[2025] UKUT 224 (LC)

Because the VO’s argument rests upon the use of the landlord’s contributions as a measure of the value of fitting-out work, we have to decide first one issue of fact which is specific to this property: is the landlord’s second main capital contribution of £1,673,172 (paragraph 20 above) to be regarded as being for the Category B works? The ratepayer said it should not, but should be regarded as an unallocated incentive.

Mr Brankin said it should. In his experience contributions from a landlord would be used towards fitting out. He did not agree that an unallocated contribution, not tied to a particular aspect of the project, would be used to offset and reduce the Category A rental. In his view a landlord will not allocate the contribution to Category B fitting out because he will want to receive the property back at the end of the lease in Category A condition in order that it is ready for remarketing, and that involves having clarity over who owns the fit out and is liable for dilapidations. Additionally, the rent review will be based on a Category A level for which there is ample evidence, and the complication of a landlord’s contribution is avoided by it being unallocated.

We accept Mr Brankin’s evidence, so far as this case is concerned, largely because of the obvious near-equivalence between the contribution and what was spent on the Category B works. The contribution was ready cash that the tenant could apply to what most immediately needed to be done to the property to make it useable. In making that decision we are not setting out a principle, merely taking what seems to us to be the more probable interpretation of the facts in relation to this particular property.

Mr Brankin in his report expressed the view that the costs of Category B works might be similar to both landlord and tenant but that if the landlord were to aggregate both Category A and Category B works in to a single project it is likely that overall costs would be reduced. At the hearing, in response to a question from the Tribunal he put the saving at ‘no more than 5%’.