Business rates advice for our members
Our members are entitled to a free consultation with Colin Hunter, director of Business Rates at Lambert Smith Hampton, who was an expert witness in the landmark business rates appeals won by Tyne & Wear Archives & Museums in 2022 and Exeter City Council on behalf of the Royal Albert Memorial Museum in 2020.
To arrange your 15-minute consultation, at no fee with no strings attached, please email CHunter@lsh.co.uk or visit www.lsh.co.uk for advice. You can find out more about LSH via @LSHTweets and on LinkedIn.
What does RAMM’s landmark business rates victory mean for museums?
On 8 June 2020 a long-running saga in relation to how museums are valued for business rates purposes came to an end when the Court of Appeal refused to allow the Valuation Office Agency (VOA) to appeal against the Decision of the Upper Tribunal (Lands Chamber) (UT(LC) in the case of Stephen G Hughes (VO) v Exeter City Council. Instead, the rateable value for Exeter’s museum, the Royal Albert Memorial Museum (RAMM) was determined at £1 and not restored to the figure of £445,000, as requested by the VOA.
The ruling, while significant for RAMM, also has wider implications for the valuation of all museums.
Lack of comparable evidence
The question of how to value museums or, more specifically, museums in historic Listed buildings is a fundamental one, and has thankfully now reached its legal conclusion. Business rates are based on the notional rental value of every non-domestic property in England and Wales, with minor variations in Scotland and Northern Ireland.
Determining the rateable value of a property is relatively simple for some asset classes, such as shops, offices or warehouses because the majority of said properties are rented and that rental evidence can be analysed and applied to other similar properties in the same location. Other asset classes such as pubs, hotels and commercial leisure attractions are valued by reference to their trading value.
Alternative valuation method
Museums however, are unique buildings with no two being the same and few even being in the same location. In addition, the majority are occupied by the freehold owner and there is no rent paid. Therefore the rental value can’t be determined by looking at comparable rents or even the rent being paid for the property so an alternative approach is required.
In the case of RAMM the VOA had previously argued that the rateable value should be £445,000 based on 5% of the adjusted cost of building a modern substitute, a valuation approach known as the Contractor’s method. RAMM’s rateable value of £1 was determined using the Receipts and Expenditure valuation method, which takes into account the ability of the occupier to pay a rent.
Indirectly, it also reflects the benefit to the landlord of having a tenant to take on the costs of maintaining, repairing, heating, decorating, etc. this historic building. RAMM is a Grade II Listed building which was originally constructed in the 1860’s by a specially created charity. In 1870 it was handed over to Exeter City Council because the charity could not afford the running costs. Over the next 30 years the museum was extended on several occasions using funds donated by the great and the good as well as the local community.
In 2008 a large renovation project was undertaken with expensive structural repairs and an extension paid by the Heritage Lottery Fund. At this point RAMM’s rateable value was reduced to £1 by the Valuation Tribunal for England (VTE) on the basis of an earlier decision of the UT(LC) in 2017 for York Museums and Gallery Trust. The VOA’s appeal to the UT(LC) against the VTE’s decision was intended to overturn the 2017 decision.
The UT(LC)’s decision is a very detailed consideration of all of the factors involved in valuing RAMM and has wider implications for the valuation of all museums. The 2017 UT(LC) decision was itself the outcome of 15 years of discussions and followed on from a decision of the Court of Appeal for two National Trust properties that was handed down in 1996.
So how should museums be valued? The UT(LC) decisions don’t rule out any method of valuation but, if the answer that a method produces is clearly unrealistic it should be set aside, as was the case with RAMM. It is completely unrealistic that a museum dependent upon very heavy annual funding just to break even could then be expected to find another £445,000 of additional funding to pay a rent.
While some museums do run at a surplus, particularly those in prime tourist areas, many will be in a similar position to RAMM. In the 2017 decision of the UT(LC) (Stephen G Hughes (VO) v York Museums and Gallery Trust) rateable values for museums across York ranged from £1 for Yorkshire Museum which, like RAMM, made significant annual losses and always had, to £183,000 for Castle Museum which is on the main tourist trail through York and makes a significant surplus year on year.
For Castle Museum the outcome for the appeal against the 2010 Rating List entry was the same whichever method of valuation was applied, but for Yorkshire Museum the rateable value was reduced from £106,000 to £1!
One size does not fit all
Museums come in all ages, shapes and sizes and which is another reason why a one size fits all approach does not work. A prime example of which is Transport Museum Wythall. This small, volunteer-run museum just south of Birmingham includes a range of former bus garages and a new purpose built industrial style exhibition hall.
The original 2010 rateable value based on the Contractor’s method was £158,000 (having been reduced slightly after a joint inspection). However, this was reduced to £9,000 following an earlier decision of the VTE in January 2018. While each museum must be looked at on its own merits, all museum operators should be reviewing at their rating assessments and asking whether the rateable value truly represents a rent that they could realistically pay to occupy their buildings.