Pavlou (VO) Re: 10 Paternoster Square

Factual and Procedural Background

This appeal concerns a decision by the Valuation Tribunal for England (VTE) regarding a proposed alteration to the 2010 local non-domestic rating list for a restaurant and premises located at Lower Ground and Ground Floor, 10 Paternoster Square, The City.

The ratepayer made a proposal on 3 November 2011 citing a material change of circumstances occurring on 17 October 2011, namely the closure and restrictions at Paternoster Square due to the Occupy London protest outside St Paul's Cathedral. This protest significantly reduced footfall and trade at the hereditament.

The Valuation Officer (VO) received the proposal on 7 November 2011, which was the material day for this appeal. The VTE allowed the ratepayer's appeal, applying a temporary reduction to the rateable value based on a 22.5% rental concession granted by the landlord to the tenant during the protest period, effective from 17 October 2011 to 28 February 2012.

The VO appealed the VTE decision on 19 December 2013, contesting both the finding of a valuation effect from the material change of circumstances and the amount of the rateable value reduction. The ratepayer did not respond, so the appeal was unopposed.

The hereditament consists of two combined retail units fitted out as a wine bar and restaurant with indoor and outdoor seating, situated in a privately owned and managed development at Paternoster Square, adjacent to St Paul's Cathedral.

During October 2011, the Occupy London protest camp was established at St Paul's Churchyard, resulting in restricted access to Paternoster Square enforced by police and private security. The protest persisted through late 2011 and early 2012, culminating in a High Court possession order and eventual clearance of the camp on 28 February 2012.

On 23 December 2011, the landlord granted the tenant a rent concession equivalent to one-twelfth of the annual rent (£12,500) and deferred payment of the remaining quarter's rent, described as a personal concession without admission of liability.

Legal Issues Presented

1. Whether the Occupy London protest constituted a material change of circumstances sufficient to affect the rateable value of the hereditament under the statutory rating hypothesis.
2. Whether the protest was too transient to be reflected in the rental bid at the antecedent valuation date (AVD).
3. The relevance and appropriate treatment of the actual rent concession made by the landlord to the tenant in determining the rateable value.
4. The correct calculation and extent of any reduction in rateable value arising from the material change of circumstances.

Arguments of the Parties

Appellant's Arguments

• The Occupy London protest, although a material change of circumstances, was too transient for a hypothetical landlord and tenant to agree a lower rent under the statutory rating hypothesis.
• The protest was an example of a temporary disruptive event typical in a major city and already reflected in market rental values.
• The protest was inherently unsustainable with ongoing eviction proceedings, and at the material day, it was not foreseeable that the protest would last beyond Christmas.
• The hypothetical tenant would take a longer-term view, considering the protest a temporary disruption unlikely to affect annual rent significantly.
• The actual rent concession was an ex gratia payment made by the landlord to the tenant in a contractual lease context, not reflecting the statutory rating hypothesis assumptions.
• The landlord’s injunction and closure of Paternoster Square contributed to the tenant’s loss, making the rent concession a goodwill gesture rather than a rental reduction.
• The VTE’s calculation of the rent concession as 22.5% of rent payable during the protest period was incorrect; the concession should be annualised, resulting in an 8% reduction.
• Only the portion of the rent concession attributable to rental value (after excluding goodwill) should be considered, reducing the allowance to 5%.
• The ratepayer’s turnover reduction evidence was irrelevant as it was incomplete and would not have been available to hypothetical parties; rental comparables are the proper basis for valuation.
• The corrected rental rate per square metre (318.50) should be applied, resulting in a higher rateable value than that used by the VTE.

Appellee's Arguments (As Interpreted from VTE Decision)

• The VTE accepted that the protest was a material change of circumstances affecting the rental bid at the material day.
• The protest was not too transient to affect the rateable value, as it was likely to disrupt the busy trading period before Christmas.
• The best evidence of the rental reduction was the actual 22.5% concession granted by the landlord to the tenant.
• A temporary reduction of 22.5% was applied to the rateable value for the protest period, reflecting the real effect of the protest on rental value.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed the relevance of the ratepayer’s turnover reduction and the corrected rental value per square metre. It agreed with the appellant that turnover figures were not relevant and accepted the correction to the rental rate, allowing the VO to adjust the compiled list entry accordingly.

The court then considered whether the Occupy London protest constituted a material change of circumstances sufficient to affect the rateable value under the statutory rating hypothesis. It concluded that the protest, established for three weeks by the material day and accompanied by obstructions and security measures, was not too transient. The hypothetical tenant would have anticipated the protest’s serious intent and likely duration, and thus would not pay the same rent as if the protest had not occurred.

The court rejected the appellant’s primary argument that the protest was an expected transient event that would not influence rental bids. It found that the protest’s nature and likely duration meant a reduction in rental value was justified.

Regarding the rent concession, the court analyzed the VTE’s approach and the appellant’s alternative calculation. It found both approaches flawed: the VTE’s based on the actual protest length was not known at the material day, and the appellant’s annualised approach assumed the protest would last a year, which was not supported.

The court reasoned that the rent concession should be analyzed over the expected protest duration as understood by the landlord and tenant at the time of the concession, approximately 160 days. The concession represented 19% of the rent payable for this period, including goodwill loss. Applying a 50:50 split between rental value and goodwill loss yielded a 9.5% reduction in rental value.

The court further concluded that a hypothetical tenant at the material day would anticipate the protest lasting until the end of March 2012 but no longer, justifying a 9.5% rental reduction from the corrected rateable value.

Holding and Implications

The appeal is ALLOWED IN PART. The court determined that the rateable value of the hereditament should be reduced to £148,000 with effect from 17 October 2011, reverting to £164,000 when the Occupy London protest ended on 28 February 2012.

The direct effect of this decision is a temporary reduction in the hereditament’s rateable value reflecting the material change of circumstances caused by the protest. The decision refines the approach to assessing transient events and the treatment of actual rent concessions in rating valuations, but it does not establish a new precedent beyond the application of existing statutory principles and case law.