Valuation Officer v Scottish & Newcastle Retail Ltd & Anor

For rating purposes, the rebus sic stantibus principle requires a hereditament to be valued by reference to its existing physical state and its existing mode or category of occupation. The hypothetical tenant may be assumed to make minor alterations, assessed as matters of fact and degree. A prospective change to a materially different category of use must be disregarded. The statutory reference to “mode or category of occupation” in Schedule 6 to the Local Government Finance Act 1988 confirms this approach. Planning use classes do not determine the rating category, and valuation methods cannot be used to define it. The appeals were dismissed because the Lands Tribunal had applied the essential legal principles correctly.

The Valuation Officer appealed from a decision of the Lands Tribunal dated 8 March 2000 concerning the rateable values of two licensed premises in the Central Milton Keynes shopping centre. The premises were used as a public house and as a public house with a licensed cafe-bar, but could potentially have been used as shops. The Lands Tribunal valued them according to their existing uses and allowed the ratepayers’ appeals from the Buckinghamshire Valuation Tribunal.

The central issue was whether the statutory rating hypothesis required the premises to be valued by reference to their more lucrative potential as shops, or by reference to their existing physical state and mode or category of occupation.

1. Appeals dismissed. The Lands Tribunal had made no material error of law. Its decisions were not reversed or remitted.
2. The statutory rating hypothesis in paragraph 2 of Schedule 6 to the Local Government Finance Act 1988 incorporates both limbs of the rebus sic stantibus principle: the physical state of the hereditament and its mode or category of occupation.
3. The formulation in Midland Bank v Lanham [1978] RA 1, which treated all real-world alternative uses as falling within the same mode or category, was rejected. It was self-contradictory or reduced the statutory second limb to little more than the first.
4. The approach in Fir Mill v Royton UDC (1960) 7 RRC 171 was broadly correct. A hereditament should be valued within the same general category of use, although minor alterations which a hypothetical tenant might make may be taken into account. Whether alterations are minor is a question of fact and degree. Cost is relevant, but the increase in rental value is not determinative.
5. Planning use classes do not determine the rating category. Nor does the valuation method commonly used by surveyors determine that category; rather, the differing methods reflect underlying differences between categories of business use.
6. The second limb does not permit a ratepayer to rely on inefficient use of the premises or leaving part of the premises empty. It also does not undermine the principle that a brewer seeking a tied house may be considered a bidder for a free house, since that concerns the operation of the business rather than its category.

Appeal dismissed with costs. Permission to appeal to the House of Lords refused.

• Court of Appeal (Civil Division): dismissed the Valuation Officer’s appeals from the Lands Tribunal decision dated 8 March 2000.
• Lands Tribunal: allowed the ratepayers’ appeals from the Buckinghamshire Valuation Tribunal and adopted lower rateable values.
• Buckinghamshire Valuation Tribunal: had adopted the higher values advanced by the Valuation Officer.