Bay Farm Power Ltd v Bob Prescott (Valuation Officer)

Under the receipts and expenditure method, the tenant’s share of the divisible balance is a fact-sensitive valuation judgment; no single method governs. The share must reflect the tenant’s capital, working capital, reward for effort and business risks, and must provide an incentive to occupy and operate the undertaking. Valuation schemes, settlements and a supposed sector-wide tone may assist consistency, but cannot supplant the statutory rental hypothesis or dictate how the divisible balance is shared. Working capital must be allowed for whichever method is used. For anaerobic digestion plants, the risk allowance must reflect the commercial and operational risks shown by the evidence.

Bay Farm Power Ltd and Oak Grove Renewable Energy Ltd, ratepayers operating separate anaerobic digestion plants, appealed against a decision of the Valuation Tribunal for England. The VTE dismissed Bay Farm’s appeal and confirmed a rateable value of £285,000; it allowed Oak Grove’s appeal and reduced its value to £140,000. The valuation officer, Bob Prescott, and the ratepayers agreed the plants’ divisible balances but disputed how to calculate the tenant’s share, including the treatment of working capital and risk. They also disputed whether agreed valuation models, settlements and assessments established a sector-wide tone for that method. The central issue was the appropriate rateable value under the statutory rental hypothesis.

1. Appeals allowed. The rateable value of Bay Farm was reduced to £270,000 with effect from 9 April 2021, and that of Oak Grove to £129,000 with effect from 1 April 2017.
2. The statutory measure is the rent at which the hereditament might reasonably be expected to let, as defined by paragraph 2(1) of Schedule 6 to the Local Government Finance Act 1988. The receipts and expenditure method is an aid to applying that hypothesis. The tenant’s share of the divisible balance must provide a reasonable return on capital, reward for effort and compensation for risk sufficient to induce the tenant to occupy and operate the hereditament. The choice among methods for calculating that share is a valuation judgment on the evidence; Tribunal decisions on other facts establish no rule. The explanation in Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation [2011] RA 399 informed the Tribunal’s analysis.
3. Valuation schemes and agreements can promote consistency, but cannot replace the statutory basis. The Tribunal was not bound by the memoranda of agreement to adopt a particular method if it would not produce a value consistent with the statutory hypothesis. Dawkins (VO) v Ash Brothers and Heaton Ltd [1969] 2 AC 336 supported the importance of consistency between hereditaments; it did not establish a tone for valuation techniques. A model’s acceptance across other renewable energy sectors therefore did not determine the appropriate method for these AD plants.
4. Working capital must be included when calculating the tenant’s share, whichever method is used. The statutory treatment of rateable and non-rateable plant under the Valuation for Rating (Plant and Machinery) (England) Regulations 2000 did not justify omitting working capital.
5. On the evidence, allocating the divisible balance by reference to the parties’ relative contributions to capital was suitable for these appeals. The AD plants faced greater commercial and operational risks than established wind and solar businesses. The valuation officer’s standard 10% risk uplift was too low; the ratepayers’ proposed further 20% share lacked reasoned support. A 15% adjustment was appropriate on the evidence. The Tribunal retained the agreed divisible balances and adjusted the tenant’s shares accordingly.

1. Upper Tribunal (Lands Chamber) allowed both appeals and reduced the rateable values.
2. Valuation Tribunal for England dismissed the Bay Farm appeal and confirmed £285,000; it allowed the Oak Grove appeal and set £140,000.