LANDS VALUATION APPEAL COURT
Lady Dorrian Lord Woolman Lord Doherty	[2013] CSIH 107 XA56/13 OPINION OF LADY DORRIAN in the appeal by SYLVESTER SWEENEY and MARY SWEENEY Appellants; against THE ASSESSOR FOR AYRSHIRE VALUATION JOINT BOARD Respondents: _______________

Appellants: Locke; DAC Beachcroft

Respondent: Gill; Simpson & Marwick

23 October 2013

[1] I agree that the appeal should be refused for the reasons given by Lord Doherty.

LANDS VALUATION APPEAL COURT
Lady Dorrian Lord Woolman Lord Doherty	XA56/13 OPINION OF LORD WOOLMAN in the appeal by SYLVESTER SWEENEY and MARY SWEENEY Appellants; against THE ASSESSOR FOR AYRSHIRE VALUATION JOINT BOARD Respondents: _______________

Appellants: Locke; DAC Beachcroft

Respondent: Gill; Simpson and Marwick

23 October 2013

[2] I agree that, for the reasons given by Lord Doherty, the appeal should be refused.

LANDS VALUATION APPEAL COURT
Lady Dorrian Lord Woolman Lord Doherty	XA56/13 OPINION OF LORD DOHERTY in the appeal by SYLVESTER SWEENEY and MARY SWEENEY Appellants; against THE ASSESSOR FOR AYRSHIRE VALUATION JOINT BOARD Respondents: _______________

Appellants: Locke; DAC Beachcroft

Respondent: Gill; Simpson and Marwick

23 October 2013

Introduction

[3] The appeal subjects, Seamill Hydro, are a hotel comprising four main buildings. The principal hotel building was built in 1879 and was extended in the 1960s and in 1995. The "Seaview" building was built in the 1890s. Five separate annex blocks containing 18 self‑contained two-bedroomed flats were built in 1995. In all, there are 191 bed spaces. There are also restaurants and bar areas, conference facilities, leisure facilities (including a swimming pool, a sauna, a steam room, a gym, tennis courts, a 5‑a‑side football pitch, a crazy golf course and a children's play area), and a hair and beauty salon. The subjects have open sea views to Arran and beyond. They adjoin, and have direct access to, the beach at Seamill. They are enclosed in part by a seawall extending to 130 metres in length.

[4] At the 2010 revaluation the subjects were entered in the valuation roll with a net annual value of £365,000. The appellants appealed against that entry. The appeal was heard by the Valuation Appeal Committee at Ayr on 19 December 2012.

[5] The Assessor had valued the subjects as a class 3 hotel. No issue was taken with that. He had followed the approach set out in the Scottish Assessors' Practice Note 16 "Valuation of Hotels" ("PN16"). He had applied the following percentages to the relevant hypothetical achievable turnover figures: accommodation, 9.5%; catering, 6.5%; liquor, 6.5%; and leisure club, 9.5%. He had applied an end allowance of 2.5% to reflect the fact that the complex had been developed over a number of years and was spread out over a number of buildings.

[6] Before the Committee the appellants' case was that the subjects should not be valued on the basis of a percentage of their turnover, but that a rate per bed space should to be used. The appellants suggested that an appropriate bed space rate could be derived by taking the net annual values of 18 hotels which they relied upon as comparisons (3 of which were within the valuation area and 15 of which were elsewhere in Scotland) and in each case dividing the net annual value by the number of bed spaces in the hotel. They argued that on that approach an appropriate bed space rate was £1,300, and that that figure should be multiplied by the 191 bed spaces in the appeal subjects to result in a net annual value of £248,000. The appellants did not present an alternative valuation based on turnover. They did contend, however, that the Assessor's end allowance of 2.5% was inadequate to reflect disadvantages which the subjects suffered from (because, e.g., of their age, fragmented layout, and higher than normal maintenance costs attributable to their coastal situation). They also submitted that too high a rate had been applied to the leisure club turnover, and that if turnover was to be used the appropriate rate to be applied to that income stream was 6.5%.

[7] The Committee was not persuaded that the appellants' bed space method of valuation was appropriate. It accepted the Assessor's case that the subjects should be valued on their turnover. It decided that the rate which ought to be applied to the leisure club turnover was 8%. It held that an appropriate end allowance in all the circumstances was 5%. It allowed the appeal in those two respects and reduced the net annual value of the subjects to £350,000.

[8] The appellants have appealed the Committee's decision.

Counsel for the appellants' submissions

[9] Miss Locke accepted that the Committee had been entitled on the evidence to find that valuation of the subjects by reference to their turnover was appropriate. It had been open to it to prefer that method to the bed space method put forward on the appellants' behalf. Nevertheless, she submitted that the committee had erred in two respects.

[10] First, it had applied an inappropriate percentage to the leisure club element of the valuation. There had been evidence that Assessors in other valuation areas had applied a rate of 6.5%. That was the rate which the Committee ought to have found was appropriate here. It had had no proper basis for finding that 8% was the correct rate. There had been evidence that that rate had been used for two other subjects in the valuation area but those comparisons had not been examined in sufficient detail before the Committee to make it proper for any reliance to be placed on them.

[11] Second, the end allowance it had selected had been inadequate to reflect all the various disadvantages which the subjects suffered. Miss Locke suggested that it was not clear that the Committee had taken all of the disadvantages into account. Its findings were inadequate in that regard.

[12] In relation to both grounds Miss Locke suggested that the Assessor had failed to discharge the onus upon him to explain his valuation (Drybrough & Co Ltd v Assessor for Strathclyde 1982 SLT 426, per Lord Avonside at p. 427); and that the Committee had failed to state a sufficient evidential basis to support its decision (Scottish Borders Council v Stobo Castle Health Spa 2013 SLT 229, per the Lord President at para. [35]).

Counsel for the Assessor's submissions

[13] Mr Gill submitted that neither of the grounds of appeal advanced disclosed any error of law on the part of the Committee.

[14] The Committee had been entitled on the evidence to decide that the appropriate rate for leisure club turnover was 8%. There had been evidence before it that that was the lowest rate which had been applied in the valuation area. The appellants had not led evidence that particular subjects outwith the valuation area (and in relation to which leisure club turnover had been taken at 6.5%) were more comparable with the appeal subjects than those within the valuation area.

[15] The Committee had been well aware of the subjects' suggested disadvantages. The Assessor's evidence had been that those disadvantages ought to result in an end allowance of 2.5%. He had also given evidence that the highest end allowance which had been granted to any hotel anywhere for such disadvantages has been 5%. The appellants' valuation witness had suggested that 2.5% was inadequate but no alternative end allowance figure had been proposed by him. In such circumstances the Committee had been fully entitled on the evidence to find as it had.

[16] The present case was very different from the sort of circumstances which were under consideration in Scottish Borders Council v Stobo Castle Health Spa, supra, or Drybrough & Co Ltd v Assessor for Strathclyde, supra. In relation to the latter case, the Lord Justice Clerk had observed in Highland and Western Isles Assessor v Marks and Spencer plc [2010] RA 235, at paragraphs 13‑14, that Lord Avonside's comments in Drybrough had to be viewed in context. In Drybrough the Assessor had departed from the Scottish Assessors Association turnover‑based scheme when valuing a public house and had valued two public houses based on a valuation rate per square metre obtained from data relating to a number of other public houses. The method had produced very high values - results which had appeared startling - and the Assessor had failed to give any comprehensible explanation of how the rate he applied had been derived from the data.

Discussion and decision

[17] In my opinion neither ground of appeal is well founded. I agree with Mr Gill that in the circumstances of this case (and bearing in mind the way battle had been joined at the hearing before it) the Committee's findings provide a sufficient evidential basis for its determinations that the leisure club percentage should be 8% and the end allowance 5%. In relation to neither matter was the Committee's conclusion "a shot in the dark" (Scottish Borders Council v Stobo Castle Health Spa, supra, para. [35]). I also agree that the suggestion that the Assessor failed to explain his valuation is wide of the mark. I consider the facts found here are very far removed from the sort of circumstances which Lord Avonside had in mind in Drybrough. In Highland and Western Isles Assessor v Marks and Spencer plc the Court had cause to stress that Lord Avonside's comments ought not to be read out of context, and that they ought not to be used to seek to impose upon an Assessor a degree of onus and a standard of explanation that are too exacting. The appellants' reliance on them in this case was misplaced.

[18] Finding in fact 9 of the Stated Case stated:

"There has been a departure from PN16 in several parts of Scotland in respect of leisure income which is now being valued at lower than 9.5%, in some cases as low as 6.5%. There are no licensed premises in Ayrshire which have benefited from such a large deviation from PN16 but more minor reductions in the percentage to be applied have applied in Ayrshire. It is not correct, as the appellant submits, that the leisure income percentage has been reduced to 6.5% throughout Scotland although the new percentage has been adopted by several Assessors. In agreeing valuations of hotels in Ayrshire the Assessor has applied a percentage of 8% and 9% to the turnover stream derived from leisure facilities. Rates in Ayrshire vary and it is a matter for discussion and agreement in every case. 6.5% is not a new national figure." (emphasis added).

[19] The Committee was entitled to make the findings which it did. It did not accept the evidence of the appellants' valuer that all other Assessors applied a rate of 6.5% to leisure club turnover. It preferred the evidence of the Assessor's valuer that while there were some cases where other Assessors had applied rates as low as 6.5%, higher rates had also been applied. The Committee was entitled to find, on the basis of the local comparable evidence in Ayrshire, that 8% was an appropriate rate.

[20] In finding in fact 8 the Committee held:

"... To reach the Committee's suggested valuation figure would require an end allowance of 33% for which there was no justification. No class 3 hotel within or outwith Ayrshire has an end allowance greater than 5%, with, for example, Crieff Hydro in Perthshire having an end allowance of 5% and Glynhill Hotel, Renfrew having an end allowance of 2.5%."

[21] I consider that it is plain from paragraph 6 of the Committee's statement of reasons that it took account of all of the disadvantages complained of by the appellants when deciding on the appropriate end allowance. On this matter it had the benefit of evidence from the valuation witnesses for the appellants and for the Assessor. The Assessor's witness judged that the disadvantages justified an end allowance of only 2.5%. The appellants' valuer opined that that was too low, but he did not speak to an alternative figure. The Committee was aware that the highest end allowance which had been applied to any class 3 hotel in Scotland had been 5%. In the circumstances it was open to it to decide, as it did, that a 2.5% allowance was too low, and that a 5% allowance was appropriate and sufficient.

[22] The appellants did not seek to argue that the Committee had erred in law in rejecting the appellants' bed space valuation approach. That was a wise exercise of discretion. Before the Committee the appellants' valuer had sought to depart from the orthodox method of valuation for hotels (which had met with near universal acceptance by professional agents acting for ratepayers). He had relied not on rental comparisons, but on valuation comparisons. Those comparisons had been valued on their turnover, not on a bed space basis. Dividing the net annual values of such subjects to derive a bed space rate is seldom likely to provide a more reliable guide to the value of a hotel than its hypothetical achievable turnover.

Disposal

[23] I propose to your Ladyship in the Chair and to your Lordship that the appeal should be refused.