The evidence
9.Helpfully, the experts agreed both a statement of agreed facts, and a commendably concise group of comparable transactions. It was common ground that rental levels had not materially changed over time, so neither expert made any adjustment to transactions for dates in relation to the Antecedent Valuation Date (“AVD”) of 1 April 2015.The appeal building10.Following Marks and Spencer’s relocation to Weavers Wharf, in 2008 the appeal building (including the first and second floors) was let to Pavers Limited at an annual rent of £125,000. Two further, and in all material ways identical, leases followed, which helpfully sit either side of the AVD. They are a lease dated 3 February 2012 which was for a term from that date to 3 August 2014, and a lease dated 6 June 2016, for a three-year term from 4 August 2016. Both leases were at an annual rent of £70,000. They were contracted out of sections 24-28 of the Landlord and Tenant Act 1954, removing the tenant’s security of tenure. The landlord could terminate the leases on one month’s notice, and Pavers by giving three months’ notice. Alienation was prohibited, save that Pavers were permitted to share occupation of not more than 50% of the premises with the discount retailer Leading Labels Limited, provided exclusive possession was not granted. Importantly, liability for business rates remained with the landlord.11.In a form of return to the Valuation Office, Pavers indicated that there were two sub-lettings at a rent totalling £23,990. In an email to Mr Byrne, the Financial Controller of Pavers explained that the rental income from Leading Labels was £10,000 from 1 December 2013 with electricity, water, repairs etc recharged at 50%. That rent was reduced to £0 with effect from February 2020. There was also a tenancy at will to “D’Nada” at a rent of £13,980 per annum. This was arguably in breach of Pavers’ alienation restriction.12.Mr Wanderer considered the letting of the appeal building to be of assistance and placed most reliance on it. In order to convert the 2012 and 2016 leases of the appeal building to an equivalent rent of the appeal property only, on the statutory hypothesis, Mr Wanderer made various adjustments. As regards the 2012 lease, from the headline rent of £70,000, he deducted the rental value of the upper floors (using the 2010 rateable value of £22,250 as a proxy for rent), the rates liability for the ground floor and basement (£55,876) and for the upper floors (£10,190.50) and the landlord’s insurance premium (£4,000). The resultant figure was -£22,316.50. The corresponding figure for the 2016 lease, adjusted to allow for differing levels of uniform business rate and a slightly higher insurance premium, was 28,442.25.13.Mr Wanderer said that the two lettings of the appeal building, either side of the AVD, on an open market basis, were good evidence. While some adjustment is needed, it was neither complex nor speculative. In any event, the resulting figure was sufficiently negative that even allowing for a margin of error, or if the upper floors attracted a low rent, a nominal rateable value of the appeal property would result.14.Mr Byrne, in contrast, placed little weight on the letting because of the number and level of adjustments required to convert the terms to the statutory hypothesis. The upper floors had been vacant since 2008, and there was therefore no market evidence of their rental value. The 2010 assessment could not be relied upon as it had not been tested. They were in poor condition and would attract a low rent under the rating hypothesis. Secondly, the appellant as landlord pays both the business rates and the insurance premium on the appeal building, which again is a departure from the rating hypothesis. Thirdly, the lease permits subletting of up to 50% of the demise, which again requires adjustment, and the rents from licensees should be taken into account. Accordingly in his view, the lettings required too many adjustments to be of use, and the better evidence in assessing the rateable value of the appeal property lay not with the appeal building, but with other lettings of large retail units in Kettering town centre.15.In cross examination, Mr Byrne accepted the sub-licences informed the level of rent which Pavers were prepared to pay, and that as a matter of valuation principle the rental value agreed for the lease required no further adjustment to reflect the licence rents. He also accepted that Mr Wanderer’s calculations as to the rates liability and insurance costs were correct, and that even if a nominal rent was attributed to the upper floors, the resulting calculation would produce a negative, or at best nominal, rateable value.16.The experts also relied on a small number of comparable transactions.3-6 Coventry Street/Swan Centre – 99p Stores17.This is a nearby retail unit, fronting Coventry Street, but forming part of the Swan Shopping Centre, to which it had rear access. It was formerly occupied by Boots the Chemist – another town centre casualty of the Weavers Wharf development. The agreed floor area was 1,841.2 sqm, all of which can be valued as main space.18.The unit was let to 99p Stores Limited by a lease dated 27 November 2013, for a term of ten years from 26 August 2013, at a headline rent of £80,000 per annum, which included any service charge contribution for the Centre. There was an initial three-month rent-free period. The lease provided for a rent review at the end of the fifth year, capped at £95,000 per annum. The tenant could break the lease at the end of the third year, on a penalty of £20,000.19.The lease included an ‘exclusivity rent reduction’ which took effect if the landlord entered into a letting, by lease, licence, etc, to a list of named discount retailers (presumably commercial rivals of 99p Stores). The list comprised Poundworld, Poundstretcher, B&M Retail, Home Bargains, Poundland, Dealz or any other single-price retailer or non-fashion discounter. If there was such a letting within the first five years of the term, the rent would be reduced by 25%. As I outline below, B&M were already present in the centre when the lease was completed. Whether the rent was in fact reduced was not in evidence.20.From the headline rent of £80,000, Mr Wanderer deducted 25% for the exclusivity clause, then a further £6,000 (10% of the resulting net £60,000) to reflect the benefit of the rent review cap.21.In his first report, Mr Wanderer made a further reduction of £99,085 representing the service charge contribution which the tenant was not required to pay (based on £5 per sq ft). The resultant negative net rent was -£45,085. His estimate of service charge was based partly on research of other centres, and partly from the agents for Specsavers, who told Mr Wanderer that the optician’s service charge in the centre was £7.26 per sq ft in 2014, and £8.25 per sq ft in 2016. In his second report, he adjusted this to £3.50 per sq foot, on the basis that a quantum discount might apply to the larger units in the centre. Mindful of the service charge cap on B&M (see below) at £1.75 per sq ft, he thought it reasonable that that would represent 50% of the full service charge figure, which at £3.50 per sq ft would equate to a service charge of £69,367, resulting in a negative net rent of -£15,367.22.Mr Byrne made no adjustment for the exclusivity clause because no other discount retailer took a lease in the centre during the exclusivity period. As for the rent review cap, Mr Byrne’s considered Mr Wanderer’s 10% unjustified, amounting to a premium of 50% of the rent over the five-year term, hedging against rental growth of 16.25% over that period. He made no adjustment for the rent review cap. 23.In his first report Mr Byrne made an adjustment to reflect the lack of service charge liability of £2,000 per annum. He subsequently revised this figure and, based on £1.75 per sq ft, being a similar level to the B&M cap, deducted £34,683 from the headline rent. His analysis therefore stood at £45,317, or £24.61 per sqm.1-6 St George’s Mall, Swan Centre – B&M 24.This unit is within the Swan Centre, having an agreed floor area of 1,709 sqm, all of which can be valued as main space.25.Despite the exclusivity clause in the 99p Stores lease, B&M were present in the Swan Centre when that lease was granted and subsequently renewed the lease during the exclusivity period.26.The lease dated 23 December 2015 was for a term from 18 August 2016 to 31 December 2019. There is reference to a previous lease dated 18 August 2006 (which was not in evidence) between the former freeholder and B&M. The headline rent was £100,000 per annum, with a 15-month rent and service charge holiday. The tenant’s repair liability was limited; there was no obligation to replace floor coverings, nor to maintain repair or replace any fixtures or fittings identified in a schedule of condition (dated July 2006, so presumably attached to the previous lease); and there was no obligation to replace and mechanical or electrical equipment or plant at the end of the term.27.The experts agreed that the 15-month rent free period should be spread on a straight-line basis over the three-year [sic] term, therefore deducting £41,666. They applied a similar approach to the service charge holiday, deducting £13,455, based on a service charge figure which was capped at £32,392. These deductions brought the net rent down to £44,878.28.But they did not agree how the dilapidations waiver should be treated. Mr Wanderer had written confirmation from Mr Philip Murphy, Asset Manager for the landlord of the Swan Centre, that ‘as part of the deal, the landlord agreed to waive its claim for dilapidations in respect of floor coverings and mechanical and electrical systems. The capital value of this concession is estimated at £255,000.’ Taking this on a straight-line basis over the term, he deducted £84,915 per annum, resulting in a net negative rent of -£40,037. Mr Wanderer accepted that he only had information from the landlord’s representative as to the figures; there was no confirmation from B&M as to the capital value, or indeed any aspect of the agreement, and he fairly observed that he was not qualified to say whether £255,000 was correct or otherwise. But, he said, since his calculations resulted in a figure which was well into negative territory, there was some scope for adjustment without a positive rent being generated.29.Mr Byrne thought that since the landlord was willing to forgo dilapidations to secure a letting, any dilapidations must be minor; if not, at the end of the lease the landlord would have a dilapidated property and no return on the rent. He made no allowance for dilapidations and analysed the net rent at £44,878 or £26.25 per sqm.1 High Street – British Heart Foundation30.Both experts thought that 1 High Street was less useful as a comparable than 3-6 Coventry Street and 1-6 St George’s Mall.31.This unit is a short distance away from the appeal building, within direct view, but at the edge of the pedestrianised area, with rear vehicular access which the public could use. It was let to British Heart Foundation as a furniture outlet, on a ten-year lease from July 2014 at a headline rent of £60,000, with a 12-month rent free period, a tenant’s option to break after the end of five years, and a rent review capped at 20% increase.32.The unit was smaller than the appeal property, with ground floor space of 382.3 sqm, and first floor and second floor storage both of 575 sqm. It was the only comparable where a zoning approach was adopted to analyse its rent – despite which both valuers analysed on an overall basis.33.It was agreed that the tenant would benefit from 80% charitable relief on its business rates liability. 34.Mr Wanderer deducted the rent-free period over the first five years, equating to £12,000, arriving at £48,000. He estimated the 2014/15 rate liability to be £50,610 and deducted 80% of this - £40,488 – as the tenant’s overbid, to arrive at a net rent of £7,515, or £4.89 per sqm overall. He did not consider the transaction to be useful. The unit was particularly suited to the BHF’s furniture use owing to the rear access allowing customer drop-offs and collections, and to the high ratio of ancillary storage space. Mr Byrne’s analysis was to a net rent of £46,454, which equated to £30.30 per sqm overall.1 Worcester Street and 2-6 Worcester Street35.These were two freehold sales which were, by common ground, of limited utility in the valuation exercise. 1 Worcester Street, with a total floor area of 6,154 sqm, was sold in April 2016 for £415,000, having remained vacant since the demise of the much-missed Woolworths in 2008. Mr Wanderer’s firm acted for the landlord, and he said that there had been minimal occupier interest, with only a single ‘serious’ offer being made – in 2017 at £90,000 for the first three years, rising to £100,000 in years four and five. The rateable value was £233,000, and while the rent would have gone some way to alleviating the landlord’s rates liability, the letting did not proceed. Mr Byrne analysed the proposed rent, allowing for insurance at 2.5%, to be equivalent to £91,650, or £58.52 per sqm. However, he accepted in cross examination that this rate is out of kilter with the other evidence, that in any event it was not a transaction, and was of little assistance.36.The adjacent property, 2-6 Worcester Street, was sold on 19 December 2014 for £500,000. Mr Wanderer thought the price might have been influenced by the possibility of redevelopment. Neither expert felt the transaction was of assistance.37.Standing back, Mr Byrne’s view was that the rent on the appeal building was of little assistance, and that the two main comparables were 3-6 Coventry Street, which he thought was in a better location than the appeal property, and 1-6 St George’s Mall, which he considered inferior to it. 38.On this basis, in Mr Byrne’s first report, his view was that the rateable value of the appeal property should lie somewhere below his analysis of 3-6 Coventry Street (£42 per sqm) but above that of 1-6 St George’s Mall (£26.25 per sqm) and he adopted £35 per sqm. However, having reconsidered the service charge provision his devaluation of 3-6 Coventry Street, his devaluation altered to £24.61 per sqm. This put his evidence in some difficulty, because the position had been inverted, and led to his reassessment of the appeal property at £25 per sqm, or £37,500 RV.Tone of the list?39.In his expert report Mr Byrne referred to the Check, Challenge, Appeal regime under the 2017 rating list. He said that while 3-6 Coventry Street has an outstanding Challenge in place, both 1-6 St George’s Mall and 1 Worcester Street had been subject to a Check but no subsequent Challenge had been made, and neither 1 High Street nor 2-6 Worcester Street had been subject to Checks. Since there was a lack of Challenges four years into the rating list, Mr Byrne’s view was that a general tone of the list was in place. However, in cross examination he accepted that no tone had been established.The competing valuations40.Mr Wanderer’s view throughout the process has been that the rental evidence demonstrated negative rental values, and that the rateable value of the appeal property was therefore £1.41.The valuation officer’s position evolved over time. During the Check and Challenge process, and before the VTE, the compiled list figure of £92,000 was defended. Subsequently in its statement of case, the VO swung behind the VTE’s determination, contending for a rateable value of £57,000. In Mr Byrne’s first expert report, he valued the appeal property at £52,500, based on £38 per sqm. Having had regard to Mr Wanderer’s report, and in particular the level of service charge in the Swan Centre, he adjusted his valuation to £45,000 RV, or £30 per sqm. 42.As I indicated above, Mr Byrne made a further adjustment during cross examination, finally settling on £37,500 RV, some 40% of the original figure. It is to Mr Byrne’s credit that, cognisant of his professional obligations and duty to the Tribunal, he was willing to alter his view when further evidence came to light.