HISTORIC SCOTLAND EXECUTIVE AGENCY AGAINST THE ASSESSOR FOR THE HIGHLAND VALUATION JOINT BOARD
LANDS VALUATION APPEAL COURT, COURT OF SESSION
[2015] CSIH 15
XA167/14
Lord President
Lord Menzies
Lord Malcolm
OPINION OF THE LORD PRESIDENT
in the appeal by
HISTORIC SCOTLAND EXECUTIVE AGENCY
Appellant;
against
THE ASSESSOR FOR THE HIGHLAND AND WESTERN ISLES
VALUATION JOINT BOARD
Respondent:
For the appellant: MacIver; Morton Fraser LLP
For the assessor: Clarke QC; Glasgow City Council
19 February 2015
Introduction
[1] This appeal relates to the entry made in the Roll at the 2010 Revaluation relating to the Castle and Visitor Centre, Urquhart Castle, Drumnadrochit. The assessor entered the subjects in the Roll at a rateable value of £220,000. On 23 April 2014 the Highland and Western Isles Valuation Appeal Committee refused the appellant’s appeal against the entry. That is the decision appealed against.
The subjects
[2] The subjects are the ruins of Urquhart Castle and a visitor centre on the site. It is agreed that they should be valued as a unum quid. There is direct access to the site from the A82 to the main car park. The car park is at ground level. It forms the roof of the visitor centre. Visitors enter from the car park by way of a reception rotunda, which is the sole access, and go down into the centre. The rotunda is the paywall. The visitor centre consists of a shop, café/restaurant, cinema room and exhibition/education space. The restaurant is franchised. At a lower level there are staff, administration and storage areas and plant rooms. From the front of the visitor centre there is access to the castle ruins and to vantage points giving views across Loch Ness.
[3] The Scottish Assessors Association’s Practice Note 24 for the 2010 Revaluation deals with the valuation of historic buildings, exhibition rooms and so on. According to the Practice Note the operation of this category of subject will rarely result in an annual operating profit, and that the motivation for operating it will include the mitigation of the cost of occupation and preservation of ancestral homes/estates and the preservation of historic sites, buildings and the associated furnishings, equipment and artefacts for the greater good of the community and the public in general (para 1.4). The Note recommends that subjects within this category should be valued by reference to gross receipts to which a percentage should be applied in the range 2% to 5%.
[4] Practice Note 27 deals with the valuation of visitor attractions and is appropriate where inter alia the subjects are interpretative historic attractions where the building or the site itself forms part of the subject matter. The Note recommends that subjects within this category should be valued by reference to gross receipts to which a percentage should be applied in the range 4% to 10%.
[5] Although the appeal subjects have some of the characteristics to which both Practice Notes refer, they do not exemplify all of them.
The assessor’s valuation
[6] The assessor relied on two comparisons, namely the visitor centres at Glencoe and Culloden. Both were valued on the contractor’s principle. Neither had any value arising from income from visitors.
[7] Since the appeal subjects achieved a substantial operating profit, the assessor was of the view that the use of Practice Note 24 would produce a significant undervalue that did not reflect the rent that would be payable in the hypothetical transaction. He therefore concluded that it was appropriate to adopt a hybrid method of valuation. He first took the Castle and grounds as a discrete element in the valuation. He calculated the income streams from admissions and from the franchised restaurant. From the total of those figures he deducted a third, generously in the view of the Committee, to reflect the fact that not all visitors would use the facilities of the visitor centre. Some would go straight to the Castle ruins and to the vantage points. To the reduced figure for admissions the assessor applied a factor of 5% in keeping with Practice Note 27. To the reduced figure of income from the restaurant he applied a factor of 50%.
[8] The assessor then valued the visitor centre itself on the contractor’s principle. In view of the unique construction of the centre he considered that actual building costs would produce an unrealistic valuation. He therefore applied to the gross external area an overall rate of £1700 psm, as had been used in relation to the sites at Glencoe and Culloden. He allowed for site works and fees. To the aggregate value he applied the statutory decapitalisation rate. From the resulting figure he made a deduction for age and obsolescence of 4%.
[9] The assessor’s valuation of the subjects in the Roll was follows:
1. Admissions Revenue: £399808 @ 5% = £ 19990
2. Restaurant: £39564 @ 50% = £ 19782
3. Visitor Centre: (see below) £183625
Total £223397
(Rounded down to £220,000)
GEA 1507.99 m² @ £1700 = £2733583
Site wks + 20% = £ 546717
£3280300
Fees + 9% = £ 295227
£3575527
Site say £ 250000
£3825527
Decap @ 5% = £191276
Less A & O – 4% = £ 7651
Total: £183625
[10] A check valuation by the assessor on the revenue principle produced a significantly higher value.
[11] On the hypothesis that the assessor’s methodology was correct, the appellant’s valuer did not dispute the value attributed to the restaurant, the gross external area of the visitor centre, the figures for fees and the decapitalisation rate; but he submitted that the deduction for age and obsolescence should have been applied to the capital cost before the application of the decapitalisation rate.
The appellant’s proposed valuation
[12] In support of the appeal the appellant relied on the 2010 valuations agreed with assessors on twelve sites namely Stirling Castle, Edinburgh Castle, Fort George, Arbroath Abbey, Bothwell Castle, Skara Brae, St Andrew’s Castle, Stanley Mills, Holyrood Palace, Linlithgow Palace, New Lanark Mills and Dumbarton Castle. In each case the valuation was based on a percentage of gross receipts in accordance with Practice Note 24. In these valuations the percentages applied to general admissions were in the range 2%-5%. Where there was income from a franchised restaurant or café a percentage of 50% was applied.
[13] On the basis of visitor numbers of 284,255 in 2008, the appellant’s valuer valued the appeal subjects by applying a factor of 5.5% to gross receipts from admissions and from the shop, and 50% to receipts from the restaurant. This produced a rateable value of £113,000.
The Committee’s findings in fact
[14] The Committee found that Fort George was the only comparison cited by the appellant within the Highland and Western Isles valuation area. The rateable value of Fort George to which the appellant’s witness referred did not relate to the whole property, there being an additional entry in the Roll for the operational barracks and further entries in the council tax valuation list. Moreover Fort George was not accessed through a purpose-built visitor centre.
[15] The Committee found that Arbroath Abbey and St Andrew’s Castle were both historic ruins combined with a modern purpose built visitor centre; but that on those sites the visitor numbers and turnover were of “a very different order” from those of the appeal subjects.
[16] The Committee found that all of the other comparisons cited by the appellant comprised a different mix of building types and businesses from those found at the appeal subjects.
[17] As to the assessor’s comparisons, the Committee found that the visitor centres at Glencoe and Culloden were purpose-built visitor centres somewhat similar in nature to that of the appeal subjects, but that they were operationally different since it was not necessary to pay to enter these centres in order to visit the associated heritage site.
The decision of the Committee and its reasons
[18] The Committee considered that there were two principal issues in the case namely (a) the correct method of valuation; and (b) whether that method had been properly applied to the facts and circumstances of the case.
[19] The Committee concluded that there was no uniform class of historical visitor attractions all of which could be valued on the same basis, regardless of the balance between historic and modern buildings and the range of facilities provided. Relying on the decision of the Lands Tribunal in Roxburghe Estates v Ass for Scottish Borders Council ([2004] RA 15), it considered that subjects such as the appeal subjects should be looked at according to their own facts and circumstances. The Committee was satisfied that it was appropriate for the assessor to adopt a hybrid approach to the valuation by reason of the type and nature of the unum quid.
[20] A committee of the same Panel had previously held it appropriate to value the Glencoe visitor centre on the contractor’s principle. The Committee in this case considered that the Glencoe visitor centre had more in common with the visitor centre element of the appeal subjects than many of the comparisons cited by the appellant. While it acknowledged that it could not look to decisions in previous revaluations for guidance on the quantum of value, it considered that it could look to such decisions on issues of methodology (Marks and Spencer v Ass for Highland & Islands VJB ([2013] CSIH 96, at para 18).
[21] It appeared to the Committee that the discounting of gross receipts was the appropriate way in which to deal with the valuation of the restaurant and the remainder of the appeal subjects, that is to say the Castle ruins and the grounds.
[22] The Committee considered that the appellant’s valuation approach appeared to ignore the valuation hypothesis (Valuation and Rating (Scotland) Act 1956, s 6(8)) Although the appellant was not a profit making organisation, the appeal subjects generated substantial profit which cross-subsidised its operations elsewhere. In the view of the Committee, the methodology set out in the Practice Notes could be used only where it was explicitly shown to be appropriate.
[23] All but one of the appellant’s comparisons were outwith the valuation area. Such comparisons were relevant only where appropriate comparisons in the local valuation area were lacking. The two comparisons cited by the assessor had been valued on the contractor’s principle. They appeared to the Committee to be more apt for comparison with the relevant part of the appeal subjects than many of the appellant’s comparisons from outwith the area. The appellant’s comparisons were agreed valuations. The appellant had provided no rental evidence on which to base a comparative valuation. None of the comparisons had been tested before the Lands Tribunal or a local committee.
[24] The Committee then considered the individual elements in the assessor’s valuation. On admissions revenue it considered it probable that the assessor’s figure significantly underestimated the revenue actually generated. To that extent the valuation benefited the appellant. In the view of the Committee 5% was the appropriate discount.
[25] The Committee considered that on the agreed gross external area of the visitor centre the assessor’s rate of £1700 psm was reasonable. The public areas of the centre had been finished to a high standard. That justified the application of the category one unit rate set out in SAA Practice Note 17. The Committee accepted that this rate should be applied to the visitor centre overall.
[26] As to site works, the Committee considered that the appellant’s application of 20% to site works was too high. The only other subjects to which such a percentage had been applied were the Faslane Nuclear Submarine Base. It accepted that in view of the subterranean nature of much of that building, it might, to that limited extent, at least be apt for the appeal subjects. However it accepted that the assessor’s check valuation in respect of that part of the valuation supported his primary valuation.
[27] Finally, as to age and obsolescence the Committee accepted that if that allowance had been taken into account at the wrong part of the calculation, the effect of that error was to the advantage of the appellant.
The grounds of appeal
[28] The appellant contends that (1) the Committee erred in law in upholding a valuation carried out on a hybrid principle rather than the appellant’s valuation in accordance with the Practice Notes; (2) the Committee erred in law in failing to follow the decision of the Lands Tribunal in Roxburghe Estates v Ass for Scottish Borders Council (supra) which established that a contractor’s principle was not appropriate and that subjects such as the appeal subjects should be valued on a percentage of overall turnover; (3) if the assessor’s methodology was correct, the Committee erred in law (i) in upholding the assessor’s estimate of admissions revenue when there was no factual basis for it; (ii) in upholding the application of a fixed rate psm to the whole of the subjects including staff, administration and storage areas and plant rooms; (iii) in upholding the application of the fixed rate to the gross external area without deduction of the area of the restaurant and the ancillary service areas; (iv) in upholding the estimated 20% attributable to site works without any factual basis; and (v) by upholding the application of the age and obsolescence allowance in the wrong part of the calculation.
Conclusions
[29] The valuation of a visitor centre in association with an historic site is a particularly difficult exercise. There is little, if any, relevant rental evidence. There is such diversity in sites of that nature that there is only a limited degree of comparability between any two of them. The Lands Tribunal recognised this in Roxburghe Estates v Ass for Scottish Borders Council (supra). The question of comparability was a particularly difficult exercise in this case because the visitor centre was purpose-built, had certain unique features and had been constructed in a subterranean space.
[30] The first issue in this appeal is whether the Committee erred in accepting the assessor’s methodology in preference to that proposed for the appellant. Counsel for the appellant accepted, rightly, that there may be circumstances in which a hybrid method of valuation may be the most appropriate way of the assessing the value of the subjects on the statutory hypothesis. In my opinion it was a matter for the Committee to decide which methodology was appropriate. It had ample justification for accepting the assessor’s methodology, for the reasons that he gave. We have been given no reason to disturb that decision.
[31] Counsel for the appellant referred to the appellant’s valuation as a valuation on the comparative method; but in reality it was not a valuation by reference to comparable rental evidence. It was a valuation by reference to agreed valuations of allegedly comparable subjects on a variety of diverse sites, from Edinburgh Castle to Skara Brae, all but one of which were outwith the valuation area.
[32] Counsel for the appellant emphasised that there can be circumstances in which it is legitimate to rely upon comparisons from outwith the valuation area. That point is not in dispute. But the comparisons from outwith the valuation area were cited in support of a methodology that the Committee rejected. That point is therefore irrelevant.
[33] The second question relates to the significance of the decision in Roxburghe Estates v Ass for Scottish Borders Council (supra). That case concerned the valuation of exhibition rooms, an adjacent gift shop, restaurant and a coffee shop at Floors Castle. The exhibition rooms and the gift shop were within the east wing of the Castle. The issue in that case that is relevant to this appeal was whether the assessor’s valuation on a percentage of turnover was to be preferred to a valuation on the revenue principle. The parties in that case were agreed that a contractor’s principle valuation was not appropriate. It is apparent that the Committee considered that the subjects in the present case had no meaningful comparability with those in the Roxburghe Estates case. That decision has no bearing on the outcome of this appeal.
[34] The third question relates to the criticisms advanced for the appellant as to specific steps in the assessor’s contractor’s principle valuation. Those are all questions that were for the Committee to resolve. In particular, it was for the Committee to decide if the assessor’s overall rate of £1700 psm was appropriate. It was for the Committee to decide on the appropriateness of the other items in the valuation. It is not for this court to interfere on such points. It is probably true to say that the deduction for age and obsolescence should have come at a stage in the calculation before the application of the decapitalisation rate; but if that is so, it is not suggested that the effect of the assessor’s methodology has been to the disadvantage of the appellant.
[35] I conclude therefore that this appeal is without merit. The appellant has failed to demonstrate that the Committee made any error of law.
Disposal
[36] I propose to your Lordships that we should refuse the appeal.
LANDS VALUATION APPEAL COURT, COURT OF SESSION
[2015] CSIH 15
XA167/14
Lord President
Lord Menzies
Lord Malcolm
OPINION OF LORD MENZIES
in the appeal by
HISTORIC SCOTLAND EXECUTIVE AGENCY
Appellant;
against
THE ASSESSOR FOR THE HIGHLAND AND WESTERN ISLES
VALUATION JOINT BOARD
Respondent:
For the appellant: MacIver; Morton Fraser LLP
For the assessor: Clarke QC; Glasgow City Council
19 February 2015
[37] For the reasons given by your Lordship in the chair, I agree that this appeal should be refused.
LANDS VALUATION APPEAL COURT, COURT OF SESSION
[2015] CSIH 15
XA167/14
Lord President
Lord Menzies
Lord Malcolm
OPINION OF LORD MALCOLM
in the appeal by
HISTORIC SCOTLAND EXECUTIVE AGENCY
Appellant;
against
THE ASSESSOR FOR THE HIGHLAND AND WESTERN ISLES
VALUATION JOINT BOARD
Respondent:
For the appellant: MacIver; Morton Fraser LLP
For the assessor: Clarke QC; Glasgow City Council
19 February 2015
[38] I am in complete agreement with the Opinion of his Lordship in the chair that this appeal should be refused. I have nothing further to add.