The Supreme Court has decided that a rateable value of £370,000 should be entered into the ratings list for an office block in Blackpool despite there being “no actual tenant willing to pay a positive price for the building itself“.

Ascertaining rateable value

In order to work out what the rateable value of a property is, a valuation officer will need to work out what the open market rent would be for the property, by applying what is known as the rating hypothesis. The purpose of the rating hypothesis is to ascertain “the rent at which it is estimated the hereditament might reasonably be expected to let from year to year“.

For the purposes of the 2010 non-domestic ratings list, effective from 1 April 2010, the relevant valuation date at which to apply the rating hypothesis is 1 April 2008, known as the ‘antecedent valuation date’ (AVD).

Background

The property in question is known as Mexford House, an office block in Blackpool and was occupied for a number of decades by various Government departments. As of 1 April 2008, Mexford House was still occupied by two of these departments, but they had given notice to vacate, and subsequently vacated on 31 March 2009.

When the 2010 ratings list came into force, the valuation officer (Hewitt) entered a rateable value of £490,000 into the list for Mexford House, on the basis that there were similar office buildings in the local area that were occupied at similar rents. The landlord, Telereal, appealed to the Valuation Tribunal and the rateable value was reduced to £1, on the basis that there was no market for the property.

By the time that the case reached the Supreme Court, the parties were in agreement that:

  • nobody in the real world would have been prepared to occupy the property” as at 1 April 2008, because the market was “saturated“;
  • there were similar properties in the area that were let for significant rents; and
  • if the valuation exercise required to be undertaken to ascertain rateable value was allowed to take into account the general demand in the area for comparable office buildings, although there was no actual demand for Mexford House as at the AVD, the rateable value of the property should be £370,000.

The decision

The issue for the Supreme Court was whether, when ascertaining the rateable value of a property, the general demand for property in the area should be taken into account, notwithstanding there being no actual tenant willing to pay more than a nominal rent for the property in question.

The Supreme Court concluded that whether the property is occupied or unoccupied, or an actual tenant has been identified, as at the AVD, is “not critical“. The valuation hypothesis assumes a willing tenant, even in a “saturated” market.

In relation to the level of rent that a tenant is willing to pay, the Supreme Court considered that “there is no reason why…it should not be assessed by reference to ‘general demand’ derived from ‘occupation of other office properties with similar characteristics’ “.

Therefore, the Supreme Court directed that Mexford House should be entered into the ratings list with a rateable value of £370,000.

Comment

It is, of course, unusual for there to be general market demand for a type of property, but no actual demand for the property in question, so in practice the departure from reality seen in this case will not occur that often.

However, the decision itself does seem counter-intuitive. The predominant purpose of the rating hypothesis is to ascertain the market rent for a property at a specific point in time. Notwithstanding that predominant purpose, in this case the result is a significant departure from reality and seems all the more unsatisfactory given that both parties were agreed that there was no “real world” demand for Mexford House.

Telereal Trillium (respondent) v Hewitt (Valuation Officer) (appellant) [2019] UKSC 23