Scottish Court of Session Decisions

LANDS VALUATION APPEAL COURT

[2014] CSIH 87

XA115/14

Lord President

Lady Dorrian

Lord Malcolm

OPINION OF THE LORD PRESIDENT

in the appeal by

HAPPY FEET NURSERY AND OUT OF SCHOOL CLUB LIMITED

Appellant;

against

ASSESSOR FOR LANARKSHIRE

Respondent:

For the appellant:  MacIver;  Brodies LLP

For the assessor:  Cleland;  Simpson & Marwick

28 October 2014

Introduction
[1]        This is an appeal against a decision of the Valuation Appeal Committee at Hamilton dated 19 March 2014.  The subjects are a day nursery at 47/49 Claude Street, Larkhall.  At the 2010 Revaluation the assessor entered them in the Roll at an NAV/RV of £43,000.  The appeal against the entry was brought under sections 3 and 37 of the Local Government (Scotland) Act 1975 (the 1975 Act), as amended, on the ground that a decision of a committee drawn from the same valuation appeal panel relating to comparable subjects constituted a material change of circumstances affecting the valuation of the appeal subjects.  The Committee refused the appeal. 

The facts
[2]        The subjects are situated on the main thoroughfare in Larkhall close to the town centre shopping area and the station.  They are of attractive modern construction.  They have parking for 12 vehicles.  They are securely fenced and have a CCTV system.  The subjects were built as a Job Centre and were used as such from 1996 to 2006.  From 2006 to 2011 the subjects were vacant despite being actively marketed. 

The assessor’s Guidance Note
[3]        At the 2010 Revaluation the assessor analysed all of the available rental evidence for day nurseries throughout the valuation area.  On that evidence he issued a Guidance Note.  Section 3 of the Note is in the following terms:

“Nurseries situated in properties which, by virtue of their character or location (or both) have an obvious alternative use will have to compete with other potential occupiers.  Rental analysis shows that the landlord will expect to receive a rent equivalent to the character of the property.  In such situation the property should be valued in line with the prevailing rental levels for the appropriate alternative use.  This is most commonly (but not exclusively) to be found in retail, office and industrial type properties/locations.  Outwith these situations a rate of £50 per square metre should be applied to the GEA.”

The assessor’s valuation
[4]        The assessor’s starting point was that from survey evidence day nurseries that had no obvious alternative use should be valued at £50 psm.  He considered that the appeal subjects were in a mixed use area.  Having regard to the general vicinity of the subjects and to the nature of the premises, he was satisfied that the subjects had an alternative use, namely office use, and that the occupier of a day nursery would pay a rent that reflected the possible alternative use.  In valuing the subjects the assessor therefore took account of prevailing rental levels for the appropriate alternative use of the subjects, namely office use.  He adopted a rate of £75 psm, which was consistent with the rates applicable to similar office subjects in Larkhall town centre.  He applied the rate of £75 psm to other day nurseries that were comparable with the subjects of appeal in terms of construction and location.  The rate of £75 psm had been the subject of professional agreement.  That rate brought out a value of £40,035.  To this the assessor made additions for air conditioning, car parking and CCTV.  That brought out a total NAV/RV of £43,000. 

The legislation
[5]        Section 3(4) of the Local Government (Scotland) Act 1975 provides as follows:

“(4)      Without prejudice to subsection (2) above, 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 or that there is such an error in the entry as is referred to in section 2(1)(f) of this Act;  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 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 changes of circumstances has not been proved to have affected the value of the lands and heritages to any specific extent.”

[6]        Section 37(1) of the 1975 Act provides as follows:

“’material change of circumstances’ means in relation to any lands and heritages a change of circumstances affecting their value and, without prejudice to the foregoing generality, includes any alteration in such lands and heritages any relevant decision of the Lands Valuation Appeal Court or a valuation appeal committee the members of which are drawn from the valuation appeal panel serving the valuation area in which the lands and heritages are situated or the Lands Tribunal for Scotland under section 1(3A) of the Lands Tribunal Act 1949, and any decision of that court, committee of tribunal which alters the net annual value or rateable value of any comparable lands and heritages.”

The Biggar Nursery case
[7]        By decision dated 25 September 2012 in the appeal of Williams t/a Juniors v Ass for Lanarkshire (the Biggar Nursery case) a valuation committee drawn from the Lanarkshire valuation appeal panel dealt with the valuation of subjects in Biggar that had been purpose built as a nursery and crèche.  The Committee was of the view that the character, nature and location of the day nursery in Biggar was such that it did not have an obvious alternative use.  It approved in principle the assessor’s scheme and substituted an NAV of the subjects based on a rate of £50 psm. 

The decision of the Committee

[8]        The Committee concluded that the decision in the Biggar Nursery case raised no issue of principle that would serve to resolve the point at issue in this appeal.  It was therefore not a relevant decision within the meaning of section 37(1) of the 1975 Act.  On the merits the Committee distinguished the Biggar Nursery case on the ground that in that case there was no obvious alternative use.  Having found in fact that the appeal subjects had an obvious alternative use as offices, it concluded that the rate of £50 psm could not apply.  The appellant had therefore failed to discharge the onus of establishing that there had been a change affecting value.

The grounds of appeal

[9]        The appellant contends (1) that the Committee erred in upholding a valuation that took into account the potential of the subjects for an alternative use as offices; and (2) that the potential for other uses being irrelevant, the effect of the decision in the Biggar Nursery case was that all day nurseries in Lanarkshire should be valued at £50 psm.  That decision therefore represented a material change of circumstances in terms of section 37(1) of the 1975 Act (supra). 

Conclusions
[10]      Since this appeal is brought in an intermediate year on the basis of a material change of circumstances, the appellant’s first ground of appeal can arise only if the appellant satisfies the conditions of section 37(1) of the 1975 Act.  On that question the key issue is whether the decision of the Committee in the Biggar Nursery case related to comparable subjects.  The Committee found in fact that the Biggar Nursery subjects are not comparable with those in the present case.  It reached that conclusion on the view that, in terms of rental value, the location of the appeal subjects in an area of mixed use in the centre of Larkhall was not to be compared with a location in Biggar.  That finding applies quite apart from the question of possible alternative use.  It is a finding in fact for which there was evidence.  It is not open to us to interfere with it.  It follows therefore that the Biggar Nursery decision does not relate to the rateable value of comparable lands and heritages.  Therefore it does not constitute a material change of circumstances.  On that view the second ground of appeal, and therefore the appeal itself, must fail. 

[11]      If the first ground of appeal had arisen, I would have considered that it was irrelevant.  Counsel for the appellant submitted that because the appeal subjects were in actual use as a nursery, they must be valued only as such, no account being taken of their potential for any other more profitable use.  He submitted that this case was governed by the following dictum of Lord Patrick in Ass for Stirlingshire v Myles and Binnie (1962 SC 530). 

“Two views of the matter have been entertained by our judges.  The one is that you must value heritage in its actual physical state at the time of the valuation, and according to the use to which it is then devoted.  The second view is that you must value heritage in its actual physical state as at the date of valuation, but, if it is not then devoted to the most profitable use which the state permits without structural alterations, you may value it on the hypothetical basis that it is being devoted to the most profitable use.  We have had a full citation of judicial opinions which deal with the matter, and the great weight of judicial opinion is in favour of the first view.”  (at pp 533-534).

[12]      In my opinion, this submission is fallacious.  It overlooks the facts that the court was considering in Ass for Stirlingshire v Myles and Binnie.  In that case two shops were in established uses for other purposes, one being in use as an office and store and the other as an office.  Nevertheless, the assessor entered them in the Roll as shops.  He argued unsuccessfully that the subjects had the physical characteristics of shops and might therefore be reasonably expected to be let for use as shops. 

[13]      The present case is entirely different.  The assessor has rightly entered the premises in the Roll as a nursery, which is their present use; but in applying the statutory hypothesis has concluded that in view of their physical layout, their former use as offices and their location in the centre of Larkhall, the hypothetical open market letting of the subjects would produce a rent that reflected the potential of the subjects to be returned to office use. 

[14]      Ass for Stirlingshire v Myles and Binnie is cited in this court from time to time in support of the proposition that we have heard in this case.  It is therefore important to emphasise that Lord Patrick’s dictum has no bearing on the general principle that in a consideration of the hypothetical transaction to which section 6(8) of the Valuation and Rating (Scotland) Act 1956 refers, the potential of the subjects for another use will be relevant to the extent that it would influence the rent at which the subjects would be let. 

Disposal

[15]      I propose to your Ladyship and to your Lordship that we should refuse the appeal. 

LANDS VALUATION APPEAL COURT

[2014] CSIH 87

XA115/14

Lord President

Lady Dorrian

Lord Malcolm

OPINION OF LADY DORRIAN

in the appeal by

HAPPY FEET NURSERY AND OUT OF SCHOOL CLUB LIMITED

Appellant;

against

ASSESSOR FOR LANARKSHIRE

Respondent:

For the appellant:  MacIver;  Brodies LLP

For the assessor:  Cleland;  Simpson & Marwick

28 October 2014

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

LANDS VALUATION APPEAL COURT

[2014] CSIH 87

XA115/14

Lord President

Lady Dorrian

Lord Malcolm

OPINION OF LORD MALCOLM

in the appeal by

HAPPY FEET NURSERY AND OUT OF SCHOOL CLUB LIMITED

Appellant;

against

ASSESSOR FOR LANARKSHIRE

Respondent:

For the appellant:  MacIver;  Brodies LLP

For the assessor:  Cleland;  Simpson & Marwick

28 October 2014

[17]      For the reasons given by his Lordship in the chair, I agree that this appeal should be refused.  I have nothing further to add.