APPEAL BY THE OLD COURSE LIMITED AGAINST FIFE COUNCIL ASSESSOR
LANDS VALUATION APPEAL COURT
[2016] CSIH 40
XA22/16
Lord Justice Clerk
Lord Malcolm
Lord Doherty
OPINION OF THE LORD JUSTICE CLERK
in the Appeal
by
THE OLD COURSE LIMITED
Appellants;
against
FIFE COUNCIL ASSESSOR
Respondents:
Act: Haddow QC; Maclay Murray & Spens, Solicitors
Alt: Stuart QC; Clyde & Co, Solicitors
7 June 2016
[1] For the reasons given by Lord Doherty, I agree that this appeal should be refused. I have nothing further to add.
LANDS VALUATION APPEAL COURT
[2016] CSIH 40
XA22/16
Lord Justice Clerk
Lord Malcolm
Lord Doherty
OPINION OF LORD MALCOLM
in the Appeal
by
THE OLD COURSE LIMITED
Appellants;
against
FIFE COUNCIL ASSESSOR
Respondents:
Act: Haddow QC; Maclay Murray & Spens, Solicitors
Alt: Stuart QC; Clyde & Co, Solicitors
7 June 2016
[2] For the reasons given by Lord Doherty, I agree that this appeal should be refused.
LANDS VALUATION APPEAL COURT
[2016] CSIH 40
XA22/16
Lord Justice Clerk
Lord Malcolm
Lord Doherty
OPINION OF LORD DOHERTY
in the Appeal
by
THE OLD COURSE LIMITED
Appellants;
against
FIFE COUNCIL ASSESSOR
Respondents:
Act: Haddow QC; Maclay Murray & Spens, Solicitors
Alt: Stuart QC; Clyde & Co, Solicitors
7 June 2016
Introduction
[3] The Grand Hotel, St Andrews was built in about 1895 on a prominent corner site with elevations on The Scores and on Golf Place. On its website Historic Environment Scotland describes the building as having been constructed in a monumental Francois I style using Bute red sandstone. The edifice has 4 storeys, basement and attic, two distinctive corner towers and domes, and a mansard roof. It was purchased by the University of St Andrews in 1949 and was converted to use as a student hall of residence. It was renamed Hamilton Hall. It has been a listed building (category B) since 1999.
[4] The appellants purchased Hamilton Hall from the university. They renamed it Hamilton Grand. They converted, refurbished and developed it between 2010 and 2013. Twenty-six luxury apartments and associated facilities were formed within the building. The location of the development is prime, with spectacular views overlooking the Old Course (and in particular, the eighteenth green) and the West Sands. Prices for individual apartments range from £2,000,000 to £7,500,000. The appellants furnished two of the apartments - Apartments 5 and 7, 21 Golf Place - and used them as showhouses in order to facilitate sales of all of the apartments. With effect from 17 February 2014 the assessor entered Apartments 5 and 7 in the valuation roll as a single entry with the description “showhouse”, and with an NAV/RV of £240,000. Apartment 5 was sold on 13 June 2014. As from that date the entry in the roll was altered to reflect the fact that the showhouse now only comprised Apartment 7. The altered value was NAV/RV £120,000. Both entries were running roll entries. Upon their completion the other twenty-four apartments were entered by the assessor in the council tax valuation list (on the basis that they were dwellings). None of those apartments had been furnished by the appellants. None of them had been used as a showhouse. From the date of its sale Apartment 5 was entered in the valuation list as a dwelling.
[5] The appellants appealed against both of the entries in the valuation roll. They sought a referral of the appeals to the Lands Tribunal for Scotland. The valuation appeal committee declined to refer the appeals. The appellants appealed that decision to the Tribunal. On 6 March 2015 the Tribunal refused that appeal (The Old Golf Course Ltd v Assessor for Fife, 2015 S.L.T. (Lands Tr) 181). The appeals against the entries were then heard by the valuation appeal committee on 1 October 2015. At the hearing the assessor defended values of £200,000 and £100,000 respectively for the entries. The committee upheld the entries at those values.
[6] The single issue raised in this appeal is whether Apartments 5 and 7 were correctly entered by the assessor in the valuation roll as a showhouse. Before the valuation appeal committee, and on appeal to the court, the appellants contended that each of those apartments was a “dwelling” in terms of s. 72 (2) of the Local Government Finance Act 1992, and that they fell to be excluded from the valuation roll in terms of s. 73 (1). Before the committee and before the court the assessor maintained that the apartments were not dwellings and that they had been correctly entered in the valuation roll as a showhouse.
The hearing before the committee and the committee’s decision
[7] The committee found that Apartments 5 and 7 were occupied and used by the appellants as a showhouse for the purpose of marketing for sale all of the apartments in the development. It found that the appellants decorated and furnished Apartments 5 and 7 to give potential purchasers of apartments in the development a good impression of the apartments for sale, and a realistic impression of what properties might look like once the purchaser moved in. The appellants looked primarily to an international market for sales. Viewing was strictly by appointment and after potential viewers had been vetted to check that they were genuine and had sufficient resources to complete a purchase. There were 75 viewings by potential purchasers from January 2014 to April 2015, and 35 viewings from April 2015 to 23 September 2015.
[8] The committee agreed with the assessor that having regard to their occupation and use Apartments 5 and 7 were not dwellings. It held that the subjects had been correctly entered in the valuation roll as a showhouse.
[9] Before the committee the parties were agreed that the estimated open market capital value of each of the two apartments had they been in existence at the tone date (1 April 2008) would have been £1.66 million. The values which the assessor defended (£200,000 for the initial entry and £100,000 for the altered entry) were 6% of the estimated open market capital values in accordance with the method of valuation set out in the Scottish Assessors Association Commercial Properties Committee Practice Note 27 “Valuation of Showhouses”. If it was correct for the subjects to be in the valuation roll as a showhouse the appellants maintained that the relevant entries should be £100,000 and £50,000. They relied upon indirect comparison with other categories of subjects in support of a rate of 3% being applied to estimated open market capital value. The committee accepted the values defended by the assessor and rejected the values proposed by the appellants.
Ground of appeal
[10] The appellants’ only ground of appeal to this court was that the committee erred in law in determining that Apartments 5 and 7 were not dwellings in terms of s. 72 (2)(a). In the event that there had been no such error it was not maintained that the committee had been wrong to uphold the assessor’s net annual values/rateable values for the entries.
Local Government Finance Act 1992
[11] Part II of the Local Government Finance Act 1992 provides:
“Part II
COUNCIL TAX: SCOTLAND
…
Dwellings chargeable to council tax
72. - (1) Council tax shall be payable in respect of any dwelling which is not an exempt dwelling.
(2) In this Part, “dwelling” –
(a) means any land and heritages –
(i) which consist of one or more dwelling houses with any garden, yard, garage, outhouse or pertinent belonging to and occupied with such dwelling house or dwelling houses; and
(ii)which would, but for the provisions of section 73(1) below, be entered separately in the valuation roll;
…
(4) The Secretary of State may vary the definition of dwelling in subsection (2) above by including or excluding such lands and heritages or parts thereof or such class or classes of lands and heritages or parts thereof as may be prescribed.
…
(6) In this Part –
…
“exempt dwelling” means any dwelling of a class prescribed by an order made by the Secretary of State…
Alterations to valuation roll
73. - (1) … dwellings shall not be entered in the Valuation Roll in respect of the financial year 1993/1994 or any subsequent financial year.
…”
Local Government Finance Act 1988
[12] Before its repeal s. 66 of the Local Government Finance Act 1988 (“the 1988 Act”) provided (for England and Wales):
“Domestic property
66. – (1) Property is domestic if –
(a) it is used wholly for the purposes of living accommodation,
…
(5) Property not in use is domestic if it appears that when next in use it will be domestic.
…”
Secondary legislation relied on by the appellants
[13] Regulation 5 of, and para. 2 of Schedule 2 to, the Council Tax (Dwellings)(Scotland) Regulations 1992 (SI 1992/2955) provide:
“Variation of definition of dwelling
…
5. There shall be excluded from the definition of dwelling any lands and heritages or parts thereof which fall within the classes specified in Schedule 2 to these Regulations.
…
Schedule 2 DEFINITION OF DWELLING - EXCLUSIONS
…
2. Self-catering holiday accommodation
Any lands and heritages–
(a) which are not the sole or main residence of any person; and
(b) which either–
(i) are made available by a relevant person for letting, on a commercial basis and with a view to the realisation of profits, as self-catering accommodation for short periods amounting in the aggregate to 140 days or more in the financial year; or
(ii) if they have not been made so available for letting in that year, are intended by a relevant person to be made so available for letting in that year and the interest of the relevant person in the lands and heritages is such as to enable him to let them for such periods.”
[14] Regulation 2 of the Council Tax (Dwellings) (Scotland) Regulations 1993 (SI 1993/526) provides:
“Variation of definition of dwelling
2. The definition of dwelling in section 72(2) of the Act is hereby further varied by excluding any lands and heritages which are timeshare accommodation within the meaning of the Timeshare Act 1992.”
Submissions for the appellants
[15] Mr Haddow submitted that Apartments 5 and 7 had at all material times been dwelling houses, and therefore dwellings. The use made of subjects was irrelevant to the question of whether the subjects were a “dwelling” within the meaning of s. 72 (2). That definition made no reference to use. The language of s. 72 (2) could be contrasted with the terms of the legislation which had been in force in England and Wales at the time Walker (VO) v Ideal Homes Central Ltd [1995] RA 347 had been decided. Section 66 (1)(a) of the 1988 Act had provided that property was domestic property if “it is used wholly for the purposes of living accommodation”. Standing the focus on use in the English legislation the decision in Walker was understandable, but it was clearly distinguishable in light of the different terms of the legislation under consideration. In order to determine whether lands and heritages were a “dwelling” in terms of s. 72 (2) and a “dwelling house” in terms of s. 72 (2)(a)(i) one looked only at the nature of the subjects, i.e. their physical characteristics. Use was irrelevant. Accordingly it was nothing to the point that for the purposes of valuation for rating lands and heritages fell to be valued having regard to their actual state and their existing use. Authorities such as Assessor for Stirlingshire v Myles and Binnie 1962 SC 530 had no bearing upon the issue. Empty houses were not occupied and used but they were nonetheless dwelling houses, and were dwellings: reference was made to the Council Tax (Exempt Dwellings) (Scotland) Order 1997 (SI 1997/728), reg and Sched. 1, para. 1. The fact that the power contained in s. 72 (4) had been exercised to exclude from the definition of “dwelling” certain subjects used for commercial self-catering for more than 140 days per year (Council Tax (Dwellings) (Scotland) Regulations 1992, reg. 5 and Sched. 2, para. 2), and subjects which were timeshare accommodation (Council Tax (Dwellings) (Scotland) Regulations 1993 (SI 1993/526), reg 2), further demonstrated that use was irrelevant. Apartments 5 and 7 had the physical characteristics of dwelling houses. Accordingly they were dwelling houses.
[16] Mr Haddow accepted that if his construction of s. 72 (2)(a)(i) was correct any property which had the physical characteristics of a dwelling house but a different use would be a dwelling house (and a dwelling) for the purposes of s. 72 (2). A property with the physical characteristics of a dwelling house but used as a commercial office or for commercial storage would be a dwelling house and a dwelling in terms of the subsection.
Submissions for the assessor
[17] Mr Stuart submitted that the appellants’ construction of s. 72 (2) was erroneous. While s. 72 (2) made no express reference to use (cf. s. 66 (1)(a) of the 1988 Act), it was well settled that the proper characterisation of lands and heritages involved having regard to their physical characteristics (their actual state) and to their existing use (Assessor for Stirlingshire v Myles and Binnie, supra; Armour on Valuation for Rating (5th ed.), para. 18-10). Whether lands and heritages were a “dwelling house” in terms of s. 72 (2)(a)(i) depended upon both of those considerations.
[18] Where lands and heritages with the physical characteristics of a dwelling house were unoccupied they would be a dwelling house (and a dwelling) because they were not being used as any other category of subject. It could not be concluded from the terms of the regulations varying the definition of “dwelling” to exclude timeshare accommodation and certain subjects used for periods as self-catering accommodation that use was irrelevant to the question whether lands and heritages were a dwelling house and/or a dwelling. The exclusion of timeshare subjects from the definition of dwelling had been necessary because timeshare units were dwelling houses (Assessor for Highland and Western Isles Valuation Joint Board v Barratt International Resorts Ltd 1997 SC 384).
[19] On the committee’s unchallenged findings the appeal subjects were not used as dwelling houses but were used as a showhouse. It followed that they were not dwelling houses and were not dwellings. They had been rightly entered in the valuation roll as a showhouse.
Decision
[20] While showhouses have been entered in the valuation roll for many years, the court was informed that this case was the first appeal against any such entry to have gone to a hearing (before a valuation appeal committee or the Lands Tribunal for Scotland). There were no other outstanding appeals in Scotland for showhouses (see The Old Golf Course Ltd v Assessor for Fife, supra, para. 43).
[21] It is elementary that in characterising subjects for the purposes of valuation for rating it is proper to look not only to their physical circumstances but also to the use to which they are put. Subjects are valued in their actual state and according to their existing use (Assessor for Stirlingshire v Myles and Binnie, supra; Assessor for Moray and Nairn v Elgin High Church 1962 SC 524; Armour on Valuation for Rating (5th ed.), para. 18-10). When dwelling houses were entered in the valuation roll those principles applied no less to them than to other subjects. The appellants accept that was so, but they contend that the words “dwelling house” where they occur in s. 72 (2)(a)(i) have a different meaning from the meaning which would be attributed to those words for the purposes of valuation for rating. The use to which subjects are put was said to be irrelevant to whether they are a “dwelling house” in terms of the subsection.
[22] If the appellants are correct one would have expected that under the community charge regime (which preceded the council tax) use would also have been irrelevant when determining whether lands and heritages were a “dwelling house” (and “domestic subjects”). Section 2 (1) of the Abolition of Domestic Rates Etc (Scotland) Act 1987 (“the 1987 Act”) excluded domestic subjects from the valuation roll. Section 2 (3) provided:
“… [For] the purposes of the Valuation Acts ‘domestic subjects’ means:
(a) any lands and heritages consisting of one or more dwelling houses with any garden, yard, garage, outhouse or pertinent belonging to and occupied along with such dwelling house or dwelling houses …”
The definitions in part (a) of section 2 (3) the 1987 Act and in part (a)(i) of s. 72 (2)(a) of the 1992 Act are practically the same. They follow a formulation long familiar to valuation law (cf. Valuation and Rating (Scotland) Act 1956 (“the 1956 Act”), s. 6(2) (repealed by the 1987 Act)). In Assessor for Lothian Region v Rowe 1991 SC 257 Lord Clyde tentatively observed of s. 6(2) of the 1956 Act and s. 2 (3)(a) of the 1987 Act (at p. 260):
“One is concerned with a method of valuation and the other is concerned with the definition of a category to be exempted. But while the purposes of the sections may be different they both provide a definition and indeed a definition in identical terms. Section 2 (3)(a) appears to belong to the body of legislation which forms the Valuation Acts and it might well be thought that it should fall to be construed and applied in accordance with valuation law.”
It was unnecessary for Lord Clyde to reach any concluded view on that point, and he did not do so. Arguably, his obiter observations on s. 2(3)(a) might be applied equally to s. 72 (2)(a) of the 1992 Act. On the other hand, while the words “for the purposes of the Valuation Acts” occur in s. 2 (3) they do not appear in s. 72 (2). I prefer to reserve my opinion on the question whether s. 72 (2)(a) belongs to the body of legislation which forms the Valuation Acts and falls to be construed and applied in accordance with valuation law. It is not necessary to determine that issue in this appeal. What I do take from the decision in Rowe is that the court regarded both physical characteristics and the use made of the subjects as relevant considerations in determining whether the appeal subjects were a dwelling house in terms of s. 2 (3) of the 1987 Act (see Lord Clyde at p. 261). The same approach was evident in Guthrie v Assessor for Highland Region 1995 SC 594. In each of those cases the court considered whether the appeal subjects were a dwelling house (i) in terms of a statutory provision which was expressed in the same way as s. 72 (2)(a) (see Guthrie v Assessor for Highland Region, supra, per Lord Clyde at p. 595C); and (ii) in the context of a statute which, like Part II of the 1992 Act, was intended to remove a category of subjects from valuation for rating. If the appellants’ contention is correct the court in Rowe and Guthrie erred in having regard to the uses made of the subjects. For my part I am satisfied that the court in Rowe and Guthrie did not err in looking at existing uses.
[23] In my opinion the short answer to this appeal is that s. 72 (2)(a) does not say that the existing use of subjects is to be irrelevant to the issue whether the subjects are a “dwelling house”. It does not provide that the only relevant consideration is to be the physical characteristics of the subjects. The appellants’ suggested construction is not the natural and ordinary reading of the provision. On the contrary, it is a rigid and restrictive gloss on the subsection. No justification for that gloss can be found in the language of Part II of the statute, or in the statutory purpose, or in any decided cases. It is an interpretation which would produce absurd results. Lands and heritages with the physical characteristics of a dwelling house but used only for another purpose or purposes (e.g. as a commercial office or store) would be a “dwelling house”, and therefore a “dwelling”. In my view it is plain that it was no part of the statutory purpose that such subjects should be excluded from the valuation roll and entered in the valuation list.
[24] I am not persuaded otherwise by any of the arguments advanced by Mr Haddow. Section 66 (1)(a) of the 1988 Act applied only in England and Wales. It was repealed by the 1992 Act. It did indeed make express provision that domestic property was property “used wholly for the purposes of living accommodation”. However, in my opinion that does not take the appellants anywhere. The legislation under consideration here is s. 72 (2)(a) of the 1992 Act. The words “dwelling house” do not appear in s. 66 of the 1988 Act. Comparison between s. 72 (2)(a) and the different provisions of the 1988 Act does not elucidate how s. 72 (2)(a) should be construed. Nor does the discussion in Walker (VO) v Ideal Homes Central Ltd, supra. Likewise, none of the other matters Mr Haddow relied upon cause me to conclude that his construction of s. 72 (2)(a) is right. An empty property can of course be a dwelling house. It does not follow that, where subjects are occupied and used, use must be irrelevant to the question whether the subjects are a dwelling house. The regulations varying the definition of dwelling to exclude timeshare accommodation and certain specified self-catering holiday accommodation are examples of the exercise of the power in s. 72 (4): but, even assuming (without deciding) that it is legitimate to use those regulations as aids to the construction of s. 72 (2)(a), there is nothing in them which leads me to the view that the appellants’ suggested interpretation of s. 72 (2)(a) is correct.
[25] Little more need be said. It is neither necessary nor desirable in the circumstances of this case to explore further the precise meaning of the words “dwelling house” in s. 72 (2)(a)(i) (cf. Rowe, supra, per Lord Clyde at p. 261). Mr Haddow accepted that if the committee was entitled to take use into account it was open to it to decide the case in the way which it did. That is plainly correct. Indeed, in my opinion, on the facts found there was no real scope for the committee to have reached any other conclusion. At all material times the appellants were in rateable occupation of Apartments 5 and 7 and the showhouse use was the only use to which those apartments were put.
Disposal
[26] I propose to your Ladyship in the Chair and to your Lordship that the appeal should be refused.