UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2015] UKUT 0102 (LC)
UTLC Case Number: RA/73/2013

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

RATING – Alteration of rating list – material change of circumstances due to Occupy London protest – whether too transient to affect rental bid at AVD – relevance of actual rent concession made by landlord – analysis of rent concession – appeal allowed in part

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

	BY

	                                                       MARK PAVLOU                                     Appellant
              (Valuation Officer)			

Re: Lower Ground and Ground Floor,
		10 Paternoster Square,
		London
		EC4M 7DX

	Before: A J Trott FRICS

	Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL
on
8 January 2015

Zack Simons, instructed by HMRC Solicitor’s Office, for the Appellant

© CROWN COPYRIGHT 2015

The following cases are referred to in this decision:
City of London v Samede and Others [2012] EWHC 34 (QB)
Stopenbach and Delestre Limited v Probert (VO) [1991] RVR 8
Bradgate v Buncombe (VO) [1967] 13 RRC 347 
Hoyle and Jackson v Oldham Poor Law Union Assessment Committee [1894] 2 QB 372 
R v The School Board for London [1886] 17 QBD 738
Re Pearce’s (Valuation Officer) Appeal [2014] RA 341
The following further cases were referred to in argument:
Baird v Wand (VO) (1960) 7 RRC 350
Fielder v Baker (VO) (1970) 16 RRC 269

DECISION
Introduction
1.	This is an appeal by the Valuation Officer (“VO”), Mr Mark Pavlou, against a decision of the Valuation Tribunal for England (“VTE”) dated 22 November 2013 allowing an appeal by the ratepayer, Corney & Barrow Limited, in respect of a proposed list alteration to the 2010 local non-domestic rating list for the entry known as Restaurant and Premises, Lower Ground and Ground Floor, 10 Paternoster Square, London EC4M 7DX (“the appeal hereditament”).
2.	The ratepayer made a proposal on 3 November 2011 on the grounds of a material change of circumstances that occurred on 17 October 2011.  The material change of circumstances was said to be “the closure and restrictions applied to Paternoster Square resulting from the Occupy London protest outside St Paul’s which has dramatically cut the footfall and trade of the hereditament.”
3.	The proposal was received by the VO on 7 November 2011 which is therefore the material day for the purposes of this appeal.
4.	The VTE concluded that:
“33. We are satisfied that, while Paternoster Square was closed to the public for an indefinite and unpredictable period, a hypothetical ratepayer coming fresh to the scene in the immediate run-up to the busiest trading period of the year for a wine bar and restaurant would not make the same rental bid as he would if the sun was shining and the square, in this very busy part of central London, was open to all and sundry. 
34. The question of transience is one we must consider.  It was unknown at the material day how long the Occupy London protest would last, but it did seem likely that it would seriously disrupt the busy trading period before Christmas.  In these circumstances, we are satisfied that the material change of circumstances passes the “transience test”, if we can call it that.
35. It is not easy to quantify the discount that should be applied, but the effective 22.5 per cent rental reduction is the best analysis of the allowance granted by the actual landlord to the actual tenant and is the best evidence we have; we are satisfied to adopt that percentage.  
36. Accordingly, we apply a temporary reduction to the rateable value of £175,000 in the compiled list of 22.5 per cent, namely £39,375, to yield a rateable value of £135,625, say £135,500, which we direct with effect from 17 October 2011 to 28 February 2012.”
5.	The VO served a notice of appeal on 19 December 2013.  The ratepayer did not respond and the appeal was therefore unopposed. 

6.	The VO’s grounds of appeal were that the VTE had erred:
(i)	in finding a valuation effect from a material change of circumstances; and
(ii)	in its reduction of the rateable value.
At paragraph 14 of the VO’s statement of case the Tribunal was asked to “note that the rateable value originally ascribed to the appeal hereditament was based on an incorrect [rental] figure per square metre.  The figure used was £340 but it should have been £318.50.”  The Tribunal was invited at the hearing to alter the list so as to reflect this correction in the adopted rate as part of the appeal.  This was not an issue in dispute before the VTE where the parties both used the adopted rate in the compiled list assessment of £340 per m2.  The VO has confirmed subsequently that the ratepayer was aware that the correctness of the rateable value was to be an issue before this Tribunal and had urged the Tribunal apply the correct rateable value of £318.50 per m2. 
7.	Mr Zack Simons of counsel appeared for the appellant and called Mr Mark Pavlou MRICS as an expert witness and Mr David Jackson MRICS as a witness of fact.
Facts
(i) The appeal hereditament and its surroundings
8.	The appeal hereditament comprises two purpose-built retail units which have been combined and fitted out as a wine bar and restaurant with a net internal floor area of some 493m2.  There is an outdoor seating area of 97m2.  The property forms part of the ground and basement floors of a six-storey building known as 10 Paternoster Square, the upper floors of which are occupied by the London Stock Exchange (“LSE”).
9.	The appeal hereditament is located at the north east of Paternoster Square which is a pedestrianised and paved open space situated at the centre of a larger redevelopment dating from 2003 and comprising some 70,000m2 of offices, shops and restaurants.  Paternoster Square lies immediately north of St Paul’s Cathedral in the City of London.  The development, including the square, is privately owned and managed by a single landlord but the outdoor areas are usually freely accessible to the public.
(ii) The material change of circumstances
10.	On 15 and 16 October 2011 a protest camp was set up in St Paul’s Churchyard.  The protest was known as Occupy London Stock Exchange (“Occupy London”) and, as it name suggests, it was originally intended to enter and occupy Paternoster Square where the LSE is located.
11.	The landlord had anticipated the protest and on 14 October 2011 it obtained an injunction preventing “persons unknown” entering or remaining in or trespassing on the square.  By the time the protestors arrived the next day, the main gates to Paternoster Square had been closed and were being guarded by the police and private security staff.
12.	The protestors proceeded to set up a camp consisting of a large number of tents, initially estimated by the police at 120 but rising to 300 by 21 October 2011 when St Paul’s Cathedral was closed for a week due to health and safety concerns.
13.	On 22 October 2011 a procession set off from the camp and a number of protestors established another camp in Finsbury Square leading to a reduction in the number of tents at St Paul’s to about 140.
14.	Both the Chapter of St Paul’s and the City of London Corporation suspended legal action on 1 November 2011 pending negotiations with the protestors about agreeing a departure date.  Those negotiations were unsuccessful and on 18 November 2011 the City of London Corporation issued proceedings in the High Court.
15.	The High Court hearing took place between 19 to 23 December 2011 at which time there were 150 to 200 tents at the St Paul’s camp.  The High Court decided on 18 January 2012 that the City of London Corporation’s claim for possession of the highway and other open land in the churchyard of St Paul’s Cathedral should succeed (see City of London v Samede and Others [2012] EWHC 34 (QB)).
16.	On 22 February 2012 the Court of Appeal refused permission to appeal and on 28 February 2012 the camp was cleared by bailiffs with the assistance of the police.
(iii) The physical circumstances at the material day
17.	At the material day (7 November 2011) the protest camp was still in situ at St Paul’s Churchyard.  From the decision in Samede it appears that by the material day the camp was untidy and suffered from drainage and sanitation problems.  It had also attracted homeless people and other vulnerable adults.
18.	Access to Paternoster Square was restricted at the material day and was controlled by security staff who checked the identification of staff and visitors.  The appeal hereditament was one of two restaurants and two shops that had their access restricted by the closure of the square although access was still possible for genuine customers.  The footfall in the square was lower than would otherwise be expected. 
(iv) The landlord’s rent concession
19.	On 23 December 2011 the landlord wrote to the ratepayer setting out the terms of what it described as a “personal concession” to:
“1.  waive payment by You of an amount equal to one-twelfth of the Rent due to us which You may deduct from the instalment of Rent due to Us on 25 December 2011; and
2.	defer payment by You to Us of the balance of the instalment of Rent due to Us for the quarter commencing on 25 December 2011 until the next following quarter day of 25 March 2012.
We have agreed this concession with You in good faith but (as You acknowledge) without admission of liability for any loss you may have suffered as a result of restricted access to Paternoster Square caused by circumstances outside our control.
For the avoidance of doubt, because We do not consider that We have any liability to You, the concession made by Us in this letter is not offered in full and final settlement of any claims which You may consider that You have against Us.  However, if You were to make any claim against Us, the concession offered by this letter and accepted by You shall be taken into account in assessing any loss or damages claimed by You.”
20.	The rent payable under the ratepayer’s lease was £150,000 per annum and so the landlord’s rent concession was worth £12,500.
The statutory provisions
21.	The rateable value of a non-domestic hereditament is defined in paragraph 2(1) of Schedule 6 to the Local Government Finance Act 1988 (“the 1988 Act”):
“2(1)  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 this 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.”   
22.	Where the rateable value is determined with a view to making an alteration to a compiled list entry the matters mentioned in paragraph 2(7) of Schedule 6 to the 1988 Act shall be taken as they are assumed to be on the material day.  Those matters include:
“2(7)(d) Matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there…”
23.	The material day is defined in the Non-Domestic Rating (Material Day for List Alterations) Regulations 1992.  In this appeal the material day is the day on which the proposal was served on the VO (Regulation 3(7)(b)(i)).  That day was 7 November 2011.
24.	Regulation 4 of the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 (“the 2009 Regulations”) defines the circumstances in which a proposal for the alteration of a local list can be made.  These grounds include at Regulation 4(1)(b) “the rateable value shown in the list for a hereditament is inaccurate by reason of a material change of circumstances which occurred on or after the day on which the list was compiled.”
25.	A material change of circumstances in relation to a hereditament is defined under Regulation 3 of the 2009 Regulations as “a change in any of the matters mentioned in paragraph 2(7) of Schedule 6 to the [1988] Act.”
26.	Paragraph 2(3) of Schedule 6 to the 1988 Act provides that:
“Where the rateable value is determined for the purposes of compiling a list the day by reference to which determination is to be made is –
(a)	the day on which the list must be compiled, or
(b)		such day preceding that day as may be specified by the Secretary of State by Order in relation to the list.”
For the purposes of the 2010 non-domestic rating list the day by reference to which the rateable value of non-domestic hereditaments are to be determined was specified by the Secretary of State in the Rating Lists (Valuation Date) (England) Order 2008 as being 1 April 2008, which is the antecedent valuation date (“AVD”).
27.	Regulation 14(2) of the 2009 Regulations provides that:
“Subject to paragraphs (3) to (7), where an alteration is made to correct any inaccuracy in the list on or after the day it is compiled, the alteration shall have effect from the day on which the circumstances giving rise to the alteration first occurred.”
The case for the appellant
28.	Mr Pavlou said that although Occupy London constituted a material change of circumstances as at the material day under paragraph 2(7)(d) of Schedule 6 to the 1988 Act the protest was too transient for a hypothetical landlord and a hypothetical tenant to agree a lower rent under the statutory rating hypothesis.  He considered that Occupy London was an example of the type of occasional disruptive event to be expected in a major capital city and which would already be reflected in the market’s attitude to risk and rental values.
29.	Mr Pavlou considered that the protest was inherently unsustainable.  The protestors were camping on highway land and the City Corporation had started eviction proceedings by the material day.  At that time there was no reason to believe that the protest would last as long as it did.  It was already three weeks old and a hypothetical tenant fresh to the scene, whilst being aware of media speculation and comment, would not have foreseen that it would continue beyond Christmas.  By then the protest would have been expected to have dispersed either through legal action or through its own loss of momentum.  At the material day the hypothetical parties would not have foreseen or contemplated the complexity of the eviction proceedings that eventually took place.  
30.	The market was relatively buoyant at the AVD and the appeal hereditament was a purpose-built restaurant in a well trafficked prime location in the City of London.  Mr Pavlou did not think that a hypothetical tenant would be in a position to negotiate a rent concession from the landlord in such a competitive market as a result of the material change of circumstances.  The hypothetical tenant would take a longer term view of the trading prospects and would consider Occupy London to be a temporary disruption that would soon be over. 
31.	Mr Pavlou criticised the VTE’s acceptance of the ratepayer’s analysis of the actual rent concession made by the landlord on three grounds:
(i)	It was not an appropriate piece of evidence because the rent concession was actually an ex gratia payment made by the landlord to his tenant in the context of a contractual leasehold relationship.  The landlord obtained an injunction preventing the protestors from entering Paternoster Square and it was therefore the landlord who had blocked public access to the square and adversely affected his tenant’s trade.  The circumstances were different to those to be assumed under the statutory rating hypothesis and the ex gratia payment had been made as a gesture of goodwill by the landlord in order to avoid further legal costs.
(ii)	The VTE agreed with the ratepayer that the rent concession of £12,500 should be taken as a percentage of the rent payable under the lease for the period of the protest.  This amounted to £55,500 on the basis that the protest lasted 135 days.  The rent concession represented 22.5% of the rent payable for this period.  Mr Pavlou said that this calculation was wrong in principle because the statutory rating hypothesis required it to be assumed that the tenant was entering into an annual contract.  Therefore the appropriate analysis of the rent concession should be based upon an adjustment over 12 months and not just the rent payable for the period of the protest.  The correct rental adjustment should therefore have been 8% (£12,500/£150,000 x 100).
(iii)	Mr Pavlou considered that the rental concession would have taken two factors into account: a reduction in the rental value of the premises due to the material change of circumstances and a partial loss of the goodwill of the tenant’s business.  He relied upon Stopenbach and Delestre Limited v Probert (VO) [1991] RVR 8 in which the Tribunal, Mr C R Mallett FRICS, held that 40% of a temporary reduction in rent conceded by the landlord because of his own building works was attributable to the loss of goodwill.  Mr Pavlou said that only the potential effect on the rental value of the property could be taken into account under the statutory rating hypothesis.  He therefore reduced the 8% annual allowance calculated under paragraph (ii) above by 40% to 5%. 
32.	Mr Pavlou said that no weight should be given to the ratepayer’s evidence before the VTE that there had been a reduction in its turnover of some 15.5% during the period of the Occupy London protest compared with the same period a year earlier.  Mr Pavlou said that only part of the two years’ accounts had been presented which was insufficient to establish any trend.  This information would be of very limited assistance to a valuer and would not have been available to the hypothetical landlord and tenant.  The appeal hereditament was not valued by reference to receipts but by rental comparables.  There was a wide range of factors that could effect turnover from year to year including physical, economic and seasonal factors.
33.	Mr Pavlou’s primary case was that the material change of circumstances was too transient to have affected the valuation under the statutory rating hypothesis.  He said that the rateable value using the corrected tone of £318.50 per m2 was £164,843 which Mr Pavlou rounded to £165,000.  He changed this to £164,000 at the hearing when the Tribunal noted that the VOA’s Rating Manual guidance on the rounding of valuations provided that for rateable values between £100,000 to £250,000 valuations should be rounded down to the nearest £1,000.
34.	Mr Pavlou said that in the event that the Tribunal agreed with the VTE that the material change of circumstances did affect the rateable value under the statutory hypothesis, then the amount of the allowance should be 5% resulting in a rateable value of £156,601 which Mr Pavlou rounded down at the hearing to £156,000.
35.	Mr Jackson was called to give oral evidence at the request of the Tribunal.  At the VTE hearing reference was made to a café and restaurant in Finsbury Square which had been given a 20% temporary reduction in its rateable value following the establishment of a protest camp in that square at or around 22 October 2011 (see paragraph 13 above).  Mr Jackson was the VO who granted that reduction.  He could not remember the exact duration of the protest at Finsbury Square but said that it lasted longer than the protest in St Paul’s Churchyard.  He said that the protest in Finsbury Square had “engulfed the café and totally prevented any passing trade from reaching it”.  The sanitation problems were worse there than at St Paul’s and in terms of the severity and duration of the material change of circumstances the situation at the café in Finsbury Square “far outweighed anything at Paternoster Square”.
36.	Mr Simons submitted that the appeal was about common sense.  A hypothetical tenant coming fresh to the scene at the AVD would have been in a competitive commercial market with operators keen to obtain a premium retail location in the City of London.  Such a tenant would have taken a pragmatic approach and would not have been unduly sensitive about the protest.  
37.	In Bradgate v Buncombe (VO) [1967] 13 RRC 347 the Tribunal, Sir Michael Rowe QC, President, considered a case where a house owner on a new housing estate sought a temporary reduction in rates because he was unable to drive his car up a hill in snow or icy conditions due to the estate road not yet having been made up and adopted.  The Tribunal said at 348:
“It cannot I think be denied that the first tenants on a new estate expect to suffer some inconvenience from the lack of made up roads, etc, during the development but do not expect to get any reduction in rent because of it.  It is only if it becomes apparent that the period of inconvenience is going to be appreciably longer than might normally have been expected that a case for a reduction in rent becomes a real possibility.” 
38.	In the present appeal the arrival of Occupy London would have caused “some inconvenience”.  But the hypothetical tenant, coming fresh to the scene in a strong market, would weigh such inconvenience against the long-term commercial advantages of securing the site.  The hypothetical tenant would have taken into account the following factors when weighing the inconvenience against the benefits as at the material day:
(i)	St Paul’s Cathedral had re-opened on 28 October 2011;
(ii)	the number of tents in the churchyard had reduced; and
(iii)	legal action had been suspended due to the prospect of a negotiated settlement about an agreed departure date.
The hypothetical tenant would have concluded from this that the protest was coming to an end and would be unlikely to continue for more than a few weeks.  On the contrary, for the reasons given in Mr Pavlou’s evidence, there was every reason to suppose that, adopting the expression used by Lord Esher MR in Hoyle and Jackson v Oldham Poor Law Union Assessment Committee [1894] 2 QB 372 at 378,  the protest “might terminate at any moment”.  In Hoyle the Court of Appeal held that the subject mill must be assessed at its full value because it was impossible for the assessment committee to estimate the probability that a strike (which had lasted two days when the rate was made) would last long enough to affect the view of the hypothetical tenant.  In this connection Mr Simons referred to a passage in Ryde on Rating at paragraph E[308]:
“It is implicit in many of the cases …. that the anticipation of future events may also have to be taken into account.  For example, the effect of an existing strike may be relevant, but so also is the anticipation that the strike will eventually end.”
In this appeal, said Mr Simons, the Occupy London protest was too transient to have affected the rateable value of the appeal hereditament under the statutory rating hypothesis. 
39.	Turning to the rent concession made by the landlord to the ratepayer Mr Simons submitted that the VTE should not have had regard to the actual concession because in reality it was an ad hoc compensation payment.  The closure of Paternoster Square was not due to the actions of the police or protestors; it was a commercial decision of the landlord which seemed to have been directed primarily to protect against threats to other of its tenants, particularly the LSE.  The ratepayer got “the raw end of the deal” from the landlord and the rental concession of £12,500 was properly analysed as an ex gratia payment to forestall legal action and to maintain goodwill between landlord and tenant.  This was clear from the facts and the concession was not a rental reduction as such. 
40.	Mr Simons referred to R v The School Board for London [1886] 17 QBD 738 in which Lord Esher MR, having determined that the school premises in question were rateable, said at 740:
“The real question is how the value is to be ascertained.  The enquiry is not as to what rent is paid by the actual occupier.”
Mr Simons submitted that the VTE should have dismissed the actual rent concession as irrelevant.  If, contrary to his primary argument, the VTE was right to have held that the material change of circumstances had affected the rateable value then Mr Pavlou’s evidence and conclusions should be preferred.
Discussion
41.	I deal firstly with the relevance of the reduction in the ratepayer’s turnover and the appellant’s use of a revised (lower) rental value of £318.50 per m2 to that used when the list was compiled.
42.	In considering the effect of the material change of circumstances I agree with the appellant that the ratepayer’s trade figures are not relevant for the reasons which he gives (see paragraph 32 above) and I do not give those figures any weight.
43.	The ratepayer does not object to the appellant’s introduction before this Tribunal of the issue of the appropriate rate per square metre to use in the assessment of the rateable value.  Such a rate is lower than that spoken to before the VTE and that change favours the ratepayer.  In Re Pearce’s (Valuation Officer) Appeal [2014] RA 341 the Tribunal, Martin Rodger QC, Deputy President, said at paragraph 31:
“Where there has been a material change of circumstances the VO is not restricted to adjusting the Valuation Tribunal’s determination solely to reflect the effect of the material change, but is required to undertake the single valuation exercise of determining the rateable value of the hereditament in those changed circumstances.  A mistake of fact made by the VTE need not be perpetuated and the VO is entitled to start from scratch, giving appropriate weight to the VTE’s decision.”
In my opinion, in the circumstances of this appeal, the VO is entitled to correct the incorrect compiled list entry to £164,000.
44.	I next consider the rent at which the appeal hereditament might reasonably be expected to let from year to year at the AVD, assuming the matters affecting the physical state of the locality in which the hereditament is situated were as they were at the material day.  Those matters originate from the Occupy London protest, namely a protest that at the material day had been established for three weeks by the erection of tents, the obstruction of public highways, the associated noise and commotion from protestors and the landlord’s erection of barriers and security checks at Paternoster Square.  I do not consider that the cultural, social and economic significance of the period leading up to Christmas can be said to be a matter affecting the physical state of the locality (although in a notional sense it might be said to be physically manifest in the square by the erection of, say, a Christmas tree and decorations).  
45.	On the other hand it is possible to envisage circumstances where the weather might be a matter affecting the physical state of the locality, e.g. flooding. Indeed the weather was an important factor in Bradgate which was concerned with the ratepayer’s inability to drive up a hill on an unmade road in icy conditions.  In this appeal I think that a hypothetical tenant would have regard to the possibility that the longevity of the Occupy London protest might be affected by the weather and the prospect of winter when considering his rental bid.
46.	The appellant emphasised the transient nature of the Occupy London protest and said that by the material day the authorities (both Church and City Corporation) had begun steps to disperse it.  But on the facts I do not accept Mr Simons’ submission that at the material day there was every reason to believe that the end of the protest was imminent.  In Samede Lindblom J identified the time for which the camp had been present as a relevant factor in favour of granting relief.  He said at paragraph 164:
	“By the time of the hearing [19 December 2011] more than two months had gone by since the protest camp was set up in St Paul’s Churchyard.  There was no evidence that the defendants had agreed a date for it to be removed.  Some seemed intent on remaining until various aspirations, such as Mr Ashman’s proposed list of ‘acts of reparation’, had been achieved or particular demands met.  If the protest camp is not removed now, by order of the court, it seems likely to remain, possibly for many months more.  No firm date for its removal – nor even a provisional date – has been given to the City, or to the court.  Whatever the protestors hope to achieve by leaving their camp where it is, they have had ample time in which to draw attention to the causes they espouse.  They have made their point.”
Although that assessment was made six weeks after the material day, in my opinion a tenant fresh to the scene on that date would take into consideration the nature and serious intent of Occupy London and would place it in the context of similar contemporary protests in major cities around the western world.  Such a tenant would ask himself how long it would take for the protestors to make their point and on the facts, I do not think it would be reasonable to suppose, three weeks after it began, that it would be likely to disperse in the near future, let alone imminently.  I consider that the tenant would have anticipated the nature of Ms Samede’s evidence recorded at paragraph 58 of the decision in Samede:
	“In cross-examination Ms Samede accepted that after the City’s statutory notices requiring the removal of the tents and other structures from the land had been served on the protestors on 16 November 2011 they had deliberately decided not to co-operate.  No agreement to comply with those notices had been reached between the protestors.  Mr Forsdick asked Ms Samede whether, without orders of the court, there was any guarantee of the camp being removed.  Ms Samede said she did not think she could honestly say ‘Yes’ to that question.  Ms Samede said many protestors probably would go, but many would want to continue whether or not there was an eviction order.  She said she ‘could not give an end-date as such’.”
47.	In my opinion the nature and likely duration of the protest meant that the hypothetical tenant would not be prepared to pay the same annual rent as he would in the absence of Occupy London, notwithstanding the attractive nature of the opportunity and the strength of the market at the AVD.  I therefore reject the appellant’s primary case that the protest was too transient to have affected the rent at which the appeal hereditament might reasonably be expected to have let from year to year at the AVD.  
48.	Mr Simons submitted that, if the appellant’s primary argument was not accepted, the VTE was wrong to take into account the actual rent concession that was made by the landlord because in reality it was an ad hoc compensation payment and not a rent reduction.  In considering these submissions I have had particular regard to the Tribunal’s decision in Stopenbach. 
49.	Stopenbach concerned two shops forming part of a larger block in the same freehold ownership.  The owner began a scheme of major building works to the block in March 1984 and in May 1984 erected scaffolding on the shop elevations which involved the erection of boarded scaffold pillars which both restricted the pavement width outside the shops and partially obscured their frontage.  The scaffolding was removed in August 1986.  Before the works were finished the landlord offered, and the tenants accepted, a 50% reduction in the rents payable under their leases for the period when the scaffolding was on the building.  The valuation officer concluded that the actual evidence of the reduced rents at the appeal hereditaments was not a reliable guide.  The first reason he gave was:
	“In the real word the landlord was concerned with the development of a major project and it was reasonable to suppose that he would wish to avoid any impediment from his existing tenants and any claims for compensation.  He would therefore be prepared to reduce the rent in order to avoid these troubles.”
The Tribunal said at 9 that:
	“The question to be answered is what is the essential difference, if any, between the temporary rents negotiated between the real life landlord/developer and his tenants and the rent that might be agreed between a hypothetical landlord and tenant. 
	….
	It seems to me that the actual tenants of the ground floor units in these cases might expect to suffer three types of loss due to the building operations on adjoining premises; a depreciation in the annual value of their premises, a partial loss of goodwill and possible damage to their premises, chattels and goods.  
	It is in my view only the first item that can be taken into account in considering the rating assessment…. 
	…The question of the damage to the premises, chattels and goods was the subject of separate negotiations between the landlord and his tenants. …in the absence of any evidence to the contrary I think it is reasonable to assume that compensation in respect of [loss of goodwill] was included in the reduction in the rent.
	It is this item which in my view marks the material difference between the real world and the hypothetical world and that apart I am not convinced by the arguments in the present cases that a tenant protected by the conditions in his lease and the provisions in the Landlord and Tenant Act 1954 is necessarily in any substantially better or worse bargaining position than by comparison with an incoming tenant negotiating a rent to be paid for the premises in the circumstances current at the date of the proposal. 
	I am of the view that 30% of the reduction can be attributed to the depreciation in rental value and 20% plus to the loss of goodwill.”
50.	Mr Simons distinguished the facts in the present appeal from those in Stopenbach, arguing that the commercial context in this appeal was very different.  The landlord decided to block access to Paternoster Square, and thus to the appeal hereditament, primarily to protect another of its tenants, the LSE.  The ratepayer got “the raw end of the deal from the landlord” and the £12,500 reduction in rent was properly to be analysed as an ex gratia payment to forestall legal action and to maintain goodwill.  It was not a rent reduction as such.  
51.	I do not accept Mr Simons’ distinction of Stopenbach from the present appeal.  I consider the facts to be analogous.  In both cases the actual landlord reduced the rent of its tenant because of the adverse effects on the tenant of work instigated by the landlord.  Although the main target of Occupy London was the LSE, the ratepayer of the appeal hereditament, which was located in the same building, would have suffered equally if the protestors gained access to the square.  In both Stopenbach and this appeal the landlord gave a reduction in rent before the building works/protest had finished.
52.	Mr Simons accepted that if there was “nothing better” then evidence of an actual rent reduction could be used “as a last resort”.  There is no other evidence of the effect of the protest on rental value apart from the allowance given to the café in Finsbury Square.  I accept Mr Jackson’s evidence that the circumstances there were different and the impact of the protest more severe.  
53.	I think that a hypothetical tenant would probably have had been in a stronger bargaining position than the actual tenant.  The hypothetical tenant could choose to look elsewhere or wait and see how the situation with Occupy London developed before committing to a lease, whereas the actual tenant was constrained by his lease and would be faced with the prospect of taking legal action in the absence of a satisfactory rent concession from his landlord.  In my opinion these factors counteract the appellant’s assertion that a hypothetical tenant would be prepared to ignore Occupy London in bidding for what he says was a premium site in a strong market.  Under these circumstances I think that the rent concession that was agreed between the actual landlord and tenant fairly represents what a hypothetical tenant would be able to negotiate coming fresh to the scene with the matters affecting the physical state of the locality being as they were on the material day.  I therefore give weight to the actual reduction in rent.  The rent concession was made on 23 December 2011 and was expressed to be one-twelfth of the annual rent, i.e. £12,500, deductible from the quarter’s rent due on 25 December 2011.  The payment of the balance of that quarter’s rent was deferred until the next quarter day on 25 March 2012. 
54.	The VTE analysed the rent concession as being 22.5% of the rent that was due under the lease for the actual period of the protest (135 days).  The appellant says this approach is wrong and analyses the rent concession as a percentage (8%) of the actual annual rent.  He then reduces this to 5% to allow for the loss of goodwill and deducts this percentage as an end allowance from the rateable value of £164,000.
55.	In my opinion neither approach is correct.  The VTE’s analysis is based upon the actual length of the protest which would not have been known to the hypothetical parties at the material day and was not known to the actual parties at the time the rent concession was made.  The appellant’s analysis will only give a fair result if the actual landlord and tenant, in agreeing the rent concession, thought that the protest was going to last for a year. (A fuller explanation of this point is given in the attached appendix.)  There is no evidence to support that assumption and it is certainly not the appellant’s view of how long the protest would continue.    
56.	Unlike Stopenbach, where the landlord was responsible for the building works giving rise to the material change of circumstances, the landlord in the present appeal had no control over or knowledge of how long the Occupy London protest would last. The landlord’s rent concession was made shortly before the next quarter’s rent was due on 25 December 2011.  That concession was presumably made to recognise both the disruption caused by the protest to date and the future disruption that would be caused by its continuance.  The fact that the rent concession was referenced to the payment of a quarterly rent and that payment of the balance was deferred until the next quarter day suggests to me that the landlord was expecting the protest to be over by 25 March 2012.  Since the rent concession was expressed as an agreement between the landlord and tenant it is fair to assume that this was an expectation shared by the tenant.  So the period over which the rent concession should be analysed is, in my opinion, between 17 October 2011 and 25 March 2012, a period of 160 days.
57.	The rent payable under the lease for this period is £150,000 x 160/365 = £65,753 or, say, £65,750.  The rent concession of £12,500 represents 19% of this amount. 
58.	The figure of 19% includes allowances for both rental value and the loss of goodwill.  In Stopenbach the rent reduction was divided 60:40 between rental value and goodwill.  In my opinion the actual rent concession in this appeal is likely to have contained a larger element in respect of goodwill given that the protest took place in the run-up to Christmas.  I therefore divide the rent concession on a 50:50 basis to give an allowance for rental value of 9.5%.
59.	This analysis is predicated on the situation as it was known on 19 December 2011 (the date when the landlord first appears to have offered the rent concession) rather than the material day (7 November 2011).  Between those dates the City Corporation issued proceedings in the High Court (18 November 2011).  The substantive hearing in the High Court began on 19 December 2011.  In my opinion a hypothetical tenant at the material day, and before proceedings had been issued, would have anticipated that the protest might have lasted until the end of March 2012, but no longer.  In the light of Occupy London such a hypothetical tenant would have been prepared to pay, and a hypothetical landlord would have been prepared to accept, an annual rent of £148,420, being a reduction of 9.5% from the (corrected) rateable value of £164,000.  I round this figure down to £148,000.
Determination
60.	The appeal is allowed in part and I determine that the rateable value of the appeal hereditament in the 2010 local non-domestic rating list shall be reduced to £148,000 with effect from 17 October 2011, reverting to £164,000 when the Occupy London protest ended, which I find to be 28 February 2012.

Dated 18 March 2015

A J Trott FRICS

APPENDIX
Critique of the appellant’s analysis of the actual rent concession 
1.	Using the appellant’s adopted figure of 5%, net of goodwill, as being the reductive effect of the protest on the rental value of the appeal hereditament gives a rateable value of £155,800 for the period of the protest (£164,000 x 0.95).  Once the protest has finished the rateable value reverts to £164,000, there being a further material change of circumstances at that time.  That analysis would be fair and reasonable were the protest to last for a year since the difference between the two rateable values is £8,200 or 5% of £164,000.  But if the protest only lasted 160 days, as I consider the actual landlord and tenant contemplated, the equivalent calculation would be £65,753 (£155,800 x 160/365) plus £92,110 (£164,000 x 205/365) equals £157,863.  In this case the tenant would only receive a benefit of £6,137 (£164,000 - £157,863) or 3.74%.
2.	To ensure a fair and reasonable result the rateable value for the period of the protest should be based on the anticipated length of the protest (160 days).  The apportioned rateable value for that period is £71,890 (£164,000 x 160/365).  The rental allowance of £8,200 should be expressed as a percentage of that figure, i.e. 11.41% (£8,200/£71,890 x 100).  Taking 11.41% from £164,000 gives £145,288 as the rateable value for the expected period of the protest.  So the tenant will pay £63,688 for the period of the protest (£145,288 x 160/365) and £92,110 thereafter (£164,000 x 205/365) giving a total of £155,798 or 5% less than £164,000.  That gives the tenant the full and equivalent benefit of the rent concession that was given by the actual landlord.  In my opinion that is the fairest approach and is compatible with the statutory rating hypothesis.