UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2014] UKUT 0476 (LC)
UTLC Case Number: RA/37/2013

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

RATING – valuation – offices – treatment of internal staircase installed by tenant – rebus sic stantibus – definition of net internal area – tenant’s improvements - minor works – Appeal dismissed  

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

BY

	IAN PHILIP MANNING
	(VALUATION OFFICER)	Appellant

	

re: Part 3rd, 4th and 5th floors
Park House, 16 Finsbury Circus, London EC2M 7DJ

	Before: P R Francis FRICS
	 
Sitting at: 43-45 Bedford Square, London WC1B 3AS

on 

7 August 2014 

Jonathan Davey of counsel, instructed by HMRC Solicitors, for the appellant VO 

The following cases are referred to in this decision:

John Laing & Sons Ltd v Kingswood [1949] 1 KB 344
Gilbert v S Higginbottom & Sons [1956] 2 QB 40
Edma (Jewellers Ltd) v Moore (VO) [1975] RA 343
Williams (VO) v Scottish & Newcastle Retail Ltd [2001] EWCA Civ 185
Wilson-Smith v Attrill (VO) [2011] UKUT 287 (LC)
Johnson v H&B Foods Ltd [2013] UKUT 0539 (LC)

DECISION
Introduction
1.	This is an appeal by Ian Philip Manning (the appellant Valuation Officer), from a decision of the Valuation Tribunal for England (VTE) dated 26 June 2013 which allowed an appeal by the ratepayer, Bloomberg LP (Bloomberg) after reducing the assessment in the 2010 non-domestic rating list on “part 3rd floor, 4th and 5th floors, Park House, 16 Finsbury Circus, London EC2M 7DJ” (the hereditament) from £1,700,000 to a rateable value (RV) of £1,440,000.   The material and effective dates were 6 June 2011.  
2.	The ratepayer, Bloomberg LP, which was the appellant before the VTE had, by its agent GVA on 18 August 2011, made a proposal to alter the rating list to £1.00 because, for three reasons, the assessment was deemed excessive.  The extent of the disability and the effect of the first two reasons (that the assessment did not reflect ongoing construction works to the adjacent property, 12–15 Finsbury Circus, and the Crossrail works being undertaken at Finsbury Circus) were agreed by the VO and this would have had the effect of reducing the assessment to £1,450,000.   The third reason, which would, the parties agreed, have reduced the assessment by a further £10,000, related to whether the net internal area (NIA) occupied by a private internal staircase constructed by the ratepayer between the three floors should be removed from the assessment.  That was the principal issue considered by the VTE at a hearing on 22 May 2013, and it concluded that, in accordance with the appellant ratepayer’s case, the NIA of the staircase should be excluded. The VTE also considered an argument by the respondent VO that, if the floor area of the staircase was to be excluded, should there instead be an end-adjustment on the basis that the staircase constituted a tenant’s improvement.  
3.	Mr Jonathan Davey of counsel appeared for the appellant. The appellant gave expert valuation evidence as the duly appointed Valuation Officer.
4.	Although it was accepted by the VO that the amount in issue before me is small, Mr Davey pointed out in his skeleton argument that the issue has “a significance that potentially goes beyond the four corners of the instant facts,” and there was a risk that if the VTE decision was not challenged, it would be “invoked by ratepayers in other cases where the proper treatment of tenants’ alterations is in question.” Presumably recognising that this was effectively a “test case”, Bloomberg confirmed by letters from its agent dated 16 August and 10 September 2013 that due to the potentially significant and disproportionate costs involved it would not be responding to the appeal, and would thus not be taking any part in the proceedings.  
Facts  
5.	From the evidence, I find the following facts. The appeal hereditament (as defined in the 2010 rating list) comprises part of the third, and the whole of the fourth and fifth floors (apart from communal spaces such as stairwells and lift/service cores) within Park House, 16 Finsbury Circus EC2M 7EB.   Park House is an imposing period building, originally constructed in the 1920s and substantially refurbished in the late 2000s to provide grade A office accommodation behind a retained classical stone façade.  The building, which is now multi-let, was listed Grade II in 1977.  The office floors are served by six 24 person passenger lifts, a goods lift and a fire lift, and each floor has male and female WCs.  There is also an original centrally located common staircase with further staircases provided to the north-west core and one on the east side.  
6.	The hereditament is located on the north-eastern quadrant of Finsbury Circus in the City of London between Moorgate and Liverpool Street under and over-ground stations and to the north of London Wall.   
7.	The ratepayer is tenant of the entirety of the third, fourth and fifth floors (apart from the service and access cores) under the terms of three 10 year leases that also include a basement store.   All the demised offices were let as Category A which provided principal services, raised floors and suspended ceilings allowing for fitting out to the occupier’s requirements (to Category B).  The fourth and fifth floors, together with a small area comprising two meeting rooms on the third floor were, at the material day, fitted out to Category B and occupied.  They comprised a “U” shape around the building’s main central ‘core’ containing lifts, services and an atrium/light-well together with WCs.  The fourth floor also had a reception area (that being the only public access), kitchen and staff ‘break-out’ area.  The demised part of the third floor which remained to be fitted out to category B was unused by the ratepayer, and was not included within the assessment.   
8.	The fitting out works undertaken by Bloomberg before they took occupation (6 June 2011) included the provision, principally for security purposes, of an internal staircase to contain movement within the demised floors, and to prevent staff having to exit the secure floors to the communal core to move between them.  It was installed with landlord’s consent, but not pursuant to any obligation, other than to reinstate at the end of the term or upon the exercise of a tenant’s break clause, and was not subject to any resulting adjustment to the passing rent (although it would be taken into consideration at the first rent review).  Due to the fact that the doors that formerly gave access on to the communal core (other than those leading into the fourth floor reception area) became fire-escape doors, and from the outside were permanently locked, the new staircase thus became the only internal means of access between the floors.  The total floor area occupied by this staircase, over the three floors it serves, was agreed at 55.07 sq m (1.20% of the total office area demised), and it was in place and in use at the material day.   
9.	The overall net internal floor areas of the hereditament, both with and without the staircase, together with the area of the currently unoccupied part of the third floor were also agreed between the parties before the VTE, and the main office rate was agreed at £370 per sq m.     
The VTE decision
10.	The two issues considered by the VTE in its decision of 26 June 2013 were (1)  whether the floor area occupied by the internal staircase should be included or excluded from the net internal floor area and (2), if it were to be excluded, should it instead be, as argued by the respondent VO, reflected in the valuation as an end-adjustment for tenant “alterations/stairs” of plus 1.20%?  This allowance was not justified by any consideration of the value added by the staircase but was a purely arithmetical addition reflecting the fact that the area of the staircase amounted to 1.20% of the total floor area (including the unused part of the third floor).  It was noted by the VTE that whichever approach was adopted, the VO’s assessment (at an additional £10,000) was the same.  The 1.20% allowance referred to actually produced, on the agreed £370 psm for office space, an increase of £20,376 but the VO did not propose more than a £10,000 addition for the effect of the staircase.
11.	 In this regard, the VTE said, at paragraph 8 of its decision:
“The respondent’s representative provided an alternative valuation to that set out in his statement of case.   In this valuation he had removed the floor area of the staircase from the net internal area but had made an end adjustment for ‘tenant alteration/stairs’ of plus 1.20%.  The resultant ‘rounded’ rateable value was the same as that sought in his statement of case.  In accordance with Practice Statement – Non-Domestic Rates (Rating List 2010): Disclosure & Exchange – VTE/PS/A7-1 8 November 2011 [Effective from 1.1.12], the Panel considered that this alternative valuation should be allowed as it did not alter the revised rateable value being sought by the Respondent’s representative, it just amended how he had reflected the presence of the staircase in his valuation.”   
12.	The VTE, which recorded the hereditament as being part of the third floor, together with the fourth and fifth floors at Park House, said that having considered the parties’ evidence and submissions, it understood the subject hereditament had been measured to net internal area (NIA) in accordance with the RICS Code of Measuring Practice, 6th edition.  It noted the ratepayer’s argument that section 3.14 of the Code specifically states that stairwells, lift-wells and permanent lift lobbies should be excluded, and the contention that the “rebus sic stantibus” rule in conjunction with the Local Government Finance Act 1988 required that matters affecting the physical state or enjoyment of the hereditament were to be taken to reflect the premises as they were at the material day – by which time the staircase had been constructed.  The VTE also noted the VO’s opposing view as to the interpretation of the Code by his reference to section 3.6 which says that ramps, sloping areas and steps within usable areas should be included, and that under section NIA5 it is not normally appropriate to exclude space within the demise which has been converted by a tenant to any of the exclusions listed.  It was also noted that the VO had argued in the alternative that if it were to be held that the area should be excluded, it should be taken to be an improvement and reflected as such in the assessment.    
13.	The VTE referred to the references made by the parties to the treatment of other hereditaments, and said in its conclusions:
“20. Having considered all the evidence presented, the Panel finds that the weight of the evidence supports the Appellant’s representative’s contention that, in the subject case, the area of the staircase should be excluded from the NIA in accordance with the definitions set out in the 6th edition of the RICS Code of Measuring Practice.  The Panel agrees that the subject heraditament should be valued in accordance with the “rebus sic stantibus” rule and at the material day the staircase was physically in existence.  The panel did not consider the staircase to be a temporary structure as its removal would require substantial structural alteration to the three floors.
21. Whilst the Panel accepts that the staircase enables direct intercommunication between the three floors it was not satisfied that evidence of any weight had been provided to support the Respondent’s representative’s contention that if the area of the staircase is taken out of the NIA, because it is a tenant’s improvement, it should be reflected in the valuation as an end adjustment to reflect this fact.
22. In conclusion the appeal is allowed and the Panel determined the revised rateable value of RV £1,440,000.”
The RICS Code of Measuring Practice (the Code)
14.	It was common ground between the parties before the VTE that the measurement of the appeal hereditament should be based upon the sixth edition of the Code which was effective from September 2007.   The purpose of the Code is stated to be “to provide succinct, precise definitions to permit the accurate measurement of buildings…on a common and consistent basis.”  Its status is described as a Guidance Note which “provides advice to Members of the RICS on aspects of the profession.  Where procedures are recommended for specific professional tasks, these are intended to embody ‘best practice”, and states that “Members are not required to follow the advice and recommendations contained in the Note.”
15.	The definition of NIA falls within section 3 of the Code which so far as relevant to this appeal provides:
“3.0 Net Internal Area (NIA)
Net Internal Area is the usable area within a building measured to the internal face of the perimeter walls at each floor level (See note NIA 3)
Including
…
3.6	Ramps, sloping areas and steps within usable areas
…
Excluding
…
3.14	Stairwells, lift-wells and permanent lift lobbies
Applications (when to use NIA)
…
APP 10	Rating – NIA is the principal basis of measurement for rating of shops,   offices….)
…
Notes (How to use the NIA)
…
NIA 5	Advice – when dealing with rent reviews or lease renewals, the exclusions are generally intended to relate to the premises as demised.  Unless otherwise indicated by statutory provision or the terms of the lease, it will not normally be appropriate to exclude demised usable space which has been subsequently converted by a tenant to any of the exclusions listed.
…”
Issue
16.	The principal issues before me are the same as those considered by the VTE – that is, firstly, whether or not the space occupied by the staircase installed by the tenant between the third, fourth and fifth floors should be included within the NIA and secondly, if the space is to be excluded when determining the NIA, the contribution which the staircase itself makes to the rental value of the hereditament ought nonetheless to be reflected in an additional allowance.  Before me, a further alternative approach was argued, that being that even if I find against the appellant on both of these alternatives, then the “doctrine of minor works” applies and the area in question is to be valued as offices as if the staircase had been removed.  
17.	I was also asked to consider a subsidiary issue which was, it was admitted by the appellant, not before the VTE.  That was whether the hereditament should be described in the rating list as comprising the entirety of each of the three floors (as contended for by the VO), or whether the part of the third floor not currently used by Bloomberg should continue to be excluded (as recorded by the VTE and as per the current entry in the rating list).  It was submitted that the fact this issue was not before the VTE does not prevent this Tribunal from considering it – see regulation 42(5) of the Appeal Regulations 2009 and Johnson v H&B Foods Ltd [2013] UKUT 0539 (LC) from para 60.
18.	I consider the subsidiary issue first, that matter being the subject of legal submission. 
The case for the appellant VO
The extent of the hereditament

19.	In the appellant’s statement of case, dated 13 December 2013, it was contended that the hereditament is more extensive than the VTE took to be the case.  It was submitted that section 64(1) of the Local Government and Finance Act 1988 (LGFA 1988) defines a hereditament as “anything which, by virtue of the definition of a heriditament in section 115(1) of the General Rate Act 1967 (GRA 1967), would have been a heraditament for the purposes of that Act had this Act not been passed.”  Section 115(1) of the GRA 1967 defined a hereditament as “…property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item in the valuation list.”
20.	Therefore, it was submitted, on a proper analysis a hereditament constitutes a unit of land that falls to be assessed separately for rating purposes.  Where it is not clear whether particular premises constitute one, or more than one, hereditament the proper approach is to take a common sense view, taking into account all relevant factors including whether the premises form a single geographical unit (see Gilbert v S Higginbottom & Sons [1956] 2 QB 40 at pages 53 and 54).  The concept of “hereditament” is inextricably linked to the notion of rateable occupation.  The Court of Appeal articulated the four necessary ingredients that must be present for there to be rateable occupation in John Laing & Sons Ltd v Kingswood [1949] 1 KB 344 at 350 as:
“First, there must be actual occupation; secondly, that it must be exclusive for the particular purposes of the possessor; thirdly, that the possession must be of some value or benefit to the possessor; and, fourthly, the possession must not be for too transient a period.”
21.	In applying those principles to the present case, it was submitted that Bloomberg is the tenant of the entirety of the three floors (except for the common parts) under leases that have several years to run.  The mere fact that Bloomberg chooses not to use part of the third floor as functioning office space is nothing to the point.  It is in actual occupation, it does have exclusive possession of the area in question, that possession is of benefit to it and its possession is not for too transient a period.  Mr Manning said in his report that, whilst it was accepted that the Category A space could not be used to its full potential until it had been upgraded by Bloomberg, it was only separated from the rest of the third floor by floor to ceiling glass panels that would be easily removable.  The unused space also, importantly, provides the means of emergency access and egress, without which the upgraded part of the floor could not be occupied. 
22.	It was suggested that the appropriate position to be adopted by the Upper Tribunal was as set out in these submissions, and not as adopted by the VTE. 
23.	It occurs to me that the VTE did not “adopt a position” as far as the extent of the demise is concerned.  The matter was not in issue, and no argument was put forward to suggest that the extent of the hereditament was anything other than as set out in the rating list entry.  Indeed, Appendix IPM 10 to Mr Manning’s expert report sets out the VTE valuation where the demise of the third floor is stated as 163.91 sq m (which relates only to the Category B accommodation then in use by Bloomberg (excluding 9.23 sq m of stair space on that floor)) and makes no mention of the remaining 2,065.74 sq m of unused Category A space.
24.	Furthermore, whilst I accept that it may be appropriate in some circumstances to permit the appellant to argue new points, the question relating to the jurisdiction of the Upper Tribunal in respect of hearing appeals from the VTE and the Valuation Tribunal for Wales (VTW) having been, as was pointed out, considered at considerable length by the President and Mr A J Trott FRICS in Johnson,(although the circumstances of that case were markedly different), and confirmation having been given to the parties that this was to be a “de-novo” hearing, there is however one insurmountable hurdle.  That is the fact that, at the time the ratepayer concluded that it would not be in its interests to respond to the appeal (as confirmed to the Tribunal in its agent’s letters of 16 August and 10 September 2013), it had not been put on notice of this proposed supplementary issue.
25.	In the letter dated 19 July 2013 that accompanied the notice of appeal, The VO said: 
“In the notice of appeal I request a time extension to submit our Statement of Case.  The grounds of my appeal will centre around fundamental principles of tenant’s works, minor alterations to the hereditament and I require additional time to investigate the conditions of the lease under which the hereditament is held and the cost of making the alterations.  Also, due to the normal summer leave taking, the competing demands of Valuation Tribunal caseloads, resource availability is somewhat limited and therefore I would be grateful for a time extension until 18 October 2013.”
26.	Then, in response to applications from the appellant dated 3 October and 8 November 2013, the time for filing and service of the statement of case was finally extended to 13 December 2013, the date upon which the statement of case was filed.   It was only then that the question of the extent of the hereditament in the rating list was raised as an issue for the Tribunal to decide.   It is evident therefore that at no time was the respondent on notice of the issue, that also being clear from the statement in GVA’s letter of 16 August 2013 that said “there is only one issue [being the treatment of the staircase] that needs to be resolved.” 
27.	It would thus be wholly inappropriate for the Tribunal to make any determination on this issue as if it were the result of a proposal or a notice to amend.  The VO will therefore have to make a proposal to alter the list if he wishes to amend the extent of the hereditament within the assessment, and the ratepayer will have the right of appeal against it.
28.	In any event, the matter seems to me to be very much a non-issue in terms of the ratepayer’s potential liability as Mr Manning’s alternative valuation (assuming the rest of the third floor was included in the hereditament) valued this presently unused area at nil.
The treatment of the staircase
29.	Mr Manning is a chartered surveyor and a Principal Valuer with the Valuation Office Agency based in the City of London.  He has over 35 years experience as a rating valuer working principally within London throughout that period.
30.	He explained that before the ratepayer, Bloomberg LP, took occupation of the premises they had to fit them out to make them suitable for their requirements.  Due to the nature of their business, security is a significant issue and they therefore obtained landlord’s consent to install what they describe as an ‘accommodation staircase’ to allow staff to move between floors without having to exit the ‘closed box’ that was being created.  The only access from the ground floor reception of this multi-let building for both clients and staff is via the communal lifts and stairwells that lead to Bloomberg’s own reception on the fourth floor. All visitors and staff then have to pass through security scanners to gain entry, and thence the only access to the third and fifth floors is via this newly provided internal staircase.   The staircase comprises steel treads and risers, and is surrounded by toughened glass.  At the termination of Bloomberg’s leases, or upon exercising a break clause, the staircase has to be removed, and the original floor plate re-instated.
31.	Mr Manning explained that the RICS Code of Measuring Practice is generally adopted by the VOA, and the 6th edition was the relevant guide at the material date.  He admitted that it does not specifically define stairs and staircases, and accepted therefore that it is not entirely clear whether or not the area occupied by the new staircase should be included within the NIA for rating purposes.  However, he said that even if the Tribunal rejects the legal submission that they should be included because they do not comprise a stairwell, (which is set out as an exclusion in paragraph 3.14 of the Code) and are more accurately described as “steps in usable areas”, (distinguished as an inclusion in paragraph 3.6), there are persuasive arguments in the alternative to support the appellant’s case.
32.	 For instance, under the rebus sic stantibus rule, Mr Manning said that the hereditament has to be valued for rating purposes as it stands in its actual physical state, on the assumption that it is vacant and to let, with the actual occupier being considered to be a hypothetical occupier of the premises.  Precedent and case law, he said, has established the clear presumption that the physical state should reflect minor alterations which do not change the mode or category of occupation (see in particular Schedule 6 to the Local Government Finance Act 1988, paras 2(3) to (7)).  A key question for the valuer to consider is what minor alterations a prospective occupier would consider in making his rental bid.  Would the prospect of creating a new internal staircase (and removing it at the end of his tenancy) be in the incoming tenant’s mind?  Would he consider this to be minor works within the ambit of the leading case of Williams (VO) v Scottish & Newcastle Retail Ltd?  
33.	He went on to say that the test to be applied at Park House becomes: would the prospect of creating a new internal staircase be in the mind of an incoming tenant, and conversely, once installed, would he consider removing it – noting that he will be required to make good at the end of the tenancy?  
34.	Mr Manning said that according to a building surveyor colleague of his within the VOA, a reasonable estimate of the cost of installing the staircase would be in the region of £200,000, with making good at the end of the tenancy adding a further £50,000 or so.  As a proportion of the annual value of the hereditament for rating purposes prior to any adjustments for disabilities of £1,700,000 this must therefore be considered as minor works and therefore give rise to a prospective alteration to what is the appropriate rent he is prepared to pay.  As a further alternative, he said that the starting point that a Rateable Value as a measure of liability is accepted as representing the value to the occupier of their occupation.  If an occupier paying a market rent then incurs capital costs making changes or improvements for the benefit of their occupation, then under the rating hypothesis it is necessary to consider how that cost may translate into rental value.  In effect therefore, this begs the question what extra rent the hypothetical landlord would demand if he had provided those changes, as under the hypothesis he is deemed to have done the works.    Tenants do not generally make expensive alterations unless those works add value to their occupation, and it is therefore reasonable to reflect the presence of the staircase as adding value to the tenant’s occupation. 
35.	Dividing the capital cost of £200,000 by a years purchase at 5% for the remaining term of the lease (9 yrs, 11 months) at 5% (7.72) produces an equivalent rental value of £25,906.  It was accepted that this figure cannot be precise in the absence of evidence on specific costs, but it is not far removed from the value of the area (55.07 sq m (1.2% of the total office space area)) which it is agreed the staircase takes up, multiplied by the agreed £370 psm value of the office space which produces £20,376.  
36.	Mr Manning produced two valuations which are attached to this decision at Appendices B & C.  Appendix B is the valuation on the basis that the area of the staircase is included within the NIA (£20,376), and Appendix C excludes the area from the NIA, but includes his estimate of the value of that area as a tenant’s improvement (£25,906).  Nevertheless, he said that, adopting a “stand back and look” approach, he would not intend to resile from the figure of £10,000 sought before the lower tribunal.  The VTE’s valuation is at Appendix A.
37.	He concluded by saying that in his opinion the likely prospect of the tenant removing the stairs as a minor work can be reasonably assumed, and does not offend the two limbs under rebus, but in the alternative, if the area occupied by the stairs fall to be excluded, their creation can be considered as an improvement which would increase the value by an amount that more than offsets that loss.  Thus, whichever assumption is adopted, the consequence is that valuing with or without the presence of the stairs is value neutral.     
38.	In submissions, Mr Davey said that the VTE’s decision at paragraph 20 [see para 13 above] was premised, albeit implicitly, on the proposition that the stairs fall within the scope of the term “stairwell” in section 3.14 of the Code. However, that analysis does not stand up to scrutiny.   Whilst the term is not defined in the Code, it should be attributed its ordinary meaning as defined in the Oxford English Dictionary: “the shaft containing a flight of stairs; a well”.  Thus the defining characteristic is that it is an enclosed rather than an open area, and that description tallies with the other items listed in section 3.14, i.e. “lift-wells” and “permanent lift lobbies”.  The stairs in this case constitute an open sided flight of stairs which sit more naturally with the description “steps within usable areas” as set out in section 3.6, and should therefore be included.   Furthermore, even if I determined that the VTE was right in its implied interpretation that this is a stairwell, the staircase would surely fall within the ambit of note 5 to the Code which states: “it will not normally be appropriate to exclude demised usable space which has been subsequently converted by a tenant to any of the exclusions listed.”  Whilst rating is not specifically mentioned in note 5, there is no logical basis for its non-applicability in a rating context.  Indeed he said App 10 of the Code states that NIA is the principal method of measurement in rating.  Thus, whichever way the Code is looked at, the circumstances here clearly suggest that the stairs should be included within the NIA.  They amount to usable and, in practice, useful space within the demised hereditament.   In any event, it needed to be borne in mind that the Code was purely for guidance in respect of measurement, and is not a code of valuation that has any statutory authority.  It is the legislation under the LGFA 1988 that has to be adhered to. 
39.	In that regard, it was submitted that, if necessary, the stairs can properly be viewed as constituting a tenant’s improvement which enhances the value of the hereditament, and thus falls to be reflected in the applicable rateable value.  There could be no doubt that the works increase the utility of the hereditament to the occupant.  If it had not done so, then surely Bloomberg would not have carried out the works.   The principle that tenant’s improvements may be taken into account in determining rateable value is well established (see Edma (Jewellers Ltd) v Moore (VO) [1975] RA 343).   Mr Davey said that it was not clear what the VTE meant when they said in paragraph 21 of their decision that no evidence of any weight had been provided in this connection.  It was a matter of first principles, and in accordance with the relevant legislation and established precedent, the works clearly fell to be taken into account.  
40.	It was submitted that, in the further alternative, if the appellant fails on all of these arguments, then the doctrine of minor works applies.  The leading recent case of Williams (VO) v Scottish & Newcastle Retail Ltd [2001] EWCA Civ 185 clearly set out the principles – see in particular paragraph 74 of the judgment.    If the correct analysis is that the stairs are only of benefit to this particular occupier, i.e. Bloomberg, then the question arises as to the character of the works that the hypothetical tenant would undertake to remove the stairs and restore the hereditament to its pre-staircase state.  As the VO said, set against the size and value of the hereditament, such works could properly be viewed as minor, thus giving rise to a prospective alteration to the assessment.  See also Wilson-Smith v Attrill (VO) [2011] UKUT 287 (LC).  If the staircase were removed, then the space it occupied would be reinstated to offices, and therefore included within the NIA.  
Conclusions
41.	The reason this appeal came before me was because it was considered to be a matter of general importance, and I received comprehensive submissions, together with the professional opinions of Mr Manning.  The matter can, I think, be dealt with fairly shortly.
42.	Firstly, looking at NIA, whilst I cannot disagree that a “stairwell” is not specifically defined in the code, I do not understand the importance being placed upon that fact by the appellant.  None of the other items referred to, such as lift-lobbies, ramps, sloping areas and steps are “specifically defined” and in my view there is no need for them to be so.  I do not agree with Mr Davey’s interpretation of the definition of stairwell as set out in the OED as meaning that where a staircase is not enclosed, it might not really be definable as a stairwell.  It must mean the space taken up by the staircase and I do not think that whether or not the staircase itself is enclosed matters.  In any event, the evidence before me was that the staircase “comprises steel treads and risers, and is surrounded by toughened glass” [my emphasis], so to some extent at least it is enclosed.  In my view, the VTE was therefore correct in determining as it did that the area occupied by the staircase should be excluded from the NIA.  I am certainly not persuaded by Mr Davey’s submission that the area could more accurately be described as “steps within usable areas” and thus fall to be included within the NIA under section 3.6 of the Code.  In my judgement ramps, sloping areas and steps within usable areas, obviously cover minor changes in levels on a single floor rather than, as here, a fully fledged staircase between floors.  
43.	I also disagree with the submission that the Advice in NIA 5 should equally apply to rating.  There is no dispute that the heraditament is to be valued rebus sic stantibus, and has to be valued for rating purposes as it stands in its actual physical state at the relevant date in accordance with paragraph 2 of Schedule 6 to the LGFA 1988 and not, as set out in NIA 5 , as demised. Who installed the staircase is, therefore, irrelevant and it is neither necessary nor helpful to speculate whether it was the landlord, the tenant (under an agreement for lease) or even a previous tenant who did the work. The reason that it is not usually appropriate to exclude from NIA demised usable space converted by the tenant to an excluded category is clear from the opening words of NIA 5, which apply “when dealing with rent reviews or lease renewals.”   In all (or almost all) contractual rent review clauses there is a specific disregard of the effect on rent of tenant’s improvements; so too on  statutory lease renewal (see section 38, Landlord & Tenant Act 1954).   The rating hypothesis is fundamentally different.   As to the fact, as set out in App 10 of the Code, that NIA is the principal method of measurement in rating, that is nothing to the point.  NIA 5 makes no reference to rating. 
44.	Regarding the appellant’s alternative approaches, in my judgement the argument that the installation of the staircase should be taken as a tenant’s improvement and valued accordingly is plainly wrong.  The staircase was in place at the material day, and was therefore part of the hereditament that was available and to let.  Thus Mr Manning’s question as to whether the opportunity to install a staircase would be in the prospective tenant’s mind when formulating his bid is irrelevant. Further, Mr Davey’s reference in submissions to Edma Jewellers does not assist him.  Edma concerned the rating assessment of new retail premises which were let in an incomplete state on terms that the tenant would install a shop front and carry out other works to which the landlord would not contribute.  For the purpose of the assessment it was agreed that the agreed rent would form the starting point. The rating hypothesis differed from the open market rent negotiation because the shop front and other works were assumed to have already been provided, and so did not have to be paid for by the tenant.  That necessitated an adjustment to the agreed rent and the issue for the Lands Tribunal was how much that adjustment should be and to which works it should relate.  That method would  only be relevant to this appeal if (a) the agreed rate of £370 psm is based upon the rental value agreed for the actual letting of the premises to Bloomberg in their unimproved condition, and (b) if it is right to assume that the hypothetical tenant has the same requirements as Bloomberg, or would have paid more for the premises with the staircase than without.  Secondly, Edma referred to works that the tenant was obliged under the terms of his lease to undertake, whereas here, there was no such obligation, no adjustment to the rent for the works until the first review and there was an obligation to re-instate at the end of the term.
45.	For the same reasons as set out above, the further alternative argument that the doctrine of minor works should apply, also fails. The staircase was present on the valuation date and there is no question therefore of the hypothetical tenant paying to install it.   Adopting Mr Manning’s approach (see paragraph 37 above), the next question is whether an incoming hypothetical tenant would pay to remove the staircase, and moreover, would regard the cost of doing so as an expense which he could cheerfully ignore when negotiating the rent.  While the staircase may be of particular benefit to Bloomberg, I can see no reason why a hypothetical tenant would pay £50,000 to have it removed after taking the hypothetical tenancy. The staircase is undoubtedly of some utility even to a tenant who would use the building in a more conventional manner than the ratepayer. Moreover, the removal of the staircase would no doubt, in any conventional office lease, require landlord’s consent which one would expect to be available only at the price of an obligation to reinstate on vacating the premises.   Nothing in the appellant’s evidence would justify a finding by me that a hypothetical tenant would contemplate behaving in that way.  Nor am I persuaded that an occupier taking this space, but regarding the staircase as a sufficient impediment to his use of the premises that he wished to remove it, would overlook the cost of removal (and the risk of being called upon at a later date to reinstate) when negotiating the rent.  For both of these reasons (and additionally because there is no evidence that the agreed rent of £370 psm is based upon the rent which Bloomberg agreed to pay), I do not consider that the so called “doctrine of minor works” has any relevance to this appeal.
46.	The question to my mind is altogether simpler than the appellant seems to appreciate.  The hereditament to be valued in its actual condition includes a staircase, the presence of which means that the NIA to be taken into account is reduced by 55.07 sq m.   The critical point is therefore whether the hypothetical tenant wishing to take a tenancy of the premises for general office use would pay more than the agreed main office rate of £370 psm for the hereditament because of the presence of the staircase.  To put it another way, does the presence of the staircase add value to the premises?  This is a question of valuation dependent upon evidence, as the VTE appreciated at paragraph 21 of its decision.  Mr Manning’s case is that the presence of the staircase adds £10,000 to the rental value of the premises, but that addition was not supported by any comparable valuation evidence.   Not every alteration carried out to suit the particular needs of one tenant will add value to the premises, from the perspective of the general tenant (which the hypothetical tenant is assumed to be).  I am not satisfied on the evidence presented to me that the hypothetical tenant would pay more for these office premises with the staircase than they would pay for them without it.                            
47.	In conclusion therefore, I find that whichever way the issues are looked at – inclusion or exclusion from NIA, tenant’s improvements or minor works, the appellant VO’s arguments for the RV to be increased by £10,000 fail and I am satisfied that the VTE was correct to conclude as it did.    
48.	The appeal is dismissed and I determine that the assessment shall remain in the  valuation list at RV £1,440,000 with effect from 6 June 2011.
49.	This appeal being unopposed, the question of costs does not arise and the decision is therefore now final. 

						DATED 30 October 2014 

						P R Francis FRICS 

RA/37/2013
APPENDIX A
Part 3rd floor, 4th and 5th floors, Park House, 
16 Finsbury Circus, London EC2M 7EB 
VTE’s VALUATION 

Scheme Reference 103031	Property Description	Offices & Premises	
Floor	Description	Area	£/m2	Value	
Third	Office	163.91	370	60,647	
Fourth	Office	2,216.29	370	820,027	
Fifth	Office	2,171.88	370	803,596	
Total Area		4,552.19			
Valuation sub total				1,684,270	
Total before adjustments				1,684,270	
Adjustments made:					
Crossrail			-5.0%	-84,214	
DABW 12-15 Finsbury Circus			-10.00	-160,005	
Total value				1,440,051	
Adopted RV				1,440,000	

RA/37/2013
APPENDIX B
Part 3rd floor, 4th and 5th floors, Park House, 
16 Finsbury Circus, London EC2M 7EB 
VO’s VALUATION 1 (Including Value of Stairs in NIA)

Scheme Reference 103031	Property Description	Offices & Premises	
Floor	Description	Area	£/m2	Value	
Third	Office	163.91	370	60,647	
Third	Stairs	9.23	370	3,415	
Third	Office (Cat A)	2,065.74	0	0	
Fourth	Office	2,216.29	370	820,027	
Fourth	Stairs	22.92	370	8,480	
Fifth	Office	2,171.88	370	803,596	
Fifth 	Stairs	22.92	370	8,480	
Total area		6,649.97			
Valuation sub total				1,704,645	
Total before adjustments				1,704,645	
Adjustments made:					
Crossrail			-5.0%	-85,232	
DABW 12-15 Finsbury Circus			-10.00	-161,941	
Total value				1,457,472	
Adopted RV				1,450,000	

RA/37/2013
APPENDIX C
Part 3rd floor, 4th and 5th floors, Park House, 
16 Finsbury Circus, London EC2M 7EB 
VO’s VALUATION 2 
(Excluding any Value for Stairs in NIA but adding for tenant’s improvements)
Scheme Reference 103031	Property Description	Offices & Premises	
Floor	Description	Area	£/m2	Value	
Third	Office	163.91	370	60,647	
Third	Stairs	9.23	0	0	
Third	Office (Cat A)	2,065.74	0	0	
Fourth	Office	2,216.29	370	820,027	
Fourth	Stairs	22.92	0	0	
Fifth	Office	2,171.88	370	803,596	
Fifth 	Stairs	22.92	0	0	
Total area		6,649.97			
Valuation sub total				1,684,270	
Total before adjustments				1,684,270	
Adjustments made:					
Crossrail			-5.0%	-84,214	
DABW 12-15 Finsbury Circus			-10.00	-160,005	
Tenant’s improvements (est)				+25,906	
Total value				1,465,957	
Adopted RV 				1,450,000