Business rates: another farm park decision at the Upper Tribunal

A recent focus on business rates in the farm attractions sector has culminated in the recent decision concerning Finkley Down Farm in the case of Charles Waters v Wayne Cox. This follows heightened interest in the sector by the Valuation Office Agency (“VOA”) after the decision reached by the Upper Tribunal concerning Apple Jacks Adventure Farm in 2022 (Joe and Valerie Fryer v Wayne Cox (VO) [2022] UKUT 0229 (LC)) where the Upper Tribunal reduced the rateable value of Apple Jacks from £35,000 to £11,750.

The VOA have previously made noises that there is a ‘tone of the List’ with regards to farm attractions, based on a ‘shortened approach’ – this is where a certain percentage of the Fair Maintainable Trade of the business is used to assess the Rateable Value of the premises it occupies. With the Upper Tribunal in Apple Jacks firmly siding against a shortened approach due to an absence of reliable evidence, Finkley Down was more focused on an assessment based on Receipts and Expenditure.

The Upper Tribunal handed down judgment last month and the Appellant’s appeal was dismissed.

Background

The matter concerns an appeal by Charles Waters (“Waters”) against a decision of the Valuation Tribunal for England (“VTE”). The VTE dismissed Waters’ appeal that the rateable value of Finkley Down Farm (“Farm”) should be reduced from £100,000 to £54,500.   

The Farm comprises two sites including a farm attraction. Part of the Farm was sold in 2008 to Taylor Wimpey. As part of the sale, Taylor Wimpey was granted the benefit of rights over the land retained by the farm including the right to carry out works on the retained land and build an access road (“Taylor Wimpey Right”).

The Respondent, Wayne Cox of the VOA (“Cox”), assessed the rateable value of the farm to be £100,000. The Appellant’s Valuation Officer, Barry Davies (“Davies”) assessed the rateable value to be £54,500. Both Valuation Officers agreed the receipts and expenditure method was the most suitable method of valuation.  

Appeal

The Upper Tribunal (“UT”) agreed with the VOA and dismissed the appeal. The UT focused on six factors:

1.      Fair maintainable trade

Cox used the previous year’s turnover as the basis for assessing the ‘fair maintainable trade’ (“FMT”) figure. Davies considered what approach the hypothetical tenant would take in determining the FMT – would the tenant look at the actual gross receipts or would the tenant take a more cautious approach? The UT held that the hypothetical tenant would gather as much information as possible but turning to the previous two years performance would be adequate, in line with Cox’s approach. The UT held that Davies’ approach was too cautious in using a figure reflecting the previous year’s turnover less 10%. As such the UT adopted a FMT of £1,325,000.

2.      Manager’s salary

The UT considered whether a manager’s salary should be taken into account in assessing the rateable value. Waters did not employ a manager to run any part of the business. Waters carried out this role himself without direct renumeration. Cox took the approach stated in “The Receipts and Expenditure Method of Valuation for Non-Domestic Rating: A Guidance Note” (“Guidance”) i.e. the hypothetical tenant would not employ a manager in a small to medium sized business. The question was whether in the present case the hypothetical tenant would take the same approach as Waters. The UT held that allowance should not be made for a manager’s or a director’s salary in the working expenses.

3.      Equipment hire

In Cox’s assessment, the cost of hiring equipment was factored into the calculation. The UT considered which element of the calculation equipment hire should fall under. Davies factored this in as a working expense and Cox dealt with this in the tenant’s capital. Davies took this approach based on the reality that Waters factored in the equipment hire as a working expense. The UT agreed with this approach because there was no reason to determine that the hypothetical tenant would take a different approach.

4.      Taylor Wimpey Right

The UT considered Dawkins v Ash Brothers [1969] 2 AC 382, where it was held that matters personal to the actual occupier are excluded from the valuation assessment. The deciding factor of whether to include a matter in the assessment was whether the matter was ordered by a superior power. In such a case, it is an essential characteristic of the land because the owner does not have control over it – the owner’s intentions are irrelevant.

The UT decided that the Taylor Wimpey Right was an essential characteristic of the Farm because the power to exercise the option lies solely with Taylor Wimpey. Therefore, the hypothetical tenant has no control over the rights and the rights essentially are made by a superior power. As such, the Taylor Wimpey Right is an essential characteristic of the Farm.

Notwithstanding this, the UT took the view that Taylor Wimpey’s exercise of the rights would be remote and therefore would not be part of the hypothetical tenant’s considerations. As such, the rights should be disregarded in the valuation.

5.      Tenant’s share

The tenant’s share is the apportionment of the net profit attributed to the tenant to provide a return on capital and a profit (this was carefully scrutinised in the museums case of Hughes (VO) v York Museums and Gallery Trust [2017] UKUT 20 (LC)). The UT turned to the percentage of the net profit (the divisible balance) which should be attributed to the tenant. The UT decided that the tenant’s share in the present case should be 68%. The Taylor Wimpey Right was not factored into this calculation. Instead, the UT considered the specific nature of the site.

6.      Stand back and look

It is necessary, once the Valuation Officer has come to its conclusion regarding the rateable value, that the elements of the valuation are reviewed to ensure that an accurate result has been achieved. Both Davies and Cox did so by turning to the rateable value of other similar farm attractions. The UT gave less weight to this factor because the receipts and expenditure method was used. This method is most suited to properties where ‘the individuality and the nuances of their trading performance’ are paramount.

As such, a comparison against the rateable values of similar properties does not offer much insight because necessarily the properties will have individual characteristics and locations resulting in differing rateable values.

The UT calculated the ratable value on the basis of establishing the factors above. The UT concluded that the rateable value of the farm was £123,750 (higher than that argued by the VOA). Therefore, the appeal was dismissed.

Comment

One of the main points to arise from this decision is that the question of rateable value, especially when calculated using the receipts and expenses method, is largely influenced by the specific nature and idiosyncrasies of the property and nature of the business in question.

This is more pervasive than solely being considered in the ‘standing back and looking’ element. The nuances of the property were reflected in each factor considered by the UT. The decision to not include a manager’s salary, for example, was largely based on the fact that Waters himself did not pay such a salary. The approach of the UT when looking at the hypothetical tenant was to not deviate from Waters’ approach unless there was a strong reason to think a hypothetical tenant would act otherwise.

An interesting point to arise is in relation to the Taylor Wimpey Right. A decision on this specific point has not been handed down before. Although the UT considered the Taylor Wimpey Right to be an essential characteristic of the Farm, in accordance with the approach in Dawkins v Ash Brothers, the UT surprisingly did not take the Taylor Wimpey Right into consideration in the calculation. The UT placed weight on the approach in Hughes (HO) v Exeter City Council [2020] UKUT 7 that ‘the hypothetical tenant behaves reasonably making proper enquiries about the property’ but there is a balance in that the tenant does not appear ‘too anxious to take the letting’. Given that it was unlikely Taylor Wimpey would exercise their option, the UT were of the view that the hypothetical tenant would not place negative weight on the existence of the Taylor Wimpey Right.

Overall, the approach of the UT in the decision means that it is no mean feat to determine in advance what the rateable value of a farm attraction would be, because the assessment depends on the specific circumstances of the particular property and careful scrutiny of its accounts. Landowners and occupiers can take comfort in the fact that the rateable value reflects the true situation on the ground looking at the actual trading activities, meaning the assessment is in line with reality.