Rateable value and Cat B fitouts: Upper Tribunal says cost can equal value

Hitchings (valuation officer) v Shoosmiths LLP and Mando Group Limited [2025] UKUT 224 (LC)

Summary

In a recent judgment on two appeals by the VO the Upper Tribunal (“UT”) considered the application of the Acenden principle and how best to assess the rateable value of offices in Category B condition.  The UT confirmed that in the absence of comparable evidence the cost attributable to Cat B works is the only appropriate measure of their value.

The UT reversed the decision of the Valuation Tribunal for England (“VTE”), in relation to the Shoosmiths Property, restoring the rateable of £640,000 which had been entered into the 2017 list.  The Tribunal also overruled the VTE’s decision in relation the Mando Property, setting a rateable value of £54,000 (an increase from the VTE’s assessment of £44,000 but still a reduction on the figure of £71,000 that was originally inserted into the list).

Facts and history

In 2023, the Acenden decision caught the attention of the rating world by deciding that a Cat B fit out will be assumed to add value - the only question being “how much”?  

There was no argument in this case that the Acenden principle should not be followed.  The issue was how to calculate the value which the Cat B fit outs had added.

Shoosmiths and the Mando Group appealed the rateable values attributed to their properties (of £640,000 and £71,000 respectively) and their appeals were heard together in 2024.

The VTE took the £25 per m2 which had been accepted in London as the value added by a Cat B fit out and adjusted it down to reflect what it considered were the lower costs in Manchester and Liverpool of manpower and materials. It applied uplifts of £15 and £10 per m2 respectively.   

The effect of this was to reduce the rateable value to £595,000 for the Shoosmiths Property and £44,000 for the Mando Property.  The Valuation Officer (“VO”) appealed. 

The issues before the Upper Tribunal

Shoosmiths and the Mando Group chose not to participate in the appeal.

The UT did not like the approach taken by the VTE which it called “arbitrary and unevidenced”. It made it clear this was not an approach that should be adopted in the future.

The UT set out that (i) the hypothesis requires an assumption that the property is let fitted out to Cat B (ii) the actual occupier can be the hypothetical tenant and (iii) if the property is fitted out to meet the hypothetical tenant’s needs (which we also have to assume) they will pay more for it because they won’t have to fit it out themselves.

The issue therefore was how to value the uplift?  The UT acknowledged that comparable evidence of properties let in Cat B condition is unlikely to be available because it rarely happens in the market. It said that as a point of principle in the absence of comparable evidence the cost attributable to Cat B works is the only appropriate measure of their value. That might leave questions as to what that cost was.

As regards the Shoosmiths Property  the UT did not consider it necessary to comment upon any specific methodology for the Cat B uplift because the 2017 rating list was closed so the maximum value that they could apply to the Shoosmiths Property was the figure that the VO had originally inserted into the 2017 list, of £640,000. The UT decided that the Cat A rateable value was sufficiently high that the rateable value would clearly exceed £640,000 so it thought it better to reserve its view on this point until it made a tangible difference. 

For the Mando property there was some comparable evidence. It “did not inspire confidence” but was still preferable as a valuation method. Ultimately the UT said it had to do the best with the information it had and decided that the comparables pointed towards a £30 per m2 uplift for a Cat B fit out.

Wider application

The decision is interesting in that (i) the UT recognised the likely difficulty of finding reliable comparable evidence for properties let in Cat B and (ii) confirmed that in the absence of that evidence the cost of the Cat B works can, and should, be used as the basis for ascertaining their value to the hypothetical tenant.

This leaves open though questions as to how that cost is ascertained and exactly how the calculation is done.