[2024] UKUT 232 (LC)

Mr Davies’s approach to FMT questioned whether the hypothetical tenant would base his bid on the actual gross receipts or whether he would adopt a more cautious approach to ameliorate risk? He contemplated a scenario where the hypothetical tenant would present a business plan to their bank and considered that they would be prudent in their forecasting especially if overdraft funding was required. He thought that the increase in receipts from 2013 to 2014 of 66% was high and a further increase of 15.76% in the following year was unlikely to be sustained. He noted that risk could also be accounted for in the tenant’s share but ultimately decided to adopt a figure of 90% of the 2014/15 financial year receipts. He did not provide a rationale for his adjustment other than saying it was a matter of judgement. He was equally opaque about his decision to use the working expenses from 2015, notwithstanding that they related to a level of gross receipts which he had discounted.

Such caution was notably absent from Mr Cox’s approach to FMT. In his view the arrival of the play barn in 2013 was transformational. He had no regard to the trading prior to 2013 and placed most weight on the 2014/15 financial year receipts. He noted a pattern of rising turnover since 2013 (including 2015/16) and although the 2013/14 year might be regarded as a ‘honeymoon’ period following the opening of the play barn, there was no reason to envisage that the hypothetical tenant would not base his bid on the trading in the year preceding the AVD.

The accounting information supplied in evidence demonstrates a rising pattern of gross receipts and, for that matter, a stable level of gross profit. Aside from a dip in 2012/2013 when the previous play barn was destroyed by a conflagration, the trend is relentlessly upwards. At the hearing Mr Cox said that he had allowed himself a ‘cheeky look at the 2016 figures’ which showed a further increase in gross receipts. That is a luxury unavailable to the hypothetical tenant and I disregard it. Mr Cox is right to place most weight on the later years as the hereditament was materially different from 2013 onwards. The play barn had perhaps lost some of its novelty factor by the 2014/15 year but the year-on-year trading was still showing an increase and at 15.76%, a sizeable one at that. A bid at the AVD necessarily means looking into the future, predicting income and costs.  The prudent hypothetical tenant would gather as much data together as possible, but I agree with Mr Cox that in this particular case, the last two years’ performance would be the most informative.  Mr Davies speculated about the hypothetical tenant presenting a case to the bank but that took him in to a realm of unreality not envisaged by statute.  The hypothetical tenant is assumed to be in a position to make the rental bid, there is simply no need to give any thought to a hypothetical bank manager.

Mr Davies had sought to reflect the risk associated with the Taylor Wimpey rights in both the FMT and the tenant’s share. Conflating the two increases the prospect of double counting and whilst I understand the logic of his stance, I think that the risk of the rights being exercised is better accounted for in the tenant’s share, if at all.

Neither expert valuer adduced any evidence about the economic reality of trading in Andover in 2015.  It would have assisted me to have had information about trends in spending patterns, employment and disposable income but none was available. It seems to me that Mr Davies is being unduly pessimistic in predicting that that the hypothetical tenant would base his bid on a figure 10% less than the actual turnover in the year ending in March 2015.  In a sense Mr Cox’s approach was also conservative, he envisaged a repeat of the previous year and of the two, I prefer Mr Cox’s approach as it is closer, in my judgement, to what would happen in reality. Neither party pursued an argument that the actual receipts were in any way exceptional or that Mr Waters was either of outstanding ability or conspicuously incompetent.

Similarly, there was no evidence from either the experts or Mr Waters regarding the effect on the overall level of receipts of relinquishing land to Taylor Wimpey in 2016. Mr Waters said at the hearing that visitor numbers had not dropped. In the circumstances I adopt a FMT of £1,325,000.