Insight

Landmark business rates appeal affecting museums dismissed

Museums across England and Wales will be breathing a little easier this week after an appeal by the Valuation Office Agency against the Royal Albert Memorial Museum (RAMM) and Art Gallery in Exeter was dismissed by the Upper Tribunal (Land Chambers).

The appeal had been lodged against a 2018 decision by the Valuation Tribunal for England which determined the Rateable Value (RV) of the museum at £1, effective from 1 April 2017.

RAMM had been entered into the 2010 non-domestic rating list at a RV of £510,000, with effect from 15 December 2011, following a refurbishment project that had started in 2008. Ratepayer Exeter City Council had appealed the six-figure valuation and a revised RV of £445,000 was agreed.

The Council followed this up with a further proposal to alter the rating list on 18 September 2017 after the Upper Tribunal’s decision in Hughes (VO) v York Museums and Gallery Trust [2017] which determined the RV on the 2010 list at £1 using the receipts and expenditure as the basis of the valuation.

At the time, the VTE allowed RAMM’s appeal and concluded: “in applying the reality principle to the rating hypothesis for this property, it could not reasonably be expected to have achieved, on an open market letting, a positive rent. The benefit to be derived from its occupation was clearly not financial and, while there may be some socio economic benefit to the area, this has not been shown to be significant enough to off-set the financial burden which would rest on the hypothetical tenant of the property occupying it for the purposes of use as a museum.”

The VTE ordered that the museum and art gallery should be entered in the list at a RV of £1 with effect from 1 April 2015 and (by agreement) that the café should be the subject of a separate entry in the list at a RV of £14,750.

To add a little historical context, RAMM was originally built as a memorial to Prince Albert following his death in 1861 and its uses reflected his range of interests and ideas. The original design was to house a museum, a library/reading room and the newly founded Exeter Colleges of Art and Science.

Now a Grade II listed building, major works of repair and improvement were undertaken between 2008 and 2011 including essential repairs and extensions to the museum. Two earlier nineteenth century extensions were demolished and a new disabled access was created at the rear of the building. The works were completed and the museum re-opened on 15 December 2011.

The Upper Chamber had to examine and decide what is the appropriate valuation method to determine the rateable value of RAMM and what that RV should be.

Ahead of the appeal some elements of the case had already been agreed by ECC and the VOA namely:

  • The mode or category of occupation of RAMM is that of a museum and premises.
  • The limited rental evidence available cannot be analysed and applied to RAMM by
    direct comparison;
  • If the Receipts and Expenditure (R&E) method of valuation is used the resultant RV is £1;
  • In the context of the Contractor’s Basis (CB) of valuation: the valuation should adopt a modern substitute building approach. The unit cost of building a modern equivalent building is £3,450 per m2, inclusive of preliminaries, fees and external works.

In conclusion of the appeal, The President of the Tribunal, the Hon. Sir David Holgate and A J Trott FRICS said there were no direct rental evidence that could assist in the valuation of RAMM. The evidence submitted of the open market lettings of the Design Museum and the Saatchi Gallery in London didn’t indicate any support for the Appellant’s valuation based on the Contractors’ Basis. The evidence of open market rents for other hereditaments – in this mode or category of occupation – suggested that the parties had regard to trading potential and not capital costs.

Whilst the receipts and expenditure method produced a nominal rateable value of £1 the contractors’ basis indicated a rateable value of £561,644.

The judges recommend that the valuer should: “stand back and look at this result in the context of the large operational deficit faced by the Respondent and the high level of annual subsidy that it must provide to sustain the museum in the face of competing demands for its limited resources.”

They added that the valuer would also have to consider the hypothetical landlord’s desire to rid himself of the considerable burdens of occupation (exacerbated by the abnormally high operating costs of a Grade II historic building) and the non-profit motive for operating the museum. Taking all this into account the valuer must then ask whether the tenant’s responsibilities were so great that occupation of RAMM was in fact burdensome and therefore would not command any positive rent.

“In our judgment the evidence points unequivocally towards such a conclusion,” they stated.

The Judges concluded the CB method couldn’t be appropriately be applied in such circumstances as any hypothetical tenant would walk away from the deal at anything other than a greatly reduced rent to that produced by this method.

“Accordingly, the evidence…. leads to the conclusion that when RAMM is assessed in its mode or category of occupation as a museum – occupied not for profit but for the socio-economic benefits it generates – the hypothetical tenant could only reasonably be expected to pay no, or a nominal, rent on the statutory hypothesis. This conclusion is supported by the outcome of the R&E method and by the approach taken to other hereditaments in this mode or category of occupation.”

The full 71-page judgement can be seen here: http://landschamber.decisions.tribunals.gov.uk//judgmentfiles/j1570/RA-73-2018%20final.doc.pdf

 

Your Comments

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Does this decision mean that every museum in the country, in a listed building under financial constraints, will be able to have it’s RV reset to £1.00, effective 2015?
If this is so, it will be another huge loss of revenue and back dated refund bills, for many hard pressed Billing Authorities throughout the UK.

By Julian Rosenthal

“For the reasons given above we dismiss the appeal and uphold the VTE’s decision that the rateable value of RAMM in the 2010 local non-domestic rating list should be £1 with effect from 15 April 2015” – not 2017.

By Correction

A good write up from Mr Hicks, but there is a bit missing. The Valuation Office might appeal to the Court of Appeal . They are as yet undecided. I saved my clients the National Motorcycle Museum a vast amount of money on Rates , literally in the ante room of the Tribunal. Thereby negating the need for litigation. This area of Rating valuation and law is not yet finalised.
Mr Rosenthals comments are interesting. It is not the duty of Ratepayers to keep Councils afloat. More the other way round. the Councils duty is to serve, not to be served by Ratepayers.
Gordon Garnett MRICS Dip Rating, Director Colliers.

By Gordon Garnett Colliers

I was the Expert Witness for Exeter City Council and I would like to thank Stuart for his informative write up of the decision. There is however a lot more meat to the decision than first meets the eye.

As well as advising Exeter I am also the appointed advisor to the Association of Independent Museums (AIM). This is the culmination of more than a decade of dispute and discussion with the Valuation Office and the third time I have been involved in an appeal at this level on behalf of a museum body. The previous outcomes have always been that the museums should be valued by reference to their potential to produce income in order to pay a rent, and not the cost of building a substitute property. Some museums are capable of producing a surplus and so will have a positive value. But many are dependent upon subsidies and grants to continue to provide the cultural and educational resource to the public. As Gordon Garnet has pointed out the decision may yet be appealed to the Court of Appeal. The Valuation Office have until 7th February to make their application. I can say that they are seriously considering whether or not to appeal, so watch this space.

Anyone interested in business rates for museums might like to visit the AIM website to view the Success Guides – Successfully Negotiating Business Rates.

By Colin Hunter