there is sufficient evidence of comparable rents to support a valuation on the Rentals Basis.

Facts

13.         The parties helpfully produced a statement of agreed facts and issues, from which, together with the evidence and associated documents, we find the following facts.

14.         The three hereditaments comprise:

1. Goodwyn School, 39 Hammers Lane, London NW7 4DB.

Goodwyn School is an independent preparatory school which, at around the relevant date, accommodated 221 full time and 45 part time pupils (source: Ofsted 2006) in the age range 3 – 11 years. It is owner occupied (although there is a passing rent of £50,000 pa having been in place since 2000, but this is between connected parties and is therefore ignored for these purposes).

The school is located in a residential area of Mill Hill in the London Borough of Barnet and occupies two inter-connected Victorian former houses with accommodation on basement, ground and first floors, together with a large rear extension. There are 12 classrooms, a basement music room and a large hall. The total floor area, assessed on an NIA basis, is agreed at 687.76 sq m.

Agreement was reached between the VO and City Surveyors for the 2005 rating list at an RV of £29,000 assessed by the Contractor’s Method of valuation.

For the 2010 rating list, the VO assessed an RV of £82,500 based upon a rate of £135 psm. Following an appeal to the VTE, the assessment was determined by the VTE at £34,250 as at 1 April 2010 by the Contractor’s Method.

2. Annemount School, 18 Holne Chase, London N2 0QN.

Annemount School is a purpose-built, owner-occupied, independent primary school constructed in 1936 and designed to blend in with the residential properties surrounding it. It is in a Conservation Area within the London Borough of Barnet. The school formerly had residential accommodation at first floor, but that has subsequently been converted into further school space. The accommodation is on ground, first and second floors and contains 5 classrooms with ancillary offices. There is a large garden and playground area outside. The total floor area is agreed at 239.41 sq m.

The pupil roll was 98 in the age range 2 – 7 years split, according to the Ofsted report of 3 April 2009, with 41 children in nursery/kindergarten (age 2-4) and 58 in Reception (year 1 & 2) aged 5 – 7.

The hereditament was assessed at an RV of £18,250 in the 2005 rating list (£90 psm). For the 2010 rating list it was re-assessed at £35,250 (£150psm). Following an appeal, the VTE determined it at £8,900 as at 1 April 2010, again on the Contractor’s Basis.

 

3. Gower House School, 5 Blackbird Hill, London NW9 8RP.

This is an owner-occupied independent primary school comprising a former residential bungalow, substantially extended and with a number of further classrooms within the grounds. It has 12 classrooms, a dining room and a hall, and there is a play area to the rear. It is on a busy main road in a mixed commercial and residential area in the London Borough of Brent, and the agreed area of the hereditament is 653.10 sq m.

The Ofsted report of 2008 identified the pupil roll as 188, of which 62 children were in the early years and foundation stage.

The 2005 rating list assessment was agreed with City Surveyors at an RV of £33,500.  The VO re-assessed it at RV £82,500 (£135 psm) on the Rentals Basis for the 2010 rating list, but this was reduced on appeal to the VTE to £18,750 adopting the Contractor’s Basis.

15.         The following rating list statistics for schools within the London Boroughs were agreed:

There are over 1,300 Day Nurseries

There are over 700 Private Schools

There are over 2,700 State Funded Schools

 

The following school statistics for London (source www.schoolsnet.com) are agreed (as at December 2015):

State primary and secondary schools 2,728

Private primary and secondary schools 725

Total primary/secondary schools 3,453

 

State primary schools 2,007

Private primary schools 371

Total primary schools 2,378

 

Brent primary schools 118

Barnet primary schools 73  

16.         It is also agreed that the Antecedent Valuation Date for the determination of the value in the 2010 Rating list is 1 April 2008, as specified by the Rating Lists (Valuation Date) Order 2008.

17.         Details of the comparable rents and assessments relied upon by the appellant VO were agreed between the experts, and we discuss them below. We turn now to an analysis of the evidence, setting out first the general arguments made by the parties about the nature of the rental evidence in this case, and then we look at the comparable rents and assessments themselves.

The evidence: general points

18.         Under this heading we consider the parties’ arguments about the nature of rental evidence required to be sufficient for the assessment of rateable value, about the location of comparables, and about day nurseries and their value or otherwise as comparables for primary schools.

19.         Not all the arguments made by the Respondents appear to us to be relevant or persuasive. Our decision is based squarely on the value of the comparables provided in this case by the Valuation Officer as rental evidence and so most of what we have to say about the evidence is focused on those comparables rather than on general points made in argument. In particular we need say nothing about the relative experience of the two expert witnesses. It is true that Mr Bacon has far more relevant experience than Mr Turnbull. But we would stress that that has not influenced our decision, which is based upon the value, as evidence, of the comparables provided. Both expert witnesses gave evidence helpfully and competently, and we are grateful for their assistance.

What sort of evidence is sufficient for the Rentals Basis?

 

20.         The Respondents’ Statement of Case expressed some disagreement with the Appellant as to the extent of rental evidence needed to support a valuation on the Rentals Basis. However, it was clear at the hearing, and indeed is clear from the Appellant’s Statement of case and Mr Turnbull’s evidence, that the Appellant is not saying that the slightest rental evidence will do. It is common ground, and well-established in the case law, that the rental evidence has to be good enough. It has to be relevant to the properties concerned.

21.         That said, there was a difference of view between the expert witnesses as to what amounts to a relevant rent. Mr Turnbull expressed the view that provided there is a rental figure and a date, some use can be made of that rent. Mr Bacon, by contrast, regards as useless a rent that fails to meet two or more of the following criteria:

a)      The document provides full details of the transaction.

b)      The rent is negotiated on a vacant, to let, and open market basis.

c)      Rent was agreed between unconnected parties.

d)     The property is in the same mode and category of occupation.

e)      Proximity to the properties to be valued.

f)       The rent was agreed at a date close to the valuation date (1 April 2008 in this case).

g)      The demise (we take this to mean the terms of the lease) is known and certain.

h)      The proximity of the rent to the RV, indicating that the VO attaches weight to it.

22.         We do not need to make any findings as to precise criteria for usefulness. As we indicated above, the case law makes it clear that there are no rules laying down precise limits to the locality within which the comparables must be situated, nor is there any rule that the use of the comparable properties must be exactly the same as that of the properties to be valued. Suffice it to say that the suggested comparables have to be close enough, in locality, type of occupation, size and so on, to indicate the rental value of the properties to be valued. The more unlike the comparables, the less useful they will be.

23.         The parties also disagreed as to the quantity of rental evidence – in other words, the number of comparables – needed to support a valuation for rating purposes. Mr Lewsley pointed out that Mr Turnbull has produced nine or ten rents out of 371 private primary schools in London. Mr Bacon regarded this as far too small a bundle of comparables. Mr Turnbull in answer said that this is a sample. The Appellant’s Statement of Case at paragraph 40 claims that this is a small sample from over 100 similar schools, referred to at the VTE hearing. But it became apparent that “sample” here means not a small selection from a large number of equally relevant items; rather, he meant that he had selected the items that he deemed relevant and helpful, deriving just twelve comparables from a very large potential pool in which all the other items were, on his own account, irrelevant.

24.         Mr Turnbull explained that in selecting his comparables from the Valuation Office database he had excluded inner or central London, on the basis that it is known that small private schools (below 2,000 sq m) in central London are valued on the rentals basis, and that the issue here is a different one, namely whether there is a rental market in the vicinity of the Respondent schools. So he excluded Westminster, Hammersmith and Fulham, and Kensington & Chelsea. He explained that he also excluded south London (with one exception, as we shall see), and also that he had excluded schools above 1,000 sq m on the basis that they are too big to be relevant. He then filtered on the basis of dates, looking only at rents determined between 2002 and 2013, and of course excluded schools where no rental figure was available. That exercise left him with 35 properties, from which he finally excluded secondary schools, some schools where dates were conflicting or unclear, some where there was a capital contribution paid, adult learning centres, private tuition centres and some day nurseries (as we shall see, he kept two that he regarded as relevant). That exercise produced the ten comparables initially offered as evidence in this appeal (we look below at twelve, as two were added at a late stage).

25.         We agree that these are sensible filters. The inclusion of inner London, or larger schools, would have been unhelpful and irrelevant. But Mr Turnbull did not really have an answer to the point that the end result of his filtering was just ten properties. We agree with the Respondents’ observation that this is a very small sample compared with the range of properties we would expect for such an exercise.

The location of the comparables

26.         Mr Lewsley referred us to K Shoe Shops Ltd v Hardy and anr [1980] RA 333 [12] at p 345 where the Lands Tribunal referred to “locality” as being “an area within which it was likely there would be sufficient rental evidence to produce a reasonably expected rent, and outside which the reasonably expected rent might be different.” Accordingly, the area from which comparables are drawn must be one in which there is some consistency in rental values. We do not think there is any disagreement about that principle, but the parties disagree as to the relevant locality in this case. As discussed above, the comparables offered by Mr Turnbull have been filtered so as to exclude central London and south London. But the comparables extend across a relatively wide area; one, in Harpenden, is outside greater London. Mr Turnbull observed that private schools do not have a catchment area; by their nature these schools do not exist close together, like shops in a parade. However, the Respondents argue that the location regarded as relevant was in fact far too wide.

27.         First, Mr Bacon took exception to the inclusion of establishments in Camden, which he regards as part of central London. Not so, said Mr Turnbull, because Camden is a long, narrow borough; the comparables from Camden are close enough to the Respondent schools in his view to be relevant. 

28.         Second, it was argued for the Respondents that there are separate VOA valuation schemes for private schools in Barnet and Brent, and that accordingly the relevant locality for any private school is in fact comparatively restricted, perhaps to a single London borough. It was pointed out that Camden is in the central London valuation scheme. Mr Bacon stressed that the valuation schemes are not merely administrative divisions but are valuation tools and that the separate schemes denote bundles of comparables. Mr Turnbull, in response, expressed the view that the existence of separate schemes did not denote separate localities for the purpose of comparables.

29.         Mr Bacon felt that the only relevant area would be that of the Local Education Authority in which a school in question is situated. He explained that where, for example, a school closed, the Local Education Authority would be in the market for the vacant premises. We do not understand that argument, because it seems unlikely that a Local Education Authority would take over the school premises in those circumstances; it would fulfil its duty to educate the children by admitting them to local larger schools of its own rather than creating a new school in order to do so. Moreover, a restriction to a Local Education Authority would be arbitrary, because it could exclude any schools just over the border in the next-door authority, while including schools within the authority’s area but further away.

30.         Looking at these arguments about location generally, we observe that there is no rule as to the precise area from which comparables can be drawn. It is common sense, we think, to exclude central London, however defined. Even so, the Appellant’s rental evidence is spread over quite a wide area, extending as far as Harpenden (outside Greater London) to the north and Camden to the south. Rather than drawing a general conclusion about location, we indicate in our discussion of the individual comparables which we regard as irrelevant because too distant.

Day nurseries

 

31.         The comparables include two day nurseries. It was argued for the Respondents that day nurseries are not the same mode or category of occupation as a private primary school. Day nurseries cater for children from birth to age 5, and are not regarded in the VOA’s manuals as educational properties. Day nurseries are likely to function in one or two large rooms rather than needing eight or nine individual classrooms, and on a single storey; they might occupy church halls or even office premises. They are subject to a different regulatory regime (the Childcare Act 2006 rather than the Education Act 2002). They work on a very different financial basis because of the availability of free childcare in some cases, which has made day nurseries viable. Mr Bacon would exclude them altogether as irrelevant. Further, there are separate VOA valuation schemes for primary schools and day nurseries, that being an additional indication, he said, of the inappropriateness of using day nurseries as comparables.

32.         Mr Turnbull explained that day nurseries are included because in his search for “P and I Schools” he found some that turned out to be day nurseries. One of the apparent day nurseries in the sample turns out to be a primary school. Thus there is some fluidity in the categorisation; a day nursery may turn into a primary school and vice versa. Day nurseries, he said, are day care facilities that educate; there are overlaps in function and there is no clear line, in Mr Turnbull’s view, between childcare and education. He pointed out that the age range of pupils at the three Respondent schools overlaps with the nursery range (starting at 2 at Annemount, and 3 at the two other schools). He expressed the view that despite their different treatment in the rating manual they are sufficiently similar to be useful comparables. There is an element of subjectivity about this argument. We take the view that whether a day nursery is a useful comparable will depend upon its location, size and layout. We comment below on the usefulness of those in the sample. However, we approach day nurseries with considerable care and some scepticism, and starting from the view that they may well not be useful. Moreover, their presence in such a small sample may well be an indication of the difficulty in finding comparables for private primary schools.

The evidence: the comparable rents and assessments

33.         We turn now to the material at the heart of this appeal and on which our decision rests, namely the rental evidence itself. For the purpose of this appeal Mr Turnbull has presented as rental evidence twelve properties with their rental values, and five rating assessments; thus the evidence before us was not the same as that presented to the VTE. Mr Turnbull was not involved in the case before the VTE; he did not become involved until after Statements of Case were exchanged in the appeal proceedings before us, and only then did he select the rental evidence for the appeal. Accordingly the rental evidence we are looking at is that presented by Mr Turnbull in his evidence.

34.         Mr Turnbull and Mr Bacon’s witness reports were dated 28 August 2015; Mr Turnbull served a rebuttal report dated 14 December 2015, and Mr Bacon likewise on 18 December. On 5 January 2016 the Appellant served some further evidence, consisting partly of Forms of Return relating to premises mentioned in evidence already, and partly of premises not mentioned before. Mr Bacon very helpfully provided a paper in response dated 6 January 2016; we gave permission for the late evidence to be adduced, and Mr Bacon’s response (to which we refer as his “Third Report”) has provided a very useful summary of the Respondents’ arguments about the valuation evidence.

35.         The rental evidence was presented in the form of Forms of Return (“FoRs”) which are, as Mr Turnbull pointed out, regarded as the best form of evidence of value for the purpose of rating valuation. Some are handwritten forms; others are electronic returns. We do not discount the electronic returns, as Mr Bacon would have done, but we note his point that it is not obvious from the electronic return how much information was provided with the questions for the person filling it in. More seriously, it was pointed out for the Respondents that the question on the Form of Return asks whether the person filling in the form has a connection to the landlord – not whether the tenant, or perhaps a previous tenant, has such a connection. Accordingly the information provided in the form may be inaccurate. This is, we think, an important point. Indeed, as we go through the sample we find that in some cases the picture as to connectedness or otherwise is not quite as would appear from the Form of Return.

36.         We turn now to the properties offered as rental comparables and to the rating assessments also offered for comparison. We discuss each property in turn, before indicating our conclusion as to the value of each property as a comparable. We have to add that in the end there was some confusion as to which properties were the final sample relied upon by Mr Turnbull. What we have here reflects our understanding, and follows the discussion at the hearing save that Oakfields Montessori was not, we think, discussed separately at the hearing although it features in Mr Bacon’s Third Report. Kew Green preparatory school was not discussed at the hearing and is mentioned only briefly in Mr Bacon’s Third Report as a useless rent because it was let as offices in March 2004 and the rent has not been increased since; we agree, and have not discussed it further.

Little Acorns

 

37.         This is a day nursery at 53, Courthope Road, London NW3, in Camden. Mr Turnbull regarded it as offering education. It has an area of 286 sq m. It is spread over two open-plan floors, and Mr Turnbull accepts that it is unlikely that it could be used as a primary school, save perhaps for a very small one. The rent of £55,000 (£194 psm) was set in 2005 under a new 20-year lease with a 5 year review pattern, and the 2010 RV was £250 psm.

38.         Mr Bacon regarded this rent as useless. First, it is a day nursery not a school, and he argued that day nurseries are not sufficiently similar to schools to be used as comparables. It is, he says, a typical day nursery in a church hall. Second, the rent was set by an Independent Expert, and therefore not negotiated. The terms of the lease are unknown, and it may have prescribed assumptions that affected the rent set. Third, he regards Camden as inner London and therefore the wrong locality.

39.         We regard those criticisms as well-founded and we do not think that Little Acorns is a useful comparable.

Hampstead Hill School

 

40.         This is a primary school in Pond Street, Hampstead, London NW3 2PP, with a total area of 347.91 sq m. It has outdoor space, and lies within a residential area two miles south of Annemount School. Its rent set in 2006 by an independent expert was £223.51 psm (including the converted crypt of a church next door), and its RV for 2010 was £250 psm, determined after an appeal, agreed with the valuation office on the basis of rental evidence. Mr Turnbull explained that he has interviewed the headmistress who confirmed that although there appears to be a connection between landlord and tenant this has no effect on the rent and that it is indeed an open market rent. Mr Turnbull felt that the independent expert would have looked for a market rent; Mr Lewsley commented that all we know is that the rent was not fixed in the market.

41.         Mr Bacon observed that the Form of Return gives almost no information. He focused on the information provided in Appendix 2 of Mr Turnbull’s rebuttal report, which reveals that its owner is a trustee of the church next door and accordingly the parties are connected. In his Third Report he points out that the rent includes six car parking spaces, which in Camden would be very valuable; that the rent was set 12 years prior to the Antecedent Valuation Date, and under a lease whose terms are not known. Mr Bacon again regards this as a useless rent for comparison purposes; he commented that in a typical valuation exercise he would expect the Valuation Officer to gather a large bundle of rents and then to discard the useless ones, and that this property would be one of the discards.

42.         We remind ourselves that the onus is on Mr Turnbull to demonstrate that there is satisfactory rental evidence. Because of the close connection of the parties in this case, the unknown terms of the lease, the inclusion of parking spaces in Camden and the date at which the rent was set, we are not persuaded that this rent is sufficiently relevant and useful to form part of the evidence for the rentals method.

L’Ile aux Enfants

 

43.         This is a private primary school in Camden; we were shown a Form of Return, which states that the rent (of £138,000, or £223 psm) is a percentage of market rent, but what percentage is not known.

44.         Mr Bacon pointed out that, as the Valuation Officer accepts, this building was offices before its use by L’Ile aux Enfants. Accordingly he would expect this rent to have regard to office values. Again, he points out that this property is in Camden, which he regards as the wrong locality. He observes that it is not known how the rent was determined (by negotiation, arbitration or an expert). Nor do we know any terms of the lease including the parties, the term, the repairing obligations or any connection between the parties.

45.         We agree that the there is simply too little information here for the Valuation officer to be able to show that this is a relevant comparable.

North Bridge House

46.         This is again a private primary school, in a converted Victorian residence in a residential area. Mr Turnbull has not inspected it. We were shown Forms of Return for June 2006 and June 2011, which reveal that the rent has increased. There has been expenditure by the occupier, but only after the rent was set.

47.         Mr Bacon observed that this is one of five schools run by Northbridge House Schools Ltd and that Cognita (a large, international independent schools company (founded by the late  Chris Woodhead) has taken over the company and the schools. He notes that the Form of Return denies any connection between landlord and tenant, but observes that that may not be the whole story. The existence of the management buy-out, at a time when the rent was being reviewed, means in Mr Bacon’s view that there are too many unknowns for this to be a useful comparison. He also noted a Land Registry entry which refers both to rent and to additional rent. He regards this as “so far removed from the rating hypothesis that it is useless” (Third Report, paragraph 6.44). Mr Turnbull expressed the view that the rent was set before the buy-out.

48.         We agree with Mr Bacon that the management buy-out makes it very difficult to see clearly or at all the basis on which rent was set and Mr Turnbull has not convinced us that this is a useful comparable.

Cranbrook School

49.         This is a school whose address is 24 Mansfield Road, Ilford, Essex, and Mr Turnbull commented that this is a less valuable location than the rest. The rent in 2005 was £113,000 and in 2010 was £128,000, below the adopted rateable value of £150,000 which Mr Turnbull thought might be a bit high.

50.         Mr Bacon attacked this not only on the basis of location but also as another Cognita buy-out. He has been to see the School and says that the picture supplied by Mr Turnbull is not of 34 Mansfield Road but of 36-38. The original college premises, he says, were at no 34; Cognita then bought nos 36-38, formerly a nursing home, to extend the school. In view of the lighting outside and the planning permission, Mr Bacon took the view that nos 36-38 were formerly offices and that the rent would have been set on that basis. The road is one street away from Ilford town centre. The premises include parking spaces; the rent review appears to have been taking place at the time of the management buy-out. Mr Turnbull, in his oral evidence, was sceptical as to whether the fact that nos 36-38 were bought by a special purchaser, namely the owner of the house next door, would have affected the rent – he says that such a purchase would affect a capital value but not usually rental value. We have two Forms of Return, and the second relates to a time after Cognita took over, Again, Mr Bacon takes the view that this is a useless rent.

51.         Again we agree with Mr Bacon. The former and current functions of the buildings are unclear, there is a possibility that the rent was determined for offices, and overall, again, there is simply far too little information.

Oakfield Preparatory School

52.         This is a preparatory school at 126 and 128 Thurlow Park Road, West Dulwich, with a total area of 599.71 sq m. There are two converted residential buildings, with a road running between them. We were provided with a short Form of Return, and Mr Turnbull’s analysis indicates that the rent amounts to £167 psm, which he says more than supports the 2010 rateable value of £150 psm.

53.         Mr Bacon was again sceptical. He observes that this is a school in Lambeth, in inner London, and that the occupier is a special purchaser occupying another school nearby. These are 55 year leases, which he says is odd, as is the review pattern (every 10 years). He regards this rent as unsatisfactory rather than useless. Mr Turnbull said that he regarded this as a suitable location for comparison because it is a residential area, similar in economic strength to Barnet. He was asked whether the fact that he has to go so far from Barnet to find a market shows that there is no market within Barnet; he thought not, because this is a similar area.

54.         This is, as Mr Bacon concedes, less unsatisfactory than some. But we are particularly concerned about the locality; it does not seem obvious to us that rents in Dulwich, or Lambeth (however this area is to be described) are obvious comparables for rents in Barnet. Again, therefore, Mr Turnbull has not persuaded us that this is a useful comparable.

Oakfield Montessori School

55.         This is a school in Harwood Hall Lane, Upminster, RM14 2YG, with a total area of 495.63 sq m. Its rent set in 2007 is £243.44 psm, and its 2010 RV was £150 psm. The school building looks very different from the other comparables; the aerial photograph that Mr Bacon supplied in his Third Report shows it to be a country house amidst substantial grounds.

56.         This is another Cognita buy-out. The discrepancy between the rent and the RV indicates, according to Mr Bacon, that the VO attached no weight to the rent. He regarded this as an unsatisfactory comparable, and we agree.

Harpenden Musicale

57.         This is not a school and is not in Greater London. Musicale Ltd is a business that provides music lessons; the building in Harpenden provides music teaching for the school next door; it has classrooms and provides lessons on site. The site is rented from the school, and Mr Turnbull regarded it as an open market rent because the school would be under a duty to get the best rent.

58.         Mr Bacon was of course sceptical about the rent in view of the business connection between landlord and tenant. He pointed out Musicale Ltd has a shop on its ground floor, selling musical instruments; accordingly the building consists of offices, a shop, and a music school. The rent was set before the effective valuation date, between parties with a business connection. Unsurprisingly Mr Bacon was also sceptical about the location. Mr Turnbull explained that the Harpenden property was included so as to demonstrate that there is a rental market in Hertfordshire; but he conceded that this was perhaps an ambitious conclusion to draw from one rent.

59.         We regard this as an unsatisfactory comparable because it is not a private independent primary school and is not very like one. It is a business providing music lessons for the school next door and running a shop (as well as other business activities such as summer schools). It is also outside Greater London and cannot be regarded as being in a relevant location.

Teddies Nursery

60.         This was another nursery, formerly a Church of England school purpose-built in the nineteenth century. Recently the nursery has moved out and the hereditament  is now a teacher training facility. The rent due in 2002, when it was a nursery, was £173,000, the rateable value £200 psm.

61.         This was an instance where the Form of Return was submitted electronically so that it is not possible to see all the detail of the questions asked or any explanation given to the person filing in the form. Mr Bacon submits that the rent seen here forms part of the office market in Camden, and that it is just too far distant in time from the date with which we are concerned.

62.         We agree with Mr Bacon here. As we noted above we are not convinced that, if there is a rental market in day nursery premises, it tells us useful information about a rental market in private independent schools, if there is one. This rent is too old, and the changing nature of the use of the premises makes it too difficult to see what is happening here.

St Martin’s School

63.         This is a primary school at 22 Goodwyn Avenue, London NW7, with a total area of 195 sq m. It is in converted residential premises, 200 m from Goodwyn School so that there can be no objection to its locality. The rent was fixed in 2010 and 2013, the latter £197.44 psm, and its RV in 2010 was £150 psm. We have two Forms of Return, from 2012 and 2014, and the second says that the rent of £33,000 was an open market rent between persons who are not connected.

64.         Mr Bacon’s observes the apparent connection between landlord and tenant; the Land Registry and Companies Registry entries supplied by Mr Turnbull indicate that the tenant, Harwill Education Ltd, is owned as to 49% of its shares by Mr Harris, named on the two Forms of Return as the landlord. Accordingly Mr Bacon regards this rent as useless.

65.         Again, we agree. In the absence of far more information we cannot see how this rent, between closely connected parties, can be regarded as a useful comparator.

Vita et Pax

66.         This is a school at 6A Priory Close, London N14 4AT; the total area is 853.19 sq m, its rent set in 2007 is £191.63 psm and its 2010 RV is £135 psm. It is in purpose-built premises in a residential area. The Form of Return says that the parties are not connected and that the rent is an open market rent. The tenant did some improvements, disregarded on rent review.

67.         Mr Bacon provided more detail about this school. He explained that it was set up by Benedictine Sisters in the 1950s and 1960s, as part of a much larger site. When the sisters retired they transferred the school property into a charitable trust, and in his view (based on conversation with a member of staff when he visited the building) the school is in effect providing the sisters with a pension. There is accordingly a connection between landlord and tenant, and Mr Bacon regards the rent as useless for that reason. We agree that it is of no assistance.

The Lloyd Williamson School

68.  This is a school in Ladbroke Grove, London W10 5LS; its total area is 796.40 sq m. Its rent set in 2005 is £188.52 psm, and its 2010 RV £225 psm. Mr Bacon was sceptical of this property because, he said, the RV was agreed on the basis of an office rent on premises in Kensington, the rent having been set in 2005. We agree that it is not useful, and in any event it was not directly relied upon by the appellant VO..

The Appellant’s comparable assessments

69.         The Appellant also produced information about five rating assessments. It was argued for the Respondents that they are also useless; two are day nurseries (and we have indicated above our misgivings about the use of day nurseries as comparables for schools); the other three are withdrawn proposals, and some are under appeal; it is not known what are the rents on which the assessments are based. We agree, and we see no need to discuss these assessments individually.

The rental evidence as a whole

70.         Mr Turnbull observed that valuation is an art, and not an exact science. The market is imperfect, he said. Nevertheless, where there are rents there is a rental market, within which the evidence can be evaluated. Mr Lewsley challenged him on this, and put it to him that there is not a market unless there are premises available to let, which are taken up; Mr Turnbull insisted that in this case there is a market because there are rents. Further, he pointed to the statutory wording: rateable value is the reasonable rent that the premises would fetch (our emphasis) in the open market; accordingly, he said, even if there is no market he can still look at the actual rents, even if they have not been negotiated on the open market, and particularly where the comparables are in an area similar to that of the Respondent schools – for example, Oakfields, which is close to Annemount and Goodwyn. Mr Turnbull’s view is that some use can be made of rental evidence wherever there is a rent and a date, but not if rent or date is unknown.

71.         Even where the parties are connected, he said, useful information can be had; he gave the example of Oakfields, a 500 sq m property where the rent in December 2000 was £50,000; he regarded it as significant that the rent for Goodwyn School, between connected parties, was £50,000 for 600 sq m in June 2001. We are unconvinced. There is no information about the significance of the £50,000 rent for Goodwyn School, and there is no way to tell whether the comparison with Oakfields is a comparison of like with like, or of unlike with unlike.

72.         Mr Bacon expressed the view that where premises are not built speculatively for rent there can be no market. We would not go so far as to say that that is true as a general proposition. It rings true in the context of state schools, where there are generally purpose-built premises owned by the local education authority. Thus the Rating Manual treats state schools quite separately from private schools and acknowledges that there is no market in state schools and that the Contractor’s Method must be used. It goes on to say (para 4.1 of section 820) that “some rental evidence is likely to be available for [private and independent] nursery and preparatory schools”. That is true, but in this case we have not seen enough evidence, in quantity or quality, to convince us either that there is a market or that the evidence we have can show us anything about a real or hypothetical market in private independent primary schools. As Mr Lewsley put it, “where [an open letting market] is absent there will nevertheless be occasional and sporadic rental transactions for particular ad hoc reasons.” That is indeed what we have seen in this appeal.

73.         Mr Westaway argued that we should look at the sample of rental values and assessments as a whole, standing back and taking what is useful in the sample rather than attacking the properties individually so as to conclude that the whole was of no value.

74.         However, as discussed above the flaws in each item in the Valuation Officer’s collection are such as to make each item either useless or of very limited value. Standing back and looking at this collection of items as a whole does nothing to improve its value. We see in these rents, individually and taken together, no evidence that there is in fact a market (rather than a collection of rents determined on rent review or otherwise than through negotiation); and the quality of each item is such that little or no useful information can be drawn from it as to the rent that any of the Respondent schools would fetch on the – or an – open market. Moreover, there are far fewer items of evidence than we would expect to see in an exercise of this kind. We are inclined to agree with Mr Bacon that what we have here looks rather like the sort of evidence that would be discarded from a much larger collection of evidence prior to its use, rather than a useful collection in itself.

75.         Accordingly, whether looked at as individual items or as a whole, the rental evidence presented by the Appellant is not sufficient to determine the rateable value of the premises of the three Respondent schools.

Disposal

76.         Accordingly we determine that the appeal fails. The rateable value of the three Respondent schools is to be determined on the Contractor’s Method. There is no need for us to make any further determination because the parties have agreed that if this is the case the figures set by the VTE are to be used.

77.  This decision is final on all matters apart from the costs of the appeal.

78.   The parties may now make submissions on such costs and a letter giving directions for the exchange of submissions accompanies this decision.

DATED: 15 February 2016

Elizabeth Cooke

 

Paul R Francis FRICS