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LANDS VALUATION
APPEAL COURT, COURT OF
SESSION
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|
Lord
Justice Clerk
Lord
Kingarth
Lord
Clarke
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[2008] CSIH 60
XA94/08
OPINION OF THE LORD JUSTICE
CLERK
on the STATED CASE
in the appeal by
THE ASSESSOR FOR LOTHIAN
Appellant;
against
BELHAVEN BREWERY COMPANY
LIMITED
Respondent:
_______
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For the appellant: Clarke; Simpson & Marwick
For the respondent: No appearance
11
November 2008
Introduction
[1] This is an appeal by the assessor
against a decision of the Valuation Appeal Committee at Edinburgh dated 13
March 2008 relating to the respondent's public house, the World's End, at 2-8
High Street, Edinburgh. The subjects
were entered in the Valuation Roll at the 2005 Revaluation at a net annual
value and rateable value of £51,000. The
respondent appealed against the entry.
The Committee allowed the appeal to the extent of substituting an NAV/RV
of £47,000.
The
subjects
[2] The World's End is a small public house situated in a prime
tourist location on the Royal Mile. The
Committee found that it has a welcoming and attractive appearance. The present manageress has created an
attractive Scottish menu aimed at the tourist trade, with a high standard of
service. She has cultivated the staff at
local tourist sites and achieved a significant number of recommendations for
her bar.
The
valuations
[3] The assessor valued the subjects in accordance with the
Scottish Assessors Association (SAA) scheme for the valuation of licensed
premises in the 2005 Revaluation (cf Suburban
Taverns (Glasgow) Ltd v Ass for Glasgow, 2008 SC 299). That brought out the figure entered in the
Roll.
[4] The respondent's valuer, Mr Peter Henry FRICS, accepted the
assessor's adjusted turnover figure and the percentage factor that she applied;
but he relied on the SAA Practice Note 17 which recommended inter alia that if there was clear
evidence from similar surrounding properties that the actual turnover differed
considerably from the hypothetically achievable turnover by comparison with
similar surrounding premises, an adjustment to the turnover might be
appropriate. Mr Henry suggested that the
remarkable turnover of the World's End indicated that there was
over-performance resulting from the popularity of the manageress and her
ability to cultivate business. He made
an end allowance of 20% to reflect over-performance. That brought out an NAV/RV of £40,700.
The decision of the Committee
[5] The Committee considered that the closest comparable bars
were the Albanach, which was also the subject of an appeal, and the Mitre. It made no finding in fact about the turnover
of the Albanach, It found that the
turnover of the Mitre, which was much larger, was £3971 psm. The turnovers of the Tass, the Whiski and the
Royal Mile Bar, all located nearby, were £2,817, £4,342 and £3,771 psm
respectively. The World's End had a
turnover of £8,458.21 psm. The only bar
that out-performed it was Deacon Brodie's, which was some distance away. The Committee rejected it as a
comparison. It also rejected the
respondent's comparisons.
[6] The Committee found that the World's End was well maintained
and effectively managed, and had achieved a significant food turnover despite
its relatively small size. It held that
the turnover was beyond what a hypothetical tenant would expect to
achieve. It considered that it was
likely that the hypothetical tenant would allow for the fact that the turnover
of the World's End was well established.
It accepted that there was "some truth" in the view that a hypothetical
tenant of the World's End would not easily persuade the landlord to discount
the rent in light of its performance; but it considered that a hypothetical
tenant would be concerned about the competition. It concluded that the performance of the
World's End was "at least partly attributable" to the manageress, whom they
described as "particularly good." A
hypothetical tenant was "likely to doubt whether that success could be
matched."
[7] The assessor's valuation produced a rate of £773 psm. The Committee acknowledged that, in the main,
rates per square metre were variable and that there was no direct correlation
between floor area and turnover. It
thought that a hypothetical tenant would look for and probably obtain an
agreement on a rate in the region of £700 psm.
There was a minor dispute over the floor area. The Committee took a figure of 67 sm. That brought out a figure of £46,900, which
it rounded up to £47,000 NAV/RV. That
represented an end allowance of 71/2%.
Conclusions
[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 Ass for Leith, 1912 SC 784). 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.
The essence of the SAA scheme is that it is based on actual turnover in
the survey year. Like all such schemes
it is merely a means to an end, namely that of ascertaining "the rent at which
the lands and heritages might reasonably be expected to be let from year to
year" on the statutory terms, which I need not repeat (Valuation and Rating
(Scotland) Act 1956 (the 1956 Act), s 6(8); UKAEA
v Ass for Highland, 2006 SC 252).
[9] In exceptional cases a valuation produced by a turnover-based
scheme may not be a reliable indicator of annual value where the actual turnover
is influenced by some factor that would not apply in the hypothetical
transaction. That is the essence of the concept of
over- or under-performance that we discussed in Belhaven Brewery Group v Glasgow Ass (2003 SC 395), JD Wetherspoon plc v Lothian Regional Ass (2003 SC 400) and Sinclair v Lothian Ass ([2003] RA
202).
[10] If a turnover
is to be held to reflect over-performance, it has to be abnormally high. For that conclusion to be drawn there has to
be some special feature of it that would not influence the parties to the
hypothetical letting (Haggart v Ass for
Leith, supra); for example, if
part of the turnover is attracted for reasons personal to the licensee (cf Sinclair v Ass for Lothian, supra), or if an abnormally high
turnover is generated by abnormally low prices and margins (eg JD Wetherspoon plc v Lothian Regional Ass,
supra). Conversely, there may be under-performance
where, for example, the occupier operates on restricted hours of opening or
runs the premises on an uncommercial basis (cf Belhaven Brewery Group v Glasgow Ass, supra).
[11] Such cases are
uncommon. The essential point in each is
that the actual turnover is not a valid indicator of the rent that would be
struck on the statutory hypothesis.
[12] In the course
of normal competition some public houses will be significantly more attractive
and better managed than any of their local competitors. The success that follows in such cases cannot
be characterised as over-performance. If
it were, every appeal on the point would become an assessment of the quality of
the appeal subjects and the standard of their management. From that it would be a short step to the
principle that the rateable value of any outstandingly successful bar should be
reduced on account of its success.
[13] I make these general remarks to emphasise that the mere fact
that the turnover performance of a public house is better or worse than that of
any of its competitors, no matter how much better or worse it may be, does not
of itself demonstrate over- or under-performance.
[14] As in the case of Ass for
Lothian v BBW Leisure Ltd ([2008] CSIH 61), which we heard along with this,
the Committee carefully considered the evidence; but in my opinion its
conclusion was unjustified. There is
nothing in its findings to suggest that the turnover of the World's End is
"abnormal" in the sense in which I have used that expression. Turnover per square metre, on which the
Committee seems to have relied, is not of itself a decisive criterion on the
point. The Committee's own findings
explain the success of the World's End.
It is in a prime location. It is
more attractive than its competitors. It
is run skillfully and with a good understanding of the market.
[15] The Committee conceded that there was some truth in the idea
that the hypothetical tenant of the World's End would not easily persuade the
landlord to discount the rent in the light of its performance. That points against any reduction in the
valuation. But the Committee thought
that the hypothetical tenant would be "likely to doubt" whether he could match
the success of the World's End and concluded that the turnover was "at least
partly attributable" to the skills of the manageress. In doing so, in my opinion, it overlooked an
essential feature of the valuation hypothesis, namely that the hypothetical
letting is concluded in an open market.
The open market includes prospective tenants who would know of the
turnover performance of the World's End and who could run it as successfully as
the respondent. The Committee in effect
excluded such prospective tenants from the hypothetical market. In doing so, it failed to apply section 6(8)
of the 1956 Act correctly.
Disposal
[16] I propose to your Lordships that we should allow the
appeal.
|
LANDS VALUATION
APPEAL COURT, COURT OF
SESSION
|
|
Lord
Justice Clerk
Lord
Kingarth
Lord
Clarke
|
[2008] CSIH 60
XA94/08
OPINION OF LORD KINGARTH
in
STATED CASE
in the appeal by
LOTHIAN ASSESSOR
Appellant;
Against
BELHAVEN BREWERY COMPANY
LIMITED
Respondent:
_______
|
For the appellant: Clarke;
Simpson & Marwick
For the respondent: No appearance
11 November 2008
[17] For the reasons given by your Lordship in the chair I agree
that this appeal should be allowed.
|
LANDS VALUATION
APPEAL COURT, COURT OF
SESSION
|
|
Lord
Justice Clerk
Lord
Kingarth
Lord
Clarke
|
[2008] CSIH 60
XA94/08
OPINION OF LORD CLARKE
in
STATED CASE
in the appeal by
LOTHIAN ASSESSOR
Appellant;
Against
BELHAVEN BREWERY COMPANY
LIMITED
Respondent:
_______
|
For the appellant: Clarke;
Simpson & Marwick
For the respondent: No appearance
11 November 2008
[18] For the reasons set out fully by your Lordship in the chair, to
which there is nothing I can usefully add, I agree that this appeal should be allowed.
