Valuation for rating – Civil nuclear installation in the course of lengthy decommissioning process – Whether in rateable occupation – Contractor’s principle valuation – Effective capital value of buildings housing nuclear waste materials although not used for original design purposes – Effect of restrictions imposed by Nuclear Installations Inspectorate, and of government or regulatory policy – Claims of accelerated obsolescence – Over-capacity – Superfluity of undeveloped, unused land – Alleged locational disadvantage – Additional burden on hypothetical tenant of care and maintenance and surveillance of redundant parts of subjects.
The subjects were the civil nuclear installation at Dounreay, occupied by the appellants. The buildings comprised experimental nuclear reactors, fuel processing and re-processing facilities, all no longer operational but undergoing a very lengthy decommissioning process, and associated storage, operational and administrative facilities.
The appellants contended that in the particular circumstances the subjects were not in rateable occupation, but rather akin to subjects which were not yet, or no longer, fulfilling their purpose. Alternatively, and on the basis of valuation on the contractor’s principle (no other principle of valuation being suggested), the subjects should be valued at nil. In summary, as far as effective capital value was concerned, buildings which were not fulfilling their original purpose and merely housing nuclear waste materials in a state of either active or passive decommissioning had no value; in any event, buildings whose use was at the valuation date prevented, directly or indirectly, by the operation of certain restrictions imposed by the Nuclear Installations Inspectorate following a safety incident had no value; allowances (in addition to the normal, ‘Monsanto’ allowances for age and obsolescence) should be given for ‘accelerated depreciation’, caused by increased obsolescence and costs of repair and adaptation, of subjects housing nuclear materials; allowances should be given where buildings were not at the material date being used to capacity; and a superfluity allowance should be given in respect of an area of undeveloped and unused land. Then, at the final stage of the valuation, there should be an end allowance for locational disadvantage; and a specified allowance to reflect the additional burden on the hypothetical tenant of the costs of care and maintenance and surveillance of redundant parts of the subjects should be made – this latter would far exceed the positive values, leading to a valuation of nil. The assessor, having made various allowances against the effective capital values of various individual items, resisted these claims by the appellants and contended that the correct value was in excess of £3,000,000. In particular, the assessor contended that buildings which were required during the period of decommissioning to contain contaminated waste materials, albeit no longer used for their original design purpose, had positive values; and although allowance for care and maintenance, etc. of redundant parts was in theory appropriate, the evidence did not support any such allowance, and certainly nothing approaching the sum contended for by the appellants.
1. The subjects were in rateable occupation. Occupation and actual use of part of subjects amounts to rateable occupation of the whole, and on any view there was such occupation and actual, ‘ordinary’, use of considerable areas of offices, labs and other support facilities, as well as areas designed and actually being used for storage, whether temporary or permanent, of radioactive materials, as to satisfy the test for rateable occupation.
2. Buildings and rateable plant which, although originally designed for a different purpose, were still required because radioactive material left within them required to be contained, did have positive values. Subjects incapable of use have a nil value, but it does not follow that subjects capable of some valuable use, albeit not the original use, should not be valued. The activity in these parts was not merely alteration for future use. Contaminated buildings which no longer contained identifiable radioactive materials would not have value just because of the involved maintenance regime required at these subjects, but buildings containing radioactive material should be viewed differently. The assessor’s argument that this was in effect a form of storage use was accepted.
3. However, care is required in valuing buildings which are not being used for their original purpose. In the case of some buildings in this category some allowance (additional to normal allowances, such as for age and obsolescence, against effective capital value) should be made for a form of technical obsolescence because the buildings were designed for a purpose going beyond mere containment of nuclear materials. In its detailed valuation, the Tribunal made such allowances, on the basis of the detailed evidence, in relation to a number of individual buildings and items of plant.
4. The restrictions imposed by the Nuclear Installations Inspectorate as the result of a safety incident some 18 months prior to the valuation date would not have any material effect on the hypothetical rent. The Direction did amount to a statutory restriction on the operation of the subjects, and as such its effect on value had to be considered, even if it could be said to follow from ‘fault’ on the part of the occupier, as to which the Tribunal expressed no view: what mattered was the position facing the hypothetical tenant on the relevant date. However, transient factors might not affect the hypothetical rent. It was a question of degree as to what effect the restriction had and whether, at the relevant date, the lifting of the restrictions was reasonably imminent. The nature of the use was relevant, and at these subjects views were taken over years, sometimes decades, rather than days or months. On the evidence, the lifting of these restrictions was, at the relevant date, reasonably imminent and there was no material effect on the rent.
5. However, restrictions, and closures of some facilities, dictated by government policy, without any reasonable prospect of alteration of the position, were in a different position. Further, a limited prospect of continued use of particular facilities, for this reason, such that they would not be in use for the rest of their natural life, would affect the hypothetical rent. This was another form of obsolescence, and the Tribunal, again, made allowances, on the basis of the detailed evidence, against some individual buildings or items of plant on this basis.
6. The appellants’ claims for further allowance, under the heading of ‘accelerated depreciation’, to reflect additional and increased rates of obsolescence, costs of repair and adaptation associated with operational buildings which had become contaminated, were rejected. The evidence did not demonstrate such additional depreciation or costs reflecting on the value of the buildings, as opposed to the high tenants’ costs in relation to containing radioactive materials.
7. Claims for allowances for superfluity arising out of temporary effects of the N.I.I. Direction should be refused. Where, however, there was under-use (or indeed closure) of a facility without any reasonably imminent prospect of fuller (or any) use, allowances for superfluity were appropriate. This was not, however, simply a mathematical calculation of the extent of use as the appellants claimed in most such cases.
8. Superfluity also arose in relation to the site value and infrastructure. It was a question of degree whether, on the site of industrial buildings, any land was of no value or use to the tenant. In the present case, the Tribunal accepted that there was a discreet area of 18 acres which was undeveloped and unused, with no indication of any anticipated use. The claim of 100% superfluity was accepted in relation to this area.
9. No end allowance for locational disadvantage was appropriate. Although there was no reported example in any reported case, or evidence of any such practice, the Tribunal accepted that this could be appropriate if adequately demonstrated. The remote location of the subjects might be less of an advantage than when they were operational, but such evidence as there was of some particular costs was not sufficient to establish that there would be any reduction in the hypothetical rent.
10. A specified end allowance of £1,500,000 to reflect the additional burden of ‘Care and Maintenance’ and surveillance of redundant parts was appropriate. The assessor accepted that such expense, if established, amounted to ‘expenses … necessary to maintain the lands and heritages in a state to command that rent’ (Valuation and Rating (Scotland) Act 1926, Section 6(8)). On the evidence, the appellants’ claim to have identified such expenditure amounting to £11,649,000 per annum (part of a larger figure of £18,335,000 of expenditure examined) could not be accepted. Large parts of that figure related to areas where the Tribunal rejected the appellants’ claims of redundancy and found there was a valuable use, viz. containing radioactive materials, or areas covered by the arguments based on the effect of the N.I.I. Direction. Only some of the expense related to site-wide costs could be accepted: much, although not all, of this was required anyway in relation to the beneficial use and occupation of the subjects. Not more than 10% of the figure of £18,335,000 was established under that head. Moreover, in the particular circumstances and bearing in mind the considerable uncertainty about the figures, the hypothetical landlord would not accept a simple mathematical approach of identifying such liabilities and deducting them from the rent otherwise agreed. In all the circumstances, an allowance of £1,500,000 was appropriate.
11. The Tribunal, however, decided to make one further end allowance, of 10%, 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. The Tribunal had disallowed very substantial claims on individual items in the valuation and considerably cut back the amount of the end allowance for ‘Care and Maintenance’, but felt that some recognition of the effect of application of the modern regulatory regime to this site which was developed over the earlier years of the nuclear industry was appropriate. The requirement at these particular subjects for such close regard to a uniquely strict regulatory regime might be seen as a disadvantage although not directly measurable. 10% was considered appropriate, applied after deduction of the end allowance for care and maintenance.
In the result, the Tribunal allowed the appeal to the extent of substituting a Rateable Vale and Net Annual Value of the subjects of £1,435,000.
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 1925 S.C. 500
Marr’s Trustees v Assessor for Ayrshire 1934 S.C. 210
Townley Mill Company Limited v Assessment Committee for Oldham  A.C. 419
Greenock Corporation v Arbuckle Smith & Co. Ltd 1960 S.C. (H.L.) 49
British Transport Commission v Hingley (VO)  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  R.A. 209
Benjamin (VO) v Anston Properties Ltd.  R.A. 53
Hoare (VO) v National Trust  R.A. 391
Assessor for Glasgow v Ron Wood Greeting Cards & Others  R.A. 271
Wiulliams (VO) v Scottish & Newcastle Retail Ltd  R.A. 41
Electricity Lands (Rateable Values) (Scotland) Order 2000
Armour on Valuation
Ryde on Rating
See full decision: LTS/VA/2003/78