For the appellants: Haddow QC; Eversheds LLP

For the respondent: MacIver; Simpson & Marwick

27 June 2012

Introduction

[1] I agree with the Opinion of Lord Hodge and with the disposal that he proposes.

[2] An assessor is not bound to apply a revaluation scheme of the Scottish Assessors' Association (SAA) if in his judgment it is not suited to the circumstances in his valuation area or in any specific part of it. In this case the assessor used local rental evidence in devising his own scheme for the revaluation of industrial properties. The scheme is set out in the Practice Note to which Lord Hodge refers. It is significantly different from the scheme produced by the SAA for the same Revaluation. Each scheme is coherent and self-contained. In the present case the appellants' professional advisers followed the methodology of the assessor's scheme but relied on the quantum discount rates used in the SAA scheme. In my opinion, it is contrary to principle to adjust the assessor's valuation by selecting from the SAA scheme some element that may be more advantageous to the ratepayer. That approach, which the Committee rightly rejected, served only to confuse the issue.

[3] It is at once apparent that the valuation of these subjects was a particularly difficult exercise. There was a paucity of rental evidence of the kind contemplated in section 6(8) of the Valuation and Rating (Scotland) Act 1956 (the 1956 Act). Such rental evidence as there was related to four transactions for units in the Inchinnan-Erskine area that were in the narrow range of 425 sm to 501 sm, one transaction for a unit of 1,556 sm and a sale and leaseback transaction for the unit of 6,142 sm that is the subject of the appeal by Total Repair Solutions Limited (Total Repair).

[4] That evidence left the assessor with the general problem of fixing quantum discounts for units larger than these, and the particular problem of valuing two subjects, those of Rolls-Royce PLC (Rolls-Royce) and Hewlett-Packard Limited (Hewlett-Packard), which stood apart from the other subjects covered by the scheme. These were units of over 50,000 sm. They were more than twice the size of the next largest, the unit of around 20,000 sm occupied by Mackays Stores Limited (Mackays).

The assessor's scheme

The basic rate and the banding

[5] The assessor derived a basic rate per square metre from the rental evidence and classified the subjects according to floor area in five bands. The lowest band was for units of up to 1,000 sm, for which he applied a basic rate of £50 psm. In the bands above that he discounted the basic rate for quantum by 5%, 10%, 15% and 25% respectively, the 25% discount being applied to units of over 50,000 sm.

The assessment of units up to 6000sm

[6] In my opinion, the assessor cannot be faulted for the rates that he adopted for small units in his lowest band and in his second band of 1,001 sm to 5,000 sm. For these he had a basis in rental evidence. There was therefore a proper basis for the valuation of the unit occupied by Teknek Electronics Limited (Teknek). In the third band, 5,001 sm to 10,000 sm, the evidence of the sale and leaseback transaction on the unit occupied by Total Repair had to be treated with caution (Ass for Highland and Western Isles v Marks and Spencer plc [2010] RA 235); but I agree with Lord Hodge that it gave the assessor a relevant basis for his valuation of subjects of around 6,000 sm.

The assessment of the largest units

[7] For the assessment of the three largest units there were two main problems. The first was to find a reliable series of percentages by which the basic rate could be tapered. The second was the lack of any evidential basis for the rate of quantum discount that was applied to the largest units.

The assessment of the quantum discounts

[8] On the question of the quantum discounts to the basic rate, the assessor took as his starting point the valuations that applied in the 2005 Roll. He then quantified the trend in rental values since the 2005 Revaluation by reference to the rental transactions for the five smallest units to which I have referred; the current rent of Rolls-Royce at the valuation date, the sale and leaseback transaction at Fountain Drive and a number of agreed valuations on small units at the 2010 Revaluation.

[9] In my view, this was not a sound basis on which to fix the values of the largest units. It was essentially an exercise in updating the previous revaluation. I do not regard that as a proper revaluation method.

Quantum discounts in relation to the largest units

[10] The problem of assessing quantum allowances at the top end of the range was not new. It arose, for example, in Magell Ltd v Dumfries and Galloway Regional Ass (2006 SC 627) where, in valuing an isolated unit of nearly 14,000 sm, the assessor applied a rate derived from passing rents of units of less than 10,000 sm, two of which had areas of only 1,174 sm and 1,593 sm respectively, and made a quantum allowance of 27%. In that case the subjects had been let on the open market about 20 months after the valuation date on the statutory terms other than duration, which was agreed to be immaterial. That was primary evidence for the purposes of the 1956 Act. It pointed to the unreliability of the assessor's scheme in relation to the largest units.

[11] In this case, however, the assessor relied on the current rent for the Rolls-Royce premises. That rent, in my opinion, had no evidential value at all. The Rolls-Royce subjects were purpose-built in 2003. The subjects are held by Rolls-Royce on a lease that runs from April 2003 for a term of 25 years. The starting rent was £2,999,999 pa. The lease provides for a fixed increase in the rent at the rate of 1.5% every five years. At the 2005 Revaluation the starting rent applied. At the tone date for the 2010 Revaluation the rent was £3,231,850.

[12] The rent payable under the Rolls-Royce lease is completely at odds with the hypothesis set out in section 6(8) of the 1956 Act. In my view, it may be positively misleading in that context.

Conclusions

[13] I conclude therefore that the appeals of Teknek and Total Repair should be refused; and that the appeals by Rolls-Royce, Hewlett-Packard and Mackays should be upheld.

[14] This is not a case where, having rejected the assessor's values in the cases of Rolls-Royce, Hewlett-Packard and Mackays, we can simply adopt the figures proposed on behalf of the appellants (cf Magell Ltd v Dumfries and Galloway Regional Ass, supra). Those figures are suspect for the reasons given by Lord Hodge.

[15] Lord Hardie too agrees with the Opinion of Lord Hodge. In the result, therefore, the cases of Rolls-Royce, Hewlett-Packard and Mackays will have to be returned to the Committee for a re-hearing. For that purpose it will be for the assessor to reconsider his valuations in the light of our decision and to substantiate the valuations, whether existing or revised, for which he will contend.