RICHARD J EBURY RA/38/2005

UPPER TRIBUNAL
LANDS CHAMBER
RA/38/2005Case No RA/38/2005
Between
RICHARD J EBURYApplicant
Before
A J Trott FRICSVenue Procession House, 110 New Bridge Street, London EC4V 6JLDate 5 February 2007Hearing 23 November 2006Property: Shop and premises, 244-245 Victoria Centre, Nottingham, NG1 3QQ
[1]This is an appeal by the Valuation Officer against a decision of the Nottinghamshire Valuation Tribunal dated 6 June 2005 reducing the rateable value in the 2000 rating list of the shop and premises at 244-245 Victoria Centre, Nottingham from £100,000 to £50,000 with effect from 1 April 2004.[2]The subject hereditament was entered into the 2000 compiled rating list at a rateable value of £112,000. On 28 September 2000 a proposal to reduce this figure was made on behalf of the occupier, Wyke Retail (York) Limited, by Michael Peddar and Company. Agreement was reached at a rateable value of £100,000 and the rating list was so altered on 8 July 2002. A further proposal to alter the 2000 list was made on behalf of the occupier by Mr Robert Clifford MRICS IRRV of Michael Peddar and Company on 4 June 2004. The ground for making the proposal was that circumstances affecting the rateable value of the property changed on 1 November 2003, ie disturbance had been caused by water leaking into the property from the adjacent buildings. The VO did not consider the proposal to be well founded and it was referred to the VT as an appeal on 26 August 2004. The material day for the purposes of the determination is the 7 June 2004, the date upon which the proposal was served upon the VO. The VO appealed against the VT’s decision on 30 June 2005. The ratepayer did not respond to the appeal which was therefore heard unopposed.[3]Mr Richard Ebury MRICS was authorised to appear on behalf of the VO and did so with the leave of the Tribunal. Facts[4]The subject hereditament is located on the first (top) floor of the Victoria Centre, a large covered shopping mall in the Centre of Nottingham that was opened in 1972 and extended in 1997. It comprises a shop (Unit 91) with a frontage onto the upper shopping mall of 10.82 metres and a depth of 17.14 metres. There is a kitchen, toilet and stockroom accommodation to the rear. The total area of the hereditament is 191.1 sq m.[5]The hereditament was let by the landlord, Victoria Centre (GP) Limited (Capital Shopping Centres) to Wyke Retail (York) Limited, trading as Athena, at a rent of £105,000 per annum for a term of 15 years and 3 months from 6 October 1998. The lease was on full repairing and insuring terms with five yearly rent reviews.[6]Wyke Retail (York) Limited went into administration in June 2004. The landlord agreed to let it continue in occupation of the subject hereditament at a reduced (50%) rent. The landlord then took a surrender of Wyke Retail’s lease and granted a new, excluded, tenancy to Petros Retail Limited (which continued to trade as Athena) for two years from 3 September 2[2004]This lease was subject to a tenant’s break clause that was exercisable after 21 January[2005]That clause was exercised and Unit 91 was subsequently let to Hawkins Bazaar.[7]The area demised to Wyke Retail under the 1998 lease excluded the roof structure above the shop. That was demised to the City of Nottingham as a roof garden forming part of a residential development above the shopping centre. The City is responsible for the repair of the roof and it has covenanted to maintain the deck in a watertight condition. The landlord has step-in rights to carry out repairs should the City fail to do so. Under the 1998 lease of the subject hereditament the landlord covenanted to maintain and repair the shopping centre. However the definition of the shopping centre excluded the roof structure demised to the City and therefore the landlord had no contractual responsibility to the tenant of Unit 91 for the repair of any roof leaks.[8]There had been problems of water penetration through the roof for several years. The landlord started monitoring and recording leaks on 25 January 1999. The record sheets gave details of the location of the leaks and of the mitigation action taken by the landlord. This generally comprised the installation of temporary internal drip trays fixed to the underside of the concrete deck to catch and discharge water that had penetrated the slab.[9]Roof leaks were first recorded in the subject hereditament on 21 April 1999. Further leaks were recorded in July (twice) and October 1999. Neighbouring shop units were also affected. Drip trays were fitted by the landlord. The source of the leaks was traced to a problem with planters located on the roof. These were situated in the vicinity of the subject hereditament. The planters had been re-tanked by the City Council in the mid 1990s during the course of which the planters’ drainage system had been blocked. The Council undertook further remedial works in 1998 but these proved to be ineffective.[10]Eventually, in September 2003, the landlord exercised its step-in rights and undertook remedial works itself. These comprised the removal of the planters and existing roof covering back to the concrete deck and the laying of a new waterproof roof system with insulation, screed and asphalt. The works were started on 3 November 2003. The landlord’s project manager, Workman and Partners, reported in March 2004 that the remedial works had been completed and that the water penetration below the site area had ceased, although the situation continued to be monitored. The project manager also stated that it was likely that water trapped within the roof construction would continue to percolate out.[11]Wyke Retail complained of further leaks following the completion of the works. It sent e-mails to the landlord complaining about water penetration on 26 April, 22 May and 15 July 2004.[12]For the purposes of this appeal Mr Ebury attempted to agree a statement of facts with the ratepayer’s landlord, Capital Shopping Centres (CSC), there being no respondent in the case. Mr Ebury sought agreement on three points: 3(i) That the two shops at 241-242 and 246-247 Victoria Centre suffered similar leaks from their ceilings over the same period and to an order of magnitude similar to that experienced in the subject property. Both these units had a similar arrangement of drip-trays to those found in the subject property.(ii) That the lease agreement prevailing at 7 June 2004 in respect of 246-247 Victoria Centre was not and never had been subject to a reduced rent, whether on a concessionary basis to reflect business difficulties or because of problems with water ingress from the leaking roof.(iii) That none of the adjacent units had their rents reduced on a concessionary basis as a result of water ingress from the leaking roof either: (a) at the material day of 7 June 2004, or (b) at any time prior to 7 June 2004. Although CSC declined to sign the statement of facts it stated in a letter to the VO dated 8 September 2006 that “.... these documents [the statement of facts and accompanying annexure] were examined by both ourselves and our solicitors, who confirmed that they can find no factual error contained in them.” The Valuation Tribunal decision[13]The VT allowed the appeal in favour of the ratepayer and reduced the rateable value of the subject hereditament from £100,000 to £50,000 with effect from 1 April 2004. In reaching its conclusion the VT stated that at the material day (7 June 2004) there was sufficient evidence to indicate that although roof repairs had been undertaken the property continued to be affected by leaks, especially after rainfall. It said that the appeal property was particularly affected by such leaks and that the problems they caused were not minimal. The VT considered that a hypothetical tenant, having made diligent inquiries as at the material day, would have established that the problems caused by the leaking roof would re-occur and would continue for the foreseeable future. It relied upon a letter from the landlord to the ratepayer dated 24 May 2004 in which a senior property manager for CSC stated that she was aware of a continuing need for roof repairs to be carried out. The hypothetical tenant would be faced with the problem that any refurbishment of the interior of the appeal property would be damaged subsequently as a result of continued water leaks. The VT stated that both the administrator for Wyke Retail and the [then] current tenant (Petros) achieved a 50% concession from the previously agreed rent within 3 months of the material day. It said that it had been presented with no better evidence upon which it could assess the impact of disability identified by Wyke Retail. It also noted that there was a clause in the lease to Petros that excluded the landlord from liability for any damage caused by water leaks at the property. 4 Evidence[14]Mr Ebury presented comparable rental and assessment evidence for other units located in the upper mall of the Victoria Centre. He argued that the analysis of the former revealed nothing to suggest that the leaking roof had had any effect upon the level of rents agreed. He included in his analysis No.246-247 (Fox Musical) which adjoined the subject hereditament and which also suffered from water ingress. Mr Ebury’s evidence of assessments showed the tone of the list at £950 per sq m in terms of main space. The majority of settlements had been agreed in negotiations with surveyors representing the ratepayers. Only the recent proposal in respect of the subject hereditament had gone to appeal before the VT. These settlements included both of the properties that adjoined the subject hereditament and which had also suffered water ingress, ie No.246-247 (Fox Musical) and No.241-242 (Blacks). No proposals had been made on the grounds of a leaking roof in respect of any of the comparable assessments. In Mr Ebury’s opinion the compiled list assessment of £100,000, which had been agreed with the ratepayer’s surveyors, Michael Peddar & Company, was fully supported by both the comparable rents and assessments.[15]Mr Ebury considered that the VT’s decision to reduce the rateable value by 50% had been based on its understanding that the sole reason the landlord had agreed a rent reduction with Wyke Retail was because of the problem of water penetration from the roof. Mr Ebury did not accept that this was the case. He referred to the repairs that had recently been carried out by the landlord in order to rectify the previous failure of two repair attempts by the City Council to prevent water ingress. The landlord’s works had been completed in February 2004 and were considered by Mr Ebury to have been successful. He explained that some continued water ingress had been expected even after the repairs had been finished. In the report from Workman and Partners dated March 2004 it was stated that:
“8.3. Following completion of the recent remedial roof works the water penetration below the site area has ceased, however, this is being monitored at regular intervals by Centre Management. It is, however, likely that water trapped within the construction will continue to percolate out.”
[16]Mr Ebury produced a letter to him from Ms Rosalyn Rudman, a senior manager at CSC, dated 2 February 2006 in which she stated:
“The area repaired in 2003/2004 was immediately above Unit 91, and the repair has been wholly successful as no leaks have been associated with that area since the works were carried out, although the water already trapped in the roof structure at that date took a little time to come out. Those residual leaks were the subject of the e-mail from Simon Coates [Wyke Retail] of 15 July 2004 to which you refer.”
She also stated in that letter that: “The claims by Athena [Wyke Retail] about the loss and damage allegedly caused by the leaks were in our view grossly exaggerated.” 5[17]Mr Ebury inspected the property on 27 July 2005 when the property was vacant and he noticed that there had been water penetration to the premises. There was water staining to both the ceiling and the floor, although Mr Ebury indicated that these stains were dry on the day of his visit. He visited the site again on 17 November 2005 in the company of Mr Paul Harrison, the Technical Services Manager of the Victoria Centre, who indicated that the repairs had been successful and that there were no further problems with water penetration from the roof in this area of the shopping mall. Mr Ebury also spoke on that day to the manager of the (by then) occupying tenants of the subject hereditament, Hawkins Bazaar, who confirmed that there had been no problem with water penetration since his company had taken occupation. Finally Mr Ebury visited the neighbouring shop units occupied by Blacks and (by then) Music Room and noted signs of water staining that appeared to have dried.[18]Mr Ebury referred to the landlord’s comments upon the 50% rental concession that it had given to Wyke Retail. In the letter from Ms Rudman dated 2 February 2006 she stated that:
“Nonetheless we agreed to a rent concession because it was evident to us that without it the company could not continue trading, and we preferred that the company should do so to see if it could get out of its difficulties until such time as there could be an orderly handover of the property to a new tenant .... …We agreed a rent concession for the sole reason that the tenant was in administration, and we were of the view that without a concession the tenant would not be able to continue trading. It is not the case that the concession was offered because of the leaks.”
[19]Mr Ebury also produced a copy of a letter from Ms Sharon Bloodworth, a senior property manager at CSC, to Mr Michael Sheridan of Michael Peddar and Company dated 29 July 2004. Ms Bloodworth stated that:
“Now that Wyke Retail (York) Limited is in administration, I will need to deal with the administrators. However, I would like to make an offer in response to your request for the concession in relation to Wyke Retail and I am copying this correspondence to the administrator to deal with as appropriate. I am able to offer a rent concession of 50% for six months to seek to enable Wyke Retail to continue to trade in the Unit. The concession will be subject to review thereafter and subject to the approval of our board. Service charges will be due in full and remain unaffected. Please note that the concession is offered on the basis of the administration and not in connection with the leaks at the premises.”
[20]Mr Ebury concluded from the evidence that the rental concession had not been granted to reflect a material change of circumstances resulting from the leaking roof. Rather it was granted solely because of the trading difficulties being encountered by the occupier at that time. The leaking roof had been known about for several years and at the times when the comparable rents had been agreed. The condition of the roof had not had a discernable effect upon the rents paid by the tenants of shops suffering from the leaks. On the material day those 6 leaks had been successfully repaired. Mr Ebury considered that the possibility of residual water trapped within the roof structure leaking into the subject hereditament would not have had any perceivable effect on the rent payable under the statutory rating hypothesis. He therefore concluded that the VT’s decision was incorrect and bad in law and fact and that the compiled list rateable value of £100,000 should be reinstated. Conclusions[21]There was a long standing problem of water penetration at the subject hereditament and the adjoining premises. Records of the leaks were kept by the landlords from January 1999 although it is likely that the problem began before then following the re-tanking of the roof planters by the City Council in the mid 1990s. Despite the leaks being known about at the time of the compiled list proposal that was made by Michael Peddar & Company on 28 September 2000 the subject of the water leaks was apparently not raised by them at that time and was not referred to in the VO’s file. Nor was it was raised until after repair works had been completed in February 2004 by the landlord, having exercised its step-in rights under its lease with the City Council. In the ratepayer’s proposal that was made on its behalf by Mr Clifford on 7 June 2004 the material change of circumstances was said to have arisen on 1 November 2003. That was immediately before the landlord’s repair works were commenced. No other proposal was made at any time on the grounds of damage caused by water leaks by other ratepayers whose property was similarly affected.[22]It was said by the VT that at the material day a hypothetical tenant, having made reasonably diligent inquiries, would have concluded that the problems caused by the leaking roof would re-occur. They reached this conclusion having before them in evidence the report form Workman and Partners dated March 2004. That stated that the water penetration had ceased following the repair works. Workman and Partners recognised that water trapped within the construction would continue to percolate out. It seems to have done so as was evidenced by the three subsequent e-mails from Simon Coates (on behalf of the occupier, Wyke Retail). Thereafter there is no further evidence of continuing water leaks. I do not believe that the lack of further complaints was due to the fact that, at or around July 2004, Wyke Retail went into administration. The company that took a new excluded tenancy of the premises, Petros Retail Limited, was, according to the evidence before me, formed by Mr Coates and another. Mr Coates had continuity of occupation, trading as Athena, for approximately a further year before vacating the premises on 16 June 2005.[23]The VT placed weight upon the letter from the landlord dated 24 May 2004. It said that this letter acknowledged a continuing need for roof repairs to be carried out, the implication of the VT being that such repairs would involve the subject hereditament. That letter states:
“Please be advised that we are actively taking up with the City the need for the rest of the roof to be repaired.”
In my opinion that statement does not refer to the area of the roof above and in the vicinity of the subject hereditament that had already been repaired by February 2004. The letter also stated that even after the leaks were plugged water would continue to percolate out from the roof construction. I think the meaning of this letter is that further leaks could be expected to 7 occur until such percolation ceased. That is what happened. But the leaks did eventually stop and Mr Ebury has produced persuasive evidence that this was the case.[24]I believe that the VT was strongly influenced in its decision by the fact that the landlord granted a 50% rental concession to the ratepayer within three months of the material day. In his report to the VT Mr Clifford, acting for the ratepayer, summarised his client’s case by stating that the subject hereditament suffered structural damage caused by water leakage, that this disrepair fell outside of the normal statutory repairing assumptions and that the Council had attempted but failed to repair the leaks. He then went on to say that the landlord had now given the tenant a concession of 50% of the rent and that it was his understanding that the landlord and the Council had resigned themselves to not being able to fix the leak. He concluded that no retailer would take the property given the continued water leakage without a rental concession and that the rental evidence clearly suggested that the landlord was prepared to accept a rental concession of 50%. The implication from Mr Clifford’s summary is that the rental concession was given because of the continuing problem with water leaks and this was the inference that the VT drew.[25]Mr Clifford’s evidence referred to the fact that Wyke Retail went into administration in June 2004 and that the landlord granted the 50% rental concession with effect from 6 August 2004. The VT referred to the entry of the company into administration but made no further reference to it in its decision. Mr P Andrew MRICS FCIH gave evidence on behalf of the VO to the VT but (from its decision) he does not appear to have referred to the rental concession. Before this Tribunal Mr Ebury provided evidence that the rental concession granted by the landlord was unrelated to the water leaks. I consider that the letter from Sharon Bloodworth to Michael Sheridan dated 29 July 2004 to which I referred earlier (paragraph 19) is significant. I understand that this letter was not disclosed to the VT and I consider that had it seen the letter it is unlikely that it would have reached the conclusion that it did.[26]I note that further complaints about water penetration were made after the roof repairs had been completed in February 2004. But, given the Workman and Partners report, this was to be expected as trapped water continued to percolate out. It is material in my view that, after 15 July 2004, no further complaints about water penetration appear to have been made. Mr Ebury gave evidence that both the current occupiers of the subject hereditament and the manager of the Victoria Shopping Centre had informed him personally that there was no longer any problem with water leaks. This outcome was foreseeable at the material day and I do not accept the VT’s apparent defeatism about the prospect of repairing the leaks, a view I suspect it formed based upon the limited information that it had about the reasons for the rental concession and a belief that CSC had conceded the need for further repairs at the subject hereditament. I accept Mr Ebury’s submission, based upon rental and assessment evidence and the facts of the case, that the prospect of future leaks due to continued percolation of trapped water would have had no perceivable effect upon the rent payable by the hypothetical tenant upon the statutory assumptions. 8[27]I therefore allow the appeal and determine that the rateable value of the subject hereditament should be reinstated to £100,000 as from 1 April 2004. Dated 5 February 2007 A J Trott FRICS 9