Scottish Court of Session Decisions

J D Wetherspoon Plc v. Lothian Regional Assessor [2003] ScotCS 50 (27 February 2003)

LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Justice Clerk Lord Philip Lord Kingarth	XA138/02 OPINION of THE LORD JUSTICE CLERK in STATED CASE in the appeal by J.D. WETHERSPOON plc Appellant; against LOTHIAN REGIONAL ASSESSOR Respondent: _______

 

 

 

Act: Haddow QC; DLA

Alt: S.I. Stuart; Drummond Miller WS

27 February 2003

1. This is an appeal against a decision of the Valuation Appeal Committee at Edinburgh dated 28 May 2001 relating to the appellant's public house at 62-66 George Street, Edinburgh. The subjects were entered in the Valuation Roll at the 2000 revaluation at a net annual value and rateable value of £144,000. The appellant appealed against that entry and contended for a net annual value of £110,000. The Committee allowed the appeal to the extent of substituting a net annual value of £130,000.
2. The subjects were valued in accordance with the 2000 revaluation scheme for licensed premises. That scheme is based on turnover adjusted for certain specific items of income and expenditure. For comparison purposes, and as a check, a measure referred to as "reduced floor area" was used to arrive at a turnover per square metre (cf. Belhaven Breweries Group plc v Glasgow Assessor, LVAC February 2003).
3. The Assessor valued the adjusted turnover of the appeal subjects at the tone date at £1,600,000. This figure was said to represent the "hypothetical achievable turnover" on which the scheme was based. The Assessor applied to that figure the agreed rate of 9% to produce the net annual value.
4. The appellant appealed against the entry on the basis that, by reason of the appellant's trading policy of achieving high turnover on low margins, the subjects were over-performing and that the valuation should therefore be based on a turnover lower than the actual turnover.
5. The Assessor produced evidence of the turnovers and turnover rates of numerous premises of a similar nature in central Edinburgh. These showed wide variations in turnover per square metre. However, in relation to the subjects that the Committee adopted as the most apt comparison, namely The Dome, there was a doubt that remained unresolved as to the accuracy of the Assessor's measurement of floor area and, in particular, as to whether that area included the upstairs rooms. This raised related uncertainty as to the turnover rate per square metre which the Assessor had put forward.
6. The appellant produced evidence from the appellant's finance director, supported by the findings of market research, to demonstrate that its trading policy had a significant effect on turnover which distinguished it materially from the turnover of its competitors, both individually and collectively. This demonstrated that the appellant's margins were significantly less than those of its competitors overall. The market research evidence was collated on a UK-wide basis only. The appellant also produced comparative price data from various public houses in central Edinburgh which demonstrated that the appellant's policy was being implemented at the appeal subjects.
7. The appellant offered two similar valuations reached by different methods. The first was based on a hypothetical achievable turnover derived from that of The Dome. The Dome is near to the appeal subjects and on the same side of George Street. Like the appeal subjects, it is a former bank building. The appellant had verified the floor area of The Dome from plans held by the Licensing Board. On the turnover performance of The Dome, namely £2,846 per square metre rounded to £2900, the appeal subjects would have a hypothetical achievable turnover of £1,226,700, which at the rate of 9% would produce a net annual value of £110,403 rounded to £110,000.
8. The second method was based on a comparison of the average profit margin of the appellant's public houses UK-wide with the average profit margin of those of its main competitors UK-wide and an adjustment of the actual turnover of the appeal subjects to a turnover appropriate to the competitors' average profit margin. This evidence showed that the appellant's outlets achieved an average profit margin of 15.8% as against the average profit margin of its competitors of 21.3%. On this method of valuation, the actual turnover of the appeal subjects adjusted in terms of the scheme, namely £1,600,000, was multiplied by a factor of 15.8/21.3. This method produced a net annual value of £106,800.
9. What the Committee did not have was evidence of the actual profit margin of the appeal subjects at the tone date and the corresponding margins of the comparison subjects, individually or collectively.
10. The Assessor offered no alternative method of valuation in which over-performance was taken into account. His position was simply that on the facts the question of over-performance did not arise.
11. The Committee said that it was its impression from the evidence as a whole that at the appeal subjects the appellant was achieving an above average turnover, mainly by price-cutting, which a hypothetical tenant would be unlikely to expect to match (Stated Case, p. 13). It considered that the appellant had proved reasons for over-performance as a generality up and down the country and it was its impression that the appellant was probably over-performing at the appeal subjects as well (ibid., p. 14). For that reason it rejected the argument for the Assessor. On the other hand it rejected both of the methods of valuation tendered on behalf of the appellant, which it described as unconventional, although it considered that they were of value as background information. The Committee decided to take over-performance into account by making an end allowance.
12. The Committee decided that an allowance of 25%, which the appellant's second valuation suggested, was excessive. Looking at the matter broadly on all the information available, it concluded that 10% would be appropriate. It therefore reduced the net annual value to £130,000.
13. Counsel for the appellant submitted that the Committee erred in law in that, having accepted the appellant's evidence that the subjects were over-performing, it had applied an arbitrary end allowance instead of adopting one or other of the appellant's valuations.
14. Counsel for the Assessor said that the Assessor did not challenge the Committee's finding in fact that there was over-performance; but he submitted that the valuation methods by which the appellant attempted to reflect that finding were flawed. He submitted that the making of the end allowance was an appropriate way to allow for over-performance. The amount of that allowance was a matter for the Committee. It could not be said that the Committee's adoption of 10% was unreasonable.
15. For a proper understanding of the issues in this case, it is important, in my view, to be clear as to what under-performance and over-performance mean. A public house may trade significantly better or worse than any of its local competitors for reasons such as location, layout, atmosphere, cleanliness and so on. Such reasons do not justify an adjustment to the turnover on which the Assessor's valuation is based (Haggart v Assessor for Leith, 1912 SC 784, Lord Salvesen at p. 787). But where a public house achieves a lower turnover than it is capable of (eg Belhaven Brewery Group plc v Assessor for Lothian, LVAC, February 2003), or where it achieves a higher turnover than is normally to be expected, that is to say where the quality of its performance cannot be explained on objective criteria of the kind that I have described, the valuer is entitled to adjust the actual turnover to reflect the hypothetical achievable turnover. That, I think, is what over-performance and under-performance should mean in this context.
16. It is not disputed in this case that over-performance exists if an individual ratepayer by a commercial strategy of trading on low margins achieves a turnover that is out of line with the general run of turnover of its competitors. Since that is the case here, some allowance for that should be made in the estimation of the hypothetical achievable turnover of the subjects.
17. Cases will arise, such as this, where the strength of a public house's turnover performance can be explained partly by the objective factors to which I have referred and partly by over-performance in the sense that I have described. In such cases, the extent to which a valuation should be adjusted to reflect the element of over-performance will be a matter for the valuer's skill and, in case of dispute, a matter for the Committee.
18. In my opinion the submission of counsel for the appellant is erroneous in the assumption that the difference in turnover performance between the appeal subjects and The Dome is referable to the appellant's trading policy and to no other factor. If that submission were right, it would lead to a remarkable reduction in the valuation of the order of 25%.
19. In my opinion, the Committee was right to reject both of the appellant's valuations. The first valuation is based on only one comparison, which has a different reduced floor area and where the turnover rate per square metre is in doubt. That valuation proceeds on the idea that, but for the appellant's trading policy, the turnover rate of the appeal subjects would be the same as that of The Dome. That idea, in my view, is naïve. It overlooks numerous factors other than trading policy that affect the turnover performance of one public house as against another; for example, the split between liquor and food sales, the ambience of the premises, the target market, and so on. In this case the split between liquor and food sales at The Dome was 50/50, whereas at the appeal subjects it was 70/30.
20. The alternative valuation method can, I think, be rejected out of hand. It is not related to the turnover of the appeal subjects at all. It simply takes an average of all the UK outlets of the appellant company and compares that average with the overall average of the UK outlets of a number of the appellant's main competitors some of whom, it appears, may not even trade in Scotland. Since these are averages, they tell us nothing about the turnover performance of the appeal subjects in comparison with the main competing subjects in the same locality.
21. In my opinion, the Committee was entitled to adopt the Assessor's methodology but to allow for over-performance by the making of an end allowance (Assessor for Lothian v BAA, 1981 S.C. 141). The amount of the allowance was a judgment that lay within the discretion of the Committee. In my opinion, the Committee did not commit any error of law in deciding the case as it did.
22. I propose that we should refuse the appeal.



LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Justice Clerk Lord Philip Lord Kingarth	XA138/02 OPINION of LORD PHILIP in STATED CASE in the appeal by J.D. WETHERSPOON plc Appellant; against LOTHIAN REGIONAL ASSESSOR Respondent: _______

 

 

Act: Haddow QC; DLA

Alt: S.I. Stuart; Drummond Miller WS

27 February 2003

I agree that the appeal should be refused for the reasons stated by your Lordship in the chair.

 



LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Justice Clerk Lord Philip Lord Kingarth	XA138/02 OPINION of LORD KINGARTH in STATED CASE in the appeal by J.D. WETHERSPOON plc Appellant; against LOTHIAN REGIONAL ASSESSOR Respondent: _______

 

 

Act: Haddow QC; DLA

Alt: S.I. Stuart; Drummond Miller WS

27 February 2003

I agree with your Lordship in the chair.