The decision of the Upper Tribunal (Lands Chamber) in Interoute Vtesse Ltd (formerly Vtesse Networks Ltd) v Gidman (VO) (2020) UKUT 0013 (LC) concerns a fibre optic electronic communications network, together with associated buildings and plant and machinery. The ratepayer (Vtesse) operates a fibre-optic network with a total length of more than 7,500 kilometres in England, together with network buildings. This network was assessed, including the buildings and rateable plant and machinery, at rateable value £2,020,000 in the 2010 rating list. The ratepayer appealed against this assessment, but its appeal was dismissed by the Valuation Tribunal for England in 2018. The ratepayer appealed against that dismissal to the Upper Tribunal (Lands Chamber). Whilst the appeal to the Upper Tribunal took the form of a rehearing, some of the questions were ones that had been considered in previous appeals made by the ratepayer to the (then) Lands Tribunal, the Court of Appeal and the European Community Commission, in proceedings relating to previous rating lists.
In respect of the current appeal, the ratepayer’s fundamental contention was that the Valuation Office Agency (VOA) is required to give equal treatment, in a fiscal context, to comparable businesses and networks. On this basis, the ratepayer contended that its network should be valued in the same way as the British Telecom (BT) network and should, consequentially, be assessed based on a value of £20 per kilometre for its fibre-optic network and that its buildings, plant and machinery, should be subject to a valuation discount of 50%, to bring them into line with the assessment of the BT network. The ratepayer sought a rateable value of £234,637 for its hereditament, in place of the figure of £2,020,000 appearing in the rating list.
The respondent valuation officer contended that the assessment appearing in the rating list was correct. This valuation was based on a value of £250 per kilometre for the fibre-optic network, plus a value of £166,587 for the buildings, plant and machinery. The value of £250 per kilometre applied by the valuation officer was derived from lettings and agreed assessments of other twin-fibre optic networks.
Whilst the appellant ratepayer did not call any expert valuation evidence, it contended that its valuation of £20 per kilometre for its fibre optic network was derived from a disaggregation of the cumulo assessment appearing in the central rating list for the BT network.
The Tribunal first considered whether it was proper for a non-domestic rating appeal, based on a proposal contending for a lower rateable value, to seek to establish that there is unequal treatment between different electronic communications operators. The appellant had not produced its own valuation evidence, for example by way of a receipts and expenditure valuation, but, instead, argued that it was required to be valued on the same basis as the value that it attributed, by way of extrapolation, as the value of the fibre optic network elements of BT’s cumulo assessment. Despite the lack of a formal valuation, the Tribunal concluded that it was proper for it to consider Vtesse’s case to be that its rateable value should be £234,637.
The Tribunal’s decision makes the important point that “the choice of valuation method, depending on the facts of the case and the judgment of the valuer, should not make a difference to the end result”. Different valuation methods should not be viewed as ways of arriving at different answers, but instead each method should be viewed as a means of arriving at the correct answer for the hereditament concerned.
The judgement is a lengthy one, of 50 pages and more than 200 paragraphs, and gives detailed consideration to the appellant’s approach to disaggregating the cumulo assessment for BT, and reasons why this might be possible and correct. But, ultimately, the Tribunal simply concluded that the two hereditaments (those of Vtesse and BT) are not comparable, and that there was no evidence to support the contention that they should be valued on the same method. Indeed, to the contrary, all the evidence pointed to the fact that Vtesse’s hereditament should be valued by the direct rental comparison method and BT’s cumulo hereditament should be valued by the receipts and expenditure method. That being the case, it was not proper to seek to disaggregate an assessment arrived at by one method of valuation to use as a comparable to value a hereditament which should properly be valued by another, and different, method of valuation. The Tribunal described this as an approach that was “wrong in principle and represents unsound valuation practice”.
The decision also considers the question of whether, as a matter of EU law, there was a requirement to value the appellant’s hereditament on the same basis as part of the BT network. In this respect, the appellant argued that it was being treated differently by having its network valued for non-domestic rates by one method (direct rental comparison) whereas BT, as a direct competitor, had its network valued by a different method (receipts and expenditure).
The Tribunal’s decision makes the important point that equality of treatment is a fundamental principle, not only of EU law, but also of UK domestic law insofar as it relates to non-domestic rating. However, the principle of equality of treatment applies to comparable hereditaments, that is to say the comparison of like with like, not like with unlike. That principle exists in domestic law for rating purposes, just as much as it exists in EU law. But the two hereditaments being referred to in this case, Vtesse and BT; “are two wholly different hereditaments, not two comparable businesses”.
The Upper Tribunal dismissed the ratepayer’s appeal and declined to refer any question to the Court of Justice of the European Union.
The decision is an important reminder to valuers that the choice of valuation methodology is a question of fact rather than one of law, and that there is a fundamental principle of rating law, as well as of EU law, of comparing like with like. Direct rental comparison is, normally, the preferred method of valuation for rating purposes, because it more closely aligns with the statutory rating hypothesis and, in the words of the Tribunal, “is a more direct and straightforward approach which does not depend on the more complex assumptions of the other two methods”.