Dawn Bunyan (Valuation Officer) v Acenden Limited

For rating, a hereditament must be valued in its actual physical condition on the material day. Tenant-funded fitting-out works are not generally disregarded merely because the tenant provided them. Where Category B office fit-out has general market appeal, a willing hypothetical tenant may pay more for the fitted premises than for the same premises in Category A condition.

The statutory decapitalisation rate under the Non-Domestic Rating (Miscellaneous Provisions) (No.2) Regulations 1989 is mandatory only where all or part of the hereditament is being valued by the contractor’s basis. It is not compulsory merely because actual improvement costs are annualised as one component of a comparative valuation of the hereditament as a whole.

The Valuation Officer appealed a decision of the Valuation Tribunal for England which reduced the rateable value of Ascot House, a headquarters-style office building in Maidenhead, to £875,500 for the 2017 rating list.

The building was let in Category A condition. The ratepayer then spent about £1.6 million on rateable Category B fit-out works capable of use by another occupier. The Tribunal had to determine whether those works increased the rent obtainable under the statutory valuation hypothesis and, if so, whether their annual value had to be calculated using the statutory decapitalisation rate.

1. The appeal was allowed. The Tribunal determined the rateable value at £1 million with effect from 1 April 2017.

2. Under paragraph 2 of Schedule 6 to the Local Government Finance Act 1988, the hereditament had to be valued in its actual physical condition on the material day, subject to the statutory assumptions. There is no general statutory exclusion for tenant-funded fitting-out works. The identity of the person who supplied a feature does not determine whether its value is included.

3. The Tribunal rejected the proposition that Category B fit-out necessarily adds nothing to the value of a high-quality office building. The works were largely generic and had general market appeal. The hypothetical tenant was assumed willing to take the building in its fitted condition, without an allowance or inducement because it did not suit that tenant. The market evidence supported a rental premium for Category B space, although the available transactions required careful evaluation.

4. The statutory 4.4% decapitalisation rate was not mandatory. Regulation 2 of the Non-Domestic Rating (Miscellaneous Provisions) (No.2) Regulations 1989 applies where the rateable value of all or part of a hereditament is ascertained using the contractor’s basis in full. It does not govern an exercise which values the whole hereditament comparatively and uses annualised actual fit-out cost only as one component of that valuation.

5. The Tribunal respectfully declined to follow Dorothy Perkins Retail Ltd v Casey [1994] RA 391 insofar as it treated the statutory rate as compulsory in the latter situation. The rate may nevertheless be adopted where the evidence makes it appropriate.

6. Having assessed the Category A letting, the Category B evidence and the better comparable at Leatherhead, the Tribunal concluded that £212 per square metre, including the agreed parking allowance, represented the statutory rental value.

• Upper Tribunal (Lands Chamber): allowed the Valuation Officer’s appeal and substituted a rateable value of £1 million.
• Valuation Tribunal for England: on 4 August 2021 substituted a rateable value of £875,500.