[2024] UKUT 232 (LC)

Both expert valuers referred to what the Guidance Note says (at paragraph 5.46) about the tenant’s share:

“the tenant’s share may be regarded as the first call upon the divisible balance. The share has to be sufficient to induce the tenant to take a tenancy of the property and to provide a proper reward to achieve profit, an allowance for risk and a return upon tenant’s capital.”

Both adopted a percentage of the divisible balance as the means of arriving at the tenant’s share.

In terms of comparators, they both referred to Apple Jacks where the tenant’s share was 75% of the divisible balance, BNPPDS Limited & BNPPDS Limited (Jersey) v Trustees for Blackrock UK Property Fund and Andrew Ricketts (VO) [2022] UKUT 129 LC in which the Tribunal determined that the tenant’s share was 50%, and two Valuation Tribunal decisions.

The first of these latter decisions related to York Maze (CHG100151577) with a tenant’s share 71.5% and the second to Farmer Ted’s (CHG100702281) where the tenant’s share was 64%. Farmer Ted’s has been appealed to this Tribunal and will be heard in April 2025.

In his supplemental report Mr Davies identified two additional comparables; The Big Sheep at Bideford in Devon, which had been agreed at 72% and Whitehouse Farm Centre at Morpeth agreed at 70.77%. Mr Cox described the former as having good facilities and seasonal opening. He also provided a map of the Whitehouse Farm Centre which showed some indoor facilities but not a play barn of the type at the farm.

Mr Davies adopted a 75% tenant’s share predicated on Mr Waters’ full-time, year-round work in the business and additional risk arising from the Taylor Wimpey reserved rights. In response to a question from the Tribunal he said that were he to ignore the rights his tenant’s share would be in the order of 71-72%. Mr Cox concluded that 65% was a ‘reasonable return’, a figure that included all director’s remuneration. Other than noting the percentage adopted neither expert placed any reliance on Blackrock, the circumstancesof that case being far removed from the farm. Mr Davies relied on Apple Jacks as being a farm attraction with which a direct comparison could be drawn. Mr Cox emphasised the differences between Apple Jacks and Finkley Down Farm, including the seasonal opening of the former, its lack of utilities, a site prone to flooding and minimal indoor facilities.

York Maze is also a seasonal attraction without a play barn. Notwithstanding these two factors its AVD turnover of £1,601,581 was 21.3 % higher than Finkley Down Farm. Mr Cox said that the Tribunal’s decision had included £60,000 per annum in the working expenses for a manager but in reality, the hypothetical tenant would be the recipient of this sum. In his view, the tenant’s share taking account of this additional ‘income’ would equate to 75.90%. He added that the risk of precipitation in Andover was lower than in York.

Farmer Teds is in Ormskirk, Lancashire and has substantial undercover facilities. Its AVD turnover was £1,935,000.

Mr Cox’s approach to the tenant’s share was more forensic than Mr Davies’s. Mr Cox sought to identify a safe return on capital of 2% and to assure himself that the residue, once the return on capital was deducted, was adequate to cover reward to the hypothetical tenant and risk. He pointed out that while his valuation at 65% was rateable value £134,250 the Valuation Office were not seeking to alter the existing assessment of rateable value £100,000. The additional £34,250 would benefit the hypothetical tenant and equated to a tenant’s share of 73.97%.

Bearing in mind that the selection of the appropriate percentage for the tenant’s share is the element of the valuation that has the most far-reaching consequences it was surprising that the experts only referred to six comparables. Blackrock is of questionable relevance; Farmer Teds is under appeal and three others are seasonal. I have no doubt that Finkley Down Farm is superior to the attraction in Apple Jacks. No evidence about weather patterns was adduced but it is not unreasonable to assume that historically at least, the weather in Andover is drier than in the notoriously moist ‘Cheshire Gap’. The farm is on the periphery of a large town and has fewer disabilities. The quality of its buildings is superior, and it is open all year round. As Farmer Teds is the subject of an appeal to this Tribunal, I am inclined not to attach any weight to it as a comparable. I note the decision that the Valuation Tribunal made relative to two of the other farm attractions. The York Maze lacks the disabilities present at Apple Jacks and the percentage is appropriately less. It lacks a play barn and is therefore more susceptible to poor weather, a factor that undoubtedly explains its seasonal opening.

In my judgement the tenant’s share should be assessed at 68% of the divisible balance. In coming to this figure I have had regard to the constraints of the site in terms of its size and split nature, and the possibility of year round opening. I have already found that it is not appropriate to adjust for the risk that Taylor Wimpey will take up its option on the land to the east of the farm and require part of the farm for an access road.