Joe and Valerie Fryer v Wayne Cox

In valuing a seasonal attraction forming part of a partially exempt hereditament, the receipts and expenditure method requires a realistic assessment of the hypothetical tenant’s receipts, operating expenses, capital, risks and required share of the divisible balance. The tenant is a reasonably efficient operator, but the assessment must reflect the particular enterprise and the evidence available at the antecedent valuation date. Actual rates payable may be used, with allowance for uncertain future alteration within the tenant’s share. Day-to-day management costs may be deducted as an operating expense where the hypothetical farm tenant would need to employ a manager. A shortened percentage-of-turnover method is ill-advised without reliable rental evidence or comparable full receipts and expenditure valuations.

The appellants operated Apple Jacks Adventure Park as a seasonal diversification activity on a largely rate-exempt farm. The attraction was assessed at a rateable value of £35,000 in the 2017 rating list. The Valuation Tribunal for England dismissed the appellants’ appeal on 11 February 2021.

The appeal concerned the appropriate receipts and expenditure valuation at the antecedent valuation date of 1 April 2015. The disputed matters included projected turnover, cost of sales, repairs, advertising, rates, management costs, working capital and the tenant’s share.

1. Appeal allowed in part. The rateable value was reduced from £35,000 to £11,750. The appellants’ claim for a nominal value of £1 was rejected.
2. The statutory hypothesis for a partially exempt hereditament required the rent attributable to the non-exempt leisure use to be assessed. The hypothetical tenant was an agricultural tenant acquiring the attraction as a farm diversification activity.
3. The Tribunal adopted receipts of £755,000, cost of sales of £133,000 and repairs of £70,000. It allowed £75,500 for advertising and promotion. The figures reflected the evidence available at the AVD and the unusual sensitivity of the attraction to weather, visitor profile and operating conditions.
4. Actual rates payable at the AVD were the appropriate starting point. The hypothetical tenant would recognise a risk that the valuation might later be altered, but that risk could not be quantified and was properly reflected in the tenant’s share.
5. The Tribunal allowed £35,400 for management as an operating expense. The attraction was part of a farm business and the hypothetical tenant would probably need a manager to perform the day-to-day work carried out by the appellants. This was distinct from the reward for entrepreneurial risk and capital.
6. The tenant’s capital was assessed at £591,350, including £91,350 working capital. The Tribunal declined to make a separate first deduction for return on capital. The tenant’s share had to cover profit, risk and return on capital. Applying a 75 per cent share to the divisible balance of £47,138 left £11,784 for rent, rounded to £11,750.
7. There was insufficient reliable rental evidence or comparable full receipts and expenditure evidence to support the shortened percentage-of-turnover method. Little weight was therefore placed on that approach.

• Valuation Tribunal for England: On 11 February 2021, dismissed the appeal against the rateable value of £35,000.
• Upper Tribunal (Lands Chamber): Allowed the appeal in part and substituted a rateable value of £11,750.