LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Justice Clerk Lord Hardie Lord Malcolm	[2010] CSIH 95 OPINION OF THE LORD JUSTICE CLERK in the Appeal by TESCO STORES LIMITED Appellant; against ASSESSOR FOR FIFE Respondent: (Subjects: Supermarket, Dalgety Bay) ______

For appellant: Stuart, QC; Semple Fraser, LLP

For respondent: Clarke, QC; Simpson & Marwick

14 December 2010

Introduction

[1] This appeal relates to the appellant's supermarket at the Bay Centre, Dalgety Bay. At the 2005 Revaluation the assessor entered it in the Roll at a rateable value of £198,000. In 2009 the appellant appealed against the entry on the ground that there had been a material change of circumstances, and contended that the valuation should be reduced to £180,000 with effect from 7 July 2008. On 17 December 2009 the Valuation Appeal Committee for Fife refused the appeal. That is the decision appealed against. The appeal turns on section 3(4) of the Local Government (Scotland) Act 1975, which I need not quote. I discussed that provision in Ass for Lothian v Ministry of Defence (2009 CSIH 89, at paras [14] - [15]).

The facts

[2] This is a mid-sized supermarket with an effective gross internal area of 1,996.93sm. It was built in 1980. It is the anchor store of the Bay Centre.

[3] At the 2005 Revaluation the assessor considered that the proper comparison was with the appellant's store in Rosyth. The rateable value entered in the Roll was agreed by the assessor and the appellant's agent. It was based on a rate of £100 psm, the rate that had been applied to the Rosyth store.

[4] Until 2008 the appeal subjects were the only supermarket in Dalgety Bay. In July 2008, Asda opened a new and much larger purpose-built supermarket only 500 yards from the appeal subjects. Until then the nearest large supermarket had been in Dunfermline. The Asda supermarket has an effective gross internal area of 4029.20sm. It was entered in the Roll at a rateable value of £523,000, a rate of £130 psm.

[5] The two stores are in direct competition. The appellants contend that the opening of the Asda store constitutes a material change of circumstances affecting the value of the appeal subjects.

The proceedings before the Committee

[6] The appellant's expert valuation witness was Mr Alistair S Ferrier of GL Hearn. He argued that in consequence of the opening of the Asda store, the appeal subjects had a lower rental value on the statutory hypothesis. He said that since the subjects, like most supermarkets, were owner-occupied, there was a lack of rental evidence. In the absence of rental evidence, it was sensible to consider the trading performance of the appeal subjects before and after July 2008. In the twelve months after the opening of the Asda store, the turnover of the appeal subjects declined by nearly 27%. Mr Ferrier admitted that he had not seen the primary documents from which these figures were derived; nor had he seen any detailed business accounts for that period. He also referred to twenty supermarket cases where, on evidence of the impact of new competitor sites, other assessors had conceded reductions of between 2.09% and 17.5%. He accepted that there was competition among the major operators for supermarket sites and that supermarket rents continued to show growth. However, he was of the view that in relation to this site, the impact of Asda would depress the hypothetical rent. This was his conclusion:

"Based on the Material Change of Circumstances, my experience of foodstore valuations, the almost 27% downturn in trade shown by the actual occupier of the appeal subjects in the first twelve months following the opening of the competitor store, and by reference to numerous other MCC competitor impact appeal settlements throughout Scotland, I consider it reasonable to suggest that the impact on value for the subject property post July 2008 is in the order of 10% or £10 psm."

[7] The assessor's witness contended that the appellant had failed to discharge the onus of proof. The figures produced were vague and unsatisfactory. The appeal subjects and the Rosyth store were both Tesco Metros. Both were in similar locations. The appellant's Rosyth store had been let just over a year before the tone date for the 2005 Revaluation. The shell rent was £140,000. At the rent review five years later the rent was struck at £176,000. The Rosyth store was still the best comparison. It had not been shown that the opening of the Asda store would cause the hypothetical landlord to accept a lower rental than before. The food retail market was thriving. Retailers' demand for stores was exceeding the supply. Rental growth year on year was about 5%. In that state of the market, he would not expect the hypothetical landlord, on the evidence presented for the appellant, to agree to reduce the rent of the appeal subjects. He was of the view that if the appellant were to vacate the store, other competitors would be willing to pay the hypothetical rent to gain entry.

The decision of the Committee

[8] The Committee held that the opening of the Asda store amounted to a change of circumstances, but that the appellant had failed to prove that the change amounted to a material change of circumstances that had affected the value of the subjects (Ass for Lothian v Ministry of Defence, supra). There had to be clear and positive evidence of such a change, and of its effect on value. The raw turnover figures relied on by the appellant were insufficient. The Committee relied on George Green Ltd v Ass for Glasgow (1959 RICS 69 (No 23)) and Ass for Fife v Ruggi (1960 RICS 51 (No 32)) in holding that a reduction in turnover or profitability did not of itself amount to a material change in circumstances.

Conclusions

[9] Counsel for the appellant accepts that the onus is on the appellant to satisfy the Committee that there has been a change of circumstances, that the change is material and that it has had an effect on value (Ass for Lothian v Ministry of Defence, supra). The short and simple question in this appeal is whether the evidence entitled the Committee to conclude that the appellant had failed to discharge the onus.

[10] Counsel for the appellant submitted that the Committee had erred in thinking that the appeal was based purely on the fall in turnover. He said that it was also based on two other factors, namely the professional opinion of the appellant's valuer and the evidence that other assessors had conceded reductions in rateable value in similar circumstances. It was necessary to have regard to common sense as well as to expert evidence (Ass for Lothian v Hennes & Mauritz UK Ltd [2010] CSIH 60). There was no evidence to show that the Rosyth store had had to cope with a much larger, newer competitor close to it. The Committee's conclusion that the demand for stores outstripped supply had no sufficient factual basis. The appeal should be remitted to the Committee for reconsideration.

[11] In my opinion, the Committee was entitled to hold that the appellant had failed to discharge the onus under section 3(4) of the 1975 Act.

[12] There was no primary evidence to support the conclusion that the fall in turnover had caused the rental value of these subjects, on the statutory hypothesis, to fall by 10% or by any other percentage. There was no evidence that in any specific comparable case, the introduction of competition had caused a fall in rental value. Mr Ferrier's statement that the value of a mid-sized store would be reduced if a large store opened nearby was an unsupported assertion rather than the exercise of a valuer's judgment. The Committee was entitled to give no weight to it.

[13] The evidence that in twenty cases other assessors had conceded a percentage reduction was not supported by any hard evidence as to the circumstances of each case; or as to the information placed before the assessor in support of the claim; or as to the assessor's reasons for conceding the claim at the percentage in question. In any event, I fail to see how that sort of evidence could carry any weight on the question whether the subjects in this case had suffered a loss of rental value.

[14] The only primary evidence for the appellant was that turnover had declined after the opening of the Asda store. On long-standing authority that was not enough (George Green Ltd v Ass for Glasgow, supra; Ass for Fife v Ruggi, supra; Ass for Lanarkshire v Thomas B Morrison 1963 (1) RICS 49 (No 126)). A fall in turnover is not necessarily an indicator of a loss of rental value. In a case like this, I doubt whether a fall in turnover in the immediate aftermath of the opening of a competing site is even a reliable indicator of the impact of the competition. Some of the fall may be a temporary phenomenon attributable to the novelty value of the competitor. In this case the turnover figures seem to show a recovery towards the end of the period in question. Moreover, as counsel for the appellant has accepted, there is no necessary correlation between a fall in turnover and a fall in profitability; and there is no necessary correlation between a fall in the profitability of the subjects as they are operated by the appellant and the amount of the rent that would be agreed in the hypothetical transaction. The hypothetical letting takes place in a market that is open to all-comers. The market may include retailers whose trading strategy is fundamentally different from that of the appellant.

[15] For these reasons I consider that the Committee would have been entitled to decide as it did on the basis of the appellant's evidence alone. However, the evidence went considerably further than that. Contrary to the submission for the appellant, there was direct rental evidence in relation to the appellant's store at Rosyth There was evidence that it was subject to direct competition from an Asda store and from three other stores. From the rent passing in that transaction the assessor derived his rate of £100 psm. There was also the evidence from the assessor's witness that the market for food stores was buoyant; that the demand for floor space was exceeding the supply; that food store rents were rising by about 5% per annum, and that there had been rental growth at the Rosyth store between 2002 and 2007.

[16] The Committee's findings indicate that it accepted this evidence. For that reason too it was justified in refusing the appeal.

Procedure in appeals

[17] Regulation 10(5) of The Valuation Appeal Committee (Procedure in Appeals under the Valuation Acts) (Scotland) Regulations 1995 (SI No 572) provides that

"Either party to an appeal may, not later than 21 days before the date set for the hearing, furnish to the other party a list of any lands and heritages, and hereditaments in England and Wales, on which he proposes to found by of comparison at the hearing and may at the same time as he furnishes that list make a written request to the other party to provide him with a list of lands and heritages and hereditaments on which that other party proposes to found by way of comparison at the hearing ... "

Regulation 10(6) provides that at the hearing the committee shall not allow a party to found by way of comparison on lands and heritages or hereditaments not included in a list provided by him under regulation 10(5) without the consent of the other party; but it may, if the party seeking to found on such comparisons shows cause why they were not included in the list, allow him to found on them subject to such conditions as it thinks fit.

[18] In this case the assessor gave Mr Ferrier as his comparisons a list of 32 supermarkets in the Fife valuation area, ten shops and one bank in the Bay Centre and a Post Office in Dalgety Bay. With a letter to the assessor dated 28 October 2009, Mr Ferrier sent as his comparisons a list of over 400 premises throughout Scotland and England in locations from Wick to Plymouth. Apart from food stores, the list included variety stores, furniture stores, discount stores, DIY stores, clothing stores, a fast food outlet and, even more mysteriously, a cinema. On 10 December 2009, two weeks after the deadline, Mr Ferrier added nine more food stores to the list. In the event, Mr Ferrier did not rely for comparative evidence on any of these premises.

[19] In my opinion the submission of this list did not constitute compliance with regulation 10(5). Mr Ferrier told the Committee that he is widely regarded as the leading foodstore valuer in Scotland. But however experienced a valuer may be, he should not prepare cases for hearings before local committees unless he understands and complies with the procedure rules. Counsel for the appellant on instructions explained that the submission of lists like this was a common practice in cases of this kind. If that is right, then it is high time that the practice ceased. Counsel also suggested that the assessor was put at no disadvantage because he would realise that the great majority of these comparisons could safely be ignored and would know which of them were relevant. It is hard to take that explanation seriously.

[20] In my opinion Mr Ferrier abused the procedures of the Committee. The submission of a list of comparisons like this would entitle a committee to rule that it did not qualify under regulation 10(5) and, on that view, to refuse to allow the party submitting it to found on any comparison at all.

Disposal

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

LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Justice Clerk Lord Hardie Lord Malcolm	[2010] CSIH 95 OPINION OF LORD HARDIE in the Appeal by TESCO STORES LIMITED Appellants; against FIFE COUNCIL ASSESSOR Respondent: (Subjects: Supermarket, Dalgety Bay) _______

For appellants: Stuart, QC; Semple Fraser, LLP

For respondent: Clarke, QC; Simpson & Marwick

14 December 2010

[22] For the reasons given by your Lordship in the chair I agree that we should refuse this appeal. I wish, however, to add a few observations of my own.

[23] The Valuation Appeal Committee was entitled to give no weight to the assertion by the appellants' witness that a reduction in turnover at the appellants' store following the opening of a larger store nearby by a competitor of the appellants would result in a reduction in the value of the appeal subjects. What the Committee had to consider was whether the hypothetical rent negotiated between a willing tenant and a willing landlord would be lower for the appeal subjects following the opening of the competitor's store and would remain so. The answer to that question is not, in my opinion, determined by the level of turnover at the appeal subjects. Retailers respond to competition and some retailers at the appeal subjects might elect to sell higher value items resulting in a similar level of profit as was achieved prior to the competition, albeit from a lower turnover. The Valuation Appeal Committee made a finding in fact that "[a]t all material times the food retail market was buoyant, with demand from supermarket operators for stores outstripping the supply of stores." This finding was apparently based upon uncontroverted evidence that rents for such stores in the locality were increasing annually by 5%. Thus although other assessors may have accepted the evidence tendered by the appellants' witness to the effect that the location nearby of a new store had an adverse effect upon the value of an existing store, each case must depend upon its own particular circumstances. On the basis of the evidence in this case the Valuation Appeal Committee was entitled to conclude that there had been no material change of circumstances affecting the value of the subjects of appeal following the opening of the competitor's store.

[24] I also respectfully agree with the observations by your Lordship in the chair about the use, or rather abuse, by G L Hearn, the appellants' surveyor, of the Valuation Appeal Committee (Procedure in Appeals under the Valuation Acts) (Scotland) Regulations 1995 ("the Procedure Rules"). Regulation 10 of the Procedure Rules imposes obligations upon both an appellant and an assessor to furnish to his opponent information specified in that regulation within a designated time scale. Failure by an appellant to provide the information timeously to the assessor may result in the assessor applying to the Valuation Appeal Committee to have the appeal dismissed, in which event the Committee may grant the application if it thinks fit to do so. (Regulation (10)(3)). Regulation 10(4) affords an appellant a right of appeal against a decision to dismiss the appeal in such circumstances if the appellant can show that there was a reasonable excuse for the failure which led to the dismissal of the appeal. Regulations 10(5) and (6) are in the following terms:

"(5) Either party to an appeal may, not later than 21 days before the date set for the hearing, furnish to the other party to the appeal a list of any lands and heritages, and hereditaments in England and Wales, on which he proposes to found by way of comparison at the hearing, and may at the same time as he furnishes that list make a written request to the other party to provide him with a list of lands and heritages and hereditaments on which that other party proposes to found by way of comparison at the hearing; and any party so requested shall furnish such a list not later than 14 days before the date fixed for the hearing.

(6) At the hearing, the Committee shall not allow a party to found by way of comparison on lands and heritages or hereditaments not included in a list provided by that party under paragraph (5) without the consent of the other party to the hearing, but may, if the party seeking to found on such lands and heritages or hereditaments shows cause why they were not so included, allow him to found on them subject to such conditions as the Committee thinks fit."

The clear intention of Regulation 10 is to require parties to provide their opponent with information specified in the regulation under penalty of the appeal being dismissed if the appellant fails to comply with the regulation and if the assessor seeks dismissal of the appeal for that reason. As far as comparisons are concerned it should be noted that Regulation 10(5) imposes an obligation on either party to provide the other party with a list of any lands and heritages and hereditaments in England and Wales "on which he proposes to found by way of comparison at the hearing" (my emphasis). The sanction imposed by paragraph 10(6) for failing to do so is that the party will be precluded from founding upon a comparison unless the other party consents or unless he can show cause why the lands were not included in the list provided. Again the intention of these provisions is to ensure that each party is provided with sufficient information by the other party about comparisons upon which the other party proposes to found at the hearing.

[25] In the present case G L Hearn, the surveyors acting on behalf of the appellants, sent a letter dated 28 October 2009 to the assessor in the following terms:

"Dear Sirs,

Material Change of Circumstances Appeal

Valuation Appeal Committee Hearing - 2 December 2009

Tesco Stores

Supermarket - The Bay Centre, Regent's Way, Dalgety Bay

We refer to the forthcoming Valuation Appeal Committee Hearing in respect of the above property.

In terms of Regulation 10(5) of the Valuation Appeal Committee (Procedure and Appeals under the Valuation Acts) Scotland Regulations 1995, we may find (sic) by way of comparison at the hearing the subjects listed on the attached schedule. In relation to this, please send any further correspondence to our Mr Ferrier at the above address ...".

Attached to the letter was a schedule containing in excess of 400 entries relating to subjects in Scotland, England and Wales. Some of the subjects were food stores but others were DIY stores, furniture stores, chemists and a cinema. No specification was given apart from the name of the operator and the address except in the case of the cinema which was simply identified as a cinema and its address was provided. It is not immediately apparent what relevance the subjects specified in the schedule had to the appeal subjects and it does not appear from the transcript of the evidence of Mr Ferrier that he referred to the schedule (Production No 2) in his evidence. Before us it was suggested that it was not unusual for expert witnesses to lodge schedules of this type in appeals before valuation appeal committees as a precaution, in case they might wish to refer to some of the subjects listed in the schedule. If this is common practice, I agree with your Lordship in the chair that it should cease forthwith as it is contrary to the spirit and intention of Regulation 10. As I have already observed that Regulation clearly indicates that the list is intended to contain details of properties on which the witness proposes to found by way of comparison at the hearing. The inclusion of other properties can only have the effect of requiring the assessor to undertake unnecessary investigations. The practice adopted in this case is not only inconsistent with the terms of Regulation 10; it is also indicative of a lack of expertise and professionalism on the part of the witness tendering such a schedule. It indicates that no thought has been given to the relevance of the various properties and, even worse, might indicate a deliberate attempt to conceal within hundreds of properties the one entry of any significance in the hope that the assessor will overlook it.

[26] Upon receipt of such a list as was prepared in this case, the assessor should require the person submitting the list to identify the properties upon which the witness intends to found at the hearing before the Valuation Appeal Committee. The correspondence in that regard should be copied to the Committee and, if necessary, an application should be made to the Committee requiring the witness to provide the assessor with detailed specification in sufficient time prior to the hearing to enable the assessor to investigate the relevance of the comparisons. Failure to comply with such a request should be treated by the Committee as the equivalent of a failure to include a property in the list of comparisons and the Committee should refuse to permit evidence to be led about that comparison.

LANDS VALUATION APPEAL COURT, COURT OF SESSION
Lord Justice Clerk Lord Hardie Lord Malcolm	[2010] CSIH 95 OPINION OF LORD MALCOLM in the Appeal by TESCO STORES LIMITED Appellant; against FIFE COUNCIL ASSESSOR Respondent: (Subjects: Supermarket, Dalgety Bay) ______

For appellant: Stuart, QC; Semple Fraser, LLP

For respondent: Clarke, QC; Simpson & Marwick

14 December 2010

[27] For the reasons given by your Lordships, I agree that the appeal should be refused. I also share your Lordships' concerns regarding the very large number of purported comparisons lodged on behalf of the appellant.