Charles Waters v Wayne Cox (Valuation Officer)

In a receipts and expenditure valuation, the hypothetical tenant is assumed to make a prudent assessment from the available trading evidence, but not to construct an artificial financing scenario. Recent performance may properly carry greater weight where the hereditament has materially changed. Costs are included only where they would be incurred by the hypothetical tenant; in a small or medium-sized owner-operated business, management remuneration may properly be reflected through the tenant’s share rather than as a working expense. A private contractual right affecting the hereditament can be an intrinsic characteristic and may be considered in principle. Its practical effect depends on its likelihood and value significance. A remote contingency which is unlikely to affect the hypothetical tenant’s bid need not alter the valuation.

The appellant challenged the Valuation Tribunal for England’s decision of 18 September 2023 dismissing an appeal against the valuation officer’s assessment of Finkley Down Farm at a rateable value of £100,000 in the 2017 rating list. The farm was a composite hereditament containing a farm-themed leisure attraction, including indoor and outdoor activities, animal facilities and a play barn.

The parties agreed that the receipts and expenditure method was appropriate but disagreed about fair maintainable trade, management costs, equipment hire, depreciation, the effect of rights reserved to Taylor Wimpey on the disposal of land, and the tenant’s share. The central issues were how those matters should be reflected in the statutory rating hypothesis.

1. Appeal dismissed. The assessment was under-valued and the existing rateable value of £100,000 therefore remained in force.
2. The receipts and expenditure method requires the valuer to estimate the trading performance of the hereditament for the hypothetical tenant, deduct appropriate operating expenses and apportion the divisible balance between tenant and landlord. The hypothetical tenant is a prudent business person who makes proper enquiries, but the valuation hypothesis does not require consideration of a hypothetical bank manager or artificial borrowing constraints. The later years’ trading were the most informative because the play barn had materially changed the hereditament. Fair maintainable trade was assessed at £1,325,000.
3. A manager’s or director’s salary was not allowed as a working expense. The evidence showed a small to medium-sized, owner-operated business. Consistently with the Rating Forum guidance, remuneration for functions ordinarily performed by the owner was appropriately reflected in the tenant’s share, subject to avoiding double counting.
4. Equipment hire was included in working expenses. The hypothetical tenant would be likely to continue using hired software, catering equipment and a generator, and the evidence did not justify treating those items differently. Depreciation was correspondingly based on the actual accounting figure.
5. The rights reserved to Taylor Wimpey were an essential characteristic of the hereditament because their exercise was outside the control of the hypothetical tenant. They were therefore relevant in principle. However, the rights were remote: they depended on planning permission and the exercise of an option, and the relevant land was not zoned for development. They were unlikely to affect the hypothetical tenant’s bid and required no adjustment to the valuation.
6. The tenant’s share was assessed at 68% of the divisible balance. The Tribunal considered the site’s size and split configuration, its facilities, its year-round opening and the available comparables, while treating percentage-of-receipts comparisons as having limited utility.

• Upper Tribunal (Lands Chamber) — dismissed the appeal against the Valuation Tribunal for England’s decision dated 18 September 2023.