Lands Tribunal for Scotland


Valuation for rating – Comparative principle of valuation – Two-level shop in modern shopping centre – Actual rent – Rent agreed at pre-letting stage after limited competition – Whether open market rent – Comparison with standard units and other two-level shops – Disadvantages inherent in configuration and location of subjects.

W. H. Smith plc v Assessor for Glasgow
15 December 2003
LTS/VA/2002/09 and 2003/01

Two appeals were referred to the Tribunal under Section 1(3A) of the Lands Tribunal Act 1949 and Regulation 5(1)(e) of the Valuation Appeal Committee (Procedure in Appeals under the Valuation Acts) (Scotland) Regulations 1995, in relation to the same shop within a modern shopping centre, because it had straddled two valuation areas. The shop was located on two levels at the ends of the main malls, with larger, ‘anchor’, shops on the other side. The shop, along with some other larger shops, had been identified by the developers as a ‘main space user’ which they wished (but did not absolutely require) to rent to a confectionery/tobacco/newsagent tenant. The appellants and one other such trader were required to compete for the lease. The rents of the other main space users in the malls, including two-level shops but not anchors, analysed on a ‘two level zoning’ basis, showed rates consistent with the rates established for the standard units and were valued by the assessor accordingly. The rent of the subjects showed a considerably lower rental rate. The appellants contended that the net annual value should be related to the passing rent, which, they argued, was an open market rental which could be explained by certain physical and economic factors specific to the subjects.

Held, allowing the appeal in part, (1) although the actual rent did result from a genuine arm’s length transaction, it was not necessarily an open market rent in the situation where the landlord had, in his wider interest, restricted the market. The rent had to be looked at along with all the other evidence. The Tribunal was persuaded that the subjects did suffer from some material disadvantages in two respects, firstly because of their particular shape and size over two levels, and secondly because of their particular position at that end of the mall. However, whether it was analysed on a zoning or on an overall basis, the differential between the rent of the subjects and the rents of, in particular, the other two-level larger shops was not fully explained by these disadvantages. Nor could the subjects be seen as in a class of ‘secondary anchor’ likely to be let only to a retailer who would attract footfall and therefore expect to negotiate a lower level of rent. Rather, the subjects were to be seen as basically an ordinary unit in the main mall albeit with slight disadvantages in comparison with the other shops. Evidence of allowances made in valuations of two-level shops at other centres did not assist, because there was a spectrum of possible effects of that layout on rents and at the particular centre the rents of the other two-level shops did not support any allowance. Accordingly, the subjects should be valued basically in comparison with the other shops and not on the basis of the actual rent level;

(2) the subjects should, however, receive an allowance in respect of the identified disadvantages. Shops of this size were in the market valued on an overall basis, and the Tribunal considered that application of the zoning method in comparing the subjects with the other two-level subjects , which were longer and narrower with the result that they had large residual zones valued at the cheapest rate, had, in the particular case and on the evidence about retail traders’ preferences in relation to shop layouts, worked to the disadvantage of the subjects. In the circumstances, on the zoning basis, an allowance of 10% should be made in respect of the configuration, as well as allowances of 5% (lower level) and 7.5% (upper level) in respect of the slight disadvantages in the location of the subjects. The resultant overall net annual value rate, at about 7% less than the overall rates for the two most comparable two-level shops which did not have these disadvantages, was a better reflection of the relative value of the subjects than either the assessors’ or the appellants’ proposed rates.

Cases referred to:-

Post Office Counters Ltd. v Assessor for Grampian 1990 S.C. 130
Debenhams plc v Assessor for Grampian 1992 S.L.T. 309
Marks and Spencer (Leamington Spa) v Sanderson (VO) 15.2.92 LVC/242/90
John Honeyman & Co. Ltd & Ors. v Assessor for Fife 1962 S.L.T. 201

See full decision:  LTS/VA/2002/09 and 2003/01