Telereal Trillium v Hewitt

For non-domestic rating, the statutory hypothesis assumes a willing landlord and a willing tenant who will agree a yearly letting. The absence of an identified tenant or the vacancy of the hereditament does not by itself justify a nominal rateable value.

Where comparable properties are beneficially occupied at substantial rents, general demand may establish the rental value of a vacant property with similar characteristics, even if demand is saturated and no actual bidder can be identified. A nil or nominal value may nevertheless be appropriate where the property has reached the end of its economic life, is intrinsically valueless, or the burdens of occupation make the tenancy commercially disadvantageous. The valuation must employ a fair common standard while preserving accuracy.

Mexford House was a vacant office building in Blackpool. For the 2010 non-domestic rating list, its value had to be assessed by reference to an antecedent valuation date of 1 April 2008. The parties agreed that no person in the real world would then have occupied the building for a positive rent. They also agreed that comparable public-sector offices were beneficially occupied at substantial rents.

The Valuation Tribunal reduced the assessment to £1. On the valuation officer’s appeal, the Upper Tribunal fixed the rateable value at £370,000 by reference to general demand for comparable offices. The Court of Appeal, in [2018] EWCA Civ 26, restored the £1 assessment.

The central issue was whether the statutory rating hypothesis required the property to be valued by reference to general demand, notwithstanding the absence of an actual person willing to pay a positive rent for that property.

1. By a majority, the appeal was allowed and the Upper Tribunal’s assessment of £370,000 restored. Lord Carnwath gave the leading judgment, with which Lord Reed and Lord Lloyd-Jones agreed. Lord Briggs dissented, with Lady Black agreeing.

2. Paragraph 2 of Schedule 6 to the Local Government Finance Act 1988 requires an estimate of the rent at which the hereditament might reasonably be expected to let from year to year. The valuation assumes a hypothetical negotiation between a willing landlord and a willing tenant. The parties bargain for the particular hereditament and reach agreement on rent.

3. The statutory exercise serves the wider rating objective of applying a fair common standard to comparable properties. Actual rents and the identity or availability of an actual tenant are evidential matters, but they do not define the statutory hypothesis. Correctness must not be sacrificed merely to produce uniformity.

4. The authorities distinguish between an unoccupied property affected by excess supply and one which has reached the end of its economic life or imposes commercially burdensome responsibilities. Mere vacancy does not justify a lower value than that assigned to broadly identical occupied premises. Even in a saturated market, the hypothesis assumes a tenant sufficiently interested to negotiate. In the absence of contrary evidence, rent may therefore be assessed from general demand demonstrated by occupied properties with similar characteristics.

5. A nil or nominal value remains possible where occupation is intrinsically valueless or where the tenant’s obligations make occupation commercially burdensome. Hoare v National Trust fell within the latter category because repair and maintenance liabilities would leave the hypothetical tenant substantially out of pocket. It did not establish that saturation of demand for otherwise valuable comparable property necessarily produces a nominal value.

6. The capital-transfer-tax analysis in Inland Revenue Comrs v Gray concerned an expressly postulated open-market sale of a single asset. Insofar as it limited the hypothetical tenant to actual demand for the particular hereditament, it was inconsistent with the rating legislation and the wider comparative purpose of rating valuation.

7. Paragraph 2(7)(e) of Schedule 6 concerns the physical condition and use of other premises under the rebus sic stantibus principle. It does not determine demand in the hypothetical rental market.

8. Lord Briggs would have dismissed the appeal. In his view, the parties had positively agreed that no demand existed at more than a nominal rent. Although general demand for comparable premises will ordinarily prove demand for the subject property, the rating hypothesis does not manufacture demand when the evidence or an agreement establishes its complete absence.

1. United Kingdom Supreme Court: By a majority, allowed the valuation officer’s appeal and restored the Upper Tribunal’s assessment of £370,000: [2019] UKSC 23.
2. Court of Appeal: Allowed Telereal’s appeal and restored the Valuation Tribunal’s assessment of £1: [2018] EWCA Civ 26.
3. Upper Tribunal: Allowed the valuation officer’s appeal following a full rehearing and fixed the rateable value at £370,000.
4. Valuation Tribunal for England: Reduced the rateable value to £1.