[2024] UKUT 232 (LC)

In paragraphs 11, 12 and 13 I set out the detail of the Taylor Wimpey rights. Mr Ormondroyd said that surprisingly there appeared to be no decision of the Tribunal or Courts that directly considered whether such a right was relevant to the valuation exercise. He referred to the well known passage in Robinson Bros (Brewers) Ltd v Houghton and Chester-le-Street AC [1937] 2 KB 445, where Scott LJ said:

“it is the duty of the valuer to take into consideration every intrinsic quality and every intrinsic circumstance which tends to push the rental value either up or down, just because it is relevant to the valuation and ought therefore to be cast into the scales of the balance”

Mr Ormondroyd acknowledged that matters that are personal to the actual occupier fall to be excluded from the valuation exercise as they are not a characteristic of the hereditament. The leading authority on this point is the House of Lords decision in Dawkins v Ash Brothers [1969] 2 AC 382. At p382 Lord Pearce said the following:

“So one must assume a hypothetical letting (which in many cases would never in fact occur) in order to do the best one can to form some estimate of what value should be attributed to a hereditament on the universal standard, namely a letting "from year to year." But one only excludes the human realities to a limited and necessary extent, since it is only the human realities that give any value at all to hereditaments. They are excluded in so far as they are accidental to the letting of a hereditament. They are acknowledged in so far as they are essential to the hereditament itself. It is, for instance, essential to the hereditament itself that it is close to the sea and that humans will pay more highly for a house close to the sea. One can therefore take that into account in the hypothetical letting. It is, however, accidental to the house that its owner was shrewd or that the rich man happened to want it and that therefore the rent being paid is extremely high. In the same way I think it would be accidental to the hereditament that its owner intended to pull it down in the near future. For the hereditament might have had a different owner who would not pull it down. So the actual owner's intentions are thus immaterial since it is the hypothetical owner who is being considered. But when a demolition order is made by a superior power on a hereditament within its jurisdiction different considerations apply. The order becomes an essential characteristic of the hereditament, regardless of who may be its owner or what its owner might intend. That particular hereditament has had branded on its walls the words "doomed to demolition whatever hypothetical landlord may own it." Thus the demolition order, by being a fact which is essential to and not accidental to the hereditament itself, prima facie cannot be excluded as irrelevant or shrouded by any necessary cloud of fiction.”

Mr Ormondroyd concluded that the same decision establishes that the “present probability of a future happening” (per Lord Pearson at p393F) is something to which the valuation exercise can have regard. He also had regard to the decision of the High Court in Coll (LO) v Waters [2016] EWHC 831 (Admin) where it was held that a restrictive covenant preventing occupation otherwise than as a single dwelling is a relevant factor in a valuation for council tax. The decision acknowledges that a restrictive covenant is not a matter to be taken into account in a non-domestic rating context. The court considered a submission based on part of the judgment in Dawkins v AshBrothers that I set out above, that a restrictive covenant could not be taken into account because it was a result of a private agreement and not imposed by a “superior power”. Mitting J said:

“What Lord Pearce was referring to was the exercise of a superior power, by whomsoever that power may have been exercised. What he had in mind, I think, was that it was the exercise of a power which the person subject to it could do nothing unilaterally to remove. Thus the removal of a planning obligation would require the consent of the local planning authority, or perhaps on appeal, the Secretary of State; in my judgment, so too in the case of a covenant of this nature imposed by an adjoining landowner. It would require that landowner to be persuaded by the owner of the hereditament for the restriction which must in practice affect the value of the hereditament to be removed.”

Mitting J concluded that there was nothing specific to the council tax legislation which required the restrictive covenant, by nature ‘essential’ to the dwelling being valued, to be disregarded. Mr Ormondroyd, who incidentally represented the Listing Officer in Coll (LO) v Waters, submitted that in the present case that the same logic applied; the Taylor Wimpey right could not be removed unilaterally by the owner/occupier of Finkley Down Farm and it was therefore essential to the hereditament. Furthermore, there is no specific provision in non-domestic rating legislation which requires that it be disregarded in the valuation exercise. He concluded that the possibility of the future exercise of the Taylor Wimpey right would then be a matter to which regard should be had in the valuation.

Mr Ormondroyd acknowledged that the decision had no consequences for non-domestic rating. Specifically, Mitting J said that:

“The statutory context in Williams¹ (Footnote: ¹) was paragraph 2(7) of schedule 6 to the 1988 Act. It is not necessary for me to set out a detailed explanation as to why the context is different. I am simply satisfied that the two statutory schemes are distinct and that the council tax valuation exercise is not identical to that required in the non-domestic rating scheme, not merely because it deals with the capital value of freehold land or a long lease rather than the annual letting value, but also because the statutory approach to valuation is not identical.

The outcome of this case therefore has no consequence for the non-domestic rating scheme, and nothing that I have said should be taken as applicable to it.”

Mr Flanagan submitted that the Taylor Wimpey right should not be taken into account because it is simply a form of option derived from a private agreement and even if he was wrong on this point, it was not value significant.

He disagreed that there was no decision of the Tribunal or courts that directly considered the question; the principle was established, and all of the decisions countered the position of the appellant. In particular in Dawkins v Ash Brothers Lord Pearce’s reference to a ‘superior power’ could only mean a statutory body or similar. Taylor Wimpey are not a ‘superior power’ but a party to a private contract.

Mr Flanagan submitted that the decision of the Court of Appeal in Williams (VO) v Scottish and Newcastle [2001] EWCA Civ 185 was directly on point:

“23.

It is common ground between the parties that the statutory rating hypothesis, as explained in case law, takes account of statutory restrictions on the use of a hereditament but not of restrictions imposed by the covenants in a lease or by restrictive covenants affecting freehold property.”

Mr Flanagan noted that the parties in Williams had agreed the position but in his view an obligation affecting freehold property created by a private agreement should not be taken into account in the rating hypothesis. Mr Ormondroyd observed that the Court of Appeal had simply recorded the position between the parties, it was not obiter dictum.

Mr Flanagan referred to two VTE decisions CBRE Britannica St Helens v Grace (VO) and Pearl Group Service Ltd v Alexander (VO). In the first of these the VTE held that a freehold restrictive covenant prohibiting use as a nightclub was not a relevant matter under the rating hypothesis. The VTE concluded that an obligation of this sort deriving from a private

In Pearl it was held that a leasehold covenant restricting the use of a private sports ground was not to be taken into account under the rating hypothesis. The covenant was contained

Mr Ormondroyd said that the decisions were flawed in that the VTE had concluded that the covenants should not be taken into account because there was a statutory or non-statutory procedure to modify the restrictions. He submitted that until the procedures are completed the restrictions remain and are therefore no different to a planning permission. It follows that if there is evidence that a restriction could be easily removed or is unlikely to be enforced, less weight should be attached to it in the valuation exercise.

Mr Flanagan sought to return to first principles. He correctly pointed out that the rating hypothesis, by means of statutory assumptions and terms, imposes a common standard or yardstick of valuation.

The statutory hypothesis makes no assumptions about events in the future or the likelihood of them coming to pass. In Dawkins at pg382 Lord Pearce said:

“…it would be accidental to the hereditament that its owner intended to pull it down in the near future. For the hereditament might have had a different owner who would not pull it down. So the actual owner’s intentions are thus immaterial since it is the hypothetical owner who is being considered. But when a demolition order is made by a superior power on a hereditament within its jurisdiction different considerations apply. The order becomes an essential characteristic of the hereditament, regardless of who may be its owner or what its owner might intend. That particular hereditament has had branded on its walls the words “doomed to demolition” whatever hypothetical landlord may own it”

The rights reserved by Taylor Wimpey are, in my view, an essential characteristic of the hereditament. The power to exercise the option lies with Taylor Wimpey and is out of the control of the hypothetical tenant. They remain an essential characteristic of the hereditament regardless of the owner or the owner’s intentions and should therefore be taken into account when considering the assessment of the property. In terms of its effect on value I note that the rights were reserved in 2008 for a period of 20 years and are only likely to be activated if Taylor Wimpey obtain planning permission for the site to the east of the farm and take up their option to buy it. At the moment that land is not zoned for development. I also observe that two years prior to the AVD Mr Waters took out a substantial loan to build the new play barn. It seems that the actual occupier regarded the potential loss of the land as a matter that was a distant possibility or if it came to pass, something which the business would withstand. The assumed tenancy is from year to year with a reasonable prospect of continuance and I take the view that a remote contingency such as the exercise of the rights reserved is unlikely to feature in the hypothetical tenant’s thinking. It follows that there is no need to have regard to it in the valuation.