For appellants: Haddow, QC; Semple Fraser, LLP

For respondent: Stuart, QC; Simpson & Marwick

10 December 2010

Introduction

[1] The appellants are occupiers of shops in The Mercat Centre, Kirkcaldy. They appealed under section 3(4) of the Local Government (Scotland) Act 1975 (the 1975 Act) against the rateable values entered in the Valuation Roll on the ground that the economic recession, reflected in the number of vacant units in the Centre, was a material change of circumstances. By a decision dated 18 February 2010 the Valuation Appeal Committee for Fife allowed the appeals and reduced the rateable value by 20% in each case with effect from 1 September 2009. That is the decision appealed against.

The subjects
[2] The Mercat Centre is on the east side of High Street and is accessed from it. The first appellant is the tenant of 1 The Mercat. At the 2005 Revaluation it was entered in the Roll at a rateable value of £124,500. That represented a rate of £555 psm. The first appellant appealed against the entry on the basis that the rateable value should be £71,750, a rate of £320 psm.

[3] The second appellant is the tenant of 5-6 The Mercat. These subjects were entered in the Roll at a rateable value of £80,000. That represented a rate of £560 psm. The second appellant appealed against the entry on the basis that the rateable value should be £45,700, a rate of £320 psm.

[4] The third appellant is the tenant of 22-24 The Mercat. These subjects were entered in the Roll at a rateable value of £128,000. That represented a rate of £645 psm. The third appellant appealed against the entry on the basis that the rateable value should be £69,400, a rate of £350 psm.

The proceedings before the Committee
[5] The appellants' valuer lodged a schedule of 12 rent transactions. Eight related to units within the Mercat Centre and four related to shops in the High Street, one immediately next to the Centre and three on the opposite side of the street. These transactions were effected between June 2008 and June 2009. Three of the transactions related to upward only rent reviews which were not in the event instigated by the landlord. One was an upward only rent review which resulted in a nil uplift. One transaction was a lease renewal as at September 2009 where the new rent was 39% less than the previous rent. Two of the transactions were new contracts for the granting of short term licences at reductions of 60% and 63% respectively. It was agreed that no great weight could be attached to these two transactions.

[6] Five of the transactions were new lettings. One was concluded in August 2009; three were concluded in September 2009, the terms having been agreed in one of them in April 2009; and one was transacted in December 2009.

[7] The figures in the schedule were not in dispute. In each case the rent agreed had been adjusted for incentives, such as rent-free periods, premiums and the like. If only the lease renewal and the new lettings were taken into account, there had been falls in rental value of between 26.5% and 61.5% and an average fall of 47.1%.

[8] The reductions in rateable value sought by the appellants were 42.5%, 42.8% and 45.8% respectively. The appellants proposed that the reductions should be back-dated to 1 January 2009.

[9] The assessor's case was in essence that the appellants had failed to prove that there had been a material change of circumstances within the meaning of section 3(4) of the 1975 Act (cf Ass for Lothian v Ministry of Defence 2009 CSIH 89). The assessor himself did not rely on any other comparison transactions.

The Committee's findings in fact
[10] The Committee made findings in accordance with the evidence of the appellants' valuer in relation to eleven of the transactions in his schedule. It is accepted that the twelfth transaction was of no significance. I need not recite the findings. The Committee concluded that the fall in rental values in the area was attributable to the significant number of vacant units there; to the loss of custom linked to the credit crisis since 2008, and to the loss of retail custom from the centre to out of town retail estates and to shops outwith Kirkcaldy.

[11] It found that in similar appeals in other valuation areas, assessors had agreed to reductions. For example, for the shops at Cameron Toll, Edinburgh a 57% reduction had been agreed, and at Paisley a 47% reduction had been agreed, both with effect from April 2008.

The decision of the Committee
[12] The Committee was satisfied that there had been a material change of circumstances. It concluded that the reductions sought by the appellant were "far too high in light of the evidence actually adduced" and that "the maximum possible reduction" should be 20%. It decided that the revised rateable values should be effective as from 1 September 2009.

The appeals
[13] The appellants have appealed on the grounds that the reductions allowed by the Committee are insufficient and that the effective date of the reductions should be 1 January 2009.

Submissions for the appellants
[14] Counsel for the appellants submitted that the Committee had misdirected itself in holding that a reduction in the region of 40% was excessive. There was nothing to support its determination that the maximum possible reduction should be 20%. Backdating the reduction to 1 September 2009 was contrary to and unsupported by the evidence. The Committee had found that while rents had risen until 2007, thereafter the trend had been downwards, and that events linked to the credit crisis had been evident in 2008. It had heard evidence that one unit had been vacant since August 2008, the landlord having been unable to attract a tenant even by offering incentives. In the new letting on a standard lease in September 2009 the rent had been agreed in April 2009. The material change in circumstances had therefore been apparent earlier than September 2009.

Submissions for the assessor
[15] Counsel for the assessor accepted that there had been a material change in circumstances. It was for the Committee to determine the extent of the change, on the material before it. The Committee had been entitled to find that there had been a fall in rental values in 2009. The appellants' evidence indicated a reduction in the region of 40% to 50%. There was no competing evidence. However, the Committee had a discretion whether or not to accept the appellants' evidence on the point. The rental evidence related to only a limited number of the forty or so units in the Mercat Centre and the twenty-five in the High Street. The non-instigation of rent reviews, and a nil uplift at one review, showed only that rents had not increased. They did not show a downward trend. Even on that evidence, the Committee was entitled to conclude that the reduction should be less than was claimed (Ass for Central Region v Aitchison 1992 SLT 87). The allowance of 20% was a matter for the Committee's judgment. It could not be said that the Committee's choice of 1 September 2009 was unreasonable or unsupported by the evidence. The Committee had been concerned with a general downward trend rather than an isolated event. The lettings particularly relied on by the appellants took effect on or after September 2009.

Conclusions
Percentage reduction
[16] In the valuation of subjects such as these, the best evidence is evidence of an open market transaction relating to comparable subjects concluded at arms length, and substantially on the terms of the statutory hypothesis, at or near to the valuation date (Magell v Ass for Dumfries and Galloway 2006 SC 627, at para [17]).

[17] The evidence of the levels of reductions agreed by other assessors for unspecified retail subjects carried no weight, in my opinion; but the comparison evidence was particularly strong. The evidence of five new lettings was cogent primary evidence of rental transactions concluded around the relevant time. In the case of the lease renewal, the rent struck was congruent with the extent of rental decline that the new lettings indicated. The assessor's contention that these transactions related to only a few of the total number of units in the Centre and in the High Street and therefore did not demonstrate a general fall in rental values was fallacious, for the reasons given in Ass for Grampian Region v Barclays Menswear Enterprises Ltd (1990 SLT 569, at pp 579, 580).

[18] If the assessor had led evidence of other comparison transactions pointing to a different conclusion, or if he had pointed to special circumstances affecting all or any of the appellants' comparisons, it would have been for the Committee to make a decision on the competing lines of evidence.

[19] In this case, however, the Committee had no relevant primary evidence other than that put forward on behalf of the appellants, which it accepted. It made no finding in fact that cast doubt on the accuracy of the appellants' data or on the soundness of the conclusions drawn by the appellants' valuer. It therefore had no basis for its own judgment that the reductions sought by the appellants were "far too high in the light of the evidence actually adduced." Moreover, it had no basis for its decision that the "maximum possible reduction" should be 20%. There was no evidence to support that figure.

[20] On this occasion it is opportune to remind committees that they are not entitled to make a decision of this nature when there is no evidence to support it, still less to make such decisions in the face of uncontradicted evidence to the contrary.

[21] Counsel for the appellants submitted that the Committee was also bound to make the effective date 1 January 2009. I do not agree. It is apparent that while some of the appellants' comparison evidence dated from 2008, the evidence of the new lettings and of the lease renewal to which I have referred related to the period September to December 2009. The fact that the rent in one of the new lettings had been agreed in April 2009 did not, in my opinion, require the Committee to back-date these reductions to that date, and it certainly did not require them to back-date to 1 January 2009. The decision to adopt 1 September 2009 as the effective date was within the discretion of the Committee and was justified on the evidence.

Disposal
[22] I propose to your Lordships that we should allow these appeals to the extent of substituting in each case the rateable value contended for by the appellants, namely £71,750, £45,700 and £69,400 respectively; and quoad ultra refuse them.

For appellants: Haddow, QC; Semple Fraser, LLP

For respondent: Stuart, QC; Simpson & Marwick

10 December 2010

[23] For the reasons given by your Lordship in the chair I agree that we should allow the appeals but only to the extent of substituting the figures, representing the net annual value/rateable value proposed on behalf of each of the appellants, for those appearing in the Valuation Roll as follows:

(i) 1 The Mercat occupied by Argos. The corrected NAV/RV should be £71,750.

(ii) 5-6 The Mercat occupied by C & J Clark. The corrected NAV/RV should be £45,700.

(iii) 22-24 The Mercat occupied by HMV. The corrected entry for NAV/RV should be £69,400.

Quoad ultra I agree that the appeal should be refused.

For appellants: Haddow, QC; Semple Fraser, LLP

For respondent: Stuart, QC; Simpson & Marwick

10 December 2010

Introduction

[24] For the reasons given by your Lordships, I agree that these appeals should be allowed to the extent proposed by your Lordship in the chair.