UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2014] UKUT 0145 (LC)
UTLC Case Number: RA/42/2011

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
RATING – Valuation – Warehouse constructed in 2003 and let in 2007 – tests in Lotus & Delta v Culverwell (VO) – rental evidence – tone of list – appeal allowed – RV reduced to £3,290,000

	IN THE MATTER OF AN APPEAL AGAINST A DECISION 
OF THE VALUATION TRIBUNAL FOR ENGLAND

BETWEEN	CARPETRIGHT plc	Appellant
	and
	PHILIP RAY	Respondent
	(Valuation Officer)

Re: Carpetright plc
	Harris Centre
	Purfleet By-Pass
	Purfleet
	Essex RM19 1TT

Before: P D McCrea FRICS

Sitting at: 43-45 Bedford Square, London WC1B 3AS
on 25, 26, and 28 March 2014

Richard Glover QC, instructed by JLL for the Appellant
Sarabjit Singh, instructed by the HMRC Solicitor for the Respondent

© CROWN COPYRIGHT 2014
The following cases are referred to in this decision:

Lotus & Delta Limited v Culverwell [1976] 21 RRC1 
Specialeyes (Optical Services) Ltd v Felgate (VO) [1994] RA 338
Nissan Motor Parts Centre BV v Reeds (VO) [2006] RA 95

The following cases were referred to in argument:

Robinson Bros (Brewers) Limited v Houghton and Chester Le Street Assessment Committee [1937] 2 KB 445
Garton v Hunter [1969] 2 QB 37

DECISION
Introduction
1.	This is an appeal by Carpetright plc (the appellant), the occupier of the Harris Centre, Purfleet By-Pass, Purfleet, Essex, RM19 1TT (the appeal property) against the decision of the Valuation Tribunal for England (VT) dated 25th July 2011 determining the rateable value of the appeal property at £3,480,000 with effect from 1 February 2008.
2.	The appeal property was originally shown in the compiled non-domestic rating list at a rateable value of £3,620,000 with effect from 1 February 2008.  This was altered on 18 November 2010 to £3,480,000 backdated to 1 February 2008.  The revised assessment was appealed by King Sturge LLP by way of a proposal dated 27 January 2011.  The Valuation Officer did not accept that the proposal was well-founded and referred the dispute to the VT under regulation 13(1) of the Non-Domestic Rating (Alteration of Lists and Appeals) Regulations 2005.  The VT determined as above, in line with the figure contended for by the Valuation Officer.  
3.	Mr Richard Glover QC of counsel appeared for the appellant.  He called expert evidence from Mr Andrew Keith CEng MIMechE MIET MCILT in respect of logistics and Mr Nigel Stanley Booton MA MRICS in respect of valuation.  Mr Sarabjit Singh of counsel appeared for the respondent and called the Valuation Officer (VO) Mr John Philip Ray BSc MRICS to give expert valuation evidence. 
4.	By its Order of 18 July 2013, the Tribunal directed that rebuttal evidence should be filed and served by 25 October 2013.  The respondent’s rebuttal evidence was received on that date.  On 25 November the appellant indicated that it had “decided not to submit a rebuttal in this case as…they consider that all the issues raised in the Respondent’s original valuation report had been addressed in the Appellant’s valuation report”.   On 17 March 2014, some eight days before the Hearing, the appellant made an application for permission to submit a supplementary report.  The respondent subsequently applied for an adjournment in order to have time to consider the appellant’s supplemental report.  By an Order dated 19 March 2014 I refused the appellant’s application to submit a supplemental report, and directed that the VO’s application to adjourn was therefore not necessary.  I considered that the appellant had had ample opportunity to produce rebuttal evidence and its request was too late. The hearing therefore took place as scheduled.
5.	I inspected the appeal property on the morning of 27 March 2014 accompanied by Mr Booton and Mr Ray.  I externally inspected the comparable evidence, unaccompanied, on 17 April 2014.
Facts
6.	In the light of an agreed statement and the evidence I find the following facts.
7.	The appeal property is occupied primarily as a warehouse and premises and is described as such in the rating list.  It is situated between Purfleet and West Thurrock on the north bank of the Thames, a short distance from the Queen Elizabeth Bridge and Dartford Crossing on the M25.  Junction 30 of the M25 is approximately two miles to the east. 
8.	The appeal property fronts onto the Purfleet By-Pass, a broad single carriageway road between the A126 to the east and A1306 to the west.  The site is accessed by a concrete road bridge which spans the Channel Tunnel Rail Link on the section between Ebbsfleet and Central London.
9.	West Thurrock is an established distribution area centred on the first two motorway junctions north of the Dartford Crossing (junctions 30 and 31) where the A1306 crosses the A282-M25.  The West Thurrock industrial area has expanded west of the A282-M25 into Purfleet of which the appeal property is an example.  The Lakeside Retail Park is to the north of the industrial area of West Thurrock and comprises the Thurrock shopping centre as well as some retail warehouse and trade counter outlets.
10.	The appeal property is bounded to the north by the cutting for the Channel Tunnel Rail Link, to the west by a small industrial estate known as Botany Quarry, to the south by a mixed residential development constructed from 2001 and to the east by a warehouse used for storing theatrical scenery which was constructed after the appeal property was occupied.
11.	The site is of irregular shape and has a gross area of 11.81 hectares or 118,180 m2. Of this, about 7,292 sq m2 is reserved at the northern side for access to the Channel Tunnel Rail Link and cannot be used.  To the northwest of the site is a site of special scientific interest (SSSI) of approximately 25,880 m2 which surrounds a trailer park.  The total useable area of the site is approximately 85,008 m2.
12.	Planning permission was granted on 20 April 2004 for the erection of a class B8 storage and distribution building with ancillary offices and other uses including car parking, landscape and circulation areas.  Construction was carried out speculatively by Gazeley in mid 2004 and the building was completed by the end of that year. Planning consent to use the area in the middle of the SSSI as lorry parking was granted on 1 July 2005, and this use had commenced by the material day.
13.	The site is surrounded by galvanised chain link fencing.  The lorry park is concrete and marked out in spaces and directional lines.  The car parks, both visitors and staff, are finished with tarmacadam.   The northern perimeter of the property has floodlights on galvanised steel poles at high level, which is matched on the northern flank wall of the building by light boxes over the loading area and extending through to the parking areas. There is a lorry wash unit, with a drained concrete base and guiding kerb stones and a security gate hut. 
14.	The building comprises three bays of steel portal frame construction with a clear height of 12m.  The walls and roof are clad in either composite panels or sandwich profile metal walling with integral insulation.  There are translucent lighting panels in the roof.  The floor is reinforced concrete having a loading capacity of 50kN per m2.
15.	The warehouse has 42 dock level doors, flanked by pairs of entrance doors either end, in the northern elevation.  The dock levellers have sectioned rising doors, adjustable loading ramps, and plastic docking curtains.  The warehouse has gas fired warm air heaters around the walls at high level, and gas radiator bar heating above the carpeting, cutting and wrapping work stations.  Lighting is provided by high level fluorescent tubes in open reflector holders hanging at eaves level.  The intensity of these is increased and the height lowered above the carpet cutting area.  The building has a sprinkler system throughout, fed by a diesel powered pump house and a large water tank situated outside the north western corner of the building.  The warehouse area is naturally ventilated through the loading doors.  It is fitted with a compressed air system to serve carpet cutting machinery.
16.	There are three-storey offices in the north eastern corner of the building. The appellant extended the original office provision as part of its fitting out works, creating an L-shaped office configuration.  The offices have two passenger lifts, raised floors with carpet tiles, plastered and painted walls, double-glazed powder coated metal framed windows and a suspended ceiling with integral lighting and sprinklers.  Mechanical ventilation with comfort cooling units is recessed into the ceiling.  The office accommodation comprises of a variety of open-plan and individual offices, staff restrooms, restaurant areas and WCs. 
17.	The original plant room was supplemented by additional air handling units and heat exchangers in a fenced off area of the warehouse, referred to during the hearing as a “cooling farm”.  There are two storey despatch offices in the north western corner of the building formed of light-weight partition walling, with comfort cooling and a sprinkler system.  
18.	The parties have agreed the following floor areas, although the breakdown and rates to be  applied are not agreed - for instance Mr Ray considers the “cooling farm” should be within the main warehouse space, and the computer room at a factor of 1.3 of the main rate.
Floor	Area	GIA (sqm)	
Ground	Warehouse	40,400.40	
	“Cooling Farm”	558.10	
	Offices	2,002.63	
	Plant	152.27	
	Transport Offices	150.70	
First	Offices	1,620.60	
	Transport Offices	150.70	
Second Floor	Offices	1,511.30	
	Computer Room	131.50	
External	Gatehouse	21.60	
	Water Pump Houses	28.90	
			
	Total Gross Internal Area:	46,728.70	

19.	It was agreed that the hereditament has 223 car parking spaces and 45 lorry spaces.  The loading yard plinth is approximately 50m deep although slightly more restricted at either end of the building.
20.	The valuers agreed that the lorry wash should have a value of £2,000; the plant and machinery a value of £10,000; and there should be an end allowance for access of 3% (although Mr Booton added to this for other factors).
21.	The appeal property was originally marketed as “Ultrabox” and remained vacant until the appellant occupied it by way of a lease dated 24 June 2007.
22.	The lease was for a term of twenty-five years, with no break clauses, from 24 June 2007.  For the first two years the rent was £1,844,569 per annum.  There were fixed increases at the start of year three to £3,689,138; at year five to £4,173,921; and at year ten to £4,722,409 per annum.  At years fifteen and twenty there are market rent reviews on an upward only basis.  The appellant received the following incentives: upon completion of the lease a payment by the landlord of £8,016,680, and three further payments, each of £2,500,000, to be drawn down from an escrow account on the first, second and third anniversaries of the start of the term.
23.	The parties submitted 19 pieces of comparable evidence, of which 11 were joint comparables and the remainder were either submitted by the appellant (those only with an App Ref number) or by the respondent (those only with a VO Ref).  The appellant’s comparable number 2 was withdrawn by agreement.  The comparables were:
App Ref		VO Ref		Property	
1		F		EGL, Eastern Ave, West Thurrock	
3		C		Co-op Group, Oliver Road, Grays	
4		D		Exel - Marks & Spencer, West Thurrock	
5		E		Admiral House, London Road, West Thurrock	
6		-		Unit E, Queen Elizabeth DP, West Thurrock	
6		-		Unit Q1, Queen Elizabeth DP, West Thurrock	
7		G		FCUK, Prologis Park, Dolphin Way, West Thurrock	
8		H		Tesco Distribution Centre, Dolphin Way, Purfleet	
9		-		Sainsbury’s Distribution Centre, (The Bridge), Dartford	
10		M		Tesco plc, Flex Meadow, Harlow, Essex	
11		N		Christian Salveson, Flex Meadow, Harlow	
12		L		Comet plc Regional Distribution Centre, Harlow	
13		K(1)		Sainsbury’s Distribution Centre, Fleming Road, Waltham Abbey	
		K(2)		Tray wash warehouse at K(1)	
14		J		Argos, Miles Gray Road, Basildon	
15		-		Aldi, Sheepcotes, Chelmsford	
-		B		The Distribution Centre, Oliver Road, Grays	
-		I		DSV Road Ltd, Stonehouse Lane, Purfleet	
-	 	O	 	PMS International, Cricketers Way, Basildon	

The statutory framework
24.	Section 56 of the Local Government Finance Act 1988 gives effect to Schedule 6 to the 1988 Act which sets out the statutory basis on which the rateable value of a hereditament is determined. Rateable Value is taken to be equal to the rent at which the hereditament might reasonably be expected to let from year to year on certain statutory assumptions, set out in paragraph 2(1) of Schedule 6, as follows:
“The rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions –
(a)	the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;
(b)	the second assumption is that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from the assumption any repairs which a reasonable landlord would consider uneconomic;
(c)	the third assumption is that the tenant undertakes to pay all usual tenant’s rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above.”
25.	By paragraph 2(6) of schedule 6 the matters identified above are to be taken as they are assumed on the material day – in this case 1 February 2008 - but having regard to economic conditions at the antecedent valuation date (AVD) of 1 April 2003.
Case for the Appellant
Mr Andrew Keith
26.	Mr Keith is a Chartered Engineer and a Member of both the Institution of Mechanical Engineering and the Institution of Engineering and Technology. He has practised in warehouse design and logistics consulting since 1985 and is the managing director and founder of Total Logistics Supply Chain Consultants Ltd.  Mr Keith was instructed to assess the logistics characteristics of the appeal property and to compare these with other logistics operations and the comparable properties.
27.	In his expert report Mr Keith said that the throughput capacity of a warehouse is influenced by the characteristics of the gatehouse, the transport yard, warehouse doors and staff car parking. Throughput is also influenced by the overall internal space and the proportion of space allocated to intake and dispatch. Storage capacity is determined by the overall cubic space provided and the equipment configuration required for the occupier’s business profile. If the warehouse site is also the location of a transport operation there may be the need for additional facilities for fuel and maintenance.
28.	Mr Keith carried out a series of calculations which were founded upon the throughput capacity of the gatehouse.  By converting the maximum vehicle throughput to pallet equivalents, and by estimating the number of warehouse operators that would be required for that amount of pallets, he considered that the number of staff on site, including clerical staff, would be between 91 (no case picking) and 206 (100% case picking).  At shift changeover, this would lead to between 182 and 412 employees on site. By making a 25% reduction for measures such as car sharing, he arrived at a car parking requirement of 148 (no case picking) rising to 309 (100% case picking).  This parking requirement compared with 223 car parking spaces available. In cross examination, he accepted that he had ignored Mr Ray’s suggestion that contract workers could be bussed into the site, alleviating some of the need for car parking, but he said that this would be a “sticking plaster”.
29.	Mr Keith said that if the appeal property were used as a typical regional distribution centre 292 car parking spaces would be required. Using the same staff ratio, the 223 car parking spaces provided at the appeal property would limit picking to around 50% of pallets picked as cases. Accordingly he concluded that the number of car parking spaces restricted throughput by approximately 24% and that this was ultimately the bottleneck on throughput capacity.
30.	Mr Keith went on to consider additional car parking requirements. He said that a warehouse often included a site-based transport operation which could increase the staff per shift, including drivers, by 48, requiring 72 car parking spaces. The container park could provide 120 additional car parking spaces but at a loss of 30 trailer parking spaces, which would limit the scope of the occupier’s transport operation. 
31.	To be used for grocery distribution, Mr Keith said the site would require a “returnables” operation and a vehicle maintenance unit which had not been considered in the calculations above. There was no room for an additional building on site so the returnables operation would occupy either main warehouse space or would have to be located off site. It would require additional staff car parking of approximately 20 people per shift, so 30 car parking spaces. Using the previous methodology, but allowing 80 cases per pallet Mr Keith concluded that for grocery distribution 316 car parking spaces would be required, compared with the 223 parking spaces provided (approximately 71%). He concluded that a grocery retailer would regard the appeal property’s car park as inadequate for use as a distribution centre, and that a vehicle maintenance unit could not be provided without displacing trailer parking.
32.	In terms of storage capacity, Mr Keith calculated that the range of stock cover that could be productively accommodated at the appeal property was 5.4 days or more, based upon the throughput limits referred to above. This led him to conclude that the appeal property would be suitable for businesses that hold stock rather than pass it through rapidly. It would therefore not be suitable for freight companies or fresh food distribution centres, for example.
33.	Mr Keith considered Carpetright’s operation and noted the importing nature and subsequent distribution to the UK branches. He calculated that the specialist racking, carpet cutting machines and conveyors occupied approximate 95% of the floor space.  The cutting machines and carpet conveyors, occupying approximately 50%, did not take advantage of the height of the building.  He then considered warehouse types and described the throughput to storage requirements for different businesses including the requirement of some for a cross-docking facility. He provided actual, but anonymised, examples of large warehouse uses. Since the appeal property provided single sided loading, cross-docking operations would be inefficient. It was therefore a distribution centre type building rather than a cross-docked warehouse. 
34.	The appeal property was not appropriate for a cross docking freight operation owing to the stock cover of the building referred to above, the single sided yard access and the depth of the building. It would suit national or regional finished goods distribution operations for manufacturers e.g. food or paper manufacture or a book publisher. The site could also suit non-food retail distribution for example fashion retailers but careful validation of car parking would be required.  In cross-examination, he accepted that the site would suit an occupier that did not require a cross docking facility such as a non-food occupier. 
35.	Mr Keith gave an overview of the strategic location of warehousing. A distribution network depends upon various factors including freight costs, distribution transport costs, warehouse rent and rates, labour costs and availability. The appeal property, located to the east of London adjacent to the M25 provided good access to the Eastern side of London and London ports but did not provide good access to the deep sea ports at Southampton (owing to the congestion at the Dartford crossing) and Felixstowe (owing to congestion on the M25).  He considered that the facility would suit a manufacturer producing or importing locally to Purfleet, within a 30 mile radius or importing via Tilbury or Dover, for regional or national distribution.
36.	The drivers for choosing distribution locations were transport costs and logistics, rather than the price or availability of land. This could make a “couple of million pounds per annum” difference.   He rejected Mr Ray’s contention that the Midlands was popular because of its industrial history and that large tracts of industrial land were available but accepted that there was less land available in the south east than in other parts of the country.
37.	In respect of the comparable evidence, Mr Keith noted that Admiral House was a factory building, and the Co-op; Tesco, Purfleet; Tesco, Harlow; and Sainsbury’s, Waltham Abbey were grocery retail regional distribution centres. The appeal property would not suit fast-moving supermarket food distribution operations for the reasons referred to above.
38.	EGL and DSV Road Ltd at Purfleet were occupied by freight companies whereas the appeal property would not suit freight operations owing to the stock cover of the building, doors and yard access.  The two comparables in Harlow were in a more attractive distribution location. In cross examination Mr Keith said that Harlow was as attractive as Purfleet as a national distribution centre (although he felt neither was particularly attractive) but for companies requiring one to three distribution centres, he considered Harlow to be preferable.  From a logistics perspective he considered the most comparable properties to be FCUK, Purfleet; Exel, Grays; and Argos, Basildon.
39.	Mr Keith noted that of the grocery retail comparables, Tesco, Purfleet had four gatehouse lanes and two gatehouses, and Co-op, Grays had two gatehouse lanes but was significantly smaller than the appeal property. He considered that this indicated that a substantial proportion of the appeal property would be unproductive if used for this type of operation. All of the retail distribution centre sites provided significantly more car parking for the warehouse area provided than the appeal property, indicating the importance of parking provision. He noted that Exel, FCUK and Argos were fitted or thought to be fitted with mezzanine storage. The appeal property was not fitted with mezzanine storage but he considered that this would not be productive because it would increase the car parking requirement further.
Mr Nigel Stanley Booton
40.	Mr Booton is a chartered surveyor. He was previously a partner at King Sturge LLP and upon that company being acquired by Jones Lang Lasalle became a director of JLL. He has over 29 years of experience in the profession, the majority of which has involved dealing with business rates in England and Hong Kong.
41.	In his expert report, Mr Booton said that there were some characteristics of the appeal property that potentially reduced its relative value per unit area compared with other regional distribution centres (RDC’s) in the Essex region. At 46,728.7 m², the building was one of the largest distribution warehouses in Essex and there were few potential occupiers for a unit of that size. The appeal property had a nominal site coverage of 50.95% which was a high density for a modern logistics property. It had a yard on one side only, whereas it is common to see cross-docking. Having doors on one elevation only increases the average distance of the stock held from a door which increased internal journey distances. The car parking provision was relatively low compared with other large RDC’s. The majority of the car park was separate from the building meaning that staff and workers had to cross the lorry yard to reach the building which could be problematic.  The loading doors at the appeal property were concentrated on the western two thirds of the northern elevation and there was only one loading door for every 1,016 m² of accommodation which Mr Booton considered was a low provision compared with other comparables. This, coupled with the location of the doors, minimised flexibility.
42.	Mr Booton commented upon Mr Keith’s conclusion that the appeal property was not suitable for a grocery retail operation but that it would suit national or regional finished goods distribution operations for manufacturers or for general non-food retail distribution operations.  He noted Mr Keith’s narrowing of the range of potential occupiers of the appeal property to a manufacturer producing or importing locally to Purfleet for regional or national distribution. In terms of a one or two warehouse strategy, South Essex was not an obvious place to relocate.
43.	Mr Booton’s report took three main parts. The first was an analysis of the rental evidence from comparable hereditaments; the second was valuing on the tone of the list; and the third was valuing on the rent agreed for the appeal property. 
44.	In assessing rents, Mr Booton made adjustments to the AVD by way of indexation using the IPD databank. He noted that the most pertinent table would be that for Essex industrial property but that this was only available annually. His method was to use the Essex rental value as his main index but to interpolate using the IPD South East figures, benchmarked against Essex annual figures. For the purposes of analysis, Mr Booton had converted the floor areas into “in terms of main space” (“ITMS”) equivalents, using the VO’s factor multipliers. 
45.	A summary of Mr Booton’s analysis of his rental evidence is as follows, with rents expressed per square metre ITMS.
46.	Eagle Global Logistics (EGL) occupied a modern warehouse at Eastern Avenue, West Thurrock (NSB1), on a 20 year lease from July 1999 with five yearly rent reviews.  At the July 2004 review, the rent was agreed at £1,088,000.  Mr Booton analysed the rent at £73.96, equivalent to £73.55 if indexed to AVD and said that the property was not a useful guide to value because it was significantly smaller than the appeal property and more usable for a large range of potential occupiers. It had a relatively low number of doors on one elevation. He considered that in hindsight the rent review was settled at a high figure.
47.	The Co-operative Group took a pre-let of an existing 2004-built warehouse at Oliver Road, Grays (NSB3), on an agreement for lease dated January 2005.  As part of the agreement, nine further dock level doors were added to the original 31, a further 52 lorry spaces were added to the existing 98, and a multi-storey car park for 452 cars was constructed. The building, which was the subject of extensive fitting out by the Co-op, had a gross internal area of 29,351.28 m2 or thereabouts and an eaves height of 15 metres.   The lease was entered into for 20 years from December 2005 at a rental of £2,588,003, with five yearly rent reviews.  There was a tenant’s break clause after ten years upon 13 months’ notice.
48.	Mr Booton’s devaluation was based upon letting areas rather than the rating areas because he considered these had been measured net of tenant’s fitting out. Allowing 3% addition for height, Mr Booton analysed the lease using a discounted cash flow analysis to arrive at the devaluation of £77.58 should the break clause be exercised, and £77.21 over the 20 year lease term. Adjusted to AVD, these equated to £76.57 and £76.21 respectively.  Mr Booton considered that this was the most important comparable because it was a rent on a large distribution warehouse agreed after the appeal property had been put on the market but before the letting to the appellant was agreed. However, he said that the property was suitable for a fast flowing supermarket operation. The number of doors was similar to that at the appeal property although the Co-op building was only 64% of its size. The number of car parking and lorry parking spaces was considerably more than that at the appeal property. The building was three metres higher than the appeal property and there was an additional cold storage. In its current enhanced form, the property could be used by the supermarkets whereas the appeal property could not.
49.	The Exel property, used as a Marks and Spencer distribution warehouse, was at Western Avenue, West Thurrock (NSB4).  Constructed in 1986, it had an eaves height of 8.77m but there were extensive mezzanines.  The property was let for 35 years from December 1987.  Rent reviews were to the June prior to each fifth anniversary.  The rent from June 2002 was £1,450,000, increasing in 2007 at arbitration to £1,476,000.  Ignoring the adjustment for height, Mr Booton’s analysis of the 2002 rent equated to £64.26, indexed to AVD to £65.16. Based upon the rateable value relativities, which include a 5% allowance for the height of this hereditament, the rent analysis showed £67.44, adjusted to £68.39. 
50.	Mr Booton noted that Mr Keith had identified this property as suitable for a similar use as the appeal property in terms of logistics but said that Exel had about half of the accommodation of the appeal property ignoring mezzanines but, allowing for height, only 38% of the volume. It had been adapted for small lightweight items with extensive use of mezzanine floors. It showed that even large retailers did not need a warehouse the size of the appeal property in the south-east, and that the evidence of 2007 rents suggested that the appeal property had a value well below that of Exel.
51.	Mr Booton’s next comparable was Admiral House, London Road, West Thurrock (NSB5) - a building of 10,570 m2.  This was let on a 25 year term from September 1997, with a tenant’s break at the end of the 15th year and five yearly rent reviews.  The rent from September 2002 was £649,550 for the first year and £769,830 for the remaining four years to the next rent review. It increased in 2007 to £830,000. The parties analysed the 2002 rent at £69.33, but made an adjustment for loading difficulties of 5% to arrive at £72.79.  On a similar basis, the 2007 rent showed £77.16 or £81.02 (dependent on the treatment some extra land).  There appeared to be no adjustment to AVD.
52.	He considered that the comparable was of limited use owing to the size of the property. He noted that within the rateable value valuation there was a 5% allowance for loading problems, but observed that the ratio of the area to the number of doors was similar to the appeal property for which no such allowance had been made, and when the building was being used for manufacturing rather than distribution.
53.	Mr Booton commented upon several transactions at Queen Elizabeth Distribution Park (NSB6), which is accessed from the Purfleet By-pass, opposite the appeal property.  Unit Q was built in 2005/6 to a height of 12m.  The unit was split into two, each half having six dock level doors and two level doors.  Unit Q1 was let to the Harrow Green Group on a 15 year lease from October 2006 at a headline rent of £377,542 (unaltered at rent review in 2011), but with a rent free period up to April 2007. On a DCF basis, this equated to £63.10 as at October 2006, indexed to AVD to show £61.86. 
54.	Unit Q2 was let to DHL Global for five years from September 2010, at £132,881.50 per annum for the first 18 months, increasing to £265,763 per annum thereafter.  The rent equated to £46.57.  QED was the same age as the appeal property in a virtually identical location and with the only difference being size. Mr Booton considered that it was difficult to draw firm conclusions from the rents because the units were much smaller than the appeal property. 
55.	Unit B Prologis Park, Dolphin Way, West Thurrock (NSB7) was occupied by EGL from 2001.  The unit was rebuilt in 2005 following a fire, but EGL did not reoccupy.  Instead, they paid a premium of £942,000 to FCUK, who took a new lease at the same rent of £1,010,927 per annum. Mr Booton accepted that it was difficult to draw conclusions from the rent owing to the premium but said the rent equated to £69.92 at AVD ignoring the premium.  Indexing the 2001 rent would suggest an uplift of 3% or more which would support the unadjusted rating price of £72.50.  It was a much smaller property than the appeal property and was of a size more readily usable by a range of larger retailers. Apart from that, the specification was similar to that of the appeal property.
56.	Mr Booton’s next comparable was the Tesco Distribution Centre at Dolphin Way (NSB8). This was close to the appeal property and was accessed via a tunnel through the edge of the chalk quarry - for which it was agreed a 3% end - allowance was made to the rateable value, agreed off a base value of £72.50.  Mr Booton drew little assistance from the rent as this was an off market sale and leaseback, but noted that this equated to £76.51 if the rent free period was devalued on a straight-line basis over the term of the lease.  Mr Booton felt that the property was of limited similarity to the appeal property, of slightly larger size and also with a potentially difficult entrance but with a similar eaves height. However he noted that the Tesco property had a cross docking facility on two sides of the building with plentiful parking and nearly twice the number of loading doors that the appeal property had. He felt that it showed the kind of design that works best for supermarkets and was far superior to the appeal property.
57.	Sainsbury’s distribution centre, known as The Bridge, Little Brook Manor Way in Dartford (NSB9), was let to Sainsbury’s for a term of 20 years from April 2007 at a rent of £4,454,602 per annum.  The building had an eaves height of 14.75m and a rating area of 56,168.75 m2. For rent review purposes the property was valued at the higher of the annual rent for the actual building, or at the rent per sqm for a hypothetical building comprising 100,000 ft² (9290.2 m²), increased pro-rata to the actual size.  Mr Booton devalued this using a DCF approach including mezzanine floors and canopies on the basis that the property was constructed to Sainsbury’s specification. His rent devaluation equated to £72.22 as at November 2004, adjusted to £71.48 at the AVD. These figures did not include a quantum discount and adopting the 2005 rating quantum scale, which would give a 3% adjustments, indicated an unadjusted price of £73.63.  He noted that the rating assessment was agreed at £67.50 with an allowance of 3% for quantum. Mr Booton noted that this is the adjusted rating price for RDC Dartford which is considered a less favourable location than North of the Thames estuary.
58.	Mr Booton’s next comparable was Tesco at Flex Meadow, Harlow (NSB10). This was a modern chilled warehouse facility constructed in 1988, and having a gross internal area for rating of 24,842.23 sqm, with 77 dock level doors and three other loading doors. There were 42 tractor spaces, 53 trailer spaces and 330 car parking spaces.  It was let to Tesco Stores Ltd for a term of 35 years from December 1988, with five yearly rent reviews.   Again, the lease required a hypothetical assumption to be made at rent review of either the actual building or a notional standard warehouse of 3,251.6 m². Mr Booton accepted that this reduced the reliability of the rental evidence although considered that Tesco would not have agreed to such a review clause had they considered it unduly onerous. Adopting the rating areas and using the rating relativities Mr Booton devalued the rent to £70.05. The rating valuation was based upon £71.00 with adjustments.  He noted that this property was half the size of the appeal property and in terms of parking and loading was superior.
59.	Also at Flex Meadow was the Christian Salvesen warehouse (NSB11). This was constructed in 1996 to an eaves height of 10m. The gross internal area was 7,073.1 sqm.  It was let for 25 years from April 1996 with five yearly rent reviews.  Mr Booton devalued the 2001 rent £485,000 at £69.96, indexed to AVD to £70.16, and the 2006 rent of £500,000 at £67.86, adjusted to AVD at £68.22. He noted that the property was much smaller and bore little comparison to the appeal property.  It was in what he considered to be a superior location.
60.	Mr Booton’s next comparable was at Edinburgh Way, Harlow (NSB 12) where a building of 36,579.21 sqm was purpose built for Comet.  It had an eaves height of 12m, 43 loading doors on one elevation facing the yard, and parking for 248 cars.  He noted there were some discrepancies regarding the starting rent – he had £2,337,000 per annum (Mr Ray: £2,367,750).   His devaluation showed a rent equating to £55.22 in terms of main space, indexed to £53.75 at AVD.  He considered that this was the most comparable property to the appeal property with a similar number of car parking spaces and doors albeit serving a smaller building, and also with loading on one side only. Mr Booton considered that all of these factors indicated that this comparable should have a similar value to the appeal property, although the Comet property would have a slightly higher value, being smaller but with similar parking and loading provision.  He noted that Mr Keith considered this comparable to be a better location than Purfleet. 
61.	The Sainsbury’s distribution centre at Fleming Road, Waltham Abbey (NSB13) was the largest comparable, having a rating area of 77,383.97 sqm.  There were two main buildings, held on two leases. The main warehouse had a clear height of 12.5m, with 140 dock level doors and 23 other doors.  It was let on a lease of just over 27 ½ years from August 2002, with five yearly rent reviews, at an initial rent of £4,968,599 per annum.  This was increased in 2007 to £5,429,273.  The parties’ agreed devaluation of the 2002 rent was £81.79 after an adjustment for quantum of 7.5%.  Mr Booton noted that the rent was high but said it was for a purpose-built warehouse with all of the facilities that Sainsbury’s required. He considered it comparable to other fully fitted supermarket RDC’s such as Sainsbury’s at The Bridge and CWS at Oliver Road, and did not consider it comparable to the appeal property.
62.	Mr Booton’s penultimate comparable was Argos at Miles Gray Road, Basildon (NSB 14).  This was a regional distribution centre, purpose built for Argos in 1995 or thereabouts, with 14m eaves and a published rating area of 41,695.63 sqm (although thought to have some discrepancies).  At the time of the letting it had 38 dock level doors on two elevations, two scissor lift loading doors and two ground level doors.  There were 404 car parking spaces and 154 lorry spaces, separately accessed. The property was let to Argos on a 25 year lease from December 1995, with five yearly rent reviews.   The 2000 rent review was determined by arbitration at £2,592,560, and the 2005 review was settled by agreement at £2,745,100.  The rent review provision again included a hypothetical assumption based upon the higher of the actual rent or upon a retail warehouse of 9,290.3 sqm. The parties agree that the 2000 rent devalued to £71.89 and the 2005 rent to £76.12.  On Mr Booton’s adjusted basis to AVD, these became £74.98 and £74.42 respectively. 
63.	He noted that this property, aside from the appeal property, was the largest non-supermarket distribution warehouse in Essex. It was purpose-built for Argos and he considered it to be more flexible and attractive than the appeal property. The car parking provision was almost twice the base build number of the appeal property, the number of lorry spaces was significantly better, the eaves height 2m higher than the appeal property and lorry and car parking access was separate. He also considered the loading arrangements to be better. The only disadvantage of the property was its location, 10 km from the M25 but with good dual carriageway links.
64.	Mr Booton’s final comparable was the Aldi warehouse at Springfield, Chelmsford (NSB15). This was owned freehold and so provided little rental assistance. The rating valuation was based upon £69.50 which had been reduced from £72.50 to reflect limited height. Mr Booton considered that the comparable provided little assistance.
65.	In summary, Mr Booton’s rental evidence was as follows;
	
Ref	Comparable	Area ITMS (M2)	M2/
door	M2/
parking space	Adjusted rent at AVD (after quantum adj)	
1	EGL, Eastern Avenue	14,771.36	1,121,34	90.54	£73.55	
3	Co-op, Oliver Road	31,071.22	667.07	64.94	£76.21	
4	Exel/M&S, Western Avenue	21,499.27	829.56	94.91	£65.67	
5	Admiral House, London Road	10,757.19	1,038.90	63.35	£73.28	
6	Q1, Queen Elizabeth Dist Park	5,039.24	634.46	115.36	£61.86	
7	FCUK, Prologis Park	14,182.78	925.33	110.16	£69.92	
8	Tesco, Purfleet	52,321.00	622.87	90.68	-	
9	Sainsbury’s, The Bridge, Dartford	57,021.91	624.04	117.87	£73.63	
10	Tesco, Harlow	25,005.51	309.13	74.94	£70.05	
11	Christian Salvesen	7,191.23	336.81	63.72	£70.16	
12	Comet plc, Harlow	37,077.48	834.95	114.77	£53.75	
13	Sainsbury’s Waltham Abbey	73,525.06	395.74	169.34	£82.51	
14	Argos, Basildon (2000)
                            (2005)	36,062.68	715.83
	86.82	£74.98
£74.42	
15	Aldi, Chelmsford	36,367.34	497.34	226.35	-	
	Carpetright	48,165.63	1,015.84	209.55	£55.56	

66.	Mr Booton concluded from the evidence that grocery retailers pay the highest rents, use the largest properties, and require the highest number of loading doors and parking spaces.  He said that the largest buildings in non-food use, Comet and Argos, were considerably smaller than the appeal property and provided little evidence of demand for a building the size of the appeal property for a non-food operation.
67.	He noted Mr Keith’s view that the most comparable properties were Argos, Exel and FCUK, but he considered Comet also to be of assistance.  Argos was not comparable as it was a superior building suitable for grocery RDC use.  Exel was an older property with lower eaves than the appeal property, reflected in his analysis at £68.39 per sqm, but was much smaller than the appeal property.  FCUK was of similar age, but was much smaller and would appeal to a wider range of occupiers.  His devaluation of this was £69.92 per sqm.  
68.	Using these comparables alone, Mr Booton said he would apply a quantum discount.  Whilst he acknowledged that the national rating agreement indicated otherwise, the evidence had been obscured by the fact that grocery retailers in Essex pay the highest rents and occupy the largest properties.  In contrast, the appeal property was too large for efficient general retail use, but lacked the amenities required by a grocery retailer.
69.	In the absence of any evidence of what the quantum discount should be aside from the rents at the appeal property and Comet, Mr Booton concluded that the appropriate discount should be at least 10% compared with Exel, giving £59.10 per sqm, or 15% compared with FCUK, giving £59.43.  A direct comparison with Comet would give a lower figure.
70.	Mr Booton then considered valuing on the “tone of the list” which enabled Tesco at Purfleet and Aldi to be drawn into comparison.  He noted that Tesco at Purfleet, CWS, FCUK and EGL had all been agreed at rateable values based on £72.50.  Mr Keith said that the car parking restriction at the appeal property represented a 24% restriction on throughput when compared with that required for a grocery retailer, without allowing for any further reduction owing to the requirement for a “returnables” operation or a vehicle maintenance unit. Mr Booton considered this to be the minimum discount that should be applied, given that a grocery retailer would not consider the appeal property to be a viable proposition. He applied a discount of 25% to the value of the warehouse accommodation.  This equated to 21.07% for the whole hereditament leading to an unadjusted price of £57.23 per sqm.
71.	On this basis Mr Booton’s valuation of the appeal hereditament was:

Floor	Area	GIA (m2)	Factor	ITMS (m2)	Price (£ m2)	Value (£)	
Ground	Warehouse	40,400.40	1.025	41,410.41			
	“Cooling Farm”	558.10	0.769	429.04			
	Offices	2,002.63	1.292	2,586.39			
	Plant	152.27	0.769	117.06			
	Transport Offices	150.70	1.128	169.91			
First	Offices	1,620.60	1.292	2,093.00			
	Transport Offices	150.70	1.128	169.91			
Second Floor	Offices	1,511.30	1.292	1,951.84			
	Computer Room	131.50	1.292	169.83			
External	Gatehouse	21.60	1.000	21.60			
	Water Pump Houses	28.90	0.750	21.68			
							
		46,728.70		49,140.69	57.23	2,812,136	
							
Additions:	Lorry Wash			1	2,000	2,000	
	Plant & Machinery					10,000	
							
Allowance:	Access				3%	(84,364)	
							
				TOTAL		2,739,772	
					Say	2,740,000	

72.	He considered that the “cooling farm” should be valued at a factor of 0.75 net of the sprinkler addition, on the basis that the warehouse space cannot be properly used in that area.  He did not consider that there should be any adjustment for the computer room, and included this within the office element.
73.	 Finally, Mr Booton considered a valuation based on the rent of the appeal property.  He explained the background to the agreement. The appellants relocated under the threat of compulsory acquisition and they wished to retain their local workforce.  The appeal property suited their requirements but was far larger than they needed.  
74.	He analysed the lease transaction by using a discounted cash flow computer programme and provided an extensive explanatory appendix in respect of his method. In essence, his programme discounted future payments, both of rent and incentive payments, to a present value at the start of the lease.  This present value was then effectively used in a reverse exercise, to ascertain what the equivalent rent would be on “normal” lease terms – ie 25 years with five yearly rent reviews, no breaks, and six months rent free period.  The result of this exercise was a devalued rent equivalent to £56.97 per sqm as at February 2007.  Mr Booton then indexed this figure to the AVD, using the same method as before, to arrive at a rate of £55.56 per sqm.  Using the same basic valuation as above but adopting a rate of £55.56 per sqm (to include an end allowance), his valuation was £2,742,800 but again say £2,740,000.
75.	Mr Booton carried out a checking exercise that compared the rental value of the appeal property with the comparables where they had a rent agreed close to February 2007, and then applied that relativity to the agreed rating price of those comparables.  This showed a range of rates that were between £51.65 and £58.33, with the exception of Comet which showed £73.25.  Mr Booton said that Comet had in his opinion been overvalued for rates and the rent on that property was a more reliable guide to value.  Other than that, the analysis showed that a rating price in the mid £50s per sqm was correct.  
76.	He said that the appeal property was suitable as a national distribution centre (NDC) for a retailer with only one or perhaps two warehouses in its network. It was not suitable for a grocery regional distribution centre (RDC).  It was too large for even the largest retailers, and that these factors suggested that the rental value was below the level of grocery RDC’s and smaller non-food retail RDC rents in Essex.
77.	For a NDC function, occupiers would look at the appeal property being on a par with more established NDC locations such as Northampton, and the rent should reflect that.  In Northants, the VOA published data suggested a rate of £52.00 per sqm.  An occupier would be unwilling to pay more than 10% above that – say £57.00.
78.	The rent analysis of the subject lease corroborated that level, as did the Comet rent.  Although better located, the Comet property was not up to the standard required by the grocery retailers.  Every other large RDC in Essex was suitable for grocery retailing, and was not in the same sub-market as the appeal property.  The other non-food retail RDC’s were far smaller.
79.	 He considered that the Rateable Value as at 1 February 2008 should therefore be reduced to £2,740,000.
Case for the Respondent
Mr John Philip Ray
80.	Mr Ray is a chartered surveyor. He has been employed by the valuation office since 1975 and has held various posts including District Valuer and Valuation Officer. For the last ten years he has spent the majority of his time engaged in the valuation of large industrial properties and large distribution warehouses in East Anglia and the Home Counties but also, for certain categories of property, on a national basis.
81.	In his expert report Mr Ray provided an outline history of the market for distribution warehouses before moving on to the specific comparable evidence. In general rental terms, throughout the 1980s, 1990s and the early part of 2000s, the market was strong for both built-to-order and speculatively developed distribution units. Rental growth was strong and this led to a sharp increase in development. Between 2001 and 2004 rental levels remained static in this part of Essex and by 2005 demand was tailing off.
82.	By way of example Mr Ray cited the Co-op Distribution centre in Grays (VO C) where a long rent free period was necessary to achieve the 2005 rent, and where the rateable value had been agreed in line with the established tone. There was an acceptance that the market had fallen between the AVD and the date of the rent. Additionally, Unit B Dolphin Way (VO G) was re-let following fire damage at the same rent in 2005 as it had been in 2001 but subject to a large incentive payment. Rents continued to fall throughout 2006 and 2007, causing leases to get shorter and to include complex incentive arrangements - meaning analysis was difficult.
83.	In respect of the subject rent, Mr Ray noted that the property stayed on the market for nearly two years after completion. Gazeley started this large project in 2004 but by the time the property was ready the market had fallen away meaning that any leasehold transaction would require incentives. Despite this, Carpetright agreed to a 25 year term with fixed increases for the first 15 years at a headline rent that was higher than the rating assessment. Mr Ray did not consider that the subject property had the disadvantages that the appellant suggested and he did not accept Mr Booton’s analysis of the rent.
84.	He cited the rent in respect of the 1960s warehouse at Oliver Road (VO B) which he said demonstrated that the lowest likely rental value for distribution use in the area was £45.12 per square metre. When it was borne in mind that this was a 1960s-built low height unit with no natural light and having a site coverage of 80%, the appeal property would command a rent considerably in excess of this level. In the same road the Co-op facility had an agreed assessment based upon £72.50 per square metre.
85.	Mr Ray considered that the lease terms of Comet at Harlow (VO L) were similar in many ways to those of the appeal property, yet the assessment was agreed in accordance with the tone of the list for the area and that the rent was not sufficient to overturn the established tone of the list.  This was despite the fact that there were far fewer distribution warehouses in Harlow than in Grays and Purfleet and therefore far less other evidence to consider. 

86.	In a constantly changing market, with a blend of new lettings and rent review evidence, evidence close to the date of valuation must carry the greatest weight. Carpetright’s lease was very difficult to analyse.

87.	Mr Ray considered that from the comparables and the rental evidence, the tone of the list was firmly established at a basic value for the warehouse of £72.50 per square metre. He had personally dealt with the rating appeals on all of the comparables with the exception of Sainsbury’s at Dartford.   The negotiating agents (who had either agreed the RV or withdrawn an appeal) and basic settlement figures were:

VO Ref	
Property	
Ratepayer’s Agent	
Basic Value (/m2)	
F	EGL, Eastern Ave, West Thurrock	LSH 	£72.50	
C	Co-op Group, Oliver Road, Grays	Gerald Eve 	£72.50	
D	Exel - Marks & Spencer, West Thurrock	Gerald Eve	£67.50	
E	Admiral House, London Road, West Thurrock	Evans & Payne	£72.50	
G	FCUK, Prologis Park, Dolphin Way, West Thurrock	Montague Evans	£72.50	
H	Tesco Distribution Centre, Dolphin Way, Purfleet	G L Hearn	£72.50	
M	Tesco plc, Flex Meadow, Harlow, Essex		£71.00	
N	Christian Salveson, Flex Meadow, Harlow	G L Hearn	£71.00	
L	Comet plc Regional Distribution Centre, Harlow	Bissett Moffatt Hill	£71.00	
K(1)	Sainsbury’s Distribution Centre, Fleming Road, Waltham Abbey	G L Hearn	£80.00	
J	Argos, Miles Gray Road, Basildon	G L Hearn	£69.50	
B	The Distribution Centre, Oliver Road, Grays	Savills	£43.00	
I	DSV Road Ltd, Stonehouse Lane, Purfleet	BNP Paribas	£72.50	
O	PMS International, Cricketers Way, Basildon	Glenny	£69.50	

88.	His valuation adopted £72.50 and applied ancillary values relating to the basic rate.  His valuation was:
Description	Floor	GIA (m2)	Basic Value (£ m2)	Factor	Price (£ m2)	Value (£)	Remarks	
Warehouse	GF	40,958.50	72.50	1.00	72.50	2,969,491		
Main offices	GF	2,154.90	72.50	1.26	91.35	196,850	Air con	
Main offices	FF	1,620.60	72.50	1.26	91.35	148,042	Air con	
Main offices	2F	1,511.30	72.50	1.26	91.35	138,057	Air con	
Computer Suite	2F	131.50	72.50	1.30	94.25	12,394	Air con	
Transport Offices	GF	150.70	72.50	1.10	79.75	12,018		
Transport Offices	FF	150.70	72.50	1.10	79.75	12,018		
Gatehouse	GF	21.60	72.50	1.00	72.50	1,566		
Pump Houses	GF	28.90	72.50	0.75	54.38	1,571		
		46,728.70				3,492,008		
								
Vehicle Wash				1		2,000		
Plant & Machinery	General					10,000		
	Sprinklers					87,222	2.5% of protected area	
						3,591,230		
End Allowance	Access				3%	(107,737)		
								
						3,483,493		
					Say	3,480,000	RV	

89.	He had not differentiated for the “cooling farm” on the basis that it was the ratepayer’s decision to install the plant in that part of the warehouse.  He said that it was common practice to value computer rooms, with extra raised floors and cooling, at a factor of 1.3.

90.	Mr Ray did not consider that site density was an issue because the hereditament had loading on one side only. He did not consider that the lorry park’s distance was problematic and the loading plinth of 50m accorded with the industry norm. He said that no two distribution warehouse sites were the same, and many sites in the south-east had some sort of layout problem, access problem or other logistical issue. The appeal property was not markedly worse than most of the comparables from this aspect.

91.	Mr Ray did not consider that the loading facilities were disadvantageous and referred to Nissan Motor Parts Centre BV v Reeds (VO) RA 61 2004, where loading on one side only, or loading access points numbering far less than those of comparables, was found to be of no consequence to value. Not all occupiers required cross dock loading facilities, and the more loading access points there were, the less space there was for internal storage.  Cross dock warehouses generally appealed to high turnover occupiers such as supermarket operators and parcel delivery companies. Such saturation loading provision was not required by companies that stored durable goods for longer lengths of time.  

92.	In general terms Mr Ray did not consider there was sufficient strength in the rental information to overturn the established tone of the list. He said the rent of the appeal property was agreed four years after the AVD and came into force nearly five years from that date. There were several rents nearer to the AVD to consider. Between the AVD and the date the rent was agreed, the market had fallen. Despite this, and the fact that the trend from 2005 to 2008 was for shorter leases, Carpetright agreed to take a 25 year lease with fixed reviews of the first 15 years and upward only rent reviews thereafter. This did not demonstrate that the appeal property was an inferior property, or that the tone of the list was incorrect, or that a large allowance or series of allowances should be applied.  

93.	In Mr Ray’s view, the tone of the list of the locality had been firmly established with all of the main rating agents who specialised in this field and was in line with the general level of value established for Essex and Hertfordshire in the 2005 rating list. The Carpetright rent could not be ignored but it did not persuade him that the established tone of the list was incorrect. He referred to a decision of the Northamptonshire VT where the VT had reservations about placing weight upon rents agreed just over four years after the AVD as they were so remote from the statutory valuation date.

94.	In his rebuttal report, Mr Ray disputed Mr Booton’s notion that grocery retailers paid higher rents for distribution warehouses than other users.  Mr Ray submitted a table of distribution locations around the country comprising Fradley, Skelmerdsale, Darlington, Magor, DIRFT and Hatfield.  This showed that in each case, the Rateable Vale of warehouses occupied by supermarkets had been agreed at the same basic rate for each location as non-grocery occupiers.

95.	Mr Ray also took issue with Mr Booton’s statement that grocery distributors occupied the largest warehouses.  He produced a brief table which he said showed that in the case of hereditaments exceeding 40,000 sqm, fewer than 25% were occupied by the leading supermarkets.  He accepted in cross-examination that there were exceptions to this, for example cash and carry operators would be counted as “non-food” even though they did partly operate in the food sector.

96.	He also disputed Mr Booton’s comments regarding quantum discounts. Mr Ray referred to the table of quantum allowances that Mr Booton had appended to his report, and said that this had been agreed nationally with a consortium of agents after all relevant rental evidence had been examined.   It was agreed that there was no quantum allowance below 50,000 sqm, and a sliding scale above that.

97.	Mr Ray said that the rateable value of Comet was agreed at £71.00 per sqm, despite the rent being far lower, as the agent for Comet had accepted that the lease arrangement was too complex, and the date of the lease too far beyond the AVD, to be relevant.  £71.00 was the general rate for Harlow, which was accepted to be slightly less valuable a location than Purfleet.

98.	As to Mr Booton’s valuation, Mr Ray said that Mr Booton’s adoption of a 25% end allowance equated to an allowance of 21.07% before the agreed 3% end allowance for access.  Mr Ray drew on his experience of dealing with large industrial properties all over the East of England, and with some types of property nationally.  He said that there were only three properties within his area of responsibility that had an end allowance of 20% for permanent and inherent disabilities. These were Colmans of Norwich at Carrow Works, Norwich; Lotus Cars Ltd at Hethel; and Clays Ltd at Bungay, all of which were in remote locations, with piecemeal mixed age buildings on generally difficult sites.  He considered Mr Booton’s proposed 25% to be wholly unsupportable.

99.	Mr Ray also disagreed with Mr Booton’s contention that there was no reason to believe that rents would have been lower when the subject rent was agreed in February 2007 than at the AVD.  Mr Ray pointed to the 2007 rent at Exel, the nil increase at the 2009 rent review of EGL, the premium payment at FCUK in 2005 where the previous rent was again paid on the new lease, the nil increase at the 2010 rent review of Argos, and the rent increases at the 2007 and 2012 rent reviews of Sainsbury’s at Waltham Abbey.   He accepted in cross examination that the premium at FCUK was not a reverse premium and that the transactions were not as helpful to his point as might have initially thought.

100.	In his view the Rateable Value as determined by the VT was correct and the appeal should be dismissed.

Discussion
101.	I can deal fairly shortly with Mr Keith’s evidence. I found him to be a credible and objective witness, and accept much of what he said.  In the end, Mr Ray did not take issue with the main thrust of Mr Keith’s evidence that the appeal property was unsuitable for food distribution – although Mr Ray would only go as far as saying that he thought it unlikely that a grocer would be interested in it.  From the evidence it is sufficiently unlikely that they would be interested that, on balance, I accept Mr Keith’s view.
102.	The only area where Mr Keith’s opinion seemed to be at odds with the evidence was the comparison of Purfleet with Harlow.  Mr Keith considered Harlow to be a better location for distribution, whereas the evidence, or at least the rating settlements, point the other way, and I deal with this below.
103.	In determining the Rateable Value I follow the propositions set down by the Tribunal (Mr J H Emlyn Jones FRICS) in Lotus & Delta Limited v Culverwell (VO) [1976] 21 RRC1.
104.	I first consider the actual rent of the appeal property and how closely the circumstances under which it was agreed, as to time, subject matter and conditions, relate to the statutory hypothesis.
105.	The appeal property was of course let, but not until June 2007 which, although terms were agreed some months before that, was over four years after the AVD.  Mr Booton placed significant weight on his devaluation of the rent, and it was a cornerstone of his appeal.  Mr Ray placed little weight on the rent owing to its remoteness from AVD and was critical of Mr Booton’s method of devaluation.  
106.	Mr Singh referred to Specialeyes (Optical Services) Ltd v Felgate (VO) [1994] RA 338 in which the Tribunal (Mr P H Clarke FRICS) split a basket of rents into three categories, being rents before, rents at or about, and rents after, the AVD of April 1988.  The Tribunal only placed weight on the middle category owing to the need to adjust the others. In my judgement the circumstances in this case are slightly different, in that rental movement in the period in question was relatively gradual.  In Specialeyes the Member stressed the background against which the more remote rents were attached no weight: that rents were moving rapidly.
107.	Mr Singh also referred to a decision of the Northamptonshire VT in an appeal concerning a warehouse at Victoria Business Park in Wellingborough, where the VT had reservations about placing weight on transactions over three years after the AVD.  I note this but, as was accepted, am not bound by it.
108.	 There is no doubt in my mind that reliability of evidence decreases the further the date of the transaction is from the AVD.  In this case, the letting must be treated with caution owing to it being four years after AVD.  Indeed, the date of commencement of the lease is within nine months of the AVD of the subsequent, 2010, rating list.  Nevertheless the period between the AVD and the grant of the lease was one of relative stability and the letting is the only transaction on the appeal property.  I therefore take it as my starting point.  
109.	It is common ground that the appeal property was available on the market for some time before the transaction with Carpetright was completed. There was no evidence before me as to the level of interest shown by other potential occupiers, specifically by the Co-op group who had a requirement at the time; or whether the property was under offer for a period of this time; or the incentives that might have been available. I accept Mr Glover’s submission that it was highly likely that the Co-op would have been aware of the appeal property’s availability. Whether they entertained it as a possibility or not, the fact is that they did not take a lease of it.  I also therefore accept that the appeal property did not or could not offer the facilities that the Co-op required.  I note the significant alterations that were made to the Co-op building, particularly the new multi-storey car park.
110.	The appeal property was eventually let on a transaction where both sides gave substantial commitments.  As Mr Ray has mentioned, notwithstanding the trend of leases becoming shorter (which I accept although there was no specific evidence of this before me), the appellant took a twenty five year lease, without break clauses, and committed itself to fixed increases up until the fifteenth year.  The developer landlord paid a reverse premium of over £8 million, with a further £7,500,000 to be drawn down by the appellant over the first three years.  In addition there was a rental discount for the first two years, totalling over £3.6 million.  The nature of the transaction has substantial differences from the statutory hypothesis for rating. It is for this reason that Mr Booton sought to convert it by equivalence to a more acceptable form.
111.	Turning to Mr Booton’s method of devaluation, Mr Ray said that this method was more akin to development appraisals.  Mr Glover observed, correctly, that residual appraisals do not generally find favour with the Tribunal but they are usually deployed in development or investment scenarios where small input adjustments can result in significant changes to the end result.   Mr Booton’s method was more of a discounted cash flow. It was subject to fairly scant cross examination, and only brief comment from Mr Ray. In my judgement the fact that it was complicated does not necessarily cause it to be incorrect and I did not find logical or mathematical fault with it per se. I also accept Mr Glover’s contention that the method has been more recently available owing to an improvement in software capability.  However, I am sceptical as to the method’s reliability in the way that it has been deployed in this case because, whilst not to the extent that can be encountered in a residual appraisal, the end result depends upon a number of input factors for instance growth rate and exit yield, which are relatively subjective.
112.	The combination of the subjective nature of the devaluation method and the fact that the rental transaction occurred four years after AVD causes me to conclude that Mr Booton’s devaluation of this complex transaction is too uncertain to provide a reliable basis of valuation without corroboration from other evidence. To be successful in this appeal the claimant would also have to show other ways in which the rating assessment is incorrect.
113.	I now come to the second proposition in Lotus – to consider other available rental evidence to confirm or otherwise the level of value indicated by the rent of the appeal property.
114.	Both parties submitted rental evidence, much of which is common, and helpfully they further narrowed some of the differences in the valuers’ Statement of Agreed facts. 
115.	One of the points of issue was whether the rental evidence should be adjusted for time by way of an index.  In comparing Mr Booton’s index with the rental evidence available I found it to be reasonably credible. At Exel (NSB 4) Mr Booton’s 4.5% index increase compares with 1.8% on the rental evidence (although this is dependent on reliance on an arbitration award as the second transaction and I have placed little weight upon it).   In respect of Admiral House the evidence (on a year-to-year basis rather than compared with the average) showed an increase of 7.8% and Mr Booton’s index was lower at 4.15%. At Tesco, Harlow, the evidence showed a 6.3% increase and Mr Booton was lower at 3%. At Sainsbury’s, Waltham Abbey the evidence showed 9.27% and Mr Booton was lower at 4.2%. The Argos nil increase determination (which I assume was on the basis of an upward only review) is not inconsistent with Mr Booton’s decrease of 5.7% to December 2009. 
116.	It would be highly surprising if the growth figures shown by the evidence had exactly mirrored Mr Booton’s amended index.  But the general direction of increase and then decrease in rental levels shown by Mr Booton’s index generally reflects the trends shown by market transactions.  Both the rental evidence and the index point to a steady increase in rental levels from the start of the decade to late 2008 at which point rents begin to drop as a result of general economic factors that are well known.  Mr Ray said that rents had fallen, and referred to the transactions at Exel, EGL, FCUK and Argos. I do not consider that these transactions support his position, which he largely accepted in cross-examination.
117.	Mr Booton’s index steered a middle course. I am satisfied that it was a reasonable method of reflecting changes in rent over the period concerned and I accept his adjustments to reflect time before and after AVD for the purposes of analysing rental figures. While the indices are useful when comparing transactions on as like for like a basis as possible, inevitably the further from AVD the date of a transaction, the less reliable the evidence becomes. There is also a stark difference between the acceptance of an index for the purposes of analysis and an assumption that a transaction that occurred in 2007 would actually have occurred on the adjusted basis at the AVD. 
118.	Having accepted Mr Booton’s AVD - adjusted basis, I now turn to the rental evidence itself.  This has been subject of extensive analysis and interpretation by the parties as I outlined above and do not intend to rehearse again.  It would be useful, however, to comment on each transaction having carried out my external inspections.
119.	Ordinarily, the key comparables would have been those in Purfleet, on the estates immediately adjacent to the appeal property.  Those further away would generally have been given less weight.  However in this case I do consider the evidence at Harlow and Basildon to be of assistance as the market for this type of property is a regional one. Neither party attached significant weight to the transaction at Waltham Abbey (NSB 13 or VO K). Nor do I, although I include it for completeness.
120.	I have also placed little weight on the transactions at Queen Elizabeth Distribution Park.  Although in close proximity to the appeal property the units are considerably smaller with very limited circulation space and restricted access.
121.	In respect of EGL (NSB 1 or VO F) Mr Booton said that the rent was settled high in the light of other evidence, but I do not accept that this is the case.  I note, however, that the rent was for premises which included an area of land in a separate RV, and that the property is considerably smaller than the appeal property.
122.	I did not derive much assistance from Admiral House (NSB 5 or VO E) or Christian Salvesen (NSB 11 or VO N) owing to their smaller size of less than 10,000 sqm, although note the agreed end allowance of 5% at Admiral House for the small number of loading doors. Tesco at Flex Meadow (NSB 10 or VO M) and Sainsbury’s at Dartford (NSB 9) were both subject to rent reviews with proxy assumed floor areas which renders them difficult to analyse, but I have not wholly discounted them.  In respect of Exel (NSB 4 or VO D) I have placed some weight on the 2002 rent review, but no weight on the subsequent 2007 arbitration award.   Similarly, in respect of Argos (NSB 14 or VO J) I have placed weight on the 2005 rent review (although again there was a proxy assumed area for rent review purposes), but not the 2000 arbitration award.  
123.	The lease of Unit B Prologis Park (NSB 7 or VO G) was the subject of a premium paid by the outgoing tenant to FCUK.  Neither party had full details of this nor did they analyse it, and their assessments of the rental transaction cannot be considered to be wholly reliable because the premium remains in the background.  
124.	Adopting Mr Booton’s AVD-adjusted rates, the main evidence can be summarised, in decreasing order per square metre, and with approximate floor areas excluding mezzanines, as;
Unit	Food or non food	Area sqm 	Rent per sqm	
Sainsbury’s, Waltham Abbey	Food	77,383	£82.51	
Co-op, Oliver Road, Purfleet	Food	29,351	£76.21	
Argos, Basildon (2005)	Non	35,075	£74.42	
Sainsbury’s, Dartford	Food	56,168	£73.63	
EGL, Eastern Avenue, Purfleet	Non	14,557	£73.55	
Tesco, Harlow	Food	24,842	£70.05	
Exel, Western Avenue, Purfleet (2002)	Non	22,398	£65.67	
Comet, Harlow	Non	36,579	£53.75	
The Dist Centre, Oliver Road, Purfleet	Non	20,511	£45.12	

125.	Mr Booton maintained that the food retailers consistently paid the highest rents.  From the table above this seems generally to be the case.  Mr Booton explained that the Argos building was suitable for food distribution, even though it was occupied by a non-food retailer. I accept that it has a higher car parking ratio and a higher number of loading doors than the appeal property despite being smaller, and is more suitable for food distribution use.  
126.	EGL is the exception as it is non-food but at a high rent.  This may be explained by its size, although there does not seem to be a quantum effect for smaller properties. Indeed, on Mr Booton’s case the larger properties attract the higher rents.  Like the appeal property, it has a ratio of loading doors in relation to area of over 1,000 sqm per door (with the only other comparable also having such a ratio being Admiral House – for which the VO gave an allowance of 5%).
127.	Exel seems to me to be a reasonable comparable, but is older with a lower eaves height.  Mr Booton’s adjusted analysis of this was at £68.39.  
128.	The lower rents are Comet and The Distribution Centre.  The analysis of Comet was also dependent upon Mr Booton’s discounted cash flow technique, which I have commented on above.  The Comet letting was a 20 year lease, with fixed rent increases on an annual basis, and with rent being paid monthly in advance.  The lease commenced in August 2008, which is some five years after the AVD, and indeed is post AVD for the 2010 Rating List, although terms were agreed earlier.  I consider the transaction to be of limited assistance for this reason.
129.	Mr Ray pointed to the rent on The Distribution Centre at Oliver Road.  This property had been demolished and I could not inspect it, but Mr Booton did not take issue with Mr Ray’s description of it being 1960’s built, low height with no natural light.  I accept Mr Ray’s criticism of Mr Booton’s view of rent when compared with this property.
130.	In summary, while there are some indications that the food distribution operators pay higher rents, there is little rental evidence on properties similar to the appeal property that supports Mr Booton’s case, other than Comet which is some five years post AVD.
131.	I now turn to the next proposition in Lotus and consider the rating assessments of other comparables.
132.	Mr Glover cautioned me as to the dangers of an assumption of “the tone of the list”.  However I have placed significant weight on this aspect of the evidence.  Mr Ray had personally dealt with all but one of the settlements referred to in evidence.  The pattern of settlements, before adjustments, is consistent.  The Distribution Centre and QED were settled at £43.00 and £60.00 respectively, reflecting the nature of the buildings at those locations.  There are two settlements at £67.50 – the 1987 built Exel at West Thurrock and Sainsbury’s at the Bridge, south of the Thames in a different rating scheme.  The two hereditaments at Basildon – PMS International and Argos – were both settled at £69.50, as was Aldi at Chelmsford.   The three hereditaments at Harlow were all agreed at £71.00.
133.	Closer to the appeal property, there were six settlements all at a base value of £72.50.  These are Tesco, Dolphin Way; Co-op, Oliver Road; EGL, Eastern Avenue; Admiral House, London Road; FCUK, Dolphin Way; and DSV Road, Stonehouse Lane.  The remaining comparable is Sainsbury’s at Waltham Abbey, at £74.50 but by common ground this is a superior location.
134.	In line with the final relevant proposition in Lotus, I now consider the weight to be attributed to the various elements of evidence.
135.	The reliability of the letting of the appeal property itself is called into question by its date and Mr Booton’s analysis of it. There is nothing wrong, mathematically, with his approach, but the analysis depends upon critical subjective inputs. I have not wholly discounted it, but re-emphasise the Tribunal’s reluctance to accept this type of analysis.  The transaction is also considerably post-AVD which also calls into question its reliability, even adjusted by index.  In my judgement it does not provide compelling evidence to show that the assessment is incorrect.
136.	  In terms of the rental evidence available, when the evidence of arbitration awards and properties that were not comparable was stripped out, there was little in support of the appellant.  The Comet letting was five years after the AVD, and again involved lease terms that required significant adjustment using Mr Booton’s DCF approach.  The lease terms, including fixed annual increases, were also in my view sufficiently unusual to cause me to doubt their comparability, even adjusted. I have placed considerable weight on Mr Ray’s settlement of the Comet rateable value, where the ratepayer’s agent accepted that the lease arrangement was too complex, and the date of the lease too far beyond the AVD, to be relevant.  Comet was settled at a base value of £71.00 RV.  Mr Booton thought the Comet building to be perhaps the most comparable of all those in his appendix.  The rateable value settlement cannot be explained away as easily as he would suggest.
137.	Mr Booton’s devaluation, if correct, would bring the property within the range of The Distribution Centre, at £45.12, which was a much poorer hereditament.  It would also be inconsistent with the EGL rent, at £73.55, and the Exel rent, at £65.67 for a poorer property.  
138.	It is not in dispute that the appeal property is unlikely to be of attraction to a food distributor.  It also seems to be the case that food distributors occupy the largest properties and pay the highest rents.  However I am not persuaded, on the evidence, that that is sufficient to show that the assessment of the appeal property is incorrect.
139.	Mr Booton does not dispute that some of the comparable properties have been correctly assessed at £72.50 per sqm.  His point is that the appeal property is different.  He reflects this by adopting £72.50 but making an end allowance, on the warehouse accommodation of 25%.  This is largely based upon Mr Keith’s 24% throughput reduction.  I consider the blanket adoption of Mr Keith’s percentage to be too general to have much validity, and based upon an individual aspect of Mr Keith’s evidence.
140.	Additionally, Mr Booton’s end allowance is too high, and would put the appeal property into the same group as only three other hereditaments which had over 20% end allowances and which were, in my judgement, far from comparable to the appeal property.
141.	I do not accept that little weight should be attached to the settlement evidence. The majority of the appeals had been settled with leading rating agents.  The ratepayers were generally substantial companies who would not have been deterred from challenging excessive RV’s purely on the grounds of cost.  Moreover, there is no evidence to suggest that any of the decisions to agree the comparable RV’s was informed by anything other than valuation considerations. 
142.	In comparison, the analysis of the subject lease, and the rental evidence, is less robust. I did not gain assistance from Mr Booton’s checking exercise.  This was entirely dependent upon his rental input rate.  Adopting any other rental input rate would result in a completely different range of outputs that would ostensibly show that that input rate was correct. 
143.	The key to the appeal is whether the subject property should, in effect, be valued in the same scheme as the comparables.  If it should, the settlement evidence is overwhelmingly in Mr Ray’s favour.  Despite Mr Booton’s attempts to explain them away, Mr Ray’s agreed settlements with national rating experts are compelling, including on properties where rents have been analysed at much lower rates.  If it should not, Mr Booton’s view has more strength.
144.	My conclusion is that Mr Ray’s valuation of the appeal property at £72.50 is consistent with the assessments of the comparable hereditaments.  
145.	Mr Glover urged me to have regard to the real world – what could be termed the “stand back and look at it” approach – which I now do.  Several aspects can be concluded.  The appeal hereditament is the largest non-food warehouse in Essex.  It was empty for a considerable period of time, but was eventually occupied by an operator with a specific reason to relocate to it, under the cloud of a threatened compulsory acquisition.  Mr Booton said that the property was too large for the appellant’s requirements at the time of acquisition, and this was not challenged by Mr Ray.  
146.	Mr Singh submitted that in Nissan Motor Parts Centre BV v Reeds (VO) [2006] RA 95, the Tribunal (Mr N J Rose FRICS) held that it the appeal hereditament met the needs and requirements of the occupier, no reduction from the tone value should be made.  However that was in the context of an admission by the ratepayer’s expert in cross-examination to that effect, against the background of the hereditament being bespoke built.
147.	Mr Booton said that the reason the property did not let sooner was because of the limiting factors that blighted the property – insufficient car parking and a low number of loading doors.  It is entirely possible that, had the appeal hereditament been suitable, or been capable of being made suitable, the Co-op may have taken a lease as they had an active requirement at the time of the appeal property’s availability.
148.	This “stand back and look at it” approach leads me to the question of an end allowance.  I have more sympathy for Mr Booton’s case in this respect.  The parking ratio of the appeal hereditament is the second lowest in the table of comparables (1 space per 209.55 sqm) with only Aldi having a higher ratio at 1 space per 226.35 sqm.  I am also satisfied that the appeal property has an insufficient number of loading doors for its size.  Mr Booton’s analysis shows 1 door per 1,015.84 sqm. Only Admiral House (1 door per 1,038.90 sqm) and EGL (1 door per 1,121.34 sqm) had an inferior ratio, and in the case of Admiral House the VO gave an end allowance of 5% for this specific reason.  I make an end allowance of 5% for parking and loading.
149.	The final aspects of the valuation to be considered are the “cooling farm” and the rate to be applied to the computer room.  In respect of the “cooling farm” I prefer Mr Booton’s evidence to that of Mr Ray.  Mr Ray’s valuation adopts rates for the offices on an air-conditioned basis.  The offices were extended and owing to their large size the “cooling farm” was necessary.  To ignore the existence of the cooling farm is inconsistent with the rate applied for the offices.
150.	In respect of the Computer Room, I am satisfied with Mr Ray’s evidence and adopt his approach.
151.	My valuation is therefore as follows;
Description	Floor	GIA (m2)	Basic Value (£ m2)	Factor	Price (£ m2)	Value (£)		
Warehouse	GF	40,400.40	72.50	1.00	72.50	2,929,029		
“Cooling Farm”	GF	558.10	72.50	0.75	54.38	30,347		
Main offices	GF	2,154.90	72.50	1.26	91.35	196,850		
Main offices	FF	1,620.60	72.50	1.26	91.35	148,042		
Main offices	2F	1,511.30	72.50	1.26	91.35	138,057		
Computer Suite	2F	131.50	72.50	1.30	94.25	12,394		
Transport Offices	GF	150.70	72.50	1.10	79.75	12,018		
Transport Offices	FF	150.70	72.50	1.10	79.75	12,018		
Gatehouse	GF	21.60	72.50	1.00	72.50	1,566		
Pump Houses	GF	28.90	72.50	0.75	54.38	1,572		
		46,728.70				3,481,893		
								
Vehicle Wash				1		2,000		
Plant & Machinery	General					10,000		
	Sprinklers					86,969	2.5% of protected area	
						3,580,862
		
End Allowances	Access				3%	(107,426)		
	Loading/parking 			5%	(179,043)		
								
						£3,294,393		

152.	The majority of the comparables provided were rounded down by the Valuation Officer to the nearest £10,000, and I therefore determine a rateable value of £3,290,000.
153.	The appeal is allowed. I determine that the appeal property must be entered into the local non-domestic rating list as “warehouse and premises” with an assessment of £3,290,000 with effect from 1 February 2008.
154.	This decision is final on all matters other than costs.  The parties may now make submissions in writing on the issue of costs and a letter containing further directions accompanies this decision.

					Dated:  11 June 2014

			P D McCrea FRICS