Valuation for Rating – Comparative principle of valuation – Shops at designer outlet village – analysis of lease agreements – correct application of valuation principles in the light of particular features at development – rent-free periods and financial inducements – fitting out costs – turnover rental income – quantum allowances.
The subjects of appeal were six shops representative of the retail units at a designer outlet village opened early in 1999. The appeals related to the 2000 Revaluation. Parties were agreed that the subjects were to be valued on the comparative principle on the basis of analysis of rents at the development. Certain features at the development, however, complicated the rental analysis. Whether because of the particular character of the development or because the market was difficult, a variety of very substantial inducements, as well as rent-free periods, had been given. The leases contained a variety of lease break options, many at relatively short intervals. While there was a pattern of similar rental provisions involving turnover ‘top-ups’, only a minority of the shops had sufficient turnover to reach the stipulated thresholds. There was a dispute about the extent of quantum allowances.
Held (1) Rent-free periods and financial inducements should be taken into account separately and converted to annual equivalents by taking the periods to tenant break options and not the whole period of the lease, but an inducement in respect of one unit with a completely un-typical lease agreement should be left out of account.
(2) The appellants’ estimates of reasonable fitting out costs should be preferred to the Assessor’s calculation of these from tenants’ questionnaire responses, and should be converted to annual amounts on the basis of estimated lifespans, not lease durations, but without the further discount sought by the appellants.
(3) In the particular circumstances, only one half of turnover rental income, back-dated using R.P.I., should be added to the base rents.
(4) Quantum allowances of 30% for the largest unit and 20% for the next two largest units, should be fixed.
Occidental Petroleum (Caledonia) Ltd. v Grampian Assessor, Lands Valuation Appeal Court, 25/3/1988
Forest Hills Trossachs Club v Central Assessor 1991 S. L. T. (Lands Tr.) 42
BicesterVillage Factory Outlet Shopping, Valuation Tribunal, 22/4/1997
Freeport, Westwood, West Calder, Lothian Valuation Appeal Panel, 28/6/2001
See full decision: LTS/VA/2001/16, 21, 25, 38, 39 & 47