For appellant: Clarke QC; Simpson & Marwick

For respondents: Stuart QC; Morton Fraser

2 December 2009

Introduction

[1] This appeal relates to the respondent's premises at 67-75 Shandwick Place, Edinburgh. At the 2005 Revaluation the subjects were entered in the roll at a rateable value of £67,500. On 29 January 2009 the Lothian Valuation Appeal Committee allowed an appeal by the respondent on the ground that there had been a material change of circumstances since the entry was made. It reduced the rateable value by 5% for the period from March to August 2008. The assessor has appealed against that decision. The issue relates to the Edinburgh tramway project.

[2] The subjects are a suite of offices on the third and fourth floors. They are reached by a doorway between two ground floor shops one of which is occupied by the respondent as a recruiting centre. The subjects are used inter alia for following up recruitment enquiries made at the shop.

The tramway project

[3] From 1871 tramcars made their way along Shandwick Place. In 1956 the tram lines were dug up in the name of progress and the tramcars were replaced by buses.

[4] Between March and July 2008 Shandwick Place was dug up in the name of progress for the laying of a tramway. Metal security fences were erected on both sides of the street. On the south side, near the subjects, the fences were for a time erected on the pavement itself. The fences restricted pedestrian movement on the pavements and there was noise, vibration and dust from the work. Parking was suspended in nearby streets. Buses were re-routed. Retail trade in Shandwick Place was seriously affected. Further disruption was expected to occur in autumn 2009.

The assessor's response

[5] The assessor gave all shops, salons and licensed premises affected by the work, including the respondent's ground floor premises, a 20% allowance for the period of the disruption. One such salon was a hair salon at first floor level above the respondent's shop. The assessor declined to make any allowance for offices.

The respondent's appeal

[6] The respondent sought an allowance of 10% to reflect the likely effect of the disruption on the value of the offices. No other occupier of offices in the Shandwick Place area sought such an allowance on appeal.

The Committee's findings

[7] The Committee found that the noise and dust deterred retail, public house and salon customers who might normally have come to the area. It found that the landlords of a public house and a shop in Shandwick Place had given significant rent reductions for the relevant period and that the landlord of another shop had offered the tenant a 50% reduction in rent, on certain conditions that the tenant did not accept. It was not persuaded that these reductions were attributable purely to the tramway works.

[8] On the other hand, while it accepted that there had been disruption to the appeal subjects, it found that there was no evidence that the disruption had caused a reduction in the rents of any offices in Shandwick Place during the relevant period. Nevertheless, it found that such disruption, which was to be repeated later, would be reflected in the rental bid of a tenant.

[9] The Committee found that the impact on value was less than that sustained by retail outlets; but many offices, including the appeal subjects, also needed to attract the public, who were deterred from visiting the area during the relevant period. The Committee took into account the fact that the salon at first floor level had been given the assessor's allowance.

[10] The only evidence about the effects of the disruption on the appeal subjects was hearsay of a general report by the respondent to its valuation witness that both the offices and the shop were affected by dust, noise, vibration and access disruption, including disruption of deliveries. The Committee accepted this evidence.

Its finding 6 is as follows:

"The ratepayers' beneficial enjoyment of the offices was materially reduced during the period of the disruption in Shandwick Place. [The respondent's valuation witness] accepted, however, that the impact on value was less than incurred by the retail outlets. However, many offices, including these subjects, also need to attract the public who were deterred from visiting the area during the work."

The Committee's decision and reasons

[11] The Committee concluded that an allowance of 5% appropriately reflected the effect of the works on value. Its reasoning was as follows:

"In this case, however, the Committee thought that on the evidence the Army Offices were disrupted in a way which was likely to affect the value of the Offices to a range of office users. The fact that the Offices were functionally connected to the Army shop at ground floor level was not relevant to the generality of the value of the Office to the hypothetical user. However, the value is likely to be affected not only by this episode of disruption but by the knowledge that there is another disruptive episode coming when further work is required on the tramway preparations and the laying of the tramway.

All the disruption deterring people from coming to shops in the area was likely to deter also people coming to offices in the area, the access to which was off Shandwick Place. The Committee considered that the 10% claimed by [the respondent's valuation witness] could not be justified on the evidence but that a minimal allowance of 5% to recognise an effect on value was appropriate. The Committee took into account that Section 3(4) of the Local Government (Scotland) Act 1975 provides in relation to appeals arising from material change of circumstances that where it is proved, as it was here, that the change has materially reduced the extent to which the beneficial occupation of the offices could be enjoyed, the appeal should not be refused only because the change had not been proved to have affected the office value to any specific extent. The Committee was quite satisfied that beneficial occupation of the Office during the period in question had been affected in a way which was likely to impact on value."

Statutory provisions

[12] Section 2(1)(d) of the Local Government (Scotland) Act 1975 (the 1975 Act) entitles the assessor, at any time while the valuation roll is in force, to alter the roll to give effect to any alteration in the value of any lands and heritages that is due to a material change of circumstances. Section 37(1) defines "material change of circumstances" as a change of circumstances affecting their value.

[13] Section 3(4), so far as relevant to this case, provides that, without prejudice to section 3(2), which relates to the right of appeal against a new entry in the Roll;

" ... the proprietor, tenant or occupier of lands and heritages which are included in the valuation roll may appeal against the relevant entry but only on the ground that there has been a material change of circumstances since the entry was made ... and, notwithstanding the definition of "material change of circumstances" as set out in section 37(1) of this Act, if in an appeal under this subsection on the ground of a material change of circumstances it is proved that there has been a change of circumstances which has materially reduced the extent to which beneficial occupation of the lands and heritages can be enjoyed, the appeal shall not be refused by reason only that the change of circumstances has not been proved to have affected the value of the lands and heritages to any specific extent."

Conclusions

[14] The issue in this appeal is whether the Committee had any proper factual basis on which to apply section 3(4) of the 1975 Act in favour of the respondent. Section 3(4) can be applied only if the Committee finds inter alia that there has been a change of circumstances that has "materially reduced the extent to which beneficial occupation of the lands and heritages can be enjoyed." The longstanding authorities on beneficial occupation are to the effect that the occupation of premises is beneficial if it is capable of yielding a net annual value (Mersey Docks and Harbour Board v Jones (1865) 3 M (HL) 102; Adamson v Clyde Navigation Trs (1865) 3 M (HL) 100; Leith Dock Commrs v Miles (1866) 4 M (HL) 14; Grieg v University of Edinburgh (1868) 6 M (HL) 97; cf Armour, Valuation for Rating, 5th ed, paras 15-01 - 15-07).

[15] That principle is reflected in section 3(4) of the 1975 Act. The material change of circumstances to which section 3(4) refers is a change of circumstances that affects the value of the subjects (1975 Act, s 37(1), sv "material change of circumstances"). Section 3(4) has the limited effect of entitling the Committee to allow an appeal based on a material change of circumstances even though the appellant cannot prove that the change of circumstances has affected value "to any specific extent". In short, the Committee can take account of a reduction in the extent to which the beneficial occupation of the subjects can be enjoyed only if that reduction is one that is shown to have affected the value of the subjects, even though the appellant cannot prove the precise extent to which the value has been reduced.

[16] In my view, the Committee had no proper basis on which to apply section 3(4) in this case. It is unfortunate that the Committee concluded that the disruption was "likely to affect" the value of the appeal subjects to a range of users and that the beneficial occupation of the office had been affected in a way that was "likely to impact" on value (Reasons, supra). That, in my view, does not correctly reflect the statutory test. For that reason alone, the decision cannot stand. But for the purposes of this appeal I shall assume in the respondent's favour that the Committee's findings and conclusions are that the value of the subjects was in fact affected in the period March to April 2008. On that assumption, I consider that the Committee has erred. It had no sufficient evidential basis for such a finding.

[17] It appears that when the extent of the disruption became obvious, the assessor accepted that the shops, licensed premises and salons had suffered a material change of circumstances within the meaning of section 37(1) of the 1975 Act (supra) and made the pragmatic decision to allow such premises an across the board reduction of 20% for the relevant period. That, I should think, forestalled the prospect of site-specific arguments in a multiplicity of appeals, many of them perhaps involving small sums of money.

[18] An allowance of that nature was a logical response to the disruptive effect of the work on businesses that supplied goods and services to the public and whose turnover was dependent to a great extent on footfall. It was reasonable to assume that businesses of that nature would sustain a direct impact on their turnover which would affect net annual value on the statutory hypothesis (Valuation and Rating (Scotland) Act 1956, s 6(8)). But the logic of that allowance does not necessarily apply to office premises.

[19] The Committee made a finding that rent reductions had been given or offered to certain public house and retail businesses in Shandwick Place during the disruption (finding 7); but it accepted (finding 4) that there was no evidence of any reduction in office rents in Shandwick Place during that period. Nevertheless it found that "Such disruption which would be repeated later would, however, be reflected in the rental bid of a tenant" (ibid). The only basis for that finding was hearsay of the respondent, reported by the respondent's valuer, to the effect that the shop and the offices were affected by dust, noise, and vibration and that access for deliveries was disrupted. So far as the offices are concerned, that tells us nothing in the absence of hard evidence of the effect on rents.

[20] The Committee also reached the conclusion that the ratepayers' beneficial enjoyment of the offices was materially reduced during the disruption, seemingly on the basis that many offices, including the appeal subjects, also needed to attract the public who were deterred from visiting the area during the work (finding 6). In my view, the Committee was not entitled to draw that conclusion. For the reasons that I have given, the only reduction in the enjoyment of beneficial occupation that is relevant to section 3(4) of the 1975 Act is one that is proved to have affected the value of the lands and heritages in question.

[21] The Committee also found that the assessor's allowance was not confined to premises on ground floor or street level (finding 1). At the conclusion of its statement of reasons, the Committee also relied on the fact that the assessor had given the allowance to the salon above the respondent's shop although it was not on street level. I cannot see how that point has any relevance to this appeal. The allowance depended on the nature of the business and not on whether it was at street level.

[22] I conclude therefore that the Committee was not entitled to find in fact that the disruption would be reflected in the rental bid of an office tenant. That being so, it had no warrant for applying section 3(4) (supra) in the respondent's favour.

Decision

[23] I propose to your Lordships that we should allow the assessor's appeal and quash the decision of the Committee. That will have the effect that the respondent's appeal will be refused.

For appellant: Clarke QC; Simpson & Marwick

For respondents: Stuart QC; Morton Fraser

2 December 2009

[24] I agree with your Lordship in the chair that, for the reasons given, the assessor's appeal should be allowed, the decision of the Committee quashed and the respondents' appeal refused.

For appellant: Clarke QC; Simpson & Marwick

For respondents: Stuart QC; Morton Fraser

2 December 2009

[25] I agree.