CHAPTER ONE – WHAT IS THE THING TO BE VALUED?
Before a property (or indeed anything else) can be valued, it is first necessary to define with sufficient precision the thing which is to be valued, and the circumstances in which it is to be valued: there is no such thing as a valuation “at large”. Unless and until the nature of the subject property is properly understood, the valuer’s expert judgment cannot be applied.
The identification of the character and parameters of the subject property is not, itself, a matter of valuation judgment (though some components of the subject may require expert opinion to define). Rather, the exercise is one which involves the interpretation of the statutory regime and the jurisprudence, and extensive legal analysis. This is one of the key areas where legal advice is sought and provided in the rating valuation field.
Broadly speaking, there are three stages to the process of definition which must be undertaken before the valuation can be attempted.
- Identifying the property to be valued. It is generally convenient to talk and think about the valuation of property or land as though the property or the land itself were a thing of value. Strictly speaking, however, that is not the case: in England and Wales, no private person directly owns any land at all. What people actually own, and the thing that property valuers are actually concerned with, are rights over land. Such rights range from very extensive proprietary estates, such as freeholds or long leaseholds, to heritable but non-possessory rights like easements or profits a prendre, to personal rights such as contractual licences. In all cases, the content and character of the package of rights which makes up the “property” is critical to its value. An unencumbered freehold estate over an area of land, for instance, will clearly have a different value to a one-year non-exclusive licence over the same area. Equally, the particular rights in the package will almost always be accompanied by a series of obligations on the holder of the rights: a freeholder’s estate over a field may be subject to an obligation not to obstruct a neighbouring landowner’s right of way across the field, for instance. Similarly, a tenant of an office may be subject to obligations to maintain the property in a certain state. And anyone with an occupational right over land is subject to limitations imposed by the planning regime: the freeholder of a field does not, by virtue of that freehold, have the right to build a tower on the field unless he[1] first obtains planning permission. For rating purposes, the particular package of rights and obligations which make up the subject of the valuation is defined by the 1988 Act, and is known as the “hereditament”.
- Identifying the time at which the property is to be valued. Once the package of rights and obligations which make up the property are identified and defined, it is then necessary to identify the particular date at which the property valuation is to occur. That date is of considerable significance: the property market, like most markets, is in a state of almost constant flux, so that a difference of even a few weeks in the valuation date can affect the price to be paid. Similarly, knowledge about the market fluctuates as well: if an economic actor becomes aware of relevant data about the property or the market on a given day, then the price he would be willing to pay for the property on that day may be very different to that which he would have been willing to pay the day before. The property and its locality will also vary over time: the closure of the anchor store in a shopping mall has a significant impact on values of other units in the mall, for instance. Legal status is relevant here too: a change in the planning status of the property can have a dramatic impact on its value. In the rating context, there are two relevant dates which need to be considered: the valuation date, which is the date on which the package of rights and obligations comprising the property is assumed to come into existence; and the material day, which is the date on which a series of specified features of the property (such as its physical state and the occupation of other premises in the locality) are fixed. The statutory machinery is set up in such a way that, for any given valuation, the valuation date and the material day are never the same: the result is that a degree of expert judgment (and no small amount of imagination) is required to transpose the material day factors to the valuation date.
- Identifying the circumstances appliable at the relevant date. Once the property is identified and the relevant dates confirmed, the final part of the exercise is to identify the facts applicable to the property at those dates. This is mostly a factual exercise. However, it is not uncommon for issues both of law and expert judgment to arise at this stage as well. What amounts to a “matter affecting the physical enjoyment” of a property, for instance, is an issue on which legal input is usually required; and the extent of the area which amounts to the “locality” of a property can require expert opinion as to the nature of the businesses conducted for properties in the relevant mode or category of occupation.
Once those three issues are addressed, the valuer is able to proceed with the valuation of the property.
In the specific context of non-domestic rating, the set of legal principles which govern these three definitional issues is usually referred to as the “rating hypothesis” or the “statutory hypothesis”.
The principles emanate principally from Schedule 6 to the 1988 Act; but Sch 6 is impossible to understand or apply without reference to the extensive body of rating case law which has developed over many decades, and which considerably pre-dates the 1988 Act itself. Indeed, so extensive and cohesive is the body of case law in this field that it has been referred to as “the ‘common law’ of rating” (Williams (VO) v Scottish and Newcastle Retail Ltd [2001] RA 41 at para 54).
Rating appeals and procedures
Before considering these issues, it is worth saying something about the tribunal structure applicable to rating valuation, and the procedure by which parties can bring disputes before the tribunals. This is governed by the Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009, as amended. In England, the name for the procedure established by the current iteration of these regulations is “check challenge appeal”, or “CCA”. As the name suggests, this involves three stages, which, in brief summary, are as follows:
- The first stage requires the ratepayer[2] to provide the VO with information about the property, and to confirm the accuracy of the information which the VO already holds, so that the VO can check the accuracy of the list entry.
- Following the completion of a check, it is open to the ratepayer to make a formal challenge to the accuracy of the rating list, by making a proposal for the alteration of the list. The grounds on which a proposal can be made are specified in reg 4 of the 2009 regulations. While the CCA process itself has only been in place since 2017, the use of proposals as the vehicle for challenging the content of the rating list has been in place throughout the life of the 1988 Act. On receipt of a proposal, the VO can make the change sought; can make some other change to the list, if agreed by all relevant parties (as specified in reg 12); or the VO can decline to make any alteration.
- If no alteration is made, because the VO regards the proposal as not well-founded, then the ratepayer has an automatic right of appeal to the Valuation Tribunal for England (“VTE”), a specialist tribunal which deals with disputes around the contents of the rating lists, as well as the valuation lists prepared for the Council Tax. Appeals against decisions of the VTE lie to the Upper Tribunal (Lands Chamber), a specialist tribunal which is constituted of senior lawyers as well as very experienced surveyors and valuers. Unusually, the Upper Tribunal hears appeals on a de novo basis, so the parties are able to call fresh evidence and advance new arguments, and the Upper Tribunal will make its own findings of fact afresh, rather than reviewing the VTE’s findings. There is no permission to appeal mechanism for either tribunal, and in important cases it is almost guaranteed that the relevant tribunal of fact will end up being the Upper Tribunal. Onward appeal lies from the Upper Tribunal, on points of law only, to the Court of Appeal and the Supreme Court.
Lord Carnwath JSC made important observations about the function of this appeal system in Cardtronics UK Ltd v Sykes (VO) [2020] 1 WLR 2184 at para 4:
“It is important however to be clear where lies the primary responsibility for reviewing the valuation officer’s decisions. Although the first appeal is to the Valuation Tribunal, and the Upper Tribunal acts as an appellate body, it does so by way of a full rehearing, not simply review, if necessary hearing evidence for that purpose … By contrast, onward appeal to the Court of Appeal lies only on points of law. Accordingly, it is to the Upper Tribunal’s judgment that we must look first for the relevant findings of fact and their evaluation. To justify intervention at a higher level it is necessary to identify something more than a difference of evaluative assessment. Further in this highly specialised area of the law the higher courts should give particular weight to the expertise which has been developed by the senior judges and members of the Upper Tribunal (Lands Chamber).”
We now turn to consider in detail the components of the statutory hypothesis.
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[1] Throughout this book, masculine pronouns should be read as including the feminine and (where appropriate) the neuter or plural.
[2] There are a range of other persons who are also able to trigger this procedure, if they meet the regulatory definition of an “interested party”: reg 2.