UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2015] UKUT 0365 (LC)
UTLC Case Number: RA/66/2014

	TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

RATING - valuation – licensed premises in town centre – whether bar or members’ club – absence of evidence in support of the appeal – appeal property similar to respondent’s comparables – effect of full premises licence, lease user clause and planning consent – hereditament valued on assumed fair maintainable trade  - appeal dismissed

IN THE MATTER OF AN APPEAL FROM A DECISION OF THE VALUATION TRIBUNAL FOR ENGLAND 

BETWEEN:

MR P HARRIS
Appellant	
AND

MR D GRACE                                            
	(VALUATION OFFICER)	Respondent	
	Re: “Sophie’s Lounge”
	51-53 Duke Street
	St Helens
	Merseyside
	WA10 2JF
		
	Before: P D McCrea FRICS

	Sitting at: Liverpool Combined Court Centre, Vernon Street, Liverpool, L2 2BX
on
19 May 2015

Mr Thomas Mayor, with permission of the Tribunal, for the appellant
Jacqueline Lean, instructed by HMRC solicitor, for the respondent

© CROWN COPYRIGHT 2015

The following cases are referred to in this decision:
United Services and Services Rendered Club (Tooting and Balham) Ltd and The Putney Club v Thorneley (VO) RA/86/1998
Wetherspoon v Day (VO) [2008] RA 129
Sharp v Griffiths (VO) [1999] RA 265
Brunning and Price Ltd v Owain Wynn-Cowell (VO) [2008] RA 1

DECISION

Introduction
1.	This is an appeal by the ratepayer, Mr Paul Harris (“the appellant”) against a decision of the Valuation Tribunal for England (“VTE”) dated 10 July 2014 in which the VTE determined the rateable value of licensed premises known as “Sophie’s Lounge” 51-53 Duke Street, St Helens, Merseyside, WA10 2JF (“the appeal property”) at £11,250 – the figure contended for by the Valuation Officer - with effect from 1 April 2010.
2.	The appeal was heard under the Tribunal’s simplified procedure.  The appellant was not present, but was represented by Mr Thomas Mayor, with the permission of the Tribunal. The Valuation Officer (“the respondent”) was represented by Jacqueline Lean of counsel, who called Mr Graham Dodd, DipSurv of the Valuation Office Agency (“VOA”) to give expert valuation evidence.
3.	The antecedent valuation date (AVD) is 1 April 2008.  The material day and effective date are both 1 April 2010. 
4.	On the morning of 18 May 2015 I inspected the appeal property accompanied by the parties.  On 18 and 19 May 2015, unaccompanied, I externally inspected the comparable properties.
Facts 
5.	From the evidence and my inspection I find the following facts. 
6.	The appeal property comprises an end of terrace building, constructed in the late 19th or early 20th century as two retail units.  It is situated in St Helens town centre, with main frontage to Duke Street, and return frontage to Rigby Street. Duke Street contains a variety of other uses, including retail, bars, estate agents, medical premises and beauticians. 
7.	The appeal property has been combined and converted into licensed premises, of mainly two-storey brick construction under a pitched tiled roof. The ground floor projects out to the rear, above which there is a flat roof area, occasionally used by customers as an external seating area.  There is a small enclosed rear yard.
8.	Internally, the accommodation is relatively basic, but in essence comprises bar/lounge areas on both floors, each served by a bar.  The “cellar” is on the ground floor at the rear of the property.  There is a catering kitchen at first floor, and male and female wc’s on each floor.
9.	The parties have agreed the following floor areas:
	Ground Floor

			Bar Area:		 			96.1 m2
			Drinks Store, staff area and wc’s:		24.2 m2

	First Floor

			Lounge:					65.6 m2
			Kitchen:					12.3 m2

10.	Mr Mayor’s wife, Mrs Helen Mayor, used to trade from the appeal property and owns the freehold interest. On 6 December 2010 Mrs Mayor let the property to the appellant.  The lease is for a term of five years from that date, at a rent of £4,800 per annum, paid monthly in advance.  Mrs Mayor insures the property and recharges the insurance premium to the appellant.  The use is limited to “a licensed bar” and for no other purpose.  The appellant had a break clause at the end of the first year, on six months’ prior written notice, which was not exercised.
11.	The rating assessment has been the subject of ratepayer’s proposals in the 2000 and 2005 rating lists, and there has been extensive correspondence and negotiations between Mr Mayor and the VOA.    The ratepayer’s proposal in the 2000 rating list was the subject of proceedings in the St Helens County Court, before being determined by the VTE.  In the 2005 list, the VO altered the assessment’s description from “wine bar and premises” to “club and premises”, and reduced the assessment from £14,750 RV to £11,250 RV.
12.	The appeal property currently has planning consent for a bar and restaurant (granted by St Helens Council on 16 January 2001).  It is licensed under the Licensing Act 2003 by way of a premises licence, and not a club premises certificate, with the appellant named as the designated premises supervisor.  The latest premises license was in effect from 4 December 2012, and the permitted activities include “the sale by retail of alcohol for consumption on and off the premises”.  At the material day, a similar license was in place.
The VTE’s Decision
13.	The appeal to the VTE arose from a proposal made by Mr Mayor on behalf of the appellant and received by the VOA on 2 May 2013, against the compiled list assessment of £11,250 RV.
14.	The VTE’s decision was relatively short.  The panel found that based on the layout and operation of the appeal property it was primarily a bar and should be valued on that basis with regard to turnover in line with the VO’s approved guide.  Whilst the panel accepted that the property was operated as a members’ club, it was a town centre proprietary club, rather than a non-profit making club run for the benefit of its members – unlike the 92 other clubs referred to by the appellant.  The panel considered that the property was more in line with the comparables put forward by the VO, which were licensed properties valued under the approved guide, and determined that the appeal property should also be assessed by way of turnover in line with the guide.
15.	The panel found that the actual turnover was very low, and endorsed the VO’s estimate of fair maintainable trade of £150,000.  It accepted that the property was let at an annual rent of £4,800, but found that this rent had been agreed almost two years after the AVD during an economic downturn and attached little weight to it.  The appeal was dismissed.

Statutory Framework
16.	Section 56 of the Local Government Finance Act 1988 (“the Act”) gives effect to Schedule 6 to the Act which sets out the statutory basis on which the rateable value of a non-domestic hereditament is determined.  The statutory valuation assumptions are set out in paragraph 2 of Schedule 6, as follows:
“2(1) The rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions –
(a)  the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;
(b) the second assumption is that immediately before the tenancy begins the  hereditament is in a state of reasonable repair, but excluding from the assumption any repairs which a reasonable landlord would consider uneconomic;
(c)  the third assumption is that the tenant undertakes to pay all usual tenant’s rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above.
….
(6) Where the rateable value is determined with a view to making an alteration to a list which has been compiled (whether or not it is still in force) the matters mentioned in sub-paragraph (7) below shall be taken to be as they are assumed to be on the material day.
….
(7) The matters are—
(a)   matters affecting the physical state or physical enjoyment of the hereditament,
(b)   the mode or category of occupation of the hereditament,
….
(d)  matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there, and
(e) the use or occupation of other premises situated in the locality of the hereditament.”

The Issues
17.	The fundamental disagreement between the parties relates to what the appeal property is, and therefore how it should be valued.  The appellant submitted that the property is a private members’ club, and should be valued by reference to rents of comparable properties, in accordance with the VOA guidance for clubs, and in line with numerous other club premises in St Helens. The VO’s position was that the property is a bar, and should be valued having regard to the fair maintainable trade (FMT) that the property could achieve in the hands of the hypothetical tenant who is assumed to be willing to take the tenancy from year to year referred to in paragraph 2 of Schedule 6 to the Act.  In the alternative, says the VO, if a club, the appeal property is a proprietary club, which again should be value having regard to turnover.
18.	The essential difference between the two methods is the concept of profit.  Members’ clubs are run for the benefit of the members, and there is an absence of carrying on a trade, as such. They are valued having regard to rental evidence, or put simply, what rent would the hypothetical club pay for the premises on the statutory hypothesis in order for its members to enjoy its use?  Bars, and proprietary clubs (ie clubs not run solely for the benefit of members and therefore containing a greater profit motive), are valued on a trading basis, having regard to the fair maintainable trade a hereditament could achieve, or put simply, what rent would the hypothetical tenant licensee be prepared to pay in order to trade at that level?  
19.	Helpfully, both parties produced valuations in the alternative.  These were:
‘Bar basis’ (or the VO’s alternative proprietary club basis)
Appellant: 	£3,500 RV (see paragraph 29 below)
VO:		£11,250 RV
‘Club basis’
Appellant:	£4,500 RV
VO:		£9,000 RV
Case for the Appellant
20.	Mr Mayor submitted that the mode and category of occupation of the appeal property was as a private members’ club. He said that the general public were not permitted at the appeal property, unless invited as a guest.  This was occasionally on a spontaneous basis, but that the clientele was generally limited to the members of the club.
21.	Mr Mayor had submitted in evidence documents which he said showed the proper basis upon which the appeal property was used. These included a copy of the club’s constitution, a copy of the membership application form, and the names and addresses of the members. 
22.	Turnover figures had also been submitted for the years ending June 2006, June 2007, March 2008 (part year), March 2009 and March 2010.  These were £41,018, £41,303, £36,903, £41,926 and £39,049 respectively.  Mr Mayor accepted at the hearing that the club’s turnover levels were less than could have been the case. In his alternative valuation he adopted £70,000 as a fair maintainable trade.  Basic accounts, each on one page of A4, were submitted for the last of those two years.  The net profit figures were £7,716 for 2008/9 and £6,891 for 2009/10 after rent and rates.  Mr Mayor said that he had very limited knowledge of the club’s accounts, which related to the period when his wife operated from the premises.  In the absence of Mrs Mayor or the claimant, therefore, no further explanation was forthcoming.
23.	He said that the property should be valued as a club, on a rental basis, in line with the VOA Manual, section 260: “Clubs and institutions”  which says:

“4. Basis of Valuation
4.1 The rental method
The rental method of valuation should be adopted in determining the assessment of all club premises, rather than the receipts and expenditure method.”
24.	Mr Mayor said that whilst there was a wide variety of clubs in St Helens, in a range of buildings, they were all valued on a rental method of valuation under the VO’s scheme reference “Clubs and Institutions/061”.  He referred to the Tribunal’s consolidated decision in United Services and Services Rendered Club (Tooting and Balham) Ltd and The Putney Club v Thorneley (VO) RA/86/1998 in support of the contention that clubs should be valued on this basis.  
25.	Mr Mayor said that the VO’s alteration of the assessment in the 2005 rating list, resulting in a reduction in the rateable value and a new description of “Club and Premises”, should be carried through to the 2010 list.  He disputed the VO’s dismissal of the relevance of the description in the list.
26.	As regards the license, Mr Mayor said that the appeal property benefitted from a Premises Certificate which covered all club activities.  
27.	Mr Mayor relied upon 12 comparable assessments in the St Helens area. With the exception of a snooker hall at 37-43 Ormskirk Street, they had all been valued using the VO’s special category code 061 – Clubs and Institutions. The main space rate adopted in each case was as follows:
Assessment	Rate per sqm	
163 Boundary Road	£27.00	
32-34 Dentons Green Lane	£27.00	
1st Floor, 218 Greenfield Lane, Dentons Green 	£12.75	
Grove House Social Club, Knowsley Road	£27.00	
Lowe House Mens Club, Crab Street	£27.00	
St Helens Police Recreational Club, Bishop Road	£32.00	
2nd Floor, 37-43 Ormskirk Street	£15.00	
Sprayhurst, Boundary Road	£22.00	
Unison Club, Bishop Road	£27.00	
Windle Labour Club, Dentons Green Lane	£24.99	
YMCA, North Road	£23.00	
28.	Having regard to the above evidence, the appellant’s valuation on a rental basis was £4,500 RV, based upon a main space rate of £27.50 per sq m, then adopting the VO’s reductions for stores, upper floors etc (Mr Dodd did not take issue with the various percentages applied on that basis of valuation).
29.	Mr Mayor submitted that, in the event that I found that the property should be valued as a proprietary club, on a rental basis, the appropriate rate should still be £27.50 per sq m.  He cited as a comparable the “Sportsman’s Rest”, in a golf course setting at Sherdley Road, St Helens, valued at £32.00, which he said was in a better setting.
30.	In the alternative, in the event that I found that the correct method of valuation was that based upon fair maintainable trade, his original valuation was £70,000 x 7.5%, equating to £5,250 RV. This did not seem to me to be the appropriate percentage for that level of trade.  In the absence of any expert evidence on behalf of the appellant at the hearing, with Mr Mayor’s agreement, I asked Mr Dodd to confirm the percentage that should be applied under the VOA’s Approved Guide in the event that I found that the FMT was £70,000.  The VO subsequently confirmed that under its guidance the appropriate rate would be 4.98%.  This would result in a Rateable Value of £3,486, rounded to £3,500, and I have therefore assumed that figure to be the appellant’s contention in the event that I found on that basis.
Case for the respondent
31.	Mr Dodd’s position was that the appeal property was a bar, little different to the other bars along Duke Street, and like them should be valued on a fair maintainable trade basis.  He adopted the “Valuation of Public Houses, Approved Guide” which had been agreed between the VOA and the British Beer and Pub Association.  It had been based on actual rents paid for leases of public houses in England and Wales.  Mr Dodd said that its use had been endorsed by the Tribunal in Wetherspoon v Day (VO) [2008] RA 129, Sharp v Griffiths (VO) [1999] RA 265, and Brunning and Price Ltd v Owain Wynn-Cowell (VO) [2008] RA 1. 
32.	The method involves determining the fair maintainable trade of the hereditament, at the AVD, having regard to the physical nature of the property at the material day, on the assumption that the business will be carried out proficiently by a competent tenant licensee responding to the normal trading practices and competition of the locality.  
33.	Vacant and to let, the hypothetical tenant is assumed to be aware of the actual trade, which would be the starting point of the valuation.  It may be obvious that the actual trade is lower than that which could be achieved by the hypothetical tenant, in which case the FMT adopted should be that considered appropriate and achievable.  The hereditament would then be placed in one of three valuation bands, depending on its location and nature.  Mr Dodd considered that the appeal property should be placed within band two, which in essence comprised public houses in secondary licensed trade areas, or if in primary areas are older or of poorer quality or less well maintained.
34.	Mr Dodd said that the appeal property held a full Premises Licence pursuant to Part 3 of the Licensing Act 2003 (“the 2003 Act”), which authorised the performance of live music (indoors), playing of recorded music (indoors), provision of facilities for making music (indoors), provision of facilities for dancing (indoors), late night refreshment (indoors) and the sale by retail of alcohol for consumption on and off the premises.  The most recent planning consent, granted on 16 January 2001, was for a change of use from a vacant shop to a “bar and restaurant”.  Mr Dodd said that the property did not have a sui generis “club” consent.
35.	In Mr Dodd’s opinion the appeal property should properly be regarded and valued as a bar, in accordance with the Approved Guide.  He did not consider that reliance should be placed on the rent passing, set two and a half years after the AVD in a recessionary environment.
36.	In respect of the turnover figures supplied by the appellant, Mr Dodd (like Mr Mayor) considered these to be lower than would be expected.  As comparable evidence, he relied upon the assessments of other licensed premises in the vicinity of the appeal property, all of which were within band 2:

Address	Turnover adopted	RV	Remarks	
The News Room, 89 Duke St	£110,000	£7,100	Estimated	
132 Duke St	£130,000	£9,100	Estimated	
Perry’s Bar, 21 Duke St	£135,000	£9,500	Estimated	
17-19 Duke St	£175,000	£14,000	Based on turnover	
Big Al’s Bar, 43-45 Duke St	£175,000	£14,000	Estimated	
15 Duke St	£185,000	£15,000	Estimated	
Joseph O’Neill’s, 65-67 Duke St	£385,000	£43,000	Based on turnover	

37.	Having regard to the above, Mr Dodd adopted a fair maintainable trade of £150,000 for the appeal property.
38.	Mr Dodd placed the appeal property in band 2, and chose the mid-point of the band, as he considered the appeal property was average in nature within the description.  With the exception of “Joseph O’Neill’s”, the comparables were also valued at the mid-point of the band.  His valuation was therefore:
		FMT £150,000 @ 7.5%: £11,250 RV
39.	Helpfully, Mr Dodd also set out his valuation on a “club” basis.  He considered Mayor’s £27.50 per sqm to be reasonable for a “standard” club, but said that a considerable uplift should be applied to reflect the appeal property’s location and licensing factors associated with it.  He thought that the most comparable use in a town centre context would be nightclubs, which were also valued on a rental basis, of which he cited two examples in St Helens town centre at £88 per sqm.  However, given that the appeal property was not of the same standard as those, his view was that an assessment based upon £55 per sqm for main space was appropriate – resulting in an assessment of £9,000 RV.
Conclusions
40.	I can deal with the appeal relatively briefly.  In an appeal from the VTE, it is for the appellant to demonstrate, on balance and on the evidence, that the decision of the panel is wrong.  Little evidence was submitted by the appellant.  There was a brief written statement from Mr Harris but he was not present at the hearing and could not be examined upon it.  There was no evidence as to how the club operated, nor what happened to the profits that were showed in the accounts.
41.	Brief documents were submitted by the appellant, but their veracity was questionable as they appear to have been prepared specifically for the hearing.  I have placed little weight upon them. 
42.	Having inspected the appeal property and externally inspected the comparable evidence, there is no doubt that the property is physically similar to the VO’s comparables, which are in close proximity to it.  I do not consider that it is comparable to the appellant’s, which are largely in different settings, often suburban or quasi-residential, and in a variety of different types of buildings.
43.	The appeal property is fitted out in such a way as it could easily operate as a bar, which Mr Mayor accepted.   It is in a location with many bars nearby, and vacant and to let would be of interest to town centre licensed premises operators, as it is on the licensed premises “circuit”.
44.	I place no weight on the VO’s alteration of the description in the 2005 rating list as “club and premises”.  Mr Dodd said that in hindsight this was a mistake, and was an attempt to come to a pragmatic solution to what at that point had been a long running dispute with Mr Mayor, including in the county court.  I accept that, and the VO should be discouraged from this practice.
45.	I also place no weight on the rent of £4,800.  Mr Mayor did not rely upon it, but I concur with the VTE’s comments that it is some time after AVD in a worse economic climate.
46.	I have had regard to the fact that the appeal property has a premises licence rather than a club premises certificate. I accept that it is possible that a premises licence can cover the activities of a club, but it can also cover wider uses. Ms Lean asked me to compare the permitted activity under the current premises licence, which allows for the sale by retail of alcohol for consumption on and off the premises, with the definition of qualifying club activities under the 2003 Act, which allows for “the sale by retail of alcohol….for consumption on the premises where the sale takes place”.  The scope of the actual license is wider than that required for a club. 
47.	The user clause in the lease is for a licensed bar, rather than a club.  I was not persuaded by Mr Mayor’s representations on this point that the landlord wanted an element of control by having a named licensee.  The latest planning consent for the property was for a bar and restaurant, and in many respects is in effect a bar.  
48.	All of these elements point to the appeal property being used as a bar, or akin to a bar, rather than a club. I therefore find as a fact that it is a bar and should be valued accordingly.
49.	On this basis, Mr Mayor’s contention was based upon an assumed fair maintainable trade of £70,000; Mr Dodd’s was based upon £150,000. I found Mr Dodd’s comparables and valuation to be persuasive, and am satisfied that his valuation, based upon an assumed fair maintainable trade of £150,000, is correct.  
Disposal
50.	The appeal is therefore dismissed, and the appeal property shall remain in the non-domestic rating list at the compiled list assessment of £11,250 RV with effect from 1 April 2010.
51.	The appeal was heard under the Lands Chamber’s simplified procedure in which costs are only awarded in exceptional circumstances.  I indicated at the end of the hearing that I would allow the parties to make submissions as to whether there were any such circumstances, having previously refused an application from the respondent to transfer the appeal to the Chamber’s standard procedure. A letter containing further directions accompanies this decision.

							

							P D McCrea FRICS
				Dated:  9 July 2015