Telereal Trillium v Hewitt (Valuation Officer) [2019] UKSC 23

Mexford House, a vacant office building in Blackpool, was valued for rating purposes despite no actual tenant being willing to pay a positive rent. The Supreme Court held that rateable value could be assessed by reference to general demand for comparable properties, restoring the Upper Tribunal's £370,000 valuation.

Facts

Mexford House was a substantial three-storey office building in Blackpool, purpose-built in 1971 and occupied continuously from 1972 by HMRC and the DWP. Both occupiers gave notice to vacate in early 2008, and the property was empty by 1 April 2010, the material date when the 2010 non-domestic rating list came into force. The antecedent valuation date (AVD) was 1 April 2008. The valuation officer initially assessed the rateable value at £490,000, later reduced to £370,000, based on comparable office buildings (notably Hesketh House in Fleetwood) occupied at similar rents. The Valuation Tribunal for England reduced the rateable value to £1, prompting the valuation officer’s appeal.

Before the Upper Tribunal, the parties agreed a Joint Position Paper (JPP) recording that nobody in the real world would have been prepared to pay a positive price to occupy Mexford House at the AVD, but that the rating hypothesis required the assumption of a hypothetical tenant. The issue was whether rateable value should then be assessed by reference to ‘general demand’ evidenced by comparable occupied office properties.

Issues

The central issue was whether, in circumstances where there is no real-world demand for the particular hereditament but general demand exists for comparable properties let at substantial rents, the rating hypothesis under paragraph 2 of Schedule 6 to the Local Government Finance Act 1988 requires the rateable value to be assessed by reference to that general demand, or whether a nominal valuation (£1) is appropriate.

Arguments

Valuation Officer (Appellant)

The rating hypothesis requires the existence of a hypothetical tenant to be assumed, and where the hereditament is capable of beneficial occupation and comparable premises are beneficially occupied at substantial rents, the rateable value must reflect general demand. The property’s vacancy was due to market ‘saturation’ rather than any intrinsic defect or obsolescence.

Telereal Trillium (Respondent)

The valuer must consider whether anybody in the real world would pay a positive price. Since the parties agreed no one would, only a nominal rent could be assumed. The reality principle requires the valuer not to depart from real-world evidence further than the statutory hypothesis compels.

Judgment

The Supreme Court (Lord Carnwath, with Lord Reed and Lord Lloyd-Jones agreeing) allowed the appeal by a majority and restored the Upper Tribunal’s assessment of £370,000. Lord Briggs dissented, with Lady Black agreeing.

Majority Reasoning

Lord Carnwath reviewed the statutory framework and key authorities, including the Erith case (1893), Poplar (1922), Hoare v National Trust (1998), and two Lands Tribunal decisions (Lambeth and Shiel). He emphasised the underlying principle of equality in rating, citing Lord Pearce in Dawkins v Ash Brothers that rating ‘is not seeking to establish the true value of any particular hereditament, but rather its value in comparison with the respective values of the rest.’

The majority endorsed a critical distinction drawn in the Lands Tribunal cases: between a property which is unoccupied merely because of a surplus between supply and demand in the market, and a property which has ‘reached the end of its economic life’ or is ‘struck with sterility’. Only in the latter category is a nominal rateable value appropriate.

Lord Carnwath held the Court of Appeal had erred in treating Hoare v National Trust as supporting a nominal valuation here; in that case, the lack of alternative bidders flowed from the inherently burdensome nature of the properties, not market saturation. Similarly, Inland Revenue Comrs v Gray concerned a different statutory regime (capital transfer tax on a single asset) and its language about demand being ‘wholly derived from the real world’ was not directly transferable to rating, whose purpose is to achieve a fair standard across comparable properties nationally.

The Court held that whether the hereditament is occupied or unoccupied at the relevant date is not critical. Even in a ‘saturated’ market, the rating hypothesis assumes a willing tenant, and in the absence of other material evidence, the rent may properly be assessed by reference to general demand derived from occupation of other office properties with similar characteristics.

Dissent

Lord Briggs would have dismissed the appeal. He interpreted the JPP as an agreement that the evidence positively showed no demand for Mexford House at more than a nominal rent, not merely an absence of identifiable tenants. He considered that the rating hypothesis requires only the assumption of a willing tenant, not necessarily one who would pay more than a nominal rent, which operates as a ‘safety valve’ reconciling the statutory hypothesis with real-world absence of demand. He saw no authority requiring departure from a real-world conclusion that no demand exists.

Implications

The decision clarifies the approach to rating valuation where a particular hereditament has no actual demand but comparable properties in the locality are let at substantial rents. The key principle is that general demand for comparable properties can supply the evidential basis for a substantive rateable value, unless the property has reached the end of its economic life or is struck with sterility.

The judgment reinforces the principle of equality in rating: comparable properties should bear comparable rateable values, and the mere fact that a particular property is vacant at the valuation date does not justify a nominal assessment. This aligns with the ‘parade of shops’ example endorsed by the Lands Tribunal, where one vacant unit in a row of occupied comparables still attracts a substantive value.

The decision matters particularly to valuation officers, ratepayers, and practitioners dealing with vacant commercial buildings. It narrows the circumstances in which a ratepayer can successfully argue for a nominal valuation based on absence of actual demand: that argument is likely to succeed only where the property is shown to be economically obsolete or incapable of beneficial occupation in a commercial sense.

However, the judgment is tightly constrained by the artificial agreement in the JPP, which meant that factual issues such as obsolescence were not resolved. The Court acknowledged the genuine difficulty valuation officers face in distinguishing between a property that is ‘actually obsolete’ and one which ‘simply has not (yet) let’, and the judgment does not resolve how that factual distinction should be drawn in contested cases. The dissent highlights continuing uncertainty in cases where evidence genuinely shows no demand at all for the subject property despite comparable lettings.

Verdict: Appeal allowed by majority (Lord Reed, Lord Carnwath and Lord Lloyd-Jones; Lord Briggs and Lady Black dissenting). The decision of the Upper Tribunal setting the rateable value at £370,000 was restored.

Source: Telereal Trillium v Hewitt (Valuation Officer) [2019] UKSC 23