The Upper Tribunal (Lands Chamber) decision in Allen (VO) v Tyne and Wear Archives and Museums  UKUT 0206 (LC) is the third time, in recent years, that the Upper Tribunal has considered the valuation for rating purposes of museums and galleries. As with the two previous cases (Hughes (VO) v York Museums and Gallery Trust (2017) UKUT 0020 (LC) and Stephen G Hughes (VO) v Exeter City Council  UKUT 0007 (LC)) this latest case concerned museums and galleries operated by, or on behalf of local authorities, and running at a financial loss.
In the two previous cases the Upper Tribunal had determined that such properties should properly be valued on the receipts and expenditure basis, as contended by the ratepayers, rather than on the contractor’s basis, as contended by the Valuation Officer.
The Tyne and Wear Archives and Museums case concerns two art galleries (in Newcastle upon Tyne and Gateshead) and a museum (in South Shields). Following appeals by the ratepayer, The Valuation Tribunal for England had determined nominal rateable values for all three properties, using the approach determined by the Upper Tribunal in the York and Exeter cases. The Valuation Officer appealed against that decision.
The Valuation Officer accepted that the correct basis of valuation was the receipts and expenditure basis, but suggested that this basis should be refined to include the “socio-economic value” represented by these properties, meaning their non-financial benefit to the public and their economic value to public authorities. The Valuation Officer contended that, when this value is taken into account, the properties concerned show a positive value on the receipts and expenditure basis.
The appeal properties did not charge for admission, and all three operated at a deficit. They had originally been assessed at the following rateable values: Laing Art Gallery – £193,000; Shipley Art Gallery – £94,500; and South Shields Museum and Art Gallery – £62,500, arrived at using the contractor’s basis. Following appeals by the ratepayer (which operated all three properties on behalf of the local authorities concerned) the Valuation Tribunal for England had determined a nominal rateable value of £10 for each of these properties, on the receipts and expenditure basis. Before the Upper Tribunal, the Appellant Valuation Officer contended that, if the respective socio-economic values are also taken into account, the proper values should be: Laing Art Gallery – £46,800; Shipley Art Gallery – £3,500; and South Shields Museum and Art Gallery – £12,900.
To support these values the Appellant relied upon “socio-economic value”; meaning the value placed on a combination of benefits such as cultural education, community, mental health and well-being which have a broad economic effect but are not commercial objectives. The assessment of socio-economic value is an attempt to “put a monetary value on benefits which do not represent money in the pocket of the occupier of the hereditament but which that occupier values and might well spend money to gain”.
To support these values the Appellant called expert evidence on the methods of calculation of socio-economic value. The Appellant’s expert valuer produced two reports, the first of which looked at a small number of rents paid for museums, which, it was suggested, represented an “overbid” by the museum operators concerned, that was additional to any value shown by the receipts and expenditure basis. This report also referred to the requirement for storage space and the value that might represent. Adopting an “overbid” approach the Appellant’s valuer produced valuations based on a percentage of notional receipts. The second report from the Appellant’s valuer reflected the socio-economic benefits of the properties and considered these in relation to the deficits the appeal properties incurred, to support the values proposed.
The Respondent contended that there are no valuation methods for measuring the socio-economic benefit as a benefit to the occupier, nor any evidence that a museum occupier would pay rent to obtain that benefit.
The Respondent’s expert valuer considered that rent is only paid when the property is capable of generating a surplus and the key to willingness to pay is therefore affordability. Looking at affordability, even with a notional income the outcome at these three sites is a nominal rateable value. In respect of any possible “overbid”, the Respondent’s expert valuer concluded that, using the Association of Independent Museums toolkit to calculate socio-economic value, showed that none of the museums concerned could afford an overbid.
In respect of the question of affordability, the Tribunal considered that: “If a rent is unaffordable, it is ruled out because the hypothetical tenant could not pay it. But if a rent is affordable, that does not mean that it is the rent that the hypothetical tenant would agree to pay, and so the affordability of rent takes matters no further”.
In relation to the argument about the value of storage space, the Tribunal noted that “it is well-established that these hereditaments have to be valued as museums and not as storage facilities”.
The Tribunal was also unconvinced by valuations based on a percentage of receipts, stating “This ‘method’ is in our view only appropriate after a rigorous analysis of the available rental evidence, or a significant number of assessments agreed on the full receipts and expenditure basis”, and observing that there was no clear rental or assessment evidence to support this approach.
On the central point, the question of socio-economic value, the Tribunal did not need to comment on the methods of measuring this value. This was because there are two fundamental difficulties to using such a value to calculate rateable value. Firstly, there is no methodology available to translate that socio-economic value to the public into value to the local authority itself, and secondly, there is no methodology available to translate that value to the local authority into willingness to pay any rent, let alone a specific amount. In the Tribunal’s view: “We remain stuck, two steps away from a rateable value, because the value of the socio-economic benefits generated by these three museums does not tell us their value to the hypothetical tenant; nor does it tell us anything about the rent that the hypothetical tenant would be willing to pay for the hereditament in order to obtain that value”.
For these reasons the Valuation Officer’s appeal failed and the nominal values determined by the VTE were confirmed.
We have to hope that this is the last such appeal relating to museums because, in this case, the Valuation Officer’s appeal appears misconceived. Assuming that a museum or gallery does add value to the economy of an area by bringing in visitors and generating economic benefits in that way, those benefits accrue to other properties in the locality (for example hotels and restaurants benefitting from those visitors) rather than to the museum itself. Insofar as those benefits are tangible, they will be captured in the rents and rateable values of those other properties in the locality. There seems no need for the rating system to “chase its tail” with appeals such as this one.