Key Upper Tribunal decision in for the Bunyan (VO) v Acenden Ltd Case

The Upper Tribunal (Lands Chamber) handed down its decision in  Bunyan (VO) v Acenden Ltd [2023] UKUT 17 (LC) on 25 January 2023.

The decision has some very important implications in respect of rating valuations across England and Wales, with the case revolving around the issue of fitting out and whether the value of such should be added to rating valuations.

The Tribunal said:

  • Paragraph 28 – “In the absence of some specific statutory justification for attributing no value to a particular feature, everything which forms part of the hereditament must be valued, irrespective of who provided it”
  • Paragraph 29 – “No statutory provision generally excludes the value of fitting out by a tenant from being taken into account in determining rateable value”

The requirement to consider the value of general fitting out is explained at paragraph 31 of the decision by an extract taken from Edma (Jewellers) Ltd v Moore (VO) [1975] RA 343 (LT) and cited by the Tribunal:

  • Paragraph 31 – “… it would appear reasonable to assume that, if a tenant is prepared to pay for the benefits of occupation of the hereditament, partly by way of rent and partly by way of capital expenditure, he would also be prepared to pay the same amounts calculated in annual terms”

This all has potentially significant implications for properties subject to rating where ratepayers have completed fitting out works. But there is a limitation to what type of fitting out affects rateable value. The Tribunal commented that relevant fitting out was:

  • Paragraph 84 – “sufficiently generic and unexceptional and that it would have had what both sides referred to as general market appeal”

Therefore if fitting out is specific to the actual tenant, without general market appeal, it should probably be excluded from the calculation of rateable value.

The Approach to Valuing Relevant Fitting Out

To date, where fitting out has been added to an assessment (for example for air conditioning) it has been usual to take the cost of that fitting out and apply the statutory decapitalisation rate employed in Contractors’ Basis valuations (currently 4.4%) to find the rateable value addition. But in this case the Valuation Officer suggested that an annual equivalent should be ascertained by amortising the capital cost of the fitting out using a relevant discount rate. That resulted in a much higher proposed addition. The Tribunal specifically set out that the Contractors’ Basis methodology was valid:

  • Paragraph 105 – “Of course, the conclusion that the statutory rate is not mandatory does not mean that it cannot be used in an appropriate case. There is nothing to prevent the Tribunal or the parties from adopting that rate if it is considered appropriate to do so on the evidence”

But it followed a different course in setting the rateable value of the property. The unadjusted rent for the property was agreed by the parties to be £165 with the Valuation Officer suggesting that the rate per square metre reflecting fit out should be £237. The Tribunal determined a rate of £212 per square metre. Apparently a significant addition for fitting out. In making its determination the Tribunal had reservations about the limited evidence presented to it, perhaps leaving the matter open for appeal or for another test case. Ultimately it appeared to judge or check the rate per square metre that it adopted in comparison with comparable rating assessments.

More Questions than Answers?

 Lord Pearce said in Dawkins (VO) v Ash Brothers & Heaton Ltd [1969] 2 AC 336 that:

“Rating seeks a standard by which every hereditament in this country can be measured in relation to every other hereditament. It is not seeking to establish the true value of any particular hereditament but rather its value in comparison with the respective value of the rest. Out of various possible standards of comparison the annual letting value has been chosen. This is appropriate since the tax is charged annually”.

That value in comparison and the principle of uniformity is essential to rating. In this case the use of the statutory decapitalisation rate was abandoned but the use of that standard percentage does give some uniformity to assessing the value of rateable fit out. To use an annual equivalent, taken over a term of years which may vary depending on a particular tenant’s lease term or the break clause a tenant may negotiate may lead to inconsistency. And other questions left open:

  • How does the life of the item of fit out affect its value as against its capital cost if it has general market appeal?
  • How does obsolescence (functional/technological/physical) affect the value of fit out?
  • Should varying lengths of leases with varying break clauses affect the period of analysis and the resulting value – what about the principle of uniformity?
  • How does the mind of the actual tenant in the real world affect the period of analysis – over what period does he view his investment in fitting out?

You can read the full details here: Bunyan (VO) v Acenden Ltd [2023] UKUT 17 (LC)