“As I understand it, the argument is that the hypothetical tenant has an alternative to leasing the hereditament and paying rent for it; he can build a precisely similar building himself. He could borrow the money, on which he would have to pay interest; or use his own capital on which he would have to forego interest to put up a similar building for his owner/occupation rather than rent it, and he will do that rather than pay what he would regard as an excessive rent – that is, a rent which is greater than the interest he foregoes by using his own capital to build the building himself. The argument is that he will therefore be unwilling to pay more as an annual rent for a hereditament than it would cost him in the way of annual interest on the capital sum necessary to build a 10 similar hereditament, it will be in his interest to rent the hereditament rather than build it.”
“This stage is potentially important in a contractor’s valuation. The contractor’s basis, though proceeding in formalised stages, is not a magic formula for reaching a rateable value independently of any exercise of valuation judgment. It is at stage 5 that the valuer must look at all relevant factors that have not so far been reflected in the valuation and must make such allowances as may be appropriate, so that he is satisfied that the resulting figure is what would have been agreed on the statutory hypothesis. We can envisage that there could be evidence, relevant at stage 5, that would reasonably cause a valuer to make a substantial reduction. For example, he might be satisfied that the [tenant] could not afford, or would not be prepared to pay the rent arrived at by stage 4. ... Alternatively, there might be available rental evidence that was insufficient for use on a comparative basis or to justify the application of the shortened profits basis, but might still be sufficient to cause a value to conclude that the [tenant] would not pay more than a certain amount psm, or more than a particular proportion of its outgoings.”
“A stage 5 adjustment is made to ensure that a figure arrived at by decapitalising the cost of providing the plant is true to the statutory hypothesis that the rateable value is an amount equal to the rent at which it is estimated the hereditament might reasonably be 11 expected to let from year to year; to achieve that assurance the valuer must stand back and look at the figure produced in the previous stages of assessment and must consider whether the result is truly a figure which would be paid on such a letting. The contractor’s basis of assessment is a method of last resort, where there is no more reliable evidence of value. In principle it should produce the same outcome as a valuation based on other methods, and where there is useful evidence from other methods it ought to be taken into account when scrutinising the valuation at stage 5.”
“The statutory hypothesis is only a mechanism for enabling one to arrive at a value for a particular hereditament for rating purposes. It does not entitle the valuer to depart from the real world further than the hypothesis compels. The Tribunal rightly accepted that in some respects it has to stay in the real world. It looked at the hereditament as it was; it took the actual assets of the hypothetical tenant, in the present case the Trust, into account. In my judgment it erred, however, in failing to take two further matters into account: 1) that all the evidence pointed against any willingness on the part of the Trust to meet from its existing assets net outgoings in respect of any property in respect of which it was considering obtaining an interest; and 2) that all the evidence suggested that the hypothetical landlords would be delighted to be relieved of the task of meeting the net deficit for each of these properties whilst retaining for themselves the freehold reversion and obtaining from the hypothetical tenant a covenant to keep them in repair. As Mr Anderson put it, every£1 of expenditure which the landlord will save is worth no less to him than every£1 of rent which he will receive. The Tribunal, although it had rightly posed for itself the question “what are the characteristics of the hypothetical landlord?” never stayed to answer it.”
“It is a well-known principle of valuation, not confined to rating, that in principle you must value the property as it stands on the valuation date. This is the principle of reality; or as classicists prefer to call it, the principle that property must be valued rebus sic stantibus. This principle can be displaced by contrary instructions in the statute or contract under which the valuation takes place. In our case paragraph 2(1)(b) is a required assumption which is potentially counterfactual. The issue is whether it applies and, if so, to what extent.”