UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2013] UKUT 0430 (LC)
UTLC Case Numbers: RA/3 and 6/2011

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

RATING – hereditament – four newly erected warehouse buildings – entered in 2005 rating list by VO – units having no small power distribution and no lighting or only limited lighting in warehouse areas and no partitioning of office space – one unit having no connection to gas supply – whether rateable hereditaments to be entered in rating list – held they were not – Local Government Finance Act 1988, s.42(1) – importance of completion notice procedure in avoiding disputes - appeals allowed

	IN THE MATTER OF AN APPEAL AGAINST TWO DECISIONS
OF THE VALUATION TRIBUNAL FOR ENGLAND

BETWEEN	(1) AVIVA INVESTORS PROPERTY DEVELOPMENTS LTD	
	 (2) PPG SOUTHERN LIMITED                                                         Appellants
	and
	(1) MARGARET WHITBY (Valuation Officer)	
(2) ADRIAN MILLS (Valuation Officer)                         Respondents

	Re: (1) Units A, B and G
	Reading Approach
	Craddock Road
	Reading RG2 OJT
	(2) Unit 11
	Torc MK
	Chippenham Drive
	Kingston
	Milton Keynes MK10 OAE

	Before: Martin Rodger QC, Deputy President and N J Rose FRICS

Sitting at: 43-45 Bedford Square, London WC1B 3AS
on 25-26 July 2013

Daniel Kolinsky, instructed by IBB Solicitors and (by direct professional access) by Altus Edwin Hill, chartered surveyors, for the appellants.
Galina Ward, instructed by HMRC Solicitor, for the respondents.

The following cases are referred to in this decision:

Porter v Trustees of Gladman SIPPS [2011] RA 337
RGM Properties v Speight [2011] EWHC 2125 (Admin)

The following cases were also cited:

Watford Borough Council v Parcourt Property Investment Co Ltd [1971] RA 97 (QBD)
Ravenseft Properties v Newham LBC. [1975] RA 410 (CA)
Post Office v Nottingham Council [1976] 1 WLR 624 (CA)
London Merchant Plc v Islington LBC. [1986] 2 EGLR 168 (CA) and [1988] AC 303 (HL)
Spears Brothers v Rushmoor Borough Council [2006] RA 86
French Kier Property v Grice (VO) [1985] RA 202
Sunderland City Council v Stirling Investment Properties [2013] EWHC 1413 (Admin)

	DECISION
Introduction
1.	At what stage of its construction does a new building constitute a hereditament capable of being included in the rating list?  Guidance on that question was given by the Tribunal in Porter (VO) v Trustees of Gladman SIPPS [2011] RA 337, but it arises again in these two appeals, against decisions of the Valuation Tribunal for England.  The appeals, which were heard together, concern four speculatively built warehouses known as Units A, B and G Reading Approach, Craddock Road, Reading RG2 OJT and Unit 11 Torc MK, Chippenham Drive, Kingston, Milton Keynes MK10 OAE.  Before any completion notices had been served the  valuation officers, Mrs Margaret Whitby and Mr Adrian Mills, entered each of the units in the 2005 rating list for the Reading borough council and the Milton Keynes borough council respectively with effect from 1 April 2005 (Reading) and 3 July 2006 (Milton Keynes).  In two decisions, each given before Porter, the VT held that the units satisfied the requirements necessary for inclusion in the lists and upheld the entries.
2.	Mr Daniel Kolinsky of counsel appeared for the appellants, namely Aviva Property Investors Limited (the Reading properties) and PPG Southern Limited (the Milton Keynes property).  He called expert evidence from Mr Robert Hayton MRICS, a partner and head of the Midlands office of Altus Group LLP, trading as Altus Edwin Hill.  Counsel for the respondent  VOs, Ms Galina Ward, called Mrs Whitby and Mr Mills to give expert evidence.
3.	Following completion of the hearing we concluded that, in view of the detailed evidence which had been given about the physical condition of the appeal properties on the material days, we did not consider that a site inspection was necessary.  Accordingly, we have not visited any of the four warehouses, or any of the properties which were cited as comparables.
Facts
4.	From an agreed statement of facts and the evidence we find the following facts.
Reading Approach
5.	Reading Approach is located in an industrial area to the south of Reading town centre.  It is close to the A33 Basingstoke Road, which leads to junction 11 of the M4.  It is a speculative development consisting of seven industrial/warehouse units, varying in size from approximately 600m2 to 2,370m2.  The units are of steel portal frame construction with steel cladding, translucent roof lights and windows to the office areas.  Each unit has a warehouse area, w.c.s and ancillary office space on the first floor which is accessed from a reception area.  
6.	The warehouse areas have electronically operated loading doors.  The offices have full access raised floors, suspended ceilings with internal LG3 lighting, gas fired central heating, male and female and disabled w.c.s  and kitchen facilities.  
7.	Unit A has 14 car spaces, Unit B 11 spaces and Unit G 21 spaces.  The clear internal height in the warehouse areas is 7.2m (Units A and B) and 8.0m (Unit G).  The first floor office space reduces the internal height over part of the warehouse to create a small “undercroft” area.  There are 3 phase electricity supplies in the warehouse areas ranging from 75 to 225 kVA.
8.	At the material day (1 April 2005) all three properties had reached practical completion and the construction personnel appointed by the owner had left the site.
9.	The standard of finish to each of the three units was as follows.  Each  was wind and water-tight.  The ground floor reception areas had a suspended ceiling, lighting, floor covering and hot water radiators.  A fire alarm had been installed.  The first floor ancillary office area had suspended ceilings, wall and floor finishes, inset florescent lighting, power sockets distributed in the raised floors and a smoke alarm.  The office area was not partitioned.  A tea point and a sink were provided on the first floor with power and running water.  The unit had fully fitted toilet areas with hot and cold water on both floors.  A shower was provided on the ground floor.  The warehouse area had a mains electrical supply to an electrical distribution board from which a single spur provided power to the electrically operated roller shutter door(s).  There was no further electrical distribution.  A further tea point and sink with running water were provided in the warehouse area.  Artificial lighting in the warehouse area was limited to a single floodlight (two in Unit A) affixed to the external wall of the first floor office accommodation.  This illuminated only a small part of the warehouse.  There was no other artificial lighting.  The warehouse area was unheated.
10.	  Unit A has a net internal floor area of 1,339.20m2, comprising 1,193m2 warehouse and 146.20m2 first floor ancillary office space.  It has been occupied since February 2011 by EM4, a distribution company, who installed lighting, some power points for charging forklift trucks, and a works office to the warehouse area and enclosed the undercroft to form a showroom office with suspended ceiling, inset fluorescent lighting and small power.  These works were completed before the building was occupied.  No further alterations have been made subsequently and the unit remains without heating in the warehouse or partitioning in the first floor offices. 
11.	 Unit A was first shown in the 2005 rating list at RV £119,000 with effect from 1 April 2005 based on an underlying value of £88 per m2.  
12.	Unit B has a net internal floor area of 606.80m2, comprising 544.90m2 warehouse and 61.90m2 first floor ancillary office space.  It was vacant at the material day but has been occupied since March 2010 by Fforest Timber Engineering Ltd (“Fforest”) which took a 10 year lease with a break option after 5 years and a two year concessionary rent period.  As was explained in a witness statement of Mr Ian Davies, one of its directors, Fforest had originally been searching for an office near Reading, but found that the market at the time was such that, for the same rent they would pay for a suitable office, they were able to acquire Unit B with the necessary office area (61.9m2) and 544.9m2 of warehouse space in addition.  Fforest decided to lease Unit B and intended to use the warehouse – which in their eyes was effectively rent free – when the business had grown sufficiently to require it.  Mrs Whitby had visited the unit and spoken to Mr Moore of Fforest on 6 August 2010, who told her they had no plans to install any further amenities in the short term, but may do so in future if the warehouse area came to be used for manufacturing.  He did not think lighting was yet needed as the warehouse was used only for storage.  Mrs Whitby made a further visit on 30 April 2012, by which time a power point had been installed in the tea point area of the warehouse and a single fluorescent strip light in the undercroft area.  No further alterations have been made and the unit remained without heating or further power distribution in the warehouse and without office partitioning.  
13.	Unit B was first shown in the 2005 rating list at RV £61,000 with effect from 1 April 2005 based on an underlying value of £100 per m2.   
14.	Unit G has a net internal floor area of 2,371.90m2, comprising 2,166.60m2 warehouse and 205.30m2 first floor ancillary office space.  It has been occupied since May 2012.  The current occupier installed lighting and small power to the warehouse area, and erected partitions in the first floor offices.
15.	Unit G was first shown in the 2005 rating list at RV £209,000 with effect from 1 April 2005 based on an underlying value of £88 per m2.
Unit 11 Torc MK
16.	Torc MK is a purpose built warehouse/industrial estate totalling approximately 7,525m2, located on the east side of Milton Keynes, some 3 miles from the town centre.  The units vary in size from 344m2 to 2,323m2.  It is within easy reach of junctions 13 and 14 of the M1 and nearby mainline railway stations.
17.	Unit 11 has a gross internal floor area of 622m2, comprising 429.9m2 warehouse and 88.30m2 first floor ancillary office space.
18.	At the material day (3 July 2006) the property had reached practical completion and the construction personnel appointed by the owner had left site.  The property was wind and water-tight.  The ground floor reception had a suspended ceiling, lighting, floor covering, and non functioning hot water radiators.  A fire alarm had been installed.
19.	The first floor ancillary office area had a suspended ceiling, wall and floor finishes, inset fluorescent lighting, power sockets distributed in perimeter dado trunking and smoke detectors.  There were hot water radiators, but the gas boiler was not connected to the main gas supply and there was no gas meter.  The first floor offices were not partitioned.  The unit had fully fitted toilet areas but these were provided with cold running water only as the boiler was not connected to the gas supply so no hot water was available.  The warehouse had power to an electrical distribution board, from which a single spur provided power to the electrically operated roller shutter door.  There was no further electrical distribution.  The warehouse had no artificial lighting and the only source of natural light was from translucent panels in the roof.  Car parking spaces were provided to the front of the Unit.  Prior to occupation the current occupier installed lighting and small power in the warehouse, and installed additional offices on the ground floor.  The warehouse remains unheated, but recently partitions have been installed in the first floor office area.
20.	Unit 11 was first shown in the 2005 rating list at RV £33,250 with effect from 3 July 2006 based on an underlying value of £61.15 per m2.
The relevant legal principles
21.	Section 41 of the Local Government Finance Act 1988 (“the 1988 Act”) requires the valuation officer for a billing authority to compile and maintain a local non-domestic rating list for the authority’s area.  By section 42 the rating list must show each relevant non-domestic hereditament.
22.	The expression “hereditament” is defined by section 64(1) of the 1988 Act by reference to its meaning under section 115(1) of the General Rate Act 1967, namely:
“Hereditament means property which is or may be liable to a rate, being a unit of property which is, or would fall to be, shown as a separate item in the valuation list.”
23.	That definition begs the question: when does a unit of property fall to be shown as a separate item in the valuation list?  In the case of a newly constructed building which has not yet been occupied, section 46A and Schedule 4A of the 1988 Act provide a simple scheme for answering that question with certainty.  
24.	Where it comes to the notice of a billing authority that the work remaining to be done on a new building in its area is such that the building can reasonably be expected to be completed within 3 months, the authority is required by paragraph 1(1) of Schedule 4A to serve a notice on the owner of the building, referred to as a completion notice, as soon as is reasonably practicable, unless the valuation officer otherwise directs.  A billing authority may also serve a completion notice on the owner of a building which it considers has already been completed (para 1(2)).  The function of the completion notice is to specify a completion day for the new building, which will either be a date not more than 3 months from the service of the notice by which the building can reasonably be expected to be completed (para 2(2)) or, in the case of a building which has already been completed, will be the date of the notice itself (para 2(3)).  The person on whom a completion notice is served has the right to appeal against it, on the grounds that the building has not been completed, or cannot reasonably be expected to be completed by the date stated in the notice (para 4(1).
25.	   Where the completion notice procedure is followed by a billing authority, section 46A of the 1988 Act has the effect (subject to any appeal) that the new building is deemed  to have been completed on the date specified in the notice.  That statutory deeming has effect for the purpose of section 42 of the 1988 Act i.e. it confirms that the building is a hereditament which must be shown in the rating list, even if the building is not actually completed on the completion day.  
26.	   Where a billing authority omits to serve a completion notice, and a building remains unoccupied, it is a question of fact whether the building is completed to the point at which it has become a hereditament and capable of being included in the rating list.  The authorities which indicate the proper approach to that question were reviewed by the Tribunal in Porter (VO) v Trustees of Gladman SIPPS [2011] RA 337.  They include three decisions of the Court of Appeal.
27.	   Porter concerned a newly constructed office building which had been included as a new hereditament in the rating list before the installation of partitioning and other fitting out, and without the service of a completion notice.  Having reviewed the relevant authorities, the Tribunal (Mr George Bartlett QC, President and Mr N J Rose FRICS) provided the following summary of their effect, at para 66:
“66.  The authorities, in our judgment, establish the following.  A building is only a hereditament if it is ready for occupation, and whether it is ready for occupation is to be assessed in the light of the purpose for which it is designed to be occupied.  If the building lacks features which will have to be provided before it can be occupied for that purpose and when provided will form part of the occupied hereditament and form the basis of its valuation it does not constitute a hereditament and so does not fall to be shown in the rating list.  There is in consequence no scope for including in the list a building which is nearly, even very nearly, ready for occupation unless the completion notice procedure has been followed.”
28.	      In her opening skeleton argument Ms Ward drew attention to an observation by Langstaff J in RGM Properties Ltd v Speight [2011] EWHC 2125 (Admin), a council tax case, to the effect that the words “ready for occupation” in para 66 of Porter, rather than “capable of occupation”, may not have the support of the Court of Appeal.  Mr Kolinsky submitted that the two expressions had in fact been used interchangeably by the Court of Appeal and in closing Ms Ward accepted, rightly in our judgment, that para 66 of Porter was a correct statement of the law.
The issue
29.	    The sole issue before us is whether each of the appeal properties was ready for occupation on the date it was entered in the 2005 rating list.  The parties were in agreement that that issue should be determined by applying the guidance in Porter.
30.	Mrs Whitby considered that at the material day Units A, B and G Reading Approach were complete for rating purposes and therefore capable of inclusion in the rating list without a completion notice being served.  Mr Mills considered that at the material day Unit 11 Torc MK was also complete, with the same consequence.
31.	Mr Hayton considered that at the respective material days all four units required additional works to be done before they could be considered to be complete.  In the absence of a valid completion notice deeming them to be complete they could not be included in the rating list.
32.	Both VOs considered that a property was capable of occupation if it was not lacking any features that were essential for occupation for the purpose for which it was intended.  Evidence that other similar properties had been so occupied without those features first having been installed was evidence that they were not essential for beneficial occupation.  Accordingly, a building that did not have those features might be considered complete despite the absence of a completion notice.
33.	The appellants agreed that some guidance on what further works, if any, were necessary before a building was considered complete could be derived from looking at works which actual occupiers undertook.  They did not accept, however, that evidence that a very small minority of occupiers with unusual or atypical requirement was prepared to occupy premises without undertaking otherwise essential works was a reliable guide to whether a building was ready for occupation.  The VOs did not accept this characterisation of the evidence they had produced.
Evidence of Mr Hayton - General
34.	Mr Hayton said that at the material day the appeal properties were finished to the same extent as they had been at the date of practical completion, that is at the point at which the main building contract is almost finished.    Practical completion did not necessarily equate to completion for rating purposes.  The extent of completion would vary depending on the level of finish the client required.
35.	Mr Hayton observed that the basic values which the VO had adopted when entering the appeal hereditaments in the rating list were in line with the highest value warehouse properties elsewhere in Reading and Milton Keynes.  This information – together with the design statement and developer’s appraisal in the case of Torc MK gave a good indication of the purpose for which the Units were designed to be occupied.  Each Unit was intended to be occupied by a business requiring high specification, high quality warehouse accommodation which would command a high rent compared to lower specification and older properties in the area.
36.	Mr Hayton was aware of what he described as atypical occupations, where buildings – particularly newly constructed warehouses – were occupied without some or all of the customary works being completed.  Such occupations were usually very short-term and the uses were more basic than those intended by the developers.  Under the usual arrangement the occupier would be granted a short-term lease or licence and would be required to use the property in a manner which satisfied the test of rateable occupation.  The owner would pay a fee or reverse premium to the occupying business.  When the short-term agreement expired and the occupier vacated the owner would make a claim for a fresh period of statutory empty rates exemption under para 4(b) of The Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008.  Such transactions were motivated by factors which were entirely different from those in an ordinary letting.  The landlord was letting the building in order to receive a rates exemption rather than rent.  The tenant was leasing the building to obtain a fee or some other payment and not because it had a need for the specific property.
37.	In Mr Hayton’s experience it was extremely rare for a modern high specification warehouse to be occupied without customary fitting out works being undertaken.  He was aware of no examples of ordinary businesses occupying property in such a manner unless there was some other unusual motivation or circumstance which set the occupation apart from the norm.
38.	Mr Hayton accepted that atypical occupations occasionally occurred.  In his view, however, no regard should be had to them when deciding whether a comparable new building should be entered in the rating list without a completion notice being served.  Such an occupier’s needs could be satisfied in an inherently lower specification building which would command a lower market rent.  In Mr Hayton’s experience a business did not occupy more expensive accommodation than it needed for the purpose for which it was required.
39.	The focus should be on whether there could be occupation for the purposes for which the building was designed; not simply any conceivable mode of occupation.  An atypical use could be envisaged for almost any property at almost any stage of its construction.  As an extreme example a warehouse with walls but no roof might provide some form of secure storage for certain materials, but it could not realistically be contended that a building in such condition was complete.  If rare and unusual occupiers could be taken into account in deciding whether a property was ready for occupation there would be no need for the completion notice procedure to exist as part of the statutory scheme.
40.	Mr Hayton concluded that Units A, B and G were not complete for rating purposes on the material day.  They all lacked essential features which would be required before an ordinary occupier could enter into occupation for the purposes for which the buildings were designed.
Evidence of Mr Hayton – Reading Approach
41.	Mr Hayton considered whether or not Units A, B and G lacked features which needed to be provided before they could be occupied for the purpose for which they were designed.   In his view, good evidence of the works which remained to be done to the three units was provided by the works undertaken by the eventual tenants of those and other units on the same development.
42.	Mr Hayton produced a detailed summary of the fit out works undertaken by the respective tenants and owners of other occupied units at Reading Approach after they had agreed to lease the properties and which had been completed before the tenants took occupation.  In the light of this analysis and his wider experience – including his research in respect of the Torc MK development – Mr Hayton concluded that three fundamental and necessary features were missing from the appeal properties on the material day. In his opinion any or all of these items would, if absent, prevent the buildings being ready for occupation for the purposes for which they were designed to be occupied.  Those features were: the distribution of power within the warehouses area; the installation of lighting to the warehouse area; and some form of office compartmentalisation.
43.	In Mr Hayton’s opinion a developer would leave the distribution of power beyond the distribution board to the future occupier so that it could design the layout of power to match its space planning.  That the developer of Units A, B and G designed the properties to have power distributed was evidenced by the presence of the distribution boards.  Mr Hayton considered it unrealistic to contemplate that the appeal properties, or a comparable building, would be occupied without some power being distributed within the warehouse area.  He had found no examples of such modern high quality warehouses having been occupied without such power unless there was an unusual motivation to the occupation.
44.	On the question of lighting Mr Hayton said that the developer of Reading Approach did not omit warehouse lighting from these speculatively constructed buildings because it was not needed.  It was left out so that the future occupier could install a lighting system which matched its requirements.  Some occupiers would use the warehouse space for a production purpose and might require a higher intensity light in which to work, sometimes with the lamps suspended beneath the roof level.  Other occupiers might require racking and would position lighting to illuminate the aisles.  Any ordinary occupier would require some form of artificial lighting to illuminate the warehouse.  In Mr Hayton’s opinion this was a feature that would have to be provided.
45.	Other units on the same estate supported this view.  In all cases apart from Unit B the tenants installed lighting in the warehouse area before they took occupation .  The circumstances which led Fforest to lease Unit B were very unusual.
46.	Mr Hayton produced the results of research which he had conducted into rating list entries where the summary valuations included explicit adjustments on the basis that the property did not have lighting.  In the list for England and Wales, of approximately 230,000 hereditaments described as “warehouse and premises” and “workshop and premises” only one (a former garden centre) was shown with an allowance for “no lighting” or “lack of lighting”.
47.	Mr Hayton referred to the Tribunal’s conclusion in Porter that a tenant of any of the speculatively built office premises in those appeals would have required at least some full height partitioning to be installed before occupying them as offices.  The offices at Units A, B and G, albeit forming part of a larger building, would, he considered, equally require some form of compartmentalisation.
48.	The occupiers of all the comparables in Reading Approach except Unit B had created separate compartments within the office accommodation.  Mr Hayton was not aware of any examples of warehouses of a similar quality occupied by an ordinary occupier, without an unusual motivation, where no compartmentalisation had been carried out to provide separate meeting areas, separate offices, a reception area or a server room.   
49.	In oral evidence in chief Mr Hayton said that, on reflection, he considered that the case of partitioning was not as clear cut as he had suggested in his expert report.  EM4 had chosen not to divide the original first floor office at Unit A, but instead installed additional offices by fitting out the undercroft area and extending into the warehouse area, thereby achieving the same result.  A similar approach had been taken by the occupier of Unit 11, Torc MK.  Mr Hayton therefore now accepted that there were some industrial buildings, particularly small units, where partitioning would not be required.  He thought that Unit B Reading Approach (net internal area 606.80m2) and Unit 11, Torc MK (gross internal area 622m2) were at the margin.
Evidence of Mr Hayton – Torc MK
50.	As part of the exercise of identifying the work which remained to be done to Unit 11 on the material day Mr Hayton ascertained that the eventual tenants of that Unit, and of Units 3-5, 6, 7 and 8, all undertook the following work before the buildings were occupied: installation of warehouse lighting; installation of security alarm; installation of gas meter plus connection of supply to boiler; connection to telephone and internet services and associated cabling; erection of office partitioning or other compartmentalisation of office areas; and distribution of power within the warehouse beyond the distribution board.  Mr Hayton considered that all those units were valid comparables, similar in size and identical in age, design and location.  He thought that the common items of fit-out which he had described were needed to enable the units to be occupied.  In his experience commercial occupiers would not undertake a level of fit-out which exceeded their needs.  He drew a distinction between works which were needed to enable occupation for the purposes for which the property was designed to be occupied and those which were works particular to the tenant’s particular use. For example, air conditioning was installed within the offices of some units, but not all.
51.	After modifying his view on partitioning, in Mr Hayton’s opinion, of the core common works, three fundamental and necessary features were missing from Unit 11 on the material day.  They were: the distribution of power within the warehouse area; the installation of lighting to the warehouse area; and a connection to the gas supply.  His reasons for considering power distribution and lighting to the warehouse areas to be essential were the same as in the case of Reading Approach.  
52.	On the need for a connection to a gas supply, Mr Hayton said that a modern warehouse with ancillary offices required some form of heating to be provided to the office areas and hot water for hand washing in the welfare/toilet areas.  Unit 11 was designed to be occupied with a heating and hot water system powered from the gas supply.    At the material day the gas supply was capped off inside the building and did not connect to the boiler so the offices could not be heated and hot water could not be provided.  Before the heating system could be operated a gas meter would need to be installed and connections made from the gas supply and the boiler.  The property could not be used in the manner for which it was designed without the gas connection.

53.	As with the units at Reading Approach Mr Hayton concluded that Unit 11 was not completed for rating purposes on the material day.  It lacked essential features which would be required to be provided before an ordinary occupier could enter into occupation for the purposes for which the building was designed to be occupied.
Evidence of Mrs Whitby
54.	Mrs Whitby said that the features found in Units A, B and G were “in concert with the nature of the occupation.”  She considered that it would be artificial to suggest that a checklist of features was required in order to demonstrate that beneficial occupation was enjoyed and that a hereditament existed.
55.	To support this opinion Mrs Whitby referred to her visits to Unit B where she had observed that Fforest had required little physical change to the unit as originally let, and even after two years, had occupied with only a single socket at the tea point, with minimal lighting and with no office partitioning.  It could not be said that Fforest had not enjoyed beneficial occupation or that Unit B was not a hereditament.
56.	Mrs Whitby said that in most instances newly built industrial properties would undergo a degree of alteration before occupation began.  The alterations required depended upon the business to be carried out.    Mrs Whitby produced details of a further four properties which in general were occupied without additional lighting, without distribution of small power around the office area, without partitioning of the office space and without connection to the gas supply.  Some had one or more of those facilities, but none had all of them.  
57.	Mrs Whitby also relied on certain comparables which had been produced by Mr Mills.  They, too, demonstrated that occupation of warehouses was possible without the features which Mr Hayton considered were required before beneficial occupation could begin.
58.	Mrs Whitby added that there could be many more such examples.  She had only cited those which she had recently seen or which had been brought to her attention.  In her view the lack of the facilities in question did not lead to an issue of capability of beneficial occupation; it was a matter of valuation, which did not form the subject of the current appeals.
59.	 In answer to Mr Hayton’s suggestion that she was relying on unusual or atypical occupations, including temporary arrangements with reverse premiums or rent reductions, Mrs Whitby said that the fact of occupation demonstrated that the units were capable of occupation.  The examples she had quoted included short term occupations of similar warehouse units for storage purposes and properties occupied by expanding businesses or those needing additional space on the same industrial estate.  She did not accept that such occupiers should be ignored, as they were in the market for such space.  She also noted Mr Hayton’s acknowledgement that, in short term lettings designed to result in a rates exemption, the tenant or licensee was required to occupy the property in a manner which satisfied the test of rateable occupation.  She said that this supported her view that the appeal hereditaments were completed and capable of occupation.
60.	Mrs Whitby queried Mr Hayton’s description of the appeal hereditaments as high quality and high specification properties.  They were typical of modern industrial properties, similar to many industrial units built since 2000.  They were described in the list as warehouse and premises, and such units were regularly used for the storage of goods. An occupier would typically fit out a unit to meet the needs of its business.  Such needs would vary from business to business, from occupier to occupier and from unit to unit.  The appeal properties were described in the list as warehouses and premises and their use for the storage of goods was compatible with that description.  Her comparables clearly showed that at the material day the appeal hereditaments were capable of occupation for the purpose for which they were built.
61.	In response to Mr Hayton’s suggestion that the tenant or licensee under a short term arrangement did not need the building in the traditional sense, Mrs Whitby said that the motivation of the tenant might be relevant when considering value, but it was not relevant to the question whether the unit was capable of occupation.
62.	Mrs Whitby doubted the value of Mr Hayton’s research into allowances for lack of lighting in the rating list, and explained that the valuation office applied end allowances to its valuations in two different ways.  Those applied to the entire hereditament appeared on the valuations on the VOA website.  In many cases, however, end allowances were applied only to the building element of a valuation.  In such cases the allowance was not shown as a separate item on the website valuation.
Evidence of Mr Mills
63.	Mr Mills produced a number of comparables which, together with those produced by Mrs Whitby, he considered demonstrated that beneficial occupation of such premises was possible without warehouse lighting, warehouse power distribution, office partitioning and connection of the gas supply to provide hot water or heating to any part of the premises.
64.	Mr Mills noted that all that would be required to make the central heating system operational at Unit 11 Torc MK would be a short length of gas pipe and a meter to monitor usage.  Moreover on the material day – 3 July 2006 – central hearing was unlikely to have been required.  Mr Mills considered that it would have been possible to occupy the offices at that date and arrange for the central heating connection to be completed in due course.  In cross examination Mr Mills accepted that it was necessary to have a hot water supply in the w.c..  He did not know whether there was a back up immersion heater in the absence of a gas supply.
65.	Mr Mills concluded that Unit 11 was finished to a standard sufficient to enable beneficial occupation for warehouse purposes.  This was demonstrated by the ability of occupiers to derive beneficial occupation from premises lacking features which were also lacking at Unit 11.  In his view the absence of such facilities did not raise an issue of capability of beneficial occupation but was a matter of valuation judgment.
66.	In his rebuttal report Mr Mills expressed the view that there was nothing atypical about the occupation of the various units to which he had referred as comparables.  They simply reflected the diversity of potential occupiers in the market for this mode and category of premises.  He also suggested that there was a contradiction between Mr Hayton’s acceptance that such an atypically occupied property could form a hereditament, whereas an identical unit next door which was vacant and to let would not.  In cross examination, however, he agreed with an observation in the VOA rating manual to the effect that a building which lacked certain essential features but was nevertheless occupied, should be entered in the rating list.
67.	Mr Mills also pointed out that his comparables exemplified occupation for warehouse purposes and for periods of time considerably in excess of that necessary to operate a rates avoidance scheme.  It was not clear to him why agents would advise clients to take steps to avoid empty property rates if they were not convinced that there was a hereditament in the first place, but he accepted in cross examination that, if a completion notice had been served, the property would be in the list whether or not it was in an occupiable condition.
68.	Mr Mills was aware that some of his comparables were occupations of a temporary nature, and that they were subject to various deals such as low rents or reverse premiums.  But that did not detract from the main issue, which was that they demonstrated actual occupation for the purposes for which the premises were designed and showed that the premises were complete.
69.	In response to Mr Hayton’s repeated references to “high specification” properties, Mr Mills said that Unit 11 was simply a modern warehouse built to modern standards.  The valuation placed upon it reflected those standards.  Older warehouses, whilst perhaps not possessing features such as good insulation or good natural light, still performed the same basic function, namely the storage of goods and materials.
70.	Mr Mills disagreed with Mr Hayton’s reliance solely on evidence provided by very similar properties, usually on the same development.  He considered that this approach artificially restricted the available pool of evidence.  All the properties he had referred to were in the same mode or category of occupation as Unit 11.  Because the potential range of occupiers was so diverse, all those comparables should be considered when deciding what features were essential for rateable occupation to take place.  The test he always applied, regardless of the location of the property or its characteristics, was whether or not it was capable of occupation for the purpose for which it was intended.
71.	In cross examination Mr Mills accepted that his suggestion that the location of comparables was irrelevant was contrary to the guidance given to chief finance officers of billing authorities by the Department of Communities and Local Government on 25 March 2008, that –
	“Evidence of other similar buildings in the locality actually occupied in the same state as the property being considered will be of great assistance in confirming a property is complete and ready for occupation for its purpose.”  (Emphasis added).
72.	Mr Mills agreed with this guidance, although he thought that a larger geographical area should be considered in the case of warehouses than, for example, for offices.
Discussion
73.	In our judgment the determination of these appeals is quite a straightforward issue of fact which turns on the absence from the appeal properties of the essential features relied on by Mr Hayton, namely small power distribution and lighting and, in the case of the Milton Keynes property, the gas connection necessary to supply hot water.  
74.	It is a noteworthy feature of these appeals that the opinions of the two VOs on the need for electric lighting in the warehouses have changed.
75.	In a letter dated 1 August 2008 to PriceWaterhouse Coopers concerning Units A, B, F and G Reading Approach, Mrs Whitby wrote:
	“As you will be aware a newly completed building should be entered into the list when it is complete.  I believe that these units are complete as only de minimis adaptations would need to be made by any occupier.  It is my opinion that the only adaptation that is essential in order to satisfy the nature of these hereditaments is additional permanent lighting to the warehouse area.”
76.	Mr Mills was originally of a similar view.  The VT decision on Unit 11 Torc MK records, in para 49, that:
	“Mr Mills stated that in his opinion there was a need for some lighting in the warehouse area for it to be capable of beneficial occupation throughout the year.”
77.	Mr Mills and Mrs Whitby attributed the change in their opinions to more detailed consideration of the matter following a further inspection of the properties and the discovery of the comparable evidence.  We are not convinced by that explanation.  When Mrs Whitby wrote her letter to PriceWaterhouse Coopers in 2008, and when Mr Mills gave evidence to the VT in October 2010, they had worked for the VOA for 17 years and 20 years respectively.  They were therefore both experienced surveyors.  We consider that the original judgment they reached as to the need for warehouse lighting – which is consistent with the opinion of Mr Hayton – is to be preferred to their revised opinion, which is supported only by a very few examples representing a tiny fraction of the total number of warehouses and workshops with ancillary offices situated in England and Wales.  
78.	Of the 13 comparables relied upon by the VOs and summarised in the schedule on page 871 and 872 of the trial bundle, three were occupied in unusual circumstances.  Unit B, Reading Approach has been occupied since March 2010 by Fforest, who were searching for an office property and who expected to use the warehouse only when the business had grown sufficiently to require it, as we have described in paragraph 12 above.  In fact, the warehouse use has been extremely limited.  A full warehouse lighting system has not been installed, but the tenants did find it necessary to install some power in the warehouse.
79.	In our judgment, the purpose for which Unit B has been used is quite different from that for which the appeal properties were designed.  As Mrs Whitby rightly accepted in cross examination, Unit B has been used as offices with an ancillary warehouse, rather than the reverse.
80.	The second unusual occupation is that of Unit 2, Heron Business Park, Widnes, the details of which were provided by Mr Mills with further information coming from Mr Hayton who had spoken to the occupier.  This was occupied from 2009 without lights or heating in the warehouse and with small power limited to one double socket.  Gas was connected to a consumer unit but then capped off.  The tenant, a Mr Wilson, carries on business from premises in Stockport.  He was able to lease the Widnes property at a very low rent, but then found that the state of the economy was such that he could not afford to fit it out.  Lighting was eventually installed in 2012.  Again, this property was not used in the manner for which it was designed, the normal intention in the case of such speculative developments being that the property will be fitted out by its first tenant.
81.	The third exceptional property, Unit 3, Arena 14, Bicester, was leased to R J Cooper, together with Units 4 and 5, for 15 years from 28 July 2008.  The lease was forfeited in June 2009.  The tenants’ business was catering.  They fitted out Units 4 and 5 extensively for their own occupation, with a view to growing into all three units over time.  Units 4 and 5 were fitted with power throughout the warehouses, and with warehouse lighting.  In our judgment, any use to which R J Cooper put Unit 3, without power or light, was not for the purpose for which it had been designed, namely a modern warehouse or workshop with ancillary offices.
82.	We also consider that the weight that can be given to certain of the VOs’ other comparables is limited.  In the case of Unit 6, Quadrant Park, Welwyn Garden City, it is not clear on the evidence whether or not the property was occupied without power or lighting.  There was in our view no sufficiently reliable evidence as to the occupation of Units 7 and 8 Commerce Trade Park, Croydon to enable a judgment to be made as to whether they were occupied for the purposes for which the units had been designed.
83.	Nor do we consider that any of the remaining comparables provide significant support for the VO’s case.  Unit A Reading Approach, Unit 4 Agecroft Commerce Park, Manchester and Unit 1E Union Gate, Iver each had both power distribution and additional lighting in the warehouse areas.  The tenants of Unit 1, Sharston Green Business Park, Manchester, installed their own limited electric lighting and rigged two sets of power to the rear of the warehouses, to enable them to occupy the property.
84.	The remaining comparables are units on the Leyland Business Park, Leyland, where in some cases the evidence suggested that occupation was taken without power and/or lighting in the warehouse.  In our judgment these units are not occupied for the purpose for which the appeal properties – tall, modern warehouses or workshops with ancillary offices – were designed.  Rather, they were occupied by tenants who were satisfied with the conversion of an old factory to form basic workshops with low eaves height and no proper offices.
85.	In the light of all the evidence, including the comparables, we find that additional lighting and power distribution in the warehouse areas were required before the appeal properties were ready for, or capable of occupation.
86.	We have reached the same conclusion in respect of the absence of a gas meter and connection of a gas supply to the boiler in Unit 11.  We find that the appeal properties were designed to be occupied by staff for whom w.c. facilities would be provided.  Mr Mills accepted that it would be necessary to have a hot water supply in the w.c.s and there was no evidence that there was any other method of providing hot water other than through the anticipated gas supply.
87.	The evidence in relation to compartmentalisation was less clear-cut, and the reliance placed on this feature by Mr Hayton diminished.  In view of our other findings it is not necessary for us to reach a conclusion on the significance of the lack of partitioning.  We are satisfied that the absence of electric lighting and small power in all four warehouse areas, and of a gas connection to provide hot water in the w.c.s in Unit 11, mean that they all lacked features which would have had to be provided before they could be occupied as modern warehouses or workshops and ancillary office purposes.
Conclusion
88.	The appeals are allowed.  We direct that the entries in the rating list in respect of Units A, B and G Reading Approach, Craddock Road, Reading with effect from 1 April 2005, and in respect of Unit 11 Torc MK, Chippenham Drive, Kingston, Milton Keynes with effect from 3 July 2006 be deleted.
89.	In conclusion we would reiterate what the Upper Tribunal said in paragraph 66 of Porter, namely that the issues which have arisen in these cases would have been avoided, if each of the billing authorities had served completion notices at the time the units reached practical completion.  There is simply no need for disputes of this kind when the statutory scheme provides a reliable method of deeming a new building to be complete and capable of being entered in the rating list. If the views expressed by Mrs Whitby in her letter of 1 August 2008, and by Mr Mills in his evidence to the VT, had been properly considered in the light of the Tribunal’s observations in paragraph 66 of Porter, the time and expense incurred in connection with these appeals could readily have been avoided.
90.	A letter concerning costs accompanies this decision, which will become final when the question of costs is determined.
								Dated: 4 September 2013

								Martin Rodger QC, Deputy President
								
								N J Rose FRICS
Costs Addendum
91.	We have received an application from the appellants, seeking their costs on the indemnity basis and suggesting that such costs be summarily assessed in the sum of £81,132.88 (Aviva) and £54,324.98 (PPG).  If the Tribunal is not minded to assess the costs summarily, the appellants request interim payments representing 50% of their respective costs and an order for detailed assessment of such costs.
92.	In support of their applications the appellants make the following points.  As the successful parties, they ought to receive their costs pursuant to the Tribunal’s Practice Direction 12.3.  Indemnity costs should be awarded as it was unreasonable for the respondents to contest the appeal through to trial, given the observations in the second sentence of paragraph 89 of the decision.  Moreover, the manner in which the respondents’ evidence was prepared, which involved the parties in a lengthy and costly exercise researching 13 properties, most of which were a considerable distance from the appeal properties, and which the Tribunal found provided no significant support for the respondents’ case, served no useful purpose except to increase the parties’ costs unnecessarily.
93.	The respondents accept that the appellants are entitled to have their costs, but they say there is no justification for the indemnity basis being awarded.  They submit that there was nothing in the respondents’ conduct or the handling of the litigation which took the case out of the norm.  The litigation was conducted by the parties in a way which was cordial and professional at all times.  There were currently a number of completion notice appeals lodged with the Tribunal and the parties cooperated with each other to select the two subject appeals as lead cases.  Although the respondents agree that it would be desirable for billing authorities to serve completion notices in cases where there was any doubt, they are not able to serve completion notices themselves or require billing authorities to do so.  In view of the doubts the respondents had concerning the applicability of Porter to warehouses and the fact that a very large number of newly built, but incomplete warehouses have been entered in the rating list without completion notices, the Valuation Office Agency considered that there was an important point of principle at stake and that the decision to resist the appellants’ appeals was reasonable and proportional.  The need for the appellants’ expert witness to inspect the comparables relied upon by the respondents was inherent in the nature of rating litigation.  The fact that the respondents were wrong about the appeal hereditament being capable of beneficial occupation does not cross the high threshold of unreasonableness necessary to justify the penalty of indemnity costs.
94.	The respondents have a number of concerns about the appellants’ statements of costs which make it more suitable for the costs to be assessed by the registrar than to be subject to summary assessment.  The concerns are these.  Firstly, VAT should be excluded from the costs awarded if the appellant companies can recover VAT as input tax.  Secondly, a more detailed breakdown of Mr Hayton’s fees should be provided, as well as counsel’s fee notes.  Thirdly, the respondents have been advised that the number of hours charged by the appellants’ solicitors is excessive.
95.	We agree with the respondents that summary assessment of costs is not appropriate in the circumstances of these appeals and that the respondents’ conduct is in not such as to justify an award of indemnity costs.  The Tribunal has a wide discretion to award costs on the indemnity basis, but such an award is generally only justified in cases which are outside the norm because of unreasonable behaviour or other inappropriate conduct.  This was clearly not such a case. 
96.	The appellants have confirmed that they are both able to recover VAT as input tax.  The respondents have offered to make interim payments of £30,000 (Aviva) and £20,000 (PPG Southern), which is approximately 44% of the respective claims net of VAT.  We consider that offer to be reasonable.
97.	The respondents must pay the appellants’ costs of the appeal, such costs to be assessed by the registrar on the standard basis in default of agreement.  The respondents must pay £30, 000 to Aviva Investors Property Developments Ltd and £20,000 to PPG Southern Ltd on account of such costs within fourteen days of the date of the letter accompanying this decision.
								Dated: 16 October 2013
								
								Martin Rodger QC
								Deputy President
		
								N J Rose FRICS