UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2015] UKUT 295 (LC)

UTLC Case Number: RA/70/2014

RA/71/2014

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

RATING – valuation – 2010 Rating List – office and premises – tone of the list - comparables – settlements - market conditions - vacancy rates – Guidance per Lotus & Delta Ltd v Culverwell (VO) – appeals allowed

 

 

 

 

IN THE MATTER OF APPEALS FROM TWO DECISIONS OF

THE VALUATION TRIBUNAL FOR ENGLAND

 

 

 

BETWEEN KEN BAINBRIDGE (VO)

Appellant

 

 

and

 

 

BOLDFIELD LIMITED (1)

GREENFIELD SOFTWARE LIMITED (2)

Respondents

 

re: Units A & D, Trinity Court, Buckingway Business Park,

Anderson Road, Swavesey, Cambridge CB24 4UQ

 

Before: P R Francis FRICS

 

Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL

 

on 19 March 2015

 

Ken Bainbridge, appellant Valuation Officer, in person

Mark Catley FRICS, for the respondent ratepayers

 

 

The following cases are referred to in this decision:

 

Lotus & Delta v Culverwell (VO)[1976] RA 141

K Shoe Shops Ltd v Hardy (VO) & Westminster City Council [1983] RA 26 (CA)

 

DECISION

Introduction

1.             This decision concerns appeals from two determinations of the Valuation Tribunal for England (“the VTE”) dated 29 July 2014 relating to offices and premises at ground floor, Unit A (Boldfield Limited – RA/70/2014), and offices and premises at ground and first floors, Unit D, (Greenfield Software Limited – RA/71/2014), Trinity House, Buckingway Business Park, Anderson Road, Swavesey, Cambridge CB24 4UQ (“the appeal hereditaments”).  Although not formally consolidated, it was agreed that these appeals should be heard together due to the considerable similarities regarding the facts, evidence and issues agreed and in dispute.

2.             The matter was heard on 19 March 2015 in accordance with the Tribunal’s Simplified Procedure, and I carried out an accompanied inspection of Buckingway Business Park on the following day. Mr Kenneth Bainbridge MRICS appeared as the appellant Valuation Officer (“VO”) who was authorised pursuant to section 61 of the Local Government Finance Act 1988 (“the LGFA 1988”) by Janet Alexander, the responsible statutory Valuation Officer, and gave expert valuation evidence.  Mr Mark Catley FRICS FAAV appeared and gave expert valuation evidence on behalf of the respondent ratepayers.  The experts helpfully produced comprehensive statements of agreed facts and issues, and had also agreed the facts relating to, and the analyses of, the schedule of comparable transactions upon which they each sought to rely.

The appeals

Ground floor, Unit A, Trinity Court, Buckingway  Business Park.

 

3.             Unit A/B Trinity Court which, when it was constructed, comprised two ground and first floor purpose built office units in a block of four, was properly entered into the 2005 rating list with an effective date of 11 February 2009 following the withdrawal of an earlier incorrect completion notice.  It was then entered into the compiled 2010 rating list at a rateable value of £104,000 which, following an appeal, was reduced to RV £90,000.  Units A/B were subsequently divided vertically in the centre to provide two separate ground and first floor office units (Unit A & Unit B) with effect from 25 February 2013 and were each assessed at RV £52,000.  Later, Unit A was further subdivided horizontally, and the ground floor, which is now the appeal hereditament occupied by Boldfield Ltd, was assessed at RV £25,750 with effect from 10 June 2013.

4.             On 9 July 2013, the respondent ratepayer lodged a proposal seeking a revised RV of £15,250 on the grounds that the RV shown in the list was inaccurate and that there was a significant amount of rental evidence on Buckingway Business Park which supported the reduction sought. As the proposal was considered by the VO to be unfounded, it was referred as an appeal to the Valuation Tribunal for England (“VTE”) which was heard on 24 June 2014.  By its decision of 29 July 2014, the VTE ordered the VO to alter the entry to RV £19,750 with effect from 10 June 2013.  

5.             The appellant VO issued a notice of appeal to this Tribunal on 22 August 2014, on the grounds that the VTE had erred in its decision in a number of ways.  It was submitted that the VTE was correct in determining that the hereditament should be valued as it stood at the material day of 10 June 2013, reflecting the physical matters as set out in Schedule 6, paragraph 2(7) of the Local Government Finance Act 1988 (“the 1988 Act”) based upon rental values that were prevailing at the antecedent valuation date of 1 April 2008. However, it had erred in its interpretation of the Lands Tribunal decision in Lotus & Delta v Culverwell (VO) [1976] RA 141 regarding the weighting of evidence in respect of rents of comparable properties and settlements of appeals.  It had ignored pertinent evidence relating to the circumstances that were applicable at the material day and had placed too much weight upon the respondent ratepayer’s (the appellant in the VTE appeal) unsupported evidence and oral arguments particularly relating to alleged oversupply. Further it appeared to have adopted its valuation of £137 per sq m for the main office space on an entirely arbitrary basis which did not reflect the available rental evidence.  That its figure appeared arbitrary was agreed by the respondent to this appeal.  The VO argued for an RV of £25,750 (£180 psm) as sought before the VTE.

6.             The respondent ratepayer issued notice of intention to respond on 20 November 2014 and argued that not only did the VTE’s adopted figure seem to be based upon nothing in particular, it entirely failed to reflect the significant vacancy levels on the business park at the relevant date and the effect that had on demand and thus achievable rental values.   Although an RV of £15,250 had been sought in the respondent ratepayer’s proposal, it had been argued before the VTE that it should be determined at £14,750 (£103.50 psm) and that was the figure sought before me.

Ground and first floors, Unit D, Trinity Court, Buckingway Business Park.  

7.             Unit D is at the opposite end of Trinity Court, and comprises a self contained unit of both ground and first floor offices.  The circumstances of the hereditament’s original entry into the rating list were broadly similar to the above, it being first entered into the list on 1 September 2008 as part of combined Unit C/D.  Then, following the withdrawal of the incorrect completion notice , and the issuing of a new one, it was entered into the 2010 compiled rating list at RV £104,000 with an effective date of 11 February 2009. Following an appeal, a revised RV of £90,000 was agreed – this being based upon a figure of £155 psm for useable area. This combined unit was again re-constituted, with Unit D being assessed at RV £51,500.  Following a proposal from the occupier seeking a reduction to RV £33,500, which was unacceptable to the VO, the matter came before the VTE on 24 June 2014, its decision of 29 July 2014 determining a revised figure of RV £39,500 (£137 psm) with effect from 23 July 2010.  

8.             In this appeal, the respondent ratepayer now seeks RV £29,750.

The VTE decisions

9.             In its decision on Unit A, the VTE said it had considered the principles set out in Lotus & Delta v Culverwell (VO)[1976] RA 141 regarding the weighting of evidence, in that the passing rent where available for the appeal hereditament should be used as the starting point in its consideration of the rateable value.  The more closely the passing rent matched the rating hypothesis, the more weight should be attached to it.  However, it was noted that the appeal hereditament was let through connected parties and that there was some uncertainty as to the terms.  The VTE, therefore, said that it had turned to the summary Schedule of rents passing on 10 comparable premises on Buckingway Business Park, as provided by the VO.

10.         Having considered the evidence, the VTE concluded that following the completion of Trinity Court, there was an issue of oversupply which would be likely to reduce the hypothetical tenant’s bid.  Whilst it dismissed an argument from the appellant ratepayer’s expert that delays to the completion of improvements to the A14 would be a further cause of difficulties in securing tenants on the Park, the VTE did attribute weight to his argument that an over-supply allowance had been agreed between the Valuation Office Agency (“VOA”) and a consortium of City rating agents in respect of hereditaments in the City of London.  The overall stock on the Park had increased by 9% since the completion of Trinity Court, and this was similar to the increase in stock in the City of around 10%.

11.         In conclusion, the VTE said, at paragraph 16:

“The panel, however, did not consider the effect of oversupply warranted a main space price of £103.50 psm as it was of the opinion that economic conditions, which could not be taken into account, would also have had an effect.  The panel therefore concluded that a reduction to £137psm was more appropriate.”

12.         In respect of Unit D, the VTE again concluded that the passing rent was of little assistance as it was a stepped rent and thus, as with Unit A, said it relied upon the summary Schedule of rents provided by the VO.  The Rateable Value was also determined on the basis of £137 psm.

Issues

13.  The only issue for my consideration is whether or not the VTE correctly determined the RV of each of the appeal premises based upon a value of £137 psm of useable space.

Facts

14.         From the evidence, I find the following facts. Trinity Court was the last of the office developments (to date) to be constructed on Buckingway Business Park and was completed in 2008.  It comprises two separate blocks consisting of units A, B, C & D on one side of a short cul-de-sac that provides forecourt parking and a central parking area, and on the other side, units F & G.  The development is off Anderson Road, the main feeder road to the Park.  The buildings are of traditional concrete frame with brick cladding under flat roofs and the offices have deep glazing panels front and rear and, to the end units, to the sides. The buildings provide quality accommodation with good natural light, raised floors, air conditioning and adequate parking. 

15.         Buckingway Business Park is adjacent to junction 28 of the main A14 trunk road south of Swavesey, some 8 miles from Cambridge.  Construction of the Park began in 1998, and a number of units were developed by 2002.  Thence there was a period of 4 or 5 years before construction of Trinity Court commenced.

16.         Unit A consists of ground floor offices extending to 143.42 sq m and is held leasehold for 20 years from 24 February 2013 at an initial rent of £15,600 pa on an internal repairing and insuring basis.  The lease is between the appellant ratepayer and its own pension fund which owns the freehold.

17.         Unit D consists of ground and first floor offices with areas of 141.04 sq m and 147.31 sq m respectively.  It is held leasehold on a full repairing and insuring basis for 10 years from 23 July 2010, subject to a review after 5 years.  The rent is stepped, with the first two years rent free, years three and four £27,906 pa and year 5 £41,880 pa.

The Statutory Provisions

18.         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.”

19.         Pursuant to the Rating Lists (Valuation Date) (England) Order 2008 [SI No 2008 No 216] 1 April 2008 is specified as the day by reference to which the rateable values of non-domestic hereditaments are to be determined for the purposes of local and central non-domestic rating lists which are to be compiled for England on 1 April 2010.  This is the antecedent valuation date.

20.         The procedure for determining the material day is defined in the Non-Domestic Rating (Material Day for List Alterations) Regulations 1992 [SI 1992 No 556] (as amended).  It is the day by reference to which the physical matters to be assumed in the valuation are established.  These are set out in Schedule 6, paragraph 2(7) (a) to (e) of the LGFA 1988.

“(a) matters affecting the physical state or physical enjoyment of the hereditament;

(b) the mode or category of occupation of the hereditament;

(c)  the quantity of minerals in or extracted from the hereditament;

(cc)   the quantity of refuse or waste material which is brought onto and permanently deposited onto the hereditament;

(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;

(e) the user or occupation of other premises situated in the locality of the hereditament.”

In these appeals the material day is agreed to be 10 June 2013 (Unit A) and 23 July 2010 (Unit D).

21.         By reference to The Non-Domestic Rating (Alterations of Lists and Appeal) (England) Regulations 2009 [SI 2009 No 2268] the agreed effective date of the valuations is also 10 June 2013 (Unit A) and 23 July 2010 (Unit D).

The case for the appellant VO

22.         In opening the appellant VO’s case, Mr Bainbridge referred to the grounds of appeal (as summarised in paragraph 5 above) and said that, following the guidelines in Lotus, the evidence clearly demonstrated rental valuations of the two hereditaments based upon £180 psm.  He pointed out that in preparing his valuation he was mindful of two important dates.  Firstly the AVD of 1 April 2008, at which time the general level of prevailing rental values, which would reflect the state of the economy and other relevant circumstances, were set.  That was two years before the new rating list came into force. Trinity Court was in existence at the AVD and was available to the market (marketing having commenced in late 2007).  Secondly, the material day, which was the date by reference to which the factors set out in Schedule 6, paragraph 2(7) of the 1988 Act were to be taken to be established.  For the purposes of these appeals, they were sub-paras (a), (d) and (e) and would reflect both the physical presence of the new development and the level of availability.  It would not, however, reflect the prevailing economic situation as that was to be taken into consideration as it had existed at the earlier date. 

23.         Turning to his expert witness reports, Mr Bainbridge said that when Trinity Court was first offered on the market in 2007 the asking rent was £193 psm with 6 months rent free.  Prior to the construction, the existing offices on Buckingway Business Park totalled 7,164 sq m.  Trinity Court, at 2,557 sq m, therefore added 35.7% to the total space which, with no further development since, meant that at the material day the overall space became 9,721 sq m, of which Trinity Court formed 26.3% of the total.  In his opinion, there was no really quantifiable difference between any of the office premises or developments on the Park in terms of quality or position despite the fact that it was arguable Trinity Court was newer and more imposing in design and appearance.

24.         Considering the provisions of Schedule 6, para 2(7) of the 1988 Act, there had been no change in the physical state of the locality since the date of the compiled list (d), or matters that would affect the physical state or enjoyment of the hereditament (a).  However, there had been a change as occupation (e) (but not user) in that the offices in Trinity Court have been let.  The only change, therefore, between the AVD and the material days was the final completion and letting of Trinity Court.

25.         As to the weighting of the evidence, it was agreed that the first two of the propositions set out in Lotus were not appropriate in this case, so it was necessary to consider actual rental evidence from comparable properties (proposition iii) and then comparable assessments (proposition iv).  Mr Bainbridge produced a schedule containing details of rental evidence of office units on Buckingway Business Park, the analyses of which had been agreed with Mr Catley.   He said that the closest to the AVD was 1^st floor, 4 Carisbrooke Court which is in a terrace of traditional style, purpose built offices situated close to Trinity Court.  The rent, agreed on a lease renewal for 10 years from 29 September 2008 with a review after the fifth year was £44,100 for 243.72 sq m accommodation, this devaluing to £181 psm.  The RV was entered into the 2010 rating list with an effective date of 25 February 2009 at £43,750 (£179.50 psm).

26.         Other units that were close in size and date, and which were considered to be at open market rents included 2 Carisbrooke Court which was another lease renewal, for 5 years, from 15 March 2009 with no reviews and one month rent free at £55,000 pa (adjusted rent £53,984).  At 317.7 sq m this unit devalues to £169.92 psm.  At the assessed RV of £57,000 the devaluation is £180 psm.  Ground floor, 4 Carisbrooke Court was a lease renewal for 10 years from 9 January 2004, and on the review at the end of the fifth year, the rent was reviewed to £41,000 pa effective 25 February 2009 which for 238.4 sq m equates to £171.98 psm.  The RV was entered into the list at £42,750 (£179 psm).

27.         Ground floor 5 Carisbrooke Court was a later lease renewal for 5 years from 3 December 2009 on full repairing terms with no reviews at a rent of £38,460 pa which for 236.22 sq m devalues to £162.81 psm.  At the entered RV of £42,500 that equates to £180 psm. 

28.         Crystal House was a lease renewal for 10 years with 3 yearly reviews effective 15 May 2006 on internal repairing and insuring terms at £75,000 pa.  The rent was adjusted for the purpose of analysis to £71,250 pa which devalues to £190.56 psm.  The RV of £67,000 equates to £180 psm.  Although the transaction was between connected parties it was said to be at open market value.

29.         Ground floor Unit F Trinity Court was let on a new 10 year lease from 21 October 2010 at a stepped rent for the first 5 years with no reviews thereafter.  At an adjusted rent of £45,461 pa for 347.37 sq m this equates to £130.88 psm. The rateable value of £62,500 produces an equivalent £180 psm.

30.         Unit E Trinity Court and Unit F Trinity Court are both significantly larger than either of the appeal hereditaments at 698.3 sq m and 695.09 sq m respectively, and were both let in 2010 on stepped rents which produced equivalents of £121 psm and £131 psm.  Mr Bainbridge said that for rating purposes they were assessed at £155 psm to allow for quantum. 

31.         Mr Bainbridge said that it was evident, particularly from the timing of the lease renewals and rent reviews in Carisbrooke Court that there had been a steady and consistent decline in values from September 2008 (six months after the AVD) where 1^st floor, 4 Carisbrooke Court analysed to £180 psm to December 2009 and Ground floor, 5 Carisbrooke Court was agreed at £163 psm.  Reductions continued into 2010 (as evidenced by Units E and F Trinity Court). The reductions, he said, were consistent with the deteriorating economic conditions, and with Crystal House analysing to £190 psm nearly two years before the AVD all the evidence supported his view that the value psm in April 2008 was in the region of £180 psm. 

32.         He said that the stepped rent agreed in respect of Unit D, Trinity Court (Greenfield – one of the two appeal hereditaments) in July 2010, which if amortised over 5 years produced £83.18 psm or £109.01 psm if amortised over the 10 years of the term was clearly out of line with the other lettings on the Park.

33.         Turning to the consideration of the comparable assessments in accordance with proposition (iv) in Lotus, Mr Bainbridge said he had personally settled some 20 appeals (both against the compiled list and against subsequent list alterations) on Buckingway Business Park.  Of these, 11 were withdrawn after discussion, 7 were agreed and two were dismissed by the VTE.  Eight different firms were involved, including local agents and national rating surveyors, and all were settled or agreed in accordance with assessments based upon £180 psm for office units up to 500 sq m, and £155 psm for offices over 581 sq m, adjusted to reflect such matters as lack of raised floors, air conditioning or inadequate parking as necessary. The question of oversupply had been raised in all of the negotiations, but that did not affect the level of the settlements. It was a fact, he said, that by the material day, the vacancy levels at Trinity Court had all but disappeared.  In his opinion, all those settlements were sufficient to establish a settled ‘tone of the list’ in accordance with the principles set out in K Shoe Shops Ltd  v Hardy (VO) & Westminster City Council [1983] RA 26 (CA).

34.         In failing to properly take into consideration the rents of the comparable premises and the assessments and settlements, the VTE had, Mr Bainbridge said, seriously erred.  For instance, it had ‘noted’ but then totally ignored the evidence from ground and first floor 2 & 5 Carisbrooke Court in 2009, by which time Trinity Court had been completed and was on the market to let.  It had also not even referred to the list of settlements that had been produced. Further, the assessment of ground floor Unit A (the Boldfield appeal hereditament) had already been considered on appeal as part of the larger Unit A/B and a revised assessment of £155 psm had been agreed to reflect quantum.  As the reconstituted Unit A was smaller, the assessment should be confirmed at £180 psm.  As to Unit D, it was, he said, worth noting that the proposal made on behalf of Greenfield Software Ltd by C.V.S. Surveyors against the VO’s list alteration with effect from 23 July 2010 had been withdrawn following discussion, and the entry at £180 psm was thus retained.  Finally, as he had said, the VTE’s decision to value the main office space at £137 psm was arbitrary and was not supported by any of the available evidence. 

35.         Regarding Mr Catley’s arguments on behalf of the respondent ratepayers, Mr Bainbridge submitted that the suggestion that the VTE should have made a further reduction to the figure applicable at the AVD to take into account the oversupply question and high vacancy levels at the Material Day was clearly wrong.  The new space at Trinity Court did not come on-stream during the lifetime of the 2010 rating list.  The building was already there and the offices were on the market at the AVD.  Mr Catley’s reliance upon the agreement between the VO and City of London rating agents was misconceived.  That was made during the life of the 2005 rating list and specifically related to the impact of newly constructed Grade A office accommodation during late 2009 and early 2010.  It was agreed that such impact was a material change of circumstances in accordance with paragraph 2(7)(d) of Schedule 6 to the LGFA 1988.  The allowance related solely to Grade A offices built post 1990; it was agreed at 5% of the unrounded rateable value in the assessment and that the effective date for any agreement would not fall before 1 April 2009. 

36.         Mr Catley’s reference to the 20% reduction in the assessments of retail properties in Dunstable due to oversupply in the retail sector was also not relevant in this case.  The retail sector had been particularly badly hit during the course of the 2005 rating list, when the agreement was reached, and in Dunstable vacancy levels had reached as high as 60%.  The circumstances were entirely different in retail, where shops rely upon passing trade, and therefore high vacancy levels would have a knock on effect upon passing trade.  The allowance only related to parts of the town centre, was adopted in respect of the 2005 rating list and was carried forward to the 2010 list. 

37.         Mr Bainbridge said that the VTE was wrong to have taken into account the respondent ratepayers’ contentions that offices in the locality of Buckingway Business Park were, in the main, let to local businesses and would thus not attract tenants from a wider geographical area. In this regard, he produced a schedule which clearly showed that a large number of the occupiers were national or international companies.

38.         He said, on the question of oversupply, that the fact there had been no further development on the Park, despite there being additional land available, was not an indication that the market had become saturated.  It was due to the recession, as was the fact that it had taken a very long time to let some of the units in Trinity Court.  The timing of that development, and its release to the market, was unfortunate in terms of the economic climate.

The case for the respondent ratepayers

39.         Mr Catley said in opening that both of the respondent ratepayers had appealed their assessments on the basis that the rating assessment did not bear comparison with the reality of the dire situation that prevailed when they took occupation.  The owner of Unit A had managed to acquire the freehold of his part of the building and the first floor (which, some 7 years later, is still vacant) for his pension fund at a knock down price - £355,000 as against the asking price  of £500,000.  The tenant of Unit D had been able to strike an amazing deal in July 2010, with the rent payable being analysed at almost £100 psm below the rating assessment.  At that time, Greenfield was the only occupier of a building which was described by Mr Cusk (the owner of the tenant company) as being very bleak and having views from the windows that “were like tumbleweed country”.

40.         It was the respondent ratepayers’ case, Mr Catley said, that the rating assessments on the original units on the Park were too high, being based (as the agreed Schedule of comparables revealed) almost entirely on lease renewals where there was no opportunity to test the market at the time, rather than rent reviews. In terms of the evidential hierarchy per Lotus, it was submitted that lease renewal evidence came below new lettings (first) and rent reviews (second) with assessments a poor fourth.  The rental evidence on Trinity Court was significantly lower than that on the first phase of the Park development, and whilst it could be argued that the recession, coming as it did just as Trinity Court was being completed, was a contributory factor in the lower rents and the delays in finding tenants, it was suggested that the decision to develop a new block that would add 35.7% to what was already there was “mindless”.  This was all the more so as the Park was not an acknowledged office location and the developer (which went into liquidation) did not have any pre-lets arranged. 

41.         Mr Catley said that the respondents’ contention was that the RV should be based upon £103.50 psm, which was based upon the rents being paid during the period where there were significant vacancy levels, and, reflecting the over-supply, taken back to the AVD.  He pointed out that the VO, subsequent to the preparation of his schedules, had agreed that that the adjusted annual rent for Unit D (Greenfield) at 20 July 2010 equated to £83.17 psm which was over £100 psm below the VO’s assessment and even less than was being contended for by the respondents.

42.         In his expert witness report, Mr Catley said that the VTE had completely overlooked the question of over-supply, and went on to say:

“The rental levels originally delivered by the Valuation Officer have been analysed by me and are shown at Appendix MC4.  These devaluations are now agreed.  Whilst this is, effectively, evidence for the Valuation Officer, it demonstrates, very convincingly, that the effect of vacancy [levels] on the bids of prospective occupiers of units at Trinity Court (if the level of vacancy were taken back to the AVD ) would be severely reduced.”

Furthermore, in determining a figure of £137 psm the VTE had provided no justification or explanation for this, and he agreed with Mr Bainbridge that it seemed to be completely arbitrary.

43.         Whilst the rents agreed on Carisbrooke Court (the first units on the estate to have been let) were proximate to the £180 psm that Mr Bainbridge was seeking, none of those in respect of Trinity Court, which were all let much later, came anywhere near those levels.  The deal that Mr Cusk did for Greenfield was testament to that.

44.         Mr Catley referred to the agreements reached with the VO in respect of City of London offices, and on retail units in Dunstable.  He said that this is not a recession orientated issue.  Cambridge has seen unprecedented growth in other locations, and the question of over-supply appeared to be restricted to Trinity Court. 

45.         In cross-examination, on being asked how he arrived at the figure of £103.50 psm that was being sought by the respondent ratepayers, Mr Catley said it reflected the fact that rental values in Trinity Court were significantly lower than elsewhere, but accepted in response to a further question from me, that evidence in support of the specific figure was not before this Tribunal.

46.         Mr Catley also accepted the fact that whilst he had said that Greenfield was the first tenant to occupy Trinity Court, and it was another year before any other tenants moved in, part of the building had also been let but it was a while before the tenant took up occupation.  This, he acknowledged, would affect his analysis of the amount of floorspace that was ‘vacant and to let’, and his table of occupancy rates would also not be entirely correct.  He accepted that vacancy levels fell significantly between 2010 and 2013, with the two largest units having let in  2011 (as demonstrated in his table of letting dates at Appendix MC7) and that the only available unit at the material day was the first floor of units A & D.  Further, Mr Catley accepted that four rental deals were effected in Trinity Court in 2010, and in answer to the question of why Greenfield’s rent should have been so much lower, he said that Mr Cusk had been offered the freehold or a lease, and had opted to take the latter. 

Discussion

47.         Looking firstly at the evidential hierarchy, it is a longstanding principle of rating valuation, which properly reflects the statutory valuation hypothesis, that reliable rental evidence should be accorded more weight than rating assessments unless there is an established tone of the list  The exception in favour of valuation by reference to an established tone is not a true exception as the tone should itself have become established on the basis of reliable rental evidence.  The six propositions in Lotus state:

“(i)  Where the hereditament which is the subject of consideration is actually let that rent should be taken as the starting point.

(ii)  The more closely the circumstances under which the rent is agreed both as to time, subject matter and conditions relate to the statutory requirements contained in the definition of gross value in s19(6) of the General Rate Act 1967, the more weight should be attached to it. 

(iii)  Where rents of similar properties are available they too are properly looked at through the eye of the valuer in order to confirm or otherwise the level of value indicated by the actual rent of the subject property.

(iv)  Assessments of other comparable properties are also relevant.  When a valuation list is prepared these assessments are to be taken as indicating comparative values as estimated by the Valuation Officer.  In subsequent proceedings on that list therefore they can be properly referred to as giving some indication of that opinion.

(v)  In the light of all the evidence an opinion can then be formed of the value of the subject hereditament, the weight to be attributed to the different types of evidence depending on the one hand on the nature of the actual rent and, on the other hand, on the degree of comparability found in other properties.

(vi)  In those cases where there are no rents available of comparable properties a review of other assessments may be helpful but in such circumstances it would clearly be more difficult to reject the evidence of the actual rent.”

 

48.         It was agreed that the first two propositions in this case do not assist for the reasons set out in evidence concerning the structure of the transactions giving rise to the passing rents.   As to proposition (iii), there was disagreement as to the pecking order for types of evidence.  Whilst both the experts agreed that new lettings on full repairing and insuring terms would be top of the list, Mr Bainbridge thought lease renewals were above rent reviews, because at a renewal the tenant has the opportunity to walk away or move to a cheaper unit, whereas at a rent review he could not.  Mr Catley considered rent reviews to be more reliable.  Whilst I agree with Mr Bainbridge that if a tenant could not agree satisfactory rental terms he could walk away and take one of the other available units, I consider it unlikely that he would do so unless the renewal terms were so unrealistic as to justify the disruption to his business, inconvenience and cost of a move.  If there is a pecking order at all then, in principle, the lease renewal should come first. The reason is that a lease renewal is a new letting from which the tenant could walk away, rather than an assumed letting, and the rent agreed on the renewal therefore supplies evidence more closely aligned with the statutory hypothesis of a letting in the open market.  However, in this case there really is, in my judgment, very little in this argument, especially as the evidence upon which Mr Bainbridge relied was not, as Mr Catley had suggested, all based upon lease renewals but also included rent reviews.

49.         I prefer Mr Bainbridge’s evidence and arguments.  He undertook a comprehensive and detailed analysis of all the relevant lease renewal and rent review evidence on Buckingway Business Park and, as he explained, has been involved with and has settled a large number of appeals on the various office buildings there. He also set out clearly the application of the statutory hypothesis to his valuation approach and his reasons why in his view the VTE had erred in its decision.  It was evident that Mr Bainbridge had an intimate knowledge of the development whereas Mr Catley admitted that, until he was instructed in connection with the appeal to this Tribunal, he had no particular knowledge of this business park.  I accept Mr Bainbridge’s evidence  that Trinity Court was virtually complete at the AVD, and was already being marketed. Its presence will therefore have been reflected in rental evidence and settlements at the time.  I also agree that the circumstances at the material days were, apart from levels of occupation, the same at the AVD.  

50.         Therefore, in terms of the assumptions to be made under para 2(7) of Schedule 6 to the 1988 Act it is clear that the physical circumstances on Buckingway Business Park were to all intents and purposes the same at the AVD and the respective material days.  At the AVD, Trinity Court was only one month away from physical completion, and had been on the market since September 2007.  No further building has taken place on the Park since the AVD and there have been no changes in terms of use of either the appeal hereditaments or any of the other units on the Park.  As Mr Bainbridge explained, the only change that has occurred is in levels of occupation of Trinity Court, as the various units therein have been let whereas at the AVD the building would have been empty.

51.         Mr Catley’s arguments I found to be somewhat surprising bearing in mind his considerable knowledge and experience of property matters in general and rating in particular.  For instance, he suggested that the developer’s decision to proceed with the construction of Trinity Court despite its (in his view) tertiary location and having no pre-lets arranged had been mindless.  However, this view, in my judgment, failed to recognise that when the decision would have been made to construct the building, the office market was strong, and the other buildings on the Park were completed and let.  It was unfortunate that the coming of the recession, and the unexpected depth and severity of it, coincided precisely with the completion of Trinity Court, and the commencement of the marketing of the offices. The recession, in my view, was the principal reason for the decline in rental values between 2008 and 2013 and whilst it is clear (and obvious) that vacancy rates will have increased significantly as soon as a new development that was to add over 20% to the overall office supply came on stream, as Mr Catley accepted in cross-examination, vacancy levels had “all but disappeared” by 2013.

52.         As to Mr Catley’s argument that offices on the Park were predominately let to local businesses, and that this would be likely to have a detrimental effect upon the size of market and rent levels achievable, it was established in cross-examination that approximately half the tenants were local and half were more widely based businesses.  In my view, half is neither immaterial nor insignificant and I do not therefore agree with that proposition. Mr Catley also attached a considerable amount of weight to the “unimaginable” deal that had been struck by Mr Cusk for Greenfield on Unit D in 2010, where the reduction in rent was, he said, of “biblical” proportions.  However, this deal occurred at a time when the developer had gone into liquidation, and as is often the case when matters are being handled on behalf of liquidators, surprisingly favourable terms can be struck under such circumstances.  As Mr Bainbridge said, this deal was well out of line with all the other evidence – including deals that had been undertaken after that one had been negotiated.

53.         Although I have some sympathy with Mr Catley’s reliance upon the agreements reached between rating agents and the VOA in respect of City of London offices to reflect oversupply in the market, and the situation that had prevailed in respect of retail premises in Dunstable, I accept that circumstances there (especially in respect of retail) were different and cannot apply here by means of precedent.

54.         Both Mr Catley and Mr Bainbridge said that the VTE appeared to have been entirely arbitrary in its application of a figure of £137 psm to reflect oversupply.  However, I note that Mr Catley’s £103.50 psm, as he admitted, was also entirely unsupported by specific evidence and appears equally arbitrary.  In any event, in accepting the appellant VO’s evidence and arguments, I consider that the VTE was wrong to ignore the rental and settlement evidence and to attribute a reduction for oversupply particularly as the hypothetical tenant at the AVD would have been aware of the existence, and the proposed letting terms, of Trinity Court.  The decline in rental values post the AVD was entirely, in my view, due to the effects of the recession and I am satisfied that Mr Bainbridge has from his lease renewal and rent review evidence adequately demonstrated that the correct figure to be applied as at the AVD was £180 psm.  The evidence from settlements is also, in my view, sufficient to establish a settled tone of the list in that sum.

55.         I therefore determine that the rating list shall be altered to:

UNIT A Trinity Court £25,750 with effect from 10 June 2013.

UNIT D Trinity Court £51,500 with effect from 23 July 2010. 

56.         This appeal was heard in accordance with the Tribunal’s simplified procedure and, unless there are specific circumstances that warrant an alternative finding, such as the conduct of the parties, the question of costs does not normally arise.  There are no such circumstances in this case and I therefore make no award as to costs.

 

DATED 9 June 2015

 

 

P R Francis FRICS