Lands Tribunal for Scotland

OPINION

United Kingdom Atomic Energy Authority
v
Assessor For the Highland and Western Isles
Valuation Joint Board

Contents

Paras  
1–4 Introduction and Summary
5 Procedure; Authorities referred to
6–41 Facts
42–50 Appellants’ Submissions
51–68 Assessor’s Submissions
69 Tribunal’s Consideration
70–108 Major Issues – Valuable Use; Effect of Care and Maintenance; Liabilities
109–119 Other Issues – Other Claimed Allowances; Effect of Regulatory Action and Government Policy
120–126 End Allowances
127 Decision
  Schedule: Valuation

Introduction and Summary

1. This is an appeal referred to the Tribunal under Section 1(3A) of the Lands Tribunal Act 1949. The subjects of appeal are the civil nuclear installation at Dounreay. The buildings comprise three experimental nuclear reactors, fuel processing and re-processing facilities, and a variety of associated facilities. None of the nuclear facilities is any longer in operation as such. The buildings which housed the nuclear activity are in varying stages of a lengthy decommissioning process.

2. The subjects of appeal were entered in the Valuation Roll at the 2000 Revaluation as ‘Premises’ at a Net Annual Value of £2,100,000. The valuation appeal committee referred the appellants’ appeal against that entry to the Tribunal under Section 1(3A) of the Lands Tribunal Act 1949. The appellants contended that the subjects should properly be described as ‘Premises in course of decommissioning and demolition’ and that there was no rateable occupation of the subjects; or in any event that they should properly be valued at nil. The Assessor, while accepting that the entry in the Roll could not be adjusted upwards, contended that the correct Rateable Value (following some very slight adjustment agreed in the course of the hearing) was in fact £3,454,942. The valuation required to be made on the basis of the physical circumstances at the subjects on 1 January 2000. Parties were agreed that the subjects, if in rateable occupation, required to be valued on the ‘contractor’s principle’ of valuation, with appropriate allowances against the effective replacement costs of individual buildings for obsolescence and superfluity. There was disagreement as to the extent of superfluity, and the appellants further claimed that certain buildings also qualified for ‘accelerated depreciation’ allowances; that an end allowance of 15% should be made for ‘locational disadvantages’; and that further quantified end allowances for ‘care and maintenance’ and ‘site monitoring’ should in any event reduce the rateable value of the subjects to nil.

3. The tribunal’s decision is briefly summarised as follows:-

(a) The appellants are in rateable occupation of the subjects;

(b) We are not prepared to leave out of valuation buildings and rateable plant which, although originally designed for a different purpose, are still required because radioactive material left within them requires to be contained; but we have identified some buildings in this category in which some allowance should be made for a form of technical obsolescence because the buildings were designed for a purpose going beyond mere containment of nuclear materials;

(c) The restrictions imposed by the Nuclear Installations Inspectorate on 11 May 1998 would have no material effect on the hypothetical rent, because the lifting of these restrictions was at the relevant date reasonably imminent; but allowances are appropriate in relation to some buildings or plant where the prospects for continued use are materially limited, for example by government or regulatory policy;

(d) There is no justification for allowances based on claimed additional and increased rates of obsolescence, costs of repair and adaptation associated with operational buildings which have become contaminated;

(e) Allowances are appropriate in cases of over-capacity on a long-term basis;

(f) Allowances of 13% of the site value and infrastructure for superfluity, in respect of an area of 18 acres of undeveloped and unused land, are appropriate;

(g) No end allowance is appropriate in respect of alleged locational disadvantage;

(h) A specified end allowance in the sum of £1,500,000 to reflect the additional burden on the hypothetical tenant of the costs of care and maintenance, including monitoring and surveillance, of the redundant parts of the subjects, should be made; and

(i) A further end allowance of 10%, to reflect the disadvantage of these particular subjects arising from application to them of the very onerous security, safety and regulatory regime applicable to the nuclear decommissioning industry, should be made.

4. Application of these decisions, following the parties’ format, produces a Rateable Value of £1,435,164, say £1,435,000. The appeal is accordingly allowed to the extent of substituting a Rateable Value of £1,435,000.

Procedure

5. The appeal was heard at a hearing on 7 to 17 February 2005. The appellants were represented by Christopher Haddow QC, who called two witnesses, Brian Munro MIMS, a chartered engineer and former Site Property Manager at the subjects, and Eric Rose FRICS, MIRRV, an experienced rating surveyor of Messrs Dixon Webb, Chartered Surveyors. The Assessor was represented by Raymond Doherty QC, who called Douglas James Gillespie FRICS, MIRRV, MCIM, MBA, Assessor to the Highland and Western Isles Valuation Joint Board, as a witness. An extensive inventory of the documentary productions of the parties was lodged. The subjects comprised some 309 items of land, infrastructure, buildings and rateable plant, the adjusted replacement values of some 54 of which were in dispute. Mr Rose and Mr Gillespie spoke to their detailed valuations. Certain agreements on disputed points of detail were reached during the hearing, and the parties helpfully submitted detailed revised valuations in electronic form after the hearing to enable the Tribunal to apply its decisions so as to arrive at a final valuation.

Authorities Referred to

Burntisland Oil Company Ltd. v Assessor for Fife (1896) 23 R. 683
Bouik’s Trustee v Assessor for Glasgow 1916 S.C. 686
Assessor for Glasgow v Bank of Scotland 1925 S.C. 548
Union Bank of Scotland v Assessor for Glasgow 1926 S.C. 500
Marr’s Trustees v Assessor for Ayrshire 1934 S.C. 210
Townley Mill Company Limited v Assessment Committee for Oldham [1937] A.C. 419
Greenock Corporation v Arbuckle Smith & Co. Ltd 1960 S.C. (H.L.) 49
British Transport Commission v Hingley (VO) [1961] 2 Q.B. 16
Assessor for Dunbarton v L. K. McKenzie & Ptnrs. 1968 S.L.T. 82
Montrose Flour Mills v Assessor for Angus 1970 S.L.T. (Notes) 82
Assessor for Central Region v United Glass Ltd. 1981 S.C. 389
Scottish Exhibition Centre Ltd. v Strathclyde Regional Assessor [1994] R.A. 209
Benjamin (VO) v Anston Properties Ltd. [1998] R.A. 53
Hoare (VO) v National Trust [1998] R.A. 391
Assessor for Glasgow v Ron Wood Greeting Cards & Others [2000] R.A. 271
Williams (VO) v Scottish & Newcastle Retail Ltd [2001] R.A. 41
Electricity Lands (Rateable Values) (Scotland) Order 2000
Armour on Valuation
Ryde on Rating

Facts

6. The basic facts were generally not in dispute, although there was some slight uncertainty on some detailed matters relating to the actual situation and use of particular buildings and facilities at the relevant date. The Tribunal found the following facts to be admitted or proved.

UKAEA and the United Kingdom Civil Nuclear Industry

7. The appellants, UKAEA, were incorporated in 1954 as a non-departmental publicly funded body to pioneer the development of a civil nuclear programme for the United Kingdom. Development of commercial nuclear power stations and of experimental reactors and other facilities followed at various sites, including the subjects of appeal. At various times, British Nuclear Fuels Ltd., Nirex and AEA Technology have been hived off to concentrate on nuclear fuels, nuclear waste storage and various other technological issues. Since about the late 1980s, the nuclear research programme has contracted and some nuclear power stations have closed, although UKAEA continues to be involved at an international level. UKAEA’s substantial role now, again including an element of pioneering research, is in the field of decommissioning nuclear sites such as the subjects of appeal. The UK government has fully underwritten the outstanding nuclear liabilities. A new authority, the Nuclear Decommissioning Authority, is to be established to acquire the assets and liabilities and to ensure the safe completion of decommissioning. The appellants will thereafter be in the position of competing for contracts for such work.

8. As at 1 January 2000, UKAEA remained as an executive non-departmental public body sponsored by the Department of Trade and Industry. Its main business was the environmental restoration of its nuclear sites, including, under the Dounreay Site Restoration Plan, the subjects of appeal. This involves decommissioning redundant facilities; managing resultant wastes in a safe and environmentally responsible way; and progressively de-licensing and where possible promoting alternative use of the sites. They are required, under the provisions of the Atomic Energy Authority Act 1954, to operate under commercial arrangements. Their accounts showed the estimated cost of the ‘nuclear liabilities’, on a discounted basis, of just under £3 billion, but with the Department of Trade and Industry as a corresponding debtor. Dounreay accounts for just under half of these costs.

The Subjects of Appeal

9. Dounreay is a former naval air base located on the north coast of Caithness. The subjects of appeal are at present owned and occupied by the appellants. An adjoining site is occupied by the Vulcan Naval Reactor Test Establishment, which is still operational and operated on behalf of the Ministry of Defence. The subjects of appeal comprise approximately 137 acres on which some 309 separate heritable items ranging from the three reactors to bus shelters, with a wide range of buildings in between, are identified. The site was selected in 1954 as the site of a large-scale experimental fast breeder reactor. It has the particular advantages of remoteness and low population density and also the proximity of water. It also provides substantial employment in an otherwise economically deprived area. The site has always been predominantly experimental, but one reactor did export some of its output to the National Grid and there was also some commercial fuel re-processing.

10. The Dounreay Fast Reactor (DFR) was constructed between 1955 and 1958, achieved criticality in 1959, and operated until 1977. The Dounreay Materials Test Reactor (DMTR) was constructed at the same time, achieved criticality in 1958, and operated until 1969. The third reactor, the Prototype Fast Reactor (PFR), was constructed between 1966 and 1974, when it became operational, and operated until 1994. In 1988, the government decided that there was no longer a need for fast reactors. In 1996, re-processing of fast reactor fuels ceased. In May 1998 an underground power cable incident resulted in the Nuclear Installations Inspectorate (NII) prohibiting all activities in the Fuel Cycle Area (FCA), and also in a major audit of safety management at the subjects. By January 2000, all processing and re-processing of fuel had been halted, with some prospect of resumption of re-processing, but that prospect was not realised.

11. By January 2000, the primary focus of activities was on decommissioning and the safe management of waste. Decommissioning is a lengthy process which also involves management and storage of nuclear fuels and waste and because of its complications will require substantial new building and development work. Ultimately, in very approximately 50 years’ time, all but one or two buildings (which may remain as some form of museum or the like) should have been demolished, with the majority of the land hopefully being restored to a cleared ‘brownfield’ site. There is, however, as yet no decision on the location of long-term storage facilities for high level waste from the subjects and other UK nuclear sites, with the result that the storage requirements at the subjects are meantime greater than they would otherwise have been.

12. Decommissioning broadly involves three stages. Stage 1 involves removing radioactive material and installed equipment – ‘post operational clean out’ (‘POCO’). Stage 2 involves the dismantling of plant outside the main building fabric shield which prevents exposure to highly radioactive material. Stage 3 is the stage of ultimate demolition of the building and restoration of the land. Before, during and between these stages, ‘care and maintenance’, including monitoring and surveillance, is required, at substantial expense. The time-scales involved vary according to the nature of the facility and the degree and level of the radioactive problem. There will typically be lengthy intervals, often of several years, both before Stage 1 and between the stages, when care and maintenance has to continue.

13. The site is described in slightly more detail (under reference to a zonal site plan and also some specific buildings, etc. reference numbers used by the parties) as follows:-

(i) Zone 1.1, the Prototype Fast Reactor (PFR),is a relatively compact and complex site, comprises the reactor with its core, reactor hall and decontamination area, irradiated fuel cave (a shielded concrete facility with very thick walls), steam generator building, turbine hall and diesel generator house, buffer store, sodium tank farm and ventilation annex. PFR is undergoing Stage 1 decommissioning. The irradiated fuel, which is radioactively hot, has been removed from the reactor vessel, with most stored in the buffer store and a small quantity moved into the irradiated fuel cave. The turbine hall has been used for the construction of a sodium coolant removal and treatment plant which, however, in January 2000 was not yet operational.

(ii) Zone 1.2 is an area of ground mainly laid to grass but also containing hard standing used as the PFR car park.

(iii) Zone 2.0 includes the fire station, several stores and a variety of administration and office buildings, laboratories and the transport compound. Two stores are used for storage of solid low level waste and very low radioactive material, within ISO containers. There is no significant contamination, although the sites of some diesel and petroleum storage tanks previously removed from the site may contain limited hydrocarbon contamination.

(iv) Zone 3 includes Dounreay castle, a scheduled ancient monument, and is outside the licensed site, but does include certain drains which discharge into the sea. Some ground contamination was removed in 1998.

(v) Zone 4 includes the Low Active Effluent Collection Disposal Plant (D1211), consisting of below ground effluent tanks fed from a drainage system; a newly constructed and not yet operational Low Level Liquid Effluent Treatment Plant; a ‘Wet Silo’ (D9833), consisting of shielded concrete vaults for storage of non-fissile solid intermediate level waste (ILW), for example activated stainless steel from irradiated core components used in the re-processing of fast reactor fuel in the Fuel Cycle Area, the waste being stored under water; a ‘Dry Silo’ constructed in 1984 but never used; the sodium rig building (D8530), built to allow the study of sodium-water reactions, etc., and still contaminated with radioactive tritium; the ‘Dounreay Shaft’ (D1225), an unlined shaft formerly used for the authorised disposal of unconditioned active waste and still in ‘Care and Maintenance’; and certain non-active offices and workshops.

(vi) Zone 5, the West Foreshore, formerly housed a diesel oil storage plant and an ion exchange process for the treatment of water pumped from the Dounreay Shaft.

(vii) Zone 7, the Dounreay Fast Reactor (DFR) and ancillary buildings, currently undergoing decommissioning, comprising mainly the reactor sphere, which has been partially defuelled but still contains breeder elements, a failed fuel pin experiment, and contaminated liquid sodium/potassium alloy (NaK) coolant containing Caesium 137; a fuel element storage building; a fuel storage pond (D7680), containing 62 fuel racks, and containing radiation from contamination of the concrete of the pond wall and radioactive sludge at the bottom of the pond resulting from previous operations; control room and administration; and other storage facilities.

(viii) Zone 8, Administration and Workshops, including some functional areas and comprising buildings, main workshops, ‘portakabins’, low active workshops, canteen, the inactive laundry, the site boiler house, vehicle maintenance workshop and car parks.

(ix) Zone 9, Low Level Waste (LLW) pits, seven pits approved for the permanent disposal of solid low level waste materials by shallow land burial, including a drum recovery facility for handling and re-packing corroded storage drums for super-compaction. Green fields will eventually cover these pits.

(x) Zone 10, East Foreshore, consisting of the headland and foreshore to the east of Zone 5, and including the redundant DFR seawater pumphouse and also police training facilities. There is localised contamination of the ground, and routine strandline surveys are required, as part of the land contamination management, to detect and remove occasional washed up radioactive parcels from other parts of the foreshore.

(xi) Zone 11 is the Fuel Cycle Area (FCA), which was built in the late 1950s to provide chemical and metallurgical services including post-irradiation examination, analytical services, experimental laboratories, fuel reprocessing and waste treatment facilities for the fast reactor and research reactor programmes on the site. Generally, it contains localised areas of surface and sub-surface contamination, primarily associated with early operations and leakage from the Low Active Drain.

Zone 11.1, the Dounreay Materials Test Reactor (DMTR) and ancillary buildings, also undergoing decommissioning, mainly comprising the reactor; the DMTR Pond (D9814), a below ground structure built in 1964/65 as part of the DMTR fuel route to store and crop irradiated fuel elements from other nuclear facilities and consisting of protected reinforced concrete within which stainless steel fuel storage matrices sit on the bottom of the pond; a shielded, remote handling Post-Irradiation Examination Facility (D8571) for the examination of non-fissile components from PFR and also some non-PFR items, comprising a cave, laser operating area on two levels and a cave maintenance area; a Remote Handled Intermediate Level Waste (RHILW) Shielded Waste Store (D9875), or Drum Store, containing a significant number of drums containing DFR breeder fuel; and offices, stores and electrical sub-stations.

Zone 11.2, the Lay-Down Area, mainly comprising an Equipment Maintenance and Decontamination Centre (D2900), built in 1982 to 1986 and, with necessary refurbishment, required throughout the de-commissioning phase; the High Alpha Waste Store (D9867), a retrievable waste store for Contact Handled Intermediate Level Waste (CHILW), which can contain plutonium contaminated material or uranium contaminated material; and the Waste Receipt, Assay, Characterisation and Supercompaction (WRACS) facility (D8570), a new facility for solid Low Level Waste currently undergoing commissioning.

Zone 11.3, the South Fuel Cycle Area (FCA), comprising a group of facilities concerned with the fabrication of DMTR and research reactor fuels supported by laboratories providing analytical services, some of which are now redundant and under ‘Care and Maintenance’, and also changing rooms and other communal facilities for persons using the FCA.

(xii) Zone 13 (Landfill 42), consisting of an area of made ground on the cliff top to the east of the site and outside the nuclear licensed site boundary, previously a disposal area for construction waste and spoil and containing occasional localised low level contamination.

The Regulatory Framework

14. UKAEA is subject in particular to the provisions of the Health and Safety at Work, Etc., Act 1974 and the Nuclear Installations Act 1955, the licensing provisions of which ensure that no person may operate a prescribed nuclear installation without a nuclear site licence. The relevant site inspectorate is the Nuclear Installations Inspectorate (NII), a division of the Health and Safety Executive whose Chief Inspector has power to attach safety conditions to the licence. Until 1990, Dounreay had a Crown exemption from this regime although it was expected to proceed along the same lines as licensed sites. Disposal of radioactive waste and discharge of radioactive materials into the environment are regulated by the Scottish Environmental Protection Agency (SEPA), also under a licence system.

15. The NII site licence has no set time period but applies throughout the life cycle of the plant, i.e. from siting through to decommissioning. It contains 36 standard terms and conditions. The conditions are generally goal-setting rather than detailed safety requirements. NII exercises its powers through a system of ‘consents’, ‘approvals’, ‘notifications’, ‘directions’, ‘improvement notices’, ‘prohibition notices’, etc. All safety documentation must be seen and approved by NII. To vary existing, or introduce new, operations, the occupier must first prepare detailed safety cases, which sometimes take years of preparation, for consideration by the regulators before any change in operations is permitted. NII has extensive enforcement powers, including criminal prosecution, but cannot terminate or suspend the licence. There is permanent dedicated accommodation at the subjects for both NII and SEPA inspectors, who have an almost permanent presence.

Nuclear Fuels and Waste at the Subjects

16. Partly because of the developmental research nature of the subjects, and partly because of restrictions of different kinds in what can be done by way of transporting and disposing of such materials, there are considerable quantities of radioactive fuels and waste, in one form or another, at the subjects. Management of these various forms of radioactive material, whether as it were passively or in the course of active decommissioning activity, is a major aspect of the activity carried on at the subjects. All items of nuclear material are identified on the Computerised Nuclear Material Accountancy System.

17. The inventory of fuels and fissile materials amounts to around 109 tonnes, made up of a variety of different types of material, including DFR ‘Breeder’ stock, natural or depleted uranium, and unirradiated or irradiated fuel and residues. The fuels mainly arise from the work undertaken by the appellants during the fast reactor development programme. Some 3% arises from commercial contracts under which the appellants took in material on which it was to provide some service prior to returning it. As a matter of policy, the appellants did not trade in any way in their own fuel stocks. A small quantity (the “Georgian fuel”) had been taken in on a ‘humanitarian’ basis when a Russian decommissioning programme had been halted.

18. The inventory of radioactive waste at the subjects contains details of over 150 individual waste streams, including some 9000 cubic metres in store and some 33,000 cubic metres already disposed of in facilities at the subjects. This waste can be characterised as high level (HLW), remote handled intermediate level (RHILW), contact handled intermediate level (CHILW) and low level (LLW), and may be either ‘raw’ i.e. simply generated by the process giving rise to it, or ‘conditioned’, i.e. converted by forms of conditioning, for example, immobilisation in cement or vitrification, to make it suitable for long-term storage or disposal. Decommissioning wastes consist mainly of concrete and rubble, metals and other materials from buildings, plant and equipment, and differ from operational wastes. The appellants have a programme in place for minimising waste arisings, as required as a condition of their site licence. Various techniques used for waste treatment, for example supercompaction (solid LLW) or evaporation (liquid wastes) result in significant volume reduction. The inventory is compiled annually. HLW, RHILW and CHILW is accumulating in stores because no local or national disposal facility is currently available. HLW is stored as a raw liquid in tanks prior to conditioning. No HLW has yet been conditioned. RHILW and CHILW are stored in shielded tanks, stores, silos and other facilities. Some liquid RHILW has been conditioned for safe long-term storage and is stored in a purpose-built store. LLW arising is being stored as the disposal facilities are now full. The options for long term management and new facilities for all the LLW are being evaluated.

19. That inventory of stored waste covers only classified waste stores and therefore does not include radioactive waste remaining in other areas. There are significant quantities of such waste in other areas. Records exist of such other waste but were not produced. The inventory does include all waste which arose from commercial activities.

Land Contamination

20. Past operations at the subjects have resulted in a number of areas of land which are contaminated or potentially contaminated with radioactive and chemical components. The non-nuclear aspect of this, viz. some hydrocarbon contamination from leaks of diesel and some trace metal contamination, is relatively insignificant. Radioactive contamination of the ground surface in certain areas of the site has arisen in a number of ways. Radioactive contamination at depth has arisen principally as the result of leaks from the drainage system. This contamination is historical, dating back to periods before various improvements were made to the physical containment of materials and the management of operations. A programme of site characterisation to define the contaminated land was started in 1996.

21. The appellants now take a proactive approach to environmental issues and to the management of this contamination. The conditions of their statutory licences, particularly the licence under the Nuclear Installations Act, require that. This contamination is regarded as an accumulation of radioactive waste which must be managed in situ until such time as it can be disposed of in an approved manner. The appellants require to demonstrate the continuing safety of waste and that the associated risks are as low as reasonably practicable. During the period from 1995 to 2000 the costs associated with environmental monitoring, environmental programme management, environmental support to operations and the assessment and remediation of contaminated land amounted to approximately £1.155 million per annum, a figure which was increasing as the result of increasing activity in this area.

Regulatory action affecting the subjects

22. Prior to May 1998, the Nuclear Installations Inspectorate had expressed concerns about safety management at the subjects, particularly following some restructuring and partial privatisation of contracts in the mid-1990s. On 7 May 1998, an incident occurred in which a mechanical digger damaged an electrical cable, cutting off power supplies to the Fuel Cycle Area. A problem with the back-up supply caused an unacceptable delay in the resumption of the power supply. This prompted the Inspectorate to direct the immediate closure of active operations at that site and bring forward a safety audit which they, along with SEPA, had postponed when the appellants themselves initiated a review of management at Dounreay. In their Direction No. 2, dated 11 May 1998 (‘the Direction’, which was, confusingly, issued as ‘No. 1’ but subsequently re-numbered as ‘No. 2’), the NII directed the appellants to:-

“shut down all processing activities in the Fuel Cycle Area facilities other than those operations and activities which are necessary to maintain the safe condition of the facility”.

Although ‘processing’ in the nuclear industry is taken to refer only to processes involving unirradiated fuel, this was taken by all concerned also to cover ‘re-processing’, i.e. processes, including the appellants’ commercial activities, involving irradiated fuel, and also to movements of waste. It therefore effectively covered most of the active plant in the Fuel Cycle Area and had a significant effect not just on the DMTR activity within that area but also on the decommissioning programmes for the DFR and PFR. Consent to re-start each of the prohibited activities in the Fuel Cycle Area would depend on the submission of an appropriate and comprehensive safety case. As at 1 January 2000, there was an expectation that the restrictions would be lifted, albeit in stages. The first such resumption was not in fact permitted until February 2001. We make more detailed findings below on the effect of the Direction on the use of some particular facilities whose effective capital valuation was in dispute.

23. The NII/SEPA Safety Audit, making 143 recommendations for action, was published in August 1998. The report found that increasing outsourcing of areas of work had reduced the level of resource and competence available to the appellants, and had gone too far. A key recommendation was to develop a comprehensive strategy for dealing with existing and future radioactive wastes at Dounreay. Programmes should be implemented to retrieve ILW from the Dounreay Shaft and the Wet Silo. The appellants were required to develop an integrated decommissioning and waste management strategy. Although implementation of the recommendations would have the effect of speeding up the cleaning out of contaminated areas and the report could thus be seen as to an extent critical of the state of the subjects, the report primarily addressed issues of management and planning rather than issues about the condition of the buildings. In response, the appellants identified three options for the management of fuel from the PFR, and also, in October 2000, issued the Dounreay Site Restoration Plan (DSRP). This set out a proposed timetable of decommissioning and restoration work to be implemented over a period of 50 to 60 years, compared to a previous estimate of 100 years.

Government Policy

24. Re-processing of fast reactor fuels had come to a halt in September 1996 as the result of detection of a leak into the cooling water circuit of the irradiated fuel dissolver. Then in June 1998, following the events of May, the government announced that any future commercial re-processing activities (which were at that date in any event halted by the NII prohibition) would be confined to the fuel already on site and that for which there were existing contracts. In June 2001 the Minister announced that the Dounreay re-processing facility for PFR fuel would not be refurbished and no further PFR fuel would be re-processed. Limited fuel manufacture would be permitted to continue, subject to appropriate plant modifications, in order to honour existing contracts only. Following this decision, the DMTR Fuel Element Production facility re-started in October 2001 and finally shut down in March 2004.

Rating History

25. Prior to the 2000 Revaluation, the subjects were subject to the system of Crown contributions in lieu of rates, the assessment being dealt with by the Crown Property Unit of the Valuation Office Agency. No details of the approach to valuation then were made available.

Parties’ Valuations

26. The parties each relied on ‘Contractor’s Principle’ valuations following the same format and in general terms going through the stages in the process set out in the Guidance Note on the ‘Contractor’s Basis of Valuation for Rating Purposes’ produced by the Rating Forum, a group of agencies representative of both ratepayers’ and the Valuation Agency and Scottish Assessors’ Association. Each valuation listed the same 309 heritable items whose age, measurements and replacement cost (adjusted to reflect fees, the effect of location and quantum) at 1998 values were agreed (Stage 1). As far as the site area and infrastructure were concerned, parties were again agreed as to the areas and value rates, but the appellants claimed an allowance for superfluity in respect of one area of undeveloped land. Stage 2 involves adjusting the replacement costs of the buildings and rateable plant. Issues of obsolescence and superfluity are relevant at Stage 2. The parties were in complete agreement on age related obsolescence, where a standardised scale of allowances known as the ‘Monsanto’ allowances was applied. The appellants sought further obsolescence allowances, under the heading ‘Accelerated Depreciation’, in respect of some items, a claim which was resisted by the Assessor. Superfluity, either complete or partial, was agreed in relation to many items, but certain of the appellants’ claims for superfluity were in dispute. The figures at Stage 3, in the parties’ common format, the ‘Adjusted Replacement Cost’, were therefore in dispute in relation to certain items, as were the figures in Stage 4, which is the application of the prescribed decapitalisation rate to the Adjusted Replacement Cost. The appellants sought one further end allowance, of 15%, for locational disadvantages, which was disputed by the Assessor. The result at that stage of the appellants’ valuation was a figure of £1,526,760; in the Assessor’s, £3,454,942. The appellants then claimed final ‘Stage 5 Specified Allowances’ of £10,493,510 for ‘Care and Maintenance’ and £1,155,800 for ‘Site Monitoring’, a total of £11,649,310. The appellants subtracted this total from £1,526,760 to produce a Rateable Value of nil. The Assessor did not make any such final allowance and accordingly contended for a Rateable Value of £3,454,942, limited to the figure in the Roll, i.e. £2,100,000.

Particular Disputed Items

27. Subject to the appellants’ claims for end allowances and offsetting of ‘Care and Maintenance’ and ‘Site Monitoring’ liabilities, the parties were agreed as to the rateable value to be allocated to most of the individual heritable items comprising the subjects. We make the following findings in relation to items in respect of which parties were in dispute over the appellants’ claims to allowances for ‘accelerated depreciation’ (‘a.d.’) and/or superfluity (‘s.’), mainly in the DMTR and Fuel Cycle Area but also in the areas of the DFR and PFR and Zone 4, with one disputed superfluity claim in respect of the site area and infrastructure.

(i) DFR

There has been only limited decommissioning of the DFR since it was shut down in 1977. The sphere itself, and all but one of the other items, are not the subject of any dispute, some being admittedly superfluous or partly superfluous and others admittedly in full use.

D1120 - DFR Pond (Assessor’s RV - £72,682; Claims – a.d. 50%, s. 90%). The fuel storage pond, adjacent to the DFR sphere, contains 62 storage racks which can contain fuel tubes. In 2000, 4 of these racks were in use storing some German ‘Mox’ (mixed oxide) fuel, which was awaiting removal to the post-irradiation examination facility in the Fuel Cycle Area (D2001). That facility was closed as a result of the Direction and this move did not take place until 2002. The pond itself, including the racks, is contaminated, i.e. affected by radiation from contamination of the concrete wall, and also includes contaminated waste or sludge. Active decommissioning had not started.

(ii) PFR

D9989 – PFR Simulator building (Assessor’s RV £3854; Claim – s.100%). The building is an office which has not been in use since 1997. The tenant has no requirement for the building and it is not going to be re-used.

PFR Buffer Store Pond Building (Assessor - £92,243; Claims - a.d.50% s.27%). The Buffer Store for PFR fuel was used for “new fuel” that had not yet been placed in the reactor. In January 2000 there were 247 fuel channels available of which 181 were full. The Buffer Store was occupied to about 73% of capacity The pond continued to be used to store unused fuel. Once the fuel rods have been removed no future use of the store is envisaged. The NII Directive prevented early removal of the fuel.

PFR Effluent Treatment Plant – (Assessor - £550; Claim - s.50%). The effluent treatment plant was in use at January 2000 as it was being used for decommissioning purposes.

PFR Irradiated Fuel Cave – (Assessor - £60,679; Claims - a.d. 50%, s.100%). The PFR reactor was shut down in 1994 following a government decision. The absorber rods and the PFR core were removed in 1999 and transferred to the PFR irradiated fuel cave for interim storage along with other absorber rods already in the cave. The treatment of absorber rods will take a number of years to complete. Within the PFR cave liquid sodium is also present, awaiting removal and treatment. The amount of irradiated fuel within the cave is relatively small in comparison with its capacity. The cave also contains redundant equipment and waste awaiting removal. A modern equivalent store to contain the absorber rods could be much smaller than the existing fuel cave.

PFR Sodium store (Assessor - £6691; Claim - s.60%) The sodium store comprises 10 tanks, six of which have been emptied and will not be re-used. Four were in use at the valuation date. The Assessor has applied an allowance of 50% to reflect the fact that approximately half were not in use.

PFR Ventilation Annexe (Assessor - £51,028; Claim - s.50%). The ventilation annexe was still in use at January 2000 as it was required by the personnel undertaking PFR decommissioning. The structure is irradiated and it continues to be used by the decommissioning teams.

PFR Underground “new” Fuel Storage (Assessor - £14,099; Claims - a.d. 50%, s.11%). Because of the effects of the NII Directive no fuel could be moved in or out. Since the PFR is closed down there is no long term need for a fuel store. In the meantime 89% of the store is in use.

(iii) Fuel Cycle Area

In 2000, the Fuel Cycle Area contained important facilities which it was anticipated would be required for many years to come, related to re-processing, storage, and analysis of materials in connection with the safe operation of the site. It also housed fuels and waste in areas awaiting POCO and requiring management. Prior to 1998, certain problems had affected operations: leaks, a cementation plant out of order, transport and logistical difficulties. The Direction then halted all operations apart from direct safety operations.

D1200L – Laboratories and Cell Facility, including Lab. 33 (Assessor’s R.V. £94,115 and £1,333; Claims – Labs. 50% s., Cell 60% a.d., 100% s.). There are around 30 conventionally constructed chemical and metallurgical laboratories, some actively used, others inactive. Of the latter, some have been emptied of equipment and cleared, others simply abandoned leaving contaminated materials. In January 2000, approximately 50% of the building was in active use. The Direction did not affect the use of these laboratories. Lab 33 is a particular example of a highly active cell formerly used for post-irradiation examination of fuel and components and abandoned many years previously when no longer required. Partitioning and ventilation ducting are damaged. It contains contaminated remote handling tools, manipulators and inspection equipment, and also fuel debris and irradiated materials. A ventilation system controls the temperature and regular checks are carried out to ensure that no material is escaping.

D1202 – DMTR Fuel Element Production (Assessor - £21,702; Claims – 50% a.d., 100% s.). This is a single storey, conventionally constructed, fuel manufacturing plant, which was built in 1957 and therefore of an old design, but in good condition. The plant produced fuel for research reactors and targets which were commercially irradiated elsewhere for the production of medical isotopes. In January 2000, there were outstanding commercial contracts but production was halted by the Direction. Fuel manufacturing did restart in October 2001 and continued until March 2004 when this plant entered POCO.

D1203 – Billet Production Plant for MTR fuel. (Assessor - £25,089; Claims – a.d. 50%, s. 100%). This is a single storey conventionally constructed production plant, with roof void for ventilation, built in 1957 and generally in good condition but with some minor maintenance deficiencies having been highlighted in the NII Safety Audit. Its function was to produce enriched uranium metal primarily for use in D1202. In January 2000, production was halted by the Direction. Approximately 1.3Te of uranium remained and required constant monitoring. There had also been a problem with waste arisings. A large number of 200 litre steel drums contained active waste which had been allowed to accumulate in the plant and some of its offices. One area, known as the ‘amber’ area, had been abandoned more than 10 years previously, was seriously contaminated and had not undergone POCO. As with D1202, there was a prospect of restarting production in relation to existing commercial contracts. There were 9 significant projects to be undertaken, with engineering work to produce designs for dissolver elements.

D6045 – Breathing Air Building (Assessor - £409; Claim – s. 100%). This is part of D1203, similarly affected by the Direction and expected to be used in the future. There was no evidence that it contained any materials.

D1204 – MTR Reprocessing Plant (Assessor - £10,937; Claims – a.d. 62%, s. 100%). This is a two storey building containing a number of celled areas and a dissolver cell, built in 1957, used originally for reprocessing DMTR fuel and then until 1996 for commercial re-processing. One of the dissolvers had developed a small leak and there was a long-standing leak on the pond wall. Following the ministerial announcement on 5 June 1998, the appellants had decided to shut down this plant but no POCO or active decommissioning had taken place. The plant contained significant radioactive waste requiring constant monitoring.

D1206 – PFR Reprocessing Plant (Assessor - £93,841; Claims – a.d. 62%, s. 100%). This is a chemical reprocessing plant built in 1957, originally designed to reprocess DFR fuel, subsequently modified to reprocess Mox fuel for the PFR. Production had ceased since a dissolver failure in 1996. The plant was also affected by the Direction. As at January 2000, there was a hope of restarting production but in the case of this plant there would be a need for an expensive new safety case which would take several years to develop. Following the ministerial announcement in July 2001, there will in fact be no further reprocessing. Substantial irradiated fuel is contained in the plant. POCO has not yet commenced. Routine maintenance and surveillance was required.

D1208 – High Active Liquor Store (Various items – Assessor - £316,997); Claims – a.d. 50%, s. ranging from nil to 50%). This principally comprises 19 cooled underground storage tanks for liquid raffinates, i.e. high level waste derived from fuel reprocessing and conditioned in this area. There is also treatment of medium active effluents, producing and then storing ammonium diuranate flocs which contain uranium 238. Because of the Direction, as at January 2000 no new material was being received and the plant was in care and maintenance, and with the end of reprocessing no further material will be introduced. The raffinates will require to be stored until a facility is available for their immobilisation. The flocs are destined for cementation or possibly vitrification. A storage capacity table shows that in January 2000 usage of the tanks varied between 36.86% and 81.49%. This plant also dates from 1957. The tanks are not all built to modern standards. The NII Safety Audit noted some defects such as a crumbling wall, a leak in a tank, etc.

D1213 – Ventilation Fans and Stack, and Motor Room (Assessor - £3,894, £1022; Claim - a.d. 8%). This plant and 60 metre high stack is for the discharge of gaseous waste from the Fuel Cycle Area. This was in use in January 2000, but the N.I.I. Safety Audit required improvements to aerial discharges and this would therefore eventually be replaced.

D1215 – Cells with Labs. (Assessor - £5,295, £17,778; Claim – a.d. 50%, s. 100%). These are situated within a building and include analytical glove boxes behind thick concrete and accessed by remote manipulators, and also labs. The building supported the D1206 reprocessing plant and was accordingly inactive after 1996. The plant still contained radioactive material and has not yet been POCO’ed.

D1217 – Post-Irradiation Examination Facilities (Assessor - £39,964; Claims – a.d. 50%, s. 100%). This is an old facility, built in 1957 and shut down in 1994 but still containing radioactive debris as well as fuel scheduled for reprocessing. It consists of a U-shaped suite of caves constructed for post-irradiation examination of DMTR fuel and had also been used to support operations in DFR and PFR. As at January 2000, there had been some partial POCO (which was halted by the Direction) and the facility was in care and maintenance. Waste removal was limited by transport and handling problems. There was no expectation of any substantial active use in the future.

D1231 – Special Nuclear Materials Store/Locker Room (Assessor - £6,084; Claim – s. 25%). This is a conventional single storey building containing a materials store which is shielded by concrete to approximately two feet thick. It stores unirradiated fuel rods and as at January 2000 was around 75% full. It could not receive further material until the Direction was lifted.

D1234 – Evaporator Plant (Assessor - £17,198; Claims – a.d. 50%, s. 100%). This plant, consisting of an evaporator made of titanium and feed and storage tanks, received plutonium nitrate from PFL reprocessing (D1206) and prepared it for shipment to Sellafield. It had been inactive since the D1206 dissolver failure in 1996. It contained 8Kg of trapped radioactive material which could not be moved because of the direction. Prospects for future use were dependent on those of D1206.

D1251/9814 – DMTR Pond (Assessor - £4,218; Claims – a.d. 50%, s. 95%). This is a below ground structure built in 1964/5. It has 0.3m reinforced concrete walls, protective brickwork and a stainless steel liner. This was part of the MTR fuel route to store and ‘crop’ irradiated fuel elements from other nuclear facilities, a use which ceased in 1984. More recently, prior to the 1998 direction the pond had taken in some 10Kg of nuclear fuel from Georgia which was to have been transferred to D2001 but was ‘trapped’ by the Direction. This fuel occupied around 1% of the volume of the pond, but the pond also contained contaminated racks, sludge and water. A continuously operating pump/ion exchange filter unit maintained water clarity. Apparently, no POCO has taken place.

D1251/9875 – High Alpha/Beta/Gamma Drum Store (Assessor - £7,688; Claim – s., 55%). This is a shielded store containing drums of ILW from different sources, for example from PFR reprocessing or cut up ‘breeder elements’ from DFR. This was a ‘buffer store’ for the cementation plant. As at January 2000 the store was 45% full but further movements were prohibited by the Direction. There was an anticipation that operations would resume, with more material arising from decommissioning, on the lifting of the Direction, which in fact took place as far as this facility was concerned in July 2001.

D2001 – Post-Irradiation Examination Cells (Assessor - £226,797; Claims – 25% a.d., 90% s.). This was originally a post-irradiation examination facility for fast reactor fuel, but since the 1980’s had included ILW processing and is now of mixed use and regarded by NII as a key facility. It comprises two suites of PIE caves and a Waste Posting Cell. Prior to January 2000, many of the cells, including the Waste Posting Cell, had an accumulation of waste which, together with certain operational problems, had put the plant out of use, but there had been some limited cleaning up. About one third of the cells contained irradiated fuels, which in January 2000 had some prospect of reprocessing use. The plant was, however, at that time shut down under the Direction. More waste was due to arise from decommissioning procedures elsewhere, but some cells would not be re-used once cleared of waste.

D2580 – Fissile Material Store (Assessor - £5,756; Claim – s. 25%). This is a shielded concrete storage facility for unirradiated uranium, mostly from Sellafield and providing a link between the D1202 and D1203 fuel processing facilities, and was fully used when these were operational. In January 2000 this was in use and 75% full, but affected by the Direction, i.e. there would be no movement until processing was allowed to recommence.

D2670 – Marshall Laboratory and Fuel Store (Assessor - £140,240; Claims – Lab., s.100% (Assessor – 30%), Store, s. 60%). This was built in the 1980s as an active process development laboratory and testing facility for the PFR, together with a fuel store. The main components are a suite of shielded cells and glove boxes for alpha work. One aspect, the development of ‘Pulsed Column’ technology, was no longer in use in 2000. There was some over-capacity in parts of the building. The cells contained abandoned materials, including some dissolved PFR fuel. There is solid ILW including a range of solid contaminated and activated items, with the anticipation of more such material arising from decommissioning of other plants. In January 2000, activity other than pure safety activity was halted by the Direction. The fuel store contained some new Mox fuel stored for an overseas customer and was approximately 40% full. There was uncertainty as to its destination, and it was in fact returned to Germany in 2002.

D2700 – Cementation Plant, Drum Store and Drum Store Cells (Assessor - £218,642, £68,345 and £89,400; Claims – Plant, s.100%, Store and cells, s. 57%). This plant was built in 1988 and is used for the cementation (in preparation for disposal) of DMTR liquors. In addition, the solids handling cell allows receipt of RHILW, its overpacking and then transfer into the Drum Store. The plant was operational prior to the Direction which shut down operations until August 2003. In January 2000 there was an expectation of resumed use of the plant. The Drum Store was approximately 43% full.

D2900 – Maintenance and Decontamination Centre (Assessor - £72,714; Claim – s. 50%). This facility was purpose-built in 1988 to carry out decontamination and maintenance operations on general plant equipment and transport flasks. It comprises a receipt bay, a primary decontamination room for alpha/beta/gamma decontamination operations and a secondary decontamination area for beta/gamma operations. It will be required for future operations although it has required a new safety case since 1996. The Direction halted most decontamination work, but in January 2000 decontamination of air hoses was permitted in the secondary decontamination area, which was well used.

D8570 – The WRACS Facility and Drum Store (Assessor - £23,865 and £3020; Claim – s.100%) carries out the receipt, assay, characterisation, supercompaction and packaging of low level waste into containers for storage. The facility is located in a refurbished building which also has ground floor storage. There are offices on the first floor which were in use and their value is agreed. In January 2000 the facility on the ground floor was being commissioned but this ceased in February 2000. There was no material in storage. The facility was awaiting NII/SEPA approval to operate which was not obtained until 2002.

D9089 – Former Drum Compaction Unit – now drum store (Assessor - £3127; Claim - s. 50%). The facility was scheduled to be superseded by the WRACS facility and thereafter this building would be used for storage. The NII Directive prohibited the movement of material into the store. At January 2000 storage was taking place in the building but only approximately 50% of the available space was being used.

D9786 – AGR store (Assessor - £3370; Claim – s.40%). The building, which was demolished in 2004, was sited within the fuel cycle area. In January 2000 it was in use as a store and approximately 60% full of material. It was affected by the NII Directive banning the movement of materials within the FCA. The superfluity allowance is claimed as the tenant was unable to make full use of the store until the Directive was lifted. It was demolished in November 2004.

D9867 – High Alpha, low Beta/Gamma PCM waste store, including partitions and services building (Assessor - £145,729, £1379 and £2366; Claim - s.25%). The building is a store for plutonium contaminated material (PCM) waste. The facility receives waste which is sorted, over-packed and stored in galvanised drums. Of the six bays in the building, four are full. As well as Dounreay material, the store contains a number of ex-Sellafield PCM drums. The filter arrangements in the plant ventilation system were unsatisfactory and the NII seeks their upgrading. At January 2000 the store was subject to the constraints of the NII Directive which was lifted in July 2001.

(iv) Zone 4

D1211 – Effluent Tanks (Open Area and Pits) (Assessor’s R.V. £994, £2,341; Claim – a.d. 25%). This comprised two below ground effluent tanks for the discharge of low level liquid waste, with associated pumps, etc. These were in use in January 2000, although the Direction affected the volume of activity. They were due to be replaced at some time later in 2000 by a new Low Level Liquid Effluent Treatment Plant (D3000 – not in value), although in fact the new plant was not fully operational until April 2004.

D5073, 5074 – Ultrafiltration Pilot Plant and Ultrafiltration Building (Assessor - £1,551 and £1,790; Claim – 100% s.). These were built in 1971 and form an extension to the Wet Silo (D9833). They had a planned use to transfer sludge from the Wet Silo as part of decommissioning. In January 2000 they were not in use and there was no evidence of them containing any material.

D9833 – High-Active Wet Silo Travel Housing (Assessor - £3984; Claims – a.d. 50%, s.15%). At January 2000 the plant was no longer in use and was awaiting decommissioning .

D9833 – High-Active Wet Silo. (Assessor - £6341; Claims – a.d. 50%, s.15%). The wet silo consists of a concrete waste store of 700 M3 capacity. Waste charging commenced in 1971 and ceased in August 1998. It is under care and maintenance. Waste within the silo is stored under water and will require remote handling in order to remove it. The top of the concrete waste store is at ground level, with a crane and cover building. In January 2000 it was approximately 85% full of intermediate level waste. The HSE/NII’s view is that waste should be removed and treated and the silo should be emptied and decommissioned.

(v) Site Area and Infrastructure

Site Area (Assessor’s RV £74,844; Claim – s.13%). The total site area is 135 acres within which there are 18 acres of undeveloped and unused land towards the south west of the site. It may be used in the future for new facilities required for the decommissioning process. At January 2000 it was surplus to requirements. There are no internal boundaries as such defining this land. The undeveloped area represents 13% of the total site.

Infrastructure (Assessor - £216,378; Claim - s. 13%). Throughout the site there are various elements of infrastructure including roads, site boundaries, fire mains services, etc. The services serve the various buildings on the site but at present they do not benefit the vacant ground. The total site area is 135 acres and the vacant ground extends to 18 acres representing approximately 13% of the site area.

Care and Maintenance

28. Because of the paramount importance of safety and the risks arising from radioactive contamination, considerable expenditure is required on care and maintenance, including monitoring and surveillance, at the subjects. Formally, the requirement arises out of the provisions of the Nuclear Installations Act and the conditions of the Nuclear Site Licence. Prior to June 1998, two NII Improvement Notices relevant to care and maintenance had been issued. These partly related to shortcomings in the control and supervision of Health Physics support. The recommendations in the 1998 N.I.I. Safety Audit led to further substantial increases in expenditure.There was a requirement to maintain a comprehensive programme of works for ‘caring and maintaining’ buildings, etc. to the standards required under individual safety cases. This requirement applied not only to operational but also to redundant buildings which have been exposed to radiation or have become contaminated with radioactive substances. Typical operations in a ‘care and maintenance’ regime for a nuclear building include:-

(i) regular inspection of the building fabric;

(ii) regular monitoring for contamination;

(iii) checking electrical and monitoring systems;

(iv) undertaking maintenance programmes for structures, plant and equipment;

(v) monitoring airborne and liquid contamination; and

(vi) analysis of radiological tests.

There is no singular prescriptive approach, rather a general framework or strategy which requires to be tailored, following a generic Care and Maintenance Code of Practice, to each facility.

29. The process of decommissioning may include planned ‘hold-points’ up to tens of years, in order to allow radioactivity to die down naturally. Care and maintenance continues during such periods as well as during the active stages of decommissioning. Typically, care and maintenance requires to be more comprehensive during the earlier stages and the overall cost of care and maintenance decreases with each stage of progressive decommissioning. Although the requirements vary according to the type of building, on average the cost of care and maintenance during the interval between stage 1 (POCO) and stage 2 of decommissioning is around 75%, and between Stages 2 and 3 around 21%, of the cost before Stage 1 commenced. In 2000, when some buildings had not yet entered POCO, and others were either undergoing POCO (or possibly, as it were, held up in POCO by the N.I.I. Direction) or in care and maintenance between POCO and Stage 2, the costs of care and maintenance, particularly in relation to the reactor buildings, were substantial. There is a heightened requirement for UKAEA staff, of around 1000-1250 each day, plus a similar number of contractors, between 2000 and 2010, diminishing to around 200 when the last active stage of decommissioning has been completed (which is currently scheduled for 2037).

30. Costs incurred at the subjects cannot be precisely broken down so as to distinguish ‘care and maintenance’ of buildings and rateable plant from other costs, particularly those involved in decommissioning or storage. Between 1995 and 2000, annual operational costs at the subjects ranged from around £57,000,000 to around £95,000,000. Costs identifiable as ‘care and maintenance’ ranged from around £11,000,000 to around £25,000,000 (in 1999/2000), and averaged £18,335,000. By January 2000, the figure for ‘care and maintenance’ had reached around one quarter of the total figure.

31. The identified average annual figure of £18,335,000 for ‘care and maintenance’ expenditure is derived partly from analysis of invoices from site-specific cost centres and partly from invoices for services across the site, and is itemised as follows (with 1999/2000 figures in brackets):-

D1100 (DFR) - £941,000 (£1,051,000)

D1200 (Nuclear Labs.) - £225,000 (£150,000)

D1203 (Production Plant for MTR Fuel) - £119,000 (£560,000)

D1204 (MTR Reprocessing Plant) - £53,200 (£266,000)

D1206 (PFR Reprocessing) - £2,289,000 (£1,810,000)

D1217 (Post-Irradiation Examination) £348,000 (£361,000)

D1225 (ILW Shaft) - £139,000 (£282,000)

D1249 (Sodium Test Building) - £1,800 (£11,000)

D1250 (DMTR) - £154,400 (£159,000)

D1251 (Various DMTR Facilities) - £34,600 (nil)

D2001 (Post-Irradiation Examination) -£153,600 (£189,000)

D2670 (Marshall Building) - £128,000 (£294,000)

D2700 (Cementation) - £569,200 (£465,000)

D8530 (Sodium Rig) - £284,800 (£625,000)

D8550 (Former Criticality Lab.) - £125,600 (£175,000)

FCA Services - £395,800 (£552,000)

PFR - £4,790,000 (£5,028,000)

Site Environmental Monitoring - £448,000 (£456,000)

Site Environmental Programmes

Management - £133,600 (£668,000)

Site Environmental Support - £194,800 (£650,000)

Site Environmental Assessment - £379,400 (£106,000)

Site Surveillance Shift Managers - £131,800 (£320,000)

Maintenance of Site Bioassay - £1,333,000 (£2,115,000)

Site Radiation Protection - £3,604,670 (£4,314,000)

Site Safety Support and Licences

Compliance - £1,353,200 (£4,721,000)

Site Maintenance Services - £3,200 (£16,000)

However, the cost data used to derive these figures for ‘care and maintenance’ did not distinguish costs particularly attributable to buildings and rateable plant. They included the costs of monitoring and maintenance of moveable plant and equipment (the value of which relative to the capital values of the buildings and rateable plant is not known); monitoring and containing hazardous substances; and (in some cases) providing for the operational safety of decommissioning and other work not connected with the surveillance and monitoring, or maintenance, of the buildings and rateable plant. The proportion of the ‘care and maintenance’ expenditure which can be attributed to care and maintenance of non-operational land and redundant buildings not containing radioactive materials which required to be kept safe cannot be accurately ascertained.

‘Comparisons’

32. The Hunterston A Nuclear power Station, West Kilbride, Ayrshire is a Magnox nuclear power station, one of the first generation of UK commercial nuclear power stations. Generation ceased in 1990, defuelling has been completed and is undergoing a lengthy process of decommissioning. Power stations are assessed on a ‘formula’ basis, currently in Scotland under the Electricity Lands (Rateable Values) Scotland) Order 2000. The assessments are based on generating capacity, so that in the case of a non-operational power station no assessment is appropriate. These subjects are accordingly not in any way assessed. There is, however, an entry in the Valuation Roll in respect of certain subjects used in connection with the decommissioning, on the basis of valuation as ‘contractors’ huts’. No further details of that entry were produced.

33. The Trawsfynydd Nuclear Power Station, Blaenau Ffestiniog, Gwynedd, is again a Magnox nuclear power station which is no longer operational, has been defuelled and is undergoing a lengthy process of decommissioning. It is similarly not included in the Valuation List. There was no information as to whether there is any separate entry of the type at Hunterston ‘A’.

34. The Calder Hall Nuclear Power Station, Seascale, Cumbria, is another Magnox nuclear power station. It forms part of the BNFL Sellafield Site rating assessment. It ceased generating electricity in 2003. Decommissioning is now being planned. It was included in the Sellafield Site rating assessment, valued on the ‘formula’ basis. The Valuation Officer has agreed that it will be valued at nil following its closure, i.e. from 2003. There was no information as to whether any other part of the Sellafield Site is used in connection with the decommissioning of this power station or valued in respect of any such use.

35. HMS Vulcan, the U.K. Government’s Naval Reactor Test Establishment, adjoining the subjects of appeal at Dounreay, includes an operational nuclear test reactor for the Trident nuclear submarine fleet. The agreed rateable value is £545,000, but no details of the assessment were produced.

36. The BNFL Sellafield Site, Seascale, Cumbria, comprises a range of nuclear facilities, including facilities associated with fuel processing, re-processing on a large scale, waste treatment and storage plants and some redundant facilities. It includes active decommissioning processes. The Rateable Value at the effective date of 1 April 2000 was agreed at £38,920,000. Subsequent increases reflecting the completion of some new facilities are under discussion between Mr Rose on behalf of the ratepayers and the Valuation Office. Mr Rose has discussed the issues of ‘accelerated depreciation’ and ‘care and maintenance’ allowances with the Leeds Specialist Valuation Office Agency for some years. Some ‘accelerated depreciation’ allowances, reflecting additional maintenance and repair liabilities and also the changing regulatory regime, have been agreed in respect of older operational plants. ‘Care and maintenance’ and ‘Site Monitoring’ allowances of £2,000,000 and £750,000 respectively were agreed on the 2000 Revaluation, with a further allowance of £750,000 having been agreed more recently to reflect the cost of safety case preparation in connection with care and maintenance. No further details of these allowances were produced.

37. The UKAEA’s Windscale and Calder Works at Sellafield is a separately assessed site within the BNFL site. The two original reactors have been closed for some years and the facilities now include post-irradiation examination facilities and supporting facilities. A gas-cooled prototype reactor also closed some time ago and now houses a demonstration project for reactor decommissioning. The agreed 2000 rating assessment is £730,000. An ‘accelerated depreciation’ allowance was adopted in the case of part of the post-irradiation examination facility. There is also a small ‘Site monitoring’ allowance but no ‘care and maintenance’ allowance. No further details were produced.

38. The UKAEA’s Research establishment at Harwell, Didcot, Oxfordshire, is the appellants’ headquarters. The site includes three closed research reactors, and is now being developed as a business centre. The rating assessment is under appeal. The issue of care and maintenance allowances in respect of the two reactors which have not yet been fully decommissioned has not yet been agreed.

39. Assessment of the UKAEA’s Science Centre at Culham, Abingdon, Oxfordshire, does not involve any nuclear or contamination issues.

40. Assessment of the UKAEA’s adjoining ‘JET’ (formerly, a joint European fusion testing programme) Research establishment and Premises at Culham, also involves no similar rating issues.

41. The UKAEA’s Research establishment at Winfrith, Dorchester, Dorset, was built in the late 1950’s to undertake research and development into use of nuclear power in electricity generation. This programme was wound down in the 1990’s with the focus changing towards decommissioning and restoring the environment. Substantial progress has been made towards decommissioning and dismantling the facilities. The 2000 assessment has been agreed at £2,100,000, with an agreed ‘care and maintenance’ allowance of £500,000. No further details were produced.

Appellants’ Submissions

42. Mr Haddow started by considering what the subjects really were in their actual state and use, along with the position as between the hypothetical landlord and the hypothetical tenant. The appellants maintained that the subjects were ‘premises in the course of decommissioning and demolition’, all other activity being merely consequential. This was no longer an operational nuclear facility. Actual and not potential or past use must be considered – Williams v Scottish and Newcastle; Armour, 18-10. This was significant not just in cases under the comparative principle. An operational research nuclear reactor was plainly different from a former operational one. The subjects had not been set up as an exercise in waste management: it was decommissioning which gave the need for waste management. The operation having closed down, the de quo was gone. By then, the tenant’s and the landlord’s plant had acquired radioactive problems. The hypothetical tenant no longer had the original purpose and now had a licence requiring him to decommission. The landlord had the subjects subject to the site licence condition requiring action. Rateable occupation involved occupation of a building for a purpose – Greenock Corporation v Arbuckle Smith, particularly at 55, 57-8. Looking at the purpose helped to answer the question whether there was occupation as a valuable subject. The ‘Glasgow bank’ cases, involving sites being re-developed – Glasgow Assessor v Bank of Scotland; Union Bank of Scotland v Glasgow Assessor – were to be distinguished. There, there was value in the site itself, which could not be said of Dounreay. Further, the side benefits at Dounreay – employment, and contribution to the local economy – should be left entirely out of account, as they were not part of the purpose or nature of the subjects. Mr Haddow referred to other cases where the original purpose could not be followed, viz. Burntisland Oil Co. v Fife Assessor; Bouik’s Trustee v Glasgow Assessor; Montrose Flour Mills v Assessor for Angus; Townley Mill Co. v Oldham Assessment Committee (accepting that Mr Rose’s reliance on this case ignored the differing statutory position); Marr’s Trustees v Ayr Assessor; and Assessor for Dunbarton v McKenzie. Mr Haddow submitted that the last case, involving ‘contractors’ huts, was similar to the position at Dounreay: there could be occupation, but there was not rateable occupation of the whole site. The entry under consideration was probably the same sort of entry as had been mentioned in relation to the Hunterston site. New buildings might be provided, and existing buildings recycled, and used for a new and different purpose, but here the occupation of the site as a whole was under consideration. With the decommissioning contractor in occupation, what was being looked at was the equivalent of site huts, which would be of value, but that left many buildings across the site as, as it were, the raw material. This was a former facility, undergoing decommissioning, and the noncommittal entry on the Roll as ‘Premises’ allowed everything in without proper analysis. The search was not for a summation of the elements but for the hypothetical rent. The facts that very many people were employed, or that huge sums had been invested in the past, were of no assistance.

43. Mr Haddow also considered at some length the situation in British Transport Commission v Hingley, which he saw as involving similar considerations.

44. Mr Haddow referred to Hoare v National Trust, which, he said, had depended largely on the fact that, although the National Trust did have the wherewithal to pay but did not do so, the hypothetical landlord would in fact be relieved of the liability to look after the building. As in this case, there was no other type of bidder. This also dealt with the question of social benefit, and was to be distinguished from SEC v Glasgow Assessor because there the social purposes were the purpose of the subjects and not simply a side benefit. The Assessor had failed to consider the characteristics of the hypothetical landlord, who, as well as the tenant, had substantial problems. Although the appellants had access to public funds, it was not part of their duty to be profligate and pay unnecessary money.

45. An important consideration under the contractor’s principle was what the hypothetical tenant wants, not just what the landlord has spent. In the present case, that was not the same as what the operator of a nuclear research facility wanted. The decommissioner obtained possession of these structures, not because he wanted them but because they were the object of his work. That was something most commonly seen in relation to older buildings, which attracted ‘Stage 2’ allowances. Reference was made to Armour at 19-02, 42, 49 and 51. There was always a particular problem under the contractor’s principle when the original use had gone. For the appellants, the value was from carrying out the contract – the activity, essentially, of demolition – and not from the previous purpose of the subjects.

46. Mr Haddow argued that the Assessor’s approach of looking at all the elements of (non-rateable) radioactive materials as being ‘stored’, in whichever form and however inadequate the facility, e.g. trapped in a process building such as the cementation plant, abandoned equipment and materials, sludge in ponds, and so on, was wrong. Many areas were not used for storage in itself, and in including them the Assessor had not attempted to establish their value as stores. If, however, the subjects could be seen as a nascent store which satisfied the test of beneficial occupation, it was necessary to look at it along with its liabilities.

47. Turning to ‘Care and Maintenance’, Mr Haddow reminded the Tribunal of the statutory hypothesis, with its assumptions as to the incidence of rates, repair liabilities, insurance and ‘other expenses, if any, necessary to maintain the lands and heritages in a state to command that rent’. These were generally interrelated. The hypothetical tenant faced meeting the care and maintenance costs of the buildings which were his ‘raw material’. Where individual buildings or structures forming a separate heritage faced such liability, the rent could be reduced to nominal: Assessor for Glasgow v Ron Wood Greeting Cards, at 274-277; Benjamin v Anston Properties, at 64-5,69. The appellants’ approach of finding values for buildings used for their proper designed purpose and then looking at the value of the whole site was discriminating. The disadvantages inherent in the site had to be addressed, not ignored. When addressed, they could be seen to be of significance and should be properly taken into account, not just considered and rejected. The lands and heritages were contaminated in various ways. The hypothetical tenant and landlord would most certainly take the Care and Maintenance costs into consideration. The landlord had a site subject to licence requirements and could not just lock the door and ignore that liability. The tenant too had licensing obligations, in relation to his items. It was wrong to regard the hypothetical landlord as being in a position of great strength: they were both ‘in a fix’. The landlord would weigh up his Care and Maintenance liabilities, and the tenant’s willingness to assume these, in the balance when determining whether also to look for rent. This was similar to the exercise in Hoare. The added factor that the National Trust would not actually pay rent was not far removed from these appellants, who were not profligate. In reality, in both cases, the obligations assumed were far more valuable than any rent. Mr Gillespie had effectively accepted this argument in relation to the DFR sphere, there being no difference in principle, in considering whether a landlord who had spent money would need rent, between Care and Maintenance costs and superfluity. Mr Gillespie, accepting the argument only on that item, was at the extreme of the landlord’s position, and Mr Rose was better informed and more reliable. Mr Munro had given clear evidence identifying the Care and Maintenance costs and Mr Gillespie had harboured doubts, but Mr Munro’s exercise should be preferred. The landlord would have a long way to go to persuade the tenant to pay any rent in addition to taking on these liabilities. There was no choice about the liabilities, but the hypothetical tenant did have a choice. The balance of obligations would be likely to move as the years went on, but at this point there was no reason to suggest that the government would favour the hypothetical landlord. There were similarities also with the British Transport Commission case. The method of valuation was not prescriptive of value.

48. Mr Haddow dealt quite briefly with the other allowances claimed. On the accelerated depreciation claim, he said that the short life of some facilities meant they depreciated faster. Normal ‘Monsanto’ allowances applied to buildings with an expected continuation, but this was not the case, in relation to some of the buildings at Dounreay. Different subjects required different consideration, c.f. Assessor for Central v United Glass, at 391-4. There was nothing new in this, references in the Joint Guidance Note on the Contractor’s Principle being in line with it.

49. The disputed claims in relation to superfluity to a large extent turned on the ‘legal state’ argument, the same principle as in Marr’s Trustees. Facilities such as the Wet Silo and the Sodium Tanks were never going to have any more material in them. Mr Haddow said that the claim in relation to unoccupied site areas was simply a matter of degree. He did not elaborate on the end allowance for location.

50. Mr Haddow dealt very briefly with the ‘comparisons’. He directed our attention, in relation to Hunterston A, in particular to para. 2(2)(b) of the Electricity Lands (Rateable Values) (Scotland) Order 2000, but that power station was not even in the Roll. He referred to Mr Rose’s evidence on the other generating stations. He also pointed to the evidence of allowances having been given at Sellafield, Windscale and Winfrith.

Assessor’s Submissions

51. Mr Doherty first submitted that the unit of valuation was clearly the whole site. It was important to emphasise that the case was not about contractors occupying isolated buildings, as in McKenzie.

52. Next, he addressed rateable occupation. Mr Gillespie’s evidence as to the appellants’ occupation had not been challenged. The four requirements highlighted in Armour at 14-03, and further discussed at 15-01, 08 and 09-11, were satisfied. These did not include beneficial occupation, although the appellants clearly were in beneficial occupation. In Greenock Corporation, the subjects were not merely not being used for their design use, but no use at all was being made of them.

53. Mr Doherty turned to the actual state and existing use of the subjects, i.e. the landlord’s estate. There were a variety of existing uses, not just decommissioning and demolition. The fact that part of the original use had ceased did not prevent there being other existing uses. There were a variety of uses, including the conditioning and preparation of nuclear fuel and radioactive waste for storage and ultimate disposal. The subjects included active offices, labs, workshops, specialist plant, ambulance stations and other ancillary facilities. There was also research and development use.

54. Mr Doherty submitted that the existing use should also be taken to include use for fuel processing, in the PFR Reprocessor which, although it had ceased in 1996, was expected to be able to resume soon. There was an expectation that the Direction would be lifted soon. DMTR Reprocessing was affected by the ministerial direction of 5 June 1998, but there was a clear anticipation of restarting to meet existing commitments. There were other decommissioning uses.This was not a case of subjects extra commercium. It should also be noted that Marr’s Trustees had been concerned with an annual valuation. This site would continue for many years to have some existing essential and important function.

55. Mr Doherty elaborated on the different statutory background (conceded by Mr Haddow) to the Townley Mill case. It had turned on the wording of an English provision in relation to treatment of premises containing chattels, plant and machinery: but for that provision, it had been made plain that the building would have been valued as housing machinery. There was no such provision in the Scottish legislation. In the Scottish case, Montrose Flour Mills, there had been no suggestion that the mill was being used as a store, so that case was of no assistance.

56. Mr Doherty turned to his consideration of the hypothetical tenant. He submitted that this was a case where at the valuation date probably the only possible hypothetical tenant was the owner-occupier. The subjects would always be occupied by the authority for public purposes and never on the basis that it was designed to be profitable. The purposes had included operation of nuclear reactors; reprocessing; research; aspects of fuel and waste management – treatment, management, and storage; and social and economic purposes. Many of these purposes remained. The appellant authority had statutory functions, and licence obligations, which it required to satisfy. Reference was made to Section 2 of the Atomic Energy Authority Act 1954 and Sections 1 and 7 of the Nuclear Installations Act 1965. As site licensee, the appellants were subject to pertinent licence conditions. Reference was made to Ryde, B[192] on beneficial occupation. The appellants would be prepared to take on the subjects. They required to do so, to comply with their licence and also to fulfil existing contracts with third parties. Their liabilities were met by government. It was not a commercial operation run for profit. The authority as licensee needed the site. They could not also be assumed to be the hypothetical landlord, who therefore was not the licensee and was not bound to comply with licence conditions and was not the person taken to be indemnified by the government. It was necessary to identify who needed and would be prepared to take the subjects on. By contrast, said Mr Doherty, the docks undertaking in British Transport Commission v Hingley had required to be occupied on a business footing, any loss being met by repayable loans not by the taxpayer. It was clear that in that case, it was accepted that dock undertakings had an established valuation basis and the contractor’s principle was not applicable. The hypothetical tenant here also contrasted with the National Trust in Hoare. They were not under any statutory or licence obligation requiring them to take the subjects. Nor did they have pre-existing obligations which they were required to meet. In addition, there was a clear finding that they would never pay rent.

57. Mr Doherty emphasised that the correct method of valuation was the contractor’s principle. Parties were in agreement about that. It was the only method available. The comparative and revenue principles had been rejected as inappropriate. That distinguished this case from British Transport Commission and Hoare, where valuation would be on a revenue or receipts basis, although Mr Doherty accepted that the reasoning in these cases was not restricted to consideration of the ‘Profits’ basis. Since neither party had sought to value by reference to comparisons, these were of very limited value. There was no entry at Hunterston ‘A’ although there must be waste there too. There was, however, not enough factual information about the position and it was not safe to make any assumption about reasons for its treatment. The other comparative materials demonstrated that there could be allowances for some Care and Maintenance and Accelerated Depreciation: that was not disputed in principle, but it depended on the circumstances. There may have been a different approach to the issue of ‘storage’ use following cessation - it would be far easier to reach that view on the basis of the Townley Mill case.

58. Mr Doherty’s last and longest chapter of submissions covered the points of dispute as to the correct application of the contractor’s principle. Firstly, in relation to ‘accelerated depreciation’ allowances, he addressed three suggested justifications. If this related to age and contamination, age was already allowed for and there was no satisfactory evidence that contamination affected the items’ usefulness: they all appeared to serve the purpose. As to shorter life expectancy, Mr Gillespie had been correct to focus on the rating hypothesis – year to year, with the expectation of continuance – and in each case the working life would be at least until the next quinquennium and it was not made out that this was of such short duration. Then, in relation to the effect of regulation, for example the N.I.I. view in relation to storage of high active liquid waste (D1208, and the Wet Silo), it was true that there was a long term view on such matters, but as at January 2000 this requirement existed. Changes might be well beyond the quinquennium. Further, Mr Rose had accepted that where Care and Maintenance costs were claimed, double counting could arise. Moreover, Mr Rose’s support for this allowance had on several occasions been rather tentative, and the percentages were on a broad axe basis and could well be too high. Accordingly, Mr Doherty’s primary submission was that these allowances were not appropriate, and his secondary submission was that they were too high.

59. Secondly, Mr Doherty addressed superfluity. The first dispute here related to buildings not designed as stores but in which nuclear materials were in fact ‘stored’. The Assessor’s position was that that was their actual use: they provided an answer for the appellants’ needs. They might not be ideal but they served a necessary purpose. Then it was objected that they had been valued according to their design, not their existing, use, but both Mr Gillespie and Mr Rose in cross-examination had indicated that substitute buildings would be likely to be more expensive, and Mr Gillespie had pointed out that most of these buildings were valued as basic industrial buildings or sheds. Some differentiation was, however, possible and Mr Gillespie had accepted the argument in relation to some big items.

60. The next superfluity issues related to capacity and the effect of the Direction. The Assessor’s position was that items had not been designed to any maximum capacity and as a practical matter there required to be slack. In any event, there was a clear expectation that the Direction would be lifted soon: a tenant making a rental bid would take account of that expectation.

61. At this point, Mr Doherty mentioned that the same point in relation to expectation applied to a facility such as the WRACS Drum Store (D8570) which was being commissioned in January 2000. Commissioning was completed in February 2000 but subject to the Direction and requiring SEPA approval to be brought into use: there was the clear expectation. This did not conflict with Marr’s Trustees, where the subjects were extra commercium and could not be enjoyed throughout the period of the Roll, and another difference was that this was not a separate subject.

62. As to processing activities affected by the Direction, for example the PFR (D1206), Mr Doherty said that these were used for storage, with an expectation that reprocessing would commence. The position in relation to commercial reprocessing was similar: despite the Direction, there was a clear expectation that they could be used for existing contractual commitments (as in fact happened between 2001 and 2004).

63. Mr Doherty then responded to the superfluity claim for an allowance of 13% in respect of excessive site area and infra-structure. He submitted that this was not redundant land from which the landlord should not expect a rent. Rather, it was available for the tenant’s use. It was not such an unusual proportion of open space on an industrial site.

64. Thirdly, Mr Doherty contested the claimed end allowance for location on the basis of higher costs. He argued that the subjects required to be at such a location; there was no comparison or control against which the costs could be tested, nor did they provide any indication over the whole range of annual costs – they were not comprehensive enough to give a full picture.

65. Finally, Mr Doherty dealt with the claimed allowances for Care and Maintenance and Site Monitoring. These were claimed only where buildings were said to be redundant or of no real value, but Mr Doherty submitted that that was not so, with perhaps one or possibly two exceptions. Mr Gillespie’s evidence was that in each case, there was storage or some other continuing use, with the possible exceptions of the buildings D1249 and D8550. In relation to the site, Mr Gillespie accepted that there was some force in relation to contaminated strata, but surface contamination was not a landlord’s problem and should be treated in the same way as other moveable waste. So far as other services were concerned, these were all things which the hypothetical tenant would have to expend and were not properly regarded as redundant expenditure.

66. Mr Rose had spoken to Mr Munro having provided information to adjust costs which covered both buildings and site elements, but Mr Munro had not actually himself given evidence or been tested on these matters. Mr Gillespie had said that the incidence of hazards from tenant’s materials, and in particular in relation to higher level waste, was such that he would have expected the allocation to be closer to 10% to the landlord. Mr Doherty submitted that Mr Gillespie’s evidence, which had stood up under cross-examination, should be accepted.

67. Mr Doherty did accept that such costs could be relevant expenses under Section 6(8), but he submitted that even if some such costs were accepted in relation to redundant buildings or site costs, it would not just be a question of deducting the whole of such costs from the value arrived at under the contractor’s principle. Such costs might influence the rent but the landlord was not likely to be persuaded to deduct the whole of each sum. It was more likely that there would be some modification or end-allowance.

68. Accordingly, Mr Doherty submitted that the Tribunal ought not to accept that the hypothetical landlord would be prepared to let the subjects at nil value; rather, they should be valued on the contractor’s principle at a positive value, subject to the allowances suggested by the Assessor or other conventional end allowances.

Tribunal’s Consideration

69. We require fistly to consider the major issues of principle arising in this case; secondly, to deal with some other issues on which the parties remain in dispute; and finally, to apply our answers to the detailed valuation. It is perhaps unfortunate that the parties were unable to reach more agreement on the results which would follow from the decisions in principle, but we accept that they made every effort to do so and we also acknowledge that the detailed valuation format used by both parties makes the second task much less difficult than it would otherwise have been. At all events, it is clear that our main task is to address the issues of principle.

The Major Issues – Valuable Use; Effect of Care and Maintenance Liabilities

70. The major issues of principle can be outlined quite briefly. The appellants have throughout been owner-occupiers, behind whom the UK government stands, of a site on which test reactors and fuel manufacturing and reprocessing facilities were developed. The last reactor was closed in 1994. There is and will for some time continue to be extensive radioactive contamination of some of the buildings and land. There is also a considerable quantity of radioactive material which must at least be kept safe and much of which also requires to be prepared for storage and ultimate disposal. That aftermath of the nuclear period is being addressed in a lengthy process of decommissioning, for which the UK government accepts responsibility. At the ‘physical as at’ date, none of the original uses was continuing but decommissioning had commenced. (There are complications, in respect that much activity was as at that date held up by, in particular, the Direction, and there was some degree of expectation that some limited reprocessing might still be allowed: these raise other issues to which we will return later.) We entirely accept, as the Assessor did, that it is not possible simply to regard this all as an experimental site which had simply reached a different stage of the experiment. We must look at the situation in 2000, and at that time, very broadly, several things were happening at the site:-

  1. There were very considerable areas of offices, labs and other support facilities, not affected by contamination. Some of this was redundant and not valued by the assessor. Much of it was, however, in ‘ordinary’ use and agreed to have, in itself, a positive value. (The ‘ordinary parts’)
  2. There were some other areas designed and being used for storage, whether temporary or permanent, of radioactive materials. Again, in general, such areas were agreed to have, in themselves, positive values, albeit there were questions about, for example, the effect of the N.I.I. Direction. (The ‘proper storage’)
  3. There was also, however, a variety of buildings, including some of the highly specialised plant such as reactors, which still in some way or other contained radioactive fuel or waste, either being actively decommissioned, or awaiting decommissioning or further decommissioning processes. (The ‘contaminated parts’)
  4. There were also buildings and plant which were simply redundant. Although these no longer contained radioactive materials, because they had been part of the active nuclear processes they still required specialist care and maintenance and monitoring. (The ‘redundant parts’)

71. It is in relation to these third and fourth categories, the contaminated parts and the redundant parts, that the major issues arise. Firstly, the Assessor claims that the very presence of contaminated materials, which must be kept safe, managed and at some point prepared for storage or disposal, means that there is a valuable use of the contaminated parts, even where these are not used for their original or main purpose. The appellants dispute that. Secondly, however, the appellants claim to have identified the annual costs of care and maintenance and monitoring of the redundant parts and indeed the whole site (excluding, they say, the cost of such care and maintenance of radioactive materials which ought to be ascribed as a tenant’s responsibility). These costs, they say, should be deducted from the positive values, because the hypothetical tenant would take account of them as “other expenses … necessary to maintain the lands and heritages in a state to command that rent”. The costs are said to far outweigh the positive values, with the result that the hypothetical rent would be nil. Indeed, associated with these contentions, the appellants assert, more fundamentally, that there is no rateable occupation of the subjects, but their contention for a nil value does not depend on that submission.

72. We propose to address these issues first and then return to the other, also important, issues which are mainly, but not entirely, about the effects of government policy and the regulatory action which at the relevant date limited activities. Before doing so, however, we have some observations on the evidence of the witnesses and also on the comparisons.

73. We have no hesitation in finding each of the witnesses entirely sincere and honest. If we had slight difficulty sometimes in following Mr Munro in his attempts to give full explanations of some difficult technical matters, the fault is ours, but at all events we are most grateful to him for endeavouring to explain matters to us so patiently.

74. We found Mr Rose to have an entirely correct professional approach and he explained his opinions very clearly, but there are two matters on which we think some comment is appropriate. Firstly, Mr Rose did not appear to have given much consideration to the Scottish legal dimension. The overriding general principles in relation to application of the statutory hypothesis (which is expressed to the same effect in Section 6(8) of the 1956 Act as in the English legislation) are happily the same and we of course draw enormous guidance from authoritative English as well as Scottish case law. However, there are some technical differences which can sometimes significantly affect the position. We mention this because in the present case Mr Rose’s position in relation to the first argument on the major issues, the question whether there is valuable use of the contaminated parts, was, we think, strongly influenced by the Townley Mills case, dealing with the situation of a redundant cotton mill which, however, still contained tenants’ machinery and chattels. As Mr Haddow accepted, that case actually turned on the application of an English statutory provision, which is not mirrored in the Scottish provisions, in relation to the rateability of plant. This does not make Mr Rose’s opinion on that issue wrong, but it does mean that we require to approach it with care. Secondly, we have an impression that Mr Rose, with his ongoing involvement on behalf of the appellants has, quite understandably and properly, been watching with obviously close interest the way in which his arguments in relation to treatment of the Care and Maintenance liabilities have been received by the Valuation Office Agency. On the basis of the evidence presented, we found it difficult to establish a clear picture of the extent of any care and maintenance allowances granted elsewhere and particularly of the precise way in which any agreed allowances had been applied, especially within the context of other allowances granted.

75. We also have no hesitation in accepting Mr Gillespie as having an entirely correct professional approach, and we are grateful to him also for explaining his thinking so fully and clearly. We have given no weight at all in the circumstances of this case to a suggestion which Mr Haddow appeared at times to want to pursue that Mr Gillespie’s evidence may have been suspect because another professional valuer in the Assessor’s office initially took a different view on the first of the major issues. That type of criticism may in some cases have some, though not we think often very much, force, but in the present case we reject it entirely. Valuation of these complex and unusual subjects first became the Assessor’s responsibility quite shortly before the date on which he had to make this entry on the Roll. The issues of principle are not straightforward and depend to quite a substantial extent on an adequate level of understanding of the situation at the subjects. We do not find it at all surprising that a different view was initially taken and we do not attach any weight to that in this case.

76. As to the ‘comparisons’, two general points require to be made. Firstly, these were not to any extent relied on as value comparisons: they are merely examples of the treatment of other subjects. Secondly, they are at best only settlements, and in the cases of the three nuclear power stations – two in England and one in Scotland - which are no longer entered on the Roll, it is not at all clear how much consideration was given to the issues which have been canvassed in this case. It appears to us likely that although the same points of principle would there arise, their impact on the valuation might be considerably less. As regards Mr Rose’s agreements at Sellafield, we accept that quite a lot of consideration will have been given to similar issues and confirm that we are happy to look at English agreements in such circumstances. However, we do note that there is no evidence of any agreement to take Care and Maintenance liabilities as having produced, arithmetically, a negative figure of value leading to a valuation of nil. Further, as we have already suggested, the Townley Mills case may well have played a large part in the consideration of the first major issue in so far as it arose in these other cases.

77. Returning to the major issues, firstly, we reject the submission that the appellants are not in rateable occupation. As it seems to us, there is on any view such occupation and actual use of what we have described as the ‘ordinary parts’ and the ‘proper storage’ as to be sufficient to satisfy the tests for rateable occupation. It is trite that occupation and actual use of part of the subjects amounts to rateable occupation of the whole – Armour, 14-13. In this respect, this case differs from, for example, the Arbuckle Smith and Marr’s Trustees cases. The evidence and submissions, understandably, dealt mainly with the areas giving rise to the major issues, but reference to the detailed valuations and also a review of the photographs of many of the buildings and much of the plant confirm that large areas of buildings and structures were agreed to be in ordinary use, as well as some agreed to be proper storage. Indeed, the appellants accept that even after all their claims of accelerated depreciation and superfluity and a claimed 15% end allowance for location, there would – subject to the Care and Maintenance argument – be a rateable value in excess of £1,500,000. Mr Doherty’s characterisation of the subjects as having a variety of uses appears to us to be correct and preferable to Mr Haddow’s suggestion of a subject which was simply in the course of decommissioning and demolition with other uses being merely ancillary and not such as to amount to rateable occupation. We do not consider that Assessor for Dunbarton v L.K.McKenzie and Partners supports the appellants on rateable occupation. The report is not entirely clear, but the entry under appeal was in respect of ‘eleven structures situated on a site’, i.e. apparently scattered around a construction site and not a delineated separate site, there being in that case no continuous fence or wall around the whole – see Lord Hunter at page 85. The site no doubt took its general character from either the remaining old buildings or the buildings under construction, none of which were valued, but there was no suggestion that there was not rateable occupation.

78. However, the appellants of course still have their substantial arguments that, although rateable, the subjects, which have to be viewed as a whole, are either worth very much less than the Assessor contends, because the use of the contaminated parts would not in itself amount to valuable occupation; or, are worth nil because not only is the contaminated part in itself not rateable and of no value but the extent of Care and Maintenance costs of redundant parts is so large as to nullify the positive values established elsewhere. Although the subjects are in rateable occupation, their value could be nil. Apart from the further consideration which is required of the test for rateable occupation as it would be applied to the contaminated parts if that part could be viewed separately, there is a very real issue in the unusual circumstances of this case as to the proper application of the statutory hypothesis.

79. Mr Haddow referred to a variety of cases in support of his proposition that the subjects were not capable of use for their original purpose, were merely in a state akin to demolition and had not yet become the genus of subject, viz. predominantly a deposit store for medium term storage of nuclear residue waste, for which they were being prepared. This was his argument against rateable occupation, which we have rejected on shorter grounds, but it must be considered in more depth for its bearing on the major issues: if the use of the contaminated parts is a use which on principle would not amount to rateable occupation, it would be difficult to categorise it as a valuable use. In Arbuckle Smith, although the owners had taken possession and were doing something which could be said to be beneficial, viz. altering the subjects for use as a bonded warehouse, the subjects were not yet in a state where they could be used for their intended purpose: alteration of the subjects did not amount to rateable occupation. In Marr’s Trustees, again, the subjects could not be used, in this case because the necessary permission to open as an endowed school had not yet been obtained. In Bouik’s Trustee, a house could not be occupied and used, by reason of a Closing Order. In Montrose Flour Mills, the subjects were redundant, vacant and unused.

80. We have no difficulty in accepting on these and the other authorities referred to that if subjects in their existing state are simply incapable of use, they have a nil value. What we cannot see from these cases is that if subjects in their actual state are capable of some valuable use, albeit not the original use, and such use is actually being made, they may not be entered on the Roll and valued according to that use. In relation to the contaminated parts, that is the issue. Is the activity in these parts merely alteration for future use, as in Arbuckle Smith? The ‘contractors’ huts’ case, Assessor for Dunbarton v McKenzie, helps to show that at a demolition site there can be rateable use of what at Dounreay we have called the ordinary parts (even, as in the case of one of the buildings on that site, where part of one of the original buildings was in use as a contractors’ canteen) used as it were by the contractors themselves, but there was no suggestion that either buildings in the course of demolition or for that matter buildings in the course of construction were in rateable use. We have therefore not been referred to any example where, as Mr Haddow put it, the buildings were “as it were, the raw material”, in which an entry in the Roll at a positive value has been sustained. The question is whether the situation which we find at the contaminated parts is a situation which amounts to rateable occupation.

81. In Arbuckle Smith, their Lordships were, as we understand it, asking themselves whether there was ‘occupation’ as that word requires to be construed in a rating context. They were not simply looking at the rating hypothesis and asking whether in a hypothetical tenancy the tenant would pay rent, but asking a more fundamental question. That question was whether possessing subjects merely for the purpose of preparing them for their intended use, no such use yet being made, amounts to occupation. Viscount Kilmuir, L.C., said at pages 55-56:-

“The sole purpose of the appellants in acquiring the premises was to use them as a bonded store in connexion with their business as warehousemen. The alterations were necessary in order that this purpose might, if the alterations were approved by the Customs and Excise, receive effect. Yet activity carried on in relation to premises, the sole object of which is to make the premises fit for the only use which is contemplated, does not amount to the kind of actual user which is essential to rateable occupation. So long as the activities were confined to making the premises fit for a contemplated purpose, the premises were not serving the appellants’ purposes as warehousemen. The premises were not being applied to the purpose for which they existed but were in an antecedent stage … If, therefore, there is no use of premises according to their nature I find it difficult to see how there is occupation attracting liability for rates.”

Lord Reid said at page 58:-

“But I can see a clear distinction between maintaining, repairing or improving a fabric, on the one hand, and enjoying the accommodation which it provides, on the other. And I think that it would accord with the ordinary use of language to say that the owner who in some way enjoys the accommodation is occupying the premises, but that the owner who merely maintains, repairs or improves his premises is not thereby occupying them: he is preparing for future occupation by himself, his tenant or his disponee … The real question in this case, to my mind, is not whether that kind of use was beneficial. It is whether that kind of use, beneficial or not, can amount to occupation.”

His Lordship considered whether, although individual acts of maintenance and improvement did not constitute occupation, an accumulation of such acts might do so. He doubted that, but added (at page 59):-

“But I think it unnecessary to decide that such an accumulation could never amount to occupation: it is sufficient to say that that could only be so in exceptional circumstances, and that there is nothing exceptional in the present case.”

Lord Radcliffe said at page 61:-

“It is evident, therefore, that there will not be occupation in the context of rating unless some use is made of the hereditament … ‘Use’ is not a word of precise meaning, but in general it conveys the idea of enjoyment derived by the user from the corpus of the object enjoyed … I think that the words of Farwell, L.J., in R v Melladew provide a satisfactory indication of the correct test: ‘Rateable property has many varieties; of some the normal use is by personal occupation, e.g. a dwelling-house, of others by occupation by live or dead stock, e.g. a linhay used as a shelter for cattle, or a barn; and the nature of the property and its mode of use must be considered in each case. The test, in a case like the present, of business premises, appears to me to be, Has the person to be rated such use of the tenement as the nature of the tenement and of the business connected with it renders it reasonable to infer was fairly within his contemplation in taking or retaining it?’

… Nor, again, is it a case of premises bought for one business purpose being, in fact, put to some other use.”

82. Despite Viscount Kilmuir’s reference to the ‘nature’ of the premises, we do not think their Lordships were excluding the possibility of subjects coming to be used for another purpose from the original one, and Lord Radcliffe specifically excluded that situation. Moreover, the possibility of ongoing work, of an exceptional nature, on a building amounting to use, was referred to by Lord Reid, and Lord Radcliffe stressed the need to look at the particular circumstances and consider the nature of the property, not just at the outset but also when it was being retained.

83. We appreciate the suggestion that decommissioning of the sort required at the subjects is in the nature of a business in itself, something of a different and more involved character than construction, alteration or demolition, and we do not ignore the appellants’ statutory functions and duties as licensees. Decommissioning of such an involved nature might be said to be a valuable use of the lands and buildings, going beyond merely working on the fabric of the building. It seems to us, however, that in the case of a contaminated building which no longer contains identifiable radioactive materials which require to be managed as such, the situation is in principle no different from that of buildings awaiting or in the course of demolition, or for that matter alteration, as in Arbuckle Smith, or construction. It could be said of the appellants in Arbuckle Smith that their possession of the subjects for the purpose of preparing them for the intended business use was of value to them, but their Lordships did not accept that that was such a use as to amount to rateable occupation. The idea that entering the premises for the purpose of inspection, cleaning or ordinary maintenance might, as a matter of degree, amount to occupation was rejected by Lord Reid at page 58. No doubt the maintenance regime here is something out of the ordinary, but we do not see any difference in principle. Again, in the present case, there was apparently actually some positive benefit in delaying the work required to make a building safe and then demolish it. However, delaying, even for some commercial reason, the demolition of buildings would not, as it seems to us, change the character of the occupation of the buildings. It seems to us that buildings which are simply in that situation are not in rateable occupation. The case seems to us in that respect to be similar to the construction site case, Assessor for Dunbarton v McKenzie: the contractors were making beneficial use of certain buildings on the site but not of the buildings awaiting or in the course of demolition. One might imagine a chemical works closed down for economic reasons, with some buildings perhaps in the course of demolition and others awaiting demolition but meantime requiring care and maintenance of contaminated structures. A decision perhaps to ‘mothball’ some or all of the buildings for future use would not alter the position.

84. We would, however, view buildings containing radioactive material differently. As it seems to us, such material must hypothetically be the tenants’ material, and the tenant is then making a valuable use of the buildings, which he needs for that necessary purpose of keeping his material safe. The analogy at the closed down chemical works would be with parts which were still required in order to contain hazardous material remaining there, even if that was not their original design purpose. We do not find it difficult to see that as a form of storage, as the assessor contended. The fact that this was not the original intended use of the buildings seems to us immaterial to the principle. We entirely accept that care must be taken in valuing buildings which are not being used for their original purpose. Incidentally, it seems to us not necessarily correct to suggest that these buildings were not designed to keep radioactive material safe: that must have been an important part of their original design purpose.

85. Accordingly, we see a clear distinction in principle between, on the one hand, redundant buildings, part of the lands and heritages, which are of no positive use to the hypothetical tenant (even if, like the owner, or the hypothetical tenant, of the closed chemical works, he in fact has an obligation to keep them safe), and on the other hand, buildings which the tenant requires to maintain for so long as they contain radioactive material. As far as the various individual disputed items in the valuation of the subjects is concerned, some are either ‘proper storage’ or have a recognised, and agreed, more active use but are the subject of claims for other ‘Stage 2’ allowances. Many, however, are parts in which there is remaining radioactive material of one kind or another. We agree with the Assessor that this is a positive use and these items (subject to the other claims) do have positive values. We shall therefore include them in our valuation. We shall also, however, consider whether there is any basis for adjustment or further adjustment of the replacement costs used in the valuation of any of the disputed items. As far as the land is concerned, it is clear to us that in general a positive use of the land is being made, and, apart from the discreet vacant area of 18 acres, there is no suggestion otherwise.

86. As we understand it, there was a measure of agreement between the parties on the approach in principle to care and maintenance costs. Mr Doherty accepted that such expense in relation to redundant buildings or site costs amounted to ‘expenses … necessary to maintain the lands and heritages in a state to command that rent’. There was of course the major dispute in principle about the extent of redundant buildings, and there was also an evidential dispute about what care and maintenance expenses had actually been established. In relation to the site, there is an issue about the extent to which the cost of monitoring and surveillance is referable to its positive use or simply to the legacy of contamination. Mr Doherty also did not accept that the hypothetical landlord would be persuaded simply to deduct the whole of such expenses. The appellants did not seek deduction of such expense relative to operational buildings.

87. The major issues are therefore to be resolved by considering the application of the statutory hypothesis firstly in the light of the view which we have reached in relation to valuable use of the disputed parts of the subjects; and secondly, on the basis of our findings on the actual extent of care and maintenance costs. Thereafter, in order to reach a final valuation, we shall require to give further consideration to the arguments for further ‘Stage 2’ and ‘Stage 5’ allowances and ensure that the allowances fit together appropriately

88. We now turn to consider the statutory hypothesis. We were referred, principally by Mr Haddow, to some authorities illustrating the application of the statutory hypothesis in difficult situations involving substantial subjects, such as the present subjects, which are owner-occupied and not productive of revenue in a commercial sense. In British Transport Commission v Hingley, the Court of Appeal upheld the valuation, on the revenue basis, of a docks undertaking which ran at a considerable loss at nil. In Hoare v National Trust, the same court overturned the valuations of two historic houses at positive figures based on percentages of gross visitor receipts and substituted valuations at nominal sums.

89. In neither of these cases was it suggested by anyone that the subjects should be valued on the contractor’s basis, but we agree with Mr Haddow that this type of situation, in which no tenant would be found in the real world, involves more general consideration of the application of the statutory hypothesis and guidance can therefore be had from such authoritative consideration of that situation as is available. As far as British Transport Commission v Hingley is concerned, we entirely accept that the facts that the subjects involve enormous capital expenditure, many persons are employed there and the activity there will continue despite its loss-making situation, do not in themselves lead to a positive valuation. However, it was the nature of the property, which was in the nature of a revenue-gathering property whose value was measured on a revenue basis, which led to the proper result of nil in that case rather than a contractor’s principle valuation bringing out a positive value.

90. The more recent consideration by the Court of Appeal in Hoare, where the question of the hypothetical tenant undertaking major repairing responsibilities raised a very live issue, is instructive. There, the situation was that the National Trust, who the Tribunal had found to be the only hypothetical bidder, would not in fact expend money on properties which did not have an endowment to secure the costs of upkeep. Schiemann, L.J., reviewed the case law. In the case of properties for which there was no tenant in the real world and which could not generate income, the conclusion may be that the rateable value is nil, but that need not be so. It was necessary to view the actual subjects, with all their intrinsic advantages and disadvantages. It was important to try to decide what in the ‘higgling of the market’ would be the resulting rent of special hereditaments. Land held for public purposes could have a positive value: public authorities might so value particular subjects as to be prepared to incur loss on them. Reference was made to dicta of Lords Clyde and Prosser in the Scottish Exhibition Centre case: the subjects had a value in respect of the social and economic benefits which they contributed. Schiemann, L.J., said at page 409:-

“… the cases in which an overbid has been attributed to local authorities are cases where there was material before the tribunal or court entitling it to conclude that the local authority would on the facts of those cases have been prepared to pay the hypothetical rent in order to secure a site in its area where it could carry out its statutory function.”

91. Mr Haddow sought to equiparate the position of the National Trust with the present appellants in that the former would not choose to enter into a lease at a positive rent and that in the case of the appellants, as he put it, it was not part of their duty to be profligate and not necessary for them to pay unnecessary money. We do not find that persuasive. We are not sure that it adds anything to say that the hypothetical tenant will not be profligate, but at all events we do not find any evidence to the effect that the appellants would not undertake a liability for rent. To the contrary, their situation involves undertaking very large financial responsibilities, for which they will be reimbursed, although of course they are required to proceed in a prudent way. Further, by contrast with the National Trust, they do not have a choice, and are required to undertake responsibility for Dounreay. We do not in the present case see any indication that the appellants, or any other body which might be conceived to be in the same position, would simply not undertake to pay an appropriate rent for the subjects. That said, it is clear that care requires to be taken when applying the chosen method of valuation, the contractors’ principle, to keep in mind the positions of the hypothetical landlord and tenant, and we seek to do that in our consideration of the major issues.

92. Turning then to apply the statutory hypothesis to the major issues, in a valuation under the contractors’ principle, we have to ask ourselves what we think the outcome of the negotiation between the hypothetical landlord and the hypothetical tenant would be in the particular circumstances. We have a situation in which there is substantial ‘ordinary’ use of parts of the subjects; ‘proper storage’ use; and use of parts, often designed for other uses, to contain radioactive materials (the’contaminated parts’); but also, expensive buildings and plant which are admittedly redundant but which, along with the other parts, carry expensive long-term ‘care and maintenance’ liabilities. We have tenants – whether the present appellants or a body in a similar position –who have statutory duties and responsibilities involving them in occupying these subjects and the wherewithal both to pay an appropriate rent and meet the liabilities. We have a landlord who we think we must regard as having land, buildings and rateable plant which would involve considerable responsibilities (although, again, underwritten by the government) but for his entering into the lease under which the liabilities fall on the tenant. They are assumed to reach agreement on a fair and reasonable basis.

93. As it seems to us, the tenant would (a) baulk at giving the landlord a full return on his expenditure on buildings and plant which he provided for one purpose, putting it shortly operational albeit experimental nuclear facilities, but which are now being used only to contain, for safety reasons, left-over materials and waste; and (b) seek appropriate recognition of his assumption of the liabilities for care and maintenance of those parts of the subjects from which he will not derive any positive use. The landlord, on the other hand, would point to the many parts where there is ‘ordinary’, or ‘proper storage’, use, as well as the parts where materials and waste are being contained. In relation to these latter parts, he could counter (a) by pointing out that, albeit that they were designed for the different, apparently much more significant original purpose, they must also have been designed to contain the nuclear risks; that many of them are in any event merely industrial buildings, laboratories, etc.; and, perhaps most significantly, that it is not possible (at least on the material before us) to show that buildings adequate for modern regulatory requirements in relation to safe management and storage of nuclear materials would be any less expensive to provide. On (b), the landlord, while having to acknowledge that the liabilities as they relate to redundant parts are a relevant consideration, would point to the tenant’s real need for all the parts with positive values and to the fact that, expensive as these liabilities are, they are but a small part of the overall expense to the tenant: he would, we think, resist the idea of simple mathematical accounting for these liabilities and suggest that any allowance for them should be modest.

94. We consider that the tenant would have some success on both points. On (a), on the material available, we do not think that a ‘modern substitute’ approach can assist the tenant. It is tempting to think that ‘pure storage’, designed to the tenant’s actual requirements, ought to be cheaper than the piecemeal historical arrangement of locations which have ended up with material to be contained safely. However, that has not been established. The alternative argument, involving looking at plant designed for some active process going beyond containment of the radioactive materials which would pass through it and viewing it as not all necessary for the containment or storage purpose, seems to us more tenable even although it too is unsupported by specific evidence. Indeed, the Assessor has accepted it, to the extent of 100% (although probably on a ‘swings and roundabouts’ approach), in the extreme example of the reactor which has been left with trapped fuel and also highly active coolant material which meantime does have to be contained there. It seems to us that the hypothetical landlord, acting fairly and reasonably, would, on the material available, accept the same argument, to a limited degree, on some of the disputed items. He would accept that some parts of the subjects, designed for particular uses other than storage, must have at least some less value when used only as a form of storage, or ‘containment’, of radioactive materials. This, we think, can be seen as one form of technical obsolescence: the items, though in some use, can in the circumstances prevailing no longer perform the original technical function for which they were designed and built. The best we feel we can do on the material available (remembering that we are only valuing the building and rateable plant, and also that it may be that a purpose-designed storage facility might well have, to take one example, the same thick concrete lining as process plant handling the same material), is to identify items which, on the basis of our findings, appear to be in the nature of buildings and plant involving more than just storage but are now used only to contain left over materials and apply what must be a rough and ready figure to reflect that sort of technical obsolescence. Although imprecise, this seems preferable to us to an end allowance, which would be even less exact, in respect of this factor which, as we have said, we regard as a form of obsolescence. We shall therefore apply an appropriate ‘Stage 2’ allowance for this form of obsolescence, additional to the agreed Monsanto allowances, to each of the following items which appear to us to be in this category:-

D1120 – DFR Pond – the design purpose was the storage of fuel tubes in racks, but the main use now is the containment of contaminated waste or sludge.

D1200L – Laboratories and Cell Facility – around half of the building was in active use. The allowance is appropriate in relation to the other half, some of which is being used, not for its original purpose as laboratories and cells, but to contain contaminated materials.

D1204 – MTR Reprocessing Plant – due to be shut down as re-processing plant, but in use to contain significant radioactive waste.

D1206 – PFR Reprocessing Plant – production had ceased since 1996, but substantial irradiated fuel was contained in the plant.

D1215 - Cells with Labs – Like D1206, inactive after 1996, but containing radioactive material.

D1217 – Post-Irradiation Examination Facilities – an examination and support facility which had been shut down in 1994 but still contained radioactive material.

D1234 – Evaporator Plant – also inactive since 1996, but containing trapped radioactive material.

D1251/9814 – DMTR Pond – as with D1120, design purpose was storage but main use was containment of contaminated waste and sludge.

D2670 – Marshall Laboratory – one aspect of design purpose, the development of ‘pulsed column’ technology, was no longer in use.

95. We shall consider the amount of these allowances along with the amount of other Stage 2 allowances which arise on consideration of the other issues of principle which the appellants raised. For reasons to be explained, these allowances will not reflect the limitations on use resulting from the Direction.

96. On (b), the care and maintenance liabilities, also, we accept that the hypothetical tenant would have some success in the negotiation. It seems clear to us, and indeed was accepted by Mr Doherty in principle, that where there is identified a redundant building or redundant plant to which care and maintenance expenditure which qualifies as ‘other expenses … necessary to maintain the lands and heritages in a state to command the rent’ is properly attributable, some allowance is appropriate.

97. In relation to the form and extent of this allowance, we require first to consider the amount of such expenditure, a matter on which there was substantial dispute between the parties. The appellants claimed to have identified such expenditure (including both care and maintenance and site monitoring) of £11,649,000. The assessor, while not putting forward any alternative figure, hotly disputed the figure. We have found, on the material and submissions, that it is not possible to ascertain the figure accurately.

98. We have accepted the appellants’starting figure of £18,335,000 (para. 31 above) as actual expenditure incurred but consider that it includes items which are not relevant at this point. The appellants themselves brought the figure down to £11,649,000, in two stages. Firstly, recognising that allowance was only appropriate in relation to redundant items, they applied percentages of superfluity. However, in 24 of the 26 areas claimed, they claimed 100% superfluity. As will be evident looking at the list set out in para. 31, many of the areas involved what we, for the reasons which we have explained, find to be a valuable use, viz. containing radioactive materials. In relation to many of these areas, the appellants have further arguments of superfluity, related to more minor issues of principle, mainly the argument that use of the facility was prevented at the material date by the Direction or government policy. For reasons which we have yet to explain, we are generally against the appellants on those issues also. In the result, superfluity can only be accepted in a very small number of the areas claimed. Further, a significant proportion (in excess of £7,000,000) of the figure of £18,335,000 arises in relation to site-wide costs, in relation to all of which the appellants also claimed 100% superfluity, but we cannot accept that: it may be correct in relation to deep contamination of the land, which can truly be seen as ‘legacy contamination’, but as regards surface contamination it seems to us that the ongoing surveillance and monitoring (with, it would seem, some actual remediation) would be just as much – or very nearly as much - required in relation to the beneficial occupation and use of the subjects even if there were no redundant parts.

99. The second way in which the appellants qualified the figure of £18,335,000 was by applying a ‘status cost adjustment’ to many of the items. This was intended to reflect the proportion of such expenditure properly attributable to the tenant, but we find difficulty with the appellants’ figures here also. They are of course subject to the same basic point in relation to beneficial use of the subjects. It seems to us that only a small proportion can be accepted as care and maintenance of redundant buildings and plant.

100. An evidential problem arose in this area because the evidence in support of the ‘status cost adjustments’, as to which Mr Gillespie took a very different view, came only from Mr Rose and only in the form of telling us that he had asked Mr Munro what would be an appropriate allocation, in other words in a hearsay form. Mr Rose did not offer his own opinion as to the allocation. Such hearsay can often be accepted where it is not controversial, but in the present case it causes us a difficulty.

101. It is fair to record that Mr Munro did give certain detailed evidence which was intended to illustrate and partially vouch the position. This was in relation to the detailed invoices for work under some particular contracts. In particular, parts of the specification of Contract No. NS 04340 with A.E.A. Technology, in relation to the PFR area, were produced together with detailed invoices over the period 1996 to 2000. This was one, albeit very substantial, contributor to expenditure under one of the cost centres relating to that area of the subjects. Mr Munro spoke to an allocation of these costs between ‘Care and Maintenance Cost’ and ‘Non Care and Maintenance Cost’. A figure for ‘Care and Maintenance’ of £2,269,603 per annum arising out of this vouching alone was derived. However, we do not feel that this is a figure which we can accept. Firstly, this is a contract which clearly covers maintenance of moveable plant and equipment. Secondly, although the PFR reactor itself was closed down, there are other parts of the PFR area which in our view were in beneficial use. This view partly depends on reasoning which we have yet to give, in relation to the effect of the Direction. It means that the invoices do not cover redundant items. In this connection, we also noted that the biggest item, some £6,343,000, mainly arose in the first three years, i.e. in the period before the Direction brought some operations to a halt. Thirdly, although we accept that an attempt was made to take out ‘POCO’ (Post-Operational Clean Out) costs during the earlier part of the period, we are not persuaded that a substantial amount of these payments relates to care and maintenance of redundant buildings as opposed to operations, including decommissioning operations, involving, to a large extent, handling and containing materials rather than care and maintenance of redundant buildings. We do not of course doubt the basic vouching, and we appreciate the appellants’ difficulty in trying to establish the matter, but we are not persuaded by their evidence in this area. We do not therefore make the findings sought by the appellants based on this specific evidence.

102. In relation to care and maintenance of large items such as the reactors themselves, where the Assessor has accepted that the use for containing materials, when contrasted with the original purpose and expenditure on the building, should not be given any positive value, it seems to us that the care and maintenance, including surveillance and monitoring, expenditure, is nevertheless mainly related to safely containing the materials, whether fuel or waste, still in these areas, and this is not, to our mind, qualifying expenditure in relation to the building. Similarly, the fact that an item may attract an allowance for ‘technical obsolescence’ or for some degree of superfluity or over-provision, does not, we think, mean that the care and maintenance expenditure should be apportioned: it would be required, as tenants’ expenditure, in that area anyway. Generally, we had the impression that the appellants’ growing emphasis on care and maintenance was in fact to a large degree related to the increasing importance being attached to safe working practices in relation to the presence of radioactive materials rather than property maintenance and monitoring, although we can accept that there could be some slight overlap between the two.

103. Reviewing the various locations at which such expenditure is claimed, we find ourselves in almost complete agreement with the Assessor’s position in submission. Mr Doherty accepted that expenditure on the former criticality lab, D8550 (average - £125,000), qualified, and that the sodium test building, D1249 (£1,800), might qualify. We would add to these two the ILW Shaft, D1225 (the ‘Dounreay shaft’), (£139,000), which does appear to be pure ‘legacy contamination’. We also accept that some of the expenditure in relation to ground contamination comes into that category. In relation to all of the other specific areas, however, we find there is some current use, at least containing materials, although in some cases that was in January 2000 on hold because of the Direction.

104. We have, however, noted that by January 2000 expenditure in some of the relevant areas had increased as a result of the increased emphasis on care and maintenance, although it is in fact the other way round with Contract No. NS 04340.

105. In these circumstances, on the evidence available to us, we think that the hypothetical tenant does not have a basis for a figure of any more than 10% of the expenditure of £18,335,000. What we have to consider, with the slightly circular wording of Section 6(8) in mind, is what rent would be agreed if the tenant undertook to bear this expense as well as the ordinary repairs so as to maintain the subjects in a state to command that rent. We reject, as we think the hypothetical landlord would, the mathematical approach of identifying such liabilities and deducting them from the rent otherwise arrived at. We do so even although the result of our consideration of these liabilities may be that they do not exceed that figure so that such an approach would still produce a positive valuation. If authority for rejecting such an approach is required, it is provided by the Egyptian Halls case, although that was an altogether easier case to consider this issue because the value arrived at by the Committee, and upheld by the court, was in fact based on an actual rent of one of the subjects. There will be cases in which this question can be answered on a simple mathematical basis. A prospective purchaser or tenant may simply discount a purchase price or rent by the amount of an extra expense which he will have to bear, but it is not necessarily so. In this case, the landlord can point to the tenant’s particular need for the subjects and the fact that the tenant’s operations overall are very expensive and fully funded. He can point to the uncertainty as to precise allocation of the tenant’s expenditure, and to overlap with the tenant’s own operation at the subjects. The tenant can point to the landlord being relieved of this expenditure, although this again is a slightly unrealistic matter since the hypothetical landlord would also be funded.

106. We have wondered whether to make an allowance, albeit an end allowance, of a specific figure representing a proportion of this expense, or simply a percentage allowance. It seems to us that this item is not so related to the positive values of the parts of the subjects which are beneficially occupied, or to such allowances against the replacement costs of those parts as may be allowed, as to make a percentage approach appropriate. It is perhaps unusual to put an end allowance in the form of a set figure but we think this is the appropriate approach here. Otherwise, the allowance would (unless reviewed) decrease whenever items came out of value or other earlier allowance were increased, or indeed increase when new facilities were developed. We note that it looks as if this is the same approach as that adopted in Mr Rose’s settlements at Sellafield and elsewhere.

107. In the circumstances, we fix that figure at £1,500,000, a figure rather less than 10% of the expenditure of £18,335,000 referred to, which, in the somewhat uncertain state of the evidence, in our opinion reflects adequately the very real burden which is being transferred to the tenant.

108. The result of our consideration of the major issues is, therefore, as follows:-

(a) We find that the appellants are in rateable occupation of the subjects;

(b) We are not prepared to leave out of valuation buildings and rateable plant which, although not originally designed for that purpose, are still required because radioactive material left within them requires to be contained; but we have identified some buildings in this category in which some allowance should be made because the buildings were designed for a purpose going beyond mere containment of nuclear materials; and

(c) A specified end allowance of £1,500,000 should be made, to reflect the additional burden on the hypothetical tenant of the costs of care and maintenance, including monitoring and surveillance, of the redundant parts of the subjects.

Other Issues: Other Claimed Allowances; Effect of Regulatory Action and Government Policy; ‘Actual State’

109. In relation to the other issues raised by the appellants, and in particular the claims for allowances based on restrictions in the use of the subjects as a result of the Direction and also government policy, the appellants invoked the ‘actual state’ rule, including ‘legal state’. Subjects are to be valued having regard not only to their existing use but also to their actual state. This may be affected by their ‘legal state’ if there is some legal (as opposed to voluntary) restriction on the use to which they can be put in their physical state. Marr’s Trustees was referred to as an authoritative example: subjects though entirely physically capable of their intended use could not for the time being be used because of the operation of the statutory regulation of endowed schools.

110. It is clear to us that the Direction amounted to a statutory restriction which did affect the operation of the subjects and requires to be considered. There was perhaps some suggestion that the appellants should have been able to avoid incurring the compulsory shutdown of parts of the subjects, but we do not require to form a view on that because we agree with the appellants that it is irrelevant. The cause of a legal restriction incurred before the relevant date is not relevant as such because what matters is the position facing the hypothetical tenant, who is not assumed to be the actual previous occupier, on the relevant date. It does not matter whose fault the actual state of the subjects on the relevant date is.

111. However, the question as to what effect the restriction has on the value is another question, and this raises the issue of what are sometimes referred to as ‘transient factors’. The modern scheme introduced by the Valuation and Rating (Scotland) Act 1956 does involve looking at the subjects on one relevant date, in this case, 1 January 2000, with the opportunity to reflect material changes on later dates during the quinquennium. However, that does not preclude consideration of what view the hypothetical parties would take of temporary restrictions. To reduce the matter to the absurd, the fact that subjects were closed by statutory direction for one week which includes the valuation date would not be expected to affect the rent. We do not think that the change to a quinquennial roll particularly affects this consideration: it would not be right to ask whether there was a prospect of the restrictions being lifted within that period. Rather, the question is what effect the restriction has on the hypothetical rent and whether the lifting of the restrictions is reasonably imminent. It is a question of degree, both as to the duration and as to the extent of restriction. In relation to the prospective duration, at the relevant date, of the restriction, we think the Assessor is correct to refer to the nature of the use: the hypothetical tenancy is a tenancy from year to year but with a prospect of continuance, the view as to which will vary with the type of activity and use in question. A temporary restriction which is expected to be lifted before too long but on a very uncertain timescale might have a very different effect on the hypothetical tenant of a shop from the effect which it would have on the hypothetical tenant of these subjects.

112. It seems clear to us that in the case of these subjects views are taken over years, sometimes possibly decades, rather than days or months. The restrictions imposed by the Direction, while clearly extensive, only involved parts of the subjects. The evidence was clear to the effect that in January 2000 there was an expectation that they would be lifted shortly, although a timescale was not put on that and in the event they only started to be lifted, in stages, in 2001. Although responsibility for incurring the restrictions is not relevant, the hypothetical tenant would, we think, have regard to his own ability to put matters right in order to get the restrictions lifted. Also, as the assessor pointed out, delays while safe or safer ways of working were developed on a case-by-case basis is anyway in the nature of the occupation of these subjects.

113. In these circumstances, we take the view that the lifting of the restrictions imposed by the Direction was at the relevant date reasonably imminent in the circumstances of these subjects and that the Direction would not have any material effect on the rent.

114. The position as regards restrictions, and indeed closures of some facilities, dictated by government policy, is in our view different. When a facility at the subjects, whether it be a reactor or a processing or reprocessing facility, is closed by government direction without any reasonable prospect of its being reopened, the link between the appellants and the government does not make this a self-imposed restriction. The Assessor did not argue otherwise. Thus, facilities already closed for that reason, rather than by temporary restriction, before the valuation date were not valued by the Assessor on the basis of such use. The Assessor, however, was not prepared to grant any allowance on the basis of limited future use of facilities, taking the view that if they were in use at the relevant date they should be assessed at their full value, with the possibility no doubt of material change if they were taken out of use before the next revaluation.

115. The converse of looking at the reasonable imminence of lifting a statutory restriction is to look at the reasonably anticipated duration of the use of particular facilities, having regard both to indications by the relevant date of government policy and also to indications of NII or SEPA policy on the use of particular facilities. If a facility is in use on 1 January, but due to be closed on 8 January, the hypothetical tenant would not on 1 January pay any rent. Again, we think the quinquennium as such is not relevant here, and the question is whether the hypothetical tenant would achieve some reduction on the basis of the limited prospect of continued use of particular facilities, such that they would not be in use for the rest of their natural life. This seems to us to be another type of obsolescence going beyond the factors covered by the ‘Monsanto’ allowances and the form of technical obsolescence which we identified in respect of use less than the design purpose. We therefore propose to accept this aspect of the appellants’ claim for ‘accelerated depreciation’ allowances by giving allowances, or further allowances, for what we would again describe as technical obsolescence, where the evidence justifies it. This is of course again a question of degree, and the longer the anticipated duration of use, the more the hypothetical landlord would resist the allowance: for example, a prospect of the NII insisting on phasing out a particular facility at some uncertain date perhaps many years in the future, would in our view clearly not attract such an allowance.

116. Another suggested justification for allowances for ‘accelerated depreciation’ was the claimed additional and increased rates of obsolescence, costs of repair and adaptation associated with operational buildings which have become contaminated. We do not accept this. It will be remembered that there are already agreed standardised allowances – the ‘Monsanto’ allowances – based on age. As we understand it, these reflect increasing repair costs, and reducing life expectancy, as buildings and plant get older. The appellants’ suggestion is that the presence of contamination accelerates depreciation. It is not, however, self-evident that a contaminated building depreciates more quickly and we do not think there was any evidence that this was the case. In so far as reliance was placed on the terms of the NII Safety Audit, we agree with the Assessor that the NII’s concerns were only to a very small extent related to the states of the buildings. Predominantly, the concerns were about safe working methods and practices, which would be tenants’ costs in relation to containing radioactive materials and would not reflect on the value of the buildings.

117. The appellants’ disputed claims for allowances for superfluity arose in a number of circumstances. We have already considered, in relation to the issue of ‘legal state’, the effect of the NII Direction. Whether that directly prohibited a particular activity, or indirectly affected a facility, by for example, preventing movement in or out of a store facility, we do not accept that it had any effect on the hypothetical rent and we do not propose to make any allowance on that account. The allowance is of course appropriate, as the Assessor had in almost every case recognised, where a facility was disused without any reasonably imminent prospect of further use. Another recurring justification for claims of superfluity was where there was partial use of facilities, i.e. suggested over-capacity. Where this was temporary, for example as a result of the Direction, we would not propose any allowance. There were, however, cases in which there was no reasonable prospect of facilities being used to their capacity, for example a fuel store which, as at January 2000, had spare capacity and would not have been expected to take in any further material. In principle, over-capacity on a long term basis should be reflected in an appropriate allowance. We do not, however, think that it is simply a mathematical calculation of the extent of use. A facility with half the capacity is not necessarily worth only half. In one or two cases, we have considered that the storage use is so slight as to be in itself de minimis, resulting in a 100% allowance for superfluity. In other cases, we have assessed an appropriate percentage allowance.

118. Superfluity arises in a different way in relation to the site value and infrastructure. Here, there is a straightforward claim for an allowance of 13% in respect of a discreet area of 18 acres which is undeveloped and unused. It might well be used at some time in the future but there was no indication of any such anticipated use in the reasonably near future. Industrial buildings are of course typically located on a site, the site value of which is a cost to the landlord but not all of which is necessarily in actual use. It is a question of degree whether any part of it is simply of no value or use to the tenant as the site for the buildings. On the evidence in the present case, we accept that that can be said here, and we shall make a 13% allowance against each of those two items in the valuation.

119. With these considerations in mind, our decisions on Stage 2 allowances for the disputed items, including the allowances for technical obsolescence of the items which we identified in our discussion of the major issues, are as follows:-

DFR

D1120 – DFR Pond – allowance of 50% in respect of the main use being less than the design purpose and over-capacity in respect that only a very small number of the storage racks were in use;

PFR

D9989 – PFR Simulator Building – no actual or anticipated use – allowance of 100% for superfluity;

PFR Buffer Store Pond Building – allowance of 15% for superfluity reflecting over-capacity because will not be used to more than 73% of capacity; no further allowance, because date of eventual redundancy when fuel rods removed uncertain;

PFR Effluent Treatment Plant – no allowance – in use;

PFR Irradiated Fuel Cave – allowance of 25% for superfluity – some over-capacity both as storage for irradiated fuel and containment of contaminated equipment and waste;

PFR Sodium Store – Assessor’s allowance of 50% for superfluity upheld – four tanks required do not necessarily cost 40% of 10 tanks;

PFR Ventilation Annexe – no allowance appropriate - in use in connection with decommissioning;

PFR Underground ‘new’ Fuel Storage – no allowance appropriate – will apparently receive no more fuel, and no long term need, but no indication of likely duration of use – over-capacity of 11% does not justify allowance;

Fuel Cycle Area

D1200L – Labs. And Cell Facility – separate allowances of 25% for technical obsolescence in respect of use less than design purpose and 20% superfluity – approximately 50% of building in active use, some of other half still containing contaminated materials, therefore some redundant;

D1202 – DMTR Fuel Element Production – 25% allowance for technical obsolescence in respect of limited further use as a consequence of government policy in relation to processing;

D1203 – Billet Production Plant for MTR Fuel – 25% allowance, on same basis as D1202;

D6045 – Breathing Air Building (part of D1203) – 25% allowance, on same basis as D1202

D1204 – MTR Reprocessing Plant – 25% allowance for technical obsolescence in respect of use for less than design purpose;

D1206 – PFR Reprocessing Plant – 50% allowance for technical obsolescence in respect of use for less than design purpose and (as at January 2000) need for expensive safety case for anticipated eventual further use;

D1208 – High Active Liquor Store – various items – no allowance appropriate – defects noted in N.I.I. Safety Audit not such as to merit increase above ‘Monsanto’ allowance, and storage capacity table showing usage varying from 36.86% to 81.49% does not demonstrate substantial over-capacity;

D1213 – Ventilation Fans and Stack, and Motor Room – no allowance appropriate – requirement for eventual replacement not sufficiently definite to justify allowance;

D1215 – Cells with Labs – 25% allowance for use less than design purpose;

D1217 – Post-Irradiation Examination Facilities – 25% allowance for use less than design purpose, plus 25% allowance for technical obsolescence as no expectation of substantial active use in future;

D1231 – Special Nuclear materials Store/Locker Room – no allowance appropriate – although only 75% full, reasonably anticipated to receive further material after Direction lifted;

D1234 – Evaporator Plant – 50% allowance, as D1206;

D1251/9814 – DMTR Pond – 25% allowance for technical obsolescence, in respect main use less than design use, plus 50% allowance for superfluity;

D1251/9875 – High Alpha/Beta/Gamma Drum Store – no allowance appropriate – reasonably anticipated to receive further material after Direction lifted;

D2001 – Post-Irradiation Examination Cells – no allowance appropriate – not clear that the various current use requirements any less expensive than original design use; and substantial anticipated future use (some cells not to be used once cleared of waste, but no indication that this imminent);

D2580 – Fissile Material Store – no allowance appropriate – although only 75% full, reasonably anticipated to receive further material after Direction lifted;

D2670 – Marshall Laboratory – 25% allowance for technical obsolescence, in respect less than design use (‘pulsed column’ development no longer in use), plus 25% allowance for superfluity (some over-capacity);

D2670 – Marshall Laboratory Fuel Store – 30% allowance for superfluity, because approximately 40% full and no suggestion of any further future requirement;

D2700 – Cementation Plant, Drum Store and Drum Store cells – no allowance appropriate – in use, apart from effect of Direction;

D2900 – Maintenance and Decontamination Centre – no allowance appropriate – required for future operations, albeit requiring new safety case;

D8570 – WRACS Facility and Drum Store – no allowance appropriate – main facility still being commissioned but apparently in use to some extent;

D9089 – Former Drum Compaction Unit – 25% allowance for technical obsolescence in respect that due to be superseded by WRACS facility – limited use meantime was a consequence of the Direction;

D9786 – AGR Store – no allowance appropriate – full use anticipated after direction lifted;

D9867 – High Alpha, low Beta/Gamma PCM Waste Store – no allowance appropriate – limited use was a consequence of the Direction;

Zone 4

D1211 – Effluent Tanks (Open Area and Pits) – 25% allowance for technical obsolescence in respect that due to be replaced by new LLLETP;

D5073,5074 – Ultrafiltration Pilot Plant and Building – 100% allowance for superfluity – planned future use, but no indication of timescale – currently not used and not containing any material;

D9833 – High-Active Wet Silo Travel Housing – 100% allowance for superfluity – no longer is use and no indication of any contaminated materials;

D9833 – High-Active Wet Silo – 25% allowance for technical obsolescence in respect of N.I.I. view that should be emptied and decommissioned – meantime, 85% use does not support any material over-capacity;

Site Area and Infrastructure

Site Area – 13% allowance for superfluity;

Site Infrastructure – 13% allowance for superfluity.

End Allowances

120. We have already indicated our decision to make a specified end allowance of £1,500,000 to reflect the additional ‘Care and Maintenance’ burden.

121. There is one other claim by the appellants to be considered. This is their claim for an end allowance to reflect the location of the subjects. The subjects were said to be poorly located, leading to increased costs in respect of which there would be an allowance in the hypothetical rent. Mr Rose referred to poor road and ferry links; poor port facilities; difficulty in recruiting staff; the distance from Sellafield, leading to increased transport costs; high travel costs for contractors, customers, suppliers and regulators. We were not referred to any reported case, or practice, of such an end allowance in a contractor’s principle valuation, but would accept that it could be appropriate if adequately demonstrated.

122. Mr Rose did not question the evidence which was clear to the effect that when Dounreay was chosen as the site for a large-scale experimental reactor in 1954 this was considered to be a favourable location. It was close to a source of required labour; it had a good supply of water for the plant; the geological conditions were good; and the low population density was also seen as an advantage. Mr Rose, however, contended that with the reactors closed and on the basis of present use this situation had changed and the costs could be seen as excessive. We did not, however, detect any support for this line from Mr Munro, an experienced nuclear scientist albeit one who has apparently spent all his working life at this one site. Remote location may of course often affect value, but in the present case it seems to us that there is no basis for such an allowance. Some costs and particular alleged disadvantages are mentioned, but there is no real comparison with costs elsewhere and no overall view as to the effect of location. The remote location may possibly be less of an advantage now, with the large-scale nuclear processes no longer operational, but we are not persuaded that the hypothetical tenant, looking at the present circumstances, would regard the location as a disadvantage which should be reflected by a reduction in the rent or that any such reduction would be granted. We shall not make this allowance.

123. We have, however, considered, and decided to make, one further end allowance, of 10%, to be applied after deduction of the allowance for care and maintenance, to reflect the disadvantage of these particular subjects, arising from the impact of the onerous security, safety and regulatory regime applicable to the nuclear decommissioning industry at this particular site.

124. It is always appropriate to review the end result of a contractor’s principle valuation. That is of course done by considering, as we have, the particular claims made for end allowances. It is also, however, done by something in the nature of a ‘stand back and look’ at the result. Sometimes, some form of cross-check is available, perhaps from evidence of some other valuation or transaction. In the case of these very particular subjects, we do not find anything of that kind, but it is still appropriate to consider whether, after giving detailed consideration to the individual items making up the valuation, there may be any need for final adjustment. We have, for the reasons given, disallowed very substantial claims on individual items in the valuation and considerably cut back the amount of the end allowance claimed for ‘Care and Maintenance’. Having done so, we feel that the impact of the regulatory regime is a factor which should not be completely discounted in the valuation of these subjects as a whole. We have in mind the difficulty which arises out of application of the modern regulatory regime to this site which was developed over the earlier years of the nuclear industry. We do not think the tenant is entitled to say, in relation to particular items, that on the valuation date they are not in use because of the effect of the Direction and no rent would be paid, but, viewing the impact of the regulatory regime at this site, he might legitimately say that it has such a restrictive impact on the use and enjoyment of these subjects as to merit some allowance. We have not accepted that contamination itself accelerates the depreciation of individual buildings and plant, but its presence does attract the regulatory regime and in that way increase the tenants’ costs. We have determined that in our view the vast majority of the ‘Care and Maintenance’ expenditure pointed to by the appellants does not impact directly on the rateable value. Rather, on analysis it seems to us to relate to the tenant’s positive use of the subjects to contain radioactive material, which is a natural part of their undertaking. Again, however, having regard to the background information provided by the appellants on the regulatory procedure affecting building maintenance we feel we must recognise that the strict regulatory regime does have a particular impact on overall maintenance of these subjects as a single entity. The requirement at these subjects for such close regard to a uniquely strict regulatory regime may be seen as a disadvantage although not directly measurable. These considerations have led us to the view that a further modest end allowance is appropriate.

125. The amount of such an allowance, against the total value of the subjects, is inevitably somewhat arbitrary. We consider 10% appropriate, applied after deduction of the end allowance for care and maintenance.

126. The Tribunal’s resulting valuation, applying the further Stage 2 allowances and the end allowances which we have made, follows the parties’ format. It produces revised adjusted replacement costs of £54,672,211 Rateable Value before end adjustments of £3,094,626 shown in the schedule annexed. The final Rateable Value, after applying the end allowance for Care and Maintenance, and thereafter an end allowance of 10%, is £1,435,164, say £1,435,000, as follows:-

Total adjusted replacement cost per the schedule £54,672,211
Total stage 4 Rateable Value per the schedule (i.e. Before specified end allowances) £3,094,626
Less allowance for care and maintenance £1,500,000
  £1,594,626
Less final end allowance 10% £159,462
Rateable Value £1,435,164
say £1,435,000

Decision

127. For these reasons, we allow this appeal to the extent of substituting a Rateable Value and Net Annual Value of the subjects of £1,435,000, as shown on the Schedule annexed.