Hoare & Anor v National Trust

Rateable value is assessed by applying the statutory rating hypothesis to the actual hereditament while keeping the hypothetical bargain close to reality. Where there is only one possible tenant, its real-world policies and willingness to accept a loss-making repairing obligation remain relevant. A positive “overbid” cannot be inferred merely from beneficial occupation, public or heritage motives, or financial capacity. It requires evidence that the hypothetical tenant would actually offer a positive rent. Where no overbid is established and the property produces a continuing deficit, the hypothetical rent may be nil. A percentage of gross receipts is not a rational valuation method for loss-making heritage property where no correlation with rent is shown.

The National Trust appealed from the Lands Tribunal’s decision assigning positive rateable values to Petworth House and Castle Drogo. Both properties were important heritage assets, produced annual deficits, and had no ordinary rental market. The Tribunal treated the Trust as the only hypothetical tenant, found that it had a motive and resources to make an “overbid”, and assessed rent at 3% of gross receipts.

The appeal concerned the relevance of the Trust’s actual acquisition policies, the circumstances in which a positive overbid could be inferred, the appropriate valuation method, and the treatment of revenues associated with chattels displayed in the properties.

The appeals were allowed unanimously. The positive assessments were set aside and the Lands Tribunal was directed to substitute nil rateable values for both hereditaments. The cases were not remitted for further valuation.

1. Rating hypothesis and reality. Paragraph 2(1) of Schedule 6 to the Local Government Finance Act 1988 requires a year-to-year letting of the actual hereditament on full repairing terms. The hypothetical landlord, tenant and negotiations are assumed, but the valuer must not depart from the real world further than the statutory hypothesis requires. This was described by Peter Gibson LJ as the principle of reality.
2. Single hypothetical tenant. The Trust could be treated as the sole hypothetical bidder. The authorities recognised that constitutional inability to take a lease, or the commercial improbability of doing so, did not necessarily prevent consideration of an organisation as a hypothetical tenant: London County Council v Erith (1893) AC 562 (HL) and Humber Ltd v James (1960) 6 RRC 171 (C.A.). That did not justify ignoring the Trust’s actual self-financing policy. The Tribunal erred in treating its external surplus as available for rent without explaining why the Trust would allocate it to these properties.
3. Overbid and nil value. A positive overbid was a question of fact and was not compelled by beneficial occupation, heritage motives or financial resources. Unlike cases such as Morecambe and Heysham Borough Council v Robinson (1961) 1WLR 373 (CA), the evidence did not establish that the sole tenant would pay a positive rent. The hypothetical landlords would benefit substantially from transferring the repair burden while retaining the reversions. On the evidence, the proper hypothetical rent was nil.
4. Valuation method. Schiemann LJ treated the criticism of a 3% gross-receipts method as obiter because the absence of an overbid disposed of the appeals. He nevertheless considered the method arbitrary and lacking a rational relationship with rent. The Tribunal’s positive assessments could not stand.
5. Chattels. The judges differed on the legal answer to the Tribunal’s fifth question, which did not affect the result. Schiemann LJ accepted that the property’s potential to display chattels could influence value and upheld the absence of a specific adjustment on these facts. Peter Gibson LJ would have required revenues and costs attributable to chattels to be excluded when using a net-profits basis. The Vice-Chancellor considered that adjustment permissible but necessary only where particular revenues and costs could be identified.

Costs were awarded to the Trust.

• Court of Appeal (Civil Division): Allowed the appeals, set aside the positive assessments, and directed substitution of nil rateable values.
• Lands Tribunal: Treated the National Trust as the sole hypothetical tenant, found a positive overbid, and assessed the properties by reference to 3% of gross receipts.