Imperial College of Science & Technology (Second Respondents) v Ebdon (Valuation Officer) (First Respondent) Westminster City Council
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE GLIDEWELL,LORD JUSTICE PURCHAS,LORD JUSTICE WATKINS |
| Judgment Date | 13 November 1986 |
| Judgment citation (vLex) | [1986] EWCA Civ J1113-6 |
| Date | 13 November 1986 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 86/1018 |
[1986] EWCA Civ J1113-6
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LANDS TRIBUNAL
(MR. C.R. MALLETT, F.R.I.C.S.)
Royal Courts of Justice,
Lord Justice Watkins,
Lord Justice Purchas
and
Lord Justice Glidewell,
86/1018
and
MR. G. EYRE, Q.C., and MR. R. HONE, instructed by Mr. G.M. Ives, City Solicitor, Westminster City Council, appeared for the Appellants.
MR. A. FLETCHER, Q.C., and MR, N. HUSKINSON, instructed by The Solicitor, Board of Inland Revenue, appeared for the First Respondent.
MR. G. ROOTS and MR. N. KING, instructed by Messrs. Lovell, White & King, appeared for the Second Respondents.
This is an appeal by case stated against the decision of the Lands Tribunal (C.R. Mallett, Esq., F.R.I.C.S.) given on 24th October, 1984, on eight related appeals from the Greater London (Central) Valuation Court. By its decision the Lands Tribunal determined the gross value and rateable value of the hereditament occupied by the second respondents, the Imperial College of Science and Technology, in the valuation list for rating which came into force on 1st April, 1973. The appellants in this Court, Westminster City Council, are the rating authority. They contend that in reaching his decision the learned member of the Lands Tribunal has made fundamental errors in his application of a method of valuation known as the contractor's basis. Mr. Ebdon, the valuation officer, supports the decision of the Lands Tribunal.
The facts
The history of the matter and the relevant facts are set out in an agreed statement of facts which was placed before the Lands Tribunal, and in the Tribunal's decision. It is therefore not necessary for me to refer to more than a brief outline. Imperial College occupies a site of some 15 3/4 acres, on which stand substantial buildings, in South Kensington. The College is a School of the University of London. One of the buildings now on the site, the Huxley Building, was not completed or occupied when the Valuation List came into force on 1st April, 1973. The list was therefore amended to include the Huxley Building as a result of a proposal made by the Valuation Officer on 29th March, 1977.
The Lands Tribunal's decision
The values determined by the Lands Tribunal are as follows:—
| Gross Value | Rateable Value | |
| At 1st April 1973 | £767,000 | £639,138 |
| With addition of Huxley Building | £846,000 | £704,972 |
The points raised in this appeal affect both sets of values, but in the same manner. The matter was therefore argued before us, and can be treated, as a single appeal.
The Contractor's basis of valuation
By S.19(6) of the General Rate Act 1967 the gross value of a hereditament is defined as "the rent at which the hereditament might reasonably be expected to let from year to year if the tenant undertook to payall usual tenant's rates and taxes and the landlord undertook 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 that rent." It is the function of the rating surveyor to ascertain that rent. Normally the principal weapon in his armoury is evidence of recent lettings, or failing that sales, of similar or comparable properties. For some categories of property however, such evidence is rarely if ever to be found. University colleges and their constituent buildings, fall into such a category. The valuer called upon to assess the gross value of such a property has no evidence of comparable transactions to guide him. If the hereditament itself is let at a rent, or if it is occupied by a commercial enterprise which trades at a profit, evidence of the actual rent or profit may assist towards the necessary valuation. But Imperial College is not let at a rent, and is not a trading concern. The valuer must therefore seek some other method.
The "contractor's basis" is a method of caluation which has been devised by valuers, with the approval of the Lands Tribunal and the Courts, to meet this kind of situation. In the present case all parties are agreed that it is the correct method of valuation to be applied. In Cardiff City Council v. Williams (VO) (1973) RA 46, Lord Denning MR quoted as the "classic explanation" of this method a passage from the address of Sir Jocelyn Simon QC, Solicitor-General, in Dawkins (VO) v. Royal Leamington Spa Corporation, (1961) 8 RRC 241, which the members of the Lands Tribunal had adopted in that case:
"As I understand it, the argument is that the hypothetical tenant has an alternative to leasing the hereditament and paying rent for it; he can build a precisely similar building himself. He could borrow the money, on which he would have to pay interest; or use his own capital on which he would have to forego interest to put up a similar building for his owner/occupation rather than rent it, and he will do that rather than pay what he would regard as an excessive rent—that is, a rent which is greater than the interest he foregoes by using his own capital to build the building himself. The argument is that he will therefore be unwilling to pay more as an annual rent for a hereditament than it would cost him in the way of annual interest on the capital sum necessary to build a similar hereditament. On the other hand, if the annual rent demanded is fixed marginally below what it would cost him in the way of annual interest on the capital sum necessary to build a similar hereditament, it will be in his interest to rent the hereditament rather than build it."
In his judgment in the Cardiff case, Lord Denning MR added a qualification to this explanation. He said at p.50–51:
"To that statement, however, I would make this qualification. The annual rent must not be fixed so as to be only 'marginally below' the interest charged. It must be fixed much below it, and for this reason: by paying the interest charged on capital cost, he gets not only the use of the building for its life, but he gets the title to it, together with any appreciation in value due to inflation: whereas, by paying the annual rent, he only gets the use of the building from year to year—without any title to it whatsoever—and without any benefit from inflation."
Mr. Eyre,for the City Council, is critical of this qualification, describing it as a matter for valuation evidence rather than a statement of principle. However, he accepts that a deduction should properly be made from the rate of interest at which the hypothetical building owner could borrow to finance his building, to take account of the two factors to which Lord Denning referred. Indeed in his evidence to the Lands Tribunal on behalf of the City Council, Mr. W.A. Hampsher, A.R.I.C.S., made such a deduction. As I shall explain later, Mr. Eyre's major criticism of the Lands Tribunal's decision is that too great a deduction has been made in respect of the element of inflation.
The Lands Tribunal's approach
Mr. Mallett divided the valuation into five stages, thus following the approach described in the decision of the Lands Tribunal in Gilmore (VO) v. Baker-Carr, (1963) 10 RRC 205, which is now generally-adopted. These stages are:
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1. To estimate the replacement costs of substituted buildings.
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2. To adjust this cost to take account of the actual state of the buildings comprising the hereditament. The resulting figure is often known as "Effective Capital value", but Mr. Mallett in his decision prefers to call it "Adjusted Replacement cost".
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3. To add the capital value of the site comprising the hereditament.
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4. To adopt and apply a rate at which to decapitalise the total capital value, so as to achieve an annual rental.
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5. To make any adjustment which is necessary in order to reflect the actual characteristics of the hereditament, but which has not already been taken into account at an earlier stage.
The issues
Before the Lands Tribunal the parties agreed the estimated replacement cost of substituted buildings at 1st April, 1973 at a total of £20,340,438. There was disagreement between the valuers as to the appropriate adjustments at stage 2, as to the value of the site (stage 3) and as to the cost of the Huxley Building, but the Lands Tribunal's findings on these matters are not challenged in this court. The total adjusted capital figure for land and buildings at 1st April, 1973 is £23,125,971. Thus before us there is no issue as to stages 1, 2 or 3.
The principal issue in this appeal relates to the decapitalisation rate adopted by the Lands Tribunal at stage 4 There is also a secondary issue as to the adjustment at Stage 5.
An appeal to this Court from a decision of the Lands Tribunal lies only if the decision "is erroneous in point of law": Lands Tribunal Act 1949 s.3(4). Mr. Eyre submits that the member of the Lands Tribunal departed in several respects from the accepted method for arriving at a decapitalisation rate, and as a result made errors which resulted in him adopting too low a rate. In addition Mr. Eyre points to one alleged error at Stage 5. We have to decide whether and to what extent Mr. Eyre's criticisms are justified, and if so, whether the Lands Tribunal's error is on a point of law.
Stage 4—the decapitalisation rate.
The Tribunal's decision on this issue begins by setting out four propositions which are said to be agreed, namely:
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(i) that the object is to arrive at the annual equivalent of the adjusted cost in terms of the hypothetical tenancy;
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(ii) that the decapitalisation rate is...
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