Business rates blow as hypothesis trumps reality in Supreme Court ruling

A Supreme Court ruling on 15th May 2019 has dealt a blow to owners and landlords of unoccupied properties.

The Supreme Court has held on a three-two majority that even where there is no evidence of real world demand, in rating law we must assume a tenant would still be prepared to pay a substantial rent for a property.  It is an unusual decision in that the court was constrained by the terms of a Joint Position Paper that had been agreed between the parties during the Upper Tribunal proceedings.

A three storey block of offices in Blackpool, originally purpose-built and then occupied from 1971 as Government offices, was vacant by 1 April 2010, when the valuation officer entered a rateable valuation of £490,000. An appeal was lodged by the landlord, Telereal Trillium on the basis that there was no demand for the property which had reached the end of its economic purposes. The Valuation Tribunal for England upheld the ruling and reduced the rateable value to a nominal figure of £1.

However the Upper Tribunal overturned that decision and allowed the valuation officer’s appeal and fixed the rateable value at £370,000. This assessment was provided by the valuation officer who accepted that although he could not identify any person in the real world who would bid for the tenancy, he noted there was demand for other comparable occupied properties, in the light of which the new RV was arrived at.

The case then went to the Court of Appeal, which allowed Telereal Trillium’s appeal on the basis that there was no demand in the market. The valuation officer appealed to the Supreme Court, which allowed his appeal by a majority of three to two.

The Supreme Court held that whether the building is occupied or not, or an actual tenant has been identified, there is no reason why, in the absence of other material evidence, the level of rent should not be assessed by reference to ‘general demand’ derived from ‘occupation of other office properties with similar characteristics’.

Jane Shankland, Business Rates Director at Cooke & Arkwright commented:

“When the Court of Appeal restored the original conclusion of the VTE, which had reduced the RV to £1, we thought it was good news for owners and landlords. When buildings become economically obsolete, having to face empty rates liability can place an unsustainable cost burden on the owner even though there may be little or no chance of finding a tenant.

“We understand that the court had to take the Joint Position Paper lodged by the counsel for both parties as it stands, and not look beyond it at evidence not referred to by the tribunal, as outlined in reasons for the judgement.

“However, it’s a disappointing result, especially as the dissenting judges held that the real world would have compelled an examination of whether one or more of the tenants in comparable properties would have been prepared to relocate to the subject property at a lower, but still more than nominal rent. This to us would have represented a more realistic way of determining rateable value and in line with other recent rating judgements which have favoured the principle of reality.”