The Upper Tribunal has handed down judgment in a leading case on the effect of tenant’s fit out works on the rateable value of Grade ‘A’ office premises in Manchester and Liverpool (Hitchings (VO) v. Shoosmiths LLP and Mando Group Ltd [2025] UKUT 224 (LC)). Some headline points from the judgment:
- The Tribunal saw no reason to depart from the decision in Acenden which had firmly rejected the proposition that a building in Category B condition is worth no more than a building in Category A condition, again confirming that the rateable value of the building is
increased by tenant’s fit out works.
- The Tribunal accepted the VO’s argument that sub-lettings, lettings following a business failure (where the tenant hands the property back to the landlord with the Cat B fit out work still in situ), and rent reviews, were not reliable or realistic comparables and should be treated with caution. In reality, in most cases reliable comparables were unlikely to be available, and as such a different valuation methodology would be required.
- In the absence of realistic newly fitted comparables, the Tribunal had no difficulty in accepting that the Cat A rent plus the amortised cost to the tenant of doing the Cat B fitting out work itself may be the best, or at least very significant, evidence of the annual value to the tenant of the property in Category B condition.
- The fit out cost is to be amortised over the estimated useful life of the fit out or the term of the lease (whichever is shorter), at the rate of the tenant’s cost of capital. The rate of 4.5% for the relevant period was considered reasonable in this case.
- The decision of the Valuation Tribunal’s selection of £10 per m2 and £15 per m2 for the Category B uplift for Liverpool and Manchester respectively was arbitrary and unevidenced and should not be followed. The Upper Tribunal arrived at an uplift of £30 per m2 for Liverpool. For Manchester, the Tribunal did not determine the value of the property in Category B condition as the Category A valuation was sufficiently high to confirm the RV in the list and make this unnecessary.
The Upper Tribunal departed from the findings of the VTE on two other specific points on valuation:
- It was not appropriate to apply the ratepayer’s suggested quantum discount of 7.5% where a hereditament was taken on two separate leases as the total area let had already been factored into the agreed rent.
- The ‘toning back’ adjustment for time should be done using the date the rent was agreed rather than the date the lease was completed because the rent represents what the market was saying at that former date.
The VO’s appeal was allowed.
Jenny Wigley KC and Aaron Walder of Landmark Chambers represented the VO.
The Judgment is here.
