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URL: http://www.bailii.org/scot/cases/ScotCS/2008/CSIH_4.html
Cite as: [2008] RA 148, 2008 GWD 3-56, 2008 SC 293, [2008] CSIH 4, [2008] ScotCS CSIH_04, [2008] ScotCS CSIH_4

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LANDS VALUATION APPEAL COURT, COURT OF SESSION

Lord Justice Clerk

Lord Clarke

Lord Hodge

[2008] CSIH 4

XA142/07

OPINION OF THE LORD JUSTICE CLERK

In the Appeal by

REID FURNITURE LIMITED

Appellant;

against

THE LOTHIAN ASSESSOR

Respondent:

_______

For the appellant: Haddow, QC; McKay & Norwell

For the respondent: Doherty, QC; Drummond Miller, WS

15 January 2008

Introduction

[1] This is an appeal arising from the 2005 revaluation. It relates to a retail warehouse occupied by the appellant at Kinnaird Park, Edinburgh. The 2005 revaluation came into force on 1 April 2005. The tone date for the revaluation was 1 April 2003. The assessor entered the subjects at a net annual value (NAV) of £471,500. The appellant appealed against the valuation.

[2 ] When the appeal was heard by the local Valuation Appeal Committee, the assessor revised her valuation to £449,250 NAV. The appellant proposed a valuation of £388,000 NAV. On 29 March 2007 the Committee allowed the appeal to the extent of reducing the NAV to £426,500. The appellant has appealed against that decision.

The subjects

[3 ] The subjects are situated in Phase 1 of the Kinnaird Retail Park (the site). They were built in 1990 as a car showroom. In 1995 they were converted to a retail warehouse. In September 2000 the appellant leased the subjects at an annual rent of £311,850, which was equivalent to £241.18 psm. In September 2005, at the first rent review, after arms' length negotiations between two experienced firms of rating surveyors, the rent was agreed at £417,361, which was equivalent to £322.00 psm. That was an increase of 33%.

[4 ] In comparison with the other units on Kinnaird Park, the subjects have an inferior internal specification. They are also less advantageously located. Although they have a prominent frontage visible to most of those arriving at the site by car, they are not part of the retail terrace on which the other units are located and they face away from the park. They are behind, and to some extent obscured by, one of the other units. The parking provision and service access are inadequate.

The parties' valuations

[5 ] It is common ground that the subjects should be valued by applying a rental rate per square metre to a "reduced floor area", which is in effect the trading floorspace, with an adjustment for fitting out costs It is agreed that the reduced floor area is 1293.24 sm. From survey data on rents from all of the units on the site at the tone date, the assessor derived a standard rate for the site of £350 psm as at the tone date. Comparing the other units on the site in terms of size, layout, location, lease provisions, including tenant's incentives, and quantum allowances, she concluded that the subjects should be valued at the standard rate of £350 psm. She then made an end allowance of 5% for locational disadvantages. This was the only such allowance that she had made at the site.

[6] The assessor also took account of the appellant's unit on a retail park at Almondvale, Livingston. That unit too was remote from the retail terrace on the park and in consequence was valued at £160 psm compared with a general rate for the park of £170 psm. The difference was equivalent to a location allowance of 5.9%.

[7 ] Before the hearing the assessor submitted a revised and reduced valuation as follows:

Reduced area 1293.24 sm @ £350 psm £452,634

Less end allowance 5% £ 22,632

£430,002

Fit out addition 1293.24 sm @ £16.50 psm £ 21,338

£451,340

say £451,500 NAV/RV

During the hearing the assessor accepted the appellant's figure for fitting out. That reduced her valuation to £449,321, say £449,250.

[8 ] The valuer for the appellant took the passing rent of £322 psm fixed in September 2005 and adjusted it back to the tone date by three methods, which brought out rates of £282, £284 and £290 psm. He adopted a rate of £285. The disadvantages of the appeal subjects in the respects to which I have referred are built into this rate since it is to be assumed that the agreed rent from which it was derived took those matters into account.

[9 ] The appellant's valuation was as follows:

Reduced area 1293.24 sm @ £285 psm £368,573

Fit out addition 1293.24 sm @ £15 psm £ 19,399

£387,972

say £388,000 NAV/RV

The parties' cases before the Committee

[10 ] The assessor submitted that the full range of rental evidence returned in her survey reliably supported the standard rate and that the disadvantages of the appeal subjects were adequately reflected in the end allowance. The appellant's valuer did not challenge the standard rate, but argued that those disadvantages were more reliably reflected in the rent agreed in 2005, if backdated to the tone date (Stated Case, p 7). The assessor accepted that the rent review in 2005 was concluded on the statutory terms (Rating and Valuation (Scotland) Act 1956, s 6(8)). The Committee records that while counsel for the appellant used the actual rent as corroboration of a problem recognised in the negotiations between landlord and tenant, and conceded in the assessor's end allowance, he did not claim that the subjects should be valued on the basis of their own rent (Stated Case, p 7).

The decision of the Committee

[11 ] The Committee declined to adopt the appellant's proposed rate of £285 psm. It said that "It seemed to be a matter for an end allowance or adjustment to the final valuation figure - looking at the whole spread of potential hypothetical retailer tenants rather than simply those selling furnishings" (ibid, p 8). It accepted the assessor's rate, but held that her end allowance was insufficient. It made an allowance of 10%. That brought out an NAV of £426,500, or about £314 psm, which seemed to the Committee to be reasonable.

Submissions for the appellant

[12 ] Counsel for the appellant submitted that the assessor had erred in basing the amount of her end allowance on the allowance given in the case of the appellant's unit at Almondvale. The Committee found that a greater allowance would not have been justified given the amount of the rent. In the analysis of rents the Committee found that there was a trend of increasing rents, but excluded from its consideration any rental growth other than that relating to the Poundstretcher unit. It ignored the Marks and Spencer rent. It erred in finding that the difference between the parties' valuations was "nearly four times the assessor's end allowance." It misdirected itself in the interpretation of the other rents on the site. It excluded relevant evidence of rental growth from other units. It ignored Currys and Comet as not being directly comparable because of their quantum allowances. Those allowances were irrelevant to the issue of rental growth. The pattern of five-yearly reviews on the site showed a rental growth in the various five-year periods in the range 30% - 44%. The growth in the case of the appellant was 33%. The Committee seemed to have been influenced by the actual rent of the subjects and to have based its end allowance of 10% on the difference between the rent per square metre and the assessor's standard rate.

Conclusions

[13] In my opinion, the Committee was entitled to decide the case as it did. The criticisms of counsel for the appellant are correct in relation to two inaccuracies in the decision. One is a miscalculation and the other is a slip of the pen. Neither affects the basic issue. The suggestion that the Committee misinterpreted certain specific rental evidence is based on a misunderstanding on the part of the appellant's advisers. Overall, the basic flaw in the argument of counsel for the appellant is in the suggestion that the Committee erred in failing to find that the rental evidence relating to the subjects was "a true reflection of rental value."

[14 ] It is not disputed that where there is no direct evidence of rental value at the tone date, a rent struck at a later date, but recalculated to the tone date, may in certain circumstances be relevant evidence of NAV. But such evidence, even when it relates to the subjects of appeal, is not necessarily conclusive of value.

[15 ] The totality of the assessor's survey data relating to comparable subjects may give a surer indication of value than any single transaction. That, in my opinion, is particularly so where the transaction relied on is, as in this case, a sitting tenant rent review rather than a letting in an open market competition in which other types of non-food retailers may take part.

[16 ] There are three modern decisions in which evidence of an actual letting of the subjects on statutory terms has been held to be decisive (Magell v Ass for Dumfries and Galloway, 2006 SC 627; Debenhams plc v Ass for Grampian, 1992 SLT 309; Simmons Furniture Store Ltd v Ass for Dumfries and Galloway, 1988 SC 212); but in each of those cases the subjects were unique and were found not to be suitable for valuation in accordance with an assessor's scheme whose standard rates were derived almost entirely from survey data of subjects that were not truly comparable.

[17 ] In this case there is no such problem. There are numerous similar units on the site and there is an agreed standard rate for the site derived from extensive rental evidence relating to them. In these circumstances the Committee was entitled to prefer the standard rate as the basis for valuation and to allow for the relative disadvantages of the subjects by way of an end allowance. On that approach, the amount of the end allowance was a matter for the Committee's discretion.

Disposal

[18] I propose to your Lordships that we should refuse this appeal.

LANDS VALUATION APPEAL COURT, COURT OF SESSION