UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2015] UKUT 366 (LC)

UTLC Case Number: RA/66/2013

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

RATING - valuation – 2010 list - out of town retail warehouse – whether letting of appeal property provides most reliable evidence – whether a tone of the list has been established – rental and assessment evidence also available – comparison between lists – Rateable Value determined at £275,000.

 

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

 

 

BETWEEN:

 

MARTYN LAMB

(Valuation Officer) Appellant

 

AND

 

GO OUTDOORS LTD Respondent

Re: Premises at Portrack Lane,

Stockton-on-Tees

Cleveland

TS18 2QQ

 

Before: P D McCrea FRICS

 

Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL

on

12-13 May 2015

 

 

Cain Ormondroyd, instructed by HMRC solicitor, for the appellant

Daniel Kolinsky QC, instructed by Colliers International, for the respondent

 

© CROWN COPYRIGHT 2015

The following cases are referred to in this decision:

Lotus and Delta Limited v Culverwell (VO) and Leicester City Council [1976] RA 141

O’Brien v Harwood (VO) RA/22/2002

Lidl (UK) GmbH v Ryder (VO) [2014] RA 23

Lamb v Minards (VO) [1974] 153

Barnard and Barnard v Walker (VO) [1975] RA 383

 

DECISION

Introduction

1.              In this appeal, the issues between the parties can be distilled into an examination of the evidence in the light of the propositions of the Tribunal (Mr J H Emlyn Jones FRICS) in Lotus and Delta Limited v Culverwell (VO) and Leicester City Council [1976] RA 141. In essence, should the agreed rent on the appeal property, with only a limited amount of other evidence, form the best guide to rateable value, as the respondent ratepayer maintains, or should other evidence of other assessments, and the tone of the list be preferred, as the appellant valuation officer suggests?

2.              The appeal is by the valuation officer, Martyn Lamb MRICS (“the appellant”) against a decision of the Valuation Tribunal for England (“VTE”) dated 21 October 2013 in which the VTE determined the rateable value of the premises at Portrack Lane, Stockton-on-Tees, Cleveland TS18 2QQ (“the appeal property”) at £180,000 with effect from 1 April 2010. The appeal to the VTE arose from a proposal made on behalf of GO Outdoors Ltd (“the respondent”) against the compiled 2010 rating list assessment of £350,000 RV.

3.              Neither party to this appeal considers the VTE’s decision to be correct. The appellant submits that the rateable value should be £345,000 RV. The respondent says that the assessment should be £226,000 RV. In the circumstances it is not only for the appellant to prove his case – the respondent is also seeking an alteration from the VTE’s decision.

4.              The appellant was represented by Mr Cain Ormondroyd of counsel, who called Mr Lamb to give expert valuation evidence. The respondent was represented by Mr Daniel Kolinsky QC, who called Mr Robert Cohen BA(Hons) PGDipSurv MRICS, an Associate Director of Colliers, to give expert valuation evidence. He also called Mr Brian Thompson BSc (Hons) MRICS, a partner of Heaney Thompson, as a witness of fact. Mr Thompson acquired the leasehold interest in the appeal property for the respondent in 2008.

5.              The antecedent valuation date (AVD) is 1 April 2008. The effective date and material day are both 1 April 2010. I inspected the appeal property internally and externally on 27 May 2015, unaccompanied. On the same day I made unaccompanied external inspections of the comparable evidence within a 15 mile radius of the appeal property.

Facts

6.              From two statements of agreed facts and issues, the evidence and my inspection I find the following facts.

7.              The appeal property is situated on the northern side of Portrack Lane, the A1046, close to its junction with the A19. The A1046 is an arterial road connecting Stockton Town Centre and the A19. The immediate surrounding area comprises retail warehouse, trade counter and light industrial uses. The A19 is elevated at this section, and the appeal property is only visible from it, in either direction, once the access slip road to the A1046 has been passed.

8.              The appeal property is a detached retail warehouse building on an irregularly shaped site. It has 157 car parking spaces plus 8 disabled spaces in a customer car park. Adjoining the car park, to the north west of the building is a service yard of concrete pad construction surrounded by a 2m high steel palisade fence with gated access. Access to the customer car park is via the forecourts of two adjoining retail units, and is not very well signed.

9.              The building was built in 1998 of steel portal frame construction, with brick elevations to 2.6m and steel composite panels to the upper sections and to the roof. Internally, the main sales area has carpet tiled flooring, painted block walls to the lower 3.5m and steel profile sheet cladding above. There are extraction fans, gas fired heaters, circulation fans and fluorescent tube strip lights.

10.          A substantial concrete mezzanine floor, which pre-dates the respondent’s occupation, is located in the rear section of the building, supported by 15 columns. The internal eaves height of the building is just over 6m, and 2.99m to the underside of the mezzanine. The height above the mezzanine is 6.23m at ridge and 2.1m at its lowest point. To the rear right of the unit, underneath the mezzanine floor, there are male and female wc’s, a stairwell, office area and customer changing rooms. To the rear left is a warehouse area with a steel staircase providing access to the mezzanine floor. The portion of the mezzanine which is accessed from the warehouse is open to it and is used for stock storage. The mezzanine floor may also be accessed by the public from the sales area by a 2.3m wide staircase, or a hydraulic lift. There is a further staff access to the mezzanine area via the stairwell in the north east corner of the unit. The main section of the mezzanine floor is used for sales and display and benefits from natural light from perspex ceiling panels in the roof.

11.          The parties agree the following floor areas, measured on a gross internal area basis (and which differ from those put forward at the VTE):

Ground Floor: 3,368.27 m ²

Mezzanine:

sales: 1,274.23 m ²

staff rooms: 69.22 m ²

stock room: 79.79 m ²

warehouse: 324.37 m ²

1,747.61 m ²

12.          Planning consent for the erection of the appeal property was granted by Stockton-on-Tees Borough Council on 29 August 1997 under code 97/1018/P. The consent was for the erection of a non-food retail unit with associated car parking and service area. The consent was conditional, restricting the range and type of goods to be sold to:

“DIY and/or garden goods; furniture; carpets and floor coverings; camping, boating and caravanning goods; motor vehicles and cycling goods; bulky electrical goods; office equipment and supplies and pets and pet supplies. Goods falling outside this range may be sold only where they form a minor and ancillary part of the operation of the store.”

13.          The appeal property had a somewhat unhappy history of tenants. Courts plc occupied the property from May 1998, but following its demise administrators disclaimed the lease in May 2005. The next known tenant was Furniture 4 plc, which took a five year lease from March 2006. However within a few months, Furniture 4 also went into administration and its lease was disclaimed in July 2006, before the end of a rent-free period.

14.          The appeal property was then marketed by Sanderson Weatherall from the beginning of 2007. Negotiations for the leasehold acquisition by the respondent began early in 2008. Draft heads of terms were agreed on 19 May 2008, for a 15 year term, at a headline rent of £300,000, subject to a 24 month rent free period, with five year rent reviews capped at 4% per annum. Final heads of terms, which did not vary significantly from those previously issued but which reduced the rent review cap to 3% per annum, were agreed in July 2008.

15.          In tandem with the lease negotiations, the respondent made a planning application to vary the conditions of the above planning consent. This was granted on 28 November 2008 under code 08/2727/vary and had the effect of widening the consent to allow the sale of:

“DIY and/or garden goods; furniture, carpets and floor coverings; camping, boating and caravanning goods; cycling and other bulky goods associated with outdoor pursuits and associated protective/insulated clothing and footwear range necessary for undertaking specialist outdoor pursuit activities; motor vehicles; bulky electrical goods; office equipment and supplies; pets and pet supplies.”

16.          A supplementary condition stipulated that items of associated protective/insulated clothing and footwear “shall occupy no more than 15% of the net retail floor space when the principle (sic) use of the retail unit is for the sale of camping, boating and caravanning goods; cycling and other bulky goods associated with outdoor pursuits”.

17.               Even on this slightly wider basis, the parties agree that this can be termed a “bulky goods” consent. The appeal property was the subject of other planning applications, none of which are relevant to my decision.

18.          On 22 December 2008 an Agreement for Lease was completed. This provided for a lease of a term of 15 years at a headline rent of £300,000 pa, on fully repairing and insuring terms, following a rent free period of two years plus eight weeks. Rent reviews were five yearly and upward only, but capped at 3% per annum. The agreement also provided for the respondent to carry out various works which the landlord paid for, plus some tenant’s fit out works, none of which are relevant to this decision.

19.          The lease was completed on 12 January 2009. The respondent opened for trading on 17 March 2009.

The VTE’s Decision

20.          The VTE’s decision turned upon whether or not the rent agreed on the appeal property provided a good base for establishing the rateable value. The panel decided that the heads of terms for the lease and therefore the rent of £300,000 had been established following negotiations close to the AVD and as such provided strong evidence of value. The panel noted that neither party argued that other rental evidence was of particular significance and found it to be of little assistance.

21.          The panel did not accept that a tone of the list had been established. Of the 160 or so retail warehouse properties in the Stockton area, no more than 10 were directly comparable to the appeal property. The panel therefore decided that the best evidence was the passing rent and the greatest weight was attached to it. Overall, therefore, the panel found that the ratepayer’s proposed assessment of £180,000 was fully supported and it determined accordingly.

Statutory Framework

22.          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

23.          For the appellant, Mr Lamb submitted a valuation of £345,000 RV (altered at the hearing from a previous figure of £350,000 RV), as follows:

Ground Floor: 3,368.27 m ² @ £90.00 £303,144

Mezzanine:

sales: 1,274.23 m ² @ £27.00 £34,404

staff rooms: 69.22 m ² @ £22.50 £1,557

stock room: 79.79 m ² @ £18.00 £1,436

warehouse: 324.37 m ² @ £18.00 £5,838

£346,379

(say) £345,000 RV

24.          Mr Lamb considered that the rent of the appeal property in isolation did not provide a reliable guide to rateable value. He considered that a tone of the list had been established, and rental evidence was available, that indicated a level of value for the appeal property of £90 per sqm for the main ground floor space. He valued the mezzanine floor by reference to the rating manual.

25.          For the respondent, Mr Cohen submitted a valuation of £226,000 RV. His breakdown (after alteration during the hearing) was:

Ground Floor: 3,368.27 m ² @ £59.36 £199,938

Mezzanine: 1,747.61 m ² @ £15.00 £26,214

£226,152

(say) £226,000 RV

26.          His valuation essentially comprised a devaluation of the rent passing under the lease to GO Outdoors Ltd. Mr Cohen stressed the difficult economic conditions for retail warehouses with restricted bulky goods planning consents around the AVD. As comparable evidence, Mr Cohen relied upon two transactions of retail warehouses close to the appeal property – a letting to The Range at a main space rate of £56.23 per sqm, and a letting to B&M Bargains at £50.27 per sqm, both of which had an open A1 planning consent. Mr Cohen did not accept that a tone of the list had been established.

 

Evidence and discussion

27.          In order to analyse the rental and assessment evidence, it is necessary to provide a context.

Economic Conditions at the AVD and beyond

28.          Mr Thompson is a retail warehouse specialist, and has acted for the GO Outdoors since 2003, during which time he has acquired approximately 50 properties for the company. He explained that from the end of 2006 there were many retail warehouse operator casualties and failures, resulting in an increase in voids. The balance between demand and supply began to change. This predated, he said, the general slump in the economy and property market in 2008. The retail warehouse sector, particularly in bulky goods, homeware and the DIY sector, had started to decline from late 2006. There was a progressive decline in the market throughout 2008, which worsened following the collapse of Lehman Brothers when the wider economy also became affected.

29.          Following the demise of retailers including Courts, GlynWebb, Focus DIY and Woolworths, a significant amount of second hand accommodation came to the market. Retailers like The Range, Dunelm, and the respondent took advantage of this to expand their estates, at levels of rent which landlords had previously been unwilling to accept.

30.          Mr Cohen is an Associate Director of Colliers, specialising in rating. He submitted the BBC website’s “Timeline: credit crunch to downturn”, together with the RICS commercial market survey from the AVD and, of more relevance to this appeal, the “Definitive Guide to Retail and Leisure Parks 2008” published by Trevor Wood Associates & Savills. This bore out to a large degree Mr Thompson’s recollection of the period.

31.          Mr Cohen felt able to comment upon economic conditions up until the AVD but not after it. Despite the actual letting of the appeal property not taking place until January 2009, he had not looked further than the AVD, slightly inexplicably. He therefore felt unable to comment upon the effect that the plainly worsening conditions would have had upon the lease terms eventually entered into between the AVD and the lease being completed.

Open A1 planning consents v “bulky goods” consents

32.          Mr Lamb, whilst not disputing that the appeal property had a “bulky goods” planning consent, said that he had not seen any evidence to indicate that retail warehouses with such bulky goods consents commanded a different level of rent, other things being equal, to retail warehouses with open A1 planning consents.

33.          The Trevor Wood/Savills Definitive Guide indicated that:

“…the picture is not all gloomy as the take up of good quality Open A1 consented units by Comparison Goods retailers such as Argos, Dreams, Dunelm, Land of Leather, Next and ScS has continued again this year. Overall it is interesting to note the speed with which good quality units possessing valuable Open A1 consents in prime locations are snapped up. This speed contrasts with the, fortunately limited, number of poor quality, restricted consent units in secondary locations that have often been on the market for a number of years with little interest from prospective tenants.”

34.          Mr Lamb agreed that the appeal property did not have an open A1 planning consent, nor was it in a prime location. He did not, however, accept that it was in a secondary location: he thought the property was in a prominent location.

35.          Mr Kolinsky submitted that a rental differentiation should be made between retail warehouses with open A1 planning consents, and those with restricted, bulky goods consents. Mr Lamb accepted that if this was right, his evidence did not engage with it. However Mr Cohen was not able to point to any actual evidence showing where this was the case. There was no evidence to show, specifically, that open A1 consented units were letting for higher rents that those with restrictions, other things being equal.

36.          I am satisfied on the evidence that there was notably stronger demand for prime units with open A1 planning consents than that for secondary units with restricted consents. However there was insufficient empirical evidence to show, however logical or indeed tempting the implication may be, that that difference in demand was manifested by an actual differentiation in rents. The only real rent indicator might have been that of the Matalan unit at Cleveland Retail Park – clearly the sort of prime A1 location envisaged by the Definitive Guide – but since this was as a result of an arbitration award neither party relied upon it.

37.          Having made that finding, it is unnecessary for me to consider whether the hypothetical tenancy should be assumed to be subject to the bulky goods restriction that was in place at the material day.

“Lotus and Delta”

38.          Both parties referred to the guidance of the Tribunal (Mr J H Emlyn Jones FRICS) set out in Lotus. It is convenient at this point to outline the thrust of this guidance:

(i)                  Where the hereditament which is the subject of consideration is actually let, that rent should be taken as a starting point.

(ii)                The more closely the circumstances under which the rent was agreed both as to time, subject matter and conditions, relate to the statutory assumptions, the more weight should be attached to it.

(iii)              Where rents of similar properties are available they too are properly to be looked at through the eye of the valuer in order to confirm or otherwise the level of value indicated by the actual rent of the subject hereditament.

(iv)              Rating assessments of other comparable properties are also relevant. When a valuation is prepared these assessments are to be taken as indicating comparative values as estimated by the valuation officer. In subsequent proceedings on that list therefore they can properly be referred to as giving some indication of that opinion.

(v)                In light of all the evidence an opinion can then be formed of the value of the subject hereditament, the weight to be attributed to the different types of evidence depending on the one hand on the nature of the actual rent and, on the other hand, on the degree of comparability found in other properties.

(vi)              In cases where there is no evidence of rents of comparable properties, a review of other assessments may be helpful, but in such circumstances it would clearly be more difficult to reject the evidence of the actual rent.

39.          These propositions provide guidance on the usefulness of different types of evidence but they should not be regarded as rules to be followed slavishly. It will be necessary to have regard to relevant evidence of all types, if available, but always with a clear focus on the statutory valuation hypothesis

40.          I now consider the evidence and submissions in the light of propositions (i) and (ii) of Lotus: the relevance or otherwise of the letting of the appeal property.

41.          At the AVD, the agreement for lease had not been completed, but negotiations had commenced. The first heads of terms were issued within two months of the AVD. Mr Ormondroyd submitted that, since the rent was not renegotiated between the original agreement for lease and the lease being signed, against the background of worsening economic conditions, it was hard to believe that the rent was not, at the time it was agreed, significantly below market rent. There was no evidence in support of that contention and I reject it. I found Mr Thompson to be an experienced acquisition agent who had acquired many properties for the respondent. In my judgement, had there been a reasonable opportunity for him to renegotiate the terms of the acquisition, as Mr Ormondroyd suggested was possible, he would have done so, especially given the apparent lack of competition for the unit. He did not.

42.          The lease terms varied to a minor degree from the first heads of terms document, and I am satisfied that the terms of the completed lease largely reflected the agreement that the parties discussed prior to AVD and which were documented in May 2008. I am therefore satisfied that the letting of the appeal property took place at the same time and therefore in the same market conditions as the notional letting required to be assumed by the statutory rating hypothesis. Since it was a letting of the property under consideration, I am also satisfied that it related closely to the subject matter.

43.          Mr Ormondroyd submitted that the very fact that the lease was heavily incentivised, and that the rent required significant adjustment to arrive at a notional rent on the rating hypothesis, reduced the weight that could be placed on the adjusted rent. I agree that adjustments are required but do not accept that they render this contemporaneous evidence of a letting in the open market any less valuable. In fact, in this case although the incentives required to be devalued, there was no disagreement over how that should be done, which gives me further confidence in the evidential value of the actual letting of the appeal property. Mr Lamb agreed that the relevant RICS Guidance Note’s purpose was to provide guidance on the devaluation of incentives, rather than to reject them out of hand. He also accepted that they were a general feature of the market. I am therefore satisfied that the letting is capable of providing powerful evidence of the rent at which the hereditament might reasonably be expected to let on the AVD.

44.          Mr Cohen provided a rental analysis of each of the initial heads of terms of May 2008 (£300,000 per annum, 24 month rent free period, 5 year rent reviews capped at 4% per annum); the revised heads of terms of July 2008 (reviews capped at 3% per annum); and the final lease (rent free period extended to two years and eight weeks).

45.          His devaluations were:

Initial Heads of Terms – net effective rent of £226,152

Revised Heads of Terms

and

Final lease terms – net effective rent of £225,624

46.               Mr Lamb, whilst reserving his position as to whether the rent on the appeal property alone was persuasive, accepted Mr Cohen’s method of devaluation and adjustment of the headline rent under the lease to arrive at the above net effective rents. That significant concession obviated the need to subject Mr Cohen’s devaluation or choice of discount rate to any further scrutiny. I would mention at this point that it is to both experts’ credit that they made fair concessions when appropriate during the hearing.

47.          In summary, I consider that the letting of the appeal property, of which terms were agreed around the AVD, is a significant piece of evidence closely aligned to the statutory hypothesis, and which devalues to an equivalent rent of £226,000 per annum or thereabouts.

Rental evidence

48.               I fully accept Mr Ormondroyd’s submission that Lotus does not impose a straitjacket on the process of valuation, and that in considering whether the actual rent was a good indicator of value, the other available evidence must also be looked at. Such evidence may confirm the level of value indicated by the actual rent on the subject hereditament or it may cast doubt upon it

49.          The parties submitted a range of rental evidence, but subsequently discounted a number of transactions that were based upon arbitration awards; that were between connected parties; or that were fixed rental increases. Those retractions left the following remaining rental evidence:

 

Property	Rent psqm	Date	Approx distance from appeal property
B&M Bargains, Holme House Rd, Stockton	£50.27	Sep 10	1 mile
The Range, Holme House Road	£56.23	Feb 10	1 mile
Matalan, Bridge Road, Stockton	£92.47	Dec 06	2 miles
Former Focus, Parkway Centre, Coulby Newham	£93.65	June 08	6 miles
B&Q, Teesbay Retail Park, Hartlepool	£76.86	June 07	10 miles
Unit 1, High Point Retail Park, Hartlepool	£124.65	Aug 06	12 miles
Unit 2, The Highlight Retail Park	£93.78	June 04	12 miles
Wickes, Haughton Road , Darlington	£102.20	Dec 04	13 miles
B&Q, Whessoe Road, Darlington	£96.07	June 06	13 miles
Former Focus, Hill View Road, Guisborough	£133.39	Mar 09	15 miles

 

50.          Mr Lamb, whilst contending that properties in a wider area were also relevant, said in his rebuttal report that “in considering the comparable properties in the locality I consider the evidence derived from within a 2 mile radius of the appeal property to be the most persuasive in terms of comparability”. Mr Cohen said that open market activity in the immediate locality is considered to hold the most weight.

51.          In principle, transactions on similar buildings that are close to an appeal property should carry more weight than transactions on those that are remote from it. That is not to say that transactions on more remote properties should be ignored, or that a property close to the subject premises may be of less weight for some specific reason, but in general terms the greater the distance from an appeal property, the less reliable a transaction is as a comparable.

52.          In any event, having inspected the comparable properties at Darlington, Hartlepool and Guisborough, I have placed very limited weight on the rental evidence they provide. The properties are between 10-15 miles from the appeal property. Other than B & Q at Hartlepool and Unit 1, Highpoint Retail Park, Mr Lamb described each of them (albeit in what appeared to be a formulaic paragraph in his expert report) as being much smaller properties.

53.          In my judgment, the former Focus property at Coulby Newham, six miles from the appeal property, was in a stronger retailing position, being the only sizeable warehouse in one of the prime retail and leisure locations south of Middlesbrough. I do not consider it comparable.

54.          I have placed significant weight on the open market lettings to The Range and B & M Bargains, both within a mile of the appeal property within the former Woolworths space on Holme House Road.

55.          Mr Cohen said that The Range had been negotiating terms on the “Big W” unit on Holme House Road with Woolworths from mid-2007 to mid-2008. Heads of terms dated July 2007 were agreed for The Range to take a sublease of part of the Big W space, of 59,573 sqft (5,535 sqm) at £375,000 with an 18 month rent free period for a lease expiring on 30 August 2015. This did not come to fruition but the parties continued to negotiate and a revised proposal was put forward by Woolworths’ agent to The Range on 2 April 2008, for a space amounting to 58,696 sqft (5,453 sqm) at a rent of £385,000, on the basis of a new 15 year lease and with all other terms remaining the same (including presumably the rent free period). Mr Cohen analysed this second proposal at £56.39 per sqm. Woolworths plc went into administration in November 2008 before this proposal resulted in a letting.

56.          There was no evidence as to why the first heads of terms did not result in a letting. There was also no evidence as to whether the revised proposal in April 2008 was below market value. Any suggestion that Woolworths were willing to do a “soft” deal as they were under financial pressure is entirely speculative.

57.          Mr Thompson said that the respondents also cast their eye over the opportunity that the Woolworths’ downsize presented, although the proposed sub-divided unit was clearly not “ready to go”. They also considered the GlynWebb unit at Chandlers Wharf, and in fact agreed terms, but were subsequently told that the unit wasn’t available. In his expert report, Mr Thompson said that the respondent chose the appeal property as it offered “the better retail location, given its critical mass of retailing”. When asked by Mr Ormondroyd, Mr Thompson confirmed that this meant that the appeal property at Portrack Lane was in a better retail location than the GlynWebb unit or the Woolworths unit. There was also the issue of availability, however. Mr Thompson said that the appeal property was vacant, suited GO Outdoors, and was the most immediately available store.

58.          I should at this point mention an evidential issue, even though it is peripheral to my decision. The respondent was aware that the appeal property had a restricted planning consent. Mr Thompson said in his oral evidence that “the planning consent did need to be widened, but we had a successful track record in widening planning consents which were bulky goods consents”. This comment, almost given as an aside, was the subject of some debate by Counsel in their closing submissions. My interpretation of Mr Thompson’s comment, like Mr Kolinsky’s, is that GO Outdoors had a track record of widening bulky goods consents to the extent that allowed them to trade, in the same way that they widened the planning consent on the subject property. I did not take it to mean that they had a successful track record of fully widening consents to open A1 consents.

59.          Following Woolworths’ demise, The Range agreed terms direct with the landlord of the Holme House Road unit. Mr Cohen submitted an email from The Range’s agent which indicated that heads of terms were agreed on 24 June 2009. These provided for a rent of £375,000, subject to a rent free period of six months, followed by 24 months at half rent, and with a tenant’s break clause at the end of the third year.

60.          The Range’s agent indicated in his email that the final lease terms were somewhat different to the June 2009 heads of terms. To my mind that is an understatement. The new terms included a rent free period of six months, then a rent of £183,006.50 for two years; then a rent of £366,013 for three years; then a rent of £414,110 for five years. In addition, a tenant’s penalty payment was introduced of one and a half year’s headline rent if the break clause was exercised. The lease commenced in February 2010. Mr Cohen’s devaluation of this transaction, which Mr Lamb said he did not contradict, equated to £56.23 per m ².

61.          In respect of the B & M Bargains transaction, this was a letting of adjoining space within the former Woolworths unit. The date of heads of terms is unknown, but the final lease was entered into on 20 September 2010, for 15 years at a stepped rent of £100,000 in year one, £200,000 in years 2-5 and £230,000 in years 6-10. There was a tenant’s break clause at the end of the third year and a mutual break clause at the end of the tenth year. Mr Cohen’s breakdown, which again Mr Lamb did not contest, showed £50.27 per m ².

62.          I have also had regard to the rent review of Matalan at Bridge Road, Stockton, which is only two miles from the appeal property. This showed £92.47 per sqm with effect from December 2006. I discuss this further below.

Other GO Outdoor properties

63.          Mr Cohen submitted evidence of GO Outdoors’ acquisitions at a variety of other locations around England and Wales. This was to show the likely levels of value that the hypothetical tenant could achieve elsewhere. I have not derived any assistance from this exercise, which was not pursued with any enthusiasm by Mr Cohen nor Mr Ormondroyd at the hearing, and have placed no weight upon it.

Tone of the list

64.          The rental evidence does not show a complete or particularly uniform picture and it is therefore appropriate to consider assessment evidence. As a sub-strand to this, and one of the main elements of the appellant’s case, is whether or not the tone of the list has been established.

65.          It is useful at this point to refer to the explanation of the concept of tone of the list by the Tribunal (Mr P H Clarke FRICS), in O’Brien v Harwood (VO) RA/22/2002:

“41. There are three stages leading to the establishment of tone of the list. At first, when a new rating list is put on deposit, entries will carry relatively little weight: they are opinions of value by the valuation officer, as yet unchallenged and untested by negotiation. Over time assessments will be challenged and agreed or determined by a valuation tribunal or this tribunal or accepted by lack of challenge. Finally a stage is reached where enough assessments have been agreed or determined or are unchallenged to establish a pattern of values, a tone of the list. The list is then said to have settled. Rents will be largely subsumed into assessments. At that stage rating surveyors will have little regard to rents and pay considerable attention to assessments. The position regarding tone of the list at any particular time is a question of fact. Where an assessment is challenged before a Tribunal the correct time for deciding whether a tone of the list has been established is immediately before the hearing.”

66.          At the date of Mr Lamb’s expert report, in June 2014, the number of unchallenged assessments within the comparable evidence was greater. In February and March 2015, in the run up to the hearing, there was a number of proposals to alter some of those assessments.

67.          The reason for these relatively late proposals to alter the rating list may have been the impending deadline for appeals that, if submitted before 31 March 2015, could be backdated to 1 April 2010. Alternatively, it may have been a concerted effort to weaken the VO’s position, knowing that the hearing of this case - which by all accounts would affect outstanding appeals on similar properties in the area - was imminent. Whatever the underlying motives, as the Tribunal indicated in O’Brien the correct time for deciding whether the tone of the list has been established is immediately before the hearing. That was not the end of the story as far as appealed assessments was concerned. Following the hearing the parties confirmed that some of the comparable assessments that had been noted at the hearing as being unchallenged were in fact the subject of outstanding proposals. With these amendments, the completed list of comparable assessments, in ascending order of distance from the appeal property was as outlined in the appendix to this decision.

68.          Accordingly whilst at the date of his expert report, Mr Lamb relied on the assessments of Wickes, Stockton; Dunelm, Stockton; and ELS, Teesbay Retail Park as being unchallenged, and that of Unit 2 The Highlight Retail Park being agreed, all four of these assessments were, at the date of the hearing, subject to outstanding appeals.

69.          At the hearing, both Mr Lamb and Mr Cohen accepted that the Barker and Stonehouse Unit, being in a different valuation scheme and physically different to the appeal property, and the Matalan Unit at Cleveland Retail Park, which was clearly in a much stronger retailing location, could be discounted.

70.          Mr Lamb indicated in his rebuttal report that the evidence derived from within a two mile radius of the appeal property was the most persuasive in terms of comparability. I agree. If the Barker and Stonehouse assessment was ignored, of the eight assessments within a two mile radius including the appeal property itself, only Units 5-6 Collectables Retail Park; Matalan, Bridge Road Stockton; and the former GlynWebb unit were not the subject of outstanding appeals. Mr Lamb accepted that Units 5-6 Collectables Retail Park was physically two units, each of which was considerably smaller than the appeal property (they have since been split and each individual assessment is the subject of an outstanding appeal) and were not properly comparable. The former GlynWebb property has been demolished and the assessment deleted from the rating list, leaving only the Matalan assessment. Accordingly, within a two mile radius of the appeal property, it is evident that no tone of the list has yet been established. Mr Lamb accepted as much, although he felt that the geographical area should not be that confined.

71.          In my judgement, casting the net wider does not assist Mr Lamb’s cause. He accepted in cross examination that the properties within a ten mile radius could not be considered a constituted tone of the list, and it was only by extending even further, to 15 miles and incorporating properties which were much smaller, that he felt that he had arrived at a tone.

72.          Mr Ormondroyd submitted that the tone of the list had been established in this case, into which rents had been subsumed. The question was not a quantitative test of how many assessments had been settled, but a qualitative test of whether a recognisable pattern had been established. He submitted that stage 3 in O’Brien had been reached.

73.          Mr Kolinsky submitted that no tone had been established, and that the list had only reached stage 2. Mr Lamb had given no principled explanation as to why a fifteen mile zone was the right area to consider and had no idea how many appeals were outstanding within that radius.

74.          I am not satisfied that the rating list for retail warehouses in the Stockton area, as at the date of the hearing, had progressed beyond stage 2 in O’Brien, and therefore do not consider that a tone of the list has yet been established.

Assessment evidence in the absence of a tone of the list

75.          Mr Ormondroyd submitted that, even had a tone not been established, the assessment evidence could be relied upon in support of the appellant’s case.

76.          For the same reasons as for rental evidence, above, I consider the most reliable evidence is likely to be that within a two mile radius of the appeal property. Of this, I have placed limited weight on assessments which have been the subject of appeals and not yet agreed. This is with some slight unease, as two of those assessments – Wickes and Dunelm, were effectively appealed on the eve of the hearing. The late appeals were not totally calamitous to Mr Lamb’s case as I would in any event have placed slightly less weight on an unchallenged assessment than on an assessment that had been agreed by negotiation. Of the others, I do not consider that much weight can be placed upon Units 5-6 Collectables Retail Park, nor the Barker and Stonehouse assessments, for the reasons outlined above. Within the two mile radius, that leaves the Matalan unit at Bridge Road, Stockton, which is also a comparable owing to its rental evidence, and which I consider more fully below.

77.          Of the 2-10 mile radius assessments, the Matalan unit at Cleveland Retail Park is clearly in a far superior location, and can be discounted. As with its relevance under rental evidence, the former Focus building at Coulby Newham is in a different, and better, situation, and again little weight can be placed upon its assessment.

78.          That leaves the assessments in the 10-15 mile radius. Again the weighting to be placed upon them is, in my judgement, reduced by their distance from the appeal property. In any event, the validity of the unchallenged assessment of B&Q at Teesbay Retail Park is lessened, albeit to a small degree, by the fact that the former ELS unit, also at £75.00 in the same location, is the subject to an outstanding appeal. Of the remaining assessments, the majority are over 12 miles away and in respect of properties which Mr Lamb admitted were much smaller than the appeal property. No quantum discount evidence was submitted, but in my view the difference in size calls into question their reliability as comparables. I have placed very limited weight upon them.

Comparison between Rating Lists

79.          Mr Lamb also relied upon a comparison between assessments in the 2005 and 2010 rating lists. Mr Ormondroyd submitted that a comparison of the relevant assessments in the 2010 rating list with the previous 2005 list is admissible and would be of particular assistance, relying upon Barnard and Barnard v Walker (VO) [1975] RA 383. He submitted that there was a presumption that the value of a hereditament would not increase nor decrease to an extent that is out of line with similar hereditaments. Any disproportionate increase or decrease must be supported by evidence.

80.          In closing submissions, Mr Ormondroyd said that if the Respondent were correct, the value of the appeal property would have decreased by 46% relative to values in the 2005 list, which was out of line with other agreed assessments in the locality. Mr Cohen, in cross-examination agreed that that would be the case but pointed out that should outstanding appeals on other assessments be determined at lower rateable values, the parameters of the change in assessments between lists would widen.

81.          In response, Mr Kolinsky relied upon the recent decision of the Tribunal (Mr N J Rose FRICS) in Lidl (UK) GmbH v Ryder (VO) [2014] RA 23, and that in Lamb v Minards (VO) [1974] 153 to submit that the Tribunal clearly preferred up to date rental evidence to relativities between lists. In cross-examination Mr Lamb accepted that his criticism of Mr Cohen’s position was critically dependent upon an ability to make meaningful comparisons between pre-credit crunch conditions, when the 2005 list AVD was 1 April 2003, and credit crunch conditions at the 2010 list AVD of 1 April 2008, and the proposition that the relative relationships between open A1 units and bulky goods units was the same in each period.

82.          I am not persuaded that any weight should be attached to a comparison between the two rating lists. The variance between the 2005 and (current but in many cases appealed) 2010 assessments was notable. Some had increased, some decreased, and some remained static. I accept Mr Cohen’s point that this variance and the parameters of increase or decrease may alter as and when each assessment is agreed or determined by a Tribunal. To limit the amount by which the assessment of the appeal property should alter, by reference to the change between rating lists of other assessments which themselves are subject to appeal, and in doing so then possibly affect the ultimate result of those other appeals, would in my judgement be to let the tail wag the dog.

83.          Rental evidence and assessment evidence are the key components of value, in my judgement, rather than a comparison between lists. The Tribunal (Mr J H Emlyn Jones FRICS) in Barnard and Barnard said that the presumption of uniformity of change could be rebutted by evidence – in this case the evidence casts doubt on the value of such a comparison and I derive no assistance from it.

Summary

84.          Having made the above findings, I am satisfied that the key evidence is the rent on the property itself, and the rental and assessment evidence of a small number of comparable properties in close proximity to the appeal property. It is now necessary to stand back and consider all of the evidence in the round.

85.          In my opinion the most reliable evidence, against which to compare the letting of the appeal property itself, are first and with greater weight, the two open market lettings to The Range and B&M, both at Holme House Road within a mile of the appeal property, and secondly the rent review and rating assessment of Matalan, Bridge Road, Stockton. Open market lettings must always be preferred to other forms of evidence, particularly when the exact nature of a rent review is unknown, but the difference in time from AVD must also be considered.

86.          I indicated above that I accepted that weight could be placed on the heads of terms agreed on the appeal property, even though the final lease was not completed until eight months afterwards. This was because the final lease did not vary significantly from the initial heads of terms, and the final parties to the lease were the same parties that negotiated the heads of terms.

87.          The same cannot be said for the heads of terms agreed on The Range, in July 2007 and April 2008. They were with a different landlord and varied considerably from the eventual transaction. I have also placed less weight on the June 2009 heads of terms between the eventual landlord and the Range, as these also varied significantly from the eventual transaction. So, the key piece of evidence in respect of The Range is the actual letting, which I accept equated to £56.23 per sqm, at February 2010, and therefore nearly two years after AVD. Mr Kolinsky accepted that less weight should be placed on the letting to B&M than on the letting to The Range but that assumed that the evidence on The Range was at AVD, which I have found is not the case. The actual letting to B&M was in September 2010, and I have placed the same weight on this as I have on the letting to The Range. I accept that the letting to B&M was at £50.27 per sqm.

88.          In my judgement both of these transactions occurred in a weaker market than that at the time of the letting of the appeal property. There is also a difficulty in directly comparing them with Mr Cohen’s £59.36, since that is predicated upon the mezzanine floor being valued at £15.00.

89.          The Matalan unit at Bridge Road, was the subject of a rent review with effect from December 2006. I consider that to be in a better market than at the AVD, before a significant worsening of economic conditions. Exact analysis is difficult as the lease was an overriding tenancy including the adjoining Halfords unit, although the parties have agreed that the rent review shows rent of £92.47 per sqm. Evidence is also available from its rating assessment, settled at £95.00 per sqm (with £25.00 on mezzanine office/mess rooms, and £15.00 on mezzanine storage). Mr Lamb gave further details of the settlement in his expert report. The appeal against the compiled list assessment of £367,500 was agreed with Mason and Partners at £347,500, reducing the main space price from £100.00 to £95.00 per sqm, reflecting a nil increase between lists. Mr Cohen submitted an email from the agent for Matalan, who indicated that, given the rental increase on review, he felt that a settlement showing no growth from the 2005 list was reasonable. It is difficult to fully analyse what was in the minds of the parties to a settlement, but my reading of the evidence is that the settlement was driven by a comparison with the previous list, rather than a settlement at £95.00 per sqm per se.

90.          Having inspected both locations, I consider Matalan to be in a better retailing location than the appeal property. Mr Cohen said that Bridge Road offers a comparative shopping destination, superior to the appeal property. I accept that.

91.          The evidence, on any basis, provides a very mixed picture. However I agree with Mr Cohen that the key letting evidence is that of the appeal property itself, and the open market lettings to The Range and B&M. I do not, however, agree with Mr Cohen to the extent that the letting of the appeal property can, in isolation, provide the best guide to value. There was no evidence of the extent to which the respondent’s rental bid for the appeal property was affected by the size and nature of the mezzanine floor. The difficulty with Mr Cohen’s approach, rooted firmly in a devaluation of that rent, is that the rate to be applied to the ground floor is dependent upon that applied to the mezzanine. The better way of looking at the evidence, in my judgement, is to consider the appropriate rate to be applied to the ground floor retail space having regard to other transactions where ground floor rates can be analysed.

92.          There are two aspects of the lettings to The Range and B&M which necessitate adjustment to the evidence that they produce. First, market conditions. The lettings show £56.23 per sqm, nearly two years after AVD, and £50.27 per sqm some 29 months after, both in a bleaker market than that at AVD. Secondly, location. Mr Thompson’s view, as a surveyor in the market at the time, was that the appeal property was in a better retailing location than the former Woolworths unit (and therefore better than that of The Range and B&M). For both of these reasons, in my opinion the appropriate ground floor rate for the appeal property must be higher than the evidence provided by the lettings to The Range and B&M at £56.23 and £50.27 per sqm.

93.          I have also considered the rental evidence from the Matalan rent review, at £92.47 per sqm, but with some caution since the exact terms of the rent review are unknown. Again, adjustment is required to reflect Matalan’s better location than the appeal property, and the effective date of the rent review was in a better market. The appropriate ground floor rate for the appeal property should therefore lie somewhere below the £92.47 per sqm shown by that transaction.

94.          In my opinion the evidence provided by lettings to The Range and B&M is to be preferred to that provided by the rent review of the Matalan unit, but must be subject to adjustment for the differing market conditions and location. Assuming there is no locational difference between The Range and B&M, taking the £50.27 per sqm in September 2010, and £56.23 per sqm in February 2010 and extrapolating backwards to April 2008, would put The Range/B&M at a shade under £75.00 per sqm at AVD. Based upon a straight line deterioration in market conditions and therefore rents, the appeal property should notionally be at something higher than that given its superior location. There was insufficient evidence from the valuers to allow me to safely make that assumption, however.

95.          I have also had regard to Mr Cohen’s devaluation of the letting of the appeal property, which originally lay at £63.05 per sqm, subsequently adjusted to £59.36, but it suffers from the difficulty identified above, and I do not consider that his method is sufficiently robust for me to rely upon it solely, in the light of the other evidence. Valuation is an art and not a science, and is a matter of judgement. Doing the best I can from the evidence, in my judgement the correct rate to apply to the ground floor space of the appeal property, at the AVD, is £70.00 per sqm.

 

The Mezzanine Floor

96.          Mr Lamb’s original valuation adopted an overall rate for the mezzanine floor of £27.00 per sqm. In support of this, he made reference to a number of settlements of assessments that contained mezzanine floors, all within a short distance from the appeal property. These can summarised as:

Property Main space rate Mezzanine rate

ScS, Portrack Lane: £147.50 £30.00 (sales)

Cheltenham Rd, Stockton: £150.00 £25.00 (use not stated)

Allied Carpets, Stockton: £150.00 £15.00 (storage)

Tile it All, Stockton: £90.00 £30.00 (use not stated)

Units 5-6 Collectables RP: £87.50 £20.00 (stores)

£30.00 (sales/mess rooms)

Units 1-2 Collectables RP: £112.50 £25.00 (sales)

£15.00 (storage)

Unit 4 Collectables RP: £130.00 £20.00 (sales)

Matalan, Bridge Road: £95.00 £25.00 (offices/mess rooms)

£15.00 (storage)

97.          There does not appear to be any particular relationship between ground floor rates and mezzanine rates. For instance £30.00 appears to have been adopted for a mezzanine sales rate, irrespective of whether the ground floor rate was £147.50 or £87.50 per sqm. Elsewhere it is £20.00 or £25.00. Storage rates appear to generally be £15.00 per sqm.

98.          Mr Lamb said that he had settled a number of appeals, none of which involved valuing the mezzanine floor at a percentage of ground floor space rate. They were all based upon the use to which the mezzanine floor was put.

99.          He referred to section 878 of Volume 5 of the Rating Manual, which suggested a three step approach in the analysis of available evidence, which can be summarised as – Step 1: look at rental evidence; Step 2: look at assessment evidence; then, if these steps fail, Step 3: adopt a virtual rent approach having regard to the installation cost.

 

100.      At my request, shortly before the hearing the parties agreed a split of the mezzanine floor area according to use. Following this, Mr Lamb revisited his valuation to produce:

Ground Floor: 3,368.27 m ² @ £90.00 £303,144

Mezzanine:

sales: 1,274.23 m ² @ £27.00 £34,404

staff rooms: 69.22 m ² @ £22.50 £1,557

stock room: 79.79 m ² @ £18.00 £1,436

warehouse: 324.37 m ² @ £18.00 £5,838

£346,379

(say) £345,000 RV

101.           Whilst Mr Lamb originally referred to a cost-based “virtual rent”, there was no reference to costs as such, and he confirmed during the hearing that his method was not costs based. His valuation was more based upon evidence of other assessments, and it applied different rates to areas depending on their use – a common approach in rating.

 

102.      Mr Cohen’s original valuation, within his expert report, was based upon a mezzanine rate of 0.125 of the main space, derived from scales produced by the VOA, and which resulted in a rate of £7.88 per sqm for the mezzanine floor, compared with £63.05 per sqm for the ground floor.

103.      During the hearing, having heard Mr Lamb’s evidence, (and possibly inferring some scepticism from my questions) he moved away from the use of scales, and altered his overall mezzanine floor rate to a spot rate of £15.00 per sqm. Although he made this alteration, his valuation remained fixed to an analysis of the rent passing, which consequently reduced his ground floor rate to £59.36 per sqm from his initial £63.05 per sqm.

104.      The difficulty I have with Mr Cohen’s approach is that, whilst he quite fairly changed the rate he applied to the mezzanine floor, from £7.88 to £15.00 per sqm, his unwillingness to move away from an approach that was founded on a devaluation of the letting of the appeal hereditament meant that this skewed his ground floor rate. Whilst I accept that there is no evidence as to what value GO Outdoors placed on the mezzanine floor in agreeing the rent, in my judgement that inflexibility indicates the slight weakness of his approach in relying solely on the rental devaluation.

105.      In my view, the rate to be applied to the mezzanine floor should vary with use, and I prefer Mr Lamb’s general approach, which is in line with his settlements of comparable assessments that included mezzanine floors. The supporting evidence however places one rate on sales/staff areas, and a second rate on storage, and I adopt that approach.

106.      In my judgement the appropriate rate for the mezzanine sales area and staff room is £25.00 per sqm, and that for the stock room and warehouse areas is £15.00 per sqm.

107.      I therefore conclude that the rateable value of the appeal property at 1 April 2010 should be:

Ground Floor: 3,368.27 m ² @ £70.00 £235,779

Mezzanine:

sales: 1,274.23 m ² @ £25.00 £31,856

staff rooms: 69.22 m ² @ £25.00 £1,731

stock room: 79.79 m ² @ £15.00 £1,197

warehouse: 324.37 m ² @ £15.00 £4,866

£275,429

(say) £275,000 RV

 

 

Disposal

108.      I determine that the appeal property must be entered into the local non-domestic rating list at a rateable value of £275,000 with effect from 1 April 2010.

109.      This decision is final on all matters other than costs. The parties may now make submissions in writing on the issue of costs and a letter containing further directions accompanies this decision.

 

16 July 2015

 

 

 

P D McCrea FRICS

 

Appendix: Status of comparable assessments at the date of the hearing

Property	Basic rate per m 2	Status
Wickes, Lustrum Avenue, Stockton	£90.00	Compiled list appeal (made 16 March 2015)
Dunelm, Portrack Lane, Stockton	£87.50	Compiled list appeal (made 18 March 2015)
B & M Bargains, Holme House Road, Stockton	£90.00	Appeal against Valuation Officer’s Notice
The Range, Holme House Road, Stockton	£90.00	Appeal against Valuation Officer’s Notice
Units 5/6 Collectables Retail Park	£87.50	Agreed (hereditament split wef 3.8.14, split assessments appealed)
Matalan, Bridge Road, Stockton	£95.00	Agreed
Barker and Stonehouse, Marsh Street, Middlesbrough	£36.50	Unchallenged
Former GlynWebb, Chandlers Wharf	£68.00	Unchallenged (assessment deleted 31.3.11)
Matalan, Cleveland Retail Park	£135.00	Agreed
Former Focus DIY (now B & M), Coulby Newham	£90.00	Agreed
B & Q, Teesbay Retail Park, Hartlepool	£75.00	Unchallenged
Former ELS, (now The Range), Teesbay Retail Park Hartlepool	£75.00	Appealed (deleted and new assessment known as Unit 4 wef 19.3.15 by VON – appealed)
Former Focus DIY, Unit 1, Highpoint Retail Park, Hartlepool	£95.00	Appeal withdrawn (assessment split by VON wef 4.3.13 into Unit 1A (appealed) and Unit 1B)
Unit 2, The Highlight Retail Park, Hartlepool	£94.00	Compiled list appeal (plus two MCC appeals)
Wickes, Houghton Road, Darlington	£95.90	Agreed
B & Q Whessoe Road , Darlington	£96.00	Agreed
Former Focus (now B & M), Meynell Road, Darlington	£67.00	Agreed
Former Focus (now Iceland and Aldi) Hill View Road, Guisborough	£100.00	Appeal withdrawn (assessment split by VON wef 08.09.14 into Units 1 and 2 – both appealed)