OPINION

Davidson Brothers (Shotts) Limited v Assessor for Lanarkshire Valuation Joint Board

Introduction and Summary

[1] These two appeals referred to the Tribunal relate to industrial subjects which are on two sites separated by a road but are clearly functionally inter-connected as parts of the appellants’ agricultural feed mill business. The appellants claimed that the subjects are unum quid and should be the subject of a single entry in the Valuation Roll. In the event of that argument being accepted, there were three outstanding valuation issues: the appropriate basic, or ‘headline’ rate - the Assessor would apply £27.50, which the appellants wish reduced to £25; an end allowance for layout deficiencies and the subjects being split by a road – the Assessor would allow 2.5%, which the appellants wish increased to 10%; and the amount of an additional ‘location factor’, applied to larger industrial subjects in Lanarkshire and apparently based on distance from the M8 Motorway – again, the Assessor would allow 2.5% and the appellants seek 10%. However, in the event of the argument for unum quid not succeeding, the appellants would accept the Assessor’s valuations, which would not need to be considered further.

[2] On the basis of the evidence, submissions and site inspection, the Tribunal has decided that the subjects should not be valued unum quid as they are geographically separate and, in our opinion, despite the clear functional connection, the circumstances are not such as to allow them to be seen as part of one larger unit. We have accordingly decided to refuse the appeals.

[3] If we had accepted the unum quid argument, our decisions on the valuation issues would have been:-

(i) We would have fixed the local rate at £25;

(ii) We would have made an end allowance of 5% for the layout deficiencies caused by the split by the road; and

(iii) We would also have made a ‘location allowance’ of 5% for these particular subjects.

Procedure

[4] The appellants appealed against two entries in the Valuation Roll at revaluation in 2005, one for ‘Factory, 3 Gray Street, Shotts’ (“No 3”) and the other for ‘Store, 3A Gray Street, Shotts’ (“No 3A”). Both appeals were referred to the Tribunal under Section 1(3A) of the Lands Tribunal Act 1949. The appeals were heard at an oral hearing at which the appellants were represented by Christopher Haddow QC, instructed by BNP Paribas Real Estate. He led oral evidence from William Davidson, the appellants’ Managing Director and major shareholder, Stuart Turner, their Operations Manager, and Billy McKaig, Chartered Surveyor, a Senior Director with BNP Paribas Real Estate. The Assessor was represented by Steven Stuart QC, instructed by the Assessor for Lanarkshire Valuation Joint Board. He led oral evidence from Gary Bennett MRICS, Depute Assessor, and Iain Newton MRICS, a Divisional Assessor who represented the Lanarkshire Board on the Scottish Assessors Association Industrial Committee. Both sides lodged documentary productions. The Tribunal carried out an unaccompanied site inspection.

[5] The Assessor’s proposed Net Annual Values were: No 3 - £179,000; No 3A - £110,000. On the basis of unum quid valuation, the Assessor would propose NAV £275,000; the appellants, £215,000. There were certain very minor differences, apart from the 3 valuation issues discussed at the hearing, but these other differences were resolved in discussion between the parties. In the event of the unum quid appeal succeeding, the Tribunal was requested simply to indicate its decisions on the valuation issues, leaving it for parties to determine the precise resulting value.

[6] This was one of a large number of appeals relating to larger industrial subjects in Lanarkshire. All the other appeals had been resolved by the date of the hearing, mostly apparently on the basis of an additional ‘location allowance’ of the type sought by these appellants if their subjects were unum quid and therefore large enough to attract such an allowance. In the event, although the documentary productions for all the appeals were available and referred to to some extent, the principal expert witnesses speaking to this more general issue did not give evidence at this hearing, leaving the Tribunal with a somewhat incomplete picture of the justification for this additional allowance and an unclear picture about the actual allowances given. However, we have felt it appropriate in the particular circumstances to reach and express a view, on the very limited evidence available, on this as well as the other valuation issues arising if the subjects should be valued unum quid.

Authorities referred to:-

Glasgow University v Assessor for Glasgow, 1952 SC 504; 1952 SLT 304
Rootes Motors (Scotland) Ltd v Assessor for Renfrewshire 1971 SLT 67
Glasgow Assessor v White Horse Distillers Ltd, 6.8.1973, unreported (LVAC)
Edinburgh Merchant Company Education Board v Assessor for Lothian Region, 1982 SC 129. (“St George’sSchool”)
Whitwell v Assessor for Strathclyde Region 1986 SC 37
Assessor for Strathclyde v Urquhart 1988 SLT 178
Burn Stewart Distillers PLC v Lanarkshire Assessor [2001] R.A. 110
Armour on Valuation for Rating, in particular paragraphs 10-08 to 10-19

The Facts

[7] On the basis of the evidence and submissions, and our own inspection of the subjects, we found the following facts proved or admitted.

[8] The appellants operate an animal feed manufacturing business from two sites referred to as No. 3 Gray Street, and No 3A Gray Street, Shotts. The business involves the grinding and blending together of various raw materials, principally cereals, grains etc. to produce pellets used as animal feeding. The raw materials are sourced locally and from abroad and shipped to this country. The finished product is used by farmers throughout Scotland and the North of England. Both sites are described by the appellants as “Davidson’s Feed Mill”.

[9] No 3 and No 3A are separated by a public road. No 3 runs in a roughly north-west to south-east direction whereas No 3A lies in a south-west to north-east position. They are each very approximately rectangular. No 3A lies at the south-eastern end of No 3, in effect at right angles to it. High Street, Gray Street and Stable Road form one continuous, albeit curving road with no discernible junction or dividing line between them. High Street leads from the centre of Shotts in a roughly north-easterly direction, with a leisure centre to its left and No 3A to its right. It then makes a right angle turn to the right and becomes Gray Street, with No 3 to its left and No 3A to its right for a distance of approximately 70 metres. The road then makes another right angle turn, to the left, i.e. it resumes a north-easterly direction, and becomes Stable Road, with No 3 to its left and an unconnected industrial site to its right, again for approximately 70 metres. Gray Street also runs off to the west from its junction with High Street. This section to the west is not a public road and is unsurfaced. In appearance it merges with the adjacent open space area between it and the leisure centre. The main accesses to each site appear each to be from Stable Road.

[10] The boundaries on the two sides of the road (at that point apparently Gray Street) overlap for approximately 70 metres, i.e. about 1/3 of the length of No 3 and just under half of the width of No 3A. Part of the southern boundary of No 3 also bounds the unsurfaced part of Gray Street. The entire western boundary of No 3A bounds High Street (with a landscaped area between the footpath of High Street and the fence of No 3A). Stable Road is a cul-de-sac terminating about 200 metres beyond the extremity of the appellants’ property. There are several industrial developments on Stable Road all of which use the roadway between No 3 and No 3A. Traffic could properly be described as light to moderate and includes both private cars and large commercial vehicles. A survey conducted by the appellants showed that less than 150 vehicles per day used Stable Road.

[11] No 3A lies slightly below the level of the public road. There is one access to it for both pedestrians and road vehicles. Two accesses serve No 3, one of which is restricted for use by private cars and the other for both cars and commercial vehicles. Neither of these accesses is directly opposite the access to No 3A. Arriving vehicles all first enter No 3 in order to pass over the weighbridge there. Vehicle movement between No 3 and No 3A has to pass along part of Stable Road, with No 3 on one side and the site referred to in Para [13] on the other, for a distance of approximately 35 metres. Vehicle movements between Nos 3 and 3A vary from about 3 to about 20 per day.

[12] There is one sign displaying the company’s name on a wall of the buildings at No 3. None exists at No 3A but the presence of the parked vehicles in the front yard displaying the company’s name does give some notice of the occupier.

[13] To the north of No 3A, and directly opposite the principal goods access to No 3, there is a site owned and occupied by a boiler maintenance firm and an associate company. On leaving No 3, at its principal goods access, buildings on this site are particularly prominent. Likewise, if driving to the subjects from the centre of Shotts when the corner at High Street and Gray Street is turned this site and its buildings are again prominent. This site is closer than the warehousing at No 3A to the main buildings at No 3.

[14] All of the appellant’s production occurs in No 3. On that site there are storage silos for raw material, highly automated grinding and processing machinery as well as a completed product store, offices, vehicle garage and a vehicle weighbridge. A system of internal roadways is provided as well as large areas of surfaced hardstanding.

[15] No 3A comprises warehouse flat storage, principally of raw material but also finished product. The buildings are single storey in height in two distinct but connected parts in a series of 9 bays. In addition there are two large liquid storage tanks. Storage facilities within No 3 are insufficient for the volume of production undertaken there. The storage capacity at No 3A is required for the volume of the company’s production or alternatively facilities elsewhere would be required. The closeness of No 3A to the main production plant is beneficial to the appellants enabling a speedier call down of required goods and better control. This is particularly so in the event of inclement weather.

[16] The overall appearance of No 3 is of a modern, purpose-built mill or factory. The production buildings are designed and shaped to accommodate the plant which they house. They are generally very high structures clad in metal sheeting in two separate sections but connected by an overhead gantry. In addition there are two single storey offices as well as a vehicle maintenance workshop. No 3 is enclosed by a metal palisade fence. The manufacturing buildings can be seen readily from the centre of Shotts and much of the surrounding area.

[17] No 3A has the appearance of low-rise industrial storage warehouses. The buildings are single storey in height and of a uniform style. They are also clad in metal sheeting. They are located back from Gray Street/Stables Road with the land to the front surfaced in concrete or tarmacadam. Various trailers and road vehicles, some of which display the appellant’s name or logo, are regularly parked on the hard-standing to the front of No 3A. No 3A is enclosed by a chain-link fence supported by concrete posts. There is a band of quite mature trees along the boundary between No 3A and the amenity strip at High Street.

[18] The subjects have the appearance of two different sites, a mill (or factory) and a warehouse site.

[19] The appellants (and associated companies) acquired the site currently owned by them at No 3 over the period from 1976 to 2001, including the solum of the public road between No 3 and No 3A. There was previously a private railway siding (now partly incorporated into the current road system) serving both properties. There is now no evidence, on site, of these different parcels. The appellants, with support from an economic development agency, met the cost of upgrading the part of Gray Street and Stables Road lying between their properties to the standard required for adoption as a public road by the local authority. Notwithstanding that the road is now public they still carry out snow clearing to Gray Street/Stable Road. The production facilities at No 3 were built up over a period of time, commencing in 1976. No 3A was originally built by a third party for its own use but subsequently offered for sale. The main part of No 3A was acquired by the appellants in about 1985. They altered the buildings by strengthening the walls of the warehouses to accommodate the pressures of floor storing grain and also removed all toilet facilities and internal lighting. The independent power connection was removed and a connection made to the supply at No 3 by way of an underground duct below the public streets. Water supply and drainage are also connected. The appellants built additional warehouse space to their own specification when they acquired the subjects.

[20] All raw material and any other goods are first taken to No 3 where they are weighed. Depending on production schedules the raw material is either pumped straight into the raw material storage silos adjacent to the production facilities in No 3 or it is taken, after weighing, to be stored on the floor of the appropriate section of the warehouse at No 3A. The appellants take advantage of lower commodity prices in, for example, autumn to build up stocks which are then stored in No 3A until required. The company operates a computerised recording system and knows at all times the amount of raw material available on both sites. The particular product being manufactured at any given time dictates the extent of individual raw materials required. The material stored at No 3A is transported over to No 3 by the company’s own lorries. The company uses older vehicles, which require to be licensed and insured for use on public roads, for this purpose.

[21] No employee is based at No 3A. The vehicle drivers transporting raw materials over to the production unit operate the loading equipment. A common security facility covering the two sites is based at No 3. There are no toilet or office facilities at No 3A.

[22] The company is required to have a permit from the Scottish Environment Protection Agency (SEPA). They applied for and received a single permit covering both properties at No 3 and No 3A. Similarly, other regulators such as the Ministry of Agriculture, Food and Fisheries (MAFF) treat both the mill and the warehouse as one unit for registration purposes.

[23] No 3 has a total building floorspace of 5432m2 and a surfaced yard of 23,250m2. No 3A has a building area of 4552m2 and a yard area of 24,199m2. On a unum quid basis, the floor area would be 9984m2. Prior to the 2005 revaluation the subjects had been entered in the roll as unum quid.

[24] The subjects were valued on the comparative principle. The “tone date” (the date to which value levels are set) for the 2005 rating revaluation was 1st April 2003. The “physical circumstances date” was 31st March 2005. At a general revaluation each assessor prepares a series of guidance or practice notes for their area covering a range of different categories of properties. In addition the Scottish Assessors Association (SAA) produces similar guidance papers. The SAA papers make clear that they are available for use in the event of there being no guidance paper from the relevant local assessor. The Assessor produced a scheme of values for the 2005 Revaluation for industrial subjects in Lanarkshire. This set out a series of local, also known as “lamp-post”, rates established from his analysis of rents prevailing in different parts of his area as well as a range of adjustments for such matters as age, wall-head height and condition to enable individual valuers to value the properties in their area reflecting the characteristics of each building or property. The guidance notes by both the SAA and the respondent are available to private property advisors.

[25] For industrial property, market evidence shows that rates per m2 of larger properties tend to decline the greater the size of the property. This fact is reflected in schemes of value by the application of a “quantum” allowance (generally a percentage deduction increasing as the size of property increases) or by the adoption of differing rates for different size bands of property. Both the SAA scheme and the Assessor’s scheme for the 2005 Revaluation incorporated arrangements for quantum. The local rates in the Lanarkshire scheme are set based on a particular size or range of size whereas the SAA scheme has standard percentage adjustments for quantum. The SAA scheme suggest that, depending on local evidence, properties above 10,000m2 may receive a deduction for quantum, so that properties in excess of this area should be valued at lower rates per square metre than properties below this threshold.

[26] The rental evidence available in Shotts was limited and particularly so for larger subjects. The agreed local rate for a range of 8 industrial subjects in Shotts ranging from 377m2 to 6,595m2 was £27.50. The rent of the subjects at 6,595m2 analysed to £27.70 per m2. An agreed rate of £25.00 per m2 was applied to one larger subject at 36,095m2. During the quinquennium from 2005 this larger property was sub- divided into a unit of circa 16,000 sq.mtrs. and one of 21,000 sq.mtrs. For both subjects the assessor maintained the rate of £25.00. These subjects were empty and unlet. In East Kilbride the rate for subjects up to 4,000m2 was £38 and from 4,000 to 14,000m2, £36. In Hamilton rates for subjects up to 10,000 or 11,000m2 ranged from £26.50 to £33.50 per sq.mtr. More than one ‘quantum step’ was common.

[27] Properties split by a public road are recognised by the Lanarkshire Assessor as well as by the SAA as being entitled to an end allowance to reflect the disabilities associated with being so split.The minimum allowance granted by the Assessor was 2.5% and the range was generally up to 5%. No rental evidence in relation to such an allowance was produced. At the subjects of appeal, the split apparently produced the extra expense of licensing and insuring some older vehicles, but no quantification of this or any other resultant expense was produced. Such a split by a road adds slightly to the task of managing the site, for example in relation to security.

[28] There were many appeals in relation to industrial subjects in Lanarkshire. A body of appeals relating to larger subjects was settled immediately prior to the Tribunal hearing. One agent with the largest number of appeals led the negotiations from the ratepayers’ side. In most cases there were agreements involving an allowance being given for what was called a location factor. This was apparently generally based on proximity or otherwise to the M8 motorway.The appellants had referred to an established scheme in Glasgow in which properties very close to the motorway received no location allowance whereas properties further away did receive an allowance. In East Kilbride the allowance was 7.5%. Subjects at Carnwath received an allowance of 10%. One outstanding appeal at Hamilton was settled, at the same time, by the granting of two allowances totalling 7.5%, although the assessor interpreted this as being in respect of individual characteristics at the subjects.

[29] Shotts is located some 4 miles south of the M8 motorway with access from Junction 5. It is not recognised as being a prime industrial area. The roads connecting it to the motorway are unimproved and not up to current standards for the largest commercial vehicles. For distribution purposes the Eurocentral location immediately adjacent to the M8 and with direct connection to it is recognised as one of the prime locations in Lanarkshire. East Kilbride was one of the first “new towns” and attracted considerable public funds in establishing an infrastructure, amenity and housing and has a large number of industrial concerns based there. It is regarded as one of the best locations for industry. Hamilton is the county seat for Lanarkshire and is adjacent to the M74 motorway Both East Kilbride and Hamilton are regarded as much better locations for an industrial base than Shotts.

Opinion Evidence

[30] Mr McKaig did not advance any opinion, or refer to comparison with the treatment of any other subjects in similar situations, in relation to the unum quid issue.

[31] On the basic rate applicable to a single unit of just over 100,000 square feet and just under 10,000m2, Mr McKaig indicated that his adopted rate reflected the additional quantum which would be expected at a large industrial property over 100,000 square feet, which he said was an appropriate trigger point here. He did not accept that a property in this size bracket could double in size and the valuation rate remain the same. The rate which he applied was, he understood, standard under the Assessor’s scheme for all industrial properties exceeding 7,500m2 within Shotts. Most of the rental evidence related to smaller subjects. Two units split from one very much larger unit of 36,000m2 and each with a rate of £25 were each empty and unlet.

[32] Mr McKaig referred to layout deficiencies of a property developed in a piecemeal fashion, with some land in particular at No 3A almost sterilised. The additional deficiency of split by a public road suggested a final allowance of 10%. He referred to end allowances of 5% for layout and 7.5% for layout and split at two other locations in the same valuation area, and to the SAA guidance. He accepted that the main deficiency was having to move across from one part of the site to the other.

[33] In relation to the location factor, Mr McKaig explained that this was an end allowance conceded to arrive at negotiated settlements of the cases due before the Tribunal and was based loosely on the scheme applied in Glasgow where access to the motorway network influenced rate bands. He considered that it reflected other issues, such as accessibility to shopping, etc., as it only applied to properties over 100,000 square feet: it should also reflect local issues. He referred to rates of 7.5% at East Kilbride and, he understood, to one of the appeal subjects at Hamilton, each, he said, well linked to the motorway network, and 10% at Carnwath.

[34] Finally, Mr McKaig had a ‘stand back and look’ check based on comparison with the 2000 rateable value. His value of £215,000 represented a 7.5% uplift, compared to general uplifts of 5 to 15% in the Shotts area and factors of 0.9 to 1.1 in the agreements on larger industrial subjects. The overall increase, he said, might be expected to be less than for ‘standard’ units. The reduced manufacturing base was having a downwards pressure, more applicable to large industrials, on rents. Livingston was an example: standard unit RV’s increased but larger units decreased from 2000 levels.

[35] The Assessor’s principal witness, Mr Bennett, did speak to his opinion on the unum quid issue. On the basis of his understanding of the facts, of comparison with the Burns Stewart case, and of the clear geographical separation of the subjects, he did not consider it appropriate to make a single entry. There was little by way of identifiable common characteristics at the two sites other than the identity of occupier and use in connection with the occupier’s business. The subjects were capable of separate let. It was possible to have subjects which were simply stores without any employees present, perhaps with CCTV security, although there would normally be toilet facilities if there were personnel there. He placed particular reliance on the clear separate curtilages, the fact that the subject did not face each other and the fact that truck movements between the sites (which he said were much less frequent than in the Burns Stewart case) involved travelling some 50 metres along a public road. Treatment of the subjects by SEPA and MAFF had, he said, no bearing on the issue. The postal address of No 3A in Gray Street was quite surprising. Mr Bennett agreed that he could not advise on the viability of the mill without the stores, although his view was that there was a reasonable amount of land, which could have provided storage, at No 3. He also, however, said that the site did not strike him as being inefficiently planned, or as having been developed piecemeal.

[36] On the basic rate to be applied to the subjects if valued unum quid, Mr Bennett referred to the range of Shotts industrial subjects from 377 to 6,595m2 to which the rate of £27.50 (the largest of these being supported by a rent) had been applied and to the subjects at 36,095m2 with the rate of £25 which had been agreed with agents. In his opinion, although there was no automatic dividing point at 10,000m2, it would be more appropriate to value the subjects at £27.50, the rate for subjects under 10,000m2 in Shotts, than at the rate applied to subjects of 36,095m2. He agreed that it would be normal to have narrower bands. He did not accept that there was no rental evidence supporting his rate. Referring to the SAA guidance to compare with similar areas if there was no local evidence on the effect of quantum, he accepted that a step at 10,000m2 was to be found in some areas but not that this was common. He also accepted that there were areas within Lanarkshire where the change occurred at 7,500m2. He agreed that it was necessary to be careful with subjects close to the threshold. He also said that it depended on the extent of subjects: there were a considerable number of subjects at East Kilbride and Hamilton, about whose rates and quantum steps he had been asked by the Tribunal.

[37] On the allowance for split subjects and layout, Mr Bennett said that his 2.5% allowance was based on the arguably worse situation revealed in the Rootes Motors case, but agreed that it was difficult to measure this matter in pounds and accepted that a properly qualified surveyor could put it at 5%. He did not accept that the layout and fragmentation of the site justified any additional allowance.

[38] On the location factor, Mr Bennett founded on the agreements with professional agents settling the appeals for larger industrial subjects, applying a location allowance based on proximity to the M8 motorway, referring in particular to East Kilbride, 12.5 miles away, at 7.5%, Carnwath, 20 miles away (10%) and Bellshill (nil). The subjects, being 3 miles away, justified an allowance of 2.5%. He said that in the outstanding case at Hamilton, while he would have expected a location allowance of 2.5% to 5%, this had not been given and the allowances there agreed were related to a restricted yard and layout. Large reductions at Organon and Bellshill related to factual matters, not location.

[39] Mr Newton’s evidence related only to the appropriate local rate. He elaborated on the 36,095m2 subjects, which, he said, had been split into two, of 20,000m2 and 17,000m2, with the £25 rate remaining. That still left no subjects between 6,595m2 and 17,000m2. He denied that there was any 7,500m2 threshold at Shotts.

Submissions

[40] Addressing the unum quid issue, Mr Haddow submitted that the unit was the whole of the appellants’ feedmill. The mill included the essential flat storage. He referred to some particular factors – the SEPA and MAFF treatments, vehicles crossing the weighbridge before entering No 3A, movement of materials back and forth for manufacture, or storage prior to distribution, the fact that the subjects were previously valued unum quid, and the screening process carried out at No 3A. Looking at the totality, he submitted, it would be a reasonable conclusion, as a matter of impression, and on the basis of the evidence and the site inspection, that this was one subject. The flat storage was essential, the materials not always being available to go out and get. Mills required storage.

[41] Mr Haddow referred to the authorities, noting that, unlike the buildings in the Glasgow University and St. George’s School cases, the buildings at No 3A were not self-contained buildings. He referred to passages in Armour, Ch. 10, and to the Tribunal’s opinion in Burn Stewart. He accepted that decision as a proper application on the basis of an extensive reviewof the law. He accepted that the argument in this case was that it was an exceptional case. It came to be a matter of impression.

[42] The issue on the local rate, Mr Haddow said, related to quantum, a well known feature in the analysis of rents. He referred to the SAA guidance and to the Glasgow scheme, in which there were varying size bands. There was no rental evidence in Shotts for this size of building. 10,000m2 was not an unusual point to use. 100,000 square feet was also the Assessor’s trigger point for the location factor.

[43] On the split and layout allowance, Mr Haddow referred to the SAA guidance of allowing up to 5% for the road. On the evidence, there had been allowances of 5% and more, including for piecemeal development or constrained sites. He referred to Mr McKaig’s experience over the years. Mr Bennett had nothing to compare with this. There was reference to the layout of the storage. One might, Mr Haddow said, expect all milling to be in the same building. There were also open areas in which lorries were required to turn.

[44] The location factor was also related to quantum. This allowance was given only to large industrial, manufacturing units, and not to very large distribution warehouses. There was a possibility of great artificiality in the reasons for allowances. It was odd to give a lower location allowance than at East Kilbride, where the ‘lamp-post’ rate was much higher. It was acknowledged that Mr McKaig had described the claim of 10% as ‘too keen’. The answer should be in between the competing figures.

[45] Mr Stuart, addressing unum quid, referred to the same authorities. He too submitted that the Tribunal’s opinion in Burn Stewart set out the correct approach, particularly in identifying the question whether the subjects were part of one larger identifiable unit and in explaining the role of functional consideration in narrow cases where the geographical test was incapable of providing a clear result. The circumstances in Burn Stewart had been similar. In this case, the two sites were geographically separate with their own curtilages; there was no signage indicating one unit; movement between the two involved travelling along a short section of road; and there were no physically unifying characteristics suggesting one unit. There was a clear impression of separate subjects. It was questionable whether an observer would regard No 3A as part of the mill. The subjects were capable of being separately let. Mr Stuart submitted that the Tribunal’s impression should therefore be clear. This was not a narrow case. He went on, however, to consider whether there was, exceptionally, anything to justify treatment as one subject, i.e. whether, exceptionally, there was a functional inter-relationship which was sufficiently strong to justify this treatment of what would otherwise be two separate subjects. The activities on the subjects were obviously part of the same business and functionally integrated, but that was not sufficient. The principal element was at No 3, together with the office, storage and garage. This was a highly complex manufacturing facility. No 3A was essentially a storage site, with no staff. It was most convenient, but not necessary or essential, to have the store there. The treatment together by SEPA and MAFF did not indicate functionality for the purpose of rating. The two sites did not share characteristics of function, in terms of what goes on. Accordingly, there was not a sufficient functional relationship to set against the clear geographical separation.

[46] In relation to the local rate, Mr Stuart submitted that the Assessor’s rate was supported by the evidence. The rate of £27.50 for the subjects at 6,595m2 was based on a rent, and all the subjects other than the 36,095m2 subjects were at that rate. The issue was whether there was anything to indicate that an area of 9968m2 was anything close to justifying the £25 rate.

[47] Mr Stuart submitted that the Assessor’s allowance of 2.5% for the split subjects, with nothing for layout, etc., was correct. His figure was supported by the allowance made in Rootes Motors (Scotland) Limited v Assessor for Renfrewshire, where the nature of the split was, if anything, worse. There was no justification for any further allowance for layout, fragmentation or redundant land under unum quid valuation. Points raised in relation to the individual sites were not relevant. The buildings on the subjects were close, with only the storage separated. It was not established how the layout affected the subjects seen as one unit. Piecemeal development would only relate to No 3 and did not necessarily mean any deficiency. The distance between the storage and the mill essentially related to the split. The land claimed to be redundant was to the rear of the storage, and there was anyway access to it. Any issue of circulation space anyway related to No 3.

[48] In relation to the location factor, it was, said Mr Stuart, difficult to see any justification for an allowance in excess of the 2.5% given by the Assessor. These allowances had followed detailed discussions and were based on distance from the M8. This was a logical approach which was difficult to ignore. No other consideration was relevant here. Mr Davidson had described access to the M8 as good. Carnwath was 20 miles away.

Tribunal’s Consideration: Unum Quid

[49] Both sides accepted – as we do - the Tribunal’s consideration and application in the Burn Stewart case of the authoritative principles, here briefly summarised, applicable to a case such as this. The case has to be decided primarily from a geographical standpoint, with the functional test playing little part in the question. That said, there can be circumstances in which a passage or road does not by itself prevent subjects from being unum quid, and regard can be had to functional links. Rootes Motors demonstrated basically separate units which had come to be operated as one factory: the appellants had a dual carriageway “running through their factory”, so the road did not prevent the identification of a factory. In a marginal case the question whether or not the geographical unity test was satisfied could be a matter of impression and the functional position might be relevant, but where the physical separation was clear the fact that subjects were operated as a single unit had little part to play. It was misleading to approach the matter from the viewpoint of function. In the White Horse Distillery case, the court had not positively approved the committee’s decision and the Tribunal was not obliged to follow it, despite a strong factual similarity. The Tribunal explained why reference to function in relation to ‘carving out’ separate subjects, and also in relation to evidence of the ratepayers’ intentions, was different.

[50] Two passages illustrate the Tribunal’s approach accepted by parties in this case:-

“ … in attempting to define appropriate units for entry in the valuation roll in accordance with the relevant statutory provisions, a clear geographical separation ought to receive effect unless there are physical characteristics which allow an observer to say, as a matter of impression, that the subjects are part of one larger identifiable unit. In narrow cases other factors such as a functional inter-relationship may help tip the balance one way or another. The cases give no supoport for the view that such other factors should be taken into consideration unless the geographical test is incapable of providing a clear result. In other words we consider that the overall tenor of the Scottish authorities does not support an approach placing emphasis on whether separate subjects are in the same occupation and occupied as part of an integrated business.” (pages 134-5)

“We consider that the emphasis on the geographical test is an aspect of the recognition that lands and heritages are physical subjects … Where the subjects share characteristics of function which, in a robust practical sense, support the use of a single term to describe the physical subjects, they can be treated as one unit. The examples of a Cathedral Close, “Smiths Mills” and a golf course give a clear indication of the proper approach. Other examples are “shipyards”, “distilleries” and “factories”. All these terms tend to share the characteristic of referring to a physical identity. It is impossible to lay down clear rules which will apply in all cases. A school might be though of as a physical entity more readily than a university but the use of a term apt to desctribe a physical unit will not, in itself, suffice to unite two physically disparate subjects. On the other hand, we are satsified that the fact that certain heritable subjects function together as one business will, by itself, be insufficient to demonstrate that they are to be regarded as a unum quid in any physical sense.” (pages 140-1)

[51] We can derive only limited assistance from the decisions in previous cases. In relation to industrial subjects where a road separates two functionally linked subjects, there are some similarities in the present case with the circumstances in Burn Stewart, as Mr Bennett pointed out, but there are also differences, to which he did not refer. There are also some similarities with the White Horse case, in which the decision went in the ratepayers’ favour. Rootes Motors provides a graphic example of unum quid treatment, with the apparent approval of the court, of subjects split by a dual carriageway, although there was a bridge across linking two parts of the manufacturing process. We must, however, remind ourselves of the distinction among decisions of the court as to the correct result, decisions not to interfere with the tribunal of first instance and decisions of the tribunal of first instance. The Tribunal in Burn Stewart, at page 132, drew particular attention to the points of principle made by Lord Fraser in the White Horse case. While bearing these examples in mind, we must apply the relevant principles to the circumstances of the present case.

[52] There is no doubt, as the appellants accepted, that there is clear geographical separation of the two sites despite their ownership of the solum of the road in between. As the matter has to be approached primarily from this geographical standpoint, the question has to be whether there are such circumstances as to allow it to be said that there is one larger unit. Primarily, this means physical characteristics pointing to one unit, but in a narrow case the functional inter-relationship may help to tip the balance. We think it permissible to say that the functional link can help to answer the physical question whether the subjects are one thing or two. Various examples have been given, such as parks, farms and golf courses, and it is clear that the same can apply in the case of a mill or factory. So it helps in this case to keep in mind the question whether the subjects are properly viewed as, on the one hand, a mill (or factory), or, on the other hand, a mill (or factory) at No 3 and a separate store at No 3A. The references to “Smith’s Mills”, and to “works”, show that something referred to in the plural may properly be regarded as one unit.

[53] We have wondered about the difference, if any, between a ‘mill’ and a ‘factory’. The submissions to us did not highlight any distinction, and we think that if there is any distinction, it is not one which assists in resolving this issue.

[54]Although the Tribunal in Burn Stewart heard and considered differing opinions, from the ratepayers’ and the Assessor’s witnesses, each highly experienced, we attach no significance to the fact that in this case the ratepayer’s expert witness, also very experienced, did not offer his opinion on this issue. The Tribunal quite often listens to, and derives assistance from, opinions, which are in effect opinions on the correct application of the law to the facts of the case, from experienced valuers, but it was in our view perfectly proper for Mr McKaig not to do so in this case.

[55] Again, in this case, unlike Burn Stewart, there is no evidence before us of current treatment, one way or the other, of other subjects, and we attach no significance to that. There is evidence of previous unum quid treatment of these subjects, but we must apply the correct approach on the evidence before us and we were not, in any event, told about the degree of scrutiny previously applied or indeed whether the circumstances had in any way changed.

[56] The geographical separation of these subjects is very clear. They are not simply separated by a road. They are not directly juxtaposed. They are clearly differently aligned. They are each separately, and distinctly, fenced. Getting from one to the other, whether on foot or in a vehicle, is not a matter of crossing the road, but going down it from one entrance to another. The road, although not especially busy, is regularly used to reach other properties. There is an element of dispersal among other subjects, although this should not be overstated.

[57] The topography adds slightly to the impression gained from documentary evidence such as maps and aerial photographs. No 3 is on a slightly higher level than No 3A, increasing the impression of separation. On the other hand, an impression from the map that the subjects are dispersed among a cluster of sites including the leisure centre on the other side of the High Street is not really confirmed on the ground, because of the different levels. We did, however find that the site opposite the main entrance to No 3 intrudes to a marked extent into any appearance of the subjects as a single site. One in particular of two newer buildings apparently erected since 1 January 2005 contributes to that impression, but we think the impression would remain even on the basis of the older building shown on the aerial photograph.

[58] Nor do the buildings on the two sites have any obvious inter-relationship visually. That impression is emphasised by the distance between them, but even without that they did not give the appearance of being parts of the same thing. The main mill buildings on No 3 dominate to the extent of negativing any connection with the warehouse buildings on the site on the opposite side of the road.

[59] This physical situation made a strong impression on us, but we have also considered closely the very clearly established functional connection. Put simply, there is clearly one business carried on at the subjects, whose functions therefore inter-relate.

[60] We have considered a suggestion that part of the manufacturing process takes place at No 3A. This arose because raw materials arriving at No 3A are not just visually inspected but are physically ‘screened’ for irregularities such as lumping. As we understood it, however, any treatment of such irregularities takes place elsewhere, so this is just screening of materials arriving at a site. This does not seem to us to be part of the manufacturing process, but if we are wrong in that we think it could only be seen as a minor preliminary process which does not take the case for a single factory unit encompassing No 3A very far. In our view the manufacturing process is all (or at least to all intents and purposes all) carried on at No 3. It is not at all like the split factory in the Rootes case.

[61] We accept, on the evidence, that substantial associated storage of raw materials is necessary, the nearer to the manufacturing process the better, and that No 3A is required for that purpose. The only other possibility which suggests itself is that No 3A was acquired for future expansion and only used in this way for convenience, but there was no evidence of that. So this is a factor to be considered, but of itself it does not make the storage site part of the factory or of the main site. It is required near, but not within, the factory. The nature of this use of No 3A does not in our view point to such functional identity as to allow the two subjects to be viewed together as one mill or factory.

[62] Ownership of the whole solum was not relied on by the appellants. Conversely, the acquisition of sites at different times was not relied on by the Assessor. We attach no weight to either.

[63] We think it clear that the two subjects are capable of separate let, albeit one might often expect stores of this size to have some office and/or toilet facilities.

[64] We also do not regard the undergound service connections as a factor of any weight.

[65] The Assessor relied on the lack of common signage. We regard this as neutral: there is no indication of unity but also no signage indicating separation. We did in fact note the appellants’ signage on the small number of lorries which we saw in No 3A.

[66] The postal address of No 3A in particular is slightly mysterious. At all events, we attach no weight either to the different numbers or the fact that they are said to be in the same street.

[67] We do not accept that the treatment of the subjects together by SEPA and MAFF is of no relevance but it does not seem to us to do anything more than underline the functional connection which is not in doubt.

[68] In our view, taking all aspects of the functional connection fairly into account, they fall short of overturning the geographical separation. No 3A is a store operated as part of this business but is not, in our view, on the proper approach to this issue, correctly regarded as part of one mill or factory unit.

Tribunal’s Consideration: Valuation Issues

[69] Our decision on unum quid means that we are not required to decide on any of the three valuation issues on which the parties remained in dispute, but it is appropriate that we indicate our views on these.

[70] (i) Local rate. As developed, this comes to be an issue simply of quantum – should these industrial subjects whose area is agreed to be 9984m2, marginally but not significantly under 10,000m2 (and in fact just over 100,000 square feet) be valued at the basic local rate of £27.50 applicable to smaller industrial subjects, the largest of which was 6,595m2, or at the basic rate of £25 which was originally applied only to one subject at 35,000m2 but maintained when that subject was split into two, the smaller of which was around 16,000m2

[71] The Assessor’s approach was to apply rates based on local evidence. We accept this as entirely appropriate and we did not understand the appellants to disagree. However, the Assessor’s view that the rate of £27.50 for these subjects was supported by rental evidence, because there was rental evidence in support of the rate applied to the subjects of 6,595m2, appears to us to be simply wrong. As we see it, the position is rather that there was no evidence, either rental or accepted valuations, for subjects of 9984m2. There were no subjects of that size. It was accordingly a matter of valuation opinion and judgment whether or not these subjects attracted the lower rate reflecting quantum. Mr McKaig understood that a threshold of 7,500m2 had been set at Shotts, and said his understanding was derived from a conversation with one of the Lanarkshire Assessors. We do not doubt that he had gained that understanding, but do not require to decide what exactly was said, because there clearly were no subjects in Shotts between 6,595m2 and at least 16,000m2. It was in our view open to the Assessor to argue that his higher rate applied.

[72] We are not sure that we had as full a range of evidence from surrounding areas to enable us to be confident in either rate for subjects of this size which appear to be within the range in which the threshold might be expected to fall. It appears that the threshold varied over the Lanarkshire area, but Mr Bennett did agree that in one case at least it was as low as 7,500m2. The SAA guidance suggested a threshold of 10,000m2 in the absence of adequate evidence. One other small pointer was that there was no other threshold in Shotts, so that the £27.50 rate had in fact been applied to several subjects of under 2,000m2, one being only 377m2.

[73] In these circumstances, in our opinion, Mr McKaig’s rate of £25 should be preferred.

[74] (ii) Allowance for subjects split by road and layout deficiencies. In this connection again, the evidence before us was quite limited. There was evidence that the need for vehicles to cross a public road within the subjects led to some expense in taxing, maintaining and insuring older vehicles which might otherwise have been operated more cheaply to move materials within the site, but not of any other expense caused by the split. In our opinion, having to operate on two separately secured sites makes the combined unit less satisfactory. We did not have any real impression of piecemeal development which would affect the value of the site, but it did seem to us that the layout of the site, viewed as one site, was very slightly unsatisfactory, with some degree of redundant land.

[75] This is an area in which there is, so far as we are aware and certainly on the evidence in this case, no assistance to be had from rental evidence. We can understand the Assessor’s reference to the Rootes Motors case, but do not think that the circumstances and way in which that case came to be considered justify an unquestioning reliance on the figure taken in it. It seems to us that a little bit more judgment is required. The Assessor’s 2.5% implies a reduction of very approximately £6,000, and we feel that that does not quite meet this case. On the other hand, the appellants did little to justify their claim of 10%. In our opinion, these matters would be properly reflected in an allowance of 5%.

[76] (iii) Location factor. The circumstances in which this issue was argued have made it the most difficult of the valuation issues for us to decide. There is no doubt that extensive evidence had been gathered in connection with the large body of appeals which were to have been heard at this hearing. Much of this had been lodged in documentary form and was therefore available at the hearing. The difficulty is that those who gave evidence at this hearing were not as centrally involved in these discussions as others, on both sides, who did not give evidence. There was unfortunately not only a shortage of evidence before us but also some dispute as to why reductions were given in some of the settlements. What can be said clearly is that the Assessor accepted that, following the agreements establishing reduced values in most of the other appeals, the subjects in these appeals should (although only if they became large enough as a result of being treated unum quid) receive a further allowance. The Assessor related this to his understanding of the settlements being based on proximity to the M8 motorway, and proposed 2.5%. The appellants referred to allowances given to larger industrial subjects at East Kilbride and Hamilton. We must say that the picture as regards these other subjects remains, on the evidence which we heard, unclear.

[77] One difficulty is that, so far as we could see, the appellants in the larger group of cases placed quite heavy reliance on a Glasgow scheme of valuation of industrial subjects and that in the Glasgow context actual distance from the M8 motorway seems to have been regarded as material. It is readily understandable that access to the motorway network may influence rents. It was not so easy to see how, or even whether, the M8 was the material consideration in East Kilbride and Hamilton, and when one comes to the much less populated area of Shotts, where the lower level of local rates might in any event seem to reflect relative remoteness, it becomes even more difficult.

[78] However, we think that we can properly rely in particular on one piece of evidence, which was that subjects at Carnwath, where the local rate would be similarly low, had received an allowance in this settlement of 10%. Carnwath is some 20 miles from the M8 motorway. That appears to us to justify an allowance at Shotts. Shotts is – on our approximate measurement, which is slightly higher than the Assessor’s – around 4 miles away. On a mathematical basis, that might seem to support the Assessor’s 2.5%, but we also know that subjects in East Kilbride and Hamilton, each close to the dual carriageway and motorway network, received 7.5%, albeit the Assessor understood that the settlement at Hamilton reflected other matters which had come to light. Doing the best we can in the circumstances, we think that an allowance of 5% would best reflect at these subjects the acceptance that a number of larger industrial subjects in Lanarkshire, including at Carnwath, had been slightly overvalued by the Assessor.

[79] On these valuation issues, we would not have been influenced by Mr McKaig’s “stand back and look”. This exercise, based as it was on the comparison of changes in values from the previous revaluation, appears to us at least suspect in principle (c.f. Whitwell v Assessor for Strathclyde Region, per Lord Clyde at 42; and Assessor for Strathclyde Region v Urquhart, per Lord Clyde at 180B). In any event, it lacked any sufficient evidential basis.

[80] We have noted that our decisions on the valuation issues would produce, in the particular circumstances of this case where unum quid valuation would lead to reductions of three types, a significant reduction in the broad region of £50,000 in the values of the subjects. It may seem unfortunate that separate treatment of these two sites has such a consequence, but we are satisfied that this is the result of a correct application of the established principles of law.

[81] At all events, for the reasons given in relation to the unum quid issue, we have refused these appeals.


Certified a true copy of the statement of reasons for the decision of the Lands Tribunal for Scotland intimated to parties on 27 January 2011
Neil M Tainsh – Clerk to the Tribunal