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LANDS VALUATION APPEAL COURT
[2021] CSIH 9
XA42/20
Lord Justice Clerk
Lord Malcolm
Lord Doherty
OPINION OF LADY DORRIAN, THE LORD JUSTICE CLERK
in the appeal by
CARLTON ROCK LIMITED
First Appellant
and
THE STRATHGLEN TRUST
Second Appellant
against
GRAMPIAN ASSESSOR
Respondent
and
in the appeal by
GRAMPIAN ASSESSOR
Appellant
against
LLOYDS REGISTER EMEA
Respondent
For the First and Second Appellants in the West End appeals and for the Respondent in the Prime
Four appeal: Haddow QC; Brodies LLP
For the Respondent in the West End appeals and for the Appellant in the Prime Four appeals: Gill;
Gillespie MacAndrew LLP
2
2 February 2021
[1]
I agree with the opinion delivered by Lord Doherty and with his Lordship's
suggestion as to the disposal of these appeals. I also agree that opinion should be reserved
on the issue of the constructions of s 15 for a case arises where its determination is required.
It is generally better to examine such matters in a context in which they are directly relevant.
3
LANDS VALUATION APPEAL COURT
[2021] CSIH 9
XA42/20
Lord Justice Clerk
Lord Malcolm
Lord Doherty
OPINION OF LORD MALCOLM
in the appeal by
CARLTON ROCK LIMITED
First Appellant
and
THE STRATHGLEN TRUST
Second Appellant
against
GRAMPIAN ASSESSOR
Respondent
and
in the appeal by
GRAMPIAN ASSESSOR
Appellant
against
LLOYDS REGISTER EMEA
Respondent
For the First and Second Appellants in the West End appeals and for the Respondent in the Prime
Four appeal: Haddow QC; Brodies LLP
For the Respondent in the West End appeals and for the Appellant in the Prime Four appeals: Gill;
Gillespie MacAndrew LLP
4
2 February 2021
[2]
I agree with the opinion delivered by Lord Doherty and with his Lordship's
suggestion as to the disposal of these appeals.
5
LANDS VALUATION APPEAL COURT
[2021] CSIH 9
XA42/20
Lord Justice Clerk
Lord Malcolm
Lord Doherty
OPINION OF LORD DOHERTY
in the appeal by
CARLTON ROCK LIMITED
First Appellant
and
THE STRATHGLEN TRUST
Second Appellant
against
GRAMPIAN ASSESSOR
Respondent
and
in the appeal by
GRAMPIAN ASSESSOR
Appellant
against
LLOYDS REGISTER EMEA
Respondent
For the First and Second Appellants in the West End appeals and for the Respondent in the Prime
Four appeal: Haddow QC; Brodies LLP
For the Respondent in the West End appeals and for the Appellant in the Prime Four appeals: Gill;
Gillespie MacAndrew LLP
6
2 February 2021
Introduction
[3]
These three appeals concern offices in Aberdeen. The first appellant is the proprietor
of an office at 28 Albyn Place. The second appellant is the proprietor of an office at
74 Carden Place. They appealed to the valuation appeal committee ("the committee")
against the net annual values which the assessor entered in the roll for those subjects at the
2017-18 revaluation, namely £357,000 for 28 Albyn Place and £97,500 for 74 Carden Place.
That valuation roll came into force on 1 April 2017. Both offices are in the West End of
Aberdeen (which is delineated on assessor's production AS1). The third appeal relates to a
lower ground and ground floor office in a new office development at Unit 11 Kingswells
Causeway, Prime Four Business Park, Kingswells. Kingswells is on the western fringe of
Aberdeen, about 6 miles from the city centre. It lies very close to, and is on the eastern side
of, the A90 western distributor road ("the bypass"). Kingswells is about 2-3 miles from
Westhill, which is to the west of the bypass. Lloyds Register EMEA ("Lloyds") is the tenant
and occupier of Unit 11. The assessor entered Unit 11 in the valuation roll as a new entry
(exercising his power under the Local Government (Scotland) Act 1975, s 2(1)(b)) with effect
from 1 September 2017 with a net annual value of £1,210,000. Lloyds appealed against that
value. The committee referred to the first two appeals as "the West End appeals" and it
referred to the third appeal as "the Prime Four appeal".
The West End appeals
Background
[4]
The West End is near the city centre and it is a popular and prestigious location for
commercial and professional offices. For the most part, offices in the West End of Aberdeen
7
are contained within traditional granite buildings. They are categorised by the assessor as
being (i) general office stock, or (ii) quality refurbished or modern office stock. They benefit
from better car parking than city centre offices. General office stock tends to be less than
500m
2
gross area (only 19 of 336 such offices in the West End were more than 500m
2
). Of the
36 refurbished/modern offices in the West End, 23 were larger than 500m
2
.
Valuation Timetable (Scotland) Order 1995
[5]
Section 13 of the Valuation and Rating (Scotland) Act 1956 authorises the Secretary of
State (since devolution, the Scottish Ministers) by order to prescribe inter alia "the date on
which or the period within which any notice requires to be given or any other thing requires
to be done for the purposes of the Valuation Acts...". Several Orders have been made in the
exercise of that power. The Order currently in force is the Valuation Timetable (Scotland)
Order 1995 (as amended) ("the 1995 Order"). Articles 2 and 3 and the Schedule provide:
"2. Interpretation
In this Order-
`year' means a period of 12 months beginning with 1st April;
`year of revaluation' means the year 2017-18 and each fifth year thereafter.
3. Prescribed dates
In relation to a valuation roll which comes into force on or after 1st April 1995, the
date on which, or the period within which, any notice requires to be given, or any
other thing requires to be done, for the purposes of the Valuation Acts, on or after the
coming into force of this Order shall be, in respect of the notice or other thing
mentioned in column 1 of the Schedule to this Order, the date or period set out in
column 2 of that Schedule.
...
SCHEDULE
Column 1
Column 2
Valuations to be made on the
1st April in the year which is 2
8
basis of level of rents prevailing
as at
years prior to a year of
revaluation.
...
Valuations to be made on the
basis of the physical
circumstances of properties as at
1st January in the year preceding a
year of revaluation.
..."
Accordingly, for the 2017-18 revaluation valuations were to be made on the basis of the level
of rents prevailing as at 1 April 2015 and on the basis of the physical circumstances of
properties as at 1 January 2017. The West End appeals turn upon the proper interpretation
and application of those provisions of the Schedule.
The hearing before the committee
[6]
It was common ground before the committee that as at 1 April 2015 the West End
rental evidence supported the rate of £250 per m
2
which the assessor had applied to general
office stock and the rate of £275 per m
2
which he had applied to refurbished/modern offices;
and that the rental evidence for modern offices in the city centre supported a rate there of
£225 per m
2
. However, the ratepayers maintained that by 1 January 2017 office rents had
fallen because of a downturn in the economy (and, in particular, in the oil price), and
because by then there was an oversupply of office accommodation in the wider Aberdeen
area. The oversupply arose because of a combination of new speculative office
developments and a decline in demand. The ratepayers argued that the direction in the 1995
Order that valuations be made on the basis of the physical circumstances of the properties as
at 1 January in the year preceding a year of revaluation (ie in this
instance, 1 January 2017)
required the assessor to take account of not just the physical features of each of the appeal
subjects at that time, but also the physical circumstances of their surrounding locality. Their
9
expert witnesses suggested that it was possible to identify a diminution in rents for West
End offices between 1 April 2015 and 1 January 2017; and that it was also possible to
"disaggregate" that diminution so as to separate a part attributable to the oversupply of
offices from the remaining part which was attributable to other factors. Thus, the argument
ran, when valuing the appeal subjects it was necessary to adjust the rates of £250 and £275
downwards to reflect the oversupply at 1 January 2017 because those circumstances would
have reduced the level of rents prevailing at 1 April 2015 had the circumstances existed at
that time. For his part the assessor maintained that he required to apply the level of rents
prevailing as at 1 April 2015, and that any reduction in rents after that date was just ordinary
economic change. On a proper construction of the Schedule to the 1995 Order he had to
have regard to the physical circumstances of the appeal subjects as at 1 January 2017, which
included the physical circumstance of their immediate locality. However, there had been no
material change to the physical circumstances of the subjects or their locality between
1 April 2015 and 1 January 2017. If more offices were vacant on 1 January 2017 than on
1 April 2015 that reflected a drop in demand associated with ordinary economic change.
[7]
The committee dismissed the West End appeals. It held that the locality of each of
the appeal subjects was the West End, and it accepted that the West End was a distinct rental
sub-market. It considered that the direction in the 1995 Order that valuations be made on
the basis of the physical circumstances of properties as at 1 January 2017 required the
assessor to look only at the physical circumstances of the appeal subjects, and not at the
physical circumstances of their locality. Accordingly, even if there was an oversupply of
offices in the locality by 1 January 2017 that was not something which the assessor was
directed to take into account. The committee placed some reliance on observations which
had been made in two decisions of the Lands Tribunal for Scotland, Cairngorm Chairlift Co
10
Ltd v Highland Region Assessor 1995 SLT (Lands Tr) 35 and Campsie Spring Scotland Limited v
Assessor for Dunbartonshire, Argyll & Bute Valuation Joint Board [2000] RA 401.
[8]
Nevertheless, the committee thought it appropriate to indicate what it would have
done had it been right to have regard to office oversupply as at 1 January 2017. In order to
identify the drop in West End rental levels at that date it selected five rents for West End
offices struck between three months before and three months after 1 January 2017. Four
were for general office stock which had been valued at £250 per m
2
and one was for a
refurbished office which had been valued at £275 per m
2
. It concluded that the average of
the five rental rates (£177.40 per m
2
) was just over 30% lower than the average of the rates
which the assessor had applied to the 5 subjects (£255 per m
2
). It reasoned that part of the
decline was due to the existence of an oversupply of office accommodation, and that a
portion of that part of the decline was caused by the appearance on the market of new build
city centre offices, outwith the West End, at the Capitol, Silver Fin and Marischal Square
developments. None of those developments had been completed as at 1 January 2017, but
the committee took the view that advance marketing of them contributed to the oversupply
which existed on that date. Applying its judgement, the committee would have
disaggregated the element of oversupply caused by the addition of the new accommodation
and treated it as a change in the physical circumstances of the appeal subjects. As a result, it
would have adjusted the rate applied to 74 Carden Place from £250 to £225 and the rate
applied to 28 Albyn Place from £275 to £250, giving reduced net annual values of £89,500 for
74 Carden Place and £284,250 for 28 Albyn Place.
The appeal and counsel's submissions
[9]
Each of the ratepayers have appealed against the committee's decision in respect of
their subjects. The assessor cross-appealed to give notice that he proposed to attack the
11
findings which the committee indicated it would have made if its primary conclusion was
ill-founded.
[10]
Mr Haddow submitted that the committee erred in its construction of the 1995
Order. Lands and heritages had to be valued in their actual state and according to their
existing use. The actual state of lands and heritages included the physical circumstances of
their locality. The circumstances of Cairngorm Chairlift Co Ltd v Highland Region Assessor,
supra, and Campsie Spring Scotland Limited v Assessor for Dunbartonshire, Argyll & Bute
Valuation Joint Board, supra, were very different from the present case. They had not
involved the addition of new lands and heritages to the locality. Authorities which
discussed material changes of circumstances provided an indication of the wide range of
matters which might affect the actual state of lands and heritages and their value. Reference
was made to Assessor for Inverness-shire v Caledonian Associated Cinemas 1959 SLT 281;
Assessor for Fife v Adamson 1964 SC 384; Scammell v Assessor for Highland and Islands Valuation
Joint Board, Unreported, 8 July 1997; the Edinburgh tram works cases (Assessor for Lothian v
Ministry of Defence, The Army Careers Office [2010] RA 55, Assessor for Lothian v Hennes &
Lothian v Royal Bank of Scotland plc [2010] RA 548, Assessor for Lothian v Alliance & Leicester plc
[2010] RA 561 ); Argos Distributors v Assessor for Fife Region 2011 SC 272; Tesco Stores Limited v
Fife Assessor 2011 SC 316; Assessor for Fife v Mercat Kirkcaldy Ltd 2013 SC 178; Assessor for
Glasgow v Schuh Ltd 2012 SLT 904; Schuh Ltd v Assessor for Glasgow 2014 SLT 184; and Assessor
for Grampian v Anderson, Anderson and Brown LLP 2018 SC 370. The "physical circumstances
of properties" as at 1 January 2017 included the physical circumstances of the locality of the
lands and heritages being valued, including the physical circumstances of other properties
in the locality. That was why "properties" in the 1995 Order was plural. The addition of
12
offices to the locality was a physical circumstance. The relevant locality was not just the
West End - it extended to the other areas where offices had been built between 1 April 2015
and 1 January 2017 because those new offices had affected the rental market in the West
End. The assessor was required to take account of the new offices as part of the physical
circumstances of that broader locality. The committee had been entitled to hold that the
value rates to be applied to the subjects ought to be reduced from £275 and £250 to £250 and
£225.
[11]
Mr Gill submitted that the appeals should be refused. The committee had not erred
in its construction of the phrase "the physical circumstances of the properties". Any
oversupply of office space as at 1 January 2017 was not part of the physical condition and
state of the appeal subjects (Cairngorm Chairlift Co Ltd v Highland Region Assessor, supra,
p 42E-F). It was not observable by physical inspection (Campsie Spring Scotland Limited v
Assessor for Dunbartonshire, Argyll & Bute Valuation Joint Board, supra, p 414). It was an
abstract rather than a physical matter. In order to fall within "physical circumstances" a
matter had to be capable of being a physical material change of circumstances, ie a change to
the physical nature of the subjects or their immediate locality. There had been no material
change in the physical circumstances of the appeal subjects or their locality between 1 April
2015 and 1 January 2017. In any case, in the context of an extensive city centre, matters such
as the opening of new office buildings were not capable of being a material change of
circumstances in relation to other offices. Such matters were merely part of the ordinary
process of change between revaluations (Assessor for Glasgow v Schuh Limited, supra; Tayside
Valuation Joint Board v Land Securities plc [2013] RA 58; Schuh Limited v Assessor for Glasgow,
supra; Assessor for Grampian v Anderson, Anderson and Brown LLP, supra).
13
[12]
Even if the committee had erred in its construction of the 1995 Order, there was no
basis for reducing the valuations of the appeal subjects because there had been no material
change in the physical circumstances of the appeal subjects or their locality between 1 April
2015 and 1 January 2017. Moreover, when it made its alternative findings the committee's
approach to the evidence was one which no reasonable committee would have taken. It
focused only on rents struck during the three month periods on either side of 1 January
2017. It identified only 5 such rents and it overlooked a further 5 rents in assessor's
production AS6(b). The rents in AS6(b) supported the tone rates of £250 and £275. The
committee's approach had been one of its own devising as opposed to one advanced by
either of the parties, and it had been unfair not to raise it with the parties to give them an
opportunity to comment upon it (Assessor for Scotland v British Waterways Board (Scotland)
2019 SC 222). It had been erroneous in law, or at the very least it had proceeded on the basis
of a serious error of valuation principle. Moreover, on this aspect of its decision the
committee's reasons were inadequate and unintelligible. They left the reader in genuine and
substantial doubt as to the basis for its conclusions (Moray Council v Scottish Ministers 2006
SC 691).
Decision and reasons
[13]
One of the primary meanings of the word "circumstances" is "that which stands
around or surrounds" (The New Shorter Oxford English Dictionary (1993 edition)). A
natural reading of "the physical circumstances of properties" is that it includes physical
features which are part of the surroundings of the lands and heritages being valued.
[14]
It is well established that lands and heritages require to be valued in their actual state
and according to their existing use (see Armour on Valuation for Rating, chapter 18). The
actual state of lands and heritages is not restricted to features contained within their physical
14
boundaries (see eg Telereal Trillium v Hewitt (VO) [2019] 1 WLR 3262, Lord Carnwarth at
para 60). Aspects of the surroundings of lands and heritages may affect their amenity or
their use and enjoyment. The locality of lands and heritages is often likely to have an
important bearing on their value, and changes to that locality may have an impact on that
value.
[15]
In my opinion the actual state rule is a key part of the background against which the
1995 Order requires to be construed. In light of that context, in my view the sensible
interpretation of "the physical circumstances of properties" is that it is not restricted to
physical features within the boundaries of lands and heritages but also includes physical
features of their location which are sufficiently close to the lands and heritages to affect them
in a material way. It follows that in my view the committee was wrong to construe the 1995
Order in the narrow way it did. Nevertheless, in my judgement its dismissal of the appeals
was the correct outcome.
[16]
Notwithstanding its interpretation of the 1995 Order, the committee went on to
consider how it would have approached matters if the physical circumstances of the locality
of the appeal subjects had been relevant. The evidence was, and the committee found (i)
that the West End office market was a distinct market, with different rental levels at the tone
date from the city centre; and (ii) that it contained two sub-markets, the larger one being of
general office stock (which were for the most part offices of less than 500m
2
gross floor area)
and the smaller one being of refurbished/modern offices (a higher proportion of which were
over 500m
2
).
[17]
In my opinion, on the facts it is clear that the relevant locality of the appeal subjects
did not extend beyond the West End. In my view it is also clear that the physical
circumstances of the appeal subjects and of their locality did not change in any material
15
respect between 1 April 2015 and 1 January 2017. No new offices were added to the West
End in that period - the total office stock there was static at 89,000m
2
(assessor's
production AS10). In my opinion the committee went radically wrong when it treated the
new office developments at the Capitol, Silver Fin and Marischal Square as being a relevant
change in the physical circumstances of the appeal subjects' locality. First, those
developments were in the city centre, not in the West End. Second, as at 1 January 2017
none of them had been completed. In terms of physical circumstances, they had not yet
become office lands and heritages. They had not yet increased the lands and heritages used
as offices in the city centre.
[18]
In my view there was no basis for reducing the rates of £250 and £275 to reflect a
change in the physical circumstances of the appeal subjects' locality between 1 April 2015
and 1 January 2017. The relevant circumstances were the same on both dates. It follows that
those rates represented the correct levels of value for West End offices as at 1 April 2015
having regard to the physical circumstances of that locality as at 1 January 2017. That was a
proposition which had been widely accepted by the time of the hearing before the
committee. 136 West End office appeals had been resolved at the tone rates, with most of
the ratepayers concerned having had professional advisers acting for them (assessor's
production AS9).
[19]
Since there had been no significant change in the physical circumstances of the
localities of each of the appeal subjects between 1 April 2015 and 1 January 2017, there was
no reason for the committee to embark upon the exercise of analysing rental levels as at
1 January 2017. Even if, as seemed to be the case, there had been a fall in the rents of West
End offices since 1 April 2015, there was no basis for attributing any part of the fall to a
change in the physical circumstances of the locality of the appeal subjects. In the absence of
16
any such change the disaggregation exercise which the committee carried out lacked any
proper foundation.
[20]
In my opinion that is sufficient to dispose of these appeals. The committee fell into
error but, for the reasons discussed, dismissal of the appeals was the correct outcome. The
ratepayers' appeals should be refused.
The Prime Four appeal
Background
[21]
At the time when the 2017-18 valuation roll came into force on 1 April 2017 seven
large modern offices at the Prime Four Business Park were entered in the roll, with net
annual values which ranged from £850,000 to £2,120,000. The rental evidence at the rental
tone date (1 April 2015) supported a rate of £250 per m
2
, and all of the offices in the business
park were valued on that basis.
[22]
The office at the ground and lower floors of Unit 11, Kingswells Causeway was
entered in the roll as a new entry with effect from 1 September 2017. The assessor valued it
at £250 per m
2
producing a net annual value of £1,210,000.
Relevant legislative context
[23]
The Valuation for Rating (Scotland) Act 1956 ("the 1956 Act") effected major reform
of the system of valuation for rating in Scotland. Section 9 required an assessor to make up a
valuation roll for the year 1961-62 and every subsequent year. However, while in the year
1961-62 and each fifth year thereafter ("a year of revaluation") an assessor had to value or
revalue all the lands and heritages situated within his area, for any year other than a year of
revaluation he was (i) to enter in the valuation roll the lands and heritages which he had
previously valued or revalued at the respective values which had been entered for the
17
immediately preceding year; and (ii) to value any other lands and heritages which had not
been entered in the roll made up for the immediately preceding year. Accordingly, while a
new roll was made up each year, the general principle was that lands and heritages were
only to be revalued every five years. There were some exceptions to the principle. Most
notably, s 9 empowered an assessor in an intermediate year to give effect to any alteration of
lands and heritages which was due to a material change of circumstances.
[24]
The Local Government (Scotland) Act 1975 ("the 1975 Act") effected further reform.
Several of the provisions of the 1956 Act, including s 9, were repealed. In terms of s 1 of the
1975 Act the valuation roll which the assessor made up for a year of revaluation was, subject
to any alterations made to it under sections 1 and 2, to remain in force until it was
superseded by the new valuation roll which was made up for the next year of revaluation.
Instead of a new valuation roll being prepared annually there was a single running roll for
the quinquennium.
[25]
Section 15 of the Local Government (Scotland) Act 1966 (as amended by the Local
Government (Scotland) Act 1975) ("the 1966 Act") provides:
"15 Valuation according to tone of roll.
(1)
For the purposes of any new or altered entry to be made in a valuation roll
after the passing of this Act at any time the valuation roll is in force, the value or
altered value to be ascribed to lands and heritages shall not exceed the value which
would have been ascribed thereto in that roll if the lands and heritages to which the
entry relates had for valuation purposes been subsisting throughout the year before
the last year of revaluation, on the assumptions that at the time by reference to which
that value would have been ascertained--
(a) the lands and heritages were in the same state as at the time of valuation
and any relevant factors (as defined by subsection (2) of this section) were
those subsisting at the last-mentioned time; and
(b) the locality in which the lands and heritages are situated was in the same
state, so far as concerns the other premises situated in that locality and the
occupation and use of those premises, the transport services and other
18
facilities available in the locality, and other matters affecting the amenities of
the locality, as at the time of valuation.
(2)
In this section "relevant factors" means any of the following, so far as
material to the valuation of lands and heritages, namely--
(a) the mode or category of occupation of the lands and heritages;
(b) the quantity of minerals or other substances in or extracted from the lands
and heritages;
(c) the volume of trade or business carried on on the lands and heritages.
(3) References in this section to the time of valuation are references to the time by
reference to which the valuation of lands and heritages would have fallen to be
ascertained if this section had not been enacted.
..."
The 1975 Act amended s 15(1) by inserting the words "at any time the valuation roll is in
force" in place of the words "for a year other than a year of revaluation" which had
appeared in the provision as originally enacted. Section 15 also now requires to be
considered in conjunction with the 1995 Order.
The hearing before the committee
[26]
While it was common ground that the rental evidence as at 1 April 2015 supported
the assessor's rate of £250 per m
2
for offices in the Prime Four Business Park, the ratepayers
maintained that on a proper application of s 15 of the 1966 Act a lower rate ought to be
applied to the appeal subjects because between 1 April 2015 and 1 September 2017 there had
been unprecedented building of new offices in the Aberdeen area. That had contributed to
an oversupply of office accommodation by 1 September 2017. Rents had fallen, and the
ratepayers maintained that part of the fall could be attributed to the contribution to
oversupply which the new offices had made; and that had the appeal subjects and other new
offices in the Aberdeen area existed on 1 April 2015 the rental rate at that time would have
19
been lower than £250 per m
2
. The ratepayers also submitted that the net annual value of the
appeal subjects could be less than the figure which would be arrived at by applying s 15
because that figure was a ceiling. They suggested that the appeal subjects could be valued
directly by comparison with, but were less valuable than, new city centre offices which the
assessor had valued at £225 per m
2
. The assessor's position was that the locality of the
appeal subjects for the purposes of s 15 was their immediate locality - the Prime Four
Business Park. Rents there between 1 April 2015 and 1 September 2017 did not fall below
the tone. Any decline in rents elsewhere in Aberdeen between 1 April 2015 and 1 September
2017 was no more than the normal process of economic change between one revaluation and
another. On a proper construction of s 15 it provided how all new and altered entries had to
be valued. Its effect was not merely to impose a ceiling figure. The appeal subjects required
to be valued in accordance with s 15. In any case, if they were to be valued by direct
comparison with other subjects the most comparable subjects were the other offices in the
Prime Four Business Park, not newly built offices several miles away in the city centre.
[27]
The committee allowed the ratepayers' appeal. It held that s 15 imposed a ceiling
and that it did not prevent a new or altered entry being valued lower than that ceiling.
However, it rejected the ratepayers' contention that the appeal subjects should be valued by
comparison with newly built offices in the city centre. In relation to the s 15 valuation, it
decided that the locality of the appeal subjects was "greater Aberdeen", which it described
as "Aberdeen City and the parts of Aberdeenshire close to it such as Portlethen, the
Checkbar (Aberdeen South Business Park) and Westhill at or around the Total and Sub Sea 7
sites". It reasoned that between 1 April 2015 and 1 September 2017 the addition of new
offices in greater Aberdeen was a change in the physical circumstances of that locality. It
sought to identify (i) the extent to which rents of large offices had fallen between those
20
dates; and (ii) the extent to which it would be right to attribute part of that fall to the change
in physical circumstances of the locality as opposed to other factors. In order to ascertain the
fall in rents of large offices it chose eight comparisons which had rents which had been
struck during the period between three months before and three months after 1 September
2017. Three were in Westhill, two at Bridge of Don, two at Hill of Rubislaw, and one at
Portlethen. The largest (1,277.9m
2
) was a fitness centre, not an office. Two of the other seven
were offices of 512.1m
2
and 423.3m
2
, and the remainder ranged in size from 113m
2
to
261.5m
2
. The committee averaged the eight rental rates to arrive at a figure of £166.56 which
it found to be 44.63% lower than the average of the rates which the assessor had applied to
the eight subjects (£225). It reasoned that part of the decline was due to an unprecedented
oversupply of office accommodation, and that a portion of that part of the decline was
caused by the appearance on the market of new build offices, and in particular the Capitol,
Silver Fin and Marischal Square developments in the city centre. While most of that office
accommodation was not completed as at 1 September 2017, the committee took the view that
it was being marketed and that therefore it contributed to the oversupply which existed on
that date. Applying its judgement, it concluded that the part of the rental fall which was
attributable to an oversupply of new offices "outweighed" all the other causes of
oversupply. It "disaggregated" the oversupply element caused by the addition of the new
offices. That led it to conclude the rate applied to the appeal subjects should be reduced
from £250 to £200, with the result that the net annual value was reduced from £1,210,000 to
£980,500. In exercising its judgement the committee relied upon and was guided by a
decision of the Valuation Tribunal for England - Aon Risk Services Limited v Gott (VA)
[2011] RA 381. It concluded that the wording of paragraphs 2(7)(d) and 2(7)(e) of Schedule 6 to the
21
Local Government Finance Act 1988 was very close to the wording of s 15 of the 1966 Act
"...so that the case was a useful guide to the interpretation of the Scottish provisions."
The appeal and counsel's submissions
[28]
The assessor appealed. The ratepayers did not cross-appeal.
[29]
Mr Gill submitted that the court should allow the assessor's appeal. The committee
had misdirected itself in law and it had made serious errors of valuation principle.
[30]
On a proper construction of s 15 (read together with the 1995 Order) it provides that
new or altered entries to the roll are to be valued on the basis of the levels of rents which
prevailed at the revaluation tone rental date. Section 15 precludes a new or altered entry
being valued at a rate which is higher or lower than the figure arrived at by the application
of s 15. The assessor's interpretation achieved fairness between ratepayers, whereas the
ratepayers' suggested construction would be productive of unfairness. The "evident"
purpose of s 15 was "to secure a level of uniformity of valuation in the running roll for the
whole period between revaluations" (Armour on Valuation for Rating, para 3-45). The
maintenance of the common base throughout the period of the roll was what was
universally understood as being "the tone of the roll". The headnote of s 15, "Valuation
according to tone of roll" was a strong pointer towards the correctness of the assessor's
construction. It was part of the contextual scene of the provision (Imperial Tobacco, Petitioner
legal texts conveys meaning according to the circumstances in which it was used" (R v
Montila [2004] UKHL 50, [2014] 1 WLR 3141, §36). There was no authoritative decision
which precluded the assessor's construction. In Sports Shop (Fife) Ltd v Assessor for Grampian
Region, Unreported, June 20 1990 (discussed in Armour, para 3-45) the assessor had not
opposed the ratepayers' appeal and the court did not issue a reasoned decision. In so far as
22
there were observations by the court in other cases tending to support the ratepayers'
construction (Assessor for Grampian v Barclays Menswear Enterprises Ltd 1990 SLT 569,
Lord Milligan at p 369K-L; Assessor for Tayside Valuation Joint Board v Land Securities, supra
Lord President Gill at paras [3], [20]), those observations were tentative and were obiter dicta.
The foundation of the system of valuation for rating was the primacy of the revaluation.
That was the time at which general levels of rents and value were determined. The
fundamental principle was that "all of the lands and heritages entered in the new roll are
valued to a common base" (Assessor for Tayside v Land Securities, supra, para [22]). Each
revaluation "resets values to a common base which remains constant until the next
revaluation" (Assessor for Grampian v Anderson, Anderson and Brown LLP, supra, para [16]).
The values fixed at revaluation were in principle subject to revision from that common base
only in "severely limited" cases (Assessor for Glasgow v Schuh Ltd, supra, para [34]), where
there was a material change of circumstances falling into one of two contrasting categories:
(i) general falls in the level of rental values (and, even then, only where what caused the fall
was "something beyond the normal ebb and flow of business" (Anderson, Anderson & Brown,
para [34])); and (ii) changes to "the physical nature of the premises, or of the locality"
(Assessor for Grampian v Anderson, Anderson & Brown, supra, Lord Justice Clerk Dorrian,
para [16]; Lord Malcolm, para [56] ("changes of circumstances in the subjects or their
immediate locality")). Matters such as changing patterns of retail and the emergence of new
shops and centres were all part of the ebb and flow of a dynamic industry: they were part of
the "normal processes of change" (Assessor for Glasgow v Schuh Ltd, supra, para [34]) or the
"ordinary processes of change" (Schuh Ltd v Assessor for Glasgow, supra, para [30]). Those
were matters for the assessor's pre-revaluation survey and were to be reflected in the values
at which subjects would be assessed at the next revaluation. The normal manifestations of
23
the market were not capable of amounting to a material change of circumstances. They gave
rise to no change to the common base - the values set at the revaluation. It was clear from
Assessor for Glasgow v Schuh Ltd, supra, para [41] that, in the context of an extensive city
centre, matters such as the opening of new office buildings could not be a material change of
circumstances in relation to other offices in that city centre. Those matters were part of the
ordinary processes of change.
[31]
The valuation of new or altered subjects required to be in accordance with s 15. The
only adjustments to the tone rental rate which might be required were adjustments to take
account of the physical state of the new or altered subjects and the physical state of their
locality if either had changed in a material way. The relevant locality was coextensive with
the locality which was relevant for the purposes of ascertaining the "physical
circumstances" of lands and heritages for the purposes of the 1995 Order.
[32]
The Committee had erred in law in its construction and application of s 15 of the
1966 Act. It erred in holding that the word "locality" in s 15(1)(b) "required it to have regard
to a much wider set of circumstances" than when considering the "physical circumstances"
of a property for the purposes of the 1995 Order. It also erred in holding that for the
purposes of s.15(1)(b) "matters which could affect a locality could be intangible", and
therefore that an oversupply of office accommodation in the greater Aberdeen area was
capable of being relevant to the "state" of the locality of the subjects of appeal. It further
erred in so far as it obtained assistance as to the construction and application of s 15 from the
English case of Aon Risk Services Limited v Gott (VA), supra. The committee proceeded,
incorrectly, on the basis that the locality of the appeal subjects was "greater Aberdeen". It
was not. The relevant locality was the Prime Four Business Park. That locality had been in
"the same state" in all material respects on 1 April 2015, 1 January 2017, and 1 September
24
2017. The building of new offices in other localities had not affected any change to the
locality of the appeal subjects. An oversupply of office accommodation elsewhere in
Aberdeen was not a change to the locality of the subjects of appeal.
[33]
The committee erred in seeking to ascertain (i) if there had been a fall in rents
between 1 April 2015 and 1 September 2017; and (ii) if a cause of the fall was a change in
physical circumstances. The proper approach ought to have been (a) to consider the state of
the appeal subjects and their locality as at 1 September 2017; and (b) to determine their value
on 1 April 2015 on the basis that the state of the locality of the appeal subjects on 1
September 2017 had not been materially different from the state of that locality on 1 April
2015.
[34]
In any case, the evidence did not disclose any material change in the level of rents at
the Prime Four Business Park between 1 April 2015 and 1 September 2017. The only
evidence of a decline in rents there came from sublets 5 months and 12 months after
1 September 2017. Since during the period after 1 September 2017 rents were declining it
would clearly be wrong to use those rents as a basis for saying there had been a fall below
the tone level as at 1 September 2017. The analysis of eight rents which the committee
carried out was methodologically flawed. The eight rented subjects were not comparable
with the appeal subjects. They were very much smaller and in very different locations.
They were not the only rents which fell within the time frame which the committee had
selected. The committee's exercise mixed evidence from different sub-markets which would
have experienced different movements in rents. There was no analysis by floor area. One of
the subjects was not an agreed comparable, and it was not an office. It was a fitness centre.
[35]
Finally, the committee failed to provide adequate and intelligible reasons for its
decision.
25
[36]
Mr Haddow submitted that the assessor's appeal should be refused. On a proper
construction of s 15 it provided a ceiling above which the net annual value of a new or
altered entry made after the roll came into force could not go. It did not prevent such a new
or altered entry from having a value lower than that ceiling. That was the ordinary and
natural reading of s 15. The heading did not cast doubt on that reading. While a heading
was part of the context of a provision which could be used as an aid to its construction, its
function was merely to serve as a brief guide to the material to which it referred and often it
may not be entirely accurate. The ratepayers' construction accorded with the mischief
which s 15 had been intended to remedy - that new or altered entries might be valued on a
higher basis of value than existing entries in the roll where rents had increased since the tone
date. That interpretation was supported by the decision of the court in Sports Shop (Fife) Ltd
v Assessor for Grampian Region, supra, and by the observations of by Lord Milligan in Assessor
for Grampian v Barclays Menswear Enterprises Ltd, supra, and of Lord President Gill in Assessor
for Tayside Valuation Joint Board v Land Securities, supra.
[37]
Section 15(1)(a) and 15(1)(b) were not confined to physical factors or factors which
affect the physical enjoyment of lands and heritages, but may embrace factors of a wider
nature including intangible matters (cf. the (now repealed) General Rate Act 1967, s 20 and
Clement (VO) v Addis Ltd [1988] 1 WLR 301, Lord Keith of Kinkel at p 301F-G; Assessor for Fife
v Adamson, supra), such as the effects of the oversupply of offices in a locality.
[38]
The assessor's criticisms of the committee's approach were unfounded. On the
evidence the committee was entitled to find that the locality of the appeal subjects was
greater Aberdeen. There had been unprecedented building of new offices in the period
between 1 April 2015 and 1 September 2017. For the purposes of applying s 15 the
committee had to assume that the office accommodation in the Aberdeen area had been the
26
same on 1 April 2015 as it had been on 1 September 2017. It had adjusted the assessor's rate
of £250 to take account of the new offices which had been added by 1 September 2017. It
had arrived at the appropriate adjustment to the assessor's £250 rate by identifying the
average drop in office rentals, and by disaggregating (i) that part of the drop which was due
to oversupply because of additions to the pool of offices, from (ii) that part of the drop
which was due to oversupply because of falling demand. The committee's approach was
analogous to the approach which the ratepayers' expert witness had taken. It was an
approach which the committee had been entitled to take.
Decision and reasons
[39]
The court was favoured with submissions which advanced different constructions of
s 15. Mr Gill maintained that s 15 provided the valuation method which required to be used
to arrive at the value of a new or altered entry. Mr Haddow submitted that it merely
provided a means of obtaining a ceiling valuation which could not be exceeded, with it
being permissible to value the entry at a lower figure. The issue is an interesting one on
which there appears to be no authoritative decision. However, in my opinion it is not a live
issue in the present case.
[40]
Before the committee the ratepayers did not maintain that the value of the appeal
subjects was lower than the value produced by applying s 15. They did not contend that the
subjects ought to be valued on the basis of the levels of rents which prevailed as at
1 September 2017. They posited two methods of arriving at their proposed valuation. The
principal method was by applying s 15. However, they argued that when effect was given
to the assumption that the other properties in the locality of the appeal subjects were to be
taken as they were on 1 September 2017, the result was that the s 15 tone of the roll value for
the appeal subjects was lower than the £250 per m
2
which had been applied to offices in the
27
Prime Four Business Park at the revaluation. The ratepayers' secondary method was that
the appeal subjects were to be valued by comparison with new offices in the city centre.
[41]
The committee rejected the contention that the appeal subjects ought to be valued by
comparison with new offices in the city centre (and the ratepayers have not appealed against
that finding). It accepted that they ought to be valued in accordance with s 15, but it did not
accept the ratepayers' proposed valuation. It looked at the appeal subjects and the physical
circumstances of greater Aberdeen as at 1 September 2017, and it valued the subjects as if
those physical circumstances had existed on 1 April 2015. It determined that on that
scenario their value was £225 per m
2
.
[42]
Since the outcome of the appeal does not turn on whether new or altered entries may
be made in the valuation roll at values lower than the value which would be arrived at were
s 15 of the 1966 Act to be applied, it is not necessary to decide which of the rival
constructions of s 15 is correct. Tempting as it may be to add to the obiter dicta which already
exist on the topic, I prefer to reserve my opinion on it until a case arises where its
determination is required.
[43]
I turn then to what in my opinion are the live issues in this appeal. In my view the
committee materially misdirected itself. It erred in treating the locality of the appeal subjects
for the purposes of s 15(1)(b) as greater Aberdeen. It gave the phrase "the locality in which
the lands and heritages are situated" in s 15(1)(b) an unduly wide ambit. While I recognise
that the precise extent of the relevant locality in a particular case may depend upon the
category of subjects under consideration, and that it may involve questions of fact and
degree, generally it ought not to extend to an area where the relevant category of lands and
heritages command levels of value which are materially different from the level of value for
such subjects in the vicinity of the appeal subjects. Here, the committee's conclusion that the
28
locality in which the appeal subjects were situated was "greater Aberdeen" was premised on
its acceptance that a prospective tenant looking for a large office such as the appeal subjects
would have considered his options in each location across greater Aberdeen before selecting
his preferred office. That may be so, but the fact that a prospective tenant may look at a
range of localities does not transform those separate localities - with their distinct
characteristics and levels of value - into a single amorphous locality. By proceeding on the
basis that it did, in my opinion the committee went radically wrong. The fact of the matter
was that, so far as offices were concerned, greater Aberdeen had many distinct and different
localities. Offices in the Prime Four Business Park commanded rents of the order of £250 per
m
2
. The nearest other office location, Westhill, commanded significantly lower levels of
rents (the tone rate for the best offices in Westhill was £220). Each of the office locations had
their own characteristics and their own distinct value levels (eg the best rate for the city
centre was £225; for Hill of Rubislaw, £300; for Portlethen, £225; for Bridge of Don, £200; for
Dyce, £200). In my view, on a proper application of s 15(1)(b) to the facts, the relevant
locality of the appeal subjects did not extend beyond the Prime Four Business Park.
[44]
Since I have concluded that in the present case the relevant locality was to all intents
and purposes the same for the purposes of the 1995 Order and for s 15(1)(b), it is
unnecessary to rule upon Mr Gill's submission that for any particular subject the localities
for the purposes of the 1995 Order and for s 15(1)(b) will always be co-extensive. However, I
incline to the view that the two need not always coincide. No doubt in very many cases they
will, but I would not exclude the possibility of cases where the s 15(1)(b) locality may be
more extensive. A possible example might be where the particular category of lands and
heritages contains only a very limited number of subjects which are situated at locations
which are distant from each other.
29
[45]
Had the committee correctly identified the locality, the next task ought to have been
to determine its state as at 1 September 2017 "so far as concerns the other premises situated
in that locality and the occupation and use of those premises". There was no suggestion that
any of the other matters referred to in s 15(1)(b) had changed since 1 January 2017 (the
physical circumstances date for the revaluation).
[46]
There was no significant change to the physical circumstances of the other premises
in the Prime Four Business Park or to the physical circumstances of their locality between
1 January 2017 and 1 September 2017 (or, indeed, between 1 April 2015 and 1 September
2017).
[47]
Nor is there is any suggestion that there was any significant change in "the
occupation and use of those [other office] premises" in the Prime Four Business Park
between 1 January 2017 and 1 September 2017 (or indeed between 1 April 2015 and
1 September 2017). In any case, arguably the "occupation and use" assumption concerns the
mode or category of occupation of the other premises, not whether they are vacant.
Otherwise, if regard were had to greater/lesser levels of vacancy at the date of the new or
altered entry being made the effect may be to assume a different level of demand from that
which prevailed at the tone rental date (1 April 2015). That would seem to be wrong in
principle, and to run counter to the level of rents being the level prevailing at 1 April 2015 (a
level which will have been conditioned on the basis of demand at that time). That tends to
point against construing "occupation and use" as encompassing whether or not premises in
the locality are vacant. However, it is unnecessary to reach a concluded view on the point in
the present case.
[48]
In my view, for the reasons discussed, application of the assumptions in s 15(1)(b)
does not provide a sound basis for differentiating the tone valuation rate to be applied to the
30
appeal subjects from the tone valuation rate of £250 per m
2
which was used for valuing the
other offices in the Prime Four Business Park. The benchmark tone of the roll value rate of
£250 per m
2
which was used to value the offices in the roll reflects rental levels prevailing at
1 April 2015 on the basis of the physical circumstances of those offices and their immediate
locality as at 1 January 2017. In a running roll appeal the values in the roll for those offices
ought to be taken to have been made on that basis unless the evidence demonstrates
otherwise. Here it does not. Moreover, by the date of the hearing before the committee
there had been four appeal agreements with professional agents for offices in the business
park, all at the rate of £250 per m
2
(assessor's production AS6). That suggests an acceptance
by those agents that £250 per m
2
was the correct rate on the basis of rental levels prevailing
at 1 April 2015 taking account of the physical circumstances of offices and of their immediate
locality as at 1 January 2017.
[49]
On a proper application of s 15 there was no material difference between the
circumstances of the appeal subjects and their locality and the circumstances of the other
offices in the business park and their locality. There was no sound basis for modifying the
£250 tone of the roll value rate. That is the value which the committee ought to have
applied.
[50]
That is sufficient to dispose of the appeal. The committee erred in identifying the
locality of the appeal subjects for the purposes of s 15(1)(b). Its subsequent analysis was
based on the false premise that the relevant locality was greater Aberdeen. In fact, the
relevant locality was the Prime Four Business Park. On a proper application of s 15(1)(b) to
the facts, the tone of the roll for the appeal subjects is, as the assessor maintained, £250 per
m
2
.
31
[51]
Even if the committee had been right to conclude that the locality was greater
Aberdeen, I would have had very significant doubts about its subsequent approach and
reasoning. It identified a decline in rents in greater Aberdeen from about 2015 onwards. It
was common ground that rents were falling, but the exercise which the committee carried
out to identify the fall in rents for large offices seems to me to be of questionable worth. Not
one of the eight rents used was for a large office. One of the comparisons was not even an
office - it was a fitness centre. The largest of the other seven subjects was 512m
2
, the smallest
was 113m
2
, and four of the others had values between 203.8m
2
and 261.50m
2
. In my opinion
that was an unpromising basis for drawing reliable conclusions about rental movements for
large offices. The committee went on to conclude from that evidence that there had been a
fall of 45% in the rents of large offices. It attributed the fall to deteriorating economic
circumstances and to an oversupply of office accommodation. In its view, part of the
oversupply arose because of new office developments, and part because a decline in
demand for offices meant that more space was available than formerly. However, of the
three principal new developments which featured most prominently in the evidence, only
one of them, the Capitol, had added to the office supply by 1 September 2017. Silver Fin and
Marischal Square had not been completed, and in my opinion the committee was wrong to
treat them as if they had been. On 1 September 2017 they were not existing office lands and
heritages. The committee disaggregated the 45% decline and attributed about half of it to
that part of the oversupply which it ascribed to new office developments. It attributed the
remainder of the decline to oversupply caused by a decline in demand because of a
deterioration in the economy. It does not seem to have considered whether part of the rental
decline was caused by economic factors unrelated to oversupply. The basis upon which it
reached its apportionment is obscure. It seems to have been guided to a considerable extent
32
by the decision and reasoning in Aon Risk Services Limited v Gott (VA), supra. However, in
my opinion Aon Risk Services Limited v Gott (VA) was neither an appropriate precedent nor a
reliable guide. Contrary to the committee's view, in my opinion the terms of the legislation
upon which that case turned (the Local Government Finance Act 1988, Schedule 6, paras 2(6)
and 2(7)) are materially different from the terms of s 15 of the 1966 Act.
Disposal
[52] I propose to your Ladyship and your Lordship (i) that the ratepayers' appeals (the
West End appeals) be refused; and (ii) that the assessor's appeal (the Prime Four appeal) be
allowed. The upshot is that the net annual value of 28 Albyn Place remains £357,000 and the
net annual value of 74 Carden Place remains £97,500; and that the net annual value of Unit
11, Kingswells Causeway should be restored to £1,210,000.
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