UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2015] UKUT 0477 (LC)
UTLC Case Number: RA/1/2015

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

RATING – Valuation – 2010 List – shop fronting St Ives harbour – seven steps up to shop – whether ground floor or first floor unit – held that it is ground floor – comparable evidence and methods of valuation – appeal dismissed - rateable value confirmed at £11,250

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

BETWEEN:

JAMES WILLIAMS
                                                                                                                                    Appellant

	AND

	ANDREW MURDOCH                                       
    (VALUATION OFFICER)                                  Respondent

Re: “Keebunga”,
The Wharf,
St Ives
Cornwall
TR26 1LP

	Before: P D McCrea FRICS

Sitting at: Truro Magistrates Court, The Court House, Tremorvah Wood Lane, Mitchell Hill, Truro, Cornwall TR1 1HZ
on
29 July 2015

Both parties appeared in person

© CROWN COPYRIGHT 2015

The following cases are referred to in this decision:
Halifax Building Society v Payne (VO) (1961)
Specialeyes Plc v Felgate (VO) [1994] RA 338
Lotus and Delta v Culverwell (VO) and Leicester City Council [1976] RA 14

DECISION
Introduction
1.	This is an appeal by the ratepayer, Mr James Williams (“the Appellant”) against a decision of the Valuation Tribunal for England (VTE) dated 19 December 2014 in which the VTE dismissed the appellant’s appeal and confirmed the rateable value of “Keebunga” (formerly known as “L’Atelier”), The Wharf, St Ives, Cornwall, TR26 1LP at £11,250 with effect from 1 April 2010.  
2.	The appeal was held under the Lands Chamber’s simplified procedure. Both parties represented themselves. 
3.	The antecedent valuation date (AVD) is 1 April 2008.  The effective date and material day are both 1 april 2010.  On 28 July 2015 I made external inspections of Keebunga and the comparable evidence within St Ives.
Facts
4.	From the evidence and my inspection I find the following facts.  
5.	The appeal property is a retail unit from which the appellant sells skateboards, surfing gear, sunglasses and similar items.  It is located in a parade of five shops, in different buildings on The Wharf, facing the harbour in the popular tourist destination of St Ives, Cornwall.  There is a dispute between the parties as to whether the property should be properly described as a ground floor retail unit, as it is elevated above the street level with access via seven steps to a front balcony area.  The front window of the unit is set back behind this balcony. 
6.	When viewed from left to right, the five retail units comprise Moomaid of Zennor (“Moomaid”); Keebunga; St Ives Pasty Bakery (“the Pasty Bakery”); Kelly’s Ice Cream shop (“Kelly’s”); and Pels Café (“Pels”).  Immediately to the right of the parade is the Sloop Inn public house.  Moomaid and Keebunga form the lowest storey (although with a limited height basement store below) of a three storey building with flats above.  Moomaid is similarly configured to Keebunga, with a flight of seven steps up from street level, and a balcony in front of the shop. The Pasty Bakery and Kelly’s are set back from the road behind forecourts which slightly slope down to the street. From pavement level, it is necessary to mount two steps to enter the Pasty Bakery, and three steps to enter Kelly’s. Pels forms the ground floor of a two storey building in a former workshop.  To enter the unit, it is necessary to go through one of two gaps in a low stone wall, down a step, and across a small sunken forecourt. 
7.	In summary, Moomaid and Keebunga are both higher than the Pasty Bakery and Kelly’s, which in turn are both higher than Pels. None of the five units has a shop floor level with the pavement.  The level difference varies, but is more marked in the case of Moomaid and Keebunga.
8.	The parties agree that Keebunga has a net internal area of 25.00 sqm.  This comprises 20.3 sqm of Zone A space and 4.7 sqm of Zone B space, giving 22.65 sqm in terms of zone A.
9.	On 10 March 2010 Robert Banks and Emma Banks took a lease of the appeal property for a period of six years at an annual rent of £13,000 plus a service charge. The Banks paid a premium of £10,000 at the start of the lease, and used the unit for the sale of chocolate and confectionery. The lease was contracted out of sections 24-28 of the Landlord and Tenant Act 1954 (“the 1954 Act”).
10.	The original 2010 compiled list rating assessment was £12,250 RV with a description of “shop and premises”.  On 17 June 2011 Ms Banks made a proposal against the compiled list assessment and following discussions with the VOA, the rateable value was reduced by agreement to £11,250 with effect from 1 April 2010. The list was altered on 11 June 2012.
11.	On 4 May 2012 the appellant took an assignment of the lease, paying a premium of £5,000 to the Banks.  The user clause was varied upon assignment to allow for use of retail sales, promotion, hire and demonstration of clothing, apparel, consumer goods and products within Class A1 of the schedule to the Town and Country Planning (Use Classes) Order (1987) but not the sale of any food items.  The tenant was not to use the property or any part of it for any purpose other than for these permitted uses, or for such other purposes as the landlord may approve in writing, such approval not to be unreasonably withheld or delayed.  The lease remained contracted out of the 1954 Act.
12.	The appellant submitted a proposal against the rating assessment on 11 February 2013, seeking a reduction in rateable value to £1 with effect from 1 April 2010.  On 3 February 2014, the valuation office altered the address of the property from “L’Atelier” to “Keebunga”, but confirmed a rateable value of £11,250.  Negotiations proved fruitless and the resulting appeal was dismissed by the VTE on 19 December 2014.
13.	The other units within the parade have the following rents and appeal histories.
Moomaid
14.	The unit is held by Ms Sara O’Dea on a seven year lease from 14 February 2004.  There was a rent review on 14 February 2007 to £10,500 per annum exclusive.   The property was entered into the 2010 Rating List at £12,000 RV with a description of shop and premises.  Ms O’Dea submitted a proposal against the assessment on 20 January 2011 as a result of which the rateable value was reduced to £11,000.  On 22 May 2015, Ms O’Dea submitted a fresh appeal against the assessment on the basis that “I am appealing on the same grounds as Mr Williams of Keebunga – the identical unit next door to my own.”
The Pasty Bakery
15.	The lease of this property was renewed on 24 June 2010 for a term of seven years.  The rent passing is £14,000 per annum exclusive, but there is uncertainty as to whether or not this was with effect from 24 June 2010 at the start of the lease, or in June 2012 at rent review.  The property was entered into the 2010 Rating List at £10,000 RV with a description of shop and premises.  A proposal was received by the VOA on 19 June 2013 but was subsequently withdrawn.  Following the VTE’s decision on the assessment of the appeal property, the VO increased the rateable value of The Pasty Bakery to £12,000 RV - against which there is currently an outstanding appeal.  
Kelly’s
16.	This was subject of a three year lease from 1 February 2013 at a rental of £16,000 per annum exclusive.  The unit was entered into the 2010 rating list at £10,500 RV with a description of shop and premises.  This was increased by the VO on 23 February 2015 to £11,250 RV. No appeal was made against that assessment before the deadline of 31 March 2015.
Pels 
17.	The property was let for 15 years from 21 May 2004.  At the 2008 rent review the rent was set at £17,500 per annum exclusive.  The property was entered into the 2010 Rating List at £15,750 RV with a description of shop and premises.  This was increased by the VO on 23 February 2015 to £17,500 RV against which there is an appeal outstanding.
The VTE’s decision
18.	In dismissing the appeal, the panel placed most weight on the rental evidence provided by the leases of Keebunga and Moomaid; the agreement of the rating assessment of Moomaid; and, perhaps of most significance, that the previous occupier of Keebunga had settled the rating assessment, all of which the panel considered supported the VO’s valuation at £11,250.
Statutory Framework
19.	Section 56 of the Local Government Finance Act 1988 (“the Act”) gives effect to Schedule 6 to the Act which sets out the statutory basis on which the rateable value of a non-domestic hereditament is determined.  The statutory assumptions for determining rateable value are set out in paragraph 2 of Schedule 6, as follows:
“2(1) The rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions –
(a) the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;
(b) the second assumption is that immediately before the tenancy begins the  hereditament is in a state of reasonable repair, but excluding from the assumption any repairs which a reasonable landlord would consider uneconomic;
(c) the third assumption is that the tenant undertakes to pay all usual tenant’s rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above.
….
(6) Where the rateable value is determined with a view to making an alteration to a list which has been compiled (whether or not it is still in force) the matters mentioned in sub-paragraph (7) below shall be taken to be as they are assumed to be on the material day.
….
(7) The matters are—
(a)   matters affecting the physical state or physical enjoyment of the hereditament,
(b)   the mode or category of occupation of the hereditament,
….
(d) matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there, and
(e) the use or occupation of other premises situated in the locality of the hereditament.”
The Parties’ Contentions
Case for the appellant
20.	Mr Williams said that the terms upon which the appeal property was let were not compatible with the definition of rateable value as outlined above.  The property was let for a fixed six year term without security of tenure and therefore there was no reasonable prospect of continuance.  Whilst he took an assignment of it, the lease was negotiated by a third party and had a premium attached to it.  It contained rent review and also a restrictive user clause which rendered it incompatible with the rating hypothesis.
21.	However, the main thrust of Mr William’s appeal was that the appeal property was not, and should not be valued as, a ground floor shop.  He said that the property had a hard frontage and was accessed by seven steps which was similar to the property referred to in the Lands Tribunal decision of Halifax Building Society v Payne (VO) (1961).  Mr Williams said that the property in Halifax was accessed by three steps and had a hard frontage.
22.	Whilst accepting that the adjoining Moomaid unit was physically comparable, Mr Williams submitted that the rental evidence of Moomaid should also carry little weight because the two properties had the same landlord and landlord’s agent which enabled the rents to be contrived. He submitted that the leases to Moomaid and to Keebunga departed radically from the statutory definition of rateable value.    Mr Williams referred to the Lands Tribunal decision in Specialeyes plc v Felgate (VO) [1994] RA 338 where the Tribunal held that “as the rents of the appeal hereditament, together with the immediately adjoining shops were agreed between one landlord and one firm of surveyors representing most of the tenants, the weight to be applied to this evidence was reduced (as it was effectively one transaction).”
23.	He did not consider that the rental evidence of the appeal property itself could safely be relied upon.  The rent of £13,000 was agreed two years after the AVD. Mr Williams was not “fresh to the scene”, he took over the lease from Emma Banks and had no opportunity to bid for the rent in the open market.
24.	The lease for Moomaid was, he said unreliable as a comparable. It had no premium attached, it enjoyed protection under the Landlord and Tenant Act 1954, and had no limitations on what could be sold.
25.	 In the respect of the assessment evidence of Moomaid, Mr Williams said that this should carry little weight because it was under appeal.  The previous settlements on Moomaid and Keebunga (then “L’Atelier”) were agreed without full evidence and since neither Ms O’Dea nor Ms Banks were experts in the valuation of non-domestic property, little significance should be attached to those settlements.  The settlement by Ms Banks on the appeal property must have been under negotiation at a time when she was no longer the tenant since Mr Williams took an assignment of the lease in May 2012.  The settlement by Ms O’Dea was under pressure and in any event was currently again under appeal.  Mr Williams submitted an email from Sara O’Dea of Moomaid.  This said that Ms O’Dea settled her appeal simply because she was eight months pregnant, her husband worked away, she had to run her business on her own and had no capacity to go through the appeal process.  She said that she had no idea that in settling the appeal she would be preventing herself or Mr Williams from subsequently questioning the valuation in the future.  Ms O’Dea felt that the VOA website was unclear in respect of which assessments adopted a ground floor rate and which adopted a first floor rate.
26.	Mr Williams relied upon a number of other VTE decisions in support of his case, in particular a decision of the Essex North Valuation Tribunal dated 11 February 2009 in which the Tribunal commented that the estimated rent on the statutory hypothesis was more relevant that the actual rent passing.  It was the view of the Panel in that case that a potential occupier of the property would have regard to the rent passing on properties with the main floor at street level and properties at full first floor level and agree a rent level somewhere between those two extremes.  Mr Williams submitted that this approach provided a fair and common sense legal basis for the starting point of the valuation of the appeal property. 
27.	Mr Williams submitted that in Specialeyes, other rents of properties away from the immediate shop were looked at to determine and establish the correct tone.  He took the same approach in order to bring a far wider base of evidence to inform the valuation of the appeal property. He referred to the assessment of Olive Café, Island Square, St. Ives.  Olive Café was, he said, at a lower height from ground level than Keebunga, and yet had been valued under the first floor rating scheme.   He said that both Keebunga and Moomaid were closer in height to the first floor units along the harbour such as Rose Studio and Hobblers than it was to ground floor units.
28.	He submitted a schedule of 35 properties all of which were along The Wharf in St. Ives.  Of these, six were at first floor level and the remainder were ground floor.  From this evidence, Mr Williams calculated that the average ground floor rate per square metre, based on the 2010 rating list, was £513.75 per sqm and the average first floor rate was £135 per sqm.  He took a mid-point of the two to arrive at a rent per sqm of £324.375. In applying a 10% deduction for masking, Mr Williams submitted that Keebunga and Moomaid were unique in St. Ives in the way in which their shop windows were set back from the building facade.  He had adopted a mid-point of 10% for masking and referred to other Valuation Tribunal decisions where masking adjustments were between 5% and 20% had been made.  
29.	 After some adjustment at the hearing, Mr Williams’ valuation was therefore as follows:
		Retail Area:	25 m2	@	£324.375	£8,109.00
				
		Less 

				5% for access and position	(£405.45)
				10% for masking		(£810.90)

				 				£6,892.65
30.	Mr Murdoch confirmed that, in the event that I was persuaded that Mr Williams was correct, under the VO’s rounding scheme that would result in a rateable value of £6,750 RV.

Case for the respondent
31.	In considering the evidence in assessing the rateable value of Keebunga, Mr Murdoch said that he had been guided by the propositions of the Lands Tribunal (Mr J H Emlyn Jones FRICS) in Lotus and Delta v Culverwell (VO) and Leicester City Council [1976] RA 14.  
32.	His starting point was the passing rent on Keebunga.  This was £13,000 per annum with effect from 10 March 2010, with the appellant taking an assignment of that lease at a premium of £5,000.  He thought it difficult to concede that the rent at AVD, two years earlier in a better market, could be any lower than this.  He analysed the basic rent at £573.95 zone A.
33.	Mr Murdoch considered rents on other properties.  He considered Moomaid to be physically the closest comparable to Keebunga.  He analysed the rent of Moomaid at £451 per sqm itzA with effect from February 2007.  The rent of the Pasty Bakery, at £14,000 per annum, equated to £586 per sqm itzA, but there was some confusion as to the effective date of this – it was either June 2010 or 2012.  He found that the rent passing of Kelly’s was of limited use, being a transaction between connected parties, although noted that a three year lease had been granted in February 2013 at £16,000 per annum.  Finally, in respect of Pels, Mr Murdoch devalued the rent passing of £17,500 with effect from May 2008 at £513 per sqm itzA.
34.	He also considered the rating assessments within the parade.  In respect of Moomaid, Mr Murdoch referred to the settlement of Ms O’Dea’s appeal at £11,000 RV, which was based upon £500 itzA, and an allowance of 5% for the steps up the unit, but this was offset by an addition of 5% for the small size of the unit.  He noted that Ms O’Dea had now submitted a fresh appeal.  In respect of the Pasty Bakery, he noted that the appeal against the compiled list assessment had been withdrawn, and the assessment increased to £12,000 RV following the VTE decision on Keebunga – against which a proposal was outstanding.  In respect of Kelly’s, the complied list assessment of £10,500 RV was also increased in February 2015 to £11,250 RV.  Finally, in respect of Pels, the compiled list assessment of £15,750 RV was increased in February 2015 to £17,500 RV, but which was the subject of an appeal.
35.	Having regard to all of the evidence, Mr Murdoch’s valuation was as follows:
	Sales zone A:	20.3 sqm	@ £500 per sqm	£10,150
	Sales zone B:	4.7 sqm	@ £250 per sqm	£1,175	
									£11,520	
			Less 5% for steps
			Add 5% for size
								£11,491
					
						(say)		£11,250 RV

Conclusions
36.	I deal with the appellant’s case in broadly the same order as it was made.  In respect of the rent on the appeal property, I agree that it may not be on the statutory hypothetical terms – a letting very rarely is - but in my judgement it remains a key piece of evidence.  Evidence on the property that is the subject of the appeal must be considered relevant.  As for the appellant’s other criticisms of the rent, in my view these hinder rather than help his case.  The fact that the lease was contracted out of the 1954 Act, and that premiums were paid (twice), both suggest that if anything the basic rent was lower than the equivalent rent on the hypothetical basis although there is no real reason to suppose that, like the hypothetical assumed tenancy, Mr Williams does not have a reasonable expectation of renewing his lease at the end of the term.  
37.	In respect of the hard frontage aspect, this is a common reason for an end allowance or lower zone A rent being adopted for hereditaments without plate glass shop fronts – typically banks or building societies (as in Halifax) – than those with. That is not quite the same, in my view, as the subject case, where although there is a flank wall next to the steps up to Keebunga, it does in fact have a plate glass shop front, albeit one on the balcony area.  The appellant, quite understandably, use the flank wall for advertising.
38.	In respect of Keebunga and Moomaid having a common landlord and landlord’s agent, I do not consider that Specialeyes assists the appellant.  The point in that case was that the agent was acting for more than one tenant, rather than acting against them for the landlord.  As that agent was acting for those tenants, the Lands Tribunal placed less weight on the transactions than had there been different parties acting for the various tenants.  In this appeal, there was no evidence to suggest that there was a common agent or any agent acting for the occupiers. 
39.	Mr Williams contended that he was not fresh to the scene.  It is true that he was probably not in a position to renegotiate the rent.  He was, however, not compelled to take an assignment, nor to pay a premium of £5,000, and I therefore do not place any weight on this point.
40.	I am also unpersuaded by the relevance of VTE decisions, none of which are binding on this Tribunal, especially in respect of properties in parts of the country remote to the appeal property.  I place no weight on these.
41.	I accept that the rent on the appeal property cannot be relied upon in isolation, and that other evidence should be considered – as long as it is comparable.  In my judgement Keebunga is clearly a ground floor shop, albeit one which is accessed by steps.  It is not comparable to the first floor units along The Wharf which the appellant has cited – all of which are cafes or quasi-cafes, the majority of which were at a much higher floor level than Keebunga. It is also not comparable to “Olive’s Café” at Island Square, which is in a completely different, secondary location, when compared to the Wharf.  I am not persuaded by the appellant’s valuation, based on an average of ground floor and first floor properties along The Wharf.   Rating lists are effectively a collection of valuations, which have been arrived at on a consistent basis, and I do not accept a hybrid method is appropriate in valuing Keebunga.
42.	I have placed most weight on the rent and assessment evidence in respect of Moomaid and Keebunga, and less weight on the three adjoining units.  There is uncertainty surrounding the effective date of the Pasty Bakery rent, and that of Kelly’s is between connected parties. The rateable values of the Pasty Bakery and Pels are the subject of outstanding appeals, and that of Kelly’s was altered with only a short time left for any appeal to be made (although I accept that one was not made).  
43.	In respect of Keebunga, I place significant weight on the passing rent. As indicated above, both Mr and Mrs Banks and Mr Williams were also willing to pay a premium over and above the rent of £13,000, on a lease contracted out of the 1954 Act.  All of these factors suggest that the rent may, if anything, be too low when considered on the statutory hypothetical basis.
44.	I have also placed weight on the agreement between Mr and Mrs Banks and the VO in respect of Keebunga’s rating assessment at £11,250.  Whilst I accept that the appellant was not party to that, a ratepayer with an informed appreciation of the premises and the location (although perhaps not of the rating hypothesis) was prepared to agree to it.
45.	Secondly, Moomaid.  I note and again place weight on the discussions that Ms O’Dea had with the VO that resulted in a revised assessment of £11,000 RV, although have noted Ms O’Dea’s comments as regards the circumstances of that agreement, and that she has submitted a revised appeal.  However she did agree the assessment at that time.
46.	I prefer the rental evidence of Moomaid and Keebunga to the assessment evidence.  Moomaid was let in February 2007 at £451.36 per sqm zone A.   Keebunga (“L’Atelier”) was let in April 2010 at £573.95 per sqm zone A.    I accept that the first stage of Mr Murdoch’s valuation is correct, based upon £500 per sqm zone A at the AVD. This arrived at £11,520 before adjustment.  I also accept Mr Murdoch’s oral evidence that on the VOA scheme for St Ives, there is an increase of 5% for units of small size.  
47.	That leaves the end allowance in respect of the steps.  I did ponder whether the VO’s end allowance for the steps of 5% was parsimonious.  However, on a stand back and look approach, the final rateable value of £11,250 must be considered in the context of the above factors – that it had been agreed by one previous occupier, however uninformed, and in respect of a unit where the rent passing of £13,000 is possibly too low. It must be assumed that the physical configuration of the unit was reflected in those agreements.
48.	It is for the appellant to show that the VTE’s decision is wrong.  In this appeal, whilst Mr Williams has researched and presented his case with tenacity, I am not persuaded that the VTE erred in confirming a rateable value of £11,250.
Disposal
49.	The appeal is dismissed.  The appeal property shall remain in the non-domestic rating list at a rateable value of £11,250 with effect from 1 April 2010.
50.	The appeal was heard under the Lands Chamber’s simplified procedure, under which costs are only awarded in exceptional circumstances.  Neither party indicated there were any such circumstances and I therefore make no order for costs.

									9 September 2015

									P D McCrea FRICS