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LawBite: Business Rates – No short cuts on the farm

  • United Kingdom
  • Real estate dispute resolution
  • Real estate litigation - LawBite

16-09-2022

Fryer and another v Cox (VO) [2022] UKUT 0229 (LC)

Eversheds Sutherland recently acted for the ratepayers on a successful business rates appeal before the Upper Tribunal (Lands Chamber) in a decision which is likely to have wider implications for the outdoor leisure activity sector and in particular farm visitor attractions.

The appeal related to a farm visitor attraction in Warrington known as Apple Jacks Adventure Park. The ratepayers were appealing a rateable value of £35,000, which had been upheld by the Valuation Tribunal for England.

It was agreed between the parties that the primary method of valuation to be adopted was a receipts and expenditure valuation (“R&E”). R&E valuations are typically used where there is insufficient evidence of open market comparable rents to be able to form a view of market rent. Although there are some 400 farm and rural attractions in the UK, the vast majority are operated by the farm owner, meaning that there is very little available evidence of open market rent. R&E valuations seek to arrive at an annual rental value for the premises by assessing the gross receipts which a prospective tenant would expect to achieve from the business and then deducting the expected operating expenses, including the return on capital and the profit that the prospective tenant would require, to arrive at a surplus that, it is assumed, the prospective tenant would be prepared to pay by way of rent. This surplus amount is the rateable value. Although it was agreed that an R&E valuation was appropriate, there was significant disagreement as to the veracity of the Valuation Officer’s (“VO”) approach to the valuation exercise.

One particular area of disagreement was the VO’s use of what is referred to as a ‘shortened method’ of valuation. Under a shortened method of valuation, the receipts and expenditure of the business are not fully appraised but instead a percentage is simply applied to the business’s gross turnover to arrive at the rateable value. In a previous case, the Tribunal had indicated that such an approach ‘can be useful’ where ‘in respect of a particular mode of occupation, a consistent relationship can be demonstrated between the turnover of business of that type and the level of profit they generate’. In respect of farm visitor attractions, the Valuation Office Agency (VOA)’s Rating Manual advises that ‘for the vast majority of premises the percentage range will generally be between 6% for the lower value properties with higher overheads and 9% of gross receipts for the best”.

In this instance, the ratepayer had a couple of fundamental concerns as regards such an approach. Firstly, it was not apparent on what basis the VOA had arrived at the 6%-9% figure. It was contended that in order to rely on a shortened approach the VOA needs to be able to demonstrate a solid foundation of evidence that underpins such an approach. The VO was unable to point to such evidence. Secondly, it was felt by the ratepayer that such an approach, even if it were underpinned by solid evidence, is a somewhat blunt instrument that fails to give due regard to the particular characteristics of a property and is therefore not appropriate for properties that have unusual characteristics which may make them more expensive to operate such as, in this particular instance, a lack of utility network connections.

Agreeing with the ratepayer, the Tribunal stated:

‘We take the view that the use of the shortened method is ill-advised in the absence of rental evidence or full R&E valuations on which to base the selection of the appropriate percentage. We have already noted a lack of reliable rental evidence in this case ….We therefore attach little weight to [the VO’s] use of the shortened method in this instance.’

The Tribunal reduced the rateable value of the premises to £11,750 which, being below the small business threshold, means that no rates are payable.

  • the ratepayers were successful because they were prepared to challenge the VOA’s own published guidance which, it transpired, the VOA was not able to substantiate the provenance of. If you feel that your rateable value is materially wrong do not simply accept an indication from the VOA that it has been arrived at in accordance with their guidance or in accordance with their standard approach
  • if your property has unusual characteristics which you feel may make it less desirable than would ordinarily be the case, ensure that these have been factored into your rateable value.