Rating — ‘Contractor’s basis’ — Appeal by rating authority from decision of Lands Tribunal — Hereditament occupied by Imperial College of Science and Technology — Complaint by appellants that, although the contractor’s basis was the correct method of valuation to use in the case of such a hereditament, it had been incorrectly applied — The values determined by the Lands Tribunal, including the Huxley Building, were GV £846,000, RV £704,972 — Of the five steps in the approach to the contractor’s basis valuation described in Gilmore (VO) v Baker-Carr, no issue arose before the Court of Appeal as to the first three, estimated replacement cost, adjustment to arrive at effective capital value, and capital value of the site — The main issue was as to the fourth step, the decapitalisation rate to arrive at annual rental and there was a secondary issue as to the final adjustment at stage five — The Lands Tribunal discounted inflation entirely in fixing a rent for a year certain and arrived at a real interest rate of between 1.4% and 2.4% — To this was added a borrower’s premium of 1% and a figure of 1% for depreciation and repairs, resulting in a total of between 3.4% and 4.4% — In the light of agreed settlements of assessments of other universities throughout the country at a decapitalisation rate of 3 1/2%, the Lands Tribunal adopted the figure of 3 1/2% — As a final step the tribunal made a deduction of 7 1/2% as an adjustment to reflect the actual characteristics of the hereditament not already taken into account — The Court of Appeal rejected most of the criticisms of the tribunal’s decision on the ground that the court’s jurisdiction was confined to dealing with errors of law, while the criticisms had been directed against matters of fact and valuation which were reserved for technical decision by the tribunal — The tribunal had not been shown to have erred in law — Appeal dismissed
The following
cases are referred to in this report.
Baker
Britt & Co Ltd v Hampsher (VO) [1976] RA
69; (1976) 19 RRC 62; [1976] EGD 566; 239 EG 971, [1976] 2 EGLR 87
Cardiff
City Council v Williams (VO) [1973] RA 46;
(1973) LGR 221; [1973] EGD 780; 226 EG 613, CA
Dawkins v Ash Brothers & Heaton Ltd [1969] 2 AC 366; [1969] 2
WLR 1024; [1969] 2 All ER 246; (1969) 67 LGR 499, HL
Dawkins
(VO) v Royal Leamington Spa Corporation
(1961) 8 RRC 241; [1961] RVR 291 178 EG 293, 365 & 461 LT
Edwards v Bairstow [1956] AC 14; [1955] 3 WLR 410; [1955] 3 All ER
48; (1955) 48 R&IT, HL
Gilmore
(VO) v Baker-Carr (No 2) (1963) 10 RRC 205;
[1963] RA 458; [1964] RVR 7; 188 EG 977, LT
Humber
Ltd v Jones (VO) (1960) 6 RRC 161; 53
R&IT 293, 175 EG 1195, CA
Metropolitan
Water Board v Chertsey Assessment Committee
[1916] AC 337
Westminster
City Council v American School in London and
Goodwin (VO) [1980] RA 275; [1980] EGD 684; (1980) 255 EG 999 & 1107,
LT
This was an
appeal by case stated by Westminster City Council, the rating authority, against
the decision of the Lands Tribunal (Mr C R Mallett FRICS) on appeals from the
Greater London (Central) Valuation Court in respect of the gross and rateable
values of the Imperial College of Science and Technology in South Kensington.
The Lands Tribunal’s decision is reported at [1985] 1 EGLR 209; (1984) 273 EG
81 & 203.
Graham Eyre QC
and Richard Hone (instructed by the City Solicitor, Westminster City Council)
appeared on behalf of the appellants; Alan Fletcher QC and G N Huskinson
(instructed by the Solicitor of Inland Revenue) represented the valuation
officer, Mr Ebdon; Guy Roots and N King (instructed by Lovell White & King)
represented the Imperial College.
Giving the
first judgment at the invitation of Watkins LJ, GLIDEWELL LJ said: This is an
appeal by case stated against the decision of the Lands Tribunal (C R Mallett
FRICS) given on October 24 1984, on eight related appeals from the Greater
London (Central) Valuation Court. By its decision the Lands Tribunal determined
the gross value and rateable value of the hereditament occupied by the second
respondents, the Imperial College of Science and Technology, in the valuation
list for rating which came into force on April 1 1973. The appellants in this
court, Westminster City Council, are the rating authority. They contend that in
reaching his decision the learned member of the Lands Tribunal has made
fundamental errors in his application of a method of valuation known as the
contractor’s basis. Mr Ebdon, the valuation officer, supports the decision of
the Lands Tribunal.
The facts
The history of
the matter and the relevant facts are set out in an agreed statement of facts
which was placed before the Lands Tribunal, and in the tribunal’s decision. It
is therefore not necessary for me to refer to more than a brief outline.
Imperial College occupies a site of some 15 3/4 acres, on which stand
substantial buildings, in South Kensington. The college is a school of the
University of London. One of the buildings now on the site, the Huxley
Building, was not completed or occupied when the valuation list came into force
on April 1 1973. The list was therefore amended to include the Huxley Building
as a result of a proposal made by the valuation officer on March 29 1977.
Lands
Tribunal’s decision
The values
determined by the Lands Tribunal are as follows:
|
Gross value |
Rateable value |
|
|
At April 1 1973 |
£767,000 |
£639,138 |
|
With addition of Huxley Building |
£846,000 |
£704,972 |
The points raised in this appeal affect both sets of values, but in
the same manner. The matter was therefore argued before us, and can be treated,
as a single appeal.
Contractor’s
basis of valuation
By section
19(6) of the General Rate Act 1967 the gross value of a hereditament is defined
as:
the rent at
which the hereditament might reasonably be expected to let from year to year if
the tenant undertook to pay all usual tenant’s rates and taxes and the landlord
undertook to bear the cost of the repairs and insurance and the other expenses,
if any, necessary to maintain the hereditament in a state to command that rent.
It is the
function of the rating surveyor to ascertain that rent.
failing that, sales of similar or comparable properties. For some categories of
property, however, such evidence is rarely if ever to be found. University
colleges and their constituent buildings fall into such a category. The valuer
called upon to assess the gross value of such a property has no evidence of
comparable transactions to guide him. If the hereditament itself is let at a
rent, or if it is occupied by a commercial enterprise which trades at a profit,
evidence of the actual rent or profit may assist towards the necessary
valuation. But Imperial College is not let at a rent and is not a trading
concern. The valuer must therefore seek some other method.
The
‘contractor’s basis’ is a method of calculation which has been devised by
valuers, with the approval of the Lands Tribunal and the courts, to meet this
kind of situation. In the present case all parties are agreed that it is the
correct method of valuation to be applied. In Cardiff City Council v Williams
(VO) [1973] RA 46, Lord Denning MR quoted as the ‘classic explanation’ of
this method a passage from the address of Sir Jocelyn Simon QC,
Solicitor-General, in Dawkins (VO) v Royal Leamington Spa Corporation
(1961) 8 RRC 241, which the members of the Lands Tribunal had adopted in that
case:
As I
understand it, the argument is that the hypothetical tenant has an alternative
to leasing the hereditament and paying rent for it; he can build a precisely
similar building himself. He could borrow the money, on which he would have to
pay interest; or use his own capital on which he would have to forgo interest
to put up a similar building for his owner-occupation rather than rent it, and
he will do that rather than pay what he would regard as an excessive rent —
that is, a rent which is greater than the interest he forgoes by using his own
capital to build the building himself. The argument is that he will therefore
be unwilling to pay more as an annual rent for a hereditament than it would
cost him in the way of annual interest on the capital sum necessary to build a
similar hereditament. On the other hand, if the annual rent demanded is fixed
marginally below what it would cost him in the way of annual interest on the
capital sum necessary to build a similar hereditament, it will be in his
interest to rent the hereditament rather than build it.
In his
judgment in the Cardiff case, Lord Denning MR added a qualification to
this explanation. He said at pp 50-51:
To that
statement, however, I would make this qualification. The annual rent must not
be fixed so as to be only ‘marginally below’ the interest charged. It must be
fixed much below it, and for this reason: By paying the interest charged on
capital cost, he gets not only the use of the building for its life, but he
gets the title to it, together with any appreciation in value due to inflation:
whereas, by paying the annual rent, he only gets the use of the building from
year to year — without any title to it whatsoever — and without any benefit from
inflation.
Mr Eyre, for
the city council, is critical of this qualification, describing it as a matter
for valuation evidence rather than a statement of principle. However, he
accepts that a deduction should properly be made from the rate of interest at
which the hypothetical building owner could borrow to finance his building, to
take account of the two factors to which Lord Denning referred. Indeed in his
evidence to the Lands Tribunal on behalf of the city council Mr W A Hampsher
ARICS made such a deduction. As I shall explain later, Mr Eyre’s major
criticism of the Lands Tribunal’s decision is that too great a deduction has
been made in respect of the element of inflation.
Lands
Tribunal’s approach
Mr Mallett
divided the valuation into five stages, thus following the approach described
in the decision of the Lands Tribunal in Gilmore (VO) v Baker-Carr
(No 2) (1963) 10 RRC 205, which is now generally adopted. These stages are:
1 To estimate the replacement costs of
substituted buildings.
2 To adjust this cost to take account of the
actual state of the buildings comprising the hereditament. The resulting figure
is often known as ‘effective capital value’, but Mr Mallett in his decision
prefers to call it ‘adjusted replacement cost’.
3 To add the capital value of the site
comprising the hereditament.
4 To adopt and apply a rate at which to
decapitalise the total capital value, so as to achieve an annual rental.
5 To make any adjustment which is necessary in
order to reflect the actual characteristics of the hereditament, but which has
not already been taken into account at an earlier stage.
The issues
Before the
Lands Tribunal the parties agreed the estimated replacement cost of substituted
buildings at April 1 1973 at a total of £20,340,438. There was disagreement
between the valuers as to the appropriate adjustments at stage 2, as to the
value of the site (stage 3) and as to the cost of the Huxley Building, but the
Lands Tribunal’s findings on these matters are not challenged in this court.
The total adjusted capital figure for land and buildings at April 1 1973 is
£23,125,971. Thus before us there is no issue as to stages 1, 2 or 3.
The principal
issue in this appeal relates to the decapitalisation rate adopted by the Lands
Tribunal at stage 4. There is also a secondary issue as to the adjustment at
stage 5.
An appeal to
this court from a decision of the Lands Tribunal lies only if the decision ‘is
erroneous in point of law’: Lands Tribunal Act 1949, section 3(4). Mr Eyre
submits that the member of the Lands Tribunal departed in several respects from
the accepted method for arriving at a decapitalisation rate and as a result
made errors which resulted in his adopting too low a rate. In addition Mr Eyre
points to one alleged error at stage 5. We have to decide whether and to what
extent Mr Eyre’s criticisms are justified and, if so, whether the Lands
Tribunal’s error is on a point of law.
Stage 4 —
the decapitalisation rate
The tribunal’s
decision on this issue begins by setting out four propositions which are said
to be agreed, namely:
(i) that the object is to arrive at the annual
equivalent of the adjusted cost in terms of the hypothetical tenancy;
(ii) that the decapitalisation rate is the rate at
which the hypothetical tenant could expect to borrow the capital required over
the term of the hypothetical tenancy at a rate of interest fixed for one year
certain;
(iii) that inflation must be taken into account in
converting a fixed-interest rate on long-term borrowing to an interest fixed
from year to year; and
(iv) that the decapitalisation rate must reflect
the ability of the particular hypothetical tenant . . . to borrow money at a
preferential rate.
Mr Eyre
asserts that none of these propositions was agreed. Moreover, he submits they
are wrong, and so fundamentally wrong as to vitiate the decision. Mr Roots for
Imperial College and Mr Fletcher for the valuation officer accept that the
propositions were not agreed but do not accept that they are wrong, though Mr
Fletcher suggests that they might have been differently expressed.
Mr Roots
describes the first proposition as ‘unimpeachable’, and I agree that it is a
brief but accurate summary of the valuer’s objective. However, it is an
introduction only.
The first
major issue between the parties relates to the phrase ‘a rate of interest fixed
for one year certain’ in the second proposition. Mr Eyre submits that, if the
hypothetical landlord and tenant are negotiating a rent for a tenancy from year
to year, they will in practice reach agreement on the basis that, though the
landlord will not allow the rent to run unaltered indefinitely, he will allow a
reasonable (though undefined) time to elapse before giving notice to increase
the rent, which is in effect notice to terminate the existing tenancy. Although
in theory the landlord could give such a notice to increase the rent at the end
of each year, in practice he would not do so. Thus it is an error to regard the
rent, or the rate of interest from which it is to be derived, as ‘fixed for one
year certain’.
Mr Roots and
Mr Fletcher accept that a tenancy from year to year is a tenancy for an
indefinite time, though terminable by notice, and that the hypothetical tenancy
must be so regarded — see Dawkins v Ash Brothers & Heaton Ltd
[1969] 2 AC 366, per Lord Pearce at p 383 F-G, Lord Wilberforce at p 387
and Lord Pearson at p 392 G-F. Nevertheless, they submit, the effect of
continuing inflation on the negotiations between hypothetical landlord and
tenant cannot be disregarded. The hypothetical landlord is bound to enter into
a tenancy from year to year; he cannot protect himself against inflation by
negotiating a rent for a fixed term longer than a year or by inserting a rent
review clause in the lease. Thus it must, or can properly, be assumed that he
would give notice to terminate at the end of the first year of the tenancy and
repeat the process yearly thereafter.
In my
judgment, the learned member’s decision to assess the rent, and the rate of
interest on which it was based, as if they were to be fixed for a year certain
was a finding of fact and valuation opinion to which he was entitled to come on
the evidence before him. In Baker Britt & Co Ltd v Hampsher (VO)
(1976) 19 RRC 62, the House of Lords held that an appeal by case stated against
a decision of the Lands Tribunal, being on a point of law, can only succeed
within the principle laid down in Edwards v Bairstow [1956] AC
14, viz if the decision contains material which is on its face wrong in
law or if on the evidence no tribunal acting properly could have reached the
decision arrived at. Since there was material upon which the learned member
could base his second proposition, no error of law in it is disclosed. Mr
Eyre’s challenge on this point therefore fails.
His major
criticism of the third proposition is also based on the reference there to ‘an
interest rate fixed from year to year’. I would therefore also reject this
argument. However, Mr Eyre argues the point relating to inflation in a somewhat
different way.
A rate of
interest to be paid on a long-term loan is, in theory, made up from several
elements. The first is the lender’s profit, his desired return on his money.
Secondly, the lender will add an element to take account of the risk that his
loan may not be repaid or will be repaid late. This is relevant to the fourth
proposition, and I will return to it later. Thirdly, in times of continuing
inflation the lender expects that his capital will have depreciated in value
when it is returned to him, and thus he will add to the rate of interest he
requires in order to protect himself against future inflation.
However, if
the loan is not for a long term of years, but for a period equivalent to a
tenancy from year to year, the effect of inflation over the period will be much
less. Moreover, as Lord Denning said, in the passage I have quoted from his
judgment in the Cardiff case, the tenant from year to year is not
protected against inflation. Thus a rate of interest appropriate for a
long-term loan must be reduced in order to relate it to a yearly term.
In the Lands
Tribunal Mr Jackman, an economist giving evidence on behalf of Imperial
College, put in evidence a table showing the annual rate of inflation and the
minimum lending rate over the 20 years from 1952 to 1972. This showed that, on
average, minimum lending rate over the period was only 1.42% higher than the
rate of inflation. Mr Jackman called this the ‘real rate of interest’. Over the
same period inflation averaged just over 4%. Mr J R Trustram Eve MSc FRICS
adopted in his valuation for Imperial College this ‘real rate of interest’,
rounded up to 1.5%. Professor Ilersic, an economist who gave evidence for the
city council, did not disagree with this approach but preferred to take the
average of a shorter period, which gave a ‘real rate’ of 2.4% and a rate of
inflation of 3.3%.
In his
decision the member of the Lands Tribunal followed Mr Eve’s approach by
starting with a minimum lending rate of 5.5% and deducting the whole average
figure for past inflation. This gave him a real interest rate of between 1.4%
and 2.4%. To this he added the ‘borrower’s premium’ and an addition for
depreciation and repairs, giving a total of 3.4% to 4.4%. He then referred to
evidence given on behalf of Imperial College that assessments in relation to
other universities and university colleges outside London had been agreed at
figures based on a decapitalisation rate of 3.5% and adopted this figure to
apply at stage 4.
Mr Eyre
submits that this approach was wrong in three respects. His main objection is
that, though it was correct to make some discount to reflect inflation, it was
wrong, and not in accordance with past practice, to seek to eliminate the
effect of inflation entirely from the rate of interest to be applied. He refers
to the most recent previous decision of the Lands Tribunal in relation to the
contractor’s basis, namely, Westminster City Council v American
School in London and Goodwin (VO) [1980] RA 275. In that case the Lands
Tribunal (J H Emlyn Jones FRICS) adopted 5% as the decapitalisation rate.
Mr Roots
points out that a major difference between the present case and the American
School case is that, in the latter, the Lands Tribunal had no clear
evidence as to the effect of inflation, whereas in the present case there was
the evidence of the economist to which I have already referred. This, in my
view, justified the tribunal in making a greater discount for the effect of
inflation than had been applied in the American School decision.
I have already
said that the member of the Lands Tribunal was entitled to discount inflation
to a figure appropriate to fixing a rent for a year certain. Should such a
figure nevertheless include some element for inflation? If so, was it an error of law to discount for
the whole effect of inflation?
If I had been
deciding this matter as a question of fact, I might well have concluded that in
the inflationary climate of April 1973 a rent negotiated for a year certain
would probably have included an element to take account of inflation. But Mr
Mallett considered this matter expressly; he recorded Mr Eve’s opinion that
‘where the rent was subject to annual review, the effect of inflation on the
rent would be imperceptible’; having no contrary evidence, he adopted this
opinion and thus discounted for the whole effect of inflation. I cannot say
that, in taking this course, he made any error of law.
Mr Eyre’s
second criticism is that the figure adopted for the ‘buyer’s premium’, ie the
1% added to minimum lending rate to compensate for the lender’s risk, was too
low. This point relates to the last of the four propositions. Mr Ebdon had
suggested 2%. It was agreed by all parties that the hypothetical tenant would
be, or to be more precise would have the characteristics of, Imperial College.
The tenant would thus inevitably be an institution with government backing,
providing the hypothetical landlord with as sound a covenant as he could find.
In my judgment, the Lands Tribunal was entitled to adopt a 1% ‘borrower’s
premium’ as a matter of opinion based on evidence. Since it was agreed that the
hypothetical tenant, and thus the hypothetical borrower, would have the
characteristics of Imperial College, he was not debarred from this finding by
the observations of Earl Loreburn in Metropolitan Water Board v Chertsey
Assessment Committee [1916] AC 337, where at pp 347-8 he made it clear that
a rate of interest used to ascertain a hypothetical rent may not be fixed by
taking into account the financial position of the particular occupier.
Lastly, Mr
Eyre submits that the Lands Tribunal should not have taken into account the
evidence of the decapitalisation rate adopted in settlements of assessments at
other universities throughout the country without detailed evidence to show how
far those hereditaments were truly comparable to Imperial College. The answer
to this, in my view, is that the member used this evidence as his final stage
in choosing a rate in the range he had already established between 3.4% and
4.4%, not as primary evidence of allegedly comparable transactions.
In summary,
were I deciding this matter at first instance I might have come to a different
conclusion on one aspect of the discount for inflation, but I cannot say that
in any part of his decision to adopt a decapitalisation rate of 3 1/2% the
member of the Lands Tribunal made any error of law. I emphasise that this is
not a decision that 3 1/2% is necessarily the correct rate to be applied for
decapitalising a capital value in the application of the contractor’s basis to
the rating assessments of all universities or colleges. Each case depends upon
its particular facts and the evidence called. My judgment is that the facts
established and the opinion evidence called justified the Lands Tribunal’s
decision in this case.
Stage 5 —
the final adjustment
At this stage
the Lands Tribunal made a deduction of 7 1/2%. The submission is that the
evidence only justifies 5%. Mr Eve in his valuation deducted 7 1/2%, but of
this 2 1/2% related to the alleged effects of a district heating scheme for
which the Lands Tribunal made no deduction. On the other hand, Mr Ebdon
accepted that there were disadvantages for which he allowed 5%, expressing them
more generally than did Mr Eve. The member said in his decision, ‘whether or
not these items have any effect and to what extent is a subjective opinion
based upon the information available.’
This is clearly correct. The information available to him included that
gained from a view of the hereditament. His decision to deduct 7 1/2% is a
matter of opinion which cannot be challenged as being wrong in law.
For these
reasons I would dismiss the appeal.
Agreeing,
PURCHAS LJ said: Out of acknowledgement for the able and interesting
submissions made by Mr Eyre, I propose to deliver a short judgment of my own.
The facts and background to the appeal have already been fully set out in the
judgment of Glidewell LJ, a draft of which I have had the privilege of reading,
and need not be repeated here.
The appeal is
brought under the provisions of the Lands Tribunal Act 1949, section 3, the
relevant part of which provides:
(4) A decision of the Lands Tribunal shall be
final: Provided that any person aggrieved by the decision as being erroneous in
point of law may . . . require the Tribunal to state and sign a case for the
decision of the court . . .
Earlier tiers
of review and appeal are provided by section 76 of the General Rate Act 1967
(appeals to local valuation courts against objections to proposals) and section
77 of that Act (appeals from decisions of local valuation courts to the Lands
Tribunal). There are, therefore, two levels of appeal at which technical
questions of valuation and other matters of expertise may be fully rehearsed
before review bodies specially qualified for this purpose. Although in his
submissions Mr Eyre commented that a review of the gravity of that involved in
the present appeal would in former years almost certainly have been considered
by a panel consisting of two members of the tribunal each possessing differing
qualifications and expertise rather than a tribunal of one member, I do not
find any force in the
case. On this appeal we are concerned solely with a consideration of the case
stated under the Act of 1949 to see whether the appellant establishes that the
decision was erroneous in a relevant point of law.
By section
19(6) of the General Rate Act 1967 the gross value of a hereditament is defined
as:
the rent at
which the hereditament might reasonably be expected to let from year to year if
the tenant undertook to pay all usual tenant’s rates and taxes and the landlord
undertook to bear the cost of the repairs and insurance and the other expenses,
if any, necessary to maintain the hereditament in a state to command that rent.
The valuation
of this ‘rent’ is the statutory duty imposed upon the valuation officer against
whose valuation appeal lies on questions of technical expertise and approach to
the valuation court and to the Lands Tribunal. Beyond that the appeal lies, as I
have already stated, on a point of law only. The exercise, therefore, is to
determine whether the question of complaint raised in the case stated relates
to matters of technical method and expertise or whether it can be shown that
the Lands Tribunal acted, as a matter of law, so that its approach lay outside
the statutory duty imposed by the section.
Subject to the
qualification in the oft-cited passage from the speech of Viscount Radcliffe in
Edwards v Bairstow [1956] AC 14 at p 36, namely, that where the
facts found are such that no person acting judicially and properly instructed
as to the relevant law could have come to the determination under appeal,
provided the method and approach of the valuation officer is one acceptable to
the highest tier of technical appeal, namely the Lands Tribunal, then
criticisms either of the method of approach or the application of expertise in
the valuation field cannot, in my judgment, found a successful appeal from the
Lands Tribunal on a case stated. Lord Diplock in his short speech in Baker,
Britt & Co Ltd v Hampsher (VO) (1976) 19 RRC 62 criticised the
framing of the case stated which used the terms ‘whether the tribunal
misdirected itself in holding that greater weight ought to be given to the
evidence of the rents of the comparables’ on the basis that this invited the
Court of Appeal to express its view as to the comparative weight to be attached
to two kinds of evidence adduced at the hearing, viz (1) the terms of
the actual letting to ratepayers of the premises to be valued, and (2) the
rents at which comparable premises were let, both of which approaches were
accepted as relevant in the ascertainment of the rateable value of the
premises.
In this case
it was common ground that the proper approach in the case of the hereditament
in question was that known as ‘the contractor’s basis of valuation’. This has
received the approval of the courts (see Cardiff City Council v Williams
(VO) [1973] RA 46). The method is based upon the ‘classic explanation’ of
the Solicitor-General in Dawkins (VO) v Royal Leamington Spa
Corporation (1961) 8 RRC 241, which has been set out in the judgment of
Glidewell LJ. I venture only the comment that the qualification of that method
made by Lord Denning MR, also already cited by Glidewell LJ, purported to do no
more than indicate that the valuer should as a matter of general principle make
an adjustment to the interest charged in order to arrive at the annual rent
within the meaning of the section. Otherwise, the precise degree to which a
reduction should be made is more appropriate for the techniques and expertise
of the valuer than for the judicial decision of the judge.
In the
judgment of Glidewell LJ the submissions made by Mr Eyre attacking in detail
the technical method of application of the valuation on the contractor’s basis
are considered at length. In particular, Mr Eyre’s attack was that the
decapitalisation rate adopted by the Lands Tribunal at stage 4 was too low. I
agree with the conclusion of Glidewell LJ that these are matters appropriate to
the expertise of the economist or valuer and not of the lawyer. The same
criticism applies to the figure adopted in the evidence accepted by the Lands
Tribunal for what is known as ‘buyer’s premium’. And, thirdly, a reflection of
the criticism of Lord Diplock in Baker, Britt’s case, the use made of
and the approach to the decapitalisation rate by the Lands Tribunal in
considering other comparable assessments which had been accepted by way of
settlement could not be challenged on appeal to this court.
Finally, so
far as stage 5, the final adjustment, is concerned, again the application of
this factor is one essentially in the province of the valuer and therefore is
not susceptible to challenge on this appeal.
In summary,
therefore, notwithstanding the able and attractive arguments of Mr Eyre, and
without, I hope, doing a disservice to the detail of his argument and the
careful analysis of it by Glidewell LJ, Mr Eyre’s submissions really amounted
to an invitation to the court to leave the territory of judicial decision on
points of law and to move into the arena reserved for technical decision by the
Lands Tribunal, the valuation court, and the experts in valuation, be they
economists, land agents, surveyors, or other specialists in this field.
Inviting as the invitation was made to appear by Mr Eyre, I agree with my lord
that it is an invitation which this court would be wrong to accept, quite apart
from the opinions expressed by Glidewell LJ on the detailed merits of the
valuation or decision of the Lands Tribunal, to which I do not find myself able
to make any useful contribution.
Accordingly,
for the reasons given by Glidewell LJ and the reasons given in this judgment, I
would dismiss the appeal.
Also agreeing,
WATKINS LJ said: The first and main question arising out of the stated case for
our decision is expressed by Mr Mallett, the member of the Lands Tribunal, in
these terms:
Whether the
approach of the tribunal was correct in law in failing to find the appropriate
market rate and make adjustments reflecting the nature, extent and terms of the
hypothetical tenancy, but instead quantified the element of inflation and
adopted a rate of interest (representing some form of borrowing rate free of
all inflation) when determining a decapitalisation rate for the purpose of
Stage IV of a contractors’ basis valuation.
We were
informed by the appellant that this is the first case in respect of a
university hereditament to reach the Court of Appeal under the current 1973
valuation list, and has the widest possible implications in respect of the
rates which university hereditaments throughout England and Wales will be
liable to pay. If the decision of the member can be said to be founded on an
error of law, and this matter has to be remitted for a hearing based upon what
is contended is the proper law, that may very well be so, seeing that in agreed
arrangements for other universities throughout the country 3 1/2% has been
regarded as the appropriate decapitalisation figure. If that is wrong then
obviously the implications are liable seriously to affect rating of
universities generally.
It is that
figure which is under attack, that is to say, the decapitalisation rate, or in
other words the application of the appropriate rate of interest to the
effective capital value.
Agreed
assessments for other universities undoubtedly influenced the member in coming
to his final conclusions, which were:
In summary it
seems to me that the real interest rate is not less than 1.4% and not more than
2.4%, that the borrower’s premium should be not more than 1%, and that the
addition for depreciation and repair should be not more than 1%. This would
result in a lowest possible figure of 3.4% and a highest of 4.4%. In the
absence of any evidence to the contrary, the evidence of agreed assessments on
other universities throughout the country is overwhelmingly in favour of 3 1/2%
as the appropriate decapitalisation figure and this is the percentage I adopt.
In achieving
the bracket of 3.4% and 4.4% within which to settle upon the rate of 3 1/2% the
member clearly relied upon the evidence preferred by him to all other of
experts called on behalf of Imperial College. That evidence, which he set out
in his illuminating reasoned decision, cannot in my judgment be said to contain
an approach erroneous in point of law to what to the layman is a perplexing
problem and to the expert one which admits of varying opinion some of which may
be of equal validity. The choice of which expert opinion is to be preferred
seems to me unquestionably to be for the tribunal of fact, in this case the
member.
The member is
himself a very experienced surveyor, who manifestly comprehended the law he had
to adopt as expounded in a number of leading authorities referred to him.
Moreover, I detect no arbitrary approach to the conflicting expert evidence he
heard such as would enable this court to say that his factual findings were
against the weight of the evidence. In my judgment, they clearly were not.
Where, then,
was the error of law complained of? In
common with Glidewell LJ, with whose judgment I agree, I see none. The member,
in my view, was in a like position to that explained by Willmer LJ, as to
another member of the Lands Tribunal, in Humber Ltd v Jones (VO)
(1960) 6 RRC 161 at p 171:
The fact is
that it is impossible to get away from the situation that the statute
postulates not only a hypothetical tenant but also a hypothetical landlord, and,
as the Lands Tribunal said in the passage read, in the context of a
hypothetical world in which the hypothetical tenant cannot become the owner of
the premises and cannot get a lease for a term of years. Moreover, one has to
postulate a world in which not only this hypothetical tenant is in that
position, but everybody else is in the same position. In the end, therefore, we
are in a world of make-believe. What the value of premises in such imaginary
circumstances would be seems to me to be very much a question of fact. It is a
question of fact for the tribunal, guided by the expert evidence of valuers and
such skilled persons, to say how much help can be derived from the terms of
actual tenancies negotiated in the real world for a term of years. The learned
member of the Lands Tribunal treated the question as one of fact; he had the
evidence of valuers before him, and he came to his conclusion treating the
matter as one of fact. I am quite unable to see that he was wrong and, for the
reasons which I have already stated, I cannot see that he has misdirected
himself with regard to the test to be applied.
The factual
issues involved in that and the present case differ, but the approaches to
settling upon the value of premises and so forth do not. To that I would add
that, once the member here had found the bracket as a matter of fact, his
decision to settle upon a 3 1/2% capitalisation rate, which coincidentally fell
neatly within the bracket, cannot be faulted. By agreement it has been of
general application in similar institutions, which doubtless have benefited
from expert advice.
For these and
the reasons provided by Glidewell LJ as to the first and second questions, I
would dismiss this appeal.
The appeal
was dismissed with costs of both respondents; an application for leave to
appeal to the House of Lords was refused.
