For the appellant: Stuart QC; Archibald Campbell & Harley

For the respondent: O'Rourke; Drummond Miller

4 December 2009

Introduction

[1] This is an appeal against a decision of the Highland and Western Isles Valuation Appeal Committee dated 12 June 2008 by which it refused the appellant's appeal against the entry of Great Glen House, Leachkin Road, Inverness in the Valuation Roll as from 30 May 2006 at a rateable value of £800,000.

[2] This is an entry made in an inter-revaluation year relating to new subjects. The current Revaluation of 2005 was in force at the date of the entry. The valuation must therefore be made according to the tone of the Roll, the tone date being 1 April 2003.

The subjects

[3] The subjects are situated on the south-western periphery of Inverness. They were designed and built for the appellant as its new headquarters. They comprise a three-storey main office block with associated staff accommodation. There is a full-height glazed atrium, used inter alia as a reception area and for exhibitions, meetings, interviews and events. There is also an attached single-storey library wing. The main building has a total gross internal area of 6,004.76 sm. It is designed to be lower carbon and energy efficient. It incorporates the use of solar power. There are also garages and other outbuildings, a service yard and a loading bay. There is secure parking for 23 company vehicles and parking for 221 cars and two coaches. The grounds are landscaped and have service roads and parking. The site extends to 7.65 acres.

[4] The subjects were designed and built by Robertson Property Ltd under a development agreement with the appellant. The agreement gave the appellant the option of renting the subjects for 30 years at an annual rent of £881,624 on a full repairing and insuring lease or buying them for £12,825,953. The appellant elected to buy the subjects and took entry on 1 June 2006.

The parties' valuations

[5] The comparative method of valuation was appropriate in this case; but there was a dearth of subjects in the valuation area with which direct comparison could readily be made.

[6] The appellant relied on five public sector office buildings in the centre of Inverness as comparisons. Their rateable values represented rates per square metre in the range £80 to £110. The appellant's valuer accepted that the appeal subjects would attract a higher rate per square metre. From the overall ground floor area of 2959.31 sm, he took out the area of 656.51 sm that was occupied by the atrium. To the area of the atrium he applied a reduction factor of 0.25 because of the disadvantages, such as a lack of power points and the proximity of stairs and walkways, that made it incapable of office use to the normal extent. He submitted that in the valuation of the outbuildings, loading area and service yard, only the floor area of 350.34 sm occupied by the garages should be taken into account. He considered that the other elements had no rental significance. To the floor area of the garages he applied a reduction factor of 0.25. To the total reduced floor area of 5928.22 sm thus calculated he applied the rate of £125 psm. That produced a value of £741,028. From that figure he deducted a quantum allowance of 20% giving an NAV/RV of £592,822 rounded up to £593,000.

[7] The assessor contended that the appropriate comparisons were modern office blocks on the outskirts of Inverness at Beechwood and Stoneyfield. Their rateable values were equivalent to £125 psm. He submitted that a higher rate should be applied to the appeal subjects to reflect their superior design and their size. He valued the whole ground floor at the agreed area of 2959.31 sm, without discrimination for the atrium area, on the view that the atrium was an integral, striking and important part of the building serving the valuable purpose for which it had been designed. He took the first and second floors at the agreed areas of 1741.00 sm and 1304.45 sm respectively. To the total floor area of 6004.76 sm he applied the rate of £130 psm, which produced a value of £780,619. He then added £16,312 for the outbuildings, loading bay and service area. That produced a total of £796,931, rounded up to £800,000.

[8] The assessor and the appellant's valuer differed on the significance of the rent specified in the development agreement. The appellant's valuer argued that that rent was irrelevant, since it was purely hypothetical; and that, in view of the interval between the tone date and the date of entry, it had no evidential significance anyhow. The assessor argued that the rent supported his valuation. It must have been arrived at after careful consideration by the appellant and on professional advice. There was undisputed evidence that between the tone date and the date of entry rents for offices had increased by an average of 10%. The contractual rent, backdated to the tone date, would be about £800,000.

The Committee's decision

[9] The Committee held that the best comparisons were offices in business parks on the outskirts of Inverness, such as Beechwood. These were standard, generic offices lacking the qualities and advantages of the appeal subjects, and with poorer grounds and parking. The appeal subjects were considerably better. The Committee then considered how the valuation of Beechwood should be adapted to arrive at the rateable value of the appeal subjects. It impliedly accepted the assessor's methodology and his rate per square metre. It also accepted the assessor's view of the contractual rent. It considered that the appellant's decision not to exercise the option to lease did not invalidate the rent as a useful check on the parties' valuations. The Committee was confirmed in this view by the decision of this court in Magell Ltd v Dumfries and Galloway Ass (2005 SLT 453).

Conclusions
Quantum allowance overall

[10] Counsel for the appellant submitted that the Committee erred in failing to make a finding as to whether a quantum allowance was implied in the assessor's rate per square metre, which it had accepted. He conceded that the Committee were entitled to take the rate applied to Beechwood and adjust it upwards for the superior quality of the appeal subjects; but he argued that it should have specified whether it considered that a quantum allowance was appropriate, since the appellant had put the point in issue.

[11] In my opinion, this objection is unsound. It was apparent from the assessor's methodology that he did not make any allowance for quantum. His scheme of valuation for offices in central Inverness provided for the making of such an allowance in an appropriate case; but the appeal subjects were a modern office building on the periphery of Inverness. The assessor dealt with them by way of an ad hoc valuation. He took Beechwood and Stoneyfield as his closest comparisons and adjusted the valuation rate that these disclosed to allow for the superiority of the appeal subjects. I think that it is sufficiently clear from the stated case that the Committee understood the assessor's method and agreed with his conclusions. That is confirmed by the Committee's acceptance of the check valuation that was provided by the contractual rent.

The atrium

[12] The appellant's valuer saw the atrium as a disadvantageous feature of the building. The assessor saw it as an enhancement. That difference was pre-eminently a matter for the Committee to resolve. Its findings show that it resolved the issue in favour of the assessor. It accepted his approach, which was to take the entire gross floor area of the main building and to value it at a uniform rate of £130 psm.

The contractual rent

[13] The evidential value of a rent agreed in the real world will in every case depend on the circumstances of the transaction including, for example, the terms of the rent clause, the date of the transaction, the comparability of the subjects, whether the transaction was concluded in the open market, whether it was at arms' length, and so on (Magell Ltd v Dumfries and Galloway Ass, supra; cf Magell Ltd v Dumfries and Galloway Ass 2006 SC 627). In this case, there was no suggestion that the development agreement was not concluded at arms' length. Counsel for the appellant did not dispute that the terms on which the contractual rent was fixed were similar to those envisaged in the statutory hypothesis. The rent, if it had come into force, would have applied as from 31 May 2006, just over three years after the tone date.

[14] In my opinion, it was open to the Committee to conclude that this rent had genuine evidential significance if it were to be adjusted back to the tone date. There was undisputed evidence that that adjustment would produce a rental value of around £800,000. The Committee was entitled to conclude that that provided a valid and meaningful check on the valuation brought out by the assessor's methodology and, conversely, that it cast doubt on the appellant's valuation.

Decision

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

For the appellant: Stuart QC; Archibald Campbell & Harley

For the respondent: O'Rourke; Drummond Miller

4 December 2009

Introduction

[16] I agree with your Lordship in the chair that the appeal should, for the reasons given, be refused.

For the appellant: Stuart QC; Archibald Campbell & Harley

For the respondent: O'Rourke; Drummond Miller

4 December 2009

Introduction

[17] I agree.

[18] I confine my observations to the use of the contractual rent. The assessor relied on the decision of this court in Magell Ltd v Dumfries and Galloway Assessor 2005 SLT 453 to use the contractual rent set out in the development agreement, which would have applied from 31 May 2006, as a check on his valuation at the tone date of 1 April 2003. In this case there was limited evidence to support the finding, which in the event was not disputed, that between the tone date and 31 May 2006 rents for offices had increased by an average of 10%. Accordingly the Committee were entitled to accept that the rent under the development agreement (£881,624) would have supported a rent of £800,000 at the tone date. Where an assessor relies on rents which are fixed some time after the tone date, it is necessary for him to be able to justify the adjustment back to tone date, such as by evidence of the movement of the market in the relevant period.