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Property Valuations Must Be Carried Out in the Real World

Property valuations must be carried out in the real world and an absence of market demand may render even very large properties all but worthless. In a ruling that will be required reading for property professionals, the Court of Appeal made that point in reducing the rateable value of an office block from a six-figure sum to a nominal £1.

The run-down and old-fashioned three-storey block, which provided more than 6,000 square metres of office space in a seaside town, had for many years been let to the Department for Work and Pensions (DWP). A property investment company had, however, taken a virtual assignment of the lease, effectively stepping into the DWP’s shoes and taking over all the responsibilities of the tenant.

The DWP had given notice of its intention to vacate the property before the date on which the building stood to be valued for rating purposes and it was empty by the time the local non-domestic rating list was compiled. The local authority nevertheless assessed the property’s rateable value at £490,000.

In allowing the company’s appeal against that decision – and fixing the rateable value at £1 – the Valuation Tribunal for England (VTE) accepted that there was no demand in the area for such a large and tired building. The property had been on the rental market for over five years without any interest being expressed. That ruling was, however, subsequently overturned by the Upper Tribunal (UT) and the council’s valuation was reinstated.

In upholding the company’s challenge to the latter decision, the Court ruled that the UT had erred in law. On the agreed basis that nobody in the real world would have been prepared to occupy the building as at the valuation date, and to pay a positive price for doing so, it was impossible to say that there was any actual demand in the marketplace for such occupation. In the absence of any real demand, there was no principle of law that required such demand to be assumed. In the circumstances, the UT’s approach to the valuation amounted to manufacturing demand from thin air.