Scottish Court of Session Decisions

LANDS VALUATION APPEAL COURT, COURT OF SESSION

[2014] CSIH 89

XA72/14

Lady Dorrian

Lord Malcolm

Lord Doherty

OPINION OF LADY DORRIAN

in the Appeal by

by

BELHAVEN BREWERY COMPANY LIMITED

Appellant;

against

THE ASSESSOR FOR AYRSHIRE VALUATION JOINT BOARD

Respondents:

Act:  MacIver;  TLT LLP

Alt:  Gill;  Simpson & Marwick

 

4 November 2014

[1]        I have had the advantage of reading the opinion prepared by Lord Doherty and I am in complete agreement that the appeal should be refused for the reasons given by his Lordship.

LANDS VALUATION APPEAL COURT, COURT OF SESSION

[2014] CSIH 89

XA72/14

Lady Dorrian

Lord Malcolm

Lord Doherty

OPINION OF LORD MALCOLM

in the Appeal by

by

BELHAVEN BREWERY COMPANY LIMITED

Appellant;

against

THE ASSESSOR FOR AYRSHIRE VALUATION JOINT BOARD

Respondent:

Act:  MacIver;  TLT LLP

Alt:  Gill;  Simpson & Marwick

 

4 November 2014

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

 

LANDS VALUATION APPEAL COURT, COURT OF SESSION

[2014] CSIH 89

XA72/14

Lady Dorrian

Lord Malcolm

Lord Doherty

OPINION OF LORD DOHERTY

in the Appeal by

by

BELHAVEN BREWERY COMPANY LIMITED

Appellant;

against

THE ASSESSOR FOR AYRSHIRE VALUATION JOINT BOARD

Respondents:

Act:  MacIver;  TLT LLP

Alt:  Gill;  Simpson & Marwick

 

4 November 2014

Introduction

[3]        The appeal subjects are a public house at 112-114 High Street, Irvine.  At the 2010 revaluation the assessor entered them in the valuation roll with an NAV of £26,890.  At that time they traded as the Eglinton Arms Hotel.  Shortly thereafter the subjects underwent major reconstruction and modernisation.  As a result, between 9 July 2010 and 3 December 2010 their NAV was reduced to nil.  The reconstructed subjects began trading as The Carrick on 3 December 2010.  With effect from that date the subjects were entered in the roll with an NAV of £86,500.  The appellant appealed against that valuation to the Valuation Appeal Committee.

 

Parties’ positions before the Committee

[4]        Before the Committee the appellant was represented by a chartered surveyor, Mr Peter Henry, and the assessor was represented by Mr Gill.  It was common ground that the reconstructed subjects were a different beast from the previous subjects, and that the turnover of the latter subjects was of no assistance in determining the value of the reconstructed subjects.

[5]        The Carrick’s manageress had disclosed to the assessor’s staff that during the period 3 December 2010 to 4 March 2011 turnover had been between £22,000 and £23,000 per week, split 70% for liquor and 30% for food.  She had indicated that the figures had been “as forecast and as expected”.  No other turnover figures had been disclosed to the assessor by the appellant. 

[6]        Mr Henry’s position before the Committee was that it was impermissible for the assessor or the committee to base the valuation of the subjects on the turnover evidence for the period 3 December 2010 to 4 March 2011.  He submitted that it would be an error of law to do so.  He relied on Suburban Taverns (Glasgow) Ltd v Assessor for Glasgow 2008 SC 298 which he suggested was authority for the proposition that post-tone date rental or turnover evidence was irrelevant and inadmissible.  The approach he commended was to start by calculating the NAV and turnover rates per square metre of each of thirteen suggested comparable subjects.  The NAV per square metre of those ranged from £362 to £83 and the turnover rate per square metre ranged from £952 to £4,136.  From this he had judged that £180 would be an appropriate NAV rate for the appeal subjects (giving a turnover rate of £2,057).  He had applied that rate to the reduced area of the appeal subjects and had arrived at his proposed NAV of £42,750.  He suggested that at least some support for his approach could be derived from paragraphs 5.2 and 5.3 of Scottish Assessors Association Practice Note 17 for the Valuation of Licensed Premises.

[7]        The assessor led a valuation witness, Miss McConville, who explained that taking the lower figure of £22,000 per week would result in an annual turnover of £1,144,000.  She had adjusted that figure back to the tone date (1 April 2008) by using the Retail Price Index (RPI).  That had resulted in a turnover of £1,053, 019 which she had rounded down to £1,040,000.  She had taken £728,000 of that as representing liquor and £312,000 as representing food.  Using those figures she had applied the adjustments and percentages recommended in Practice Note 17 and had arrived at the NAV of £86,500.  As a cross-check she had looked to what she considered to be the two best comparisons for the appeal subjects having regard to their location, the nature of the operation conducted (which was food led), and their turnover.  Those comparisons were the Ship Inn and the Kings Arms.  Her value for the appeal subjects fell between the NAVs of those subjects (being greater than the Kings Arms but less than the Ship Inn).  That is what she would have expected.  The other comparisons relied upon by Mr Henry were not good comparisons.  Some were in different localities.  Some served no or little food.  Some had a completely different order of turnover.  In any event it was not appropriate to divide the net annual value of comparisons by their reduced area in order to arrive at an NAV rate per square metre.  The comparisons had been valued on the basis of their turnover not on the basis of their area.  There was no direct relationship between turnover and floor area.

[8]        Mr Gill had submitted that Suburban Taverns (Glasgow) Ltd v Assessor for Glasgow did not support the proposition put forward by Mr Henry.  On the contrary, the Opinions delivered supported the proposition that, in the absence of tone date turnover or rental information, post-tone date information could be used.  The turnover information had been adjusted to take account of the fact that it was for a period after the tone date.  It had been cross-checked by reference to the two best comparisons.  The appellant’s approach ignored the best evidence.  Other than the Ship Inn, the comparisons the appellant relied upon were not good comparisons.  It was generally recognised that turnover per square metre was not a reliable guide to the valuation of licensed premises (Assessor for Lothian v Belhaven Brewery Company Limited 2009 SC 120 per the Lord Justice Clerk at paragraph 8).

 

The Committee’s decision

[9]        The Committee refused the appeal.  They rejected the contention that it was not open to them to rely on the post-tone turnover evidence.  They agreed with the assessor’s approach on each of the contentious issues. 

 

The appellant’s argument

[10]      Mr MacIver’s principal submission was that the Committee had not been entitled to proceed on the basis of the post-tone turnover information.  Turnover during initial trading could be higher or lower than subsequent turnover.  While the appellant had not been prepared to produce turnover evidence to the Committee it was now prepared to produce such information for 2010 to 2014 if the Court required it.  More fundamentally, the turnover information which the assessor relied upon would not have been available to the hypothetical landlord and hypothetical tenant at the tone date.  Mr MacIver maintained that the observations in Suburban Taverns supported the view that the post-tone evidence here was inadmissible.  It was notable that in Magell Ltd v Dumfries and Galloway Regional Assessor 2006 SC 627 it had been proved that the rental market had not moved significantly between the tone date and the date the rent was struck (Suburban Taverns, supra, per the Lord Justice Clerk at paragraph 16).  That had not been proved here.  Mr MacIver suggested that it was within judicial knowledge that the period 2008 to 2010 had been a turbulent period.

[11]      Mr MacIver acknowledged that it is generally recognised that turnover per square metre is not a reliable guide to the valuation of licensed premises.  Nonetheless, he submitted that paragraphs 5.2 and 5.3 of Practice Note 17 provided some limited support for Mr Henry’s approach.  The Committee ought not to have “dismissed it out of hand”.  If he was right that the post-tone date turnover ought not to have been used, the Court ought to remit the case to the Committee to make specific findings in relation to the comparisons which had been relied upon by each of the parties.

 

The assessor’s argument
[12]      Mr Gill submitted that the Committee had made no error of law.  It was well established that turnover was the most reliable indication of a public house’s value.  The appellant’s principal submission was based on a misreading of Suburban Taverns.  It was plain from the Opinions of the Lord Justice Clerk (paragraph 16) and Lord Hodge (paragraph 22) that post-tone date evidence could be used in appropriate circumstances.  Unlike the position in Suburban Taverns, here there was no relevant tone date evidence of turnover for the (reconstructed) subjects.  The post-tone date evidence was the best evidence of value.  The weight to be given to that evidence was a matter for the Committee (see e.g.  Magell Ltd v Assessor for Dumfries and Galloway 2005 SLT 453 per Lord Nimmo Smith at page 456H;  Segama NV v Penny Le Roy Ltd [1984] 1 EGLR 109 at page 112A-C).  The admissibility of post-tone evidence did not depend on establishing that rental or turnover levels had been static between the tone date and the subsequent date.  It would often be possible to adjust post-tone rents and turnovers to reflect changes since the tone date.  Miss McConville had given unchallenged evidence that the appropriate way to adjust the turnover evidence to take account of the passage of time since the tone date was by use of the RPI index.  It was not open to the appellant to seek to attack that evidence on appeal to this Court.  The appellant’s alternative approach had been rightly rejected by the Committee. 

 

Decision
[13]      In Lothian Assessor v Belhaven Brewery, supra, Lord Justice Clerk Gill observed:

“[8] For over a century, turnover has been found to be the most reliable basis on which to assess the annual value of licensed premises (cf Haggart v Assessor for Leith).  In modern times, turnover, adjusted in certain respects, has been the basis of successive revaluation schemes produced by the SAA.  Since licensed premises differ in their locational advantages, attractiveness and character and in the trading policies of the licensees, it is generally recognised by valuers, and was recognised by the committee in this case, that turnover per square metre is not a reliable guide to annual value…”

 

Mr MacIver accepted the correctness of those observations.  He was right to do so.

[14]      I turn first to Mr MacIver’s principal argument.  He recognised, as he had to, that post-tone date evidence of rents or turnover may be relevant to determining the annual value of lands and heritages.  There is ample authority which makes that clear (see Suburban Taverns, supra, per Lord Justice Clerk Gill at paragraph 16, per Lord Hodge at paragraph 22, and the authorities referred to in Armour on Valuation for Rating (5^th ed.), paragraph 19-19, footnote 2 (viz  Heart of Midlothian Football Club Ltd v Assessor for Lothian Region 1988 SLT (Lands Tr.) 61;  Occidental Petroleum (Caledonia) Ltd v Assessor for Grampian Region, March 25 1988; Magell Ltd v Assessor for Dumfries and Galloway, supra;  Wincanton plc v Assessor for Lanarkshire Valuation Joint Board 2012 SLT 1161)).  Mr MacIver’s argument under this head boiled down to two propositions.  First, that the post-tone date turnover was not relevant because it would not have been available to the hypothetical landlord and tenant at the tone date.  Second, that for post-tone turnover to be relevant the assessor had to prove that general rental and turnover levels had not moved significantly in the interim.  The first proposition, if correct, would mean that no post-tone rents or turnovers could ever be relevant.  That is plainly not the law.  A rent or turnover from after the tone date may be the best available evidence of annual value at the tone date.  The second proposition also appears to me to be unsound.  No vouching of any such absolute proposition is to be found in the passage at paragraph 16 in Suburban Taverns on which Mr MacIver founded.  On the contrary, it is clear from Suburban Taverns (and from the other authorities referred to in paragraph 19-19, footnote 2 of Armour) that adjustment of post-tone rents or turnover may be necessary to take account of the later date of the material relied upon.  If there have been significant changes in general levels of rental or turnover in the interim that is likely to affect the weight (if any) given to the post-tone material, but it would not render it irrelevant or inadmissible.  Besides, before the Committee the appellant did not suggest that there had been any such significant change.  Miss McConville gave evidence as to the appropriate way in which the post-tone turnover should be adjusted to reflect the fact that it related to a period after the tone date.  Her evidence on that matter was not challenged.  In those circumstances it is not open to the appellant before this Court to advance a challenge which it did not make before the Committee.  Likewise, it is too late now for it to seek to adduce further evidence as to turnover.  The weight to be attached to the turnover evidence which was adduced was very much a matter for the Committee.  There is no basis for concluding that they erred in law in accepting that it provided the most reliable indication of the annual value of the subjects.

[15]      The appellant’s valuation approach proceeded on the erroneous premise that the turnover evidence for the subjects was irrelevant.  Mr MacIver sought some support for the approach in paragraphs 5.2 and 5.3 of Practice Note 17 which provide:

“5.2      Valuation of Extensions to Existing Establishments

 

In order to estimate the increase in value which might be achieved as a result of an extension having been added to an existing establishment, the reduction factors contained in Appendix 2 may be applied to the floor area of the premises in order to arrive at a rate per square metre of reduced area, which can then be used as a guide.

 

A strictly arithmetical approach should, however, be treated with extreme caution, as the hypothetical achievable turnover in relation to any property is not necessarily proportionate to floor area.

 

5.3       Valuation of Establishments Where Turnover is Not Known

 

In the absence of any indication of the anticipated level of turnover, the hypothetical achievable turnover should be estimated by comparison with other similar properties.”

 

In my opinion neither paragraph provides significant support for the appellant’s approach.  Paragraph 5.2 deals only with extensions, and - even in that special case - it emphasises the need for extreme caution.  Paragraph 5.3 deals with the situation where there is an absence of any indication of the anticipated level of turnover, and provides that in such circumstances hypothetical achievable turnover should be estimated by comparison with other similar properties.  It does not direct that in those circumstances the appropriate approach is to be a turnover per square metre approach.  It would have been surprising if it had, given the general recognition that such an approach is not a reliable guide to annual value.

[16]      The Committee accepted the assessor’s valuation approach and rejected the appellant’s valuation approach.  They were entitled to do so.  They had actual turnover evidence relating to the appeal subjects.  They also had Miss McConville’s evidence that the best comparisons were the Ship Inn and the Kings Arms, and that cross-checking the appeal subjects with those comparisons supported her level of value.  The Committee did not accept Mr Henry’s turnover per square metre approach.  That was unsurprising.  The approach was based on the fallacy that there is a direct proportional relationship between the floor area and the turnover of licensed premises.  Floor area is just one of many factors (location, ambience, fittings, and facilities are others) which may contribute towards a subject’s turnover.  The comparisons the appellant relied upon had all been valued on the basis of their turnover, not on the basis of a turnover rate per square metre.  The very broad ranges of NAVs per square metre and turnovers per square metre which emerged from Mr Henry’s comparisons served only to demonstrate the absence of a direct proportional relationship between turnover and floor area (or NAV and floor area).  Moreover, it is plain that the Committee were wholly unconvinced by Mr Henry’s selection of a rate of £180 NAV per square metre (see paragraph 5(b) of their reasons). 

 

Disposal
[17]      It follows that the appeal is not well founded.  I propose to your Ladyship and to your Lordship that we should refuse the appeal.

 

Postscript
[18]      The findings in fact in the stated case were scanter than they ought to have been.  While, wherever possible, succinctness is desirable, findings ought to deal with all of the matters relevant and necessary to dispose of the grounds of appeal which are being advanced.  I take this opportunity of reminding Committees that they should make findings in fact not only in relation to the ground on which they reach their decision, but also in relation to any alternative submissions (Assessor for Grampian Region v Union Grain Storage (Aberdeen) Ltd 1989 SLT 361;  Assessor for Glasgow v Schuh Ltd 2012 SLT 903;  Armour, supra, paragraph 5-48).  While in the circumstances of this case the findings in fact, read together with the statement of reasons, were sufficient to permit the Court to dispose of the appeal, the Committee ought to have made specific findings in fact dealing with the comparisons relied upon by each of the parties.  It would also have been preferable to have had an explicit finding as to which, in the Committee’s view, were the best comparisons.  While in finding the facts the Committee erred on the side of brevity, their approach in other sections of the case erred in the other direction.  The note of the contentions of the parties before the Committee would have benefited from being more concise.  In the decision section the decision letter was simply reproduced in full (even though most of it was devoted to recording the parties’ submissions).  It would have been sufficient (in order to avoid repetition) to reproduce the decision part of the letter (Part D).