Telereal Trillium v Kevin Hewitt (Valuation Officer)

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Carnwath,Lord Reed,Lord Lloyd-Jones,Lord Briggs,Lady Black
Judgment Date15 May 2019
Neutral Citation[2019] UKSC 23
Date15 May 2019

[2019] UKSC 23

Supreme Court

Easter Term

On appeal from: [2018] EWCA Civ 26

before

Lord Reed, Deputy President

Lord Carnwath

Lady Black

Lord Lloyd-Jones

Lord Briggs

Telereal Trillium
(Respondent)
and
Hewitt (Valuation Officer)
(Appellant)

Appellant

Hui Ling McCarthy QC

Hugh Flanagan

(Instructed by HMRC Solicitor's Office (London))

Respondent

Richard Glover QC

Cain Ormondroyd

(Instructed by DLA Piper UK LLP (Sheffield))

Heard on 21 February 2019

Lord Carnwath

( with whom Lord Reed and Lord Lloyd-Jones agree)

Introduction
1

The issue in the appeal is the correct approach to determination of the rateable value of an office building (“Mexford House”), in circumstances where the evidence showed at the relevant time a general demand in the area for comparable office buildings, but no actual tenant willing to pay a positive price for the building itself.

2

I can conveniently take the factual background from Henderson LJ's judgment in the Court of Appeal: [2018] 1 WLR 3463, para 2.

“Mexford House is a substantial three-storey block of offices in the North Shore area of Blackpool. It was purpose-built in 1971, and was occupied continuously as Government offices from 1972, in part by the Department of Work and Pensions (‘the DWP’) and in part by the Commissioners for Her Majesty's Revenue and Customs (‘HMRC’). By the material date, however, the property was vacant. Both HMRC (on 29 February 2008) and the DWP (on 13 March 2008) had given notice of their intention to vacate the property, and it was formally handed back to the lessor on 31 March 2009. It is uncertain when the process of vacating the premises was finally complete, but there is no dispute that the property was empty by 1 April 2010, that being the date on which the 2010 non-domestic rating list for the area of Blackpool Borough Council first came into force by virtue of section 41(2) of the Local Government Finance Act 1988 (‘the 1988 Act’).”

3

The valuation was made for the purposes of the new rating list, which came into force on 1 April 2010 (“the material date”). But the rateable value had to be determined by reference to the “antecedent valuation date” (or “AVD”) two years earlier, that is 1 April 2008: 1988 Act Schedule 6 paragraph 2(3), Rating Lists (Valuation Date) (England) Order 2008 ( SI 2008/216) article 2.

4

The rateable value initially entered by the valuation officer with effect from 1 April 2010 was £490,000. This reflected his view that there were in the area other office buildings of similar age and quality, occupied by public sector tenants at rents of the same order. As became common ground in the course of the appeal, the most closely comparable was Hesketh House in Fleetwood, a building of 8,403 square metres built in 1966. That had been assessed for rating purposes at £59 per square metre, which was taken also as the basis for the valuation officer's final valuation before the Upper Tribunal at £370,000 (see below).

Basic principles
5

The basis of the valuation is set by paragraph 2 of Schedule 6 to the 1988 Act, which provided:

“(1) The rateable value of a non-domestic hereditament … 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 certain assumptions, including] …

(a) … that the tenancy begins on the day by reference to which the determination is to be made …”

6

Although the valuation was at the AVD, paragraph 2(5) of Schedule 6 provided that certain matters, listed in paragraph 2(7), were to be “taken to be as they are assumed to be” on the “material date” (1 April 2010). Those matters include:

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

(b) the mode or category of occupation of 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 none the less physically manifest there, and

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

7

The underlying principle is not in doubt. The valuation must be based on an estimate of the rent at which the hereditament “might reasonably be expected to let from year to year …”. In short, the valuer must imagine a hypothetical negotiation between a willing landlord and a willing tenant and arrive at the rent which best represents the resulting compromise:

“You must assume a landlord willing to let, and a tenant willing to take by the year; and having done so, you must get in the best way you can at the rent which, under an agreement brought about by the compromise of the conflicting interests of the man who wants to receive as much as he can and the man who wants to pay as little as he can, would be arrived at under such circumstances.” ( Smith v The Churchwardens and Overseers of the Poor of the Parish of Birmingham (1888) 22 QBD 211, 219 per Wills J)

In similar terms in Robinson Bros (Brewers) Ltd v Houghton and Chester-le-Street Assessment Committee [1937] KB 445, 470, Scott LJ said:

“The rent to be ascertained is the figure at which the hypothetical landlord and tenant would, in the opinion of the valuer or the tribunal, come to terms as a result of bargaining for that hereditament, in the light of competition or its absence in both demand and supply, as a result of ‘the higgling of the market’. I call this the true rent because it corresponds to real value.”

8

More contentious is how to apply those principles in a case where there is no evidence of actual demand for the particular property, by which to conduct this hypothetical exercise. I shall return to the authorities in more detail, having outlined the course of the proceedings below.

The proceedings below
The Upper Tribunal
The hearing
9

The Valuation Tribunal for England having reduced the rateable value to £1, the valuation officer appealed to the Upper Tribunal, before which the matter was dealt with by way of a full re-hearing on fact and law. Both sides were then represented by the same counsel as have since appeared before the Court of Appeal and this court: Ms Hui Ling McCarthy QC (as she has since become) for the valuation officer, and Mr Richard Glover QC for Telereal. Expert evidence was presented to the tribunal in the form of written statements by Mr Hewitt himself, and Mr Baldwin for Telereal.

10

On the first day of the hearing (28 April 2016), Mr Hewitt gave evidence and was cross-examined. The tribunal summarised his evidence (UT paras 19–30). In his view, the building was “not obsolete either in a functional or in a locational sense” for reasons he explained. That Telereal had shared that opinion, he said, was shown by the fact that in 2002 they had taken a reversionary lease to run from September 2014 to March 2018, and that on the September 2007 rent review their own surveyor had put the rent at £341,000. However, in the course of his cross-examination, as the tribunal recorded, he accepted —

“… that as at the AVD he could not identify in the real world any person who would put in a bid for a tenancy of Mexford House on the statutory terms; that there was no demand for such accommodation from the private sector; and that all public sector demands as at the AVD were being met by the occupation of other premises which the public sector already enjoyed. He accepted the opinion expressed by Mr Baldwin [Telereal's surveyor] in paragraph 11.1 of Mr Baldwin's first report, namely that ‘vacant and to let’ at the AVD there would be no demand for Mexford House.” (UT para 24)

11

On the other hand, he pointed to the fact that “there did exist at the AVD demand for other (occupied) properties which were comparable to Mexford House”. He maintained his view that a substantial rateable value was appropriate, for reasons he explained:

“Leaving aside any detailed comparisons (some favourable some unfavourable) between Mexford House on the one hand and Hesketh House and the other comparables on the other hand, [Mr Hewitt] expressed the view that there was a quantity of broadly comparable office accommodation which was in beneficial occupation and for which substantial rents were paid at the AVD. He said that the fact that as at the AVD there was in the real world no demand for Mexford House (because all the demand had been absorbed in the other comparable properties) was not because of any intrinsic lack of merit (or obsolescence) in Mexford House as compared with these other properties but because Mexford House could be considered as ‘unlucky’ not to have occupants in beneficial occupation when comparable office premises did have occupants in beneficial occupation.” (UT para 29)

On this basis, his final assessment of the rateable value of Mexford House was £370,000.

12

Following the completion of Mr Hewitt's evidence, counsel for both parties informed the tribunal of their view that, in the light of his evidence, the issue between them could be decided “as a matter of law upon an agreed basis of fact” (UT para 31). No other evidence was heard; in particular, Mr Baldwin was not called or cross-examined. Following legal argument the hearing concluded, but the tribunal directed that the agreed position should be reduced to writing.

13

Accordingly, on 3 May 2016 the parties lodged an agreed statement (“the Joint Position Paper” or “JPP”) in the following terms:

“1. The parties are content that the issue can be decided as a point of law.

2. The respondent [Telereal] contends that the correct approach requires the valuer to consider whether, had the subject hereditament been on the market at the AVD (1 April 2008), anybody would have been prepared to occupy the property and pay a positive price.

3. The parties agree that had the subject hereditament been on the market at the AVD (1 April 2008), nobody in the real...

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4 firm's commentaries
  • Rateable Value: The Supreme Court Departs From Reality
    • United Kingdom
    • Mondaq UK
    • 7 June 2019
    ...agreed that there was no “real world” demand for Mexford House. Telereal Trillium (respondent) v Hewitt (Valuation Officer) (appellant) [2019] UKSC 23 The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your spec......
  • Rateable value: The Supreme Court departs from reality
    • United Kingdom
    • JD Supra United Kingdom
    • 17 May 2019
    ...agreed that there was no “real world” demand for Mexford House. Telereal Trillium (respondent) v Hewitt (Valuation Officer) (appellant) [2019] UKSC 23 [View Benjamin Willis function JDS_LoadEvent(func) { var existingOnLoad =...
  • The Problem With Business Rates In The Real World
    • United Kingdom
    • Mondaq UK
    • 12 July 2019
    ...in its operation. There are two recent cases worthy of note. Telereal Trillium In Telereal Trillium v Hewill (Valuation Officer) [2019] UKSC 23, the Supreme Court had to determine whether or not a property for which there was no market in the real world should be assumed to have a market on......
  • The Problem with Business Rates in the Real World
    • United Kingdom
    • JD Supra United Kingdom
    • 5 July 2019
    ...in its operation. There are two recent cases worthy of note. Telereal Trillium In Telereal Trillium v Hewill (Valuation Officer) [2019] UKSC 23, the Supreme Court had to determine whether or not a property for which there was no market in the real world should be assumed to have a market on......

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