The Upper Tribunal (Lands Chamber) has published its decision in an important case relating to a number of historic sites occupied by the York Museums and Gallery Trust. The Tribunal’s judgment in the case, known as Hughes (VO) v York Museums and Gallery Trust (2017) UKUT 0020 (LC) will be of considerable significance to those dealing with historic buildings and other public properties, because of the wide range of issues that the Tribunal was asked to determine in these cases. The appeals related to both the 2005 and 2010 Rating Lists as concerned buildings at three different sites in York – The York Art Galley, The Yorkshire Museum and the Castle Museum.

There were six issues before the Tribunal for determination:

  1. Whether parts of these sites were in the separate occupation of a trading company (York Museums Enterprises Limited) that undertook commercial activities such as operating shops and cafes, rather than in the occupation of the York Museums and Gallery Trust?
  2. Whether an events venue at the Yorkshire Museum (the Hospitium) was occupied for a different purpose to the Museum and should therefore be a separate hereditament from the Museum for rating purposes?
  3. In the event that there were separate hereditaments at these locations, whether the scope of the appeals that had been made allowed the Tribunal to consider what those assessments should be?
  4. Whether the contractor’s basis of valuation or the receipts and expenditure basis should be preferred for valuing the hereditaments?
  5. What were the correct rateable values for the hereditaments for the 2005 and 2010 Rating Lists?
  6. Whether the York Museum gardens are exempt from rating as a public park?

The Tribunal’s decision is a very detailed, and very readable one – this must be the first time that Dick Turpin has appeared in a decision of the Upper Tribunal – which will be of significance for other cases.

In respect of the first issue, the question of potential separate occupations by the trading company, the Tribunal considered that the conventional tests of control – whose occupation could be said to be “paramount” – were not helpful in these cases, because the interests and activities of the parties were aligned and there was no interference between them. Looking at the Yorkshire Museum shop, the Tribunal was satisfied that the activities carried on in the shop were those of the trading company and that the location of the shop was fixed with no possibility of it being relocated or used for other purposes. It was therefore correct to regard this as a separate hereditament in the occupation of the trading company, rather than the Trust. The Tribunal took a different view of the occupation of the Hospitium, which it concluded was by the Trust, because the Trust had not relinquished any control of this part of the property to the trading company. The third potential separate hereditament was the shop at the Castle Museum, and the Tribunal found the position here to be less clear than at the other two locations. The exact boundaries of what comprised the shop could not be clearly identified on a plan, and there was no functional distinction between the two areas at the relevant time because the ticket desk tills for the museum were also used to serve shop customers. On this basis the shop at the Castle Museum was not a separate unit of property and could not be treated as a separate hereditament. The question of control of the shop did not therefore arise but, in any event, the Tribunal considered that because no defined area of occupation by the trading company had been granted, or could be identified, it would be very difficult to say that the Trust has parted with control.

The second issue was whether the occupation of the Hospitium as an events venue was for a sufficiently different purpose so as to make it a separate hereditament for rating purposes from the Museum in which it is situated. The Valuation Officer contended that the use as an events venue did not overlap at all with the use of the rest of the property as a museum. The ratepayer contended that it was now perfectly normal practice for museums to offer space for use by events and conferences. The Tribunal recognised that there was a different use of the Hospitium for the purposes of hosting events and conferences, but found that it was also important to consider that the Hospitium and its gardens were an integral part of the original buildings comprising the Museum and were occupied by the Trust for the same purpose as those other buildings, which was their preservation as historical monuments. The Hospitium did not therefore constitute a separate hereditament.

The third issue was whether the Tribunal had jurisdiction to determine the assessments of any separate hereditaments, such as the shops or the Hospitium, because the original appeals challenged only the manner in which the hereditaments had been split by the Valuation Officer, and not the individual values ascribed to the properties. The Tribunal was very critical of the Valuation Officer’s approach to challenging its jurisdiction describing it as  “disappointing” that the Valuation Officer should respond to the ratepayer’s case but, at the same time “advance an unattractive technical point” on the Tribunal’s jurisdiction to hear that case. Despite this criticism, the jurisdiction point was argued before the Tribunal. The Tribunal found that it had jurisdiction to consider any separate value for the shop at the Castle Museum as this was a matter “ancillary to” the ratepayer’s appeal and was therefore within the Tribunal’s jurisdiction. The question of jurisdiction at the Yorkshire Museum shop and the Hospitium was more difficult because the ratepayer’s appeal did not deal with the separate values for the parts split out by the Valuation Officer and, because of this, the Tribunal had no jurisdiction to determine these. This meant that value of the shop at the Yorkshire Museum could not be corrected, despite both parties agreeing that it was inaccurate. Whilst this was unsatisfactory, it was not within the power of the Tribunal to correct it.

The Tribunal’s decision in respect of the fourth issue, whether the properties should be valued on the contractor’s basis of valuation or the receipts and expenditure basis of valuation, is the part of the decision that is likely to be of most significance for other cases. The Tribunal was at pains to point out that the “ascertainment of the rent at which the premises might reasonably be expected to let on the statutory assumptions is a question of fact, not one of law”. The Valuation Officer’s preferred valuations were derived by applying the contractor’s basis of valuation and the ratepayer’s preferred valuations were derived by applying the receipts and expenditure basis of valuation. The Tribunal set out a detailed review of both approaches but concluded the method of valuation should not be approached as a question of principle but should be considered after reviewing the evidence in each case.

This left the Tribunal to consider the valuations in each case; the fifth issue before it. The Tribunal reviewed such rental evidence as was available in respect of museum and gallery properties and concluded that this showed that where leases incorporated a tenant’s full repairing and insuring liability only nominal rents were paid. The Tribunal also looked at limited evidence of agreed rating assessments but concluded that this was insufficient to provide a reliable basis of valuation. This therefore left both parties’ valuations on the contractor’s basis and on the receipts and expenditure basis. The decision sets out very clearly that the Tribunal considered the contractor’s basis not to be appropriate as a method of valuation for historic buildings used as museums and visitor attractions. The Tribunal reviewed the parties’ valuations on a receipts and expenditure basis, but was not wholly convinced by the approach of either party. It rejected the Valuation Officer’s approach, which took aggregate receipts and expenditure across the Trust as a whole and apportioned these between the properties concerned, because this did not fulfil the statutory requirement to value each property independently.

In respect of the Castle Museum, the Tribunal found that the accounts showed a surplus of income over expenditure and determined a rateable value of £183,000 for the 2010 Rating List, representing about 46% of the net profit for this property, including the shop and café, and it allowed the Valuation Officer’s appeal to this extent. Turning to the Yorkshire Museum, the Tribunal found that the operating expenses exceeded income, even including gift aid. Because of this, and because of the substantial repairing liabilities associated with the property, the Tribunal concluded that no actual or hypothetical tenant would be prepared to pay a substantial rent for the property and that the correct rateable value was a figure of £1. The ratepayer’s appeal was allowed here. The Heritage Centre and the Art Gallery did not charge for entry, but the Tribunal concluded that any hypothetical tenant for these properties would introduce charges and calculated net income on the basis of estimated charges. For the Heritage Centre the Tribunal determined a rateable value of £10,000 for the 2010 Rating List, representing about 31% of net income, and for the Art Gallery, including the shop and café, it determined a rateable value of £70,000 representing about 28% of net income.

The final issue was the question of whether the gardens at the Yorkshire Museum should be exempt from rates, as a public park. The Tribunal had already determined that the rateable value for the Yorkshire Museum was £1, and the question therefore had no valuation significance. Because no proper argument or evidence was advanced on this issue, and in circumstances where it had no valuation significance, the Tribunal declined to make a formal determination on this point, leaving the question to be argued elsewhere if necessary.

This is a rather lengthy commentary on the case, but it is an important decision for valuers dealing with public properties, and it is a welcome one in that it makes clear that the rationale behind the contractor’s basis makes it an inappropriate method of valuation because such properties are unprofitable to operate but would be expensive to construct. As the Tribunal said “such evidence as there is suggests strongly that, for non-profit-making museums at least, the contractor’s basis produces valuations which are manifestly too high”. The principle of reality must include recognising the commercial viability of the enterprise and the costs of repairs and maintenance.

 

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