The Supreme Court considered how to value a vacant Blackpool office for rating where comparable offices were occupied at substantial rents, but the parties agreed that nobody would have paid a positive rent for the building itself. By a majority, it held that the statutory hypothesis still required the value to be assessed by reference to that general demand. It restored the Upper Tribunal’s rateable value of £370,000 rather than the nominal figure of £1.
Mexford House is a substantial three-storey office block in Blackpool, built in 1971 and occupied as government offices from 1972. By 1 April 2010, the date on which the 2010 non-domestic rating list came into force, it was vacant. Its rateable value nevertheless had to be determined by reference to the antecedent valuation date of 1 April 2008.
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The valuation officer initially entered £490,000, reflecting rents paid for other public-sector offices of similar age and quality. The closest comparable was Hesketh House in Fleetwood, assessed at £59 per square metre. That comparison produced his final figure before the Upper Tribunal of £370,000. The Valuation Tribunal for England had reduced the value to £1.
The valuation hypothesis
Paragraph 2 of Schedule 6 to the Local Government Finance Act 1988 fixes rateable value as the rent at which the property might reasonably be expected to let from year to year. The valuer must imagine a willing landlord and willing tenant reaching a compromise. Certain matters, including the physical condition of the property and locality and the use of other local premises, are taken as they were on 1 April 2010 rather than on the earlier valuation date.
The parties’ agreement
After the valuation officer had been cross-examined, both sides invited the Upper Tribunal to decide the case as a point of law. Their Joint Position Paper recorded that nobody in the real world would have occupied Mexford House and paid a positive price on 1 April 2008. It was agreed that the rating hypothesis requires a hypothetical tenant to be assumed. The disputed question was whether it also required the value to be assessed by reference to the general demand shown by occupation of similar offices. If it did, the value was £370,000; if not, it was £1.
The agreement left other factual issues unresolved, including whether the building was economically obsolete and whether someone might have taken it at a much lower but still positive rent. Lord Carnwath held that the Supreme Court had to take the agreement as it stood. The valuation officer’s concession did not extend to the ratepayer’s wider evidence about obsolescence, and the Court of Appeal had itself treated the problem as saturation of the market rather than obsolescence.
The earlier decisions
The Upper Tribunal held that a hypothetical tenancy must be assumed and that the occupation was of value. Mexford House was capable of beneficial occupation, and comparable offices were beneficially occupied at substantial rents. The hypothetical tenant could not be treated as unwilling to pay more than a nominal rent merely because no real-world bidder had been identified. The rent was therefore to be negotiated by reference to general demand, producing the agreed £370,000.
The Court of Appeal restored the nominal value. Henderson LJ emphasised that the assumed letting takes place in a real market. On the agreed facts there was no actual demand, and the law did not require demand to be invented. A letting at a nominal rent satisfied the hypothesis. The public-sector market was saturated, so vacancy removed the basis for a substantial value even though comparable buildings remained occupied.
The majority reasoning
Lord Carnwath, with whom Lord Reed and Lord Lloyd-Jones agreed, allowed the appeal. Rating uses a common hypothetical letting standard so that properties can be compared fairly; it does not simply reproduce each property’s actual contractual position. Where there is no general market for a use, the question is whether the occupation is of value. The majority considered that the Upper Tribunal had properly used that test and had not merely relied on authorities about whether property is rateable at all.
Earlier nominal valuations were distinguishable. In the National Trust case, the cost of maintaining historic houses would have left a tenant heavily out of pocket, and there were no comparable properties let at substantial rents. A football ground for which only the club was a realistic tenant raised a similar problem. Those cases did not establish that a nominal value follows whenever no actual bidder can be named.
Lands Tribunal decisions supplied the relevant distinction. A property may be empty merely because supply exceeds demand, or it may have reached the end of its economic life. Vacancy alone does not justify a lower value than that of similar occupied premises. Even in a saturated market, the hypothesis assumes a willing tenant prepared to negotiate. Absent other material evidence, the resulting rent may be assessed from the general demand shown by similar occupied offices. The majority therefore rejected the Court of Appeal’s view that vacancy itself reduced the value to a nominal amount, and its view that nominal values were confined to sterile or commercially burdensome property.
The dissent
Lord Briggs, with whom Lady Black agreed, accepted those legal principles but interpreted the agreement differently. He considered that the parties had agreed that the evidence positively established no real-world demand for Mexford House at more than a nominal rent. The hypothesis requires a tenant, but not a tenant willing to pay a positive rent; a nominal rent reconciles the assumed tenant with an absence of demand. Equality requires consistent principles, not an identical outcome contrary to the evidence or the parties’ agreement. He would therefore have answered the Upper Tribunal’s question of principle in the negative: where the evidence shows no demand, the valuer need not assume demand that does not exist.
Verdict: By three votes to two, the Court allowed the valuation officer’s appeal and restored the rateable value of £370,000. Lord Briggs and Lady Black would have upheld the nominal £1 valuation.
