Redrose Ltd v Thomas

Factual and Procedural Background

This appeal concerns a rating valuation dispute over a complex of self-catering holiday units known as the appeal property, located in a rural village within a national park area. The appellant, Company A, challenged the valuation placed on the property in the 2010 rating list, which was initially set at a rateable value (RV) of £13,000 and then reduced by the Valuation Tribunal for Wales (VTW) to £11,750. The respondent, the Valuation Officer (VO), maintained that the VTW's valuation was not excessive. The appeal proceeded under the Lands Chamber’s simplified procedure, with Company A represented by a director and the VO appearing in person. Evidence was presented by both parties, including expert testimony on tourism and valuation matters. The Tribunal also conducted a site inspection of the appeal property. The material valuation date was 1 April 2010, with an antecedent valuation date of 1 April 2008.

Legal Issues Presented

1. Whether the valuation tone applied by the Valuation Officer produces a reliable valuation for self-catering holiday units.
2. Whether the Valuation Officer’s receipts and expenditure (R&E) valuation accurately reflects the economic realities of the appeal property.
3. What is the appropriate apportionment of the divisible balance between landlord and tenant for the purposes of the R&E valuation.
4. Whether the rateable value determined by the Valuation Tribunal for Wales should be reduced further.

Arguments of the Parties

Appellant's Arguments

• The appellant argued that the VOA’s valuation approach failed to properly reflect the economic realities of self-catering holiday businesses, which are not typically let on a rental basis to tenants running the business, making rental evidence unreliable or unavailable.
• It was contended that the VOA’s use of a “tone” based on limited rental and financial data produced inflated valuations not justified by actual market conditions or the business model.
• The appellant emphasized that the business involved exceptional workloads performed by the operators themselves, which should be reflected by increasing expenditure figures or adjusting the tenant’s share of the divisible balance to reflect this effort.
• Directors’ salaries should be included as expenditure, as excluding them causes double taxation and unfair valuation outcomes.
• The appellant submitted that the appropriate rateable value should be around £6,000 based on a revised receipts and expenditure valuation incorporating realistic income, expenditure, and tenant’s share assumptions.
• The appellant criticized the VOA for a lack of transparency and understanding of the self-catering sector, describing the VOA’s valuation process as opaque and dismissive of the business’s particular characteristics.

Respondent's Arguments

• The Valuation Officer explained that rental evidence for self-catering units was scarce, so the receipts and expenditure method was the accepted valuation approach.
• The VOA relied on return forms submitted by occupiers and consultation with industry bodies to develop a tone based on rate per single bed space (SBS), adjusted for quality and location.
• The VOA’s valuation excluded directors’ salaries from expenditure on the basis that tenant remuneration is reflected in the tenant’s share of the divisible balance.
• The VOA considered the appellant’s actual expenditure excessive compared to other comparable properties and adjusted expenses accordingly.
• The VOA maintained that the rateable value of £11,750 determined by the VTW was not excessive and reflected a consistent approach across the region.
• The VOA noted discrepancies in the number of bed spaces used in the VTW valuation versus the actual number, and justified the valuation tone despite limited rental evidence.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal began by acknowledging the scarcity of rental evidence for self-catering holiday units, which limited the reliability of the valuation tone based on rate per single bed space. The VOA’s tone was derived from limited rental and financial data, and the Tribunal found this approach insufficiently reliable for the appeal property.

The Tribunal accepted that the receipts and expenditure method was the appropriate starting point for valuation, as rental evidence was minimal and often not at arm’s length. The appellant’s accounts, despite being prepared under tax-minimizing accounting rules, were considered a more reliable guide to expenditure than the VOA’s adjustments based on comparables, some of which post-dated the antecedent valuation date.

The Tribunal rejected the appellant’s initial submission that no business tenancy market existed for self-catering units but agreed that the hypothetical tenant would require a larger share of the divisible balance (75%) to reflect the exceptional workload and modest financial rewards inherent in the business. The VOA’s 50/50 split was deemed unrealistically low.

Directors' salaries were excluded from expenses consistent with VOA guidance, as tenant remuneration is accounted for in the tenant’s share of the divisible balance. The Tribunal rejected the appellant’s argument that directors’ salaries should be included as expenses to avoid double taxation, emphasizing the hypothetical tenant basis of valuation.

The Tribunal also noted that the appeal property’s number of bed spaces had been understated in the VTW valuation and that the VOA’s tone-based valuation did not adequately account for the property’s specific circumstances or the wider economic and competitive pressures on the self-catering sector.

On balance, the Tribunal found the appellant’s revised receipts and expenditure valuation to be more reflective of the true economic position and allowed the appeal, reducing the rateable value to £6,000.

Holding and Implications

The appeal is ALLOWED. The Tribunal directs that the rateable value of the appeal property in the 2010 rating list be reduced from £11,750 to £6,000 effective from 1 April 2010.

This decision directly affects the parties by substantially lowering the appellant’s business rates liability. The Tribunal did not award costs, finding no basis for such an order. No new precedent was established beyond the application of established valuation principles to the particular facts of this case.