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The Court of Appeal has issued its decision in the matter of Telereal Trillium v Hewitt (VO) (2018) EWCA Civ 26. The case concerned Mexford House, a 1970’s office building in the North Shore area of Blackpool.
The property was occupied by HM Revenue and Customs and by the Department of Work and Pensions in 2008, but was vacated thereafter and was completely vacant by 31 March 2009, when it was handed back to the owner. It was entered in the 2010 rating list at a rateable value of £490,000 and the owner appealed against this assessment. The appeal was heard by the Valuation Tribunal for England which determined that the rateable value of Mexford House should be reduced to £1 on the basis that the evidence showed that there was no demand for the property at the relevant date of 1 April 2008.
The Valuation Officer appealed against this decision to the Upper Tribunal (Lands Chamber) and contended that the property should be assessed at rateable value £370,000, which was derived from comparison with other office buildings in the area that were still occupied. The Valuation Officer contended that the fact that other similar buildings in the area were occupied showed that there was “general demand” for property of this type, even if it was not possible to identify a potential tenant for the appeal property.
During the course of the Upper Tribunal hearing the parties agreed that the case could be determined by the Upper Tribunal as a point of law only, on the basis of a position paper agreed between the parties. The position paper set out that if the correct approach is “to consider whether, had the subject hereditament been on the market at the antecedent valuation date (1 April 2008), anybody would have been prepared to occupy the property and pay a positive price”, then the appeal should be dismissed and the value of £1 determined by the VTE should be confirmed. The position paper set out, in the alternative, that if the correct approach is to assume the existence of a hypothetical tenant and to assess value “by reference to the general demand as evidenced by the occupation of other properties with similar characteristics”, then the appeal should be allowed and the property assessed at RV £370,000.
The Upper Tribunal allowed the Valuation Officer’s appeal because the flaw in the respondent’s argument was to assume the existence of a hypothetical tenant but then to assume that the tenant did not want to take a tenancy of the property at all. On this basis the Upper Tribunal determined that property should be entered in the rating list at RV £370,000 from 1 April 2010. The ratepayer appealed against that decision to the Court of Appeal.
Before the Court of Appeal the ratepayer contended that, as it was accepted there was no demand for the property, the Upper Tribunal was wrong to conclude that the hypothetical basis of valuation required the valuer to assume a demand that did not in reality exist. In such circumstances, the Upper Tribunal should have concluded that the correct value for the appeal property was a nominal figure of RV £1.
The respondent valuation officer contended that, because the basis of valuation for rating assumes a hypothetical tenant, a demand for the property must be assumed to exist, and because other similar properties were actually occupied, there was evidence of a “general demand” for properties of this type. Because those other properties were actually occupied at the relevant time, the hypothetical tenant assumed by the statute would be willing to pay a rent to occupy the appeal property.
The Court of Appeal unanimously allowed the ratepayer’s appeal because “in the absence of any actual demand, there is no principle of law which requires such demand to be assumed“. The assumption in the hypothetical basis of valuation for rating is that an agreement will be reached between a notional landlord and a notional tenant, but that assumption was satisfied by assuming a notional letting at a nominal rent. It would be contrary to the reality principle, and the need to value on the basis of actual supply and demand, to use the requirement of a hypothetical tenancy to assume a letting at a rent that would not, in the real world, have been achievable. The correct answer, given that no real world demand for the property could be identified, was to assume that the hypothetical tenancy would be concluded at a nominal rent. The ratpayer’s appeal was allowed and the assessment of the appeal property was reduced to RV £1 from 1 April 2010.
The case provides an important review of the application of a statutory hypothesis which requires the valuation of a hypothetical tenancy, to the valuation of unoccupied property. It is clear from this decision that the principle of reality must be paramount and that the assumption of a tenancy does not carry with it the assumption of a substantial rental value if there is, in fact, no demand for the property. The Court of Appeal made clear that this case turned upon its particular facts, amongst which was that it was agreed that there was no demand for the appeal property at the relevant date. Although founded in its own particular facts, this decision does make clear that, if it can be shown that there is no real world demand for a property, the proper answer to the question of valuation is a nominal figure.
