Rates and rating — Assessment — Chemical works — Rateable value — Contractors’ method — Plant and machinery — Effect of capital grants — Determination of rateable value
The appellant company owned a chemical works in
Newport, Wales, the initial construction of which started in 1947. The
valuation tribunal determined the rateable value of the works at £655, 000,
instead of £1.02m, with effect from 1 April 1990, and at £640, 000, instead of
£1.065m, from 30 September 1991. The company appealed and contended for £448,
000 and £443, 000 respectively. The valuation officer sought £814, 000 and
£804, 000. The issue before the tribunal included the likelihood of any capital
grant, the principles of the contractor’s method of valuation, rateability
under the Plant and Machinery Regulations and the rateable value of the
buildings. It was agreed that the contractor’s method was the only feasible
method.
was allowed. The rateable value was £589, 000 from 30 June 1990 and £584, 000
from 30 September 1991. Where specifically targeted grants have been paid, an
apportioned and discounted sum, relative to instalments, is properly deducted
before the finalisation of the effective capital value. The effect, if any,
upon rental value is to be judged by reference to the impact of the grant
regime upon rental values of industrial or kindred hereditaments in the local
market at the material date. In relation to the valuation principles, the
fundamental question is whether the hypothetical tenant can reasonably be
expected to pay a rent commensurate with the effective capital value. The
contractor’s basis of valuations seeks to replicate the working of the market:
the five stages are explained in Gilmore (VO) v Baker-Carr (1963)
10 RRC 205, LT. The correct perspective to adopt when considering allowances
and adjustments at stages 2 and 3 is that of the owner-occupier or prospective
purchaser. Circumstances peculiar to a tenant are taken into account at stage 5
when making final adjustments.
The following cases are
referred to in this report.
BP Refinery (Kent) Ltd v Walker (VO) [1957] 2 QB 305; [1957] 2 WLR 907; [1957] 1
All ER 700
Cardiff City Council v Williams (VO) (1973) 71 LGR 221; [1973] EGD 780; 226 EG
613; [1973] RA 46, CA
Cardiff Rating Authority v Guest Keen Baldwin’s Iron & Steel Co [1949] 1 KB 385;
[1949] 1 All ER 27; 65 TLR 159; 47 LGR 159, CA
Chesterfield Tube Co Ltd v Thomas (VO) [1970] 1 WLR 1483; [1970] 3 All ER 733; 68 LGR
768; [1970] RA 471
Coppin (VO) v East
Midlands Airport Joint Committee (1970) 16 RRC 386
Dawkins (VO) v Royal
Leamington Spa Corporation (1961) 178 EG 293; 8 RRC 241; [1961] JPL 264
Distillers Co (Bottling Services) Ltd v Fife Assessor [1983] RA 228
Fife Regional Assessor v Distillers Co (Bottling Services) Ltd [1989] RA 71
Gilmore (VO) v Baker-Carr
(1963) 188 EG 977; 10 RRC 205; [1964] JPL 287
Gudgion (VO) v Croydon
London Borough Council (1970) 16 RRC 305
Hays Business Services Ltd v Raley (VO) [1986] 1 EGLR 226; (1986) 278 EG 1101
Imperial Chemical Industries plc v Central Region Assessor [1989] RA 333
Imperial College of Science & Technology v Ebdon (VO) [1987] 1 EGLR 164; (1987) 281 EG 419; [1986] RA
233, CA; [1985] 1 EGLR 209; (1985) 273 EG 81 and 203; [1984] RA 213; [1985] JPL
491, LT
Ind Coope Ltd v Burton-upon-Trent
County Borough Council [1961] RVR 202; (1961) 8 RRC 173
Leicester City Council v Nuffield Nursing Home Trust [1979] RA 299
London County Council v Churchwardens of Erith Parish and Dartford Union Assessment
Committee [1893] AC 562; [1891-94] All ER Rep 577
R v London
School Board (1885) 55 LJMC 33
Robinson Brothers (Brewers) v Houghton & Chester-le-Street Assessment Committee
[1938] AC 321; [1938] 2 All ER 79, HL
Scottish Exhibition Centre Ltd v Strathclyde Regional Assessor [1989] RA 269
Sheerness Steel Co plc v Maudling (VO) [1986] RA 45, LT
Society of Medical Officers of Health v Hope (VO) [1960] AC 551; [1960] 2 WLR 404; [1960] 1 All ER
317; (1960) 58 LGR 165; 5 RRC 388; 53 R&IT 102, HL
Thomas (VO) v Manor
Vinegar Brewery Co Ltd (1960) 175 EG 561; 6 RRC 353; [1960] JPL 282
West Midland Baptist (Trust) Association
(Inc) v Birmingham Corporation [1970] AC
874; [1969] 3 WLR 389; [1969] 3 All ER 172; (1969) 20 P&CR 1052
Whitfield (VO) v National
Transcommunication Ltd [1995] RA 214
Willacre Ltd (t/a David Lloyd Slazenger
Racquet Club) v Bond (VO) [1986] 1 EGLR 224;
(1986) 278 EG 629; [1987] RA 199
George Bartlett QC and
Richard Glover (instructed by Gerald Eve, chartered surveyors) appeared for the
appellant; John Cherryman QC and Timothy Mould (instructed by the solicitor to
the Inland Revenue) represented the respondent.
Giving his decision, DR THOMAS HOYES said: These were 10 appeals, later
consolidated into one appeal, from the decisions of Gwent Valuation Tribunal,
which determined the rateable value at £655, 000, instead of £1.02m in the
rating list, with effect from 1 April 1990, and at £640, 000, instead of
£1.065m, effective from 30 September 1991. Before this tribunal the ratepayer
finally contended that the rateable values should be £448, 000 and £443, 000,
and the valuation officer £814, 000 and £804, 000, effective from 30 June 1990
and 30 September 1991 respectively. The difference between the two values being
consequent upon demolitions during 1991.
Witnesses
The witnesses called for the appellant were: Mr
Stuart R Lindsay, a partner in Deloitte & Touche, chartered accountants of
Cardiff and elsewhere, Mr Stephen A Burge bsc
(Hons) Chem Engineering, chartered chemical engineer in the employ of Monsanto
plc at Newport, and Mr Paul R Needham FRICS, a member of the Rating Surveyors
Association, a partner in Gerald Eve, chartered surveyors of London and
elsewhere.
The witnesses called for the respondent were: Mr
Gareth Evans, head of the Industrial Development Division of the Welsh Office
in Cardiff, Mr Paul Sanderson JP LLB FRICS IRRV, a member of the Rating
Surveyors Association and superintending valuer of rating in the Valuation
Office Agency (VOA) London, Mr David J Raley FRICS IRRV, a specialist plant and
machinery valuer (VOA) London, and Mr Ivan D Legg FRICS, a member of the
specialist valuation unit (VOA) Leeds.
While the prime issue in contention before the
tribunal was the correct rateable value of the hereditament at the material
dates, in the cause of clarity it is helpful to identify the areas spoken to by
the respective witnesses by reference to topic or subsidiary issue as follows:
1. The likelihood of any capital grant from public
funds being payable to Monsanto plc in certain assumed circumstances; Mr
Lindsay and Mr Evans.
2. The principles of the contractor’s method of
valuation, adopted by both parties in respect of the appeal hereditament, and, inter
alia, the relevance of capital grant thereto; Mr Needham and Mr Sanderson.
3. The historical development of the hereditament
and aspects of its operation by Monsanto plc; Mr Burge.
4. The disputed rateability under the Plant and
Machinery Regulations of certain types of plant on the hereditament; Mr Needham
and Mr Raley, who also deal with the value of other plant accepted to be
rateable.
5. The rateable value of the hereditament in
respect of buildings, other structures, land, plant and machinery; Mr Needham
and Mr Legg.
The evidence and submissions upon these topics, so
far as feasible, will be recorded and considered in a similar order.
Facts
The parties have not agreed a statement of facts
but merely assembled and lodged a bundle of plans, photographs and other
documents that were said to be largely, if not wholly, non-contentious. The
following material facts are found from the evidence and common ground that
emerged during the hearing.
1. The hereditament should be valued using the
contractor’s basis as there is no evidence of the letting of similar
hereditaments.
2. The hereditament is to be valued rebus sic
stantibus at the material dates and having regard to the then physical
state of the locality.
3. In stage 1 of the contractor’s basis valuation
(estimated replacement cost) ‘the costs agreed (by the parties) are those of a
fluctuation of price tender as at AVD and are thus a proxy for the total costs
implied in an AVD completion date, so no further adjustment is required to be
made’; Mr Bartlett for the appellant and not challenged for the respondent.
4. For the purpose of RSA under the Industrial
Development Act 1982 Newport is, and was in 1988, located in an intermediate
area.
Capital grant
Mr Richard Glover called Mr Lindsay, who, in 1985,
had been seconded for a year to the Welsh Office as a deputy director of
industrial development with responsibilities for the Regional Selective
Assistance Scheme in Wales. He currently advises companies upon obtaining
grants in Wales, and for some seven years was a member of the Welsh Office
Urban Investment Grant Panel (now disbanded) advising the Secretary of State on
property development grant matters.
Mr Lindsay said that he had been asked ‘to comment
upon the probability of Monsanto plc securing a grant in April 1988 for the
construction of the Newport works’, and his evidence was directed to this
issue. He selected the Regional Selective Assistance (RSA) scheme under the
Industrial Development Act 1982 as the most appropriate provision and
identified its characteristics as discretionary and negotiable; the limits of
negotiation being determined by the level of capital expenditure and the number
of jobs to be created and/or safeguarded. The main criteria are viability, jobs
benefit to the UK and additionality, which means that the government seeks
something additional for the economy in the sense of something that would not
otherwise happen, would happen later or would happen on a smaller scale.
Mr Lindsay said that during the five years
1982-1987 Monsanto had received RSA grants in respect of three projects at the
Newport works and that these had amounted, on average, to 12.9% of the new
capital expenditure. On the basis that the Newport works, employing some 460
persons was to be constructed in its entirety in April 1988 at a cost in excess
of £20m, Mr Lindsay concluded that the project would attract a grant of £2.75m.
To satisfy the additionality criteria Monsanto would have indicated
unwillingness to embark upon a ‘greenfield’ development without grant
assistance, and pointed out that its product market could be better developed
in Antwerp, where it already had a significant operation. It was his opinion
that internationally mobile projects, such as the Monsanto operation, would
attract grant as a matter of course, and it was now common for foreign-owned
companies to receive significant grants to persuade them to set up in Wales.
Accordingly, ‘Monsanto or any other company in their position would be
justified in expecting that they would receive a grant of some £2.75 million’.
Mr Lindsay said that while the payment of a grant was not automatic, a company
intending to create 400-plus jobs would receive a positive and favourable
response from the Welsh Office to any grant application.
In cross-examination, Mr Lindsay accepted that the
creation of jobs at a chemical works depended upon the provision of process
plant as well as rateable plant and buildings. He said that the estimated grant
of £2.75m had regard to a 1988 cost of £20m for the rateable hereditament, but
further expenditure upon process plant etc would not increase the grant
because, at £2.75m, it was at the normal ceiling figure of cost per job to be
created. While agreeing that £2.75m was a small proportion of the total cost of
creating the Newport works, if Monsanto would not have developed a greenfield
site without grant aid then £2.75m would persuade the company to do something
it would not otherwise do, the additionality point, and the creation of 450
jobs would be attractive to the Welsh Office. Although £2.75m may be a small
proportion of the total likely cost of creating the Newport works, it would be
for Monsanto to show that it was a material sum such as to result in investment
in Newport rather than Antwerp. Mr Lindsay accepted that any grant aid
sanctioned was to be paid in stages over time and if the predicted jobs did not
materialise, a lower amount than that agreed might actually be paid.
Mr Timothy Mould called Mr Evans, who said that
his division is responsible for assessing all applications for grants,
monitoring projects and making payments. He had been in the post since April
1991, and during the intervening five years some 1, 150 applications for over
£474m had been appraised. His evidence was directed to informing the tribunal
as to how the RSA grant scheme works and to demonstrate that the claim by the
appellant that ‘grant would probably have been forthcoming’ is flawed.
Mr Evans explained that the main purpose of the
RSA is the creation or safeguarding of jobs, and for this to happen there must
be a project with defined capital expenditure. The amount of grant paid is that
judged to be the minimum necessary to enable a project to proceed within a
given timescale and capital expenditure to open a new plant or expand or
modernise an existing plant is eligible for consideration, but not the routine
replacement of capital equipment. Moreover, ‘it would be expected that the
majority of expenditure related to plant and machinery (productive assets)
rather than land and buildings’, and speculative building would not qualify. Mr
Evans said that with large capital-intensive projects the maximum grant
available would be determined by the number of jobs created or safeguarded;
here he was at one with Mr Lindsay in respect of the appeal premises.
With respect to the criteria for grant approval,
Mr Evans said that the need for grant (additionality) would be very difficult
to prove if the project had already started and also where ‘the maximum
potential grant comprised only a small proportion of the project costs’. The
main rationale for the RSA scheme has always been the creation of permanent
jobs, and, to be eligible, both the capital expenditure and the employment
would have to be carried out and provided by the recipient of the grant. Mr
Evans said that the construction of the rateable hereditament on its own would
not be eligible for grant as it would not involve the creation of any jobs. He
did not, however, dispute that on the basis of creating about 450 jobs, the
number at Newport works in 1988, the maximum potential grant would be about
£2.7m, but this sum would represent a very small proportion of the total value
of the works, say £100m in 1988, (publicly stated by the appellant company to
be £40m in 1985 and £150m in 1992). In these circumstances, the applicant would
have needed to demonstrate that ‘such a very small contribution was,
nevertheless, critical to a decision to proceed with the
Lindsay’s figures) could be critical to the additionality argument, it became
insignificant when related to his own figure of £100m. Against this background,
Mr Evans did not consider that any grant would have been offered and disagreed
with Mr Lindsay’s observations that internationally mobile projects would
attract grant assistance as a matter of course. He was aware of applications by
multi-national companies being refused where the grant would have been small in
comparison with the total capital cost of the project.
In cross-examination, Mr Evans said that in
considering the likelihood of grant being paid to Monsanto to create the
Newport works, he had taken account of the evidence of Mr Burge (see later) of
the alternative location in Antwerp, but was not persuaded that £2.75m would
make the difference. He did, however, agree that Newport offered no advantages
over Antwerp to the company, and he did not challenge the evidence of Mr Burge
as to the attractions or otherwise of Newport for the company. He conceded that
in cases where there was a realistic risk of jobs moving from Wales, then his
department would probably make a grant offer.
Findings
1. Any potential grant payment in respect of the de
novo creation of the works would be limited in amount by the number of jobs
to be provided.
2. If the hypothetical industrialist
owner/occupier proposed, and did in due time employ, 450-plus persons, the
maximum sum offered and payable would be about £2.75m.
3. That sum would not be considered and offered
against the costs of the rateable hereditament alone (excluding land) at circa
£20m (a figure of the same order as in Mr Legg’s valuation for the respondent)
but against a total expenditure of about £100m, upon the rateable hereditament
together with process and other non-rateable plant.
4. On this basis, the grant would represent about
3% of total expenditure.
5. I am not convinced, on the evidence, that a
grant of 3% would satisfy the test of additionality as it was explained to me.
6. Even if it did, due to the prospect of Monsanto
as one of a number of hypothetical owner/occupiers demonstrating a preference
to locate elsewhere in the absence of grant assistance, only about 20% of the
grant payment, on a pro rata to capital value basis, could be referable to the
rateable hereditament.
7. If greater emphasis in the grant approval were
placed upon expenditure on process plant, as more directly employment-related,
the 20% would be further reduced.
8. On the evidence, it is the practice to pay
grant by instalments over three to four years, subject to attainment of job
targets, and, accordingly, the amount offered needs to be discounted prior to
inclusion in any valuation.
These findings are made before any decision has
been reached as to whether the potential receipt of grant has relevance at all,
consequent upon legal authority and/or valuation methodology, to the principal
issue in these appeals, namely the correct rateable values for the
hereditament.
The contractor’s basis of valuation
It is not in dispute that the only feasible
approach to the rateable value of the appeal hereditament is the contractor’s
basis, but there are issues between the parties as to how it should be
interpreted and applied in 1990. The position, in essence, is that Mr Needham
adopts the classic and established approach that has in the background the
fiction of an ability in the hypothetical tenant to create, by site purchase
and construction thereon, an alternative hereditament; whereas Mr Sanderson
focuses solely upon the actual hereditament and, at the outset, the capital
cost of its creation as new. In effect, a costing exercise that pays no regard
to any option in the hypothetical tenant to create, at least for valuation
purposes, an alternative hereditament elsewhere. Each approach leads to further
and different assumptions, which are also in contention as to their logic,
reality and practicality.
Evidence
Mr George Bartlett called Mr Needham, who has some
28 years’ experience in valuation for rating, particularly of specialist heavy
industrial hereditaments in South Wales used in the steel, oil and chemical
industries. Mr Needham adopted as his approach to the contractor’s basis of
valuation the classic explanation by Sir Jocelyn Simon QC, when Solicitor
General, before this tribunal in Dawkins (VO) v Royal Leamington Spa
Corporation (1961) 8 RRC 241; 178 EG 293, namely:
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.
This explanation was approved, adopted and added
to by Lord Denning in the Court of Appeal in Cardiff City Council v Williams
(VO) [1973] RA 46; (1973) 226 EG 613; the additional qualification in
essence being that the annual rent (resulting from the application of the
method) ‘must not be fixed so as to be only marginally below the interest
charge. It must be fixed much below it’, because, in terms, an owner/occupier,
unlike a yearly tenant, has the benefit of any appreciation in capital value
arising from monetary inflation and other factors.
Mr Needham emphasised that, following these
principles, there emerged the maximum annual value for a hereditament, because
what has to be found is not the rent the landlord would seek but the rent the
tenant would pay. Material to arriving at this rent, from the starting point of
the cost of creating a replica hereditament, is the principle of rebus sic
stantibus, to have regard to the fact that the actual hereditament is of
some age, which, in turn, raises the prospect of physical, functional and
technological obsolescence. Indeed, this may be so severe or advanced in
respect of some constituent parts of the hereditament that the proper approach
is to substitute, in terms of cost, the modern equivalent component, be it a
building or item of rateable plant. Moreover, where the total hereditament as
an entity or significant parts or sections of it depart from the ideal or the
widely acceptable due to obsolescence in the above categories, Mr Needham said
explicit allowance should be made within the method of valuation. In his words,
‘we are utilising the comparison between the ‘actual’ and ‘ideal’ as a matter
of determining the quantum of allowances to be applied to the actual
hereditament, which leads to it being worth less than the modern equivalent’.
Taking account of the above principles Mr Needham
then identified the long accepted and well-known five stages of the valuation
process as originally set down in 1963 in Gilmore (VO) v Baker-Carr
(1963) 10 RRC 205; 188 EG 977, together with the addition of a sixth stage in Imperial
College of Science & Technology v Ebdon (VO) [1984] RA 213* by
this tribunal. He observed that the contractor’s basis of valuation and its
identified stages had been referred to by the Court of Appeal, Glidewell LJ, in
Imperial College [1986] RA 233†, as ‘a method of calculation which has
been devised by valuers with the approval of the Lands Tribunal and the
Courts’.
*Editor’s note: Also reported at [1985] 1 EGLR
209; (1985) 273 EG 81 and 203
†Editor’s note: Also reported at [1987] 1 EGLR
164; (1987) 281 EG 419
In respect of Estimated Replacement Cost (ERC),
stage 1 of the method, Mr Needham said that as the rating hypothesis assumes
the hereditament to be vacant and to let at the valuation date (AVD), the ERC
should therefore be assessed as at that date. He referred to the
College. In these appeals, the ERC is agreed, having regard to unit costs
reflecting the formulation by Mr Bartlett recorded at item 3 of the facts
above. In relation to Adjusted Replacement Costs (ARC), stage 2, Mr Needham
said that the ultimate objective of the total exercise is to determine a value
for the existing hereditament rebus sic stantibus, and not the cost of a
new one. For valuation it is assumed that the disadvantages and disabilities of
the premises will be known to the tenant, and, conversely, the advantages to
the landlord. Adjustments at stage 2 are required to reflect the obsolescence,
in its various forms, of the existing premises. He stated that plant and
machinery should normally receive greater allowances for age and obsolescence
than buildings because it depreciates physically more rapidly, but particularly
to reflect the fact that modern high technology plant very quickly becomes out
of date. The hypothetical tenant when assessing a rental bid, of which stage 2
is a part of the exercise, would take into account the potential profitability
of the various plants and plant items and would seek to reflect the efficiency
of the item compared with the new equivalent. Mr Needham categorised this stage
of the valuation exercise as the adjusted replacement cost of the buildings,
civil engineering (civils) and rateable plant elements, reflecting the various
factors that represent the adjusted cost of the equivalent compared with the
actual property.
In terms of the totality of the rateable
hereditament there then remains the land or site, a cost for which is
conventionally brought into account at stage 3, Effective Capital Value (ECV).
When the site is included, the total sum represents the cost to the prospective
hypothetical tenant of creating a similar hereditament. Mr Needham said that
the cost adopted for land should be its value for existing use, ignoring any
potential for development for a more valuable use, and should reflect the
inherent advantages and disadvantages of the site within the local or regional
market. Mr Needham asserted that the difference in percentage terms between the
totals of stages 1 and 2 should also be applied to the value of the site as
defined above; in support, he cited this tribunal in Imperial College at
p231. Mr Needham, at the conclusion of his consideration of stage 3, observed
that cost and value are not synonymous, and that the conversion of capital cost
to capital value has to be carefully considered in reflecting those matters
that affect cost, cost and annual value and solely annual value. The inherent
problem is that the contractor’s basis is used where there is no evidence of
market transactions, and, thus, it is difficult to test the resultant capital
value against open market value evidence.
Since 1990 stage 4, decapitalisation rate, has
ceased to be a matter for judgment and is now prescribed by regulation for this
class of hereditament at 6%.
At stage 5, stand back and look, Mr Needham said
that the previous four stages should be reviewed to ensure that the adjustments
are correct and consistent and that they produce ‘no higher rent than the
occupier would be willing to pay’. He saw it as the opportunity to make any further
adjustments deemed relevant, particularly for those factors that affect the
value of the premises as a whole, namely access, site conditions, layout and
operational problems. Stage 6 was regarded by Mr Needham as an extension of the
fifth stage, and reflects the higgling of the market and, thus, the relative
bargaining strengths of the hypothetical landlord and tenant, which might
result in the product of the fifth stage being further amended.
Against these principles and background Mr Needham
identified a number of contentious issues in the valuation process; the more
significant ones being:
1. Stage 1: the availability and deduction for a
capital grant of £2.75m following the evidence of Mr Lindsay.
2. Stage 2: the allowances for obsolescence of buildings,
civils and rateable plant and machinery compared with those of Mr Legg,
assisted in part upon plant and machinery by Mr Raley.
3. Stage 3: allowances for sections or parts of
the works subject to disability as entities over and above obsolescence in the
constituent parts and the value of the 54-acre site.
4. Stage 5: an allowance of 10% for overall
disabilities consequent upon piecemeal development of the works compared with
the 5% proposed by Mr Legg.
Mr Needham described his objective at stages 2 and
3 in particular as seeking to ‘reflect value to the hypothetical tenant as
owner/occupier’, and he saw the traditional phrase, Effective Capital Value
(ECV), as representing ‘the capital value of the worth of the assets to the
tenant as owner/occupier’ but as part of the route to rateable value. He
considered it correct to deduct any capital grant likely to be receivable at
stage 1 because it related either directly, or at one remove via job creation,
to the cost of creating physical productive assets; cost being the currency at
stage 1 of the valuation process. Moreover, he asserted that the effect of
grant payments in assisted areas was generally to lower rental values in
furtherance of the policy of providing land and buildings at a rental level that
otherwise could not be justified commercially. In making a deduction for grant
at stage 1, Mr Needham said he was following the decision of this tribunal in Willacre
Ltd (t/a David Lloyd Slazenger Racquet Club v Bond (VO) [1987] RA
199*.
*Editor’s note: Also reported at [1986] 1 EGLR
224; (1986) 278 EG 629
In cross-examination, it was put to Mr Needham
that the valuation process did not require an alternative hereditament to be
costed. He disagreed, and said that it was necessary to give the tenant the
alternative per Dawkins otherwise there was no market and another
yardstick would be needed by which to judge the allowances to be made at stage
2. The tenant, to create a negotiating position in a market, has to look to a
notionally alternative property. He denied that if a hereditament is valued for
an owner/occupier it was an ‘asset value’; he saw it as placing a capital value
upon the attributes of the hereditament. He accepted that no alternative was
ever created and that no actual building contract was entered into, but he
regarded the use of unit construction costs as a proxy for a contract and its
amount. Mr Needham conceded that the statutory rating hypothesis envisages a
bargain between landlord and tenant at the right price, but he did not accept
that his approach was blinkered and that it looked at the matter solely from
the tenant’s point of view, because it was the tenant who paid the rent and the
object was to find the rent a tenant will pay.
In relation to the receipt of grant, or the
prospect of it, Mr Needham did not accept that it was irrelevant to
construction, etc, cost at stage 1 because it would, or could, reduce the total
cost, namely the net outlay of the party commissioning the buildings etc. He
did not accept that by having regard to any capital grant the hypothetical
tenant would be enabled to pay a higher rather than a lower rent, because if
the prospective tenant can build for a lower cost the rental bid for the actual
hereditament will accordingly be lower. The issue is the net cost of the
alternative as an index or proxy for the rent to be paid. If grants affect
rental value in the market, then the effect should come through in the
contractor’s basis of valuation; grant aid is commonplace in South Wales and it
has a market effect. Mr Needham said that grant was provided to ensure that
development takes place, and he agreed that RSA grant was related to jobs and
productive capacity rather than being for any specific purpose, such as the
construction of a building. He also accepted that it was linked to an
operational works or plant rather than solely to what constitutes a rateable
hereditament, but he said all the parts are inextricably linked in facilitating
jobs and thus attracting grant. Because he had followed Willacre he did
not consider it correct to allow for the payment of grant, or its prospect, at
stage 5, as suggested in the Rating Forum Guidance Note 1995 (the forum note).
Mr Needham gave further evidence upon these topics
in rebuttal of the evidence of Mr Sanderson, and, to aid understanding, it will
be noted after the summary record of Mr Sanderson’s evidence.
Mr John Cherryman called Mr Sanderson, an
experienced rating valuer, a member of the Wood Committee, which was set up in
1991 to review the rating of plant and machinery and which reported in 1993, a
member of the Joint Professional Institutions Rating Valuation Forum (the
forum) and with experience in the Valuation Office Agency (VOA)
current responsibility within the VOA for a wide range of rating matters,
including the central rating list and valuation methodology. His evidence was
directed to the VOA’s application of the contractor’s basis of valuation, under
challenge in these appeals, and whether capital grant is a factor to be brought
into consideration in the valuation approach.
Mr Sanderson said that it was mutually agreed in
these appeals that all relevant matters could be covered by reference to the
conventional five stages of the method. Furthermore, no issue remains as to the
relevant date for the stage 1 cost, namely AVD. Mr Sanderson said that he and
most rating valuers no longer regarded the suggested ‘what would it cost
approach’, based on the prospect that the hypothetical tenant might build an
alternative property, as a satisfactory basis for carrying out the valuation,
since, if taken literally, it requires the valuer to make entirely unrealistic
assumptions that conflict with the object of the exercise, which is to value
the actual hereditament. For these reasons, he does not accept the proposition
in Ryde on Rating at E[540] that the contractor’s basis ‘proceeds on the
hypothesis that the prospective tenant has a choice between renting the actual
hereditament and constructing similar premises elsewhere of which he would be
the owner’. In highlighting the unreality, he sought support in the judgment of
Lord Prosser in Fife Regional Assessor v Distillers Co (Bottling
Services) Ltd [1989] RA 71. He listed some 11 issues or questions that can
or may arise from adopting this ‘unreal’ alternative elsewhere approach (see
Annexure 4) and said that they highlight the problems that result from taking Dawkins
too literally. He saw that decision, and, by inference, the classic explanation
by the then Solicitor General, as providing, ‘an intellectual justification for
using a cost-based approach to valuation, but it does not seek to lay down
guidance on how valuers should carry out the exercise’. Moreover, he considered
contemplating the provision of an alternative property as inconsistent with the
underlying hypothesis that the valuation is to be made on the basis that the
locality is physically as it was on the material day; see LGFA 1988 Schedule 6
para 2(6).
Mr Sanderson categorised Mr Needham’s approach,
which had regard to creating, notionally, an alternative hereditament following
Dawkins, as the ‘what would it have cost’, backward-looking approach.
This approach raised many practical difficulties (see Annexure 4), and he
considered it untenable. He said that Mr Bartlett, in opening, had described
the assumption of an alternative hereditament as a fiction and unreal, and he
would add unnecessary, because the contractor’s basis can be applied without
assuming alternative premises being constructed or instantaneously erected at
AVD. In fact, Mr Needham has costed the actual hereditament rebus sic
stantibus and spoken to ‘value to the tenant as an owner/occupier’. He was
critical of this approach, because for rating the concern is with the
hypothetical tenant whose views may be different to an owner/occupier, he
regarded Mr Needham’s approach as, in reality, that of depreciated replacement
cost, which is not appropriate to finding annual values. He concluded that, in
considering the proper application of the contractor’s basis, it is not
appropriate to envisage either that the hypothetical tenant could, or would,
build alternative premises elsewhere per Dawkins, or that he has already
done so, regarded as Mr Needham’s approach. Mr Sanderson’s position was that
the contractor’s basis of valuation had evolved over the years, and this
process continues, so that previous practice needs to be examined in the light of
more recent developments and, where appropriate, be further refined; these
appeals are part of that process of refining the method and basis. He next
referred to certain observations upon the contractor’s basis by the Wood
Committee in chapter 11 of its report and to the activities and views of the
rating forum since mid-1993, including the publication of the forum note in
November 1995. Mr Sanderson considered that the forum was correct in rejecting
the costing of an ‘alternative property’ as the approach to be adopted when
applying the contractor’s basis, and that the preferred method is to ‘cost’ the
actual hereditament or property because ‘the rental value of the property
concerned is being ‘tested’ by having regard to the annualised equivalent of
the estimated cost of construction’: para 1.6. In terms of the site element to
be included at stage 3 of the valuation process, Mr Sanderson also referred to,
and agreed with, the forum note at para 3.3.1, namely that two stages are
involved: ‘the first is to find the ‘cost’ of the site, which is based on the
open market capital of the land as at the valuation date (AVD). The second is
to consider any adjustments for any disadvantageous effects, which the actual
buildings or rateable structures may have on the value of the site’.
In summary, Mr Sanderson said that the
contractor’s basis requires a ‘costing’ exercise, not a ‘building’ exercise,
and that the costing should be based upon costs, primarily average unit cost,
current at AVD; a matter no longer in issue in these appeals. He added that, in
practice, most valuers and building surveyors have costed the actual property,
as in the instant appeals, as at the valuation date, and that little concern
has been expressed about the intellectual justification for such a simple
practical approach. Moreover, although both landlord and tenant are
hypothetical the property is real, and the concern is with the value of the
real or actual property or hereditament. An appropriate question for the
hypothetical tenant to ask is ‘what cost is represented in this property, the
actual hereditament?’.
Mr Sanderson said that the correct hypothesis is
that the hypothetical tenant, in considering a rental bid for the appeal
hereditament, recognises that no other direct information is available upon
which to base the bid, and so carries out an exercise to give a starting point,
which, with appropriate adjustments, will enable an estimate of rental value to
be made. He asserted that such a simple ‘cost as at AVD’ approach to establishing
ERC at stage 1 of the contractor’s basis, and which the VOA has adopted, meets
the statutory requirements, follows accepted rating valuation practice and
guidance and is therefore correct.
In commenting upon particular aspects of Mr
Needham’s evidence, Mr Sanderson said that he did not accept that the
contractor’s basis provided a ceiling or maximum rental bid by the hypothetical
tenant nor did he agree that the concern was wholly with what the tenant would
pay; the object of valuation is to arrive at a rent that would be agreed
between two hypothetical parties. Mr Sanderson did not accept that the
valuation was being carried out on the assumption that the parties had the
benefit of hindsight, as asserted by Mr Needham. On the contrary, while the
hypothetical landlord is expected to be fully familiar with the attributes of
the premises he is seeking to let, it is well established that the hypothetical
tenant is to be regarded as ‘fresh on the scene’ and, accordingly, would take a
view on the suitability of the hereditament after inspection in preparation for
deciding the rental bid.
Turning to the question of capital grant in the
valuation process, a significant issue in these appeals, Mr Sanderson said that
whether any grant was payable had nothing to do with the cost of construction,
because that cost remained the same regardless of grant. He accepted that grant
was relevant to the question of who bears the cost of construction but not to
the cost itself. For this reason, he saw no need to make any adjustment at the
wholly cost-based stage 1 of the valuation; in his view, at this point there is
no concern with who might incur the cost of construction of the hereditament,
it is merely a costing exercise uninfluenced by personalities, hypothetical or
otherwise, and other external factors. Likewise, he saw grant as equally
irrelevant to the other four stages of the valuation, although he acknowledged
the reservation or possibility in the forum note (at para 3.5.3) with respect
to stage 5. However, Mr Sanderson, in the instant appeals, could see no
justification for adjustment to reflect the prospect, if any, of the receipt of
grant; he questioned why the hypothetical parties, particularly the landlord,
would make such a deduction when agreeing the rent to be paid. Mr Sanderson
referred to Willacre, in which a deduction had been made at stage 1 in
the valuation of a sports centre, but he regarded the justification for making
such a deduction as neither clear nor convincing, and little weight should be
attached to that decision. He preferred the view expressed in Imperial
Chemical Industries plc v Central Region Assessor [1989] RA 333 by
the Lands Valuation Appeal Court, on appeal from the Lands Tribunal for
Scotland, relating to a chemical works. There, the contractor’s basis was
described as ‘more of a mental exercise than a reality’, not involving the
construction of other premises elsewhere, and it was considered
grant payments following Distillers Co, in which the depressing effect
of grants upon rents was taken into account in fixing the decapitalisation rate
at stage 4 (now prescribed at 6% since 1990). He also referred to the decision
of the Lands Tribunal for Scotland in Scottish Exhibition Centre Ltd v Strathclyde
Regional Assessor [1989] RA 269 where the tribunal had declined to make a
deduction for grant from ERC at stage 1 or elsewhere.
Mr Sanderson said that, in applying the
contractor’s basis, a hypothetical costing exercise for the purpose of
providing a valuation was involved; it was a notional exercise, but no actual
construction or development was taking place. Even if grant may be payable for
an actual project, it is irrelevant to the notional exercise embarked upon. If
grant has been paid in the past towards the construction of part or all of the
hereditament, it does not follow that any further moneys would be payable for a
replacement, real or notional: indeed, it is unlikely that it would be paid for
the mere replacement of existing premises. The position becomes even more
artificial if the concept of an ‘alternative property elsewhere’ is adopted,
because financially assisting the development of an alternative, where grant
aid has been given in respect of the actual premises, is inconsistent with the
object of providing the actual grant in the first place. As any grant payment
in the instant appeals would have to be job-related, it is not payable in
respect of land and buildings unless they are part of a larger project meeting
the employment criteria. It follows that it would not be available to a
landlord nor to a prospective tenant of vacant and to let premises, as no jobs
would have been created at that stage to attract grant. Even if grant it is
payable, it is paid in stages over time on proof of created jobs and not as a
single payment at the outset. Furthermore, any hypothetical tenant receiving
grant is likely to spend a substantial proportion of it, so as to create the
required jobs, upon non-rateable plant, etc. For these reasons at least, it is
wholly wrong to seek to deduct from ERC the whole of any likely grant as Mr
Needham has done. He saw financial assistance to the hypothetical tenant,
following Leicester City Council v Nuffield Nursing Home Trust
[1979] RA 299, as tending to increase the ability to pay rent rather than as
indicative of an inability to pay, or at least so persuade the hypothetical
landlord in negotiations. Mr Sanderson also queried whether if any deduction is
appropriate for grant it should be the gross amount of the taxable instalments
or whether it should be the net sums after tax. He referred to the views of
this tribunal as to the effect of tax allowances in respect of capital
expenditure upon rents agreed between hypothetical parties in the context of
rating in Baker-Carr and concluded that tax allowances, like grant, have
nothing to do with cost at stage 1 of the contractor’s basis of valuation.
Mr Sanderson was emphatic that, upon his approach
to the principles underlying the contractor’s basis of valuation, the
likelihood that capital grant might be payable was irrelevant, and he said that
the appellant’s adherence to the concept of creating alternative premises
elsewhere was primarily to introduce the issue of grant into the valuation process;
in terms, it was a peg upon which to hang the valuation, which was misconceived
and wholly incorrect. It was inconsistent with decided cases and current
valuation practice and thinking.
In further evidence, Mr Needham said that he
disagreed with the principles of the contractor’s basis as interpreted by Mr
Sanderson. While it was not in dispute that Dawkins identified the
intellectual justification for application of the contractor’s basis of
valuation, it was his opinion that it would be wrong to carry out the valuation
exercise in a way that undermines that justification. Mr Sanderson assumes,
contrary to Dawkins, that the tenant has no alternative but to take a
tenancy of the appeal hereditament with the result that the valuation is not
carried out from the tenant’s point of view.
In respect of the issue of capital grant, Mr
Needham said that as the person who incurs the expenditure would receive the
grant, if any, it follows that the gross cost to that person is reduced
accordingly. To the extent that grant affects land values it is reflected in
transaction prices adopted as comparables. He was unaware of any decisions of
this tribunal, pre-1990, where it has been sought to reflect grant by the
decapitalisation rate applied at stage 4, and it is inappropriate to suggest
that a regional grant is reflected in a prescribed decapitalisation rate that
has national application. The practice in Scotland prior to 1990 was in the
context that decapitalisation rates were derived from market yields upon
property, which were deemed to reflect the availability of any grant, whereas
the now prescribed rate is based upon economic theory relating to interest
rates: see 1989 DOE consultation paper. The prescription of the
decapitalisation rate does not preclude grant being reflected elsewhere in the
valuation; a similar view is contained by reference to stage 5 in the forum
note, which is, and should be treated as, a guidance note only. He did not
accept the observations of Mr Sanderson in respect of Willacre as this
tribunal’s rationale for reflecting the grant payment is abundantly clear. Mr
Needham clarified his earlier reference to ‘the tenant as owner/occupier’ by
stating that ‘the rating hypothesis assumes a hypothetical tenant and the grant
would be available to the tenant as the owner/occupier of the alternative
property he might construct’. He suggested that Mr Sanderson was inconsistent
in his approach because he sought to remove the required steps, practical
matters and timescales, inherent in notionally creating alternative premises by
the prospective hypothetical tenant, but sought to reduce the likely value of
grant by reliance upon the real world fact that it was payable by instalments.
In cross-examination, Mr Sanderson agreed that, in
his capacity as superintending valuer of rating, he had advised Mr Legg in the
valuation of the appeal hereditament not to import the Dawkins concept
of ‘an alternative property’, and approach it as a ‘costing exercise’ only.
This approach had been put into practice by his predecessor in office for and
prior to the general revaluation operative from 1990. He said that it was only
necessary to import the concept of an ‘alternative property’ to give a
foundation for the idea of grant being paid and its possible relevance to
valuation, but grant cannot arise unless there is an actual and/or real
alternative.
Mr Sanderson did not agree that the ‘alternative
property’ concept of Dawkins was material to the allowances to be made
at stage 2 for obsolescence etc, namely because the hypothetical tenant as
owner/occupier of the alternative would have to accept the expense or cost of
depreciation and maintenance, which can only be properly reflected if the
hypothetical tenant’s view is regarded as paramount. While accepting that the
tenant’s view would be different to that of the landlord, he asserted that to
concentrate principally upon the tenant was the ‘wrong basis for valuation’,
and demonstrated the artificiality of the Dawkins approach when
interpreted too literally. He conceded that the notion of vacant and to let
upon an annual tenancy was artificial in respect of a medium-sized chemical
works because, in the real world, the manufacturer would either construct a new
works or take over an existing works and/or company so that virtually all
chemical works are owner/occupied. He accepted that, following Robinson
Brothers (Brewers) v Houghton & Chester-le-Street Assessment
Committee [1938] 2 All ER 79, the price paid for a works could be used for
a contractor’s basis valuation, subject to adjustment to exclude non-rateable
plant, etc.
Mr Sanderson distinguished a costing exercise from
a development or building exercise, and said that the former was to find out
how much it would cost to create (to build) the appeal hereditament. He denied
that he rejected the Dawkins approach, claimed nothing turns upon it in
these appeals and that it was no more than a convenient explanation of the
contractor’s basis of valuation. However, in his opinion, it has been ‘pushed
too far’, and valuers had spent much time considering the alternative
hereditament rather than valuing the actual hereditament. He regarded the
building of an alternative hereditament as incompatible with a proper
explanation of the basis. He accepted that the possibility of an alternative
being built at a cost informs the rental negotiations between the hypothetical
parties, but regarded the concept as inappropriate because of the issues at
Annexure 4 arising if a real alternative is built. It was put to Mr Sanderson
that such issues do not actually arise, because ‘you don’t have to build it to
reach the cost of a precisely similar hereditament, namely, cost the subject
hereditament on the subject site’. He accepted that upon that basis there was
no distinction between his position and that of Mr Needham provided
ancillary questions relating to the payment of grant and the construction
period of alternative premises are not pursued. Mr Sanderson reiterated that
the principle in Dawkins was wrong so far as it presupposed an alternative
actually being provided, and he did not accept that post Dawkins (in
1961) its principles had been followed, in so far as an alternative was assumed
to be built, by valuation officers in some 18 appeals before this tribunal,
including Williams and Imperial College, which proceeded to the
Court of Appeal. He agreed that no valuation officer said that Dawkins
was wrong in those cases because nothing turned upon it, whereas something does
in these appeals. It was put to Mr Sanderson that up to 1986, when Imperial
College was decided by the Court of Appeal, the correct and established
approach to the contractor’s basis of valuation was to follow Dawkins.
He said that the explanation in Dawkins by Sir Jocelyn Simon (see above)
does not set out the valuation basis, which is to be found in the next
paragraph of the decision of this tribunal. It was his view that the ‘classic
explanation’ set out the hypothesis but did not deal with the basis of
valuation. However, he conceded that when the decapitalisation rate was
prescribed for the revaluation in 1990, it had been in the context of adjusted
capital cost ‘were the occupier to build the property himself rather than rent
it’: see DOE consultation paper para 7. Mr Sanderson regarded Willacre
as wrongly decided, but said the valuation officer did not appeal as no error
of law was made but rather an incorrect finding of fact in respect of grant
received.
In re-examination, Mr Sanderson said that if the
valuers for both parties cost the same premises or hereditament, the tenant is
‘given the same peg’ for his rental valuation as if the building of alternative
premises is assumed, namely the annual value to the tenant of the actual
hereditament derived from reproduction cost. In answer to me, Mr
confirmed his view that receipt of grant is totally irrelevant to the exercise
of carrying out a contractor’s basis valuation of a specialised hereditament,
such as the appeal premises
Submissions for valuation officer
Contractor’s basis of valuation
Mr Cherryman referred to the description of the
contractor’s basis of valuation by Glidewell LJ in Imperial College as
‘a method of calculation which has been devised by valuers with the approval of
the Lands Tribunal and the courts’ and, he added, monitored by the Lands
Tribunal from time to time. Furthermore, he said it was a method that is
subject to constant refinement in practice by valuers. He instanced the forum
note. He submitted that clarification and guidance are needed in the instant
appeals upon three issues:
1. The basis of assessing stage 1 cost.
2. Whether grant is a factor to be taken into
account at any stage (see later).
3. The correct approach in assessing stage 2
allowances (see later).
He emphasised that while the amount of the stage 1
cost is agreed in these appeals, on the terms set out above at item 3 of the
facts, that formula conceals a fundamental issue between the parties, namely:
(a) whether, as the valuation officer contends,
stage 1 is a purely hypothetical costing exercise at AVD in respect of the
actual hereditament; or
(b) whether, as the ratepayer contends, stage 1
involves taking the cost of a contract for completion at AVD on the assumption
that the hypothetical tenant has the option of building a real alternative.
Mr Cherryman explained that the difference between
the parties was directly relevant to the grant issue and, in various ways, to
many outstanding appeals in South Wales and elsewhere. He characterised the
case for the ratepayer as taking the famous passage from Dawkins and treating
it as a statement of the method by which the contractor’s basis of calculation
must be carried out, whereas it was said by this tribunal in Dawkins at
p251 that the then Solicitor General ‘pointed to its logic’ in his ‘classical
explanation’. Mr Cherryman submitted that the oft-quoted passage is merely an
explanation to justify the use of a cost‑based valuation given at a time,
in 1961, when valuers may have been more concerned about the validity of using
cost as a basis for deriving value than they are today; but explanation is not
the method, the method is to cost. He observed that the method or basis of
valuation, thereby taking them both to be the same, applied in Dawkins
and all subsequent cases, begins with ascertaining the cost of construction:
see pp251 and 257). He urged that the cases cited by the ratepayer do not
decide that the contractor’s basis of valuation must be carried out by any
method based on the explanation given in Dawkins; he cited
Glidewell
p246, in which the concept of ‘alternative premises’ was not in issue, and
Denning LJ in Cardiff City v Williams at p50, and emphasised that
the explanation is not the method, adding ‘assumption equals the explanation
but not the method’. Mr Cherryman submitted that to turn the explanation in Dawkins
into the method to be applied, the case for the ratepayer, involves a
fundamental misunderstanding of Dawkins. Furthermore, to assume that the
hypothetical tenant has a real alternative:
1. is unnecessary: all that is needed is to cost;
2. is absolutely unreal: what the statute requires
is unreal enough but additional unreality becomes grotesque;
3. offends rebus: it is the hereditament
that must be valued, not some alternative;
4. is contrary to the Sixth Schedule to LGFA 1988:
valuing the alternative is valuing something the hypothetical tenant would have
built, or could have built: see Willacre at pp205-206 and Lord Prosser
in Fife v Distillers Co at pp88-89.
Mr Cherryman submitted that nothing contained in
the 1989 DOE consultation document upon the decapitalisation rate could make it
contrary to law to dispense with the concept of creating an alternative
hereditament (the tenant’s alternative) nor was there anything in the resulting
Regulations (SI 1989 No 2303) that affected the matter one way or the other. He
contended that the concept of ‘the tenant’s alternative’, adopted for the
ratepayer, led to the assumption, for the stage 1 exercise, of a contract to
build and completion of the construction instantaneously on AVD, which was
unreal, ridiculous and unnecessary. Mr Cherryman argued that the reference in Ryde
on Rating at para E[540] to ‘constructing similar premises elsewhere’ was
wholly out of order, as the notion offended the rebus rule, which he
described as ‘ the rock of actuality’ in rating. He then urged that only a
costing of the appeal hereditament at AVD was required, because that is what
the hypothetical tenant would do to gain some idea of the rent it would be
reasonable to pay; more particularly, the explanation of the principles of the
contractor’s basis of valuation in Dawkins does not govern or direct the
method of valuation to be adopted. The method has been devised by valuers, see Imperial
College, and, as such, it is not a matter of law. The alternative property
approach was the explanation given 35 years ago; it is not and never has been
the method. He concluded by urging that the ‘tenant’s alternative approach’ be
firmly rejected in favour of the correct approach clearly stated in the forum
note and spoken to by Mr Sanderson in evidence.
Capital grant
Mr Cherryman identified two main issues as
follows:
1. Should grant be taken into account in the
application of the contractor’s basis of valuation for rating whether at stage
1, as the ratepayer argues, or elsewhere, as a matter of principle?
2. Would grant have been available in fact in the
instant case at the appropriate date.
He submitted that, in respect of the first issue,
there is no case whatsoever for adjusting for grant in the application of the
method based upon the estimated costs of construction of the subject
hereditament. More particularly, there is no justification for any allowance
for grant funding at stage 1 of the method, contrary to Mr
assertion, and this is the generally accepted view among valuers per the
forum note. This view is founded upon the simple point that the starting point
is the estimation of the cost of replacing the hereditament. It is not the cost
to the hypothetical tenant of having construction work done because he is not
building anything. The incidence of grant has therefore nothing to do with the
cost of construction found for stage 1 purposes. He contended that there was an
England and Wales and Scotland, and that the Scottish approach is well settled
and has been recently followed in reported cases; he cited Distillers Co
(Bottling Services), Imperial Chemical Industries and Scottish
Exhibition Centre. He contended that Mr
highlight, following the judgment of Lord Avonside at pp231-232, ‘that the
decision in Distillers was clearly that, in arriving at an effective
capital value to which to apply a decapitalisation rate, one must take the
total cost and not just the cost to a particular hypothetical landlord’. He
submitted that while in the past in Scotland the decapitalisation rate had been
reduced, in some cases, to have regard to grant, that was to reflect prevailing
market circumstances consequential upon the availability of grants and not in
substitution for not making allowance at stage 1; see Scottish Exhibition
Centre at p286. Mr Cherryman submitted that the Scottish cases also
illustrated the absurdities inherent in the assumptions that must be made if
grant is to be taken into account at stage 1; see Imperial Chemical
Industries at p36 and Distillers Co (Bottling Services) v Fife
Assessor [1983] RA 228 at p231. He contended that the absurd nature of the
assumptions that are necessary in order to bring grant into play at stage 1 are
apparent in the evidence of Mr Needham, in particular the notion that the
hypothetical tenant is contemplating the building of the alternative
hereditament on the same site at AVD. It is both absurd and manifestly
unnecessary in order to enable construction costs to be estimated, and,
moreover, it offends the rebus principle because the site was already
built upon at AVD.
Mr Cherryman submitted that the Scottish approach
is in contrast to the result in Willacre, in which there is no attempt
to provide a reasoned justification for allowing grant as a matter of
principle: Distillers was not cited, and the tribunal was influenced by
the clear factual position that grant had been received. The Scottish cases,
which are more consistently based on valuation principle and the generally
accepted approach of valuers, should be preferred and adopted by this tribunal,
which is able to depart from its own previous decisions: see West Midland
Baptist (Trust) Association (Inc) v Birmingham Corporation (1969) 20
P&CR 1052.
On the second issue, Mr Cherryman submitted that,
on the evidence, the receipt of grant by the hypothetical tenant would, at
best, have been unlikely. The onus is on the ratepayer to establish on the
balance of probabilities that grant would have been obtained, and it has failed
to discharge that onus. Finally, it was argued that if grant had been
obtainable it would have gone to the hypothetical tenant, who would have
provided the non-rateable plant. If the matter is for consideration at all,
contrary to the case for the valuation officer, this would have tended to
increase the hypothetical rent payable.
Submissions for the ratepayer
Contractor’s basis of valuation
Mr Bartlett submitted that the contractor’s basis,
and the principle that underlies it, both have a long history and are well
established. The underlying principle was clearly stated in the submissions of
the then Solicitor General in Dawkins, and until recently it has been
relied upon by valuation officers as representing the correct approach. In
these appeals, unusually and probably uniquely, Mr Sanderson has argued that
the Dawkins principle (the tenant’s alternative) is wrong and that
contractor’s basis valuations should no longer be based upon it. Mr Bartlett
contended that this attack upon Dawkins is wholly misconceived, and that
it is not open to the valuation officer to make it as a matter of law.
In terms of the theory of the contractor’s basis,
Mr Bartlett said it is necessary to:
1. provide a reasoned justification of why the
exercise is valid: if unable to do so, then the likelihood is that the exercise
is not valid;
2. show that the steps taken along the way from
capital cost to rateable value are consistent with that reasoned justification:
if inconsistent they are unlikely to be valid steps.;
3. be able to articulate exactly what is sought by
each step and how it is to be achieved: if the valuer cannot do this, then he
cannot satisfy himself (let alone anyone else) that the steps being taken are
consistent with the logic that justifies the method.
He emphasised that the classic exposition of the
logic on which the contractor’s basis of valuation rests is to be found in Dawkins,
and proceeds on the basis that the hypothetical tenant has the alternative of
building something precisely similar to the subject hereditament for himself
(the tenant’s alternative) and that factor informs his negotiations with the
hypothetical landlord. He contended that Dawkins states the explanation
or rationale or intellectual justification, and although it does not prescribe
all the details of the method of valuation, any method adopted must be
consistent with it. The valuation officer’s method in the instant appeals is
inconsistent with the rationale of Dawkins in two respects. First, it
does not approach stage 1 cost on the basis of what it would cost the tenant to
provide an identical hereditament because it excludes capital grant. Second, it
does not approach stage 2 or stage 3 allowances on the basis that the ECV is
the capital value to an owner/occupier.
Turning to Mr Sanderson’s attitude to Dawkins,
Mr Bartlett described it as ambivalent, because he accepted that it provides
the intellectual justification for using a cost-based approach but it is not a
satisfactory basis for carrying out the valuation since ‘it requires the valuer
to make entirely unrealistic assumptions that conflict with the object of the
exercise which is to value the actual hereditament’; in effect, therefore, it
does not provide an intellectual justification for using a cost-based approach.
He submitted that Mr Sanderson was uncomfortable with Dawkins because of
the concept of the ‘tenant’s alternative’, which, he said, was incompatible
with what is sought to be achieved, namely valuation of the actual
hereditament. Mr Bartlett urged that if the concept of the ‘tenant’s
alternative’ is removed from the formulation of the then Solicitor General in Dawkins
there is nothing left, because the argument is no longer available ‘that the
hypothetical tenant would 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’. Mr Sanderson is not
therefore seeking a refinement of the method but rather a root and branch
rejection of its fundamental basis. Mr Bartlett highlighted two points. First,
Mr Sanderson provides no intellectual justification for a cost-based approach
in substitution for the formulation in Dawkins. Second, due to its
longevity and the support it has in the courts, in this tribunal and the rating
profession, it should not be lightly cast aside. The criticisms made of it by
Mr
abandonment. Mr Sanderson had accepted in cross-examination that the identified
problems did not arise in these appeals any more than they have in contractor’s
basis cases hitherto; they were said to arise from various people trying ‘to
push Dawkins too far’. He contended that, in effect, Mr Sanderson was
not saying that the Dawkins rationale, properly understood, is
incompatible with what it is sought to achieve, but rather some people have so
interpreted it. The upshot is that Mr
and the like views of the Rating forum, are not criticisms of the principles of
Dawkins but criticisms of action based on a misunderstanding of Dawkins.
For this reason, they cannot, therefore, form the grounds for rejecting Dawkins;
the established method of the valuation is consistent with the theory, it
requires more than a simple costing at stage 1, and it is essential to keep it
in mind at stages 2, 3 and 5 to avoid the error into which the valuation officer
has fallen.
In terms of authorities, Mr Bartlett said that in Dawkins
the then Solicitor General was ‘doing no more than articulating the
intellectual justification for the contractor’s basis which had formed the
basis of the approach of valuers and its endorsement by the courts for a very
long time’; he referred to R v London School Board (1885) 55 LJMC
33 and London County Council v Churchwardens of Erith Parish and
Dartford Union Assessment Committee [1893] AC 562. He produced a schedule
of some 17 cases heard before this tribunal and the Court of Appeal (two) in
which the Dawkins principle has been referred to and applied without
challenge, including Imperial College (1984 before the Lands Tribunal
and, in 1986, in the Court of Appeal).
With respect to the Regulations (SI 1989 No 2303),
Mr Bartlett submitted that they were clearly drafted and approved with the Dawkins
principle and no other in mind. This can be inferred from the date, the plain
reference to ‘the tenant’s alternative’ in para 7 of the DOE 1989 consultation
document on the decapitalisation rate, prepared, no doubt, with advice from the
VOA and the endorsement of the concept in late 1986 by the Court of Appeal in Imperial
College. He therefore contended that it was not open to the valuation
officer to proceed in 1990 otherwise than on the assumption of the ‘tenant’s
alternative’, because that had always been the accepted and adopted
understanding of the method of reaching capital value, for the purpose of
decapitalising to annual value, up to that time. Whether the ‘tenant’s
alternative’ or the ‘costing exercise’ approach is applied affects stage 1, in
these appeals the issue of capital grant, and stage 2, allowances for
obsolescence relevant to an owner/occupier rather than a yearly tenant: see the
evidence of Messrs Legg and Raley and Needham later. To apply the prescribed
decapitalisation rate to an ECV reached upon some other basis would be wrong in
law.
Capital grant
Mr Bartlett said that the hypothetical tenant, in
estimating how much it would cost to construct an alternative, would consider
the extent to which the costs are likely to be reduced by grant, and the
conclusions upon this matter will be brought to the negotiating table; in this
context, in the instant appeals, the likely grant is £2.75m. He contended that
on the evidence of Messrs Evans and Burge (see later) taken together, there was
a likelihood of grant being paid. Thus, the hypothetical tenant would be ‘ in a
strong position to say to the hypothetical landlord that if he were to build
for himself, he would expect to receive grant and that he would expect that
factor to be reflected in any rent he might pay for the hereditament’. Against
this background, Mr Needham followed Willacre and made a reduction at
stage 1, but he did not say at stage 1 or nowhere; he preferred to follow the
practice of this tribunal rather than the forum note.
Mr Bartlett contended that there should be no
apportionment of any grant prospectively payable between the rateable
hereditament and non-rateable plant, etc, on the premises. He urged that would
be logical because the Plant and Machinery Regulations require an assumption
that the value of the non-rateable plant is to have no effect on the rent to be
estimated. He further submitted that, since Mr Evans accepted that the reason
why grant was available in assisted areas related to the prevailing depressed
market relative to elsewhere, grant is a factor that is at play in the market
and affects values in that market. Regional assistance is designed to bring to
an area, such as Newport, industrialists who would otherwise locate elsewhere;
namely to overcome the deficiencies in the local market. It is, therefore,
inescapable that grant is a factor that needs to be reflected in the valuation,
however it is done.
In relation to the Scottish cases, cited by Mr
Cherryman, Mr Bartlett stressed that the approach in Scotland is different, as
acknowledged by Mr Cherryman, because the only assumption is that the
hypothetical landlord provides the hereditament (see Scottish Exhibition
Centre at p285), and therefore it is not appropriate for the hypothetical
tenant to get an allowance at stage 1 (see Distillers (1), Lord Avonside
at p231), but in an assisted area with a depressed market the effect of grant
upon rental value was not ignored but taken account in the decapitalisation
rate (see Distillers (1) at p232). Mr Bartlett stressed that in the
Scottish cases it had not been said that on the Dawkins principle it was
wrong to take grant into account at stage 1 or elsewhere in the valuation.
Moreover, in those cases there is no suggestion that the effect of grant is
irrelevant and that it fails to be recognised in the valuation.
Conclusions
Valuation principles
It is not in issue in these appeals that the
object is to find the rateable value of the actual hereditament, rebus sic
stantibus, upon the assumption that it is vacant and to let at the material
times. The definition of rateable value is found in Schedule 6 LGFA 1988 at
para 2(1); in essence, it is the rent at which the hereditament might
reasonably be expected to let from year to year if the tenant undertakes to pay
rates and the cost of insuring and maintaining the hereditament.
It is common ground that the only feasible
approach to rateable value for the specialised hereditament in these appeals is
by the use of the contractor’s basis of valuation. It is agreed that the method
of undertaking such a valuation involves five stages: stage 1 is concerned with
cost; stages 1, 2 and 3 are all concerned with capital sums, to use a neutral
term; stage 4 involves the conversion of the aggregate of the capital sums at
stage 3 into an annualised figure; and stage 5 involves adjusting that annual
figure by the exercise of the valuer’s judgment in the context of all the
facts.
It is not disputed that, for the purpose of stage
1, the expert valuers have arrived at the agreed figure of estimated
replacement cost (ERC) by applying unit rates to the buildings and rateable
plant found on the actual hereditament, save in the very few instances where
modern equivalent buildings have been substituted for cost purposes.
Significantly, no design has been prepared and no actual or, indeed, notional,
construction of a replica or alternative works for the purpose of computing
replacement cost, because, as submitted by Mr Bartlett, the ‘tenant’s
alternative’ is always a fiction; in reality, nothing is ever built because, in
the end, the hypothetical landlord and tenant always agree a rent, so that the
statutory requirement to find rateable value is met. In the ideal circumstances
of a newly constructed hereditament upon a recently acquired site in a location
without grant assistance, the method would cause no contention, because, in
theory at least, the actual cost of construction, assuming prudent expenditure,
would become the stage 1 cost. This, when added to the cost of the site, would
become effective capital value (ECV) at stage 3, to be decapitalised at stage 4
by the application of 6% to give an annual value that, being in respect of an
ideal hereditament, would not require any adjustment at stage 5 to give
rateable value. In these appeals the availability of grant, if any, its
possible impact upon annual value and the fact that the actual hereditament is
not newly created, so that adjustments or allowances are required and conceded
to capital sums and annual value, create conceptual issues and an array of
differences in respect of hundreds of constituent parts comprising the complete
hereditament. This difference in approach and in the rateable values contended
for (£814, 000 and £448, 000 on the year 1990 appeal) arises from the adoption
of the ‘tenant’s alternative’ spoken of in Dawkins for the appellant and
its disregard in favour of a ‘costing exercise’ for the valuation officer. Such
a disparity of rateable value is remarkable bearing in mind, as noted above,
that there is no difference in the method adopted at stage 1 to ERC.
On occasions in these appeals there was some
variation, and possibly confusion, in the use of terminology relative to the
above method of valuation; basis and method were often not differentiated,
adjusted replacement cost (ARC) was spoken to, correctly in some circumstances,
as effective capital value (ECV), the cost of land as its existing use value and
the value of buildings and rateable plant to the tenant as owner/occupier.
It is not in contention that the ‘classic
explanation’ by the then Solicitor General in Dawkins is, as a minimum,
an explanation of the principles that, in 1961, was seen as informing the
method of valuation; the intellectual justification underlying it. This
tribunal incorporated it into its decision in Dawkins because it pointed
to the logic of the method, and it has subsequently been adopted by the Court
of Appeal in Cardiff and Imperial College. However, despite this
approbation, it was not put by counsel as enshrining points of law binding upon
this tribunal. Mr Bartlett submitted it was persuasive and characteristic of
the approach adopted by valuers in England and Wales in cases up to the 1990
revaluation. Mr Cherryman identified it as an explanation of the principle,
which, though valid and useful in 1961, had become outmoded and should be
abandoned in favour of the approach in the forum note (the costing exercise)
explained in evidence by Mr Sanderson. I think it is correct that the
explanation in Dawkins was, and remains, a statement of valuation
principle. It neither prescribed the method nor the basis of valuation; the
former is the established five stage approach and the latter is to be found in
Schedule 6 LGFA 1988
authorities.
The essence of the principles stated in Dawkins
is that:
1. the hypothetical tenant has an alternative to
leasing and paying rent because he can build similar premises: the ‘tenant’s
alternative’;
2. the hypothetical tenant would not pay more in
rent, and may well pay somewhat less, than the interest charged or foregone on
the capital sum employed in providing the ‘tenant’s alternative’.
Applying these principles to the valuation method
and valuation practice in evidence two fundamental matters emerged. First, the
hypothetical tenant of the rating world falls to be treated as an
owner/occupier for stages 1 to 3 inclusive of the method because the concern
there is entirely with capital sums. Second, stages 4 and 5, where the currency
of the method is annual value, a ceiling or maximum rental value arises at
stage 4; a situation not accepted by Mr
a logical, yet simple, economic framework within which to undertake the
valuation, because the hypothetical tenant of a specialised hereditament, like
any other prospective tenant of non-specialised premises who can choose from
alternatives available in the market, is thereby given an opportunity to
satisfy accommodation needs other than solely by leasing the subject
hereditament. The assumed building of an alternative hereditament seems to me
to be merely one way, and perhaps the least appropriate way in 1990, of
accommodating that choice. A notion much closer to the established five-stage
method and the mechanics of its operation as practised by valuers would be that
the capital sums of stages 1 to 3 were being incurred by the hypothetical
tenant of stages 4 and 5; in effect, the hypothetical tenant is to be regarded
as a prospective purchaser of the actual hereditament for part of the valuation
process. In reality, that is how Mr Needham’s valuation has proceeded, although
he sought to regard the product of at least part of his labour as ‘a proxy for
creating the tenant’s alternative’, primarily to accommodate his position in
respect of capital grant. Mr Sanderson, through Messrs Legg and Raley,
travelled basically the same road save that he clothed the hypothetical tenant
in only one set of garments, the annual tenant of rating. Leasing the subject
hereditament was the only option, and without any ceiling or maximum rent
argument with which to confront the hypothetical landlord in the ultimate
negotiations as to rental value. These assumptions also conveniently shut out
at all stages, save possibly, exceptionally at stage 5, any effect upon
rateable value consequent upon capital grant.
I incline towards the submission of Mr Bartlett
that if the ‘tenant’s alternative’, howsoever envisaged in the valuation
process, is removed, then nothing of the Dawkins principles remains; the
economic framework has been totally dismantled. This leads to valuation in a
near vacuum, which Mr Sanderson calls ‘a costing exercise’. More importantly,
because many specialised hereditaments, such as Heathrow Airport, enjoy unique
locations, the removal of the notion of the alternative would clearly, for
valuation purposes, deprive their occupiers of that element of choice in providing
accommodation that is available in the actual market to occupiers of
commonplace hereditaments. The passing rents of these common hereditaments are
the product of market forces and in turn become the bedrock of rateable value.
Furthermore, I have considerable difficulty in accepting that the progression
from stage 1 ERC to stage 3 ECV can have real meaning when capital sums and
capital values are being considered through the eyes of the annual tenant of
rating; the perspective is inappropriate and the answer is likely to be wrong.
Messrs Needham and Legg both denominated the intermediate state between ERC and
ECV, stage 2, as adjusted replacement cost (ARC), albeit their answers were
markedly different. In reality, they were seeking, from different perspectives,
what is more realistically described as depreciated replacement cost (of
buildings and rateable plant). Mr Cherryman, in respect of Mr
answer, sought to characterise it as incorrectly arriving at ‘asset value’. I
believe this criticism to be wholly misconceived, even though the term may have
its origin in capital valuation for a different purpose. In the rating context
the hypothetical landlord seeks a return, a rent, commensurate with the market
value of his asset, the hereditament, and the hypothetical tenant is to be
taken as willing to pay a rent that reflects the annual value of occupying that
hereditament in order to conduct a business or commercial activity of the kind
and scale to which the hereditament is suited, be it as a chemical works, an
airport or a brewery. Any other valuation answer seems to me to be devoid of
reality and inconsistent with the principle underlying statutory rateable
value.
On the evidence and the argument I am not
persuaded that the two fundamental tenets of Dawkins should be
abandoned, as Mr Cherryman urged. However, I would reject the literal
interpretation, which assumes the actual building of an alternative
hereditament. In operating the five‑stage method it is neither built nor
valued, it is a total fiction and, as such, it should not be dressed in the
clothes of supposed reality, because that produces even greater unreality and
an array of problems as identified by Mr Sanderson (see Annexure 4). The
principle of the alternative can and should be preserved to give credibility to
stages 2 and 3 of the method. These stages are more than costing in an economic
vacuum, but the required credibility does not have to depend upon the
alternative being notionally built or created elsewhere as suggested in Dawkins
in 1961. The second principle of a ceiling or maximum rent should also be
retained as both economically sound and as according a parity of negotiating
position at stage 5 between hypothetical landlords and tenants of common place
and specialised hereditaments. The duty at stage 5, the ultimate object of the
method, is to arrive at rateable value upon the basis laid down in law.
Capital grant
Consistent with the above conclusions upon the
fundamental principles in Dawkins, two prospective situations arise that
may be relevant to the contractor’s basis of valuation. The first is as in Willacre,
where a grant was actually paid in respect of a specific constituent part of
the rateable hereditament, namely towards the cost of erecting buildings. The
second is where grant targeted at employment creation or the provision of
specified facilities of, say, a leisure or cultural nature, has been paid in
the past, will be paid on a specific project involving the actual physical
creation of a new hereditament or a new part of an existing hereditament or may
be expected to be paid on such projects in a defined locality, such as in an
assisted area or perhaps more generally for specified facilities. The first can
be categorised as use or functionally targeted and the second as objective
focused and locationally targeted, the position in the instant appeal.
Fundamental to both situations is that there be actual capital expenditure by a
promoter, to use a neutral term, upon physical assets. Actual payment, by
instalments or otherwise, will only be made upon proof of asset or asset and
employment creation: per Mr Evans. The mere valuation of an established
hereditament, existing productive assets, creates neither a new asset nor
additional employment and therefore fails completely to meet the criteria of
eligibility. This applies equally to my conclusion upon the Dawkins
principles as to Mr Needham’s attachment to the fiction of the tenant building
an alternative hereditament; the assumption of the creation of an alternative
was the core of the evidence of Messrs Lindsay and Evans.
I have already found that even if the appellant
were actually to build a new chemical works, accepting the evidence of Mr
Evans, it is highly unlikely that it would receive grant because of the
‘additionality criteria’ that are applied. Even if I am wrong in that
conclusion and a total of £2.75m were to be paid, only about 20% of that could,
and should, be attributed to the rateable hereditament; I reject Mr Bartlett’s
submission to the contrary. Furthermore, that apportioned total will need to be
discounted to reflect payment by instalments over time geared to employment
provision. In this situation of a new hereditament I would view the apportioned
and discounted sum as in a similar category to the grant payment in Willacre;
this, however, is not the situation under consideration in these appeals.
Mr Bartlett submitted that where grant was at play
in the market in an assisted area, a view put forward by Mr Needham, because it
is meant to boost industrial activity, then it is inescapable that grant is a
factor that needs to be reflected by some means in valuation. I think this
must be fundamentally correct, but, equally, it is the extent of market effect
that falls to be regarded. This may or may not equal the apportioned and
discounted sum referred to above, but, in my judgment, its quantum could never
exceed that sum. In effect, the concern is with interpreting the higgling of
the market between several landlords and tenants in a grant-aided locality,
judging the effect on rental values and drawing an informed inference that the
rental value of the appeal hereditament would not be immune from effect when
all around are making bargains in a market subsidised by grant: see
observations of Lord Avonside at p232 in Distillers. I reject the notion
referred to by Messrs Evans and Sanderson that the payment of grant has a
tendency to cause tenants to offer higher rather than lower rents, because this
flies in the face of the need for grant to attract industrialists, whose
concern will be the viability of their enterprises to localities with weak
economies.
The conclusion that I reach is that where
specifically targeted grants have in fact been recently paid in respect of, for
example, new buildings as in Willacre, or in relation to a new
industrial complex or a significant part thereof, even though targeted at
employment creation or the like, an apportioned and discounted sum, relative to
instalments, is properly deducted before the finalisation of ECV at stage 3,
because at the conclusion of that phase of the valuation the actual cost is
deemed to have been converted to capital value.
Where, as in these appeals, only a valuation is
being undertaken the effect, if any, upon rental value is to be judged by
reference to the impact of the grant regime upon the rental values of
industrial or kindred hereditaments in the local market at the material date.
In the likely absence of clear evidence as to the effect of the higgling of the
market between landlord and tenant, the extent is for the judgment of the
valuer, and the conclusion should not exceed the maximum indicated above. I
think that any allowance necessary to reflect the depression of the rental
market in the locality falls to be made at stage 5 when the actuarial annual
value of stage 4 is converted to the rental value of the rating hypothesis.
Allowances and adjustments (principally at
stage 2)
Although ERC (stage 1) was said to be agreed, a
difference did, however, remain in respect of the replacement cost of the
appeal hereditament. Mr Needham applied an accepted ‘location factor’ of 0.96
to the estimated cost of buildings, civils and plant and machinery, whereas Mr
Legg applied the factor only to the cost of buildings and civils. Having regard
to the basis of the unit costs adopted for ERC Mr
an allowance or deduction of 9.5% should be made in respect of buildings,
civils and plant and machinery because the total estimated cost, ‘contract
size’, was in the region of £20m; the unit prices being derived from contracts
of about £2m. Again, Mr Legg only applied the 9.5% allowance or reduction to
buildings and civils.
This difference in approach to ERC, effectively
upon rateable plant and machinery, together with the manifold differences in
the allowances or adjustments made at stage 2 (ARC) for obsolescence in its
various forms, produced a difference in capital terms, before the addition for
professional fees and land, of the order of £4m. The result is that Mr Legg’s
figure of ARC is about 50% higher than Mr
that is now considered. Crucial to the relationship between ERC (stage 1),
largely but not wholly agreed, and ARC (stage 2) are the actual characteristics
or attributes of the appeal hereditament in comparison with its condition as
new, assumed for the estimation of its cost. To speak to this position Mr
Bartlett called Mr Stephen Burge, a chartered chemical engineer with 21 years’
experience, 19 of which have been at Monsanto Newport in technical and
managerial roles; he is currently engineering and technology manager and, in
1990, was safety and property protection manager. Almost inevitably, the
evidence of Mr Burge was technical, and with no disrespect to him it is
proposed only to record the essence of that evidence so far as judged material
to the annual value of the appeal hereditament. However, even though not
recorded, the whole has been considered in the course of making the selective
summary that follows.
Mr Burge said that the construction of the Newport
works began in 1947 and commercial production commenced in mid-1949. The
location was selected for its proximity to the coal industry in South Wales, as
a source of raw material, and to the Newport Docks for worldwide distribution
of finished products. He detailed the various products and chemical processes
adopted at Newport over the last 40 years or so, and produced plans showing the
growth and changes over time in the buildings and plant at the works. He said
that new projects/processes are normally evaluated over a 10-year life but with
some expectation of further continuance. In the 1990s, after some 20 years of
expansion, the works entered a period of decline; employee numbers in 1990 were
about one-third of those in the 1960s, and, by 1993, were down to about a
quarter.
Mr Burge described and explained the several
chemical processes that take place at the works, and said that finished
products were either drummed, bagged or stored for distribution by bulk tanker.
Raw materials and finished products were distributed about the works by
pipelines the layout of which, and associated tank farms, was not ideal, which
resulted in the excessive piping of products. Liquid butane feedstock was
stored in a large spherical tank (the Horton sphere), now removed,
appropriately sited for safety reasons. Safety also dictated that some products
required dedicated dispatch points and some raw materials dedicated reception
or delivery points. This involved duplication of facilities within the works
and a complicated layout. Consequent upon the piecemeal development of the
works over time, production difficulties arose from split processes, thereby
increasing capital and operating costs. He summarised these operating
difficulties and concluded that a modern purpose-built premises to do the work
undertaken at Newport would require fewer buildings and structures and would
operate more efficiently. He instanced less cross-flow of raw materials and
finished product, the elimination of double handling, excessive on-site vehicle
movements, with consequent improved safety and a need for less labour.
Mainly as a result of the development history of
the works, Mr Burge said that there was excessive capacity in the plant for
receiving and distributing electrical power (about 66% excess) and for
generating steam, 80% of which was used in process activities. In 1990 the boilers
were operating at 30% capacity, whereas 60% would be regarded as ideal; one of
the three boilers was 30 years old in 1990, insurers required annual inspection
at a cost of £30, 000 and very soon after 1990 it would require expenditure of
£500, 000 to reline the furnace and replace tubing. Less, but more modern,
boiler equipment, better configured on the site, would be more efficient.
Compressed air utilisation was about 40% of capacity, two compressors are
surplus to needs and the instrumentation is based upon old non-electronic
technology. The four water-cooling towers were installed in 1969 and 1979, but
sufficient capacity could be provided by two modern towers achieving a larger
amount of cooling. There is extensive fire protection equipment at the works
because the processes undertaken involve highly flammable and toxic materials
and it is therefore vital to contain any outbreak of fire. There is always the
danger of the production of a chemical cloud of an explosive character that
could have dramatic on‑site and external consequences. Mr Burge explained
that for these two reasons the process plant is protected by a water-deluge
system designed to minimise equipment damage, resulting chemical leaks and to
flush away quickly harmful chemicals. The warehouses are also sprinklered to
protect stored goods, and, also, there are fire hydrants around the works to
enable manual fire-fighting as a further protection. He gave no indication that
these arrangements were inadequate, of excessive capacity or inefficient in
operation. He regarded the 1947 effluent treatment plant as close to the end of
its useful life, especially in the face of prevailing environmental standards.
Similar circumstances apply to the effluent retention, lime/slurry and acid
retention tanks. The potable water-storage tank is also largely redundant as
there is now a reliable supply of drinking water from the public mains into the
works.
In terms of buildings and structures, Mr Burge
said that, as processes had changed over the years, old plant had been removed
from the
with the result that modern processes are housed in old and oversized
structures. He considered that from 1950 to 1980 there was over-specification of
steel structures, due to steel then being inexpensive, but, more recently,
lighter, braced structures have become commonplace. He had carried out an
analysis of the weight of steel in on-site structures relative to the volume of
space created, kg to m3, and by a schedule produced sought to show that
structures erected in the 1980s used 40% less steel than older structures. Not
only did the older structures contain more steel but the volume they
historically enclosed or created was frequently excessive for modern plant;
there was surplus but unusable space. He identified within the works some nine
structures where excess steel and/or surplus volume was present.
Mr Burge said that the change in processes and the
scale of the operation had also created similar problems in respect of
buildings. This position of surplus space had been made more pronounced by the
recent practice of outsourcing, putting to independent contractors off-site
activities such as basic maintenance. He estimated a 16% surplus in on‑site
workshop space, and added that much of it was built to excessive working height
for current needs, thereby adding to heating, lighting and maintenance costs.
He also referred to surplus space in the administrative and support buildings
on site due to reduced staff numbers; he identified 19 buildings where there
was considered to be surplus capacity or space. A similar situation prevails in
respect of bund walls around storage tanks built as a precaution against damage
etc, from leaks or spillage when filling. The regulations have changed over the
years and the required capacity of bunds is less than that present on the site.
Furthermore, some bunds are excessive in design, as to wall thickness, height
etc, compared with the standards prevailing in 1990; in short, there is excess
capacity, which he sought to demonstrate and identify by reference to current
criteria.
By way of conclusion and emphasis, Mr Burge spoke
to the attributes of a modern substitute plant or works. He said it would be
different in its buildings, structures, plant and layout, and he produced a
diagrammatic layout in support. In his view, there was no longer any rationale
for the appellant to locate in Newport, as the coal industry and the thriving
docks in Newport were no more. Different locational criteria would operate in
1990 compared with 1949, and the availability of capital grant aid, possibly
greater outside South Wales, would be a factor. More importantly, the markets
for the product of the works were in the north-west and north-east of the UK
and worldwide, and raw materials were obtained in continental Europe and the
USA. There would be greater advantage to the appellant in the works being sited
near major motorways, an international port and a rail container depot, none of
which Newport could provide to an adequate degree.
In cross-examination, Mr Burge accepted that while
there were disabilities and problems in many sections of the works,
nevertheless distribution and processing on the site proceeded reasonably well,
but he did not accept that segregated delivery to various parts of the works
was advantageous, because it was not by design or choice but due to the way the
works had developed over the years. He considered that it was inefficient to
have process staff also concerned with the packing and distribution of the
product.
In relation to utilities or services, Mr Burge
accepted that new transformers could be installed retaining the existing
switchgear and that, generally, the existing transformers worked
satisfactorily. He agreed that the 30-year-old boiler (boiler 12) was needed to
cover times when boiler 14 was shut down for service etc, unless processes
requiring high-pressure steam are closed down at the same time. He confirmed
that the turbo alternator, traditionally used to reduce steam pressure and
generate electricity, was used in early 1989 and available into 1992, when it
was scrapped. It was his opinion that three compressors, two plus a backup,
were needed rather than the existing five, albeit that two would be used to
capacity with possibly increased servicing costs. In a multi-product works like
the appeal hereditament Mr Burge accepted that some surplus capacity was of
advantage. He confirmed that the warehouse sprinklers were of the closed head
type intended to be activated by a fire, but in fact there had never been a
fire in a warehouse at the Newport works. He stated that the fire-protection
equipment was designed to protect the plant and product and was not mainly
designed to protect the buildings; he stressed that the emphasis in protection
was upon the process areas and that the works as existing were insurable. He
stated that the former butane sphere could be cooled in the event of a fire
nearby and that the stairway associated with it was bolted to the side of the
sphere via angles welded to it, (an item of plant in 1990 the rateability of
which is in issue, see later).
Mr Burge agreed that but for changes in
environmental standards in the 1990s the effluent plant would not be near the
end of its useful life. He confirmed that the appellant had been in discussion
with the National Rivers Authority (NRA) about the quality of the discharge
from the plant and that a biological solution, involving the creation and use
of a reed bed, was under consideration. He accepted that the potable water tank
was a reserve if the supply from the public mains were to fail. He agreed that
the existing boiler 12, installed in 1960, due to its design and size required
the present boilerhouse. Although he had referred to over-design of bund walls,
he accepted that some bunds on site fell short of current design standards. He
did not disagree that it was processing that created jobs at the works and that
there was room for expansion within the existing site.
In re-examination, he said that old plant
structures inhibit the layout of new process plant, and confirmed that the
reuse of structures was abandoned in the 1980s. Mr Burge said that if the
appellant was building the works in 1990, it would not have paid £250, 000 for
the turbo alternator, as it was too large for current needs, but a smaller one
might have been used. He stated that some modern plant was more self-supporting
than hitherto and therefore required less provision by way of supporting
structure.
In a supplementary report in rebuttal of parts of
the evidence of Mr Raley (see later), Mr Burge expressed surprise that the
maximum allowance for age of some plant spoken to by Mr Raley was 15%. He said
his experience was that the value of used plant decreases with age regardless
of the standard of maintenance undertaken, and, furthermore, that the older the
plant the less reliable it is to operate; the likelihood of failure is
therefore greater. His own inquiries had revealed that even with items of
mobile plant such as compressors, a 10-year-old item would sell for
approximately 25% of new cost and a 20-year-old item would only have scrap
value.
The evidence of Mr Needham was that substantial
allowances or deductions were necessary to reflect the obsolescence in the
actual hereditament as spoken to by Mr Burge and supplemented by his own
inspections and familiarity with the premises over many years. He categorised
obsolescence as physical, functional and technical, and regarded the deduction
as ‘the depreciation factor which measures the difference between the
replacement cost of the actual property and the worth of the actual property
having regard, inter alia, to the modern equivalent’. He made reference
to the definition of depreciation adopted by the Accounting Standards Committee
and later incorporated into the RICS Statements of Asset Valuation Practice and
the RICS Appraisal and Valuation Manual, namely:
Depreciation is the measure of wearing out,
consumption, or other reduction in the useful economic life of a fixed asset
whether arising from use, effluxion of time or obsolescence through
technological or market changes.
Mr Needham saw this definition as identifying some
of the causes of obsolescence that affect a property such as the appeal
hereditament. He elaborated upon his four categories of obsolescence with
examples, and then distinguished physical deterioration in buildings from the
other forms of obsolescence because, to some extent, it can be controlled by
construction in good-quality materials followed by regular maintenance, it is
continuous, whereas other forms of obsolescence may occur at irregular
intervals and, to a degree, its extent is foreseeable from records upon the
lives of buildings and their components. He referred to the report of a 1986
research study by Calus entitled ‘Depreciation of Commercial Property’, and
highlighted the finding that depreciation was at a fairly constant rate over
the first 20 years of the life of a building commencing immediately upon
construction and
obsolescence in buildings at the appeal hereditament should follow this pattern
and adopted 0.5% pa up to year 10 and 1% pa thereafter to year 50: see Annexure
1.
Mr Needham said a similar situation prevailed in
respect of items of rateable plant, ‘where in relation to new plant it can be
assumed that the tenant has accepted that the rent should amount to a
reasonable return on the landlord’s investment’. However, with older plant the
value was more likely to have reduced due to both physical deterioration and
other forms of obsolescence. Physical deterioration manifests itself in rising
maintenance costs, breakdowns, with consequential loss of production and,
perhaps, reduced productivity. Technological change impacts more dramatically
upon the value of plant, often requiring replacement to achieve compliance with
rising environmental and other standards. Mr Needham therefore considered that
allowances upon plant for physical obsolescence due to age should be greater
than for buildings, albeit starting at year 10, so as to give 50% for
40-year-old plant compared with 35% for a 40-year-old building: see Annexure 1.
He was critical of the approach to allowances upon plant items by the valuation
officer: two scales related to the extent of life expectancy (0-30 and 0‑60
years) and a scale upon ‘mixed plant’; at 40 years providing respectively 37,
15 and 12.5%. He regarded this approach as insufficient, unrealistic and
over-refined, because the hypothetical tenant will not be considering in detail
the life expectancy of individual plant items but the productivity of the
individual processes/plants and, ultimately, of the works as a whole. It was
his opinion that none of the process plants in the works has a design life
expectancy of more than 30 years, in many instances it has proved to be much
less, and therefore longer lives upon any rateable plant are inappropriate.
In relation to civils, he adopted a scale somewhat
below that upon buildings, starting after 10 years rising 1% pa to 30% at 40
years (buildings 35%), whereas the valuation officer’s scale rises 0.5 pa and
reaches 15% at 40 years. Mr Needham considered that his scale for plant should
also apply to civils associated with the plant items, eg foundations and bases,
because they were rarely capable of reuse with new or replacement plant. At the
outset of the hearing there was no issue upon the scale for physical
obsolescence applied to rateable storage tanks (see Annexure 1), but during the
hearing it emerged that the majority of the tanks at the appeal hereditament
were not of the type for which the scale was intended: see the evidence later
of Mr Raley. However, as tanks are relatively passive items, since no process
is carried on in them, and, moreover, they are not subject to changes in
heat/pressure like boilers, the scale applied to other plant items should not,
in any circumstances, be less than that adopted for tanks; at 35 and 40 years
the valuation officer’s three plant scales are significantly less: see Annexure
1.
Turning to the forms of obsolescence in components
of the appeal hereditament other than physical deterioration due to age, Mr
Needham stressed that the aim is to arrive at the rental value of the whole
works, and, in his opinion, the hypothetical tenant would take a robust view of
overall allowances for obsolescence at a works that has developed over 40 years
since 1950. To capture this approach may well require a further allowance for
overall disabilities, an end allowance, at stage 5 of the valuation. However,
before this point is reached specific consideration should be given to
functional and technical obsolescence on an item by item basis, with, on
occasions, ad hoc allowances in respect of sections of the works, groups of
items forming a unit or part of the overall premises, where
surplusage/overcapacity or imbalance may be present. In this respect, he
referred to the decision of this tribunal in Sheerness Steel Co plc v Maudling
(VO) [1986] RA 45, in which the issue of surplus capacity was considered.
Under functional obsolescence, Mr Needham and the
valuation officer sought to include under-utilisation of buildings,
inappropriate layout, overspecification producing excessive height in
buildings, excessive steelwork by weight in structures relative to their
loading in use and excessive thickness in the walls and bases (floors) of
bunded areas to tanks etc. Technical obsolescence was seen as a result of
technological change over time, which rendered structures and plant obsolete or
caused it to be seen as significantly less efficient by comparison with modern
items that are more efficient in operation and better suited to current
requirements. The evidence of Mr Burge was directed to such matters.
In the nature of things, and from the evidence, it
is clear that the correct allowances for functional and technical obsolescence
must be a matter of judgment by valuers based upon experience and understanding
of the operation of the appeal hereditament and/or similar premises. As support
for his evidence, Mr Needham adopted that of Mr Burge in relation to these
aspects, and, where feasible, endeavoured to analyse and quantify the extent of
disability or defect by reference to modern equivalent items, be it a building,
‘over-designed’ steel structure or bund, or overcapacity to raise steam, cool
water or distribute electricity etc. The complex calculations and diagrams that
were put in evidence for both parties have been considered, although they are
not referred to in detail in this summary.
Both valuers adopted a largely common, but not
identical, format for their valuations, which comprised 780 individual entries
for components of the hereditament, which were divided into 20 sections,
basically artificial divisions of the works and their components for valuation
purposes. At the conclusion of stage 2 (ARC), Mr Needham’s total was £8, 697,
586 and Mr Legg’s £12, 571, 616: see Annexure 2. This difference of £3, 874,
030 arose in part due to the issue of rateability (see later) in respect of
fire protection plant and the staircase attached to the former butane sphere
(£821, 701), but mainly from the different allowances accorded for obsolescence
and the adoption by Mr Needham of ‘section allowances’ in relation to sections
F, part P, part R at 15% and part infrastructure at 20% on Annexure 2: these
‘section allowances’ total £425, 915. Thus, the amount due to differing
allowances for obsolescence (excluding ‘section allowances’) was £2, 626, 414.
From Annexure 2 it is apparent that the greatest differences are sections N,
electrics and infrastructure, which include £604, 280 for fire mains, hydrants
etc, but sizeable differences exist also in sections C, H, K, L, M, P and R.
In evidence in chief, Mr Needham explained,
section by section, the allowances he had made and why he considered them
appropriate. For physical obsolescence he used his scales at Annexure 1 (see
under reference GE); in very limited instances he had regard to an equivalent
substituted building and surplus capacity and ‘over-design’ in steel structures
and bunds was also taken into account. In some instances, such as relating to
the turbo alternator, which had ceased to be economic to run, the functional
allowance was 100%, in relation to the 30-year-old boiler 12 the aggregate of
allowances was 86.25%, seen as producing an appropriate residual sum or value
for its standby function to non-rateable boiler 14. In relation to electrics
(transformers, switchgear etc), much of which is 40 years old, Mr Needham had
an aggregate allowance of 71% for physical (age) and functional (overcapacity
etc) obsolescence. At the conclusion of the stage 2 calculations, Mr Needham
had made allowances, including ‘section allowances’, totalling 48.73% of ERC
after the adjustment of that sum for contract size; Mr Legg deducted 29%.
It was not in issue that the relevant location
factor for Newport was 0.96 nor that the appropriate contract size deduction
was 9.5%, but it was contended for the valuation officer that neither of these
deductions should apply to plant items: see the later evidence of Mr Raley.
There was no issue that the allowance for professional fees upon ERC (after
location and contract size adjustments) of buildings, civils and rateable plant
should be 9%, and that, in principle, the sum added to ERC for fees should be
reduced by the same deduction or percentage as applied to give ARC: namely
46.23% Mr Needham and 29% Mr Legg. The underlying assumption being that the
unit costs used to quantify ERC are exclusive of professional fees, and at the
conclusion of stage 2 and possibly stage 3 the fee element should be reduced
pro rota to ARC or effective capital value ECV (stage 3). The same principle is
common ground between the experts in relation to the sum to be included for the
site of the works, said by Mr Needham to be following Imperial College.
However, there is contention as to the value or price to be
(see later).
It was put to Mr Needham in chief that the Calus
report he had referred to indicated that the capital value of a 20-year-old
industrial building was 34% of the value of an equivalent new building; against
this information, he regarded his scale for buildings (giving a 15% reduction
at 20 years) as conservative in approach. Moreover, he regarded all his scales
as having relativity, whereas those of the valuation officer were inconsistent
because prima facie plant items should attract higher allowances than
buildings, free standing civils and tanks. As an example, he referred to boiler
12, which, on his scale, attracted a 45% allowance for age, whereas in his
valuation (DJR VAL 7) Mr Raley, in the cause of assisting Mr Legg, had allowed
only 10%; in the event, Mr Legg subsequently increased this to 25%. Likewise,
in respect of electrics, where his own allowance for age (40 years) was 50% per
his scale plus allowances for functional obsolescence varying between 25 and
75% (combined total 71.06%), whereas Mr Raley proposed, and Mr Legg adopted,
10% for age without any other allowances: tribunal note, the 10% is lower than
any VO scale in Annexure 1. Mr Needham considered the approach adopted by the
valuation officer totally unreal for plant items 30 and 40 years old. He
expressed some surprise that the valuation officer was not adopting the same
allowance for civils associated with plant as for the plant items themselves;
this was a change in approach of which he was unaware prior to the hearing and
which he considered unrealistic. As a further inconsistency he highlighted the
recent acceptance by the valuation officer of ‘over-designed’ bund bases; 300mm
instead of the basic requirement of 150mm, for which Mr Legg has accorded a 35%
allowance against his own of 50%, but no acceptance of, and allowance for,
excessive thickness in bund walls.
The valuation officer makes no ‘section
allowances’ at stages 2 or 3 to mirror those of Mr Needham. He made an end
allowance of 5% at stage 5, whereas Mr Needham adopted 10%, because he did not
consider that the ‘section allowances’ made earlier reflected the overall
disabilities of the existing works spoken to by Mr Burge. Mr Needham saw these,
inter alia, as the layout of the works, including the nature and
configuration of plants or sections, duplication of facilities such as dispatch
and delivery and, generally, the increased operating cost arising from the
disabilities. As the hypothetical tenant has to operate the actual works he
would be concerned about these things and take a robust view as to the
allowance that should be secured in negotiations with the hypothetical
landlord. Mr Needham considered that 10% was the correct amount, accepted that
the allowance was difficult to quantity and that care was needed so as not to
duplicate allowances or ‘double count’ disabilities.
By way of summary of his evidence and so far as
material to stages 2 and 3, Mr Needham concluded that:
1. the substitute works and the modern equivalent
of elements within the works is a proper concept to adopt under the
contractor’s basis of valuation and does not offend the rebus principle;
2. boilers are only rateable to the extent that
they are in the nature of a structure (now agreed boiler 12 is so rateable);
3. the fire protection system in the works is not
rateable (see later);
4. age allowances for physical obsolescence upon
buildings, civils and plant and machinery should be derived from his (the GE
scales) at Annexure 1;
5. further allowances should be made to reflect
the functional and technical obsolescence of buildings, civils and plant and
machinery;
6. allowances should be made to reflect
disabilities of sections;
7. the accepted contract size adjustment of 9.5%
should be applied to all buildings, civils and plant;
8. the addition for professional fees should be 9%
(agreed);
9. An ‘end allowance’ of 10% should be made to
reflect the overall operational disabilities of the works; and
10. the proper assessments for the works at the
material days are rateable value £448, 000 and £443, 000.
In a detailed cross-examination by Mr Cherryman
upon the allowances he had made in his valuation, Mr Needham did not accept
that a locational allowance on plant items was inappropriate, since while
separate contractors would be used, they would operate under the umbrella of an
overall contract notionally to create the works. Accordingly, he was unable to
agree Mr Raley’s position that the price was the same from specialist
contractor’s and/or suppliers regardless of location. He reiterated his
position that there should be a contract size allowance on plant items because
they were, or would be, all within one contract. He disputed that the price or
cost information obtained by Mr
conceded that Mr Raley sought prices relevant to the requirements of a
medium-sized chemical works, say £20m total cost; but he was unclear, and not
convinced, that this is what was received. For this reason, he considered the
price information more appropriate to a small £2m works, and therefore the
plant figure required adjustment downwards in the manner and amount (9.5%)
agreed for the cost of elements comprised in buildings.
In respect of the scales at Annexure 1, Mr Needham
said that in the past a single scale was commonly used for physical, functional
and technical obsolescence, but a more refined approach was to divide or
categorise, and in particular he seeks to allow for functional obsolescence out
of, or beyond, the normal range due to age. In his opinion, buildings begin to
depreciate from day one, and this should be recognised per his scale. In
rejecting the 10-year maintenance-free (depreciation) period adopted by the
valuation officer, he had taken note of the Calus study; moreover, he would
expect more maintenance to be required to buildings in a chemical works than in
a basic shed-type factory or warehouse. He noted that the valuation officer’s
scale for civils was 50% of his own civils scale, and it was put to him that
this was logical as more durable materials, steel and concrete, were most
commonly involved. He disagreed, because in recent years there has been
demolition of steel-framed structures at the appeal hereditament. He confirmed
that he accepted the tank scale at Annexure 1 because it had been agreed by the
valuation officer with the chemical and petroleum industries in respect of
mild-steel storage tanks: see DJR/31 for an explanatory note. He said that
there was no evidence of the major overhaul of any tank at the appeal
hereditament such that its actual age required adjustment (namely reduction)
per explanatory note 3 of DJR/31. He confirmed that for civils associated
directly with plant he had used the plant scale for physical obsolescence, and
was well aware that it was a more generous scale, about double his own or four
times the valuation officer’s scale for free-standing civils, but the life of
the structure was entirely related to the life of the plant.
Mr Needham stressed that his allowances for
functional obsolescence related to surplus capacity, be it of a space in a
building (area) or in a plant structure (volume). He fully agreed that plant
generally depreciates more quickly than tanks, but he said that he only used a
single plant scale because he was concerned to value the whole hereditament and
all the plant acts together as part of a unit. He accepted that his single
scale, unlike the three used by the valuation officer, could make no difference
between transformers and compressors; his plant scale is simply a set allowance
against the passage of time. He regarded the valuation officer’s allowances or
scales, promoted by Mr Raley, as wholly insufficient because they resulted in
35-year mixed plant being assumed to be worth 90% of new cost. He also asserted
that Mr Raley had valued the plant items individually rather than in the
context of the whole hereditament. He strongly disagreed with the notion that
the hypothetical tenant was solely concerned with the short-term usefulness of
plant and its consequential maintenance costs, the position adopted by Mr
Raley, because the hypothetical tenant was also concerned with the cost of any
replacement that may be required to continue production. Mr Needham disagreed
with the conclusions in extracts from Gibson and Jackson on Valuation of
Plant and Machinery (VO exhibits K1 and K2) that were put to him. He was
also referred to DJR 10, 11 and 12, scales prepared by Mr Raley differentiating
between groups of plant items referred to in the Plant and Machinery
Regulations. He regarded these scales, like the valuation officer’s plant
scales at Annexure 1, as mean and as paying insufficient regard to the
repairing obligations in the statutory annual tenancy of rating. He again
stressed that while for the valuation exercise individual plant items had
to be recorded, etc, and a judgment applied to each item, it is important that
any judgment be exercised in the context of the whole works.
Mr Needham said that the end allowance of 10% he
had made at stage 5 was for different reasons to his ‘section allowances’ at
stages 2 and 3, there was no double counting, as the former was concerned with
a complete overview of the valuation of the whole works. In relation to the
functional allowances he had made in respect of bunds, he said that his basic
position was that the hypothetical tenant would pay nothing for surplus
capacity (space) nor for over-design in walls and bases, although he accepted
that a landlord’s position and viewpoint may be different; he might seek to
urge advantage and value in overcapacity. He accepted that a Health &
Safety Executive document put to him cautioned that bunds should be designed by
a structural engineer and that no engineering evidence had been led in support
of his approach. He disputed that the hypothetical tenant would be interested
in, and pay for, any extra margin of safety inherent in the surplus capacity
and structural strength of the bunds he had identified. While accepting the
purport of the correspondence between Mr Raley and himself in February 1996,
that discussions as to ERC in respect of rateable plant items were on the basis
of a medium-sized chemical works, he did not consider that the evidence
produced was conclusive against a 9.5% contract size allowance upon plant and
machinery.
The cross-examination was continued by Mr Mould in
respect of the functional, technical and ‘section allowances’ that Mr Needham
had made in relation to items in the several sections of his valuation. These
questions served to highlight the extent of the difference between
Mr
the deductions. Mr Needham, in his answers, moved little from his previously
stated position, save that he accepted the validity of the challenge to his 10%
technical allowance upon a plant structure (Maleic), which was purpose-designed
and constructed in 1989, albeit the actual working life proved to be
exceedingly short, less than five years. In relation to the £560, 000
difference in ARC upon electrics, Mr
considerable overcapacity (65‑70%) in the 1950s system, and he did not
accept the assumption underlying Mr Raley’s valuation that a tenant would pay
rent for it in 1988; for this reason, the allowance he had made totalled
71.06%. In respect of boiler 12, he said that the real issue was the amount of
value to the hypothetical tenant, and, bearing in mind its standby function
only, that value had to be less than the full ARC of some £500, 000 adopted by
Mr Legg; his own figure of ARC was about £97, 000. Finally, Mr Needham said
that the 5% ‘end allowance’ made by Mr Legg was insufficient because it gave
inadequate weight to the internal features and disabilities present at the
works. He did, however, accept that the amount of any allowance was a
judgmental issue for valuers. The replies given to many other questions upon
different items in the valuation are not recorded, with no disrespect intended
to Mr Mould, but, in order to contain the length of this decision, their impact
will, however, be taken account of in due course.
Mr Needham lodged supplementary reports in
rebuttal of the evidence of Messrs Raley and Legg; to aid understanding and to
avoid repetition of evidence, these further reports will be summarised after
the record of the evidence of Messrs Raley and Legg respectively.
Mr Cherryman called Mr Raley, who explained that,
since about 1987, he had been, and remains, based at the London head office of
the VOA responsible for guidance and co-ordination in the valuation of plant
and machinery throughout England and Wales for rating, capital taxation and
compensation purposes. Prior to 1987, he had some 10 years’ experience in the
Sheffield valuation office, where he was extensively concerned with steel
industry hereditaments. During the 1990s he has been an adviser to the Wood
Committee and to the Department of the Environment in relation to the Plant and
Machinery Regulations 1994. He was the valuation officer in Hays Business
Services Ltd v Raley (VO) [1986] 1 EGLR 226*, where the main issue
before this tribunal was the rateability of goods lifts and fire-protection
equipment.
*Editor’s note: Also reported at (1986) 278 EG
1101
Mr Raley’s involvement in the assessment of the
appeal hereditament began in January 1993 in an advisory capacity, but more
recently he had inspected the premises in 1995 and 1996, and had discussions
with Mr Needham upon the valuation of the rateable plant and machinery. He
categorises the Newport works as an average-sized specialised industrial
hereditament.
He explained how, in preparation for the 1990
general revaluation, he had contacted manufactures and suppliers of a wide
variety of industrial plant for the purposes of obtaining cost prices inclusive
of design, manufacture, transport to locations, off-loading, erection, testing
and commissioning, but exclusive of support facilities needed on site. He
emphasised that all costs sought and received were on the basis of the
requirements at an average-sized specialist industrial complex, and not for the
supply of a single item or unit; they related to bulk purchases within the size
range he had specified. Mr Raley also had detailed discussions with valuer
representatives of members of the Petroleum and Chemical Industries
Associations (Monsanto being a member of the latter) for the purpose of
exchanging and enlarging the cost information available and securing agreement,
where possible, of unit prices and allowances for many common items, for
example large bulk storage tanks, compressors, etc. Once agreed, or subject to
some measure of agreement, the unit costs were circulated to all valuation
officers as guidance for use in the valuation of hereditaments for the 1990
Rating List. Against this background, Mr Raley asserted that the costs (ERC) of
all rateable plant agreed at the appeal hereditament were the same as those
adopted elsewhere; in short, the object of uniformity of costing had been
achieved for 1990. Mr Raley said:
The figures adopted at stage 1 of the valuation
represent the replacement cost of a similar item as new at 1 April 1988, and
the relevant assumption is that the whole hereditament (buildings and plant and
machinery) is constructed under a single contract on the basis of competitive
tendering in the open market on a notional property containing the relevant
items.
In the context of stage 1, Mr Raley was at odds
with Mr Needham in that he disputed that there should be any adjustment or
allowance for location (the location factor of 0.96) or for contract size. The
former because the provision and installation of plant and machinery did not
use local labour or materials and, due to competition in the market, prices
were unaffected by site location upon the UK mainland. The latter because the
basis of his cost information was that the plant items formed an integral part
of a works in the cost range £16-20m; an average-sized specialist industrial
premises.
The above is a sufficient summary of how Mr Raley
arrived at and agreed the ERC of items of plant and machinery at the appeal
hereditament, his understanding of the agreement and the two matters remaining in
issue. Before proceeding to the more contentious issue of allowances, the
precise position of Mr Raley in the valuation of the appeal hereditament should
be set out. His concern is solely with rateable plant and machinery on the
hereditament, including the rateability of the two types of plant that are in
issue (see later), he has prepared, discussed and produced a valuation of the
plant and machinery for the purpose of advising Mr Legg, who is concerned with
the valuation of all the constituent parts of the hereditament and its annual
value as a single entity. Mr Raley made it clear in evidence that his views
only had direct relevance to stages 1 and 2 of the valuation process, and,
regardless of the guidance he may have issued to valuation officers, including
Mr Legg, the ultimate value contended for in respect of plant and machinery was
a matter for Mr Legg, consequent upon the exercise of his judgment as a valuer
with experience of specialist industrial hereditaments.
A significant part of Mr Raley’s evidence was
directed to the allowances that should be made at stage 2, but before recording
and considering, at least the main burden of that evidence, it is appropriate
to set out the context in which Mr Raley undertook the task, because, as might
be expected, this has influenced his conclusions. Whether that
lies at the core of these appeals.
Mr Raley acknowledged the categories of
obsolescence identified by Mr Needham but largely concentrated upon physical
obsolescence, regarding the appropriate allowances for functional and technical
obsolescence as primarily for the judgment of Mr Legg. He saw the valuation
exercise as essentially that of costing, as spoken to in principle by Mr
Sanderson, first as new items (stage 1 ERC) and then adjustments to new cost
for physical obsolescence (stage 2 ARC). From his evidence, he clearly
undertook the task of adjustment solely from the point of view of the
hypothetical tenant renting the actual hereditament upon the statutory annual
tenancy of rating from year to year with a reasonable expectation of
continuance. Initially, he said: ‘in rental terms the tenant is only concerned
that the item (of plant) would perform efficiently for at least the forth
coming year’ and later added, ‘there is no concern with capital resale value
where the tenant would be concerned with continued use on a year to year basis
for the quinquennium and beyond, what is required is not an asset basis’. His
evidence was equally clear that at stage 2 he was concerned with ‘individual
plant items’ and not the effectiveness of sections of the works or indeed the
whole; these matters were seen as being for Mr
valuation process. Likewise, he emphasised that allowances at stage 2 should
only take account of maintenance costs over and above the normal level
expected, namely ‘excessive or exceptional maintenance costs relevant to the
remaining useful economic life of the item and the rental bid of the
hypothetical tenant’. Mr Raley stressed that the design life of plant items
varies, with 15 years as a not unusual minimum, but when maintenance cost
becomes so high that it affects (increases) the price of the product made, the
plant item has reached the end of its economic life and will be replaced. From
this position, he concluded that use is more relevant than age, with the
material question being, ‘is the item worn out or will it perform the task
efficiently?’. He therefore emphasised the significance of appropriate
servicing, in terms of extent, regularity and quality; whether a particular
item needed servicing to ensure continued use, and, if so, whether it had
received adequate attention, was central to his judgment. He said:
My opinions as to relevant allowances in respect
of plant and machinery are those of ‘the ordinary man’ (referred to in National
Transcommunications Ltd) with the responsibilities of a rating surveyor and
practical technician.
In the cause of guidance to valuation officers and
of uniformity of approach, at least in terms of starting point, throughout
England and Wales, Mr Raley divided the rateable items of plant and machinery
listed, specified or described in the Regulations into three groups, namely
estimated life up to 30 years (group 1), up to 60 years (group 2) and mainly
machines (group 3). To these groupings he attributed percentage deductions upon
a time-banded basis, which accorded no allowance for 10 years and for items 30
years old in 1990 accorded allowances of 15%, 10% and 5% with maxima of 30%,
15% and 40% for older items. The understanding derived from the evidence was
that banded guidance had been tabulated in annual intervals by some valuation
officers, including Mr Legg, to produce the plant scales under VO in Annexure
1; in fact, they appear to be an approximation of the source material prepared
by Mr Raley. The two tank scales in Annexure 1 are identical, and, again, are
said to be a tabulation of guidance issued by Mr Raley, with explanatory
footnotes, in 1992 in respect of bulk oil storage tanks constructed in 6mm mild
steel plate (carbon steel). In this appeal, Mr Raley stressed that the scale
was inappropriate to tanks of other specification, which should be considered
under his group 2 (up to 60 years scale). In fact, during the hearing it became
his position that he and Messrs Needham and Legg were wrong to use the
ostensibly agreed scale for tanks at the appeal hereditament because he had
subsequently discovered their correct specifications. Accordingly, he submitted
a revised valuation (DJRVAL 9) at an ERC of £517, 418 (original £578, 629) and
which, in terms of allowances at stage 2, had regard to his group 2 scale.
In commenting upon his three scales and their
rationale, Mr Raley said that group 1 related to structural parts only, and the
30% maximum was to reflect the critical point of time for replacement. Group 2
related to particularly long-life items such as transformers, which require
very little maintenance, save perhaps in special locations. Group 3 comprised
machines with rateable moving parts such as compressors, engines, pumps etc,
which require continuous maintenance of a low order of cost until the fabric
begins to fail, when major expenditure is necessary, which he saw as reflected
in his banded scale. He stressed that his scales assume average maintenance and
concluded: ‘The quantum of any adjustment should be judged in relation to the
actual circumstances and condition of the specific item’. In particular, he saw
no relationship between the physical (age) allowance for a building and any
rateable plant, such as a sprinkler system, within it.
Mr Raley’s valuation of the rateable plant upon
the hereditament was arranged in 10 sections, to which he spoke in turn.
Reference has already been made to aspects of the circumstances relating to
storage tanks, and it is not proposed to record, even in summary form, all the
evidence given over two days. Extracts are therefore selected that highlight
the difference in approach between Mr Raley and Mr
instances, Mr Legg, and where large differences in ECV existed between Mr
Needham and Mr Legg. Boilers, or, more accurately, boiler 12 dating from 1960,
was a contentious item, first, as to its class of rateability under the Regulations,
eventually agreed to be rateable as to structural parts only under Class 4,
second, as to how its very occasional use and stand-by function should be
reflected in any valuation. ERC is agreed at £780, 000, which Mr Raley adjusted
by 10% for ARC to £702, 000, because, in his opinion, any future expenditure
needed was no more than normal maintenance after 30 years; it had suffered
little loss of efficiency during the 30 years, and he considered it had a
further useful life of 25 years. Mr Needham adjusted ARC to circa £97, 000,
embracing total allowances of 86.25%, and Mr Legg to about £500, 000 by
allowance of 35.88%.
In respect of electrics (transformers, switchgear,
etc) agreed to be 40 years old in 1990, Mr Raley made a physical allowance of
10%, which is lower than the 15% of his group 2 scale. The 10% was adopted by
Mr
to 71%; this position accounts for most of the difference in ECV of these items
in Annexure 2. Mr Raley said that the equipment required little attention
during its working life; the hypothetical tenant would judge it as adequate
upon a year-to-year basis, and the allowance made reflects likely increased
costs due to use in order to maintain the system so as to operate fully
efficiently. In relation to compressors, recorded as 1980 or post, except for
one in each of 1964 and 1978, whereas Mr Needham designates a further unit as
1949. Mr Raley applied allowances of 11% and 2.5% (1964 and 1978 respectively),
broadly in line with his group 3 scale. Mr Legg followed this approach, but Mr
Needham’s allowances were in the range 50% to 75%. For 1970 cooling towers,
rateable as to structural parts only, Mr Raley and Mr
allowance, whereas Mr Needham applied 56.8%, and, similarly, in respect of 1969
and 1979 cooling towers, the difference with Mr Needham being largely related
to his position in relation to functional and technical obsolescence.
More generally, and upon the basis that his own
allowances related primarily to physical obsolescence, but with regard to
functional obsolescence in a few instances, Mr Raley was critical of the
substantial total allowances made by Mr Needham, who had relied to a
considerable extent upon the evidence of Mr Burge in respect of the efficiency
and overcapacity of plant and machinery. He regarded his own endeavours in
considering allowances as having ‘attempted to make a reasonable judgment as to
their application looking at each item individually in the works’. In relation to
physical obsolescence, he claimed that Mr Needham had relied upon a general
percentage reduction dictated by age alone. It was a general scale he had
applied throughout South Wales and elsewhere and was not specific to the plant
items at the appeal hereditament. As Mr Needham has not considered every item
individually but adopted an overall scheme, it follows that
paid to the efficiency of the items of plant. He disputed that there should be
relativity between the various scales for plant because all plant and machinery
is different. He claimed his scales indicated to the valuer the right area of
allowances, but then judgment should be used to properly allow for physical
condition and functional capabilities.
In relation to the evidence of Mr Burge,
especially that concerning overcapacity, Mr Raley said that there had been no
attempt to remove transformers and compressors regarded as surplus nor to
replace boiler 12 with more modern and, possibly, non-rateable equipment.
Likewise he was sceptical that in 1990 the existing effluent treatment plant
for chemical waste could be replaced by the suggested reed-bed solution. He did
not accept that the number of electricity transformers could be revised and be
operated using the existing distribution system and switches a new system would
be needed. Moreover, if the existing switches, cables and distribution boards
are as new, then there can be no reason for the allowance made by Mr Needham.
He regarded the reference to volume throughput and temperature reduction in
relation to cooling towers as irrelevant when only the structural parts are
under consideration for rating.
On a somewhat less technical topic, Mr Raley
disputed that the RICS Statement of Asset Valuation Practice (referred to by
Mr
is comparable with the theory of the contractor’s basis of valuation. In
essence, his point was that while depreciation theory is relevant to the
valuation of capital assets, it is not applicable to valuations for rating. He
sought support from, and produced, an extract from a RICS publication of June
1992, which, in reality, was a brief commentary upon what others may have said
or written at or for a research seminar, rather than substantive material upon
the issue.
In cross-examination, Mr Raley confirmed that
issues of overcapacity in plant and machinery at the works were in practice,
and fact, matters for Mr Legg at stage 5 of the valuation. This answer appears
to be in conflict with a reference to functional obsolescence in his own
valuation and also the format of Mr Legg’s valuation, in which there are some
specific allowances for functional obsolescence indicated for items of plant
and machinery, and other instances where the indicated physical allowance is
deemed to include functional and or technical obsolescence. He claimed that
buying an item of plant as an asset and being concerned with the extent of its
useful working life is not the same as the circumstances envisaged in the
rating hypothesis. He did not dispute that, as a capital asset, older premises
or plant would command a lower price than new. However, in the face of this
seemingly factual and logical position, he persisted in asserting that the DRC
approach of asset valuation was inherently different to that required in
valuation for rating. He said that, in rating, the landlord and tenant are
assumed to be discussing the rent for an item of plant based upon its new cost,
which has been adjusted to reflect its actual state, the rebus concept;
briefly, his approach is to take new cost, adjust for what exists and that is
then the subject of rental discussions between the landlord and tenant.
Mr Raley claimed to have looked at the importance
of a plant item in the operation of the works as a whole, with efficient
performance as part of that consideration. He agreed that an owner-occupier
purchasing the works would have regard to the need to replace some plant,
either immediately or in the next 20 years, and that the hypothetical tenant
would do the same because of his duty to repair and, if plant fails, to replace
it. He accepted that the tenant would pay relatively less for overcapacity, but
said that any discount related to the whole hereditament and should be allowed
for at stage 5 of the valuation. However, in making that judgment, the prudent
tenant would not assume all the overcapacity was of no value.
Mr Raley accepted that the hypothetical tenant
would pay less in rent for plant that produces at a slower rate than is desired
because the overall profitability of the total manufacturing operation would be
of concern. Following on from this, he agreed that the degree of past use was a
factor to be taken into account when deciding allowances. He considered that
scales tabulated and graduated by reference to time were wholly age-related and
mathematical, but he had used a different approach at the appeal hereditament.
He regarded age-related scales as satisfactory for buildings, but saw plant as
requiring a different approach, because the age of plant is not as important as
the extent of past use. He regarded his own approach as superior due to his
research upon costs etc with makers and suppliers, his division of items into
three groups and the judgment he has made in respect of each item. He
considered that a functional allowance should only be given where there is a
mismatch of plant that creates operating difficulties. He confirmed that, in
their valuations, both he and Mr Legg had used scales for plant generally that
were less generous than those for buildings and tanks in Annexure 1, but that
his scale, based on three groups, was not the same as Mr Legg’s three scales
within Annexure 1. The destination to which Mr Raley’s approach led was clearly
illustrated by reference to the 30‑year‑old boiler 12 and the
40-year-old electrics, both of which he considered should have ARC of 90% of
new cost. He justified this position, but not very convincingly, on the basis
that both items of plant were adequate to their task and were still functioning
on the hereditament.
In re-examination, Mr Raley said that the prices
realised for second-hand plant were of no assistance when considering the rent
to be paid by the hypothetical tenant due to the speculative nature of supply
and problems of condition and use history. Moreover, second-hand prices would
not include for delivery and installation upon the hereditament, the rebus or
in situ situation. He was clear that at stage 2 the valuer was looking at
the plant and machinery components of the hereditament rebus and was
considering the efficiency of the rateable items solely from the tenant’s point
of view.
In a supplementary report in rebuttal of this part
of Mr Raley’s evidence relating to allowances, Mr Needham made many detailed
comments, which have been noted. He also observed upon the context of Mr
Raley’s valuation of the plant and machinery on the hereditament and the
background to the allowances he had made or neglected to make. On the basis of
Mr Raley’s explanation of the context in which ERC of the hereditament had been
agreed, he considered that the contract size adjustment adopted for buildings
and civils (9.5%) should be applied to plant items. He said that on the joint
inspection in March 1966 it was indicated to Mr Raley that Monsanto was
progressively replacing the electrics, as they were by then regarded as
obsolete; this prompted the level of allowance he had made. It was his opinion
that in relation to plant and machinery continued use and the passage of time
were inextricably linked, and that the two factors were material to the wearing
out of the item.
Mr Needham claimed that the reality of the
valuation method was that at stage 2 the concern is with adjustment to cost in
owner-occupier terms and the rental equivalent is derived at stage 4. He
considered that the life expectancy of a particular item of plant was dictated
by the process and/or the works with which it is associated; it may be as
little as five years, but, if longer than 15 to 20 years, substantial
refurbishment or replacement is very likely to be needed.
He stressed that no evidence had been produced by
Mr Raley in relation to the extent and cost of maintenance, which he indicated
had led him to his three differentiated scales, nor had they been promulgated
in the context of valuing the whole works; he highlighted that the three
different maxima advocated 30%, 15% and 10%. In relation to electrics, he found
incredible the suggestion that a tenant would base a rental bid on 90-95% of
ERC for equipment that was 40 years old and likely to fail instantly; that risk
would, and should, be reflected in any rental bid. Finally, he said that Mr
Raley’s approach of ‘looking at each item individually’ shows that he has carried
out a costing exercise of each item and not valued the items in the context of
the complete works.
Mr Cherryman called Mr Legg, who has some 30
years’ experience in valuation for rating, with emphasis upon special
industrial hereditaments such as steel and chemical works and oil refineries.
He had been concerned with these types of premises, including the appeal
hereditament, for the 1990 general revaluation. His current
to such hereditaments in South and West Wales.
Mr Legg confirmed that his approach to the
valuation of the appeal hereditament had been to commence with a costing
exercise at stage 1 as at AVD; ERC is not substantially in dispute, save for
the reservations for the appellant already referred to. In terms of allowances
at stage 2, he said that their purpose was to reflect any deficiencies in the
actual hereditament in its actual physical state in comparison with the new
equivalent assumed for stage 1. He referred to ‘physical deterioration’ and
‘obsolescence’, and defined the former as ‘the deterioration of the fabric and
structure of the buildings and civil works as a function of use and the action
of the elements’ and the latter as functional obsolescence, being ‘the
diminished usefulness or suitability of a building or civil engineering works
for the purpose to which it is put compared with the stage 1 modern
equivalent’. He regarded technical obsolescence as an extension of functional
obsolescence and likely to arise ‘when technological advances result in
modified requirements of the industry or trade, which the building serves,
which render it less efficient in certain respects in comparison with the stage
1 modern building’. He stated that as the requirements of occupiers differ so
does the impact of obsolescence, and he saw the problem for valuers using the
contractor’s basis as being ‘to find a methodology which will enable an
equitable overall approach to stage 2 allowances for depreciation without the
need for exhaustive inspections and condition surveys of each building’. The
accepted practice was to make time- and age‑related adjustments by
reference to scales, in the knowledge and expectation that any inaccuracies, in
relation to specific buildings, probably even themselves out over the total
hereditament. However, ‘scales are for use by professionals who exercise their
judgment in valuing and take account of deficiencies drawn specifically to
their attention’. Mr Legg said that it was generally accepted that time-related
scales will reflect normal deficiencies in buildings without the need to make
exceptional functional and technical allowances. He did not accept that there
was a need to divide the adjustments among the three categories of obsolescence
that he recognised in the way Mr Needham had done; indeed, in his considerable
experience, this practice was exceptional among rating surveyors.
Mr Legg commented in some analytical detail upon
the Calus study of depreciation referred to by Mr Needham. He was sceptical as
to its relevance in relation to a chemical works in Newport; he noted that the
most common complaints by the participants in the research survey related to
inefficient layout of premises, insufficient car parking provision and inadequate
loading facilities. In rating valuation these matters are invariably dealt with
by specific allowances, and therefore it is inappropriate for their effect to
be taken account of in a basic time‑related scale; double counting would
result and allowances would automatically be made where such disabilities did
not actually exist. He did not dispute that premium rents were unlikely to be
obtained for second-hand buildings, but the extent of the gap with new
buildings may vary depending on whether the market at a point in time was weak
or buoyant. He asserted that if the Calus data is to influence time-related
scales for use in the contractor’s basis it requires adjustment, and he
indicated a method that he considered supported his own scale for buildings: see
Annexure 1 VO col 10. It was his conclusion that ‘properly maintained buildings
should not show the effects of deterioration to an extent that will affect
their rental value, to a tenant from year to year within the first 10 years of
life’; for these reasons, he makes no allowance for the first 10 years during
which Mr Needham allowed 0.5% pa.
He said that the appellant had drawn to his
attention specific deficiencies regarding design or degree of use of a number
of buildings or structures, namely steel structures, bunds, warehouses, offices
and pump houses, and in respect of these he had made functional allowances,
mainly for surplus space or volume and/or technical allowances. In a few
instances his approach to the valuation of identified components of the
hereditament, such as the number 12 and 15 boiler houses, was to adopt the
concept of the ‘modern equivalent substitute building’. He accepted that some
steel structures not only had surplus space, namely volume, but that they were
‘over designed’ by reference to the structural steel they contain, the kg to m3
test; he identified seven structures in respect of which he had made a
technical allowance. He made fewer allowances than Mr Needham in respect of
bunds to tanks because he was not persuaded that the absence of a legal
requirement to provide a bund necessarily rendered an existing bund, to which
such regulations had applied, as obsolete. Likewise, he had not made allowance
where a calculation, based upon chemical industry guidance in 1995, suggested surplus
capacity or volume. He had, however, made allowance where a tank had clearly
been removed and the bunded area or volume remain unaltered. He based his
approach on analysis of the capacities created in the more recently constructed
bunds at the hereditament, which indicate that the guidelines as to minimum
requirements, relied upon by Mr Needham, had clearly not been followed.
In terms of civil engineering structures (civils)
Mr Legg explained that his approach to allowances was to have regard to their
location on the hereditament to the effect that works within buildings, for
example pits and plant bases, were accorded allowances upon his building scale.
Tank bases and the settings for other plant items attracted the same allowances
as the items they serve. Site works, the engineering works comprising roadways,
car parks, hard standings etc, have an averaged depreciation allowance applied,
which is derived from the overall percentage difference between ERC and ARC
upon all the buildings and rateable plant and machinery. This approach is not
in contention and rests upon a principle accepted by this tribunal in Imperial
College in relation to the discount or allowance upon the value of the land
within the hereditament; in his valuation, Mr Legg denominates the allowance
upon site works as an ‘other allowance’.
Mr Legg said that there then remained within the
hereditament a residual category of items that he called ‘free standing
civils’, which are structures in their own right, for example pipe bridges,
plant structures and some bund walls and bases, which are neither site works
nor allied to any particular piece of plant from ‘which an appropriate
allowance might be derived’. He described these items as of a long-term nature
and not expected to suffer ‘a decline in their value in use’ because they are
more simple than buildings, have less complex services, less components and
require less maintenance. For these reasons, he had regard to Mr Raley’s 0-60
years scale from which he had derived a time-related scale of 0.5% pa starting
after 10 years with a maximum of 15%: see Annexure 1 VO col 8.
With respect to rateable plant and machinery, Mr
Legg’s position was that he had been advised upon these items by Mr Raley, who
had provided him with a schedule of rateable items, their ERC and suggested
allowances for stage 2. He had considered their correctness and incorporated
them into his valuation with such modifications as he considered proper. In the
face of and during the hearing he now accepts that the turbo alternator was
abandoned at the material date and should accordingly be given a 100%
allowance. Likewise, he has increased Mr
12, but he is unable to accept that it should have an ARC of only 13.75% of ERC
as contended by Mr
circumstances be below 50% of ERC, and he asserted that Mr
arithmetic had led to unreal answers. In relation to water‑cooling
towers, Mr Legg accepted that they were of old design and larger than they may
have been. He therefore did not regard Mr Raley’s allowance of 10%, because
only structural parts were rateable, as sufficient. The reality was that the
tenant under the rating hypothesis is required to maintain the whole, and, for
this reason, he had made a 25% ‘other allowance’, which category of allowance
he did not regard as being solely confined to the Imperial College or Ebdon
allowance on site works and land.
More generally, Mr Legg accepted that physical and
functional obsolescence could both be occurring at the same time. He emphasised
that when making functional allowances to have regard to surplus space or
capacity, it was necessary to consider the hypothetical tenant and not just the
actual occupier. It was his position that 50% overcapacity did not merit a 50%
allowance, because it was not a precise exercise but a
tenant: see Sheerness Steel. He confirmed that the viewpoint he had
adopted when making allowances was that of the tenant and ‘his use of the
buildings and plant at a realistic cost. Thus it followed that old buildings
resulted in heavy repairs such as to depress the rent to be paid for them…’;
this was the rationale of his scales for buildings and civils. The result was
that his physical scale for buildings gave an allowance of 30% ‘off the capital
value and rent’ of a 40‑year‑old building. He highlighted that his
scale for free-standing civils was 50% of his building scale (Annexure 1 col
10) and he saw no logic in applying plant scales to civils associated with
non-rateable plant as sought by Mr Needham, whose civils’ scale, in any event,
gave allowances twice his own.
Mr Legg was sceptical about the conclusions
reached for the appellant as to surplus capacity in some parts of the plant
structures, because they were still necessary to support some plant items and
sprinkler systems. He regarded many of the functional and technical allowances
made by Mr Needham as excessive. He referred to a fire-water pump-house, the
residual ARC for which would be too little to build a fireproof shed, as
required by safety regulations. He did not consider the issue of excess
capacity of bunds a simple matter as suggested for the appellant, and the
credibility of Mr Needham’s approach to functional allowances must be in
question when there are attributed to bunds (113e and g ) built in 1987
allowances of 37.5% and 55% respectively. He considered Mr Needham’s table for
identifying excess capacity in bunds as of little value, and he would place no
reliance upon it. He has made no allowances for the pleaded excess of
thickness, namely over 150mm, in the walls of some bunds because his own
investigations of recent construction work at the hereditament showed that
150mm was frequently exceeded. He did, however, accept that 150mm was
sufficient for bund bases (floors), and, as they had all been costed to ERC on
the basis of 300mm, there should be an allowance for ‘over design’. He put this
at 35%, because, in his opinion, 50% of the cost of 300 mm was unlikely to be
the cost of a 150mm thickness; Mr Needham adopted 50%. Mr Legg regarded
Mr
considered the 10% allowance suggested by Mr Raley as appropriate. In terms of
factual correctness, he said that Mr Raley’s final revised position in respect
of tanks on the hereditament (DJRVAL 9) should be incorporated into his
valuation as a revision (so done in the final version before the tribunal, but
with some amendments for functional obsolescence in respect of certain tanks,
including two (13 and 16) at 100%).
In a supplementary report in rebuttal of the
evidence of Messrs Needham and Burge, Mr Legg clarified that his point of
disagreement in principle with Mr Needham in relation to physical obsolescence
on civils was for the ‘free standing’ category only. He did not accept that
pumps can realistically be in the open to the effect that the existing pump
houses are redundant. He was not satisfied that the Biphenyl plant structure
was surplus so as to warrant a 100% functional allowance. Furthermore, he
rejected the notion that a hypothetical tenant would associate the new wash and
change facilities with the older administration and technical buildings and
regard their rental value or ARC as adversely affected, because the sections
designated for valuation purposes have wholly artificial boundaries. He
therefore saw no reason for a ‘section allowance’ for section F nor was one
appropriate for part section P (the DTSA plant) when valuing in 1990 something
actually built during that year. He accepted that it was demolished after five
years, but said that the hypothetical tenant of 1990 could not be given the
benefit of the hindsight available to the experts in 1996 in these appeals. He
regarded the allowances made by Mr
the butane sphere in similar vein. In answer to the assertion of an excess of
infrastructure and pipe bridges, Mr Legg regarded his 5% ‘end allowance’ as
paying, inter alia, adequate regard to this.
In summing up his approach, Mr Legg said that he
had made adequate allowances in respect of various buildings, structures and
plant where representations had been made to him about surplus space and/or
capacity. He instanced the effluent treatment plant. He was sceptical of some
of the matters raised in evidence by Mr Burge as to operational disabilities at
the works; he regarded reference to an alternative location for the works as
irrelevant to a valuation of the actual hereditament, and, likewise, reference
to the ideal location and layout of a new works. So far as he was concerned,
the actual location in Newport was directly and properly reflected by reference
to the land values to be brought into play at stage 3. There was no issue as to
location factor and contract size allowance, save in respect of the plant items
as scheduled by Mr Raley in DJRVAL 9.
In cross-examination by Mr Bartlett, Mr Legg
accepted that the only occupier of the appeal hereditament in the real world
would be an owner/occupier, namely a purchaser, who would consider the age,
condition and suitability of the buildings, plant and machinery. He confirmed
that stages 1 and 2 of his own valuation had been prepared on the basis of a
‘costing exercise’ without regard to a ‘tenant’s alternative’, and that, in
respect of allowances at stage 2, he had asked ‘what a tenant would pay for
each item of the buildings, plant and machinery’, and that he had not
considered value to an owner/occupier because he did not think there should be
a difference. Mr Legg did not dispute that Mr Raley had small allowances upon
plant and machinery arising from the short-term view he had taken, but he said
that he and Mr Needham were closer together upon buildings. He did not regard it
as inappropriate when considering capital values to look solely at the tenants’
point of view, because (somewhat confusingly) once agreed the points of view of
the landlord and tenant must be the same. It was put to Mr Legg that ARC, when
converted to annual rental value at stage 4, gave a ceiling to the rent a
tenant would pay. He did not accept the notion of a ceiling because the statute
required that the rateable value be ascertained, no more and no less.
In respect of physical deterioration, Mr Legg
agreed that the passage of time and the extent of repair required are often
related for buildings, but he saw the circumstances relating to plant and
machinery as different, because it is serviced and its life is thereby
extended, whereas a building can be used until it collapses or drops. If a
building is refurbished it is common valuation practice to reduce or take back
some of the allowance accorded, and the same principle operates with plant, for
example following major repairs to storage tanks.
Mr Legg admitted that he had no evidence that the
rental value of a building does not reduce during the first 10 years of its
life and use. His own practice of according no reduction was based upon
professional judgment and also had regard to the position that ‘there is no
prospect in the rating hypothesis of getting a premium rent upon a brand new
building’. He was not persuaded by the Calus study report that there should be
an allowance made for the first 10 years. He accepted that, prior to this
hearing, he had used the same scale of allowances for both buildings and
civils. Even if the approach adopted by Mr Raley towards allowances upon plant
and machinery is rejected, it was his view that the depreciation allowance
should be less upon civils than upon buildings and, therefore, he was not
minded to revert to his former position. He said that his 5% ‘end allowance’
reflected piecemeal development of the site, that, at the material date, it was
‘boxed in’ by brick buildings (some now removed and the front access thereby
recently improved) and that it was a level site with good access, in marked
contrast to the appellant’s works at Ruabon where a 10% end allowance had been
agreed.
In answer to questions from Mr Glover, Mr Legg
agreed that for valuation purposes he had categorised civils as: (a) free
standing; (b) building or plant related; and (c) infrastructure, and that
category (b) was distinguishable because of the interdependence of the civil
items and the building or plant and machinery. He disagreed that the ‘averaged
allowance’ accorded to the land or site and to infrastructure on the
hereditament, following Imperial College (the Ebdon allowance),
should apply to electrics, compressed-air lines etc, because they, or at least
the rateable parts of those systems, were not disposed throughout the whole
site or curtilage of the works. He confirmed that as he had now accepted that
the turbo alternator should be accorded a 100% allowance (resulting in nil
ARC), the same position should apply
allowance made in final valuation).
In Mr Legg’s opinion it was not sensible to be
making allowances for physical and technical obsolescence much in excess of 50%,
and where the problem is excessive in a building it is more appropriate to
adopt the modern substitute building approach. He accepted that the recent
practice at the appeal hereditament of demolishing rather than reusing old
plant structures with ‘excess design’ was indicative of the operational
importance attached to the excess, but he was only prepared to concede excess
capacity in bunded areas if a tank had actually been removed; but not upon the
theoretical calculations of required volume, as sought by Mr Needham in some
instances. In respect of the buildings, which, on the evidence of Mr Burge,
were only part used, Mr
on the hereditament to the cost or value he had placed upon them. He did not
accept that the hypothetical tenant would discount the value to the precise
extent of actual disuse, but rather will allow, and pay for, a margin of over
capacity or space as an advantage. His own conclusions as to any extent of
disuse arose from observations upon site.
In re-examination, Mr Legg said that it was wrong
to apply allowances appropriate to buildings to items of rateable plant because
plant depreciates quickly but parts are renewed and the item is better after
repair than before; a different position or regime operates with buildings.
In his supplemental report in rebuttal of the
evidence of Mr Legg, inter alia, Mr Needham made the following points:
1. that a contract size adjustment and location
factor should be applied to ERC of rateable plant and machinery;
2. the adoption of age-related scales is normally
accepted as a ‘robust’ approach, but Mr Legg has, like himself, made allowances
for physical, functional and technical obsolescence in some places in his
valuation;
3. confirmed that the scales he had adopted for
physical obsolescence in buildings, civils and plant and machinery were those
determined by the Gwent Valuation Tribunal;
4. claimed that if the valuation is carried out
only as a ‘costing exercise’ sight is lost of the ultimate objective of
obtaining rental value;
5. asserted that, in the absence of other guidance
as to depreciation, the valuer must look to market rents for assistance on the
adjustments to be made for obsolescence, and this is what the Calus study
sought to do;
6. in relation to bunds, he said that the concern
should be with the hypothetical tenant’s requirements and not with what the
landlord has necessarily provided, because the tenant does not create bund
capacity for utilisation at a future date;
7. there is a difference in the categorisation and
treatment of services and infrastructure between himself and Mr Legg. He
includes electrics, roads, car parks, fencing. pipe-racks, fire mains and
hydrants (albeit regarded as non-rateable), compressed-air pipes etc, being assets
that cannot be related to a particular section of the works, and applies
specific individual allowances whereas Mr Legg adopts plant scale allowances
(as advised by Mr Raley) and an ‘averaged allowance’. The result is little
difference in aggregate allowances upon items classified by both valuers as
pure infrastructure (Mr Needham 28.24%, Mr Legg 29%), but much wider
differences (the rateability issue apart) in respect of electrics,
compressed-air lines etc;
8. Mr Legg’s approach to allowances for free-standing
civils is unacceptable, his scale (at col 8 in Annexure 1) is 50% of that
previously (ie prior to the hearing) used by Mr Legg (see col 7 Annexure 1);
and
9. in adopting Mr Raley’s allowances for
individual items of rateable plant, Mr Needham questioned how Mr Legg could
have considered their value as a whole: the situation he sought to speak to as
the background for his valuation.
Closing submissions for valuation officer upon
allowances
Mr Cherryman identified the main controversy in
respect of stage 2 allowances as to whether they should be approached through
the eyes of an owner/occupier per Mr Needham or from the point of view
of the hypothetical tenant, ‘who will be more interested in efficiency for use
than age per se‘ per Messrs Raley and Mr Legg. He categorised
Mr
alternative’ in Dawkins, and as an asset valuation approach, which was
inappropriate as the sole interest of the tenant is in fitness for use and not
a ‘balance sheet’ value. He submitted that the adjustments must be done at
stage 2 with the possible opportunity for a little at stage 3, otherwise it is
too late in the valuation process. He urged that the approach for the valuation
officer was correct because:
(a) the owner/occupier approach is irrelevant,
since the Dawkins explanation is not to be taken too literally and it is
not the method of valuation;
(b) it is known that the hypothetical tenant would
take a tenancy, a fundamental assumption of the valuation method, and therefore
will surely look at adjustments from a tenant’s point of view;
c) at every stage of a contractor’s basis
valuation, especially at stage 2, the valuer has to bear in mind that the
object of the exercise is to arrive at a ‘suitable sum’ to turn into annual
value by application of the decapitalisation rate;
(d) stage 2 is part of the process of turning cost
into value, whereas Mr Needham said that the transition of cost to value was at
stage 3, but in the event he introduced sectional allowances and land at stage
3;
(e) contrary to Mr Needham’s position that
allowances cannot be made at stage 2 from the view point of the hypothetical
tenant, it is only at stage 2 that allowances can be adjusted ‘to reflect the
benefit (above mere asset value) the tenant gets from having plant etc that is
efficient although old. It is fitness for use that the tenant is prepared to
pay for’;
(f) the correct approach was captured in Mr
Needham’s evidence by the following paragraph:
In the hypothetical negotiations therefore, the
landlord would be seeking a fair return on his investment but the tenant would
only be prepared to pay what the plant is worth to him and this would depend
upon the efficiency of the actual plant compared with the modern equivalent and
the cost of achieving/maintaining such efficiency…;
(g) Mr Legg, in cross-examination, expressly
referred to the tenant’s point of view, and it was also the position of Messrs
Raley and Sanderson;
(h) although it is an important point of
principle, the appellant has called no evidence of any difference between the
point of view of tenant and owner/occupier, and a ruling is sought from the
tribunal upon this issue;
(i) a ruling is also sought from this tribunal
upon whether location and contract size allowances should be accorded to items
of rateable plant at stage 1 or elsewhere in the valuation.
Moving on to the making of allowances and their
amount Mr
use scales as a guide to appropriate allowances for physical deterioration, and
that professional judgment was exercised in their design and use. He submitted
that physical scales take into account normal functional and technical
deficiencies arising with age as well as physical deterioration, a position
accepted by Mr Needham, and it was for the judgment of valuers whether to make
specific additional functional and technical allowances. It was, however,
important not to allow twice for functional and technical matters already
within the physical scale.
Mr Cherryman then made submissions relating to the
various physical scales in Annexure 1 relating to buildings, civils and plant
and machinery and other scales spoken to by Mr Raley. In respect of scales upon
buildings, he highlighted the position that Mr Needham in his GE scale (col 11
Annexure 1) by allowing 0.5% pa from year 1 to year 10 was, in effect, 5% in
advance of Mr Legg (col 10). He urged that Mr
preferred because it was supported by common-sense reasoning that the hypothetical
tenant would expect to pay for nothing more than normal maintenance and
decoration during the first 10 years or more. The GE scale upon civils (col 9)
is the same as Mr Legg’s scale upon buildings (col 10), a scale that Mr Legg
formerly used for guidance but tempered by a judgment upon individual items. In
1993 he identified the class of free-standing civils and, in 1994, began to use
the scale at Annexure 1 (col 8), said to reflect what his judgment as a valuer
would have been before the scale emerged. It was contended that by categorising
all free-standing plant structures as ‘civils to plant’, Mr Needham had made
overgenerous physical allowances by first adopting his excessive scale for
plant (see GE col 3) and using the age of the structure, rather than of the
plant, to further increase the allowance. Mr Cherryman submitted that this was
an inappropriate approach because:
(a) the plant structure is the dominant feature;
(b) the plant structure has a long,
low-maintenance life;
(c) the structure may serve successive generations
of process plant and different processes;
(d) invariably the supported plant is
non-rateable, therefore it is accorded no ERC, and, thus, no allowance falls to
be made that can be applied to the structure; and
(e) on Mr Needham’s plant-related or associated
approach, adopting the age of the process plant is more logical than the age of
the structure.
Mr Cherryman said that there was a serious
difference in approach to physical scales upon rateable plant and machinery
between Mr
differentiated scales adopted by Mr Legg, which were derived from the broad
classifications of Mr Raley in DJR/10, 11 and 12. The rationale was that inert
plant has a long low-maintenance life, whereas moving plant requires high
maintenance; but that was inherent in its nature and expected from the outset.
He summarised Mr Needham’s approach to allowances upon plant as based upon the
following:
(a) the allowances should be greater, towards
double, those upon bulk storage tanks in Annexure 1 (cols 1 and 2);
(b) regard should be had to second-hand values, per
Mr Burge, and to high maintenance costs;
(c) a single scale should be used for all plant
and machinery, tanks etc; and
(d) the scale to be mechanically applied without
any supporting judgment.
Mr Cherryman was critical of this perceived
approach, which he regarded as fundamentally unsound. He submitted that there
was no sound reason for any relationship between the non-contentious tank scale
and allowances upon other types of plant; second-hand values are irrelevant,
since, from the tenant’s point of view, the central concern is the fitness of
the plant for use and not its asset value. Furthermore, the hypothetical tenant
assumes that maintenance would be required to keep the plant efficient and that
it would be costly; any allowance is for abnormal maintenance. Finally, it is
absurd to use one physical scale for engines, transformers and cooling towers;
in reality, it is abdicating judgment to apply one scale mechanically. He urged
that Mr Raley’s DJR/10, 11 and 12 had been shown to be well justified as
providing guidance in relation to appropriate allowances, whereas the GE scale
(col 3) gives excessive allowances. Mr Raley used judgment upon each item of
plant on the hereditament; Mr Legg exercised further judgment when putting Mr
Raley’s valuation of rateable plant and machinery into his own overall
valuation, and their combined judgments are to be preferred.
In respect of functional and technical allowances,
Mr Cherryman emphasised that their making and their amount were matters of
skilled judgment for the valuer. In relation to the position of the valuation
officer in this exercise, with no axe to grind, he referred to Society of
Medical Officers of Health v Hope (VO) [1960] AC 551 and suggested
that Mr
conduct of the ratepayer’s appeals were in his hands. He urged that this
tribunal should be cautious about endorsing Mr Needham’s approach, and
identified circumstances or areas where his credibility was in question, as
follows:
(a) reliance upon guestimates by Mr Burge as to
surplus space and/or overcapacity;
(b) reliance upon minima specified in the 1995
design guidance for bunds to identify surplus capacity and excess wall
thickness;
(c) translation of the calculated excess directly
into the percentage functional allowance, for example the claim of a 50%
allowance in respect of bund floors (the 300mm costed to the 150mm agreed as
adequate);
(d) seeking a 10% technical allowance upon a plant
structure (P156 Maleic) designed and erected in 1990, the actual rating list
year;
(e) the cumulation of allowances sought has
produced very low residual values, for example boiler 12 at 11.75% of ERC;
(f) this displays a lack of judgment in contrast
to Mr Legg, who was cautious of allowances over 50%; and
(g) a tendency to persist in the unreasonable,
such as substituting a 150mm thickness for an existing 300mm blast wall, and
seeking a sectional allowance upon the new wash and change facilities: in
effect, an allowance upon that very modern accommodation.
More specifically in relation to technical
allowances, Mr Cherryman contended that Mr Legg’s position was to be preferred
to that of Mr
and walls, pump and valve houses, effluent tanks and boiler 12. Likewise,
Mr
involved a judgment in respect of each item. He stressed that Mr Legg was correct
only to make a functional allowance where tanks had been removed from a bunded
area. Mr Cherryman cited some 16 examples where Mr Legg had exercised careful
judgment as to functional allowances and highlighted his willingness in
cross-examination to make further allowances where considered justified.
Specifically, he contended that because the main use of boiler 12 was as a
relief or standby, that did not warrant it having any functional allowance.
In relation to electrics, Mr Cherryman claimed Mr
Legg was not challenged for not according any functional allowance; he had
accepted Mr Raley’s position of a 10% physical allowance only, but he had not
done this without question, as evidenced by the amendments he had made to Mr
Raley’s allowance when he was exercising an overall view, in relation to the
turbo alternator, the cooling towers and boilers. Mr
that as the views of Mr Burge in relation to the required number of compressors
had not been accepted by others in the company consequent upon the review that
was undertaken, that view by others should be regarded as a proxy for the
stance of the hypothetical tenant, and thus wholly supportive of Mr Legg’s
position of declining to make a functional allowance. He concluded by emphasising
the high order of impartiality and quality in the evidence of Mr Legg, such
that his valuation in its final form should be accepted.
Submissions for the appellant
In closing, Mr Bartlett submitted that it was
important to have clearly in mind the objective of making allowances at stages
2 and 3. Effective capital value (ECV) is the capital value of the
hereditament, but disregarding matters directly material to annual value to be
taken account of at stage 5 by means of an ‘end allowance’. To arrive at ECV,
adjustments are required at stage 2 to convert the capital cost of individual
items, or groups of items, to capital value with the land or site being added
at stage 3; in support of this proposition he cited Dawkins, Baker-Carr,
Gudgion (VO) v Croydon London Borough Council (1970) 16 RRC 305, Coppin
(VO) v East Midlands Airport Joint Committee (1970) 16 RRC 386 and Nuffield
Homes. Mr Bartlett contended that Mr
to the objective of making adjustments, namely ‘what is it he sought to end up
with’ and ‘unless one knows that, there is no basis for determining what the
adjustments should be’. Mr Raley was clear that his adjustments ‘purported to
reflect the amount by which a tenant from year to year would reduce the rental
bid’, but he was not making adjustments for the purpose of estimating the
capital value of the plant on the basis of the ‘tenant’s alternative’. The
consequence of his approach is palpably wrong in principle, because the
adjustments are made at the capital stage of valuation and it is wrong to
import into that stage considerations that might affect the mind of the tenant
from year to year. It has to be borne in mind that the reason for adopting a
contractor’s basis of valuation is that there is no rental evidence. Rental
value is to be reached initially by applying a decapitalisation rate at stage 4
to effective capital value,
occupier (presumably prospective) to provide a hereditament of the same capital
value as the subject hereditament: see Ind Coope Ltd v Burton-upon-Trent
County Borough Council [1961] RVR 202; (1961) 8 RRC 173 and Thomas (VO)
v Manor Vinegar Brewing Co Ltd (1960) RRC 353; 175 EG 561. Mr Bartlett
therefore urged that the statement of the objective by Mr Cherryman, ‘as
arriving at ‘a suitable sum’ to decapitalise to give annual value’, was of no
assistance, because it begged the question what is a suitable sum. He contended
that that sum could not ‘be one which you judge to be suitable after looking at
it from the hypothetical tenant’s point of view because that is to import into
stage 2 and (the capital valuation stages) a conclusion which the process is
intended to derive from them at stages 4 and 5 (the annual value stages)’. He
submitted that this was the fundamental flaw in the approach of Messrs Legg and
Raley to allowances.
Mr Bartlett next turned to scale allowances,
namely allowances accorded to components of the appeal hereditament by
reference to scales, mainly those within Annexure 1. He said that both parties
were agreed on the appropriateness of having scales for stage 2 allowances for
physical obsolescence because, first, in the absence of evidence of actual
depreciation, scales that command general acceptance are the best that can be
done, and, second, scales ensure consistency. He highlighted what he saw as a
remarkable contrast between Messrs Legg and Raley; the former applied scales
throughout and justified his approach, whereas Mr Raley did not, but went his own
way and effectively rejected the twofold justification above for scales.
Mr
evidential basis, and there is no way of knowing whether, if Mr Raley valued
the rateable plant upon every hereditament in England and Wales, he would
produce consistency. Mr Raley does not value all plant, and, before he was
involved, in 1995, with the appeal hereditament, the valuation officer’s
valuation could only have been on a scale basis.
Mr Needham was criticised by Mr Cherryman for
‘mechanical application of scales’, but, in fact, he is no more and no less
mechanical than Mr Legg in this respect. It is Mr Raley’s substitution for
scales of a ‘judgment’ that has no verifiable evidential basis and seeks to
apply the wrong perspective (that of the hypothetical tenant) that is
incorrect. His concept of performance for the forthcoming year is a misguided
interpretation of the rating hypothesis, and larger allowances are needed than
Mr Raley makes; in short, his depreciation of the plant items is wrong in
principle.
In respect of particular scales spoken to by the
experts, Mr Bartlett said that, for buildings, there was evidence in the Calus
study to support Mr Needham’s approach in Annexure 1 (col 11). Mr Legg did not
reject the conclusions of the report, but considered that they did not support
the making of any allowances during the first 10 years as Mr Needham had done.
In contrast, Mr Legg had accepted that there was no evidential support for his
approach (in col 10), and he had agreed that five- or ten-year-old second-hand
premises would, in reality, let for less than new accommodation. Against this
background, the position of Mr
For free-standing civils, Mr Needham had used a scale
with steps of 1% pa commencing at year 10 (see col 9), the steps being
identical to those of his buildings scale. Mr Bartlett said that this had been
the approach of Mr Legg up to and including the valuation tribunal hearing in
mid-1993 in respect of the appeal hereditament, but, subsequently, he had
decided that the annual step should only be 0.5%, based upon his scale for
mixed plant (in col 6), itself derived from Mr Raley’s DJR/11 relating to
long-life plant. As it is contended for the appellants that Mr
allowances are insufficient and should be substantially greater, it follows,
therefore, that the same position prevails in respect of free-standing civils.
Moreover, as civils are much closer to buildings than plant, it is said that the
valuation officer should at least apply his building scale (at col 9), which is
identical to the scale (in col 7) that he adopted up to 1993 for civils not
attracting either the building or the plant scales. If the original position is
restored, then Messrs Needham and Legg would be at one as to which scale should
apply. On the evidence, however, even if they were in harmony upon this matter,
there would still remain some difference in the categorisation of civils as
building-related, plant-related or free-standing.
In relation to plant and machinery, Mr Bartlett
submitted that the valuation officer’s erroneous approach was most apparent
from the allowances made by Mr Raley; surprisingly, the allowances were much
lower than those for buildings. Mr Raley’s approach was wholly conditioned by
the notion of ‘perform efficiently for at least the coming year’, which is an
incorrect approach, see Ind Coope and Manor Vinegar Co. No
owner/occupier or purchaser of the appeal hereditament would value 40-year-old
electricity transformers at 90% of new cost. The absurdity of the approach is
that ‘the more maintenance an item of plant requires, and the more frequently
it needs replacement, the less the allowance it is given by Mr Raley; the
reality for owner/occupiers and indeed also tenants is the exact reverse’. Mr
Legg accepted the effects of the passage of time (age) upon buildings, and it
is no different with plant. For these reasons, Mr Raley’s allowances should be
rejected and those of Mr Needham adopted.
Mr Bartlett submitted that Mr Raley’s misconceived
basis had also been applied to the limited number of ‘other allowances’ he had
made; he had spoken to them all from the same perspective. Mr Legg disagreed
with Mr Raley in several instances, and accorded higher allowances, be they
physical or for other reasons. This led Mr Bartlett to contend that ‘the
dynamics of the relationship between the two valuation office valuers exposes
starkly the wrong-headedness of the approach to the application of allowances’.
He highlighted Mr Raley’s allowances of 10% and 2.5% respectively upon
40-year-old electrics and compressed-air pipelines and Mr Legg’s disinclination
to make allowance upon a steel plant structure 40% ‘over design’: the Biphenyl
refining unit D119. The measure of the actual technical disabilities of a
building fall to be judged against what is currently being built by a
particular industry. For this reason, the modern substitute approach is rightly
used in some instances. However, Mr Legg has been inconsistent in the
application of the principle to similar items and circumstances on the appeal
hereditament; he has adopted it for one item but steadfastly refused to do so
for another, similar item: see, for example, P005 and M001 and M073A (process
buildings and workshops). Mr Bartlett urged that it was illogical to argue that
more would be paid for an item with deficiencies and shortcomings, such as
boiler 12 (oil-firing), if it was only used a little, as Mr Cherryman had done
in response when summarising Mr Legg’s approach. He submitted that the ‘section
allowances’ adopted by Mr Needham in respect of P156 (the 1989 Maleic plant
structure) and likewise in respect of R150 (the butane sphere) and P158 (DTSA
plant structure) were justified in 1990 on the evidence of Mr Burge that by
then it had become clear that the expected life of the process or operation was
no more than five years.
In relation to Mr Legg’s 5% ‘end allowance’
adopted at stage 5, Mr
justification. He saw it as mainly influenced by an agreed allowance upon the
Monsanto works at Ruabon in North Wales, which he regarded as an absurd
approach. He stressed that to extract a single item from the valuation of one
complicated hereditament and to seek to apply it to another elsewhere was
always likely to be erroneous, such that, in reality, Ruabon was an
inappropriate distraction. The proper ‘end allowance’ for the appeal
hereditament was the 10% adopted by Mr Needham after weighing all the
disabilities spoken to by Mr Burge.
Conclusion
I have already concluded that an economic
framework should be preserved for the contractor’s basis of valuation so as to
avoid valuation in a vacuum. One approach to this is to retain the two
fundamental tenets of Dawkins, the ‘the tenant’s alternative’ and the
‘ceiling value’. They should exist at least as concepts or assumptions, but
shorn of the literal interpretation that leads to the notion of a hypothetical
tenant actually creating a new hereditament elsewhere. This is something that
could only be physically achieved in exceptional circumstances and which is
never undertaken; in practice, it is a pure fiction intended to
that credibility would arise from the hypothetical tenant being accorded a
negotiating position as to rent with the hypothetical landlord. Simply put, the
rationale of the method of valuation is that those negotiations fall to be
conducted upon the basis that the hypothetical landlord owns an investment, an
asset, in respect of which he seeks a reasonable return upon its capital value,
and the hypothetical tenant is willing to pay that amount by way of rent. In
normal circumstances, the capital value and the rent agreed to be paid are
products of market forces, mainly driven by supply and demand. As I see it, the
contractor’s method of valuation seeks to replicate the working of the market
by charging valuers to find the capital value (ECV), and then, partly by a
prescribed rate of return (6%) at stage 4 and by judgment at stage 5, the rent
upon the terms of the rating hypothesis. Mr Needham and Mr Sanderson each
accepted that the issue had to be considered from both tenant’s and landlord’s
points of view, although a degree of compromise may be necessary at stage 5 to
achieve agreement. It cannot be right, as Mr Cherryman contended, that the
tenant would always agree a rent provided it is based upon a ‘suitable sum’ to
be found at stages 2 and 3. Too high a sum potentially holds out an excessive
return to the landlord, but it is unlikely to be acceptable to a well-informed
and prudent tenant, with the result that no agreement is reached. Mr Legg saw
no difference between the positions of landlord and tenant, but logically that
can only be so if the appropriate perspectives have been borne in mind at the
various stages of the valuation process so that an agreement results. Mr
Cherryman rightly accepted that stage 2 was part of the process of turning cost
into value and, I would add, it is the principal stage, and that the value that
he spoke to can only be effective capital value. To designate it as adjusted
replacement cost (ARC) is to confuse, and can easily lead to the calculation of
a hybrid sum that is neither new cost nor a capital value of economic and
practical consequence. In my judgment, ECV has to be that figure, which both
landlord and tenant are prepared to regard as realistic for the purpose of
negotiating a reasonable rent for the hereditament. Although Mr Sanderson saw
the process of its calculation as simply a costing exercise, he accepted in
cross-examination relating to Robinson Brothers that the purchase price
in the market of a freehold chemical works, subject to adjustment to exclude
non-rateable plant, could be used, presumably as ECV, for a contractor’s basis
valuation. In the commercial world the ‘asset value’ of an operational chemical
works, arrived at under recognised accounting standards and valuation bases, is
a proxy for its price or value, namely market value for existing use upon the
assumption that the operation conducted on the premises will continue largely
unchanged. I therefore reject the evidence and submissions that an ‘asset
value’ of the rateable parts of the appeal premises is an inappropriate approach
for stage 2 of a contractor’s basis valuation. There is force in the submission
by Mr Bartlett that at stage 2, where the currency is capital value, it is
wrong to import considerations that might only affect the mind of the tenant
from year to year. This tribunal (HP Hobbs, FRICS) put the matter clearly in
respect of a constituent part of an appeal hereditament in Manor Vinegar Co
where it is said at p361:
The effective capital value of the vats should be
the amount which would be paid for them if the factory were acquired as a going
concern; this is not the cost price new nor is it the second-hand value,
particularly where the purchaser is responsible for dismantling and re-erection
on a new site.
Furthermore, in Ind Coope Ltd this tribunal
(Erskine Simes QC and RCG Fennel FRICS) held that it was inappropriate to look
at the ECV of rateable plant (electrical equipment) through the eyes of the
tenant from year to year. At p180 the tribunal said:
His (the valuer for the rating authority) view
was that such equipment should be valued at its current usefulness and
prospects, from year to year, and should not be regarded, as in the eyes of the
other two valuers, as a wasting asset and therefore at a value averaged out
over its useful life having regard to future costs of maintenance and repair
and replacement. We do not agree that a landlord and tenant, negotiating a rent
from year to year with a prospect of continuance for an indefinite period would
arrive at an agreement on rent on such a basis of annual adjustment. We
consider the long-term average the more practical approach as between landlord
and tenant.
The principles in these two decisions are equally
applicable to buildings and civils, and nothing I heard in evidence or
submissions persuades me that they are no longer relevant or, indeed, other
than central to ascertaining ECV in a contractor’s basis valuation for the 1990
rating list. The message is clear that for stages 2 and 3 it is the perspective
of a purchaser or of an owner/occupier that should be paramount; the shorter
term and possibly narrower view of a tenant from year to year has no place
until stages 4 and 5.
In terms of matters material to ECV, I therefore
accept the submission of Mr Bartlett that there is a fundamental flaw in the
approach of the valuation officer. The ‘suitable sum’ spoken of by
Mr
Mr
Messrs Raley and Legg, is not, in the result, the stuff of sound valuation that
will lead, without major change, to the agreed rental value in satisfaction of
the statutory provisions. The evidence of Mr Raley was crystal clear as to the
perspective he had adopted in arriving at the value of rateable plant and machinery,
solely that of the tenant; the same approach that was firmly rejected in Ind
Coope. The position of Mr
in evidence of adopting the tenant’s perspective he also said, somewhat
illogically, that he regarded those of landlord and tenant as the same. If the
right view is taken at stages 2 and 3, they may well be the same or close at
stage 5. However, that is the objective of the complete exercise and a rather
different point. Mr Needham, at points in his evidence, spoke somewhat
confusingly of the tenant as owner/occupier, but I perceived the result of his
labours to be akin to the preferred position in Manor Vinegar.
Significantly, Mr Legg and Mr Needham were said to be closer together upon ARC
of buildings, but further apart on that relating to plant and machinery; in
respect of the latter, Mr Legg was assisted by Mr Raley, whose values he
moderated in some instances in his own valuation. It follows that I consider Mr
Legg’s ARC and ECV as too high, and, while endorsing the perspective adopted by
Mr Needham, I have some reservations about the amounts it produced as ARC and
ECV.
Scales for physical obsolescence generally
I accept Mr Bartlett’s submission that in the
absence of actual evidence of the effect of age upon the capital value of
buildings, civils and plant, scales are the best tool available to valuers
seeking a consistent approach. A measure of objective judgment is necessary in
their construction, but, even with this, they cannot be expected to meet perfectly
all the circumstances encountered in complex industrial hereditaments. Mr Legg
accepted as much, and took some comfort in the prospect of errors being
self-compensating in a large hereditament. It was contended in turn by counsel
that Messrs Needham and Legg had applied the scales in a mechanical fashion; if
that criticism is justified, I think it is sufficiently answered for the appeal
hereditament by Mr
moreover, where there is an obvious danger of error, a scale does not preclude
ad hoc moderation or judgment so long as it is objective and from the right
perspective.
For buildings
Mr Legg admitted that he had no evidence in
support of his not making any allowance during the first 10 years and more importantly,
that buildings 5 or 10 years old were unlikely to command the same rents as new
buildings. I think that this latter position is largely common sense, and also
common knowledge and experience in the commercial property market in relation
to both rental and capital values; albeit not provable in relation to
specialised industrial premises. I consider the 5% to year 10 adopted before
this tribunal by Mr Needham (Annexure 1 col
that particular scale to be the proper one to apply to buildings.
For free-standing civil engineering works (civils)
I am satisfied on the basis of the evidence that
free-standing civils at the appeal hereditament are generally of more enduring
construction, comprise simpler components and are likely to require less
maintenance than the generality of buildings. Accordingly, I find that Mr
Legg’s lower, or less generous, scale of deductions (at Annexure 1 col 8) is
appropriate.
This finding is on the basis that civils within
buildings or directly associated with items of plant will attract allowances
relevant to the building or the plant; understood to be the common approach of
Messrs Needham and Legg. A point was taken by Mr Cherryman that, in following
this route, Mr Needham had regard to the age of the structure rather than the
different, and sometimes lower, age of the plant with which it was directly
associated, thereby increasing the amount of the allowance. The logic of Mr
Needham’s approach must be that it is the plant structure (the civil) that is
having a value placed upon it, the plant will often be non-rateable and
therefore it is common sense to take the age of the structure or subject. If
the alternative route is taken of deriving the age, for the purposes of
applying the plant scale, a structure containing a new or very recent plant
would command little, if any, allowance. This would be an absurd result; the
more so if the historic structure is less than ideal for the modern plant it
contains. On balance, I find Mr Needham’s approach logical, realistic and to be
preferred.
For plant and machinery
The three scales (Annexure 1 cols 4, 5 and 6) are
understood to be Mr Legg’s but, in effect, are tabulations, with annual lifts,
of the parameters of the guidance prepared by Mr Raley and produced before this
tribunal as DJR/10, 11 and 12 (see Annexure 3). It would seem therefore that Mr
Raley was instrumental in the categorisation of plant, namely with lives of
0-30 years, 0-60 years and mixed plant; that Mr
same maxima and accord approximately the same allowances over Mr Raley’s time
bands. It is apparent that Mr
common plant items and related matters as explained in his evidence. However,
when he came to consider allowances for physical obsolescence I have already
found that he misdirected himself by virtue of the perspective he adopted,
namely that of the tenant from year to year, and, accordingly, the amounts of
the allowances are insufficient. As Mr Legg’s three scales are based upon the
guidance he received from Mr Raley, it follows that the allowances he has made
at stage 2 of his valuation are also incorrect and insufficient.
I turn next to Mr Needham. He made the point that
to divide plant into three categories was an over-refinement for what was
necessary to the valuation exercise. I do not accept this, and consider that
there is logic and sense in a degree of categorisation. It is almost inevitable
that the extent of wearing out and depreciation in capital value of items of plant
will vary between basic inert items, such as pipework, pipe-racks etc, and
compressors, machines, engines, etc with significant moving parts. The three
experts all recognised this difference with reference to bulk storage tanks
and, specifically, for unlined carbon steel tanks, in respect of which there is
no issue between them; a lower scale than Mr
is accepted. In evidence, Mr Raley placed considerable emphasis upon the
relevance of the maintenance and servicing of some types of plant and how that
not only extended working life but also increased value from the perspective of
the tenant from year to year. I do not say that this aspect is wholly
irrelevant to any useful categorisation of plant, but I am unconvinced that it should
be a prime factor in setting allowances, essentially relating to age, that are
necessary to a determination of a realistic capital value.
I am of the opinion that Mr Needham’s single plant
scale (in col 3 Annexure 1) may well be generous for certain items of plant,
especially items having a long operational life. The point is acknowledged and
agreed specifically in respect of large tanks. These are essentially inert
items of fairly simple construction, and I believe there is force in the point
made by Mr Needham that the agreed tank scale (in cols 1 and 2 of Annexure 1)
sets a floor or datum for allowances in respect of other kinds of plant. This
was challenged by Mr Cherryman, who urged that there was no apparent reason for
making the comparison and reaching any conclusion as to relativity in respect
of allowances.
I am therefore only left with Mr Needham’s scale,
which, despite the reservations noted above, I now find should be accepted in
these appeals. However, in other circumstances and with more evidence providing
a different, but at least a rudimentary, categorisation of the plant items,
another conclusion and finding might well be reached.
Functional and technical allowances
Mr Cherryman was right in his submission that the
making and the amount of functional and technical allowances were matters of
skilled judgment for the valuers. It is a matter of surprise and regret that it
has not been possible, by agreement, for the experts to narrow the issues upon
these allowances and also reduce the number of instances in the very long and
complex valuations where they remain at odds. Moreover, to compound the
problem, Mr Legg’s valuation in very many instances states that functional and
technical allowances are deemed to be included in his physical allowance. This
unhelpful situation may well arise from his rather less clear-cut definition of
functional and technical obsolescence, and, in particular, his position that,
to a degree, functional obsolescence is an extension of physical obsolescence
and that technical obsolescence is an extension of functional obsolescence.
Some of the confusion could also arise from the manner in which Mr Legg’s
valuation has been produced and printed, because there are entries where a nil
physical allowance is recorded but, nevertheless, allowances for functional and
technical obsolescence are expressed as ‘included’.
As I understood the evidence, although I found it
imprecise at the margin due to the somewhat differing definitions of these
forms of obsolescence, functional obsolescence was principally to be taken as
concerned with overcapacity, such as a floor space in buildings, volume in
plant structures and an excess of ability to distribute electricity, provide
compressed air, generate steam and cool water. Technical obsolescence was
intended to have regard to a facility that had become outmoded due to technical
changes over time, such as ‘over-designed’ steel plant structures and bund
structures, buildings and the like no longer considered essential, such as
pump-houses and covered transformer pens. Mr Needham made many more explicit
allowances in these two categories than Mr Legg. He had the benefit of the
evidence, and, no doubt, practical on-site guidance, of Mr Burge, whom I found
to be a reliable witness with a detailed knowledge of the works over many
years. Mr Burge gave straightforward and practical answers to circumstances put
to him, although those answers may not always have possessed the precision and
focus expected of rating surveyors steeped in the contractor’s basis of
valuation. Mr Legg made fewer allowances; he had clearly done his honest best
to interpret the relevant information he had been given, and observed, during
the inspection. However, it cannot and should not be overlooked that the
perspective he had adopted was that of the tenant from year to year; already
found to be inappropriate to the exercise at stage 2. While commending the
caution of Mr Legg in this area, I see no particular merit in his reluctance to
accord allowances over about 50% nor am I attracted by the position of Mr Raley
that, if something remains on the hereditament although little used, it must
have a meaningful capital value accorded to it.
Faced with scores of differences as to judgments
by the experts, I incline towards the allowances made by Mr Needham, with
guidance and assistance from Mr Burge, but with reservations. First, no
functional or technical allowances should be accorded in respect of any
building, civil or plant and machinery that first became part of the hereditament
after 1 January 1985. Second, being unconvinced on the evidence as to
overcapacity, determined by calculation, of bund areas and of ‘over-design’ of
bund walls (including the blast wall), by reference to the Monsanto design
guide, no functional and/or technical allowances should be accorded to bunds
based upon these criteria. Third, as there was a difference of opinion on the
evidence as to whether the switchgear etc would, and could, remain usable in
1990 if there were to be some replacement and rearrangement of transformers, it
is directed that the total allowance for all forms of obsolescence in
respect of electrics be reduced to 60% instead of Mr Needham’s 70.70%.
Sectional allowances (at stage 3)
Mr Legg made no ‘sectional allowances’, and those made
by Mr
Cherryman urged caution generally in respect of the cumulation or duplication
of allowances, and contended that Mr Needham had not only double counted but he
had made section allowances where, clearly, none was justified. In considering
this matter, it is important to recall that the ‘sections’ contained in the
respective valuations are to some degree accepted as artificial, in the sense
that, while they provide an orderly approach to valuation, they may not have
any operational significance.
Turning to Mr Needham’s allowances in respect of
sections F, P and R, totalling £150, 000, I find that they relate almost
entirely to buildings and plant erected on the hereditament since 1985 and the
residue between 1988 and 1990. It is a fact that some of them have been removed
between 1990 and 1996, but I heard no convincing evidence that this prospect
was known or likely at 1 April 1990. Likewise, I heard no real justification
for the 15% allowance upon the new wash and change facilities built in 1988
within section F. On the evidence, I find that ‘section allowances’ at F, P and
R should not be made.
On closer examination of the 20% relating to
infrastructure, although expressed by Mr Needham in his valuation in the same
way as the ‘section allowances’ elsewhere, this is in reality a part of his
‘averaged or Ebdon allowance’ amounting to 46.23% referred to above. As
there is no issue in principle upon this allowance, it is properly made and is
endorsed accordingly. However, its precise amount, currently £275, 891, is a
derivative sum that may well emerge from an amended valuation in a different
figure.
End allowance (at stage 5)
The issue here is between 10%, Mr Needham and 5%,
Mr Legg. It is common ground that the appropriate end allowance, if any, that
the tenant, consequent upon his negotiating ability and position, can secure at
stage 5 is a matter of judgment for valuers. Supported by the evidence of Mr
Burge, Mr Needham identified a number of factors internal to the hereditament
that he considered will enable a hypothetical tenant to persuade the
hypothetical landlord that the rental value emerging from stage 4 was not only
a ceiling but was also excessive. The two experts accept that at least a 5%
reduction would be agreed, but Mr Legg goes no higher because of the 10% end
allowance agreed with the valuation officer for the works occupied by the
appellant at Ruabon. I accept the submission of Mr Bartlett that there was no
evidence before me relating to Ruabon, and I did not understand Mr Legg to be
the valuation officer concerned, nor did Mr Needham personally act for the
occupier.
In reality, I am therefore left with little
assistance and without the benefit of inspection in 1990. Nevertheless, faced
with the position that both the experts cannot be right, and in the knowledge
that some amelioration of inherent disabilities has occurred post-1990, I
incline to a higher allowance than 5%. On the basis of the slender evidence
available, I determine the end allowance at 7.5%.
Adjustments for Plant and Machinery (stage 1)
There was an issue between Messrs Needham and Legg
as to whether the 0.96% location factor and the 9.5% deduction for contract
size should be applied to rateable plant upon the hereditament in precisely the
same way as it is agreed to be applied to buildings and civils at stage 1 for
the purpose of calculating ERC.
Mr Needham’s main reason for claiming that there
should be these adjustments was because he envisaged, notionally at least, that
all the constituent parts of the appeal hereditament, in a newly constructed or
commissioned form, would be provided under a single contract, the relevant
tender price for which would have regard both to the site being in Newport and
that the overall cost of the works would be of the order of £20m. In effect,
this was the extent of his evidence. Mr Raley, who advised Mr Legg in relation
to plant and machinery, said that he had sought the prices of plant items from
makers and suppliers on the clear basis that the quoted or advised price was
not for the single item but, rather, in bulk or at least to the extent of need
in a medium-sized chemical works or specialised industrial premises. He
produced some correspondence in support that was not wholly conclusive nor did
Mr
evidence to support his statement that cost was unaffected by location provided
that it was on the UK mainland.
Despite the finding relating to Mr Raley’s
approach to stage 2 allowances, I have already expressed satisfaction with his
investigation into, and collation of, cost information for plant and machinery.
These two disputed issues clearly lie in that particular field, and I think
that Mr
there should be no adjustment of the cost of plant and machinery at stage 1 in
terms of a location factor or an allowance for contract size.
Land
Mr Needham said that to make a true comparison
with the site of the appeal hereditament any elements of on-site infrastructure
at the comparables, but excluding public facilities at the site boundaries,
should be excluded, as the on-site infrastructure at Monsanto has been included
in ARC at stage 2; a matter not in contention. He said that evidence of
transactions in large sites for chemical works or kindred specialised industry
was very limited. However, somewhat exceptionally, there had been transactions
in a site of 41.75 acres allocated in the local plan for industrial use in the
period October 1987 to February 1989 very close to the appeal hereditament;
open land within a former British Steel tube works comprising the major part of
the Reevesland Industrial Estate. After allowing for undevelopable land,
comprising a surface water drainage lagoon and a reen or ditch, the net area
was 36.85 acres. The site had access to three public roads and some on-site
roads and, presumably, underlying main services, which had been constructed
prior to the sale in October 1987. It was Mr
this transaction supported his value of £7, 500 per acre upon the site of the
appeal hereditament.
In cross-examination, he accepted that the appeal
hereditament had direct frontage to Traston Road, which, although not a good
industrial road, afforded generally adequate access. He derived no assistance
from the sale of some 2.13 acres of the Reevesland Estate, part of the 41.75‑acre
purchase, for the development of a motor-car showroom at £110, 000 per acre,
because it was a small area for the retail use of a site with two existing
made-road frontages. He accepted that after the sale in 1987 the purchaser was
left with some 34.7 acres of developable land at a net cost of about £450 per
acre. However, further sales of land for development were dependent upon the
owner providing infrastructure, including the drainage of marshy ground. Mr
Needham accepted that the value of industrial land increased significantly
during 1988, but he said there were variations in the fortunes of different
sites. He did not regard the Reevesland Estate as a prime site, mainly because
it was low‑lying like the Monsanto site. He did not accept that the whole
of the land in the Reevesland Industrial Estate required piling; pile
foundations would only be required under heavy buildings or structures, and
therefore a suggested allowance, a notional addition to cost price of £10, 000
per acre upon 34 acres, to make it comparable with the appeal hereditament
where little, if any, piling had proved necessary, was excessive; his own
allowance was £1, 000 per acre or a total of £34, 000. He derived no assistance
from two other sales, out of the 1987 purchase, on the Reevesland Estate in
October 1988 (12 acres) and in February 1989 (5.55 acres) at £65, 000 and £83,
770 per acre respectively. These were relatively small areas sold in the
rapidly rising market of late 1988-1989 for non-specialised industrial uses.
Mr Legg emphasised the rising values of industrial
land in the Newport area during 1988, and said that the purchaser of the 12
acres at the Reevesland Estate would need to pile for foundations to buildings
it intended to erect; this enhanced the cost of a site comparable to Monsanto,
where piling for foundations had not proved necessary. His value of £15, 000
per acre had some regard to the value attributed to the 34 acres of the
Reevesland Estate in the trading accounts of the owning company at January
1988, namely £17, 219 per acre after it carried out
indicative of value than the initial price obtained by British Steel in October
1987, which he did not consider represented the true potential of the site.
In arriving at £15, 000 per acre he had also
considered transactions in other land in Newport at Cleppa Park (22.7 acres) in
October 1988, a sale by Gwent County Council to Newport Borough Council at £31,
250 per acre and a site at Flatwood (7.7 acres) sold by the borough council in
January 1988 at £14, 400 per acre. Mr Legg said that while these were two ‘high
profile’ sites near the M4 motorway sold for, or intended to attract, high
technology industry, this use nevertheless comprised competition in the market
for industrial land that the operator of a chemical works would need to match
or outbid if a site were to be secured. It was his opinion that the employment
created in a chemical works was likely to be encouraged by the borough council,
as planning authority or otherwise, and he did not see the chemical industry as
economically depressed and unable to compete for sites with other users.
Moreover, if the planning authority were reluctant to approve sites for
chemical works, then it would follow that the site of the appeal hereditament
would command a premium value. As a matter of judgment, he decided to adopt
about 50% of the price paid at Cleppa Park, and his figure of £15, 000 per acre
was near to, but below, the value of £17, 200 per acre adopted for accounts
purposes by the owner of the 34 acres at the Reevesland Estate.
In cross-examination, Mr Legg was emphatic that
the market for industrial land in Newport had changed significantly between
October 1987 and AVD. Superficially, the October 1987 transaction in some
36
the nature of the land, its size and location, and a major company, as vendor,
had employed a local agent to effect the sale. However, what happened shortly
after in terms of subsequent sales of smaller parcels cast considerable doubt
upon its worth as a comparable. He agreed that 34.72 acres was shown in the
owner’s account in the sum of £519, 000, and that the accounts also indicate an
expenditure upon improvement works of some £372, 000; the difference between
these sums of £225, 000 therefore represented the unimproved cost or value that
analysed to about £6, 500 per acre, a figure closer to that of Mr
Mr Legg said that the Reevesland Estate transactions only afforded him an indication
of value, and he therefore looked elsewhere for more robust assistance, in
particular to Cleppa Park. It was put to him that he could equally have adopted
50% of the Flatwood transaction to give about £7, 500 per acre, but he said
that the borough council, in their desire to secure employment opportunities in
high technology industry, had not exacted all they could have done from the
purchaser industrialist; in effect, he regarded the Flatwood price as low.
Mr Needham, in a supplementary report in rebuttal of
the evidence of Mr Legg, said that he attached weight to the initial
transaction at the Reevesland Estate because it was the sale of a large site
close to AVD and it was located very near to the appeal hereditament. In
contrast, the sites at Cleppa Park and Flatwood were not comparable, being
close to the M4, and they had been developed, or were intended for development,
by high technology industry or office use; indeed the Cleppa Park site was an
extension of an existing business park. He saw the Flatwood transaction as
providing a ceiling value for the site of the appeal hereditament provided that
it was adjusted for location, size and use. In his opinion, planning permission
for a chemical works would not have been forthcoming upon either of these sites,
therefore the value of land at the appeal hereditament logically has to be less
than that at Flatwood.
Submissions
Mr Cherryman said that Mr Needham’s £7, 500 per
acre was based solely upon the October 1987 transaction at the Reevesland
Estate, and/or approached in the alternative at the same figure via the 1988
company accounts as £6, 500 plus £1, 000 per acre for the likely need to pile
for foundations. By contrast, Mr Legg had looked at all the evidence to arrive
at £15, 000 per acre, and his approach was to be preferred. There was clearly a
steeply rising market in industrial land in Newport in 1988-1989. Furthermore,
£20, 000 per acre had been agreed for the site at the appellant’s chemical
works at Ruabon by its rating surveyor with the valuation officer for that
area. As the Reevesland Estate site needs substantial and expensive piling to
bring it to the same state for industrial development as the appeal site, Mr
Legg’s valuation is conservative and should be accepted.
Mr Bartlett urged that the October 1987
transaction in the Reevesland Estate had all the features of an ideal
comparable with the site of the appeal hereditament; in particular it was
almost adjacent, it was a large site and purchased six months prior to AVD. The
balance sheet figures after the sale of the car showroom site and some
expenditure upon infrastructure work up to January 1988 indicates a similar
figure of £6, 500 per acre. He submitted that no useful conclusions as to land
value could be drawn from the later sales out of the 36 acres of usable land
because they related to different types and size of site. Although it has been
suggested that extensive piling would be necessary to support heavy structures,
significantly this opinion is not supported by any engineering and cost
evidence. In the absence of more precise evidence, the overall £1, 000 per acre
spoken to by Mr
piling. He contended that no allowance or addition should be made for land
drainage works at the Reevesland Estate because such works have been separately
regarded to ARC as part of infrastructure at the appeal hereditament.
Mr Bartlett submitted that Cleppa Park and
Flatwood are B1 (office-light industry) use sites adjacent to the M4, and Mr
Legg took about 50% of the sale price of the former, itself a sale between two
local authorities and not therefore in the commercial market. However, he did
not do the same in respect of Flatwood, which was a more reliable guide, as the
purchaser was at least a commercial concern. Since no piling is needed at
either of the sites and as Mr Legg considers the value for a chemical works
should be of the order of 50% of B1 value, there is thus a clear basis for Mr
Needham’s £7, 500 per acre, because 50% of the price at Flatwood is £7, 200 per
acre.
Mr Bartlett said, as a direct response to the
submissions of Mr
tribunal of the value of the works site at Ruabon, and even if there were it
can have no relevance to the value of land at Newport. While conceding that
some piling was necessary at the Reevesland Estate site, it would not be
required over the whole site and only under major buildings. Thus, the £10, 000
per acre suggested by Mr Legg was excessive, and a total figure of £34, 000,
inherent in Mr Needham’s approach, was more realistic as the likely
expenditure.
Conclusion
It was not in issue that the 54.6 acres comprising
the site of the appeal hereditament (first appeal only) falls to be brought
into the valuation at stage 3 nor that the relevant capital sum should attract
an averaged or Ebdon allowance as previously referred to. There were,
however, differences between Messrs Needham and Legg as to the amount of the
capital sum and the extent of the allowance it should attract. Both spoke of
value, rather than cost, and neither made any reference to the tenant from year
to year; the target was clearly a capital value between vendor and purchaser in
the prevailing market in Newport at or about AVD. This value could then be converted
by adjustment, the nature of which is agreed in principle (the Ebdon
allowance), to the effective capital value required at stage 4. The basic
positions adopted were for a freehold interest in a site unencumbered by
buildings and structures with vacant possession for use as the site of a
chemical works, namely value for existing use, Mr Needham’s figure was £7, 500
and Mr Legg’s £15, 000 per acre. These values were both arrived at by reference
to transactions in other land in Newport, albeit reliance was placed upon
different comparables.
With the benefit of inspection of the appeal
hereditament and of the other sites referred to, the conclusion is reached that
no material assistance can be derived from the transactions at Cleppa Park and
Flatwood. First, because, as stated by Mr Needham, it is highly unlikely that
planning permission would be granted for a chemical works upon
significantly smaller than the 54 acres of the appeal hereditament, especially
Flatwood, and for that reason are inadequate comparables. Third, their location
relative to major highways is far superior to that of the appeal hereditament.
Furthermore, no assistance can be derived from
sales during 1988-1989 out of the October 1987 purchase at the Reevesland
Estate. The sale of some two acres for a car showroom was patently a strategic
site well suited to, and bought for, development for a more valuable use. The
two later sales took place in a market accepted as rising rapidly during 1988
and into 1989. They were relatively small sites purchased for non-specialised
industrial uses within what had become laid out as an industrial estate for use
by several occupiers. This leaves for consideration the initial purchase of
36.85 acres of usable land in October 1987 at £250, 000 and the figures
included in the accounts to 31 January 1988 of the purchaser company. From the
history of the transaction it is clear that after the sale of the car showroom
site in April 1988 the rump of the site, 34.72 acres, had cost £16, 000, some
£460 per acre. Having regard to this weighting in favour of the premium site,
it is not appropriate to analyse the 1987 purchase price by dividing by the
gross area of 41.75 acres to reach £6, 000 per acre nor by the usable area of
36.85 acres to get £6, 784 per acre, because these are crude averages where
clearly on the evidence of events to April 1988. A small part of the site was
vastly more valuable than the main area.
The value of the main area, or rump, will now be
considered against the information in the trading accounts. The material entry
is land held for resale, Reevesland £597, 795; this was said to be the purchase
price of £250, 000 and about £348, 000 spent upon civil engineering or
infrastructure works. Mr Legg divided £597, 795 by 34.728 acres to give £17,
219 per acre, which is considered incorrect because this outstanding sum in the
account in January 1988 gives no credit for the £234, 000 consideration to be
received in April for the car showroom site. When this is brought into account
the per acre sum is £10, 478 (£363, 795 divided by 34.72 acres); this requires
adjusting downwards to reflect some provision of the infrastructure required
for the subdivision of a large area into the smaller sites as subsequently
taken up, but not required for a single occupation of the same area with
existing public highway access. Moreover, on the evidence, it was accepted that
to be comparable with the appeal hereditament some ground piling was necessary;
Mr Needham put this cost at £1, 000 per acre (say £35, 000) and Mr Legg at £10,
000 per acre (say £347, 000). Mr
no engineering and cost evidence to support either of these amounts, and,
further, that any expenditure upon land-drainage works at Reevesland was
balanced by the inclusion of below-ground works in ARC of the appeal
hereditament. I accept the first submission, but I am not convinced about the
second because I suspect that the required drainage works at Reevesland were of
a different order and nature to any works taken into account at the appeal
hereditament. The submitted plans of the Reevesland site clearly raise the
inference of marshy land requiring the retention upon site of a sizeable drainage
lagoon, and the accepted need for piling is also indicative of wet ground
conditions of poor load-bearing capacity.
In the absence of detailed evidence, including the
costs as to required piling and the provision of infrastructure relevant to an
industrial estate but surplus to a single occupation of the same site area, I
conclude that the two adjustments should be regarded as cancelling each other
out. Doing the best I can on the evidence, I therefore determine the value of
the site of the appeal hereditament, including a modest allowance for its size
of 54.6 acres, at £10, 000 per acre.
Rateability of disputed plant items
There is agreement as to the description of the
plant items in terms of their existence, location, function, type, extent, age
and ERC, but not the adjustments at stage 2, because the appellant contends
that they are not rateable. The dispute is whether the fire-protection
equipment on the hereditament and the metal staircase attached to the butane
sphere (existing in 1990) are rateable under Class 1B and Class 4 respectively
of the Valuation for Rating (Plant and Machinery) Regulations 1989 (SI 1989 No
441) (the regulations).
Class 1B refers to:
Machinery and Plant specified in Table 1B…
which is used or intended to be used mainly or exclusively in connection
with… the protecting of the hereditament from fire; but in the case of
machinery or plant which is in or on the hereditament for the purpose of
manufacturing operations or trade processes, the fact that it is used in connection
with those operations or processes for the purposes of… protection from fire
shall not cause it to be treated as falling within the classes of machinery and
plant specified in the Schedule
The material part of Table 1B is:
(h) Protection from fire
Tanks; pumps; hydrants; sprinkler systems; fire
alarm systems; lightning conductors.
Class 4 refers to the items named in Table A,
which includes:
Walkways, stairways, handrails and catwalks…
which are to be rateable, except:
(a) Any such item which is not, and is not
in the nature of, a building or structure…
Fire protection plant
The evidence that was directed towards
establishing whether the plant in 1990 was ‘used or intended to be used mainly
or exclusively in connection with the protecting of the hereditament from
fire’, is now summarised.
Mr Burge, who was the fire protection officer at
the Newport works at the material time said that the primary consideration of
the works’ operator with respect to fire-protection equipment is ‘to ensure the
safety of the public and on site personnel and secondly, to maintain continuous
production’. He saw the primary purpose of installing fire-protection equipment
as the protection of personnel on and off site and to prevent business
disruption due to loss of process plant. He explained that the protection
systems are designed to cool the process plant, flushing away any flammable
materials in the event of a fire. As an example he cited the deluge system
attached to the Butane sphere. Its purpose in the event of fire was to cool the
sphere to prevent its rupture and loss of containment of its contents, because
the escape of contents could lead to a flammable vapour cloud, which, if
ignited, would cause injury and damage to people and property off site; the
loss of the sphere itself, a constituent part of the hereditament, was regarded
as immaterial to the purpose of providing the protection against fire. In
further explanation of the system and its purpose, Mr Burge said that process
plant throughout the works was protected by deluge systems, and there were
similar systems in the warehouse buildings to protect stored goods and
products.
In cross-examination, Mr Burge emphasised that the
fire-protection systems were oriented to protect each section of the works, its
plant and products and were not mainly designed to protect the building or
structure, which was regarded as incidental. Not all buildings on site were
protected, as the emphasis was on the process areas. He accepted that there
were external hydrants and underground fire mains on site, intended to give
extra protection against a substantial fire, which might destroy the works.
Also that there was an on site fire station and that all equipment was tested
annually.
Mr Needham said that the fire protection equipment
was ‘required to prevent and limit ignition with the potential consequences for
human life, health and property based on and off the site’. Thus, he concluded
that ‘the plant is not used mainly or exclusively in connection with protecting
the hereditament’. Furthermore, following Hays, he considered that the
purposes for which the plant is on the hereditament are those of manufacturing
operations and trade purposes. For these two reasons, he regarded the
fire-protection plant as not rateable.
In cross-examination, Mr Needham agreed that a
small fire in a chemical works can spread to the whole, and that the protection
system
potentially the system covered the whole works, but he did not accept it was
similar to that which a hypothetical landlord would install to protect the
hereditament. It was there to protect against fire consequent upon the
manufacturing processes carried on, and, in so doing, protects the hereditament
in a similar way to an extinguisher upon a flare stack at an oil refinery.
Mr Raley, in lengthy evidence, described in detail
the nature of the fire-protection plant upon the premises that he regarded as
‘one multi‑faceted system throughout the works’. He said that the on-site
hydrants were not specific to any plant item; sprinklers had been installed in
storage and production buildings where there exists a higher than normal fire
risk, some sprinkler systems had been designed to protect the storage of high-hazard
materials and, in the finished product warehouse, the sprinklers are of the dry
type as a precaution against frost damage. The external plant structures were
also protected with a dry system, involving numerous heads, some of which were
directional, to ensure complete envelopment of process plant in the event of
fire.
He made reference to the Hays case in which
he was the respondent valuation officer, and said that the system at the appeal
hereditament cannot be regarded as tenant’s plant like the Halon system in that
case (tribunal note: found to be non-rateable, but not for that specific
reason). As he concluded that the system at the works was to be regarded as
‘landlord’s plant’, he said it followed that it was installed for the
protection of the hereditament. He added in support of this position that
without the particular protection system on the plant structures a works’ fire
certificate would not be granted; presumably to the effect that the chemical
works would then incapable of being let. In his opinion the system was designed
to prevent the spread of fire from one plant or section to the next and so on
throughout the works and therefore it followed that it existed to protect the
hereditament and was not concerned with protecting products or processes. He
referred to the notion of the ‘ordinary man’ in Whitfield (VO) v
National Transcommunication Ltd [1995] RA 214, who would conclude that the
system was there to protect the hereditament rather than any specific process
or piece of plant. In contradiction of the point made about a fire certificate,
he asserted that if the protection system was removed from the hereditament the
same manufacturing processes would continue, so that it was correct to conclude
that the system existed only to protect the hereditament.
In cross-examination, Mr Raley said that the more
substantial part of the protection system would be provided by the hypothetical
landlord and the minor part by the hypothetical tenant. He stated that the
object of the system could not be to protect all and everything on the
hereditament as suggested by Mr Burge, since, on the basis of ‘vacant and to
let’, there is, or would be, only the hereditament to protect. He categorised
Mr Burge’s approach as viewing the matter generally, whereas he had viewed it
‘in rating terms’. Reluctantly, he conceded that the purposes (of the system)
are to protect the entire works and everyone and everything within it from
fire, and that by implication property and persons off site are part of those
purposes. He accepted that there was rateable and non-rateable plant on the
premises and that the latter was a substantial part of the total value of the
whole works, and that the system protects both types of plant.
It was put to Mr Raley that protecting
non-rateable plant, personnel, raw materials and others off site was not mainly
using the system to protect the hereditament, because the predominant use was
protecting things that were not part of the hereditament. His reply was that
this was correct in money and people terms but not correct in rating terms.
Submissions
Mr Mould submitted that the issue of rateability
turned upon the interpretation of the regulations, and in Chesterfield Tube
Co Ltd v Thomas (VO) [1970] RA 471 the Court of Appeal had
said that expert opinion (of rating surveyors, engineers, etc) can properly be
used to interpret the words of the regulations. There is no issue that the
items identified by Mr Raley are named in Table 1B. However, for the appellant
it is said that they are not rateable because, first, the items are not used,
or intended to be used, mainly or exclusively in connection with the protection
of the hereditament from fire. Second, the items of plant are on the
hereditament in any event for the purpose of manufacturing operations or trade
processes, and are thus exempted by the proviso to Class 1B. Mr Mould observed
that the hereditament is a chemical works and intended to be let to the
hypothetical tenant for that use. It is common ground that the use carries a
serious fire risk, which could spread beyond the works. The system is intended
to confine any fire to as small a part of the works as possible, per Mr
Burge; that is the purpose of the envelopment approach. He submitted that there
was no issue that one of the purposes of the system is to protect the
hereditament; the evidence of Messrs Needham and Burge. Mr Raley had conceded
in a general sense that it was there to protect the entire works and everything
and everybody within it and property and persons nearby. Against this background,
the appellant has concluded that the system is not mainly used in protecting
the hereditament, the predominant purpose being to protect process plant,
personnel, raw materials and property and people off site. He accepted that
these things were relatively more valuable than the pure hereditament, but it
merely begs the question posed by the statutory works namely ‘is its use or
intended use mainly or exclusively in connection with protecting the
hereditament?’ He urged that the answer was yes, because the system serves
wider purposes ‘as a consequence of the use to which is plainly intended to be
put, ie protecting the hereditament by locating and confining any fire’. He
repeated that Mr Raley had said that the system was of such a nature that a landlord
would provide it, but conceded that it was not a conclusive point in the issue.
Mr Mould submitted that the proviso within which
the appellant seeks to get was applied in Hays, and that decision well
illustrates its application. In Hays, there was a clearly identified
motive for installing the Halon gas protection system, solely to protect stored
goods (documents), and it was no part of the purpose to protect the
hereditament; put shortly, if there had been no documents on the Hays premises,
no system was necessary. He contended that the instant circumstances were
different because no manufacturing purpose needing the system had been
identified. The evidence was against the application of the proviso because
production processes have come and gone, but the essential characteristics of
the system, envelopment, has apparently remained, as it was necessary to
protect works of this sort from fire.
In summary, Mr Mould submitted that the
installation and method of the protection system reflects the nature of the
hereditament the subject of the hypothetical tenancy; and its use or intended
use mainly or exclusively of protecting the hereditament from fire, albeit with
the wider protection to persons and property that arises as a consequence of
that use. This position has been established for the valuation officer and the
fire-protection plant is properly rateable.
Mr Bartlett’s prime submission was that if, as a
matter of fact, the disputed plant was not used mainly in protecting the
hereditament, then it is not rateable. The first question is, therefore, in
connection with what purpose is the equipment used or intended to be used? It
was put to Mr Burge, and he agreed, that it was used to protect the entire
works and everything in it, therefore it can be assumed that the valuation
officer accepts that it was used for protecting the hereditament, non-rateable
plant, raw materials and products and personnel on site. Mr Raley also
accepted, additionally, protection against the effects of fire for people and property
off site.
He said that the question therefore became: ‘is
the protection of the hereditament the predominant purpose of those purposes?’
He submitted that Mr Raley never asked himself that question; he started from
the basis that ‘one must assume that the hypothetical landlord has installed
this equipment to protect his property’. This premise inevitably led Mr Raley
to the conclusion that the equipment was rateable; he had regarded the
regulations as a self-fulfilling prophecy. This is not so, as the regulations
do not require one to assume anything, but rather to look at the facts and ask
whether the criteria of rateability are met on those facts. The only evidence
before the tribunal on the purpose of the equipment is that of Mr Burge, who,
from the positions
burden of his evidence was that the prime purpose was to protect the processes
and personnel of the appellant.
Mr Bartlett’s conclusion was that the evidence
clearly shows that the fire-protection equipment is not used, or intended to be
used, mainly in connection with protecting the hereditament against fire, on
the facts at this particular works with considerable non-rateable plant and
hazardous processes. He urged that, on the basis of these submissions, the
proviso need not come into play in this case; nevertheless, he said that he
would deal with it briefly. His mode of doing so was to refer to p5 of the
decision of this tribunal (JH Emlyn Jones CBE,
FRICS) in Hays when it was said:
In Mr Sainer’s submission, although the
fire-protection equipment protects the materials stored on the premises its
main function is to protect the building which is housing the material and the
storage of that material cannot be properly described as a trade process. In
his submission these words are intended to apply in cases where some
manufacturing operations involve some particular degree of risk such as the
handling of molten metal.
I cannot accept these submissions. In my judgment,
the fire-fighting equipment, like the heating plant and the dehumidifiers, is
on the hereditament primarily to protect the material that is stored there.
Even it were to be found that this could only be done by the protection of the
building and therefore that that was the main use of the equipment, it would
nevertheless not be included within the schedule because it was there expressly
for the purpose of the trade process being carried on. In my opinion, the trade
so far as material on this point was the storage of sensitive materials and the
process was the provision and maintenance of a suitable temperature and
environment involving the application in emergency of a non-toxic and harmless
gas which had the effect of extinguishing a fire.
Mr Bartlett observed that while a different
process was involved at the appeal hereditament, the principle set out in Hays
was the same, to the effect that the fire-protection equipment was not rateable
by virtue of the proviso.
Staircase attached to the sphere
It is not in dispute that stairways are listed in
Table A of Class 4 of the Regulations nor that the ‘steel staircase’ attached
to the butane sphere in 1990 was a stairway. Therefore it is not a building, so
the issue is whether it is a structure or in the nature of a structure, and not
therefore exempted by para (a) of Class 4.
Mr Needham, in deciding that the staircase was not
rateable, referred to the decision of the Court of Appeal in Cardiff Rating
Authority v Guest Keen Baldwin’s Iron & Steel Co [1949] 1 KB 385
where it is said that ‘a structure is something which is constructed but not
everything constructed is a structure’. He also referred to the Court of Appeal
decision in BP Refinery (Kent) Ltd v Walker (VO) [1957] 2 QB 305
where it was held that ‘cat walks cannot in any case be regarded as
constituting a building or structure or anything in the nature of a building or
structure’. He said that the staircase was not a structure on its own account,
disregarding its attachment to the rateable sphere, because it was not, and
could not be, free-standing. Moreover, it was not rateable as being in the
nature of its structure, although attached to an otherwise rateable item. Mr
Needham accepted in cross-examination that the staircase was constructed from parts,
probably assembled on site and then bolted on to the sphere at a few points.
However, he maintained that it could not be in the nature of a structure
because it was useless without the sphere for support.
Mr Raley’s evidence was that the staircase was a
named item in Table A, and, in his opinion, it was a structure in itself
regardless of whether it was attached to the sphere. He said it was a
structure, namely a stairway in its own right and distinguishable from a
catwalk, a narrow footway; a stairway was something more substantial and
implied that it was a structure. In cross-examination, he said that the
staircase was a structure when judged against the four standard tests accepted
by rating surveyors following Guest Keen (see Gibson and Jackson at p64).
These relate to: (a) the way in which an item is constructed; (b) size and
weight; (c) its degree of attachment to the land or buildings or other
structures; and (d) its degree of permanence. He stressed that the staircase
was to be distinguished from a catwalk because of its size and weight, its
regulation-sized treads and handrail and its degree of permanence, which
resulted in it being designed to fit on to the sphere.
Submissions
Mr Mould submitted that the proper tests to apply
were those in Guest Keen, which, in turn, were approved in BP
Refinery, but the latter judgment is of no further assistance because, inter
alia, it concerned a dispute as to the rateability of catwalks which were
not named items in the Plant and Machinery (Valuation for Rating) Order 1927.
The 1989 Regulations, however, also name catwalks to the effect that they now
may be structures or in the nature of structures, and, moreover, by being named
they are now specifically distinguished from stairways. It is an undisputed fact
that the stairway was permanent and fixed to the sphere. Nevertheless, Mr
Needham said that it could not be a structural stairway without the sphere,
despite his having accepted that many things are properly regarded as buildings
or structures notwithstanding that they rely on other buildings or structures
for support, for example the sphere itself had legs. Mr Mould urged that the
point made by Mr Needham was not conclusive of the issue, and his position was
to be rejected in favour of that adopted by Mr Raley after carefully applying
the standard tests.
Mr Bartlett said that the staircase was clearly
not an integral part of the sphere and that it had not been suggested for the
valuation officer. The factual position was that the staircase was attached to,
and relied upon, the sphere for support. He submitted that it was relatively
light in terms of design and was brought to the site in pieces and put
together, which he regarded as assembly rather than construction. He urged that
on the approach in Guest Keen, the staircase was plainly within
exception (a) of Class 4.
Conclusions
Fire protection equipment
The evidence of Mr Raley was clear that the
fire-protection equipment on the hereditament was to be regarded as a single
system affording different kinds and methods of protection to the several
constituent parts of the works and its contents, together with people on or
about the premises. It was comprehensive and not to be severed in any way for
the purpose of considering its rateability; the whole is rateable and ERC is
agreed. Mr Mould urged that while it may protect mainly things, several of
which cannot be part of the rateable hereditament, nevertheless, that is to be
regarded as consequential upon its main function of protecting the
hereditament. He rightly attached no weight to the circumstances consequent
upon the notion of ‘vacant and to let’ spoken to by Mr Raley, because the words
of the regulations are ‘used or intended to be used’, which plainly
contemplates a period of use after letting. Likewise, who has provided, or
might provide, the equipment affords no assistance as to how it is used, or may
be used, and the purpose of that use or intended use.
There is no factual dispute about the existence,
location and nature of the equipment upon the premises, and, on the evidence,
it is plainly not used, nor intended to be used, exclusively for protecting the
hereditament against fire. The material question is therefore whether it is
mainly so used. I accept the submissions of Mr Bartlett that the Regulations do
not require any assumption either way and that it is a matter of fact to be
found on the evidence. I prefer the evidence of Mr
use and/or the intended purpose of the fire-protection equipment, because he is
an experienced qualified engineer who has been employed at the Newport works
for many years, including a period as the fire-protection officer. From his
evidence I find that the fire-protection equipment is not mainly used, or
intended to be used, for the protection of the land, buildings and rateable
plant comprising the hereditament, and, accordingly, I determine that it is not
rateable under the regulations.
Staircase
After careful consideration of the oral evidence,
the submitted photograph (DJR 60) of the sphere with the staircase and the
judgment of the Court of Appeal in Guest Keen, but without the benefit
of any inspection in 1996, I reach the conclusion that the staircase is a
structure
substantial item fabricated in steel, partly on and partly off site. It was
purpose-designed and made to fit the sphere to which it was firmly attached.
That attachment was in a permanent position without any intention of, or
facility for, its being moved to different positions in the future. It was
intended to endure in situ for the duration of its physical life or at
least until the basic purpose of the sphere became superfluous or obsolete.
Although I heard no specific evidence, I think that it is a fair inference to
assume that it was also attached to the ground, with the result that it took
support from the land of and rateable plant upon the hereditament. Accordingly,
I hold that the staircase is an item of plant that is rateable.
Summary of conclusions
Capital grant
1. A de novo construction of the works
would not attract capital grant.
2. In the alternative, if capital grant were
payable, not more than 20% would be referable to the rateable hereditament,
namely £2.75m at 20% equals £550, 000, subject to discounting for delayed
payment.
3. The valuation of existing productive assets
cannot give rise to the payment of capital grant, either actually or
notionally.
4. The actual payment of capital grant in Willacre
is distinguishable from the circumstances of the instant appeals and logically
calls for adjustment at stage 3.
5. The prevalence of capital grant payments in a
locality may well affect the local market by reducing passing rents below
normal commercial levels.
6. Any perceived local market effect (5 above),
upon which there was no specific evidence in these appeals, falls to be taken
into account by allowance at stage 5 as an aspect of the ‘higgling of the
market’.
Valuation principles
7. The explanation in Dawkins was, and
remains, a statement of valuation principle, but it neither prescribes the
method nor the basis of valuation.
8. The essence of Dawkins is that the
tenant has an alternative to renting the actual hereditament, and also that the
method of valuation identifies a maximum or ‘ceiling’ rent for the
hereditament.
9. The object is to give an economic framework for
valuation that should be maintained to afford credibility to the contractor’s
basis of valuation.
10. An economic framework can be preserved without
the literal interpretation of the Dawkins principles by the device of
regarding the hypothetical tenant as a prospective purchaser of the
hereditament for stages 1, 2 and 3 of the valuation (the capital sum stages)
and then as the hypothetical tenant of rating for stages 4 and 5 (the annual
value stages). At the latter stage the issue of a ‘ceiling’ rent is
conveniently considered.
11. The fundamental question to ask and answer is
whether the hypothetical tenant can reasonably be expected to pay a rent
commensurate with capital value (ECV) reached at stage 3.
Allowances and adjustments
12. The contractor’s basis of valuation seeks to
replicate the working of the market in which the capital and rental values of
non-specialised hereditaments are determined principally by the forces of
supply and demand.
13. To give the method any realism it is necessary
to have regard to the points of view of both landlord and tenant, the one
seeking a fair return on the capital value of an investment or asset and the
other being prepared to pay that annual value.
14. Stage 2 is the principal stage for turning
stage 1 cost (ERC) into value (ECV), which, in turn, becomes the bedrock of the
ultimate rental value.
15. The correct perspective to adopt when
considering allowances and adjustments at stages 2 and 3 is that of the
owner-occupier or prospective purchaser.
16. Circumstances not taken into account at stages
2 and 3 that are peculiar to a tenant, particularly the hypothetical tenant of
rating, are to be dealt with at stage 5.
Age-related scales
17. Scales are the best tool available to valuers
seeking a consistent approach, provided objective judgment is used in their
construction and application.
18. Buildings: Annexure 1 col 11 to be adopted.
19. Free-standing civils: Annexure 1 col 8 to be
adopted. Where civils are associated with plant, the plant scale to apply, but
the age adopted to be that of the civil item under consideration.
20. The agreed scale for carbon-steel storage
tanks (Annexure 1 cols 1 and 2) sets a floor or datum for allowances in
respect of other kinds of plant.
21. The appropriate scale for plant in these
appeals is at Annexure 1 col 3.
Functional and technical allowances
22. The allowances made by Mr Needham are
endorsed, save that:
a) no allowances should be accorded in respect of
any building, civil or plant and machinery that first became part of the
hereditament after 1 January 1985;
b) no allowances should be accorded to bunded
areas and bund walls (including the blast wall) by reference to the Monsanto
design guide;
c) the allowances according to electrics for all
three forms of obsolescence should not be more than 60%;
d) there should be no ‘sectional allowances’ in
respect of sections F, P and R; and
e) the ‘averaged or Ebdon allowance’ upon
infrastructure to be a revised derivative amount that has regard to the amended
valuations directed later.
End allowance (stage 5)
23. This allowance to be 7.5%.
Plant and machinery (stage 1)
24. There be neither a location factor (0.96) nor
a contract size allowance (9.5%) in respect of rateable plant and machinery
upon the hereditament.
Land
25. The value of the agreed effective site of the
hereditament be included in each of the valuations at £10, 000 per acre before
any ‘averaged or Ebdon allowance’ is made.
Disputed rateability
26. The complete fire-protection system upon the
hereditament is found not to be rateable.
27. The staircase attached in 1990 to the Horton
sphere is found to be rateable as a structure or in the nature of a structure
under Class 4 of the regulations.
This decision so far concludes the consideration
of the evidence and submissions upon the issues and/or principles in contention
between the parties. It does not, however, amend the hundreds of figures in
contention within the complex valuations produced by the experts, who are now directed
to jointly agree, in respect of each appeal, revised valuations that have
regard to the conclusions, findings and determinations herein. The agreed
revised valuations to be lodged with the registrar within 30 days from the
receipt of this incomplete decision, following which they will be considered by
the tribunal, and if found correct they will be included within the final
decision upon the two appeals.
Addendum
Peter H Clarke FRICS
Following the death of Dr Hoyes before he was able
to give his final decision, I was appointed by the President to complete the
decision. In this unusual situation I held a post-trial review to consider and
agree future procedure.
Richard Glover of counsel appeared for the
appellant and Timothy Mould of counsel appeared for the respondent valuation
officer.
Following the publication of Dr Hoyes’ interim
decision the parties attempted to agree revised valuations, as directed in the
last paragraph of that decision, but had been unable to agree all outstanding
matters. The differences between the parties were resolved into two questions
for my determination.
1. Has the Lands Tribunal decided in the interim
decision that (i) pipe-racks and/or (ii) compressed-air mains are to be
categorised for valuation purposes as items of infrastructure that attract an Ebdon
allowance?
2. If the Lands Tribunal has not so decided, are
(i) pipe-racks and/or (ii) compressed-air mains to be categorised for valuation
purposes as items of infrastructure that attract an Ebdon allowance?
It was agreed that the parties would submit
written representations and these have been received from both parties. The
representations on behalf of the appellant were prepared by Mr Paul Needham FRICS
of Gerald Eve and those for the respondent valuation officer were prepared by
Mr AP Sainer for the solicitor to the Inland Revenue.
Ebdon allowance
Both questions refer to an Ebdon allowance,
and it may be helpful if I explain the meaning of this term. An Ebdon
allowance arises out of the decision of this tribunal (CR Mallett) in Imperial
College of Science & Technology v Ebdon (VO). Stage III
of the contractor’s test is to find the effective capital value of the site of
the hereditament. The parties in Ebdon agreed the value of the site of
the hereditament cleared of all buildings and services, but then made different
deductions to arrive at the effective capital value. The member said (p230):
As I understand it, the reasoning in support of a
deduction is that if the site cleared of all buildings is worth over £6.25
million when it could accommodate new buildings costing over £20 million, it
must be worth less when developed with the existing buildings which are agreed
to be less valuable.
The member then went on to explain that the
allowance to be applied to land value to find the effective capital value of
the site may be different from the allowance to be applied to the buildings on
the land (although he applied the same deduction to buildings and land in that
case). In Ebdon, the result was to reduce an agreed site value (cleared
of buildings) of £6, 290, 000 to an effective capital value of £5, 598, 100.
In these current appeals, the parties have agreed
that the Ebdon allowance shall be extended to apply to the value of
certain items of infrastructure or site works in addition to the value of the
land. They also agree that, as in the Ebdon case, the same percentage
deduction should be made. They disagree, however, as to whether pipe-racks
and/or compressed-air mains form part of that infrastructure attracting an Ebdon
allowance. They also disagree on a more fundamental question — whether this
issue has already been determined by Dr
This is the first question for my decision.
Question 1
Appellant’s initial representations
Mr Needham said that a sensible reading of the
interim decision shows that Dr Hoyes had decided that the pipe-racks and
compressed-air mains are part of the infrastructure. The first question should
therefore receive an affirmative answer. There is a strong indication of this
in the final paragraph of the decision and this is confirmed in other parts of
the decision.
Mr Needham said that Dr Hoyes was aware of this
particular dispute, having regard to the different ways in which he and Mr Legg
presented their valuations. Dr Hoyes identified the scale of the dispute [at
p211H-J]
Mr Needham said that to find out how Dr Hoyes
decided the issue it is necessary to look first at [p222A], where he decided
that for ‘free standing civils’ at the appeal hereditament ‘Mr Legg’s lower, or
less generous, scale of deductions… is appropriate’. This is not a decision as
to whether a particular item is or is not within this category, said
Mr
matter. Here, the member noted that there were two constituent elements in the
total sum of £425, 915 under section allowances for sections F, part P, part R
‘and part infrastructure’ used by Mr Needham in his valuation. First, section
allowances for F, P and R, which he decided should not be made. Second, for
infrastructure, where the member concluded [at p223C] that there is no issue in
principle upon this allowance and it ‘is endorsed accordingly’ but that the
precise amount ‘is a derivative sum that may well emerge from an amended
valuation in a different figure’. Mr Needham said that it is clear from his
valuation dated 3 May 1996 at line 1234 that this allowance includes pipe-racks
and compressed-air lines under a subheading of ‘infrastructure’.
In reply to certain letters in rebuttal of this
view by the solicitor to the Inland Revenue, Mr Needham said that Dr Hoyes was
aware that there was a dispute regarding the correct category for the
pipe-racks and compressed-air mains, and it is unlikely that he was in error in
making that particular decision. The most likely position is that Dr Hoyes
decided in the appellant’s favour on this matter, which is not one of principle
but one of valuation judgment.
It will be convenient if I set out Mr Needham’s
cross-representations after the respondent’s representations below.
Respondent’s representations
Mr Sainer said that the answer to both parts of
question 1 is ‘no’. He said that the first reference to infrastructure
allowances is [at p211H‑J], where Dr Hoyes contrasts the allowances
applied by Mr Needham and Mr Legg respectively. He referred, in relation to Mr
Needham’s valuation, to ‘part infrastructure’, which Mr Sainer said suggested
that Dr Hoyes had misunderstood the layout of Mr Needham’s valuation, since his
20% allowance referred to the whole of the infrastructure, including
pipe-racks, pipe-rack foundations and compressed-air mains. He then recorded
that it was common ground that the sum to be included for the site of the works
should be reduced by an Ebdon allowance [at p211M]. Neither passage
directly referred to the subject matter of the questions.
Mr Sainer referred to the way in which Dr Hoyes
recorded in his decision the evidence of Mr Legg and Mr Needham regarding
infrastructure. Mr Sainer said that Dr Hoyes appeared to have misunderstood the
way in which Mr Needham’s allowances were calculated. This matter was not
addressed by counsel in their closing submissions, and may be the reason why it
was overlooked by the member.
At [p222A] Dr Hoyes stated his conclusion on the
allowances for ‘free standing civils’, and then qualified his finding and
directed that, in the case of civils associated with plant, the allowances
should take account of the age of the civils, rather than that of the
associated plant. Dr Hoyes commenced his consideration of section allowances at
[p223A], and dealt with infrastructure [at p223C]. The reference in the
decision to there being ‘no issue in principle upon this allowance’ suggests that
it is wrong for the appellant to say that this passage endorses physical and
functional allowances in respect of individual items. The only point decided by
the member was that the 20% allowance, which appeared to be a section allowance
but was in fact an Ebdon allowance, was justified in principle. He did
not consider whether the allowance should include pipe-racks and/or
compressed-air mains. This question remained unresolved in the interim
decision.
In his cross-representations in response to Mr
Needham’s initial submissions, Mr Sainer referred to the last paragraph of Dr
Hoyes’ decision and then said that, when he wrote that passage, he thought that
he had decided all matters in contention, but had overlooked the need to decide
the two points of detail raised in the agreed questions. If he had done so, he
would not have caused a letter to be written to the parties referring to his
lack of surprise that an issue remained in respect of the categorisation of the
pipe-racks and compressed-air lines (see Lands Tribunal letter dated 26
February 1997).
In rebuttal of Mr Sainer’s representations, Mr
Needham said that the parts of the decision referred to by Mr Sainer must be
read in context. The member was aware of the divergence of views regarding the
application of the Ebdon allowance. In this light, it is difficult to
see how it can be maintained that Dr Hoyes misunderstood the position and
therefore failed to decide an outstanding issue. It is clear from the decision
as a whole that Dr Hoyes understood the presentation of his valuation,
appreciated that there was an issue regarding infrastructure allowances and
decided it in the appellant’s favour. His only caveat was to recognise that, as
the precise amount of the allowance was a derivative sum, it might well emerge
as a different figure when the figures from which it was derived are altered.
Dr Hoyes’ endorsement of Mr Needham’s allowances was not an endorsement of
part; had he wished to exclude from that endorsement the pipe-racks and
compressed-air mains he would have said so.
Decision
The first question for my decision is whether Dr
Hoyes decided in his interim decision that pipe-racks and/or compressed-air
mains are to be categorised for valuation purposes as items of infrastructure
that attract an Ebdon allowance?
Mr Needham says ‘yes’, based on a rather tortuous
interpretation of Dr Hoyes’ decision, which found the answer by implication. Mr
Sainer says ‘no’, based on what he thought was a misunderstanding by
Dr
decision of any specific determination on this point. Neither party could refer
me to any part of the decision dealing with this question in express terms. It
is clear that, if Dr Hoyes decided this point, he did not refer to it
specifically in his decision, and it must be found, if at all, by implication
from what he did decide. That is my approach to this question.
I look first at the final paragraph of the interim
decision:
This decision so far concludes the consideration
of the evidence and submissions upon the issues and/or principles in contention
between the parties. It does not, however, amend the hundreds of figures in
contention within the complex valuations produced by the experts, who are now
directed to jointly agree, in respect of each appeal, revised valuations that
have regard to the conclusions, findings and determinations herein.
It is clear from this part of the decision that Dr
Hoyes felt that he had considered all the evidence and submissions, made
decisions on all the issues, but had been unable to determine the valuations
due to the complex way in which the value evidence had been presented. Clearly,
there were still matters of value outstanding, and the parties’ experts were
directed to meet and, in the light of the decision, to agree amended
valuations. The question is whether the categorisation of the pipe-racks and
compressed-air lines was one of the value matters still outstanding? To find
the answer it is necessary to work back through the decision.
Dr Hoyes helpfully set out a summary of
conclusions, starting [at p228B]. The material conclusion for this question is
number 22(e) (functional and technical allowances):
The allowances made by Mr Needham are endorsed
save that:
(e) The ‘averaged or Ebdon allowance’ upon
infrastructure to be a revised derivative amount that has regard to the amended
valuations directed later.
I do not think that the endorsement of Mr
Needham’s allowances by Dr Hoyes means that his categorisation of the
pipe-racks and compressed-air mains as infrastructure was also endorsed,
particularly having regard to the qualification under subpara (e). In my view,
categorisation was expressly left open by Dr Hoyes for future agreement. To check
this interpretation it is necessary to look back further in the decision to the
source of conclusion 22. This is to be found on p58 under the heading
‘Sectional allowances (at stage 3)’. The relevant paragraph is [at p223C]:
On closer examination of the 20% relating to
infrastructure, although expressed by Mr Needham in his valuation in the same
way as the ‘section allowances’ elsewhere, this is in reality a part of his
‘averaged or Ebdon allowance’ amounting to 46.23% referred to above. As there
is no issue in principle upon this allowance, it is properly made and is
endorsed accordingly. However, its precise amount, currently £275, 891, is a
derivative sum that may well emerge from an amended valuation in a different
figure.
In my view, Dr Hoyes was there endorsing the
principle of applying an Ebdon allowance to infrastructure but leaving
open for future agreement the precise amount, which must include the question
of the make-up of the infrastructure to which the allowance is to be applied. I
cannot find in this part of the decision any determination that
Mr
Thus far, therefore, I am unable to extract from
the material parts of the decision any determination, express or implied, that
pipe-racks and/or compressed-air mains form part of the infrastructure. It
seems to me expedient, however, to put the matter beyond doubt, to look at all
references to these specific items in this decision to see whether any
indication was given as to their status.
The first reference is [at p216J-K], where Dr
Hoyes referred to part of Mr Legg’s evidence as follows:
Mr Legg said that there then remained within the
hereditament a residual category of items that he called ‘free standing civils’
which are structures in their own right, for example pipe bridges, plant
structures and some bund walls and bases, which are neither site works nor
allied to any particular piece of plant from ‘which an appropriate allowance
might be derived’.
More of his evidence is summarised [at p217M]:
In answer to questions from Mr Glover, Mr Legg
agreed that for valuation purposes he had categorised civils as: (a) free
standing; (b) building or plant related; and (c) infrastructure, and that
category (b) was distinguishable because of the interdependence of the civil
items and the building or plant and machinery. He disagreed that the ‘averaged
allowance’ accorded to the land or site and to infrastructure on the
hereditament, following Imperial College (the Ebdon allowance),
should apply to electrics, compressed-air lines etc, because they, or at least
the rateable parts of those systems, were not disposed throughout the whole
site or curtilage of the works.
Dr Hoyes summarised parts of Mr Needham’s evidence
as follows [at p218E]:
There is a difference in the categorisation and
treatment of services and infrastructure between himself and Mr Legg. He
includes electrics, roads, car parks, fencing, pipe-racks, fire mains and
hydrants (albeit regarded as non-rateable), compressed-air pipes etc, being
assets that cannot be related to a particular section of the works, and applies
specific individual allowances, whereas Mr Legg adopts plant scale allowances
(as advised by Mr Raley) and an ‘averaged allowance’.
Dr Hoyes dealt with part of Mr Needham’s evidence
as follows [at p220D-E]:
I turn next to Mr Needham. He made the point that
to divide plant into three categories was an over-refinement for what was
necessary to the valuation exercise. I do not accept this, and consider that
there is logic and sense in a degree of categorisation. It is almost inevitable
that the extent of wearing out and depreciation in capital value of items of
plant will vary between basic inert items, such as pipework, pipe-racks etc,
and compressors, machines, engines, etc with significant moving parts.
It could be implied from the reference to
‘pipe-racks’ in the context of plant and machinery that Dr Hoyes was treating
those items as subject to the plant and machinery allowances and not as part of
the infrastructure. I am not prepared to accept this implication. I believe
that Dr Hoyes referred to these items solely as examples of basic inert items
compared to items with significant moving parts.
I do not think that any of the above specific
references to pipe-racks and/or compressed-air mains indicate that Dr Hoyes
made any decision as to their category for valuation purposes. Looking at Dr
Hoyes’ interim decision, generally and with specific reference to
infrastructure, pipe-racks and compressed-air mains, I have reached the
conclusion that he did not make a decision on the category of pipe-racks and
compressed-air mains and my answer to question 1 is therefore ‘no’.
I have reached that decision solely on an
interpretation of the interim decision, but I find that view confirmed by the
letter dated 26 February 1997, which Dr Hoyes caused to be sent to the parties.
The first paragraph stated:
As intimated it is not a total surprise to the
Member that an issue remains in respect of the categorisation of pipe-racks and
compressed air liners relative to allowances.
This letter then goes on to deal with the
submission of written representations on this issue. It is unlikely that Dr
Hoyes would have caused a letter to be written in those terms if he had already
decided this issue. Clearly, he saw it as outstanding, and was not surprised
that the parties could not reach agreement on it. In my view, this letter
confirms the decision I have reached on the basis of a reading of the interim
decision, namely that the category of pipe-racks and compressed-air mains
remained outstanding following the completion of the interim decision.
Question 2
I have answered question 1 in the negative, and it
is therefore necessary for me to answer question 2, to decide whether the
pipe-racks and/or compressed-air mains are infrastructure attracting an Ebdon
allowance.
Appellant’s initial representations
Mr Needham referred to the agreement between the
parties that certain assets form part of the infrastructure to the definition
of ‘infrastructure’ in the Encyclopaedia of Real Estate Terms and to
evidence given at the hearing on this issue. He said that the pipelines and
associated pipe-racks and the compressed-air mains run throughout the site and
are associated with, and dependent on, a large number of buildings and plant
items. The compressors generating compressed air are centrally sited. He said
that the pipe-racks support non-rateable pipelines that convey raw materials
and products between the various parts of the works. The air mains convey
compressed air from a central source to the plants within the works. The
pipe-racks support a service distribution, and, likewise, the air mains
distribute a service comparable to electricity cables, water mains, drainage
etc. Both are associated and inextricably linked with the whole site as an
integrated chemical works and cannot be identified with any specific building,
item or plant or section. Thus, they are properly defined as infrastructure.
Mr Needham commented on Mr Legg’s approach to this
matter in his evidence, which did not refer to infrastructure but to site
works, and made an allowance equivalent to the difference between the estimated
and the adjusted replacement cost. Mr Needham emphasised that Mr
not challenge his categorisation of examples under the heading of
infrastructure.
Mr Needham concluded that the pipe-racks and
compressed-air mains are items of infrastructure, and, like those items to
which Mr Legg gave the Ebdon allowance, they are affected by their
association with various elements of the whole works. It is therefore
appropriate to treat them in the same way as other infrastructure and to
depreciate them on the basis of an Ebdon allowance.
Again, it will be expedient if I summarise below
Mr Needham’s cross-representations after the representations made on behalf of
the respondent.
Respondent’s representations
Mr Sainer referred to the agreement between the
parties extending the Ebdon allowance to certain site works, and to the
evidence given at the hearing. He said that it is the valuation officer’s case
that the pipe-racks and compressed-air mains do not comprise part of the site
nor serve the site as a whole. They serve particular buildings or plants. They
are part of the development of the site and can be abandoned or demolished or
capped and/or relaid as needs change and plants are created, built, closed or
demolished. Mr Sainer said that one of the reasons for extending the Ebdon
allowance to underground site works, roads and the like was that their age
and/or the precise length of any road or drain would not necessarily be
directly related to their value in the context of the works as a whole.
Furthermore, it might not always be possible to estimate the extent of the
underground works or may not even be necessary where, as here, their cost is
estimated by reference to the reduced site area being valued. Mr Sainer
contended that the Ebdon allowance should not be extended to the
pipe-racks and air mains, which do not serve the works as a whole. They should
be treated as part of the detailed development of the works and receive only
the physical, functional and/or technical allowances appropriate to the items
themselves.
In rebuttal of Mr Needham’s initial
representations, Mr Sainer criticised his definition of infrastructure, which,
he said, was more appropriate to a new community than to a single chemical
works. He said that the issue in this case is not whether the pipe-racks and/or
compressed-air mains can or cannot be classified as infrastructure, but whether
they should receive the Ebdon allowance, originally applied solely to
land. It is agreed that it is now to be applied to certain site works, but the
question to be answered is should it be extended further? The pipe-racks and
air mains do not serve the whole site; they serve various parts of the works as
needed for the processes carried on in these areas. They should not be treated
as single composite constructions.
Appellant’s cross-representations
Mr Needham made two points in response to the
respondent’s initial representations. First, he said that he wished to correct
an impression in Mr Sainer’s summary of Mr Legg’s evidence that Mr Legg
categorised the pipe-racks as being of different ages. In his valuations, Mr
Legg made an age allowance based on an assumed year of construction of 1960. Mr
Needham said that this implied an acceptance of his view that it was not
appropriate to consider the pipe-racks individually. Second, Mr Needham
emphasised that the appeal hereditament is a chemical works and comprises a
variety of processes, which have been developed over 40 years. It is therefore
a spurious distinction to say, in the words of Mr Sainer ‘that the
configuration of the pipe-racks relates to the existing processes and to their
location on the site of the works’. The ‘works as a whole’, said Mr Needham,
are made up of the existing processes and their disparate locations on the
site.
Decision
The second question for my decision is whether the
pipe-racks and/or the compressed-air mains are to be categorised for valuation
purposes as items of infrastructure that attract an Ebdon allowance. Mr
Needham says ‘yes’, on the grounds that they serve the whole site and are
similar to the items of infrastructure that it is agreed should attract an Ebdon
allowance. Mr Sainer says ‘no’, on the grounds that they do not serve the site
as a whole and should therefore be treated as part of the detailed development
of the works, receiving only the appropriate physical, functional and/or
technical allowances.
I agree with Mr Sainer that this question is
really in two closely related parts: are the items part of the infrastructure
and should they receive the Ebdon allowance? To categorise them as
infrastructure is not enough; one must then ask should they receive an Ebdon
allowance? This dual answer makes it expedient to recall the nature and purpose
of this allowance. It was originally applied (in Stage III of the contractor’s
test) to the value of the site cleared of all buildings in order to find the
effective capital value of the land, ie the value of the site as developed with
the existing buildings. In the case that gave this allowance its name, it was
applied only to site value; in these current appeals the parties have agreed to
extend it to certain items termed ‘infrastructure’, namely underground works,
roads, car parks and perimeter fencing.
Mr Needham gave a definition of ‘infrastructure’
from the Encyclopaedia of Real Estate Terms:
The basic or underlying requirements for a new
development; in particular, transport facilities, utilities or services
(electricity, waste, sewage, etc), and necessary and associated land uses
(shops, schools, etc); but not buildings per
I agree with Mr Sainer’s criticisms of this
definition in the context of these appeals. Essentially, infrastructure refers
to roads, services and facilities off the site in question. In my view, having
regard to the items agreed to be part of the ‘infrastructure’ of the appeal
hereditament, I think that they are more accurately described as site works. It
is in that context that I consider question 2. Mr Burge gave evidence at the
hearing as to the use of the appeal hereditament, including references to
pipe-racks and the use of compressed air. As I understand the position, the
pipe-racks carry pipes at high level between different parts of the works, and
these pipes convey raw materials and products between those parts. The
compressed-air mains carry air at different pressures from central compressors
to plants in various parts of the works.
The questions to be answered are: are they within
the category described as ‘infrastructure’ in the question, but which I prefer
to call site works, namely underground works, roads, car parks and perimeter
fencing? Should they receive an Ebdon allowance? My answer is ‘no’ to
both questions.
In my view, the pipe-racks and compressed-air
mains are essentially process plant and machinery serving parts, but not all,
of the works. They are not similar to the underground works, roads, car parks
and fencing, which, it is agreed, attract an Ebdon allowance and the
value of which is analogous to site value. In my opinion, given the nature and
purpose of the Ebdon allowance, it would be wrong to extend it to the
pipe-racks and compressed-air mains at the appeal hereditament. They are not in
the nature of infrastructure or site works. They do not serve the whole site in
the way that roads, perimeter fencing and other services fulfil this function.
I answer question 2 in the negative.
I have now answered ‘no’ to both questions and
this addendum disposes of the issues raised in the agreed questions. The
parties are directed to agree valuations of the appeal hereditament effective
from 30 June 1990 and 30 September 1991 respectively. The agreed revised
valuations are to be lodged with the registrar within 14 days from receipt of
this addendum. If found to be correct, they will be included in the
final decision on these appeals in a second addendum. Liability for
costs will also be included in that further addendum. Accordingly, the
parties are invited to make submissions as to the costs of these appeals, and a
letter accompanies this decision as to the procedure for submissions in
writing. I will, in due course, incorporate an order as to costs in the second addendum
to this decision. Rights of appeal under section 3(4) of the Lands Tribunal
Act 1949 and Rules of the Supreme Court, Ord 61 will not accrue until the
decision has been thus completed, ie from the date of the second addendum.
Second addendum
The parties have now agreed the rateable values of
the appeal hereditament effective from 30 June 1990 and 30 September 1991:
£589, 000 and £584, 000 respectively. The Gwent Valuation Tribunal directed
that the entries in the rating list should be £655, 000 rateable value from 1
April 1990 and £640, 000 rateable value from 30 September 1991. At the hearing
before this tribunal the parties dealt only with the values effective from 30
June 1990 and 30 September 1991.
A further dispute then arose between the parties,
following the issue of the above addendum, as to the procedure for
dealing with the decision of the valuation tribunal in respect of the rateable
value for the period 1 April 1990 to 29 June 1990. In an effort to resolve this
dispute, I directed the parties to agree the rateable value for this period,
for incorporation into this second addendum. They have been unable to do
so, but have now agreed the procedure for dealing with the decision of the
valuation tribunal in respect of the period 1 April 1990 to 29 June 1990,
namely for the tribunal’s decision to be set aside and for the rating list to
be amended to show the above agreed values effective from 30
30 September 1991. It is desirable that there should be no further delay in
finalising this decision, and I will therefore now give effect to the parties’
agreement as to procedure and values. I order that the decision of Gwent
Valuation Tribunal dated 27 July 1993 be set aside and I direct that the
assessments of the appeal hereditament in the 1990 rating list shall be £589,
000 rateable value effective from 30 June 1990 and £584, 000 rateable value
effective from 30 September 1991.
I have received written representations on costs.
The appellant succeeded in these consolidated
appeals and also made an offer to settle in the form of a Calderbank letter
dated 20 March 1996 at figures above the rateable values finally determined in
this decision. The appellant asks for costs with a certificate as fit for two
counsel. The valuation officer accepts that the appellant is entitled to costs,
but submits that these should be reduced by a significant fraction due to the
conduct of the appellant and its advisers, which, he says, added significantly
to the length and expense of the proceedings. Both parties submitted
comprehensive representations on this point. I have considered these
representations, but I am not persuaded that the appellant’s costs should be
reduced on this ground.
I order the respondent valuation officer to pay
the appellant’s costs of these consolidated appeals, such costs, if not agreed,
to be taxed by the Registrar of the Lands Tribunal on the High Court standard
basis. I give no certificate regarding the number of counsel, a matter to be
considered on taxation.
ANNEXURE 1
Monsanto plc —
Allowances for physical obsolescence
|
|
PLANT |
CIVILS |
BUILDINGS |
||||||||
|
|
Tanks |
|
0-30 |
|
0-60 |
Mixed |
|
|
|
|
|
|
|
GE |
VO |
GE6 |
VO1 |
VO2 |
VO3 |
VO4 |
VO5 |
GE |
VO |
GE6 |
|
|
% |
% |
% |
% |
% |
% |
% |
% |
% |
% |
% |
|
|
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
|
1990 |
|
|
|
|
|
|
|
|
|
|
|
|
1989 |
|
|
|
|
|
|
|
|
|
|
0.5 |
|
1988 |
|
|
|
|
|
|
|
|
|
|
1.00 |
|
1987 |
|
|
|
|
|
|
|
|
|
|
1.50 |
|
1986 |
|
|
|
|
|
|
|
|
|
|
2.00 |
|
1985 |
|
|
|
|
|
|
|
|
|
|
2.50 |
|
1984 |
|
|
|
|
|
|
|
|
|
|
3.00 |
|
1983 |
|
|
|
|
|
|
|
|
|
|
3.50 |
|
1982 |
|
|
|
|
|
|
|
|
|
|
4.00 |
|
1981 |
|
|
|
|
|
|
|
|
|
|
4.50 |
|
1980 |
|
|
|
|
|
|
|
|
|
|
5.00 |
|
1979 |
1.00 |
1.00 |
2.00 |
1.50 |
1.00 |
0.50 |
1.00 |
0.50 |
1.00 |
1.00 |
6.00 |
|
1978 |
2.00 |
2.00 |
4.00 |
2.00 |
2.00 |
1.00 |
2.00 |
1.00 |
2.00 |
2.00 |
7.00 |
|
1977 |
3.00 |
3.00 |
6.00 |
2.50 |
3.00 |
1.50 |
3.00 |
1.50 |
3.00 |
3.00 |
8.00 |
|
1976 |
4.00 |
4.00 |
8.00 |
3.50 |
4.00 |
2.00 |
4.00 |
2.00 |
4.00 |
4.00 |
9.00 |
|
1975 |
5.00 |
5.00 |
10.00 |
4.50 |
5.00 |
2.50 |
5.00 |
2.50 |
5.00 |
5.00 |
10.00 |
|
1974 |
6.50 |
6.50 |
12.00 |
5.50 |
5.50 |
2.75 |
6.00 |
3.00 |
6.00 |
6.00 |
11.00 |
|
1973 |
8.00 |
8.00 |
14.00 |
6.50 |
6.00 |
3.00 |
7.00 |
3.50 |
7.00 |
7.00 |
12.00 |
|
1972 |
9.50 |
9.50 |
16.00 |
7.50 |
6.50 |
3.25 |
8.00 |
4.00 |
8.00 |
8.00 |
13.00 |
|
1971 |
11.00 |
11.00 |
18.00 |
8.00 |
7.00 |
3.50 |
9.00 |
4.50 |
9.00 |
9.00 |
14.00 |
|
1970 |
12.50 |
12.50 |
20.00 |
8.50 |
7.50 |
3.75 |
10.00 |
5.00 |
10.00 |
10.00 |
15.00 |
|
1969 |
14.00 |
14.00 |
22.50 |
9.00 |
8.00 |
4.00 |
11.00 |
5.50 |
11.00 |
11.00 |
16.00 |
|
1968 |
15.50 |
15.50 |
25.00 |
9.50 |
8.50 |
4.25 |
12.00 |
6.00 |
12.00 |
12.00 |
17.00 |
|
1967 |
17.00 |
17.00 |
27.50 |
10.00 |
9.00 |
4.50 |
13.00 |
6.50 |
13.00 |
13.00 |
18.00 |
|
1966 |
18.50 |
18.50 |
30.00 |
11.00 |
9.50 |
4.75 |
14.00 |
7.00 |
14.00 |
14.00 |
19.00 |
|
1965 |
20.00 |
20.00 |
32.50 |
12.00 |
10.00 |
5.00 |
15.00 |
7.50 |
15.00 |
15.00 |
20.00 |
|
1964 |
21.00 |
21.00 |
35.00 |
13.00 |
10.50 |
5.50 |
16.00 |
8.00 |
16.00 |
16.00 |
21.00 |
|
1963 |
22.00 |
22.00 |
37.50 |
14.00 |
11.00 |
6.00 |
17.00 |
8.50 |
17.00 |
17.00 |
22.00 |
|
1962 |
23.00 |
23.00 |
40.00 |
15.00 |
11.50 |
6.50 |
18.00 |
9.00 |
18.00 |
18.00 |
23.00 |
|
1961 |
24.00 |
24.00 |
42.50 |
16.00 |
12.00 |
7.00 |
19.00 |
9.50 |
19.00 |
19.00 |
24.00 |
|
1960 |
25.00 |
25.00 |
45.00 |
17.00 |
12.50 |
7.50 |
20.00 |
10.00 |
20.00 |
20.00 |
25.00 |
|
1959 |
26.00 |
26.00 |
45.50 |
18.00 |
13.00 |
8.00 |
21.00 |
10.50 |
21.00 |
21.00 |
26.00 |
|
1958 |
27.00 |
27.00 |
46.00 |
19.00 |
13.50 |
8.50 |
22.00 |
11.00 |
22.00 |
22.00 |
27.00 |
|
1957 |
28.00 |
28.00 |
46.50 |
20.00 |
14.00 |
9.00 |
23.00 |
11.50 |
23.00 |
23.00 |
28.00 |
|
1956 |
29.00 |
29.00 |
47.00 |
21.00 |
14.50 |
9.50 |
24.00 |
12.00 |
24.00 |
24.00 |
29.00 |
|
1955 |
30.00 |
30.00 |
47.50 |
22.00 |
15.00 |
10.00 |
25.00 |
12.50 |
25.00 |
25.00 |
30.00 |
|
1954 |
31.50 |
31.50 |
48.00 |
23.00 |
15.00 |
10.50 |
26.00 |
13.00 |
26.00 |
26.00 |
31.00 |
|
1953 |
33.00 |
33.00 |
48.50 |
24.00 |
15.00 |
11.00 |
27.00 |
13.50 |
27.00 |
27.00 |
32.00 |
|
1952 |
34.50 |
34.50 |
49.00 |
25.00 |
15.00 |
11.50 |
28.00 |
14.00 |
28.00 |
28.00 |
33.00 |
|
1951 |
36.00 |
36.00 |
49.50 |
26.00 |
15.00 |
12.00 |
29.00 |
14.50 |
29.00 |
29.00 |
34.00 |
|
1950 |
37.50 |
37.50 |
50.00 |
27.00 |
15.00 |
12.50 |
30.00 |
15.00 |
30.00 |
30.00 |
35.00 |
|
1949 |
40.00 |
40.00 |
|
28.00 |
15.00 |
13.00 |
31.00 |
15.00 |
31.00 |
31.00 |
36.00 |
|
1948 |
|
|
|
29.00 |
15.00 |
14.00 |
32.00 |
|
32.00 |
32.00 |
37.00 |
|
1947 |
|
|
|
30.00 |
15.00 |
15.00 |
33.00 |
|
33.00 |
33.00 |
38.00 |
|
1946 |
|
|
|
|
|
|
34.00 |
|
34.00 |
34.00 |
39.00 |
|
1945 |
|
|
|
|
|
|
35.00 |
|
35.00 |
35.00 |
40.00 |
|
1944 |
|
|
|
|
|
|
36.00 |
|
36.00 |
36.00 |
41.00 |
|
1943 |
|
|
|
|
|
|
37.00 |
|
37.00 |
37.00 |
42.00 |
|
1942 |
|
|
|
|
|
|
38.00 |
|
38.00 |
38.00 |
43.00 |
|
1941 |
|
|
|
|
|
|
39.00 |
|
39.00 |
39.00 |
44.00 |
|
1940 |
|
|
|
|
|
|
40.00 |
|
40.00 |
40.00 |
45.00 |
VO definitions:
1) 0-30 Year
plant: Fixed working life of
approximately 30 years and then replaced eg furnaces, process vessels.
2) 0-60 Year
plant: Long Life without much wear and
tear eg stacks.
3) Mixed life
plant: Plant whose life can vary
considerably according to use, eg compressors, engines.
4) Original scale
5) Revised scale
6) Decision of
Gwent Valuation Tribunal in respect of Monsanto Chemical Works
ANNEXURE 2
Valuation for rating revaluation (1990) (Rate years 1990/1991 and
1991/1992)
Monsanto — Newport
In the Lands Tribunal
Valuation as at 11 September 1990 (RA 356 and 373/1993) and 27
September 1991 (RA 357 and 374/1993)
Revised 3 May 1996
|
|
|
ECV — Post-contract size adjustment |
||
|
|
|
|
|
|
|
|
|
Gerald Eve |
Valuation Office |
Differential |
|
|
|
Col 17 |
Col 17a |
|
|
|
|
|
|
|
|
Section |
Administration |
558,604 |
518,590 |
40,014 |
|
Section |
Technical |
509,987 |
540,110 |
(30,123) |
|
Section |
Maintenance/Warehousing |
197,756 |
324,221 |
(126,465) |
|
Section |
Polyphenyl |
171,373 |
245,016 |
(73,643) |
|
Section |
HB 40 |
116,774 |
204,045 |
(87,271) |
|
Section |
Contractors/Welfare |
425,158 |
510,434 |
(85,276) |
|
Section |
Tank |
75,677 |
75,322 |
355 |
|
Section |
NDPA |
741,090 |
916,618 |
(175,528) |
|
Section |
Workshops/Stores |
499,604 |
561,582 |
(961,978) |
|
Section |
Warehousing/Effluent |
912,158 |
1,061,551 |
(149,393) |
|
Section |
Dequest/Santicizer |
422,641 |
573,237 |
(150,596) |
|
Section |
Santoflex |
445,359 |
582,041 |
(136,682) |
|
Section |
Boiler |
581,423 |
1,274,352 |
(692,929) |
|
Section |
Tank |
484,036 |
542,251 |
(58,215) |
|
Section |
Maleic |
679,485 |
891,227 |
(211,742) |
|
Section |
Cooling |
123,923 |
154,905 |
(30,962) |
|
Section |
Miscellaneous |
335,152 |
464,357 |
(129,205) |
|
Section |
Santocure |
93,072 |
171,564 |
(78,492) |
|
Electrics |
|
220,752 |
783,248 |
(562,496) |
|
Infrastructure |
|
1,103,562 |
2,176,945 |
(1,073,383) |
|
|
|
|
|
|
|
Subtotal |
|
8,697,586 |
12,571,616 |
(3,874,030) |
|
|
|
|
|
|
|
Add professional fees |
9.00% |
782,783 |
1,131,445 |
(348,663) |
|
|
|
9,480,369 |
13,703,061 |
(4,222,693) |
|
Site |
|
210,435 |
581,490 |
(371,055) |
|
|
|
9,690,804 |
14,284,551 |
(4,593,748) |
|
Less grant availability |
|
(1,413,178) |
0 |
(1,413,178) |
|
|
|
8,277,626 |
14,284,551 |
(6,006,926) |
|
Less end allowance (Eve 10%, VO 5%) |
|
(827,763) |
(714,228) |
(113,535) |
|
|
|
|
|
|
|
Totals |
|
7,449,863 |
13,570,324 |
(6,120,461) |
|
Rateable |
|
446,992 |
814,219 |
(367,228) |
|
Say |
|
£448,000 |
£814,000 |
(£366,000) |
ANNEXURE 3
|
Group |
|
|
|
|
Pre-1960 |
30% |
|
|
1960-1964 |
15% |
|
|
1965-1969 |
10% |
|
|
1970-1974 |
7.5% |
|
|
1975-1979 |
2.5% |
|
|
post |
nil |
|
|
|
|
|
|
Item |
|
|
|
|
|
|
Class |
Furnace |
|
|
|
Kilns |
|
|
|
Electric |
|
|
|
Blast |
|
|
|
Annealing |
|
|
|
Normalising |
|
|
|
Ovens |
|
|
|
Soaking |
|
|
|
Incinerators |
|
|
|
Crackers |
|
|
|
Fractionating |
|
|
|
Converters |
|
|
|
Stills |
|
Class 4 items
only (structural parts). Fittings and items that are replaced often are not
rateable. Made to last a campaign life, ie 30 years plus. Outside structure
requires little or no maintenance, but some furnaces do suffer physical damage,
which may be cumulative. If condition is such that the efficiency of the item
is impaired, the item is usually renewed or replaced.
|
GROUP |
|
|
|
|
Pre-1960 |
15% max |
|
|
1960-1969 |
10% |
|
|
1970-1979 |
5% |
|
|
post-1980 |
nil |
|
|
|
|
|
|
Item |
|
|
|
|
|
|
Class |
Transformer |
|
|
|
Switchgear |
|
|
|
Cables |
|
|
|
Rectifier |
|
|
|
Reactor |
|
|
|
Boiler |
|
|
|
Steam |
|
|
|
Turbines |
|
|
|
Chimney |
|
|
|
|
|
|
Table |
Sprinklers |
|
|
|
Fire |
|
|
|
Gas |
|
|
|
|
|
|
List |
Air |
|
|
|
Traveller |
|
|
|
|
|
|
Class |
Lifts |
|
|
|
|
|
|
Class |
Tanks |
|
|
|
Boilers |
|
|
|
Electrostatic |
|
|
|
Bag |
|
Class 1 items or
list of accessories thereto. Including all controls and working parts. Machines
that require regular maintenance of moving parts, but are only subject to
annual or longer periods of maintenance. Is required to work at specified rate
and designed to maintain that level over many years. Maintenance of fabric
increases with use, but little extra expenditure other than general maintenance
(painting) and repair. Transformers have a life of 50 years, have no moving
parts and require little or no attention throughout the life.
Class 2 and
Class 4 items requiring little maintenance structural parts only.
|
Group |
|
|
|
|
Pre |
40% max |
|
|
Inter-war |
25% |
|
|
1945-1949 |
15% |
|
|
1950-1959 |
10% |
|
|
1960-1969 |
5% |
|
|
1970-1979 |
2.5% |
|
|
post-1980 |
nil |
|
|
|
|
|
|
Item |
|
|
Class |
Air |
|
|
|
Diesel |
|
|
|
Diesel |
|
|
|
Generator |
|
|
|
Electric |
|
|
List |
|
|
|
|
Pump |
|
Class 1 items or
list of accessories thereto. Including all controls and working parts. High-use
machines that require regular maintenance of moving parts. Is required to work
at specified rate and maintained to achieve that level.
Maintenance of
fabric increases with use.
ANNEXURE 4
1. Where is this
alternative property located?
2. Can an
alternative site have the same value as the actual site?
3. Does the
creation of this alternative affect demand for, and therefore the value of, the
actual hereditament?
4. How long would it take to build the
alternative?
5. How would the
alternative differ from the actual?
6. What basis of
building contract is to be assumed in connection with providing the
alternative, ie fixed or variable price?
7. If the cost is
taken to be ‘forward looking’, what assumptions should be made for cost
variations, inflation, finance charges, etc?
8. What is the
hypothetical tenant supposed to be doing in the period when this alternative is
being constructed?
9. Is the actual
hereditament deemed to remain empty and unused during the building of an
alternative?
10. Is it to be
assumed that the hypothetical parties, ie the landlord and prospective tenant,
agree to resume negotiations once the alternative has been constructed?
11. If so, what
possible interest has the tenant in renting the actual hereditament when he has
just incurred the costs of constructing a ‘precisely similar’ alternative?
