The Upper Tribunal (Lands Chamber) has issued its decision in the matter of Hewitt (VO) v Telereal Trillium (2016) UKUT 0258 (LC). 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 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 decision refers to a series of important legal authorities relating to valuation assumptions, many of them cases relating to the valuation of vacant properties. The Appellant Valuation Officer contended that, whatever the position might have been in the real world at the relevant valuation date, it is necessary to assume that a hypothetical landlord and a hypothetical tenant do actually agree a letting on the statutory terms, and that it is then necessary to look at the real world to see at what level of rent the property might reasonably have been expected to be let. The Appellant submitted that the evidence showed that other similar properties were let and occupied and that a value of nil is only appropriate where a property has reached the end of its economic life such that there is no demand either for it, or for any other property comparable to it.

The Respondent ratepayer contended that the matter should be approached in two steps. The first was the legal one that requires a property to be assessed at the value “at which it might reasonably be expected to be let” at the relevant date and on the statutory basis. The second was the fact, agreed between the parties, that had the appeal property been on the market at the relevant date, nobody in the real world would have been prepared to occupy it and pay a positive rent. The respondent accepted that, just because a property was vacant, did not mean that it had no value, but in the present case it was known that there was no demand in the market for the property at the relevant date.

The Tribunal accepted that the enquiry was one to find “the amount of rent at which the property might reasonably be expected to be let” on the statutory basis. The requirement was to assume a hypothetical landlord and a hypothetical tenant. It was not permissible to conclude that no bidder can be found. If there is something about the hereditament that makes it intrinsically valueless then a nil value will be appropriate. But to show this it is necessary to show that the property is “struck with sterility”. Alternatively, if the burdens of occupying the property, by way of repairing costs or other matters, were such that no occupation could be a beneficial one, then a nil value might also be appropriate. But in this case there was no evidence to show that beneficial occupation was impossible. It was therefore necessary to consider the position of a hypothetical landlord and a hypothetical tenant for the property in circumstances where the property was not intrinsically valueless and where other similar properties were being occupied beneficially.

In these circumstances it could not be concluded that a hypothetical landlord and a hypothetical tenant would agree a nil or nominal rent. 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. The property was capable of beneficial occupation at the relevant date and was in fact at least partially occupied at that date. Having arrived at that conclusion it was not possible to conclude that the value on the statutory basis is nil. The Valuation Officer’s appeal was allowed and the property should be entered in the rating list at RV £370,000 from 1 April 2010.

The case provides a very useful review of the application of a statutory hypothesis which requires the valuation of an occupation, to the valuation of unoccupied property. It is clear from this decision that property can have a nil or nominal rateable value but, to achieve this, it will be necessary to show that no occupation of that property can have any beneficial value. To show obsolescence it will be necessary not just to show that there is no demand for the particular property, but also that there is no demand for property of that class generally.

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