The Upper Tribunal (Lands Chamber) has issued its decision in a rating appeal know as Home Office v Jackson (VO) (2018) UKUT 0171 (LC). The dispute was purely one of valuation, but is notable for the size of the rateable value under appeal (RV £24,960,000) and for the fact that the building that was the subject of the appeal is partly occupied by the Ministry of Housing Communities and Local Government, the government department that is responsible for business rates policy.

The appeal concerned three interconnected office buildings in Marsham Street, London SW1. The buildings are known as Seacole, Fry and Peel and have a total floor area of 52,064 square metres, or more than 560,000 square feet. The property was assessed in the 2010 Rating List at Rateable Value £24,960,000 and the Home Office, being the principal government department in occupation, made an appeal against this value. The Valuation Tribunal for England dismissed the ratepayer’s appeal and determined the assessment put forward by the Valuation Officer. The Home Office appealed against that decision to the Upper Tribunal (Lands Chamber) which has now issued its determination.

There were four aspects of the valuation that were in dispute between the parties: the basic value per square metre to be applied to the buildings; the allowance to be made for the size of the building (quantum); whether an allowance should be made for fragmentation as the property comprises three interconnecting buildings; and whether an addition should be made to value for the special security equipment installed by the occupier.

In respect of the basic value to be applied, the parties agreed that the best comparison was Cardinal Place, a modern office building at 80-100 Victoria Street, which was valued at £630 per square metre. The appellant ratepayer presented detailed analysis of rents and of other rating assessments which, it contended, showed that values in Marsham Street were between 12% and 27% below those in Victoria Street. From this the appellant adopted a value of £555 per square metre for the appeal property, being 12% below the value of Cardinal Place. The respondent Valuation Officer offered detailed criticisms of the appellant’s analysis and put forward its own alternative analysis which, it contended, showed that “like for like” there was no difference in value between the two locations and, therefore, that a value of £630 per square metre should be applied to the appeal property.

The Upper Tribunal considered that the appellant’s approach of comparing buildings in the immediate vicinity with those of similar quality in Victoria Street was “sound in principle as a means to establish whether there is a value differential between the two locations”, subject to an adjustment to reflect a value differential south of Horseferry Road. By contrast, the respondent’s approach “relies too much upon sub-location groups which have been identified by the VOA but which are not recognised in the market”. Having made its own comparisons, the Upper Tribunal determined that the value of the appeal property should be 10% below the value of equivalent properties in Victoria Street and, accordingly, determined a base value of £567 per square metre.

In respect of the allowance for quantum, the appellant contended that this should be 25%, relying upon the fact that such an allowance had been agreed in respect of the Ministry of Defence building and in respect of Broadcasting House, which, it said, were the only other office buildings in Westminster that were more than 50,000 square metres. The respondent argued that a quantum allowance of 17.5% was appropriate as this was the maximum figure in the Valuation Officer’s quantum scale for Westminster, and the allowances at the Ministry of Defence and at Broadcasting House had either been made by mistake, or were for other factors.

The Tribunal considered that an allowance for quantum on such a large building would be a matter for individual negotiation between the hypothetical landlord and hypothetical tenant and that, in such a negotiation, both parties would be able to draw on evidence of other such allowances agreed elsewhere. In these circumstances the Tribunal concluded that the likely outcome of such negotiations would be an allowance of 20%, bearing in mind that the Treasury Building, which is slightly smaller than the appeal property was agreed with an allowance of 17.5%.

The appellant contended that, in addition to the quantum allowance, it was also appropriate to apply an allowance of 2.5% for fragmentation, to reflect the fact that the appeal property comprises three separate buildings, linked by footbridges on the First Floor to Fourth Floor levels. The appellant contended that such an allowance was supported by other agreed assessments of linked buildings in Victoria. The respondent contended that no such allowance was appropriate because the layout offered advantages of improved security and daylighting that offset any disadvantages.

The Tribunal considered that the bridge links were of very generous size and the layout of the buildings offered improved daylighting. The advantages of  the layout were, in this case, at least sufficient to offset any disadvantage of the bridge links. Because of this it was not appropriate to make any allowance for fragmentation.

The final issue was the question of the addition, if any, to be made to value for the specialised security equipment installed by the ratepayer, including baggage and body scanners. The respondent contended that there should be an addition to value for these items, which it supported by reference to a similar addition that, it contended, had been made at the former New Scotland Yard building. The appellant contended that this point was raised late – it did not appear in the respondent’s statement of case – and that no proper evidence was put forward as to the value to be ascribed to the equipment.

The Tribunal accepted the appellant’s criticism that this was a late point, and one without proper supporting evidence, and declined to make any addition for these items. It also pointed out that the respondent’s case was that this was a prestige building, but the security equipment in the reception area detracted from its image in relation to the quality of the comparables relied upon by the respondent. Any addition for these items would be at least offset by a deduction for this factor.

Applying its determinations on these various valuation issues, the Upper Tribunal determined that the assessment should be reduced from RV £24,960,000 to RV £22,700,000 with effect from 1 April 2010.

The dispute in this case was one of valuation, and of relatively conventional valuation issues at that. We cannot help feeling that, despite the size of the figures involved, this is a case which should have been capable of being settled by agreement. The appellant ratepayer will, we expect, be the happier of the two parties with the determination. Other commercial ratepayers can be forgiven for thinking that, when the rates burden becomes so great that even the government goes about appealing against it, to reduce its own expenditure but also its own income, there is something wrong with the system! There is indeed something wrong, and it is that the rates burden is too high as a result of an excessively high Uniform Business Rate multiplier. We hope that the government will reflect upon that aspect of this case.

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