Eurolink Motorway Operation Ltd v Commissioner of Valuation
| Jurisdiction | Ireland |
| Judge | Hon. Mr. Justice Alexander Owens |
| Judgment Date | 08 February 2021 |
| Neutral Citation | [2021] IEHC 84 |
| Docket Number | [2020 No. 943 SS] |
| Court | High Court |
| Date | 08 February 2021 |
[2021] IEHC 84
Alexander Owens
[2020 No. 943 SS]
THE HIGH COURT
Section 48(3) of the Valuation Act 2001 (the 2001 Act) is almost identical to valuation provisions in rating legislation in the State and in the United Kingdom going back to the early 19th century. It now reads as follows:
“…,for the purposes of this Act, ‘net annual value’ means, in relation to a property, the rent for which, one year with another, the property might, in its actual state, be reasonably expected to let from year to year, on the assumption that the probable average annual cost of repairs, insurance and other expenses (if any) that would be necessary to maintain the property in that state, and all rates and other taxes in respect of the property, are borne by the tenant.”
Rates are levied on the “occupier” of rateable property. “Occupier” is defined in s.3(1) of the 2001 Act as meaning, “in relation to property (whether corporeal or incorporeal), every person in the immediate use or enjoyment of the property.”
The substance of the question asked in this appeal by way of case stated from the Valuation Tribunal is whether in conducting a valuation under the provisions of s.48(3) of the 2001 Act, the estimated annual value of what is described as a “Revenue Share”, being payments which Eurolink Motorway Operation Limited (Eurolink) is obliged to remit to Transport Infrastructure Ireland (TII) under the terms of a public private partnership (PPP) agreement made under s.63 of the Roads Act 1993 (the 1993 Act), should be disregarded in determining the “net annual value” (NAV) of the toll rights of the Kinnegad bypass on the M4/M6 motorway.
I use the word “disregarded” because resolution of this issue does not depend on which valuation method is adopted in arriving at the NAV of the toll rights. As the receipts and expenditure (R&E) method of valuation was applied in this case, the effect of the Tribunal's decision was that the estimated annual receipts were not reduced by an element equivalent to the annual estimated amount of the “Revenue Share” in calculating the amount available as the divisible balance used to determine the bid of the hypothetical tenant under s.48(3) of the 2001 Act.
In order to answer the question asked by the Tribunal, it is necessary to identify the property which is to be let to the hypothetical tenant for the purposes of the valuation construct set out in s.48(3) of the 2001 Act. Rating involves valuation of the occupation right of “property” at “net annual value” without regard to any arrangements under which that property is in fact occupied. Physical or legal advantages or disadvantages of property which affect it in the hands of any occupier are matters which the potential hypothetical tenant may take into account as relevant in a bid for the tenancy. An example of a legal disadvantage of a property would be a freehold restrictive covenant which restricts uses of a building. An example of a legal advantage of property is that the occupier of the tolls of the Kinnegad bypass has the benefit of statutory rights which enable it to enforce payment of toll charges.
While the general rules relating to valuation of property for rating purposes may be stated simply, they are often not easy to apply in practice.
If property being valued for rating purposes is in fact currently occupied in return for occupation rent or payment, the annualised value of the amount payable is usually only relevant as evidence of a possible comparator with rent which a hypothetical tenant from year to year might pay and not as a deduction in fixing rent. This is because that property must be valued on the basis of the bid of the hypothetical tenant for occupation using the statutory valuation construct.
For this reason, in general, the annualised amount payable by a grantee in occupation of rateable property as consideration for the occupation right is excluded as an expense when the property is being valued using the R&E method. The purpose of the valuation is to arrive at the annualised amount payable by the hypothetical tenant under the rating valuation construct. To introduce this actual rent as a deduction would involve an element of double count, even though it would be included as an “expense” in the accounts of the actual occupier.
Where rateable property is let, the terms of any letting dealing with covenants for repair and renewal are irrelevant. If the terms of the letting are silent on obligations to repair or renew, this is also irrelevant. The only relevant matter in the valuation is the statutory assumption that the hypothetical tenant will carry the burden of expense necessary to maintain the property in a state which will command the hypothetical annual rent.
If it is an inherent feature of a property that, irrespective of who occupies it under the hypothetical letting, its income earning capacity is restricted, then that feature can be taken into account. If this restriction flows only from the terms on which a particular person is in occupation of the property, then it will be disregarded. The same result flows if the actual occupier is restricted in some other way in the application of an income stream derived from the property, whether as a result of statute or otherwise.
This distinction between disadvantages which are inherent in property and disadvantages which flow from the terms on which a particular person is in occupation of that property is central to the resolution of the issue in this case.
It is necessary to be careful when considering the English authorities dealing with valuation of public utilities, such as docks and power stations. Some of these authorities considered situations where legislation governing the operation of the utility was such that the statutory undertaker operating that utility was the only possible hypothetical tenant. Analysis of whether the particular utility had inherent legal features which prevented or restricted earning capacity arose in that context. These authorities do not deal with the impact of arrangements where occupation of a rateable property can be given by a statutory undertaker to somebody else and has been given to somebody else, as is the case here.
The primary issue which I have to determine is whether, because the rights of Eurolink to the tolls of the Kinnegad bypass are derived from the PPP agreement which was made under authority of the 1993 Act and contains public law rights and obligations, the “Revenue Share” must be treated as what I would describe as a statutory “working expense” of the tolls in the R&E method of valuation.
Another issue was raised by Eurolink. This issue is whether the cost of performing payment obligations relating to the “Revenue Share” can be deducted as “an expense… necessary to maintain the property” “in its actual state”. This is resolved by analysing whether these outlays are required to maintain the property in a state fit to command the rent and whether the statutory hypothesis permits in this context consideration of the terms relating to enforcement of payment in the agreement under which the actual occupier holds the property.
My answer to the question raised in the case stated is that the Tribunal did not err in law in concluding that an annual estimate of the “Revenue Share” is not deductible in calculating the NAV of the tolls using the R&E valuation method. The “Revenue Share” is a grantee obligation under the PPP agreement. It is not such an intrinsic feature of the tolls as requires that it be deducted. Furthermore, it is not an “expense…. that would be necessary to maintain the property” consisting of the tolls “in its actual state” within the meaning of s. 48(3) of the 2001 Act.
Eurolink argues that the valuation under s.48(3) of the 2001 Act should take the “Revenue Share” into account as a disadvantage of the property. It says that this should be deducted from gross receipts in the R&E valuation. The PPP agreement only allows Eurolink to “retain” a proportion of the toll receipts in the sense that it obliges Eurolink to account to TII for the “Revenue Share”, calculated using a formula which takes traffic volume and other factors into account.
Eurolink refers to the PPP agreement and provisions of the 1993 Act and the relevant bye-laws. The PPP agreement committed the National Roads Authority (NRA) in both private and public law to create the tolls and pass them immediately to Eurolink for 30 years in accordance with its terms. Eurolink argues that the tolls cannot be valued by reference to the bid of a hypothetical tenant without taking the “Revenue Share” into account because payment of this is a statutory restriction on the income earning capacity of the tolls. The NRA has now been subsumed into TII.
Eurolink also submits that the “Revenue Share” should be treated as an “expense… that would be necessary to maintain the property” “in its actual state” as part of the valuation assumption required by s.48(3) of the 2001 Act and that it should be deducted for that reason.
Eurolink refers to documents in the PPP tendering process indicating that a purpose of the formula devised to calculate the “Revenue Share” is to ensure that over the 30-year term of the PPP agreement Eurolink will not get over-remunerated. The PPP agreement states that the purpose of the “Revenue Share” provisions is “so as to enable the Authority to participate in the revenue being generated by the Project Road.”
The Commissioner of Valuation (the Commissioner) argues that the statutory construct of the notional tenancy under s.48(3) of the 2001 Act requires valuation of a hypothetical tenancy of the “tolls” described in...
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