Understanding How Anaerobic Digester Plants Are Valued for Business Rates: A Key Tribunal Decision

Neutral Citation Number: [2026] UKUT 238 (LC) Case Nos: LC-2025-225 LC-2025-226 IN THE UPPER TRIBUNAL (LANDS CHAMBER) AN APPEAL AGAINST A DECISION OF THE VALUATION TRIBUNAL FOR ENGLAND Royal Courts of Justice, Strand, London WC2A 2LL 29 June 2026 TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007 RATING – VALUATION OF ANAEROBIC DIGESTER PLANTS – receipts and expenditure method – apportionment of divisible balance – tenant’s share – whether any relevant tone established by assessments and settlements – appeals allowed BETWEEN: BAY FARM POWER LTD OAK GROVE RENEWABLE ENERGY LTD Appellants -and- BOB PRESCOTT (VALUATION OFFICER) Respondent Anaerobic Digester Plant, Bay Farm, Worlington, Suffolk IP28 6BS Anaerobic Digester Plant, Scottow Road, Scottow, Norfolk NR10 5GD Martin Rodger KC, Deputy Chamber President and Mrs Diane Martin MRICS FAAV 22-23 April 2026 Daniel Kolinsky KC , instructed by DMH Stallard LLP, for the appellants Cain Ormondroyd , instructed by HMRC Legal, for the respondent © CROWN COPYRIGHT 2026 The following cases are referred to in this decision: Dawkins (VO) v Ash Brothers and Heaton Ltd [1969] 2 AC 336 Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation [2011] RA 399 Introduction 1. Anaerobic digestion is a method of producing energy from organic matter, including crops grown specifically for the purpose, as well as municipal or agricultural waste, or a combination of these materials. The material, referred to as “feedstock”, is broken down by microorganisms at temperatures of 35-50 o C in anaerobic (oxygen free) conditions to produce biogas comprising methane and carbon dioxide. The biogas is then either burnt on site to produce electricity in combined heat and power (CHP) plants, or processed to remove the carbon dioxide, leaving biomethane which can be fed into the UK gas grid.

2. These appeals concern the valuation for non-domestic rating of two separate anaerobic digester (AD) plants in East Anglia using the receipts and expenditure method of valuation. The appeals were presented as test cases for the valuation of AD plants in the 2017 rating list.

3. Bay Farm at Worlington, near Bury St Edmunds, is the site of an AD plant which supplies gas directly to the grid (referred to as a “gas to grid plant”) and which appears in the 2017 rating list with a rateable value of £285,000. The hereditament first entered the list with an assessment of £168,000 with effect from 15 February 2018, but this was increased to its current level by a valuation officer’s notice of alteration with effect from 9 April 2021.

4. Oak Grove at Scottow, near Norwich, is the site of an AD plant at which biogas is burned in CHP gas engines to create electricity (referred to in the evidence as an “electrical AD plant”). It appears in the 2017 rating list with a rateable value of £145,000. It was originally entered in the 2017 list with a rateable value of £164,000 with effect from 1 April 2017 but was first increased then reduced by successive notices of alteration.

5. The Bay Farm appeal was initiated by a proposal served on behalf of the ratepayer, Bay Farm Power Ltd, on 23 September 2022 seeking a reduction in the list entry to a rateable value of £170,000. The Oak Grove appeal commenced with a proposal served on behalf of Oak Grove Renewable Energy Ltd on 20 December 2022 seeking a reduction to £113,000. The valuation officer, Mr Bob Prescott, did not consider either proposal to be well founded and rejected both by decision notices issued on 18 December 2023. The ratepayers appealed to the Valuation Tribunal for England (VTE) on 3 April 2024.

6. In a decision published on 28 May 2025 the President of the VTE, Mr Gary Garland, dismissed the Bay Farm appeal and confirmed the list entry of £285,000. He allowed the Oak Grove appeal and reduced its rateable value to £140,000 with effect from 1 April 2017.

7. Both ratepayers now appeal to this Tribunal. At the hearing of the appeals they were represented by Mr Daniel Kolinsky KC. Evidence was given on their behalf by [NAME], who is a director of both appellants, by [NAME] MBA FIAgrM FRASE of Fisher German LLP, who gave evidence on the AD and renewable energy sectors, and by [NAME] FRICS MCIArb, who gave evidence on valuation. The valuation officer, Mr Prescott, gave evidence in support of his own valuation and was represented by Mr Cain Ormondroyd. We are grateful for the assistance of all who participated in the appeal. The statutory rating hypothesis 8. The rateable value of non-domestic hereditaments is determined by reference to a measure of value prescribed by statute. A variety of techniques or approaches to valuation is available depending on the nature of the hereditament, but the object in every case is the same, namely, to value the hereditament according to the measure prescribed by Parliament.

9. Materially, paragraph 2(1) of Schedule 6 to the Local Government Finance Act 1988 defines the rateable value of a non-domestic hereditament as an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on an antecedent valuation date (AVD) which, in the case of the 2017 list, is 1 April 2015. In estimating that amount it is to be assumed that the hereditament is in a state of reasonable repair and that the tenant will bear the cost of maintaining it in that state and will pay all usual tenant’s rates and taxes.

10. Not all of the plant and machinery which forms part of, or is used in connection with, a hereditament is required to be valued to ascertain the rateable value of the hereditament. The Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (SI 2000/540) (the “2000 Regulations”) were made under paragraph 2(8) of Schedule 6 to the 1988 Act , which permits the Secretary of State to make regulations providing for the making of “prescribed assumptions” in applying the statutory valuation hypothesis. Paragraph 2 of the 2000 Regulations is headed “Prescribed assumptions as to plant and machinery”. It provides: “2. For the purpose of determining the rateable value of a hereditament for any day on or after 1 April 2000, in applying the provisions of sub-paragraphs (1) to (7) of paragraph 2 of Schedule 6 to the Local Government Finance Act 1988 - (a) in relation to a hereditament in or on which there is plant or machinery which belongs to any of the classes set out in the Schedule to these Regulations, the prescribed assumptions are that: (i) any such plant or machinery is part of the hereditament; and (ii) the value of any other plant and machinery has no effect on the rent to be estimated as required by paragraph 2(1); and (b) in relation to any other hereditament, the prescribed assumption is that the value of any plant or machinery has no effect on the rent to be so estimated.” 11. By paragraph 2(a)(i), plant and machinery which appears in any of the classes in the Schedule to the 2000 Regulations is treated as part of the hereditament to be valued. It is sometimes referred to as “rateable”. Other plant and machinery is said to be “non-rateable” and by paragraph 2(a)(ii) and 2(b) in applying the rating hypothesis its value is to have no effect on the rent at which it is estimated the hereditament might reasonably be expected to let. As will be seen, the distinction between rateable and non-rateable plant assumes an additional significance in the Valuation Officer’s approach to the valuation of renewable energy plants of all types (including AD plants, wind or solar farms, hydro and nuclear power installations). In order to understand that significance it is necessary to consider the approach to valuation which has generally been adopted in valuing renewable energy plants for rating including by the experts in these appeals. The receipts and expenditure basis of valuation 12. The Valuation Officer and [NAME] agree that the most appropriate means of valuing AD plants is using the receipts and expenditure basis of valuation. This method is typically employed when valuing hereditaments including the property of statutory undertakers or leisure premises such as pubs, clubs and hotels which are capable of generating profit, but which cannot readily be valued by reference to rental evidence using the comparative method. It takes as its starting point the anticipated profits of the business carried on at the hereditament, valued as a going concern.

13. An illuminating explanation of the receipts and expenditure basis can be found in the speech of Lord Millett NPJ, sitting in the Court of Final Appeal of Hong Kong in Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation [2011] RA 399 at [149]-[159]. That case concerned the rateable value of a single hereditament comprising land, buildings and structures occupied and used by a utility company for the generation, transmission and supply of electricity on Hong Kong Island. It was common ground at the appeal stage that the hereditament should be valued on the receipts and expenditure basis which was explained by Lord Millett as follows: “152. Although profits as such are not rateable, the receipts and expenditure method of assessing the rent which the hypothetical tenant would offer to pay is based on the idea that where a tenement can be used to yield profits as part of a going concern then the hypothetical tenant would be prepared to pay rent for the use of the tenement in order to make the expected profits, and the level of rent would reflect the level of those profits […]. 153. The receipts and expenditure method is therefore not based on the value of the individual assets comprised in the tenement, but on the receipts and expenditure of the undertaking carried on as a going concern upon the tenement. It involves two steps. First, the gross receipts and expenditures that the hypothetical tenant would expect to derive from his occupation of the tenement in the forthcoming year are quantified. These are not necessarily the same as the gross receipts and expenditures in the previous year, which may need adjustment to reflect increasing or declining business. The difference between the expected gross receipts and gross expenditure, known as the “divisible balance”, represents the anticipated profits in the year of the tenancy. […]. 154. The second step is to divide the divisible balance between the hypothetical landlord and the hypothetical tenant. This forms the central issue in the present case. The division must be accomplished by determining the amount of the hypothetical tenant’s share and deducting it from the divisible balance. The hypothetical tenant’s share represents the sum that provides him with a reasonable return on his capital and a reward for his efforts and risks sufficient to induce him to rent the tenement and embark on the enterprise. What is left over is prima facie (see para 159 below) the rent. 155. This process is based on the economic view of rent as a residual payment and the hypothetical tenant’s share as a “first charge” on the returns of the undertaking. The latter expression implies that it is a minimum and not a maximum. Although it is regarded as a first charge on the divisible balance, the valuation must properly reflect the relative strengths and weaknesses of the hypothetical landlord and the hypothetical tenant as they negotiate the rent. The amount which the hypothetical landlord would demand and the hypothetical tenant would be willing to pay will reflect their relative bargaining power. 156. In the Southern Railway case Lord Hailsham observed that the expression “division of the net receipts” (like similar expressions such as “the divisible balance”) is not a very happy phrase to describe the process which is involved, viz. the deduction from the net receipts of the amount necessary to induce the hypothetical tenant to embark upon the undertaking. But, as he observed, this was no justification for treating the hypothetical parties as joint adventurers. Their relationship remained that of landlord and tenant, but if the amount which the hypothetical tenant would require in order to induce him to embark upon the undertaking is properly ascertained and deducted from the total net receipts, the result is to divide the net receipts fairly and justly between the hypothetical landlord and the hypothetical tenant, even though, in an extreme case, the landlord’s share, i.e. the rent, might be nothing at all.” 14. At paragraph [159] Lord Millett added the following important qualification: “159. The receipts and expenditure method is only an aid to the ascertainment of the rent which the hypothetical tenant would be willing to pay; it is not an inflexible code or set of rigid rules. The valuation must take account of “every intrinsic quality and every intrinsic circumstance which tends to push the rental value either up or down” […]. The methodology must be sufficiently flexible to accommodate any feature which affects the amount of rent, whether it is common or rare. It has also been recognised that the receipts and expenditure method, when applied to very profitable undertakings, may result in figure which is too high to be properly regarded as rent […]. In such cases the figure may require a downwards adjustment.” 15. In summary, the tenant’s share, the determination of which is also the central issue in this appeal, comprises three elements, namely, a reasonable return on the tenant’s capital, a reward for his efforts i.e. a profit, and an allowance for the risks of the business, which must be sufficient in aggregate to induce the tenant to rent the hereditament and embark on the enterprise.

16. Guidance on the receipts and expenditure basis is provided in a Guidance Note published by the Joint Professional Institutions’ Rating Valuation Forum in July 1997. This identifies four possible methods of calculating the tenant’s share, once the divisible balance has been determined: by taking (a) a percentage of the hypothetical tenant’s capital; (b) a percentage of the gross receipts; (c) a percentage of the divisible balance; or (d) a “spot” figure. The choice is a matter of valuation judgment and the outcome in each case is a factual determination.

17. The hypothetical tenant’s capital invested in the business is not to be equated with the ratepayer’s capital. The hypothetical tenant’s capital, on which a return on investment is expected, includes the non-rateable plant and machinery comprised in the hereditament; it does not include the rateable plant and machinery, which the 2000 Regulations treat as part of the hereditament for which the hypothetical tenant will be required to pay rent (whether or not the ratepayer provided the rateable plant and machinery).

18. As the Rating Forum’s Guidance Note points out, in order to produce receipts from the undertaking, the tenant will also need to provide working capital for the running of the business, including cash in hand for day-to-day requirements, and cash held on deposit for the purchase of stock or for running expenses. This forms part of the tenant’s capital on which a return would be expected. In this appeal, the hypothetical tenant’s requirement for working capital was quantified in the evidence by reference to the gross receipts for a certain number of weeks of operation.

19. In the Hong Kong Electric case the Lands Tribunal chose to determine the tenant’s share by reference to a given percentage of the divisible balance (option (c) in the Rating Forum’s Guidance Note). The percentage it selected was equal to the percentage of the total fixed assets of the business which were non-rateable (and so, notionally, contributed by the hypothetical tenant rather than the hypothetical landlord). The ratio of non-rateable to rateable assets was 48 to 52 in the Hong Kong Electric case, and the Lands Tribunal calculated the tenant’s share as 48% of the divisible balance, leaving 52% available as rent (see paragraphs [162]-[163]). As Lord Millett explained, this was on the footing that the divisible balance was earned at the same rate on all the company’s fixed assets, whether they belong to the hypothetical tenant or the hypothetical landlord.

20. In this appeal, the valuation officer has also adopted method (c) in his valuations of Bay Farm and Oak Grove; the appellants have adopted method (a), which equates the tenant’s share to an assessed percentage of the hypothetical tenant’s capital. The VTE preferred the valuations officer’s approach but adjusted it to produce a higher tenant’s share and thus a lower hypothetical rent, (although in the case of Bay Farm this did not yield a lower rateable value for reasons which we will explain in due course).

21. It is important to appreciate that no legal principle is involved in the approach taken to ascertaining the tenant’s share. Decisions of this Tribunal on appeals involving the receipts and expenditure basis of valuation are decisions on their own facts which lay down no rules. It was suggested in evidence that recent cases in the Tribunal involving the application of the receipts and expenditure basis to smaller undertakings favoured the use of a simple percentage of the divisible balance, method (c), and that this apparent preference was relevant to the selection of an appropriate method in these appeals. That is a misunderstanding of the significance of Tribunal decisions on issues of fact. The determination of the tenant’s share in an individual case is a determination of an issue of fact which depends on the evidence in that case and on the circumstances of the hereditament being valued; it cannot provide a precedent for the valuation of a different type of hereditament on different evidence. Valuation for rating in the renewable energy sector 22. It goes without saying that consistency is important in rating. As Lord Pearce explained in Dawkins (VO) v Ash Brothers and Heaton Ltd [1969] 2 AC 336 : “rating seeks a standard by which every hereditament in this country can be measured in relation to every other hereditament. It is not seeking to establish the true value of any particular hereditament but rather its value in comparison with the respective value of the rest.” 23. The achievement of consistency in the valuation of similar hereditaments is promoted by the publication by the Valuation Office Agency (VOA) of its own Rating Manual , which instructs valuation officers in how to undertake valuations, and by the establishment of schemes of valuation applicable to particular categories of hereditament. In some cases these schemes are negotiated with the representatives of ratepayers who occupy premises in the relevant category. In such instances they provide an agreed template which can then be applied to hereditaments of that type to arrive at a rateable value. They are an important tool in enabling valuation officers to carry out their Herculean task of maintaining an accurate valuation list containing (in the 2017 list) more than 2.1 million properties. But it is important to emphasise that, while it may be a useful tool, a valuation scheme cannot supplant the statutory basis of valuation.

24. Mr Prescott, who is both the respondent to the appeal and witness, explained in his evidence that, up to and including the 2000 rating list, hereditaments used for generating electricity were valued according to a statutory formula. The use of a formula was discontinued for the 2005 and subsequent lists and the standard approach of valuing by reference to the rent at which the hereditament might be expected to let on certain assumptions became applicable. The receipts and expenditure basis is the preferred method of valuation and, for the 2017 list, the same basic template has been applied by valuation officers across the whole of the renewable energy sector from the smallest photo-voltaic cells to the largest biomass plants. For the 2017 list, this template was designed and populated by Mr Prescott and his colleagues when the list was first compiled, and in that iteration it was referred to as “the 2017 model”.

25. One significant feature of the 2017 model was that the product of the detailed receipts and expenditure valuation was not adopted as the appropriate rateable value in every case. Once the valuation figure had been ascertained, it was made subject to a “cap” and a “collar”, which confined the final rateable value within upper and lower limits represented by 8% and 4% respectively of the notional gross receipts of the business. We were told by Mr Prescott that, of 166 sites valued using the 2017 model, 124 yielded results which fell either above the cap level or below the collar level. These were adjusted either to raise the rateable value to the level of the collar, or to reduce it to the level of the cap. In practice, the level of the cap or the collar was determinative of the rateable value of 75% of the sites in question.

26. The 2017 model was not accepted by ratepayers but in 2021, after prolonged negotiation, a consensus was reached between the VOA and ratepayers in the AD sector (including the appellants) on the adoption of the receipts and expenditure basis of valuation for the 2017 list and on the identification and quantification of all of the inputs required to arrive at the divisible balance. This consensus emerged from a process referred to as a Group Pre-Challenge Review and is recorded in two Memoranda of Agreement (MoA) dated 28 July 2021 signed on behalf of the VOA by Mr Prescott and on behalf of the participating ratepayers by [NAME], who acts for the appellants and who made the proposals which gave rise to these appeals. The first MoA records the extent of agreement in relation to AD gas to grid plants while the second covers electrical AD plants.

27. The details of the agreed inputs need not be referred to, because in each of the appeals the parties have arrived at an agreement on the divisible balance using those inputs as they would have been expected to be during the first three years of operation of the relevant plant after the AVD. But the MoA are relied on by Mr Prescott for a larger purpose, namely as reflecting an acceptance by the participating ratepayers, including the appellants, that the ascertainment of the tenant’s share should begin by apportioning the divisible balance in the same proportions as the rateable and non-rateable capital assets. This is disputed by the appellants and it is therefore relevant to refer to the contents of the MoA.

28. The two MoA are in similar form and we will refer to the version applicable to gas to grid AD plants. The document begins with some definitions and a section headed “general intention and purpose”. This records that the memorandum will “set out the majority of inputs” to be used in the receipts and expenditure valuations of gas to grid AD plants in the 2017 Rating List (paragraph 2.1) and that it is agreed to be the most appropriate method to determine their rateable values (2.2). The document continues: “The purpose of this framework is to provide some certainty around the application of this methodology by setting out some details, necessary for the application of this valuation approach, that have been agreed between the parties.” 29. The MoA dealt in considerable detail with valuation inputs and indicated clearly where changes had been agreed to the VOA’s original 2017 model. The last input in the calculation of the divisible balance was a deduction for the depreciation of tenant’s assets, after which the MoA dealt with tenant’s share and risk adjustment. On these topics the MoA said this: “3.13 Deductions for depreciation of tenant’s assets The parties agreed to raise the default capex up from £4,000,000/MW to £4,500,000/MW. The parties agreed no changes were required to the depreciation deductions, and the existing split of 55/45 rateable non rateable ratio should be retained. 3.14 Tenants share and risk adjustment The 2017 model’s starting point for arriving at the “tenants share” is the capital allocation of non-rateable / rateable items at 45/55. This was agreed by the parties as above. The existing model acknowledges our operator would demand more of the operating profit, adding a 10% risk premium giving a Tenant’s share of 49.5 %. The parties were not able to agree on this aspect. The VOA will therefore maintain their existing approach, with [NAME] reserving his position as to pursuing this further.” 30. The parties disagree over the extent of the agreement recorded in the MoA, and in particular over the meaning of “This was agreed by the parties as above” in the first paragraph of 3.14. Mr Prescott told us that he understood this to be an acceptance that the tenant’s share was to be based on the agreed split of capital assets, to which he then proposed an adjustment by the addition of a 10% risk premium, which was not agreed. Mr Kolinsky KC submitted that Mr Prescott’s subjective understanding of the document was irrelevant and that his evidence on it was inadmissible. He called no evidence from [NAME] to explain his understanding of the MoA and treated the document as if it were a contract to be interpreted according to well established principles of contractual interpretation which exclude reliance on the subjective intention or understanding of the parties. Mr Kolinsky’s interpretation of clause 3.14 was that the first sentence recorded what was in the VOA’s 2017 model while the second sentence confirmed that the 45/55 allocation of non-rateable and rateable items was agreed, as recorded in the preceding paragraph, it went no further than that. It was not to be understood as an endorsement of the approach taken in the 2017 model which used the same ratio to determine the tenant’s share of the divisible balance.

31. It is possible that Mr Prescott and [NAME] were at cross-purposes when they signed the MoA, although it is clear that they did not agree on the final proportion to be applied to the divisible balance. It seems to us that Mr Prescott’s understanding of the document accords with its more natural meaning, especially when it is remembered that the parties took the 2017 model as the starting point of their negotiation and indicated clearly what changes they intended to make to it. But ultimately, and despite the detailed argument we received on this issue, we do not think the meaning of the MoA matters. It was not suggested by either party that the Tribunal is bound by the MoA, or that the appellants were prevented by whatever [NAME] had agreed from advancing a different case relying on the opinion of [NAME]. The Tribunal will obviously respect the parties’ agreement on the quantum of the divisible balance, and we have been presented with no evidence which would enable us to form a different view. But the Tribunal is not obliged to adopt a particular method of valuation, or to apply an agreed methodology in a particular way, if it is satisfied that doing so would not produce an outcome which accords with the statutory hypothesis. It would be an extreme case for the Tribunal to reject a consensus between expert witnesses (although as an expert tribunal we would be entitled to do so), but in a case like this, where the experts giving evidence do not agree on a matter of valuation judgment, the fact that a different expert may have shared the view of the valuation officer at an earlier stage is not a matter to which any significant weight can be given.

32. The MoA finally recorded that there had been no detailed discussion of the valuation cap but that the VOA intended to continue applying an upper cap of 8% and a lower collar of 4% for gas to grid AD plants (the cap for electrical AD plants was increased to 10%).

33. The only potential significance of the MoA, and the approach it appears to take to the ascertainment of the tenant’s share, is that it