Assessment of car park reduced

The decision of the Upper Tribunal (Lands Chamber) in BNPPDS Limited and BNPPDS Limited (Jersey) as Trustees for Blackrock UK Property Fund v Ricketts (VO) [2022] UKUT 0129 (LC) concerned the valuation for rating of a car park on the first floor and roof levels of Putney Exchange Shopping Centre in South West London. The property was entered in the 2017 rating list at rateable value £229,000 with effect from 1 April 2017. The ratepayer appealed against this assessment, but their appeal was dismissed by the Valuation Tribunal for England. The ratepayer then appealed further to the Upper Tribunal (Lands Chamber).

Before the Upper Tribunal the ratepayer contended for a rateable value of £122,000, arrived at using the receipts and expenditure method of valuation. The respondent Valuation Officer initially sought rateable value of £259,000 using a percentage of fair maintainable trade (“FMT”), a method also known as the “shortened” receipts and expenditure method. At the hearing the Valuation Officer sought a rateable value of £290,000, using the same shortened method but adopting a different percentage and different FMT.

The Tribunal’s decision considers four questions: firstly, whether shopping centre car parks are in the same mode or category as stand-alone multi-storey car parks; secondly, whether the receipts and expenditure method is to be preferred over the shortened method when valuing shopping centre car parks; thirdly, the appropriate split of the divisible balance using the receipts and expenditure  method in this case; and fourthly, the impact of a material change of circumstances that occurred between the valuation date and the date of coming into force of the rating list.

In respect of the first question, the appellant contended that shopping centre car parks should be distinguished from standalone multi-storey car parks, as the occupier’s motive is very different for each type. The respondent rejected the proposition that multi-storey car parks adjoining shopping centres should be valued any differently from multi-storey car parks in general, and noted that the appeal property had been valued in the same way as other multi-storey car parks in previous rating lists. The Tribunal did not find either party’s approach convincing. The appellant failed to explain how physical or operational differences made standalone car parks an inappropriate comparable. The respondent provided the Tribunal with a summation of the current practice but no justification as to why it should be continued. The Tribunal concluded that there was no reason to distinguish this car park from any other, nor was there any reason to adopt a narrow interpretation of the “mode or category” of occupation.

The appellant contended that there was insufficient rental evidence available to justify using the shortened method of valuation (a percentage of FMT) and that a full receipts and expenditure valuation was the correct approach. The respondent considered that the shortened method was the correct approach because it had been settled practice for this class of property for a number of years. The Tribunal reviewed the rental evidence referred to by both parties and concluded that it was insufficient to allow valuation by rental comparison and, as a result, “it follows that in this instance the shortened method is inappropriate”. In arriving at this conclusion, the Tribunal referred to guidance published by the Joint Professional Institutions’ Rating Forum in respect of the receipts and expenditure method of valuation.

Having concluded that the receipts and expenditure approach was the correct one, the Tribunal preferred the approach adopted by the respondent in calculating both receipts and expenditure, to arrive at a divisible balance. The approach to apportionment of the divisible balance differed sharply between the parties. The appellant adopted a 50-50 split of divisible balance between hypothetical landlord and hypothetical tenant, whereas the respondent allocated 20% to the hypothetical tenant and 80% to the hypothetical landlord. However, neither expert was able to provide evidence to support their preferred allocation of divisible balance. The tribunal referred to the Rating Forum guidance and concluded that a balanced negotiation would always start, and often conclude, at a 50% split.

The final issue for determination was the effect of a material change of circumstance, being the extension and reconfiguration of Southside Shopping Centre in Wandsworth, and its car park, in October 2015. This change therefore took place in the period between the antecedent valuation date (1 April 2015) and the date of coming into force of the rating list (1 April 2017). To reflect this, the appellant adopted FMT figures from 2017, that is to say after the relevant valuation date, whereas the respondent adopted the FMT figures from the valuation date, and applied an adjustment of 5% for the effects of the material change. The Tribunal considered that the appellant’s approach was flawed. The Tribunal preferred the approach adopted by the respondent, but considered that the actual decline in receipts over the relevant period suggested that the impact was greater than had been allowed by the respondent’s expert. The Tribunal considered that the appropriate level of adjustment for the impact of the material change was to apply an allowance of 10% to the FMT figure.

The Tribunal determined an assessment of rateable value £211,500 with effect from 1 April 2017; arrived at using the receipts and expenditure basis of valuation and applying a tenant’s share of 50% of the divisible balance.

The Tribunal’s decision is an important reminder to those valuing properties on the receipts and expenditure basis that the of the “shortened” method is not, in fact, a receipts and expenditure valuation, but rather a form of comparative valuation. As such, the shortened method normally requires sufficient rental evidence to support it. The decision also reminds valuers of the important guidance offered by the Joint Professional Institutions Rating Forum Guidance Note “The Receipts and Expenditure Method of Valuation for Non-Domestic Rating”. Whilst this guidance was published more than twenty years ago, the material set out in it is still relevant and important.