ABC Production Services Ltd v Hodson (VO) [2015] UKUT 0015 (LC)

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE VALUATION TRIBUNAL FOR ENGLAND
UT Neutral citation number: [2015] UKUT 0015 (LC)Venue BETWEEN ABC PRODUCTION SERVICES LIMITED Appellant, and, ANDREW DAVID HODSON Respondent, (Valuation Officer), Re: Units 3 and 4, Stirling Industrial Centre, Stirling Way, Borehamwood, Herts WD6 2BT, Before: N J Rose FRICS, Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL, on, Mr Justin Levene, director, for Appellant., Respondent in person., No cases are referred to in this decision., © CROWN COPYRIGHT 2015, DECISION, Introduction
Between
ABC Production Services LtdHodson (VO)
Date 12 December 2014
[1]This is an appeal by the ratepayer, ABC Production Services Ltd, against the decision of the Valuation Tribunal for England (the VTE), reducing the assessment in the 2010 rating list of two workshops known as Units 3 and 4 Stirling Industrial Centre, Stirling Way, Borehamwood, Herts WD6 2BT (the appeal property) from RV £15,500 to RV £12,500. At the VTE hearing Mr A Waller, who was the valuation officer dealing with the appeal at the time, put forward a valuation of £12,750. Before me the valuation officer was Mr Andrew Hodson, MRICS, who appeared in person and gave expert evidence. Following discussions with the appellant Mr Hodson came to the conclusion that the appropriate value was £11,250 and he asked the Tribunal to determine that figure in his statement of case, in his expert report and at the hearing.[2]The appellant was represented by Mr Justin Levene, who is a director of the appellant company and also the freehold owner of the appeal property. Mr Levene gave evidence as to the appropriate valuation figure. In his statement of case dated 2 December 2013 he submitted that the RV should be £7,000. He increased this figure to £7,500 in his response to the VO’s statement of case sent to the Tribunal on 7 March 2014, and at the hearing he increased it further to £10,400.[3]On 16 December 2014 I inspected the appeal property in company with Mr Levene and Mr Hodson. I also inspected certain other premises that had been cited as comparables.[4]The material day and the effective date are both 1 April 2010. The antecedent valuation date (AVD) is 1 April 2008. Facts[5]In the light of the evidence and my inspection I find the following facts. The appeal property is a pair of contiguous industrial units within a development known as Stirling Industrial Centre (SIC), which comprises units numbered 1 to 17 inclusive. The estate was originally built as a single industrial property in the 1940s and 1950s. It was converted to form small individual units in the late 1980s.[6]SIC is located immediately off Stirling Way, a road running parallel to the A1. It is accessed off the roundabout known as Stirling Corner, which is approximately 3 miles south of the South Mimms junction 23 of the M25.[7]Access to the appeal property is via an access road shared by the occupiers of SIC and Hamilton Business Park (HBP). The front access is restricted because of the limited width of the road. There are two roller shutter doors onto this access road, and two single entrance doors. There is also roller shutter access to another service road at the rear.[8]Internally there is a mezzanine floor in each unit. That in Unit 3 is fitted out as offices, part of which is served by a single air conditioning cassette mounted into the suspended ceiling. The mezzanine floor in Unit 4 is basic storage space open to the roof. There is no connection between the mezzanine floors, and each has a separate stair access.[9]The appeal property has an unlined corrugated asbestos roof and original metal windows. The external walls are of brick, whilst the internal party walls are of block construction. The eaves height is 3m as measured at the front of the building, and the ridge height is 5.10m. There is one blower heater, situated within Unit 4. It is insufficient to heat the whole of the appeal property.[10]There are car parking facilities in a gated car park off Stirling Way, in front of the estate and the appeal property benefits from two of its spaces. There is no parking directly outside the appeal property, except for short-term loading and unloading.[11]The agreed floor areas, calculated on a gross internal basis, are as follows: Floor Description GIA(m 2 ) Ground Workshop 39.05 Ground Workshop under mezzanine 111.35 Ground Toilets under mezzanine 3.27 Ground Workshop 5.20 Ground Fire exit (under mezzanine) 4.38 Mezzanine Office (air conditioning) 31.38 Mezzanine Office 15.05 Mezzanine Store 50.65 260.33[12]The area in terms of main space (ITMS) is 182.47m 2 . The significant gross internal area (SGIA) is 163.25m 2 . The SGIA usually relates to the ground floor area only, and it does in this case, but it also includes the first floor area where such accommodation consists of purpose-built offices. Case for the ratepayer[13]Mr Levene considered that the most relevant evidence of value was provided by the rating assessment of a more modern unit in the Moda Centre, formerly occupied by Awesome FX Ltd and located approximately 100 yards from the appeal property. It has a gross internal area of 213.40m 2 . The RV was £14,000, based on £67.50 per m 2 , less 2.5% to reflect the absence of heating. Access was restricted, but it was possible to park vehicles outside the building.[14]Mr Levene also relied on the assessment of a ground floor workshop and office at the rear of 49 Theobald Street, Borehamwood (No.49). Access to this property was also restricted. It was located at some distance from the appeal property, in the centre of Borehamwood, some 200 yards from the railway station. The total area was 464.27m 2 , to which was applied a basic rate of £57.50 per m 2 , before deduction for lack of roof insulation, and with an end allowance of 10% for poor access. Mr Levene said that he had been informed by the occupier that the surveyor who agreed the assessment on his behalf had not measured the property, and in fact the actual floor area was actually 447.61m 2 . Moreover, the RV had been agreed at £24,750, although the rent payable had been increased to only £22,000 from £20,000 per annum in April 2010.[15]Mr Levene said that No.49 was of similar age and construction to the appeal property, but it was better located and had a number of car parking spaces outside. Like the appeal property access to No.49 was restricted, but it was shared by only two occupiers. Nevertheless the assessment of £24,750 incorporated a deduction for poor access of 10%, whereas no such adjustment had been made in the case of the appeal property.[16]The assessment of No.49, said Mr Levene, incorporated a quantum allowance based on the scale which had been applied in the 2005 list. The VOA was now proposing that a different quantum scale should be adopted when valuing the appeal property. There was no evidence that any other property had been treated in the same way.[17]Mr Levene referred to the rent payable for Unit 13 on SIC (No.13), which was let for 5 years from 4 March 2009 at £9,500 per annum. He had agreed with Mr Hodson that the area of No.13 ITMS was 133.67m 2 , and the rent equated to £71.07 per m 2 ITMS. In his opinion No.13 was more valuable than the appeal property. It was more modern (built in the 1980s) and, although smaller in size, it had two parking spaces, one directly outside the property and one in the car park.[18]Mr Levene added that the Elstree Business Centre (EBC), which contained many small industrial units, had been demolished in 2012. Prior to that – and in particular on the AVD – many properties on SIC were vacant as a result of competition from the EBC.[19]Mr Levene considered that the value of the appeal property was £10,400, based on £60 per m 2 ITMS, as follows:- Total ITMS 182.47 Less insufficient heating 2.5% 0.975 uninsulated roof 2.5% 0.975 Total ITMS after adjustments 173.46 £ per m 2 60 Total RV £10,407.60 say £10,400.00 Case for the valuation officer[20]Mr Hodson said that rating valuation should follow rental evidence, especially if it related to a transaction close to the AVD. Most of the properties on SIC were occupied by the freeholders. As a result the only relevant rent was that paid for No. 13 from March 2009. No. 13 was slightly different from the appeal property. It was an infill unit built on the site of a car park when the estate was broken up in the mid 1980s. In consequence the two gable walls and the roof were more modern than those on the remainder of the estate. This was of no valuation significance, however. No. 13 had a worse access than the appeal property. It was further from the main road, meaning that visiting vehicles had to negotiate 12 units in a narrow road, many more than in the case of the appeal property. The fact that one could park outside No.13 did not add materially to its value, since such parking would interfere with access to the property’s roller shutter doors. Moreover, within No.13 was an electricity sub-station serving the entire estate. This was an impediment to the use of No.13 and the constant humming noise from the equipment also interfered with the enjoyment of the workshop. Although the eaves height was similar at both properties, the ridge height was much greater at the appeal property. The rent of No.13 was agreed almost one year after the AVD, but there was little rental growth between 2008 and 2010.[21]Mr Hodson recognised that the appeal property was significantly larger than No.13. For that reason he considered that the appeal property – and other double units and large single units on SIC and HBP – should be valued at £65 per m 2 . Units below 150m 2 should be valued at £70. The latter figure was based on the rent of £71 per m 2 ITMS achieved for No.13.[22]In response to Mr Levene’s reliance on the assessment of Awesome FX Mr Hodson accepted that it was more modern than the appeal property, However, he said, it was an industrial unit on the ground floor with a first floor above in separate assessment. It had a restricted height throughout – between 2.56m 2 and 2.76m 2 – and no natural light. It had access difficulties, being at the rear of the Moda Centre and served by a considerably narrower access road than the appeal property. Looked at overall, Mr Hodson considered the assessment of £67.50 per m 2 was not inconsistent with the assessments at SIC.[23]In view of Mr Levene’s last-minute decision to increase his valuation from £43 to £60 per m 2 , Mr Hodson said that he did not propose to deal in detail with certain former agricultural properties to which he had referred in his expert report. He had merely put them forward to show that other rural timber buildings had been valued for rating purposes at between £45 and £50 per m 2 .[24]Mr Hodson said that, contrary to Mr Levene’s assertion, a quantum discount structure had never been agreed between the VOA and any other party. The valuation scheme currently applied to the majority of SIC adopted either £70 per m 2 or £65 per m 2 depending on size. Only one property – Unit 5 – remained valued at £100 per m 2 . This was subject to an outstanding proposal by the ratepayer, and Mr Hodson had advised that it should be valued at £70 per m 2 .[25]Mr Hodson referred to the valuation scheme agreed on units in Theobald Street. He said that it valued units of up to 300m 2 at £72.50 per m 2 , and units between 379 and 500m 2 at £57.50 per m 2 . Both these levels of value were agreed having regard to rental evidence. 26 Theobald Street, a unit of 175m 2 , was agreed at £72.50 per m 2 based upon the actual rent. The value of 2 Theobald Street, agreed at £57.50 per m 2 for a unit of 380m 2 , was also derived from its own rent.[26]Mr Hodson said that the industrial properties in Theobald Street were different from those on SIC. They were of varying ages, from the 1930s through to the 1960s. The larger buildings were detached, but with the usual tight access found in buildings of this age. Theobald Street was also a feeder road to the Borehamwood Shopping Park, a retail park attracting significant vehicular traffic.[27]Despite the differences between the two estates, said Mr Hodson, were the appeal property to have been located in Theobald Street he would have valued it at £72.50, not £65 per m 2 . The value of £57.50 applied to No.49 reflected the fact that it was a considerably larger unit – over 380m 2 . Of the 23 hereditaments on SIC and HBP, there were only two which exceeded that size. They both fronted Stirling Way itself, and consequently enjoyed better access. Mr Hodson said that the limited increase in the rent payable for No.49 between April 2005 and April 2010 was consistent with his view that rents had not changed dramatically in that period. The RV had been agreed with the ratepayers early in 2013. The rent was known and was referred to in the appeal. In terms of SGIA No.49 was nearly three times the size of the appeal property. The quality of the access was therefore likely to be of more significance than in the case of a small building. Moreover, the access way leading to No.49 was 5.5m wide, less than half that at SIC. Mr Hodson accepted that the SIC access would be restricted if a car was parked outside a property. However, there was only one access to No.49, whereas the appeal property also had a secondary access road at the rear.[28]Mr Hodson accepted that No.49 was close to the railway station but he considered that SIC was a better location for industrial occupiers. Proximity to the road system was more important than access to a railway. SIC was admirably placed for access to the A1 and M25, whereas vehicles travelling from Theobald Street to the A1 would have to negotiate heavy traffic in the centre of Borehamwood.[29]On quantum, Mr Hodson said there was no national scale or even a Borehamwood scale. Each estate was treated on its own merits, having regard to rental evidence and the type of properties on the estate. All assessments in Theobald Street had been derived from rents. There was evidence of only one rent on SIC, namely that for No.13, equivalent to approximately £70 per m 2 . He had to consider whether a lower level of value should apply to larger units. Notwithstanding the absence of rental evidence he had decided that double units (and larger single units) should be valued at £5 per m 2 less than smaller units. In his view that was very reasonable. It was necessary to decide on a cut-off point between the two rates. He had chosen 150m 2 for this purpose. It was admittedly an arbitrary figure, but it worked. In practice the basis of £70 had been applied to units up to about 130m 2 . The appeal property, at 163.25m 2 SGIA, was the smallest to be valued at the lower rate.[30]Mr Hodson said that he did not consider that EBC was a direct competitor to SIC. Units on the latter were largely held freehold and were generally occupied on a medium to long term basis. Units at EBC, on the other hand, were let on short-term licences. There was a high turnover of tenants and a high vacancy rate.[31]In cross examination Mr Hodson was asked about 4-5 HBP, immediately opposite the appeal property, with a SGIA of 247.6m 2 . He replied that although the assessment was currently calculated using a value of £72.50 per m 2 , he proposed to amend the assessment to a basic value of £65, with an uplift of 20% to reflect the high quality ground floor offices and 10% for air conditioning.[32]In answer to further questions Mr Hodson accepted that the majority of vehicles visiting the appeal property were 7.5 ton vans; he suggested that the access problems at No. 13 were arguably worse than at the subject property, whose occupiers could arrange to use the rear access for deliveries or parking (although he had not increased the assessment to reflect this); he accepted that the humming from the sub-station at No.13 was no worse than from the printing press in the main unit. Discussion[33]It is a longstanding principle of rating valuation that, unless there is an established tone of the list, if there is reliable rental evidence it is to be accorded more weight than rating assessments. In my judgment, this principle applies with particular force in the case of properties on SIC and HBP, where assessments during the life of the 2010 list have been volatile.[34]The assessment of the appeal property is a case in point. The compiled list entry was £15,500. The appellant requested that the assessment be reduced to £9,800. The VO then re-measured the property and, on 16 September 2011, served a notice to increase the RV to £18,250. Having given the matter further consideration the VO revised his valuation to £12,750 and Mr Walker spoke to that figure before the VTE. Following the VTE decision Mr Hodson was asked to consider the matter afresh and his valuation of the appeal property was £11,250. As a result of his investigations in connection with the current appeal Mr Hodson concluded that all the assessments on SIC and HBP should be reappraised and the units valued at £65 or £70 per m 2 , depending on size. As a result, Mr Hodson intends to amend nine of the 23 assessments within the two estates, including the RV of the appeal property.[35]These observations are not intended as a criticism of Mr Hodson who, prior to his involvement in this appeal, had only dealt with one 2010 list assessment on SIC. Having seen and heard him giving evidence I have concluded that he is an experienced rating valuer who has approached this case with his duty to give independent expert evidence well in mind.[36]In that connection it is right that I mention that, at the commencement of the hearing, I rejected a submission from Mr Levene that Mr Hodson was not impartial or independent and his opinion evidence should therefore be ignored. In doing so I observed that, given that Mr Levene was proposing to give his own opinion evidence and, unlike Mr Hodson, he had a direct financial interest in the outcome of the appeal, his suggestion that Mr Hodson was not independent and should not be heard on matters of valuation was untenable.[37]I turn to the rental evidence and consider firstly the rent agreed for No. 13 with effect from 4 March 2009, approximately 11 months after the AVD. The SGIA of No. 13 is 115.01m 2 and it is agreed that the rent was equivalent to £71.07 per m 2 ITMS. Mr Levene suggested that No. 13 was more valuable than the appeal property because it was more modern and had two on-site parking spaces. In the light of my inspection, and taking into account the rear access enjoyed by the appeal property and its greater height to the ridge, I conclude that there is no significant difference in value between the two properties, apart from that attributable to their difference in size (No. 13 has the advantage of a lined roof, but that has been adjusted for in Mr Hodson’s valuation and the adjustment was not challenged).[38]Mr Levene suggested that the appellant’s use of the rear access road for parking was at risk, because the road was currently blocked to other users by two large structures which had been erected in breach of a restrictive covenant. There was, however, no evidence to suggest that the physical position was likely to change in the foreseeable future. In assessing the value of the appeal property on the basis of a tenancy from year to year with a reasonable prospect of continance I attribute no weight to the risk that, at some unknown future date, the rear access might have to be kept clear.[39]In Mr Hodson’s opinion there was very limited rental growth between 1 April 2008 and 4 March 2009. He therefore concluded that single units such as No. 13 were worth £70 per m 2 ITMS at the AVD. Mr Levene did not seriously challenge Mr Hodson’s evidence on limited rental growth and I accept it. The remaining issue between the parties is the adjustment to be made to the basis of £70 per m 2 to reflect the fact that, with a SGIA of 163.25m 2 , the appeal property is some 42% larger than No. 13.[40]Mr Hodson considered that the appropriate deduction was £5 per m 2 , amounting to a quantum allowance of 7.1%. Mr Levene suggested that this deduction was out of line with the quantum scale which had been applied to industrial properties throughout Borehamwood, whereas Mr Hodson denied that there was any such scale.[41]I asked for clarification of the position during the course of the site meeting. It emerged that the scale referred to by Mr Levene was that mentioned in para 12 of the VTE decision on the appellant’s 2005 list appeal, dated 21 June 2010, as follows:
“The Valuation Officer explained that there was a sliding scale to be used when considering quantum as follows and did not necessarily include mezzanine areas: Areas under 150m 2 Basic price £80/m 2 Areas between 150m 2 and 170m 2 Basic price tapers from £80 to £70/m 2 Areas between 171m 2 and 250m 2 Basic price £70/m 2 Areas between 251m 2 and 290m 2 Basic price tapers from £70 to £60/m 2 Areas between 291m 2 and 400m 2 Basic price £60/m 2 Areas between 401m 2 and 480m 2 Basic price tapers from £60m to £50m 2 Areas above 480m 2 Basic price £50.”
[42]According to this table, for the purposes of the 2005 list No. 13, at 115.01m 2 SGIA, would have been valued at £80 per m 2 and the appeal property, at 163.25m 2 , would have been valued at approximately £73.35 per m 2 . The difference represents a quantum discount of some 8.3%. As I have indicated, I treat evidence regarding industrial rating assessments in Borehamwood in the 2010 list with caution. That approach applies even more forcefully to a quantum tone which was apparently adopted by the VOA for the purposes of the 2005 list, the support for which, in terms of rental evidence, is unclear.[43]Nevertheless, it was Mr Levene who prayed in aid the 2005 quantum tone in support of his appeal. In my judgment, to the extent (if any) that it provides helpful evidence, that tone suggests that Mr Hodson’s allowance of approximately 7.1% when valuing the appeal property by reference to the rent of No.13 is about right. In any event, as a matter of impression, it seems to me that any greater deduction would be excessive.[44]I therefore conclude that Mr Hodson’s valuation is consistent with the rental evidence provided by No. 13.[45]The other rental evidence is the rent of £22,000 agreed on review for No.49 with effect from April 2010. I agree with Mr Hodson that No.49 is very different from the appeal property in terms of its size – being nearly three times as large – and location in the town centre as opposed to being on an industrial estate adjacent to a major trunk road. The rent paid for No.49 is therefore of much less evidential weight than that paid for No.13.[46]I have not overlooked the fact that Mr Levene relied on the rating assessments of No.49 and Awesome FX. I discount the assessment of No.49 as being of even less weight than its rent and I accept Mr Hodson’s opinion that, for the reasons given in para 22 above, the assessment of Awesome FX is not out of line with his valuation. Result[47]The appeal is allowed to the extent conceded by Mr Hodson. I order that the assessment of Units 3-4 Stirling Industrial Centre in the 2010 non-domestic rating list be reduced from RV £12,500 to RV £11,250.[48]This decision is final on all matters other than costs. The parties may now make submissions in writing on the issue of costs and a letter containing further directions accompanies this decision. Dated 19 January 2015 N J Rose FRICS

Cited in 1 later judgment