For the appellant: Cleland; Simpson and Marwick

For the respondent: MacIver; Brodies

26 June 2012

Introduction

[1] This is an appeal by the assessor against the decision of the Glasgow Valuation Appeal Committee (the Committee) dated 28 June 2011 on an appeal by the respondent relating to the entry in the Roll at the 2010 Revaluation for Unit 51 at the Silverburn Shopping Centre, Glasgow (Silverburn). The assessor entered the subjects as a shop at a net annual value/rateable value of £159,000. The respondent contended that the subjects should be entered as a café or restaurant at a value of £87,000. The Committee allowed the appeal and applied the respondent's valuation.

[2] The subjects are a unit in a mall at Silverburn in which the respondent runs a franchise of Coffee Republic. The respondent contends that the subjects should be valued in their actual state and according to their actual use (Ass for Stirlingshire v Myles and Binnie, 1962 SC 530; Ass for Moray and Nairn v Elgin High Church 1962 SC 524); that food outlets ought not to be equated with shops (Spudulike Group Ltd v Ass for Tayside VJB, [2002] RA 91); and that restaurants at Silverburn have been valued at a lower rate than shops (Texstyle World v Ass for Strathclyde 1995 SC 588). The respondent contends that a comparison of the subjects with other cafés or restaurants indicates that the subjects should be valued at £500 psm.

[3] The assessor considers that the appeal subjects should be valued as a shop (Wood v Aberdeenshire Ass [1963] RA 101). They can easily be altered from restaurant use to shop use. They are not licensed. They are immediately adjacent to shops. They are to be distinguished from the licensed restaurants at Silverburn, which are valued by a specific valuation scheme. The assessor contends that the decision of the Lands Tribunal in Spudulike Group Ltd v Ass for Tayside VJB (supra), on which the respondent relies, is unsound. The assessor values the subjects on a zoning basis at a Zone A rate of £1250 psm. This is the rate that he has applied to all standard-size shops in the main mall.

The decision appealed against

The Committee's findings in fact
[4] The Committee found that Silverburn has a wide range of cafés, restaurants and coffee shops.

[5] The subjects have a seating and table area, drink and food preparation and sales areas and a food storage area. There are customer toilets and a staff room. There is also seating outside.

[6] The lease provides that the only permitted use is use as a coffee shop, which includes the sale of hot and cold drinks, food products and merchandise, or such other uses as are within Class 3 of the Schedule to the Town and Country Planning (Use Classes) (Scotland) Order 1997, that is to say use for the sale of food and drink on the premises.

[7] The respondent provides delicatessen food and coffee. More than 50% of the turnover comes from the sale of food. In other high street coffee outlets food sales account for less than 20%. By contrast with many other coffee shops, food is made to order and there is a table service. Although some takeaway food is provided, most customers eat in the premises.

[8] The subjects are similar in character to other food units at Silverburn such as Frankie and Benny's, La Tasca and Prezzo, which are fitted out as restaurants or cafes and not as shops. All three are valued on the basis of the assessor's scheme for licensed premises. Nandos, Pizza Hut, Wagamamas and Home Made Burger Company are also valued as licensed restaurants. Costa Coffee and O'Brien's are valued as mall kiosks. The evidence was that their valuations are based on rent. The zoning method used in the valuation of shops was not used for any of these food units.

[9] The appeal subjects were leased by the previous tenant at an annual rental of £120,000 pa with effect from 16 June 2008. There was a six months rent-free period. The tenant's business did not prosper. It was taken over by the respondent. The respondent pays a rent of £90,000 pa subject to a top-up when turnover exceeds £692,000. The turnover at the date of the hearing was £480,000.

[10] The only other food and drink outlet at Silverburn that has been valued as a shop is Starbucks. It is situated in the centre of the mall. It trades on two floors. It has a considerable balcony area. It is about twice the size of the appeal subjects and is in a more attractive position. Starbucks has been assessed at a net annual value of £117,000. The rent passing is £110,000.

[11] The Committee found that restaurant use was not a sub-division of shop use. It constituted a separate general category for valuation purposes. From evidence from other restaurants and cafes at Silverburn, the Committee thought it fair and reasonable to apply to the appeal subjects an overall rate of around £500 psm. This gave a net annual value/rateable value of £87,000.

The Committee's reasons
[12] The Committee considered that the subjects were more properly described as a restaurant. They were used predominantly by sit-in customers. They should be valued by comparison with other food and drink outlets at Silverburn rather than by comparison with shops. The Committee recognised that the premises were not licensed, but it considered that that did not affect their categorisation.

[13] The principal considerations that weighed with the Committee were that (a) the property should be valued in its actual state; (b) the issue in dispute had been resolved in Spudulike Group Ltd v Ass for Tayside VJB (supra); (c) food sales constituted 50% of the turnover of the subjects; (d) the unit was restricted to Class 3 planning purposes, and (e) the Marks and Spencer's kiosk and certain other comparable subjects had not been entered in the Roll as shops.

Spudulike Group Ltd v Ass for Tayside VJB (supra)

[14] The subjects in that case were a fast food restaurant operating in a shop unit in a shopping centre. The unit was permanently open to the mall in order to create an atmosphere of an open café or food court. To return the premises to use as a shop would cost around £10,000, although work of a similar cost would often be done by a new occupier. The Tribunal held that the subjects were not appropriately categorised as a shop, even if they might sometimes have the same value as shops or be physically proximate to them. Cafes and restaurants were in a different category. The premises were a restaurant rather than a café because there was substantial preparation and cooking of food on the premises, although with fast food. The dividing line was a fine one. Because there was some similarity with restaurants, a certain regard should be had to rental evidence relating to cafés.

[15] Since the premises could be adapted to shop use with only minor adjustments, they could be compared with shops unless it was shown that restaurants commanded a different order of rent. They attracted a substantially lower rental compared with five other proximate units of similar size, using the zoning method of comparison, whether or not adjustments were made for inducements. The lease was subject to a rent review cap so long as the subjects were used as a restaurant. As the premises were similar to cafés, it was legitimate, in the absence of comparable restaurants within the shopping centre, to have regard to the values of cafés in the centre. Cafés appeared to attract substantially lower rentals than shop units. In the absence of a direct comparison, the rent passing was the best indicator of value.

[16] The ratepayer's valuer assessed the value on the basis that the premises were not a shop. He valued them as a café on an overall rate per square metre derived from the rateable value of another café in the Centre that had a similar floor area. The Tribunal concluded that the correct description of the subjects for valuation purposes was as a restaurant and not a shop. It valued the appeal subjects on a zoning basis at a discount of 15% to the prevailing Zone A rate.

Valuation principles

[17] It has been established for half a century that lands and heritages must be valued according to their actual physical state and according to the use to which they are presently devoted, without regard to the potential for physical adaptation, provided that such use is beneficial and is not subject to arbitrary restrictions (Ass for Moray and Nairn v Elgin High Church, supra). For example, shop premises in use as office and storage space must be valued according to the rent that premises used for offices and storage would attract (Ass for County of Stirling v Myles and Binnie, supra).

[18] The question whether the subjects should have been entered in the Roll as a shop or as a restaurant or café is, in my view, pre-eminently a question of fact for the Committee. In recent years this court has affirmed this approach in several cases; for example, on the question whether lands and heritages were a hotel or a guest house (Woodrow v Lothian Region Ass 2002 SC 530) or were a public house or a restaurant (Fishers Bistro v Lothian Ass 2007 SC 671). The Lands Tribunal took a similar approach in Spudulike Group Ltd v Ass for Tayside VJB (supra).

[19] The decision of a Committee on a question of classification is open to review by this court only if the Committee has erred in law in reaching its conclusion.

Submissions for the assessor

[20] Counsel for the assessor has put forward two general propositions. The first relates to the question of principle. He submits that on the evidence led, no reasonable Committee would have reached the view that the subjects should be valued as a café or restaurant. He says that however one looks at Coffee Republic, it is not a restaurant. It could certainly be characterised as a café in normal parlance; but since no such discrete category is recognised in valuation for rating, the assessor cannot adopt that description.

[21] Counsel's second proposition relates to the valuation that the Committee has adopted. On the assumption that the subjects have been rightly classified, he submits that the Committee erred in simply adopting wholesale the valuation proposed by the respondents. That valuation was based purely on the rental evidence on which the net annual value for licensed restaurants and island kiosks was based. For no good reason it completely ignored the rental evidence for the zoned shops.

[22] In my opinion, both of these propositions are unsound.

Conclusions

The valuation principle

[23] The first proposition starts with an acceptance that it was for the Committee to classify the subjects on the evidence led. Having regard to the findings in fact, I cannot see what is unreasonable in the Committee's having reached the view that the subjects were a café or restaurant. At least five considerations pointed to that conclusion, namely (i) the layout of the premises with tables and chairs for diners and seats outside; (ii) the extent of food-based spending at the premises by comparison with food outlets that are valued as shops; (iii) the fact that only a minority of the trade is take-away; (iv) the fact that food is prepared on the premises for service at the tables and (v) the availability of customer toilets. In my opinion, these considerations amply warranted the Committee's conclusion. The decision therefore discloses no error of law.

[24] Counsel for the appellant, while accepting that the subjects could be characterised as a café in normal parlance, has submitted the further argument that no such description is recognised in valuation for rating. That contention, in my view, is irrelevant. The categories in which the assessor may describe the subjects in an entry in the Roll are not a closed list. New classes of subjects emerge from time to time; for example mobile homes (Ass for Renfrewshire v Mitchell 1965 SC 271), moorings (Forth Yacht Marina Ltd v Ass for Fife 1976 SC 201) and ATM sites (Ass for Lanarkshire VJB v Clydesdale Bank plc 2005 SLT 167). Therefore if café is not presently recognised as a category of lands and heritages, that is not a conclusive objection. If it were to be expedient for valuation purposes to recognise such a category, an assessor would be free to enter appropriate subjects by such a description in the Roll.

[25] In the present case, the Committee, like the Lands Tribunal in Spudulike Group Ltd v Ass for Tayside VJB (supra), thought that restaurant was the appropriate description for subjects of this kind. That seems to be a reasonable conclusion. In the Spudulike case the Lands Tribunal was exercised by the distinction that it made between a restaurant and a café. It is my impression that there may be no need to distinguish restaurant and café as separate categories for valuation purposes. It may be that the description "restaurant" is wide enough to include "café." The point can looked at again if it should be necessary to decide it.

[26] The only general principle that matters on this aspect of the case is that unnecessary subdivisions of general categories are to be avoided. The examples of such subdivisions given by Lord Patrick in Alexander Wood and Son v Aberdeenshire Ass ([1963] RA 101, at p 103) are the subdivision of shops according to the goods sold; or of factories according to the goods produced. The rule is that subjects falling within a subdivision of a general category of lands and heritages can be given a separate description in the roll if they command rents of a different order from the other lands and heritages that fall within that general category (ibid).

[27] Counsel for the assessor also submitted that similar subjects operated under Coffee Republic franchises in other valuation areas were valued as shops. That argument is meaningless in the face of the clear findings in fact in this case. In any event, the example that counsel cited, the Coffee Republic site at Perth, is entered on the Tayside Valuation Roll as a café.

The valuation adopted by the Committee
[28] The second proposition for the assessor is, in my view, illogical. There was evidence from the respondent's valuer that set out his valuation and the evidence and reasoning on which it was based. The Committee was entitled to adopt that valuation which it considered to be supported by the evidence relating to other food outlets at the Centre. Since the Committee regarded the subjects as a restaurant, it was entitled to reject the values taken by the assessor from shops in the mall.

[29] I cannot understand why the Lands Tribunal in Spudulike Group Ltd v Ass for Tayside VJB (supra), having decided that the subjects could not correctly be described as a shop, rejected valuation evidence based on an overall rate per square metre and valued the subjects by the zoning method. The zoning method is the quintessential method for valuing shops. The underlying theory of it, in my opinion, has no application to subjects such as restaurants (cf Glasgow Ass v Schuh Ltd [2012] CSIH 40, at para [2]). In my view the valuation method accepted by the Committee in this case was one on which it was entitled to rely.

[30] This case is another example of what can happen when the assessor presents an all-or-nothing defence to a ratepayer's appeal (eg as in Woodrow v Lothian Region Ass, supra). The result in this case was that if the Committee decided on the facts that the subjects were a restaurant, the assessor had no alternative value to put forward on that basis. If the assessor had also mounted an esto case, it is possible that he might have been able to argue for a higher overall rate per square metre, based perhaps on comparisons other than those cited for the ratepayer. The assessor was of the view that if the appeal subjects were to be described as a restaurant, licensed restaurants would be irrelevant to the valuation. In taking that view, in my opinion, he in effect committed himself to the illogical position that if a restaurant situated in a mall unit happened to be unlicensed, it could be valued only as if it were a shop.

Disposal

[31] In the normal case this appeal would fall to be refused. But it appears that in valuing the subjects the assessor did not take into account the outside seating area. It is not clear what implications that omission has in relation to the valuation substituted by the Committee. I propose therefore that if your Lordships agree that the appeal should be refused, we should continue consideration of it to give the parties an opportunity to resolve this difficulty. I propose that if no agreement can be reached within four weeks, we should put the case out by order for further procedure.

For the appellant: Cleland; Simpson & Marwick

For the respondent: MacIver; Brodies

26 June 2012

[32] For the reasons given by your Lordship in the chair I agree that the appeal should be refused. I also agree with your Lordship's proposal as to future procedure.

For the appellant: Cleland; Simpson & Marwick

For the respondent: MacIver; Brodies

26 June 2012

[33] I agree with your Lordship in the chair and have nothing to add.