Lands Tribunal for Scotland

OPINION

Woolworths plc
v
Assessor for Renfrewshire Valuation Joint Board

Summary

This is an appeal against the decision of the local Valuation Appeal Committee not to refer the appellants’ appeal to the Tribunal. The appeal subjects are similar to three other retail units of around the same size at the same modern shopping centre. The actual rent of these subjects, unlike that of the other three units, is, expressed, under a rent review provision, as 80% of the “open market value” or a percentage of turnover, whichever figure is higher, and the parties are at odds as to the correct analysis of the rent arrived at under that formula.

Upon a consideration of the relevant statutory tests, on the basis of what we are told about the evidence which will be led and the issues which will arise in the appeal, the Tribunal is not satisfied that any of the statutory tests for referral is met and has decided to refuse this appeal.

The Issue

Regulation 4 of the Valuation Appeal Committee (Procedure in Appeals under the Valuation Acts) (Scotland) Regulations 1995 provides for either the Assessor or the appellants to seek referral of appeals to the Tribunal. Regulation 5(1) provides as follows:-

“(1) Where an application under regulation 4(1) has been made, and it appears to the Committee that-

(a) the facts of the case are complex or highly technical;

(b) the evidence to be given by expert opinion is complex or highly technical;

(c) the law applicable to the case is uncertain or difficult to apply;

(d) the case raises a fundamental or general issue likely to be used as a precedent in other cases; or

(e) …

the Committee shall refer the appeal to the Tribunal for determination … ”

Section 1(3BA) of the Lands Tribunal Act 1949 provides a right of appeal to the Tribunal against a decision not to refer. Such an appeal is ‘open’ in the sense that the Tribunal is not confined to considering whether the Committee erred in its reasons for its decision but rather has to reach its own decision on all the materials placed before it.

The appellants’ appeal relates to a shop at 1B Braehead Shopping Centre, King’s Inch Road, Glasgow, occupied by them. The Assessor entered the subjects in the valuation Roll at the revaluation effective from 1 April 2005 at a net annual value of £825,000. The appellants applied under Regulation 5, referring to grounds (a) to (d) above. The Committee refused that application. The appellants appealed to the Tribunal. This appeal was heard at an oral hearing on 18 January 2007. The appellants were represented by Mr A McRitchie, Chartered Surveyor, of Messrs Montagu Evans LLP, who provided a written submission and also a copy of a reasoned award in a rent review arbitration in relation to a retail unit at Metro Centre, Gateshead, Tyne & Wear, but did not lodge any further productions. The Assessor opposed the appeal and was represented by Mr E Duffy, Assessor for Renfrewshire Valuation Joint Board, who had also provided a written submission. Mr McRitchie no longer relied on ground (a) in support of the appeal. The question for the Tribunal was accordingly whether, on the information made available to it, any one of grounds (b), (c) and (d) was established.

Authorities referred to:-

Morrison EF (GP) Limited v Assessor for Central LTS/VA/2001/16, 13.2.2003
Lanarkshire Primary Care NHS Trust v Assessor for Lanarkshire LTS/VA/2003/15, 26.6.2003
Next plc and Others v Assessor for Highland and Western Isles 2005 S.L.T. (Lands Tr.) 7

Submissions

Mr McRitchie first clarified the position regarding applications to refer the appeals in relation to two of the other three retail units of broadly similar size. No application to refer any appeal other than that of the appellants was proceeding. He also said in relation to these three other subjects, which the Assessor referred to as having “normal 25 years leases with 5 year reviews”, that, while they had different characteristics, these differences related to size, shape and the floors on which they were located, which he accepted were factors in relation to which adjustment in the normal way could readily be made in analysing the rents.

In relation to ground (b), Mr McRitchie explained that shopping centre tenants, at least tenants of this particular landlord, viewed the 80% rent as the rack rent and any turnover top-up as a kind of ‘landlords’ profit rent’. The interpretation of the lease provision and what it means in valuation practice would require the assistance of rent review and valuation experts, at a level above that of a normal local committee. The special technical issue here arose out of the initial negotiations for units at the centre, the tenants having bid as much as they could afford but, being keen to get in, signed up to this form of agreement. He was not able to indicate what evidence would be presented but the position under the same landlord had arisen in England and he understood that there was disagreement among ratepayers’ surveyors, the Valuation Office Agency and Scottish Assessors on the matter, showing it to be a difficult technical issue. There was a need to gather in more information in relation to top-up rents and Zone A rates used for the great majority of shops at the centre. In relation to ground (c), he said that it was an uncertain legal point whether in this instance the ‘base’ rents were rack rents and the turnover elements ‘profit’ rents. There was a strong view arising from an arbitration award in England but uncertainty as to the legal treatment in Scotland. The appellants would be seeking to use that arbitration decision in England to formulate their argument on the position in Scotland, and there was an issue about using the English award in that way. In relation to ground (d), if it was successfully argued in this case that the base rents were the rack rents, that would set a precedent for rateable values of shops in other centres where there were comparable lease terms.

For the Assessor, Mr Duffy pointed out that, under the regulation, complexity meant complexity in the context of commercial rating appeals. The matters raised by the appellants related to established general principles. The evidence would be relatively straightforward. The actual rent was not determinative, and analysis of the rents of the four comparable properties was of a sort which ordinarily arose – c.f. Next plc and Others v Assessor for Highland and Western Isles. The expert evidence would not be complex or highly technical. The arbitration award should be looked at with great caution, as no other rents had been submitted in that case. As to (c), there was no uncertainty in the law applicable, the Tribunal having dealt with turnover rents in Morrison EF (GP) Limited v Assessor for Central Scotland: it was simply a question as to what the evidence demonstrated. The issue was simply a matter of evidence. In relation to ground (d), the question was not whether other appellants would take an interest in the outcome, but rather whether a distinct issue with an appreciable bearing on valuation practice could be identified (Lanarkshire Primary Care NHS Trust v Assessor for Lanarkshire). At each development of this kind, it was a matter of looking at the comparative rental evidence rather than points of principle. Rental analysis and the treatment of a base rent were matters involving well established general principles and involved no fundamental or general issue likely to be used as a precedent in other cases.

Tribunal’s Consideration

It seems clear that there is a body of rental evidence in relation to units at this particular shopping centre. The issue in the appellants’ appeal against their assessment seems to us to turn primarily on analysis of that evidence rather than interpretation of the rent review provision in their own lease. That being the position, Mr McRitchie has not persuaded us in relation to any of the three grounds on which the appellants seek to rely.

In relation to ground (b), the question whether the evidence to be given by expert opinion is complex or highly technical, our impression is that the evidence will mainly consist of rental analysis of a type which is normal and familiar in the context of valuation appeals in relation to modern retail subjects which are let. The specialty to which the appellants refer is their argument that a rent such as their own rent may have been described as set at a level of 80% of open market value but actually represent open market value (or possibly rather more than 80% of that value), a contention which has an obvious effect on the analysis of this rent. Such a contention appears to have been accepted in the arbitration award referred to. The issue appears to have been decided mainly on the state of evidence as to whether the provision was likely to result in any level of rent over the supposed 80%. Our reading of the Award seems to confirm that this is an issue of evidence which is not of any different order of complexity or technicality from the ordinary process of rental analysis for comparison purposes. In that case, there was no evidence of any pattern of higher rents resulting from the turnover provision. There is likely to be competing evidence as to what can be drawn from the rental evidence and also perhaps – if it is thought to throw light on the analysis - any evidence of the negotiation process at this centre. Mr McRitchie did not provide any detail of the complexity or technicality, and in these circumstances we are not persuaded that this evidence will be either complex or highly technical.

We are also not able to find any uncertainty or difficulty in the application of the law. We do not see the issue arising out of the specialty of this rent review provision as raising any particular question of law. Nor, as we read the Award, did the English arbiter. The law simply requires enquiry into the level of hypothetical rent, an enquiry which involves expert analysis of the rental evidence, again perhaps including consideration of the process of negotiation which resulted in this type of turnover element in the rent. The question whether there is any evidence from which a hypothetical rent of any more than the “80%” base level can be established does not in our view raise any particular issue of law.

Again, as to ground (d), we are not persuaded that this case raises a fundamental general issue which is likely to be used as a precedent in other cases. The result, of course, may not only be looked on with interest but have an effect in other cases, particularly of course other cases at this shopping centre which may raise similar issues about the rental evidence. That, however, does not show that there is a “fundamental or general issue”. Such an issue could be one of valuation approach: it does not require to be an issue of law. If this were an early dispute involving turnover rents, or conceivably even if it raised some novel issue as to the approach to such rents, this ground might have come into play. We are not, however, persuaded that either of these things can be said in this case.

Accordingly, we refuse this appeal.