Act: Stuart; Drummond Miller WS

Alt: Clarke; Simpson & Marwick WS

15 January 2008

Introduction

[1] This appeal relates to a public house called Neeson's at 165 Allison Street, Glasgow. The subjects were entered in the Valuation Roll at the 2005 revaluation at a net annual value (NAV) of £22,500. The revaluation came into force on 1 April 2005. The tone date was 1 April 2003.

[2] The appellant acquired the subjects in July 2005 and appealed against the entry. On 31 May 2006 the local Valuation Appeal Committee refused the appeal. The appellant appeals against that decision.

[3] At the 2005 revaluation public houses were valued in accordance with the scheme of the Scottish Assessors' Association for the valuation of licensed premises. Under the scheme, public houses were valued on the basis of "hypothetical achievable turnover" or "fair maintainable turnover" at the tone date. For this purpose, actual turnover was adjusted in relation to certain specific elements of income and expenditure.

[4] In the course of the assessor's survey for the 2005 revaluation, the previous occupiers of the subjects submitted a return of turnover for the year to 31 March 2003. The figure for liquor sales was indistinct. It was either £256,000 or £250,000.

[5] The Committee found that in the year to 31 March 2002 liquor sales were £269,918. In the year to 31 March 2003 they were £256,114. In the year to 31 March 2004 they were £222,903.

The assessor's valuation

[6] Although the Committee was to find that the true figure was £256,114, the assessor took liquor sales for the year to 31 March 2003 to be £250,000. Fruit machine income was £7,920. Applying the scheme to these figures, he brought out an adjusted figure as at the tone date of £257,920. He applied to that figure the agreed rate of 8.75 % to produce an NAV of £22,568, rounded to £22,500.

The appellant's valuation

[7] Mr Peter Henry FRICS submitted that the turnover for the year ending 31 March 2003 did not reflect the fair maintainable turnover for the appeal subjects. Notwithstanding an anomalous increase in fruit machine income in 2004, the turnover figures for 2001-2002 to 2003-2004 showed a pattern of decline. The 2002-2003 turnover figure used by the assessor was not sustainable. The assessor should have based his valuation on the post-tone date figures.

[8] Mr Henry based his valuation on turnover for the year to 31 March 2004. He took that turnover at a figure of £235,038. Applying the scheme to this figure, he came to an adjusted figure of £229,600 which, at the agreed percentage, produced an NAV of £20,090, say £20,100.

[9] The Committee found that the figures for the year to 31 March 2003 set out the fair maintainable turnover of the subjects at the tone date. That was the only date at which fair maintainable turnover required to be assessed. No account could be taken of a fall in turnover after the tone date. Negotiations between a hypothetical landlord and tenant at the tone date could not take account of post-tone date figures. The essential point in the Committee's written reasons was that a pattern of decline in turnover known at the valuation date would affect the hypothetical tenant's decision as to the rent that he was prepared to pay; but that future turnover figures could not be known and therefore could not be relied on in a retrospective valuation as at the tone date.

[10] Mr Henry has tabled nine grounds of appeal. Counsel for the appellant was prepared to argue only two. They are to the effect that the Committee erred in law in excluding from its consideration the evidence of turnover after the tone date.

[11] Counsel for the assessor submitted that he need look only at the fair maintainable, or hypothetical achievable, turnover at the tone date. It was not for the Committee to consider whether the turnover figures were sustainable in the period after that date. In the assessment of the hypothetical transaction between landlord and tenant the valuation had to be based on the fair maintainable turnover at the tone date. Events after that date were irrelevant. There was no evidence of a pattern of falling turnover at the tone date.

[12] The questions raised in this appeal are whether it is proper for a valuer, in valuing as at the tone date, to base his valuation on evidence coming into existence after that date; and, if so, in what circumstances and to what extent he may do so. These questions are familiar in valuation generally. In the case of valuation for rating, section 6(8) of the Valuation and Rating (Scotland) Act 1956 (the 1956 Act) requires the valuer to assess the rent at which the subjects might reasonably be expected to be let from year to year on the terms there set out. In making this assessment, the valuer must take into account all of the circumstances that would have been known to the hypothetical landlord and tenant at the tone date to the extent that they would have influenced the amount of the rent agreed upon.

[13] In the valuation of public houses for rating it has been recognised for many years that turnover is the most reliable determinant of NAV. Under the schemes drawn up by the Scottish Assessors' Association in successive revaluations, assessors have derived an adjusted turnover from the various elements of public house sales, such as liquor and machines, and applied to it a set percentage to arrive at NAV. In the scheme used at the 2000 revaluation, the turnover on which the calculation of NAV was based was referred to as the "hypothetical achievable turnover" (cf JD Wetherspoon plc v Lothian Regional Ass 2003 SC 400, at para [3]). In three appeals arising from that revaluation we held that in the assessment of the hypothetical achievable turnover, evidence of actual turnover could properly be adjusted for over- or under-performance (JD Wetherspoon plc v Lothian Regional Ass, supra; Belhaven Brewery Group plc v Ass for Glasgow, 2003 SC 395; Sinclair v Lothian Regional Ass, [2003] RA 202).

[14] In the scheme of the 2005 revaluation, the hypothetical achievable turnover was described in the alternative as the "fair maintainable turnover." These terms are intended to be synonymous and to describe the turnover from which the NAV will be derived. We understand from counsel for the assessor that the adoption of the new expression "fair maintainable turnover" is a response to our decisions in the 2000 revaluation appeals to which I have referred, and that it is intended to convey the idea of a turnover that is not distorted by over- or under-performance in the sense in which we have described those terms (cf JD Wetherspoon plc v Lothian Regional Ass, supra, at paras [15]-[17]; Belhaven Brewery Group plc v Ass for Glasgow, supra at para [17]; Sinclair v Lothian Regional Ass, supra, at para [14]).

[15] The adoption of the term "fair maintainable turnover" has proved to be unfortunate. It adds nothing to the underlying theory of the scheme and may divert the attention of the valuer from the statutory hypothesis. That has happened in this case, because it is clear that Mr Henry has fastened on the idea of a "maintainable" turnover as a basis for the illogical propositions (1) that a turnover at the tone date must be shown to be maintainable in the future, and (2) that if it is not maintained after the tone date, the valuation should be based on turnover achieved in a later year. These propositions are contrary to basic valuation principles.

[16] In general, the rental value of lands and heritages must be assessed in the circumstances prevailing at the tone date. But since the best available evidence of rents or turnovers may sometimes relate to a different date, it may be necessary to adjust it for the purposes of the valuation. In this way, evidence emerging after the tone date may be relevant in certain limited circumstances. Just as a valuer can take a rent struck before the tone date and adjust it forward, he may also take a rent struck after the tone date and adjust it back. In Magell v Ass for Dumfries and Galloway (2006 SC 627), for example, an actual rent was struck, virtually on statutory terms, 20 months after the tone date. It was proved that the rental market had not moved significantly in the interim. That rent was relevant evidence of value as at the tone date and in the event was found to be conclusive (cf Segama NV v Penny le Roy Ltd, (1983) 269 EG 322; Australian Mutual Provident Society v Overseas Telecommunication Commission, [1972] 2 NSWLR 806).

[17] But that is not the approach of the appellant's valuer. In the face of evidence of the turnover in the year to 31 March 2003, he has taken the turnover of the subjects in the year after the tone date as being conclusive in the assessment of NAV because, in his view, it proves that the turnover levels before the tone date were not maintainable. In essence that is a valuation method based on the sure and certain knowledge of hindsight. Counsel submitted that that approach is warranted by the reference in the scheme to a turnover that is "maintainable." I disagree. The scheme is only a means of assessing the rent at which the subjects might reasonably be expected to have been let at the tone date on the statutory terms (1956 Act, s 6(8)). The statutory hypothesis does not permit the valuer to disregard the evidence of turnover in the year immediately before the valuation date and to base his assessment on evidence of turnover in a later year. As counsel for the appellant accepted, that approach would mean that if we were to return the case to the Committee for reconsideration, the Committee would have to take account of any further decline in turnover in the period since this appeal was taken. That, I think, indicates the illogicality of the appellant's position.

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

[19] I agree with your Lordship in the chair for the reasons given by you that this appeal should be refused and there is nothing I can usefully add.

[20] I have read the opinion of your Lordship in the chair with which I agree.

[21] In order to address the hypothesis in section 6(8) of the Valuation and Rating (Scotland) Act 1956, the valuer must take account of the relevant circumstances which would have been known to the parties at the tone date. In the context of the scheme of the 2005 revaluation, where there is evidence which would have been available at the tone date from which a valuer could assess the "fair maintainable turnover" of a particular public house, that is the best evidence for a valuation in terms of the statutory hypothesis.

[22] A valuer may find evidence which originates after the tone date to be useful either as a check on the valuation which is made using information available up to the tone date or as a surrogate means of valuation where such information is not available. See, for example, Magell v Ass for Dumfries and Galloway 2006 SC 627. But the appellant's valuation in this case does not attempt to address the statutory hypothesis.

[23] I agree that the appeal should be refused.