. Co. v. Edinr 8, 1911 sense, that they would be probable offerers for a lease of it if they had not been the owners, and would be prepared to pay a higher rent than an ordinary tenant who had regard merely to its commercial possi. bilities. On this assumption, however, I think the rent of £6000 is a full rent on which to assess the subjects. LORD CULLEN-I concur in the decision arrived at by your Lordships, and that for the reasons stated by Lord Salvesen. The Court were of opinion that the subject should be entered in the valuation roll at £6000. Counsel for the Appellants-Macmillan. Agent-James Watson, S.S.C. Counsel for the Assessor-Cooper, K.C. Spens. Agent Andrew M'Dougall, Solicitor. Thursday, February 23. (Before Lord Johnston, Lord Salvesen, and Lord Cullen.) SUPREME GRAND ROYAL ARCH CHAPTER v. EDINBURGH ASSESSOR. Valuation Cases Annual Value - Halls Used for Masonic Purposes and Hired Out for Social Functions. Comparison of Floor Space. Premises belonging to a masonic institution, consisting, inter alia, of two halls used for occasional meetings, but principally by being let out for balls and social functions, were entered in the valuation roll at a figure much in excess of the revenue derived from the use made of the premises, which was arrived at by comparing the floor space with that of premises of the same character in the neighbourhood. Held that the method of arriving at the annual value, namely, by comparison of floor space, was erroneous, and, on consideration, the annual value reduced. At a Court of the Burgh Valuation Committee of the City and Royal Burgh of Edinburgh, held at Edinburgh on 26th September 1910, the Supreme Grand Royal Arch Chapter of Scotland, 75 Queen Street, Edinburgh, appealed against the following entry in the valuation roll of the burgh for the year ending Whitsunday 1911 : method of arriving at the annual value of the premises in question was by comparison with similar premises in Queen Street. (2) That an important factor in instituting such comparison was by ascertaining the rate per square foot of floorage space for each floor or part of a floor of such similar premises, and applying the rates thus ascer tained (subject to modification in respect of the circumstances of the present case) to the floorage areas of the respective parts of the appellants' premises. (3) That the information supplied by the appellants as to the profits earned by them from letting the subjects was an element to be taken into account in arriving at the annual value of the premises, but that the amount of such profits could not be treated as the measure of the rent which could be obtained for the premises. (4) That the annual value of the premises cannot be ascertained by means of à consideration of the cost of erecting the premises." The appellants took a case for appeal. The Case stated-"(1) The block of buildings, of which the premises in question form part, belongs to the appellants, and was erected by them in 1901. An office and two houses forming parts of the buildings are entered separately in the valuation roll. The premises in question consist of an office and two halls-one on the street floor and the other on the first floor-with ante-rooms and conveniences, and are in the occupation of the appellants. The premises were erected and are used as the meeting-place of the appellants' chapter, and also for general letting purposes. The office is occupied by the secretary of the appellants, and the committee meetings of the Chapter take place in the office. The appellants hold meetings only five times a year, and the halls are available for letting during the year except during the time. occupied by these meetings. (2) On the erection of the premises in 1901 the portion thereof in the occupation of the appellants was entered in the valuation roll at the annual value of £400, and this valuation was continued until 1907. In that year the appellants added to the premises in their own occupation the half-flat now used as the secretary's office which had been previously separately entered, and also made certain structural alterations on the premises. In respect of this addition and the alterations, the valuation appearing in the valuation roll for the year to Whitsunday 1908 was raised to £450. There has been no alteration on the premises since 1907, and the valuation of £150 has accordingly been continued since that year. The appellants did not appeal in regard to the respective valuations until this year. (3)... The average annual drawings for the three immediately preceding years was £585. The appellants averred that the expendi ture incurred to produce this sum amounted to £381, and in support of this statement they adduced certain figures. The average net annual profits for the three immediately preceding years was, on the basis of these figures, £204. (4) The cost of the erection Royal Arch of the subjects including fittings was about £14,550, and the furnishings in the premises was about £469. "The Assessor arrived at his valuation by comparison with other subjects in Queen Street occupied for similar purposes. The appellants maintained that the valuation of the halls should be based solely upon the amount of the gross earnings, less the necessary deductions, which the appellants had obtained from the letting of the halls." The appellant's grounds of appeal were thus stated "(1) That the valuation, which was originally based upon floor space when no other criterion was available, is now inapplicable. .. (2) That the capital cost is not an essential factor in the valuation in this case, as it does not represent the present selling value of the premises, nor the present return upon the capital, and it includes a large amount of expenditure which the proprietors were well aware could produce no beneficial return by way of letting value. (3) That the estimate of value by way of floor space is inapplicable, because there are no subjects in Edinburgh with which the property can be fairly compared. They contend that floor area is a useful criterion in the case of a mill, which can be compared with other mills in which business is being done, seeing that the amount of business, machinery, &c., bears some relation to the area which can be utilised therefor, but that floor space is not a proper test in the case of a house or a hall devoted to letting, as extension of area may actually injure the chances of letting, and does not fix the number of lets or the prices that can be got. (4) That the area test in the case of a hall devoted to letting is meaningless unless it were proved that in some way the hall was being kept from full occupation. As in this case the premises are put unreservedly on the market for the purposes for which they are specially adapted, it is improper to consider what the subjects would bring in yearly if let for other purposes. The appellants contend that the basis of valuation on a public hall in which the lets are not unreasonably restricted, and where due allowance is made for the use of the same by the proprietors in a similar way to the lets of other parties, or for other occupation by them, of any part of the premises, is the actual net money received for lets. (5) That the area test in this case is particularly deceptive, because the basement is partly uninhabitable, and the cellarage is not a separate revenue-producing subject. (6) The actual lettings for a series of years, with no reduction and subject to deduction from the gross rental of all charges for cleaning, caretaker, secretary, lighting, and heating, and other necessary expense to enable that revenue to be earned, and also of a reasonable percentage for the use of furniture and other moveables, is the appropriate basis upon which the annual value of the subjects should be arrived at. (7) Upon this basis the annual value would be a sum of £120, but the appellants are prepared to agree to a valuation of £250 for the current year." The Assessor's answers were stated thus , 1911 -"(1) Taking into consideration the price paid in 1901 for the site and buildings (excluding the half-flat hereinafter mentioned) and working the same out by floorage area, the valuation comes to £400. This valuation was then fixed and has been acquiesced in ever since. (2) In 1907-08 an extra half-flat was taken in at the top of the premises, and in respect of that and certain structural alterations £50 was then added to the valuation, and this also was acquiesced in. (3) No change of circumstances has intervened to alter the valuation. (4) On a comparison with similar premises in the immediate vicinity the Assessor's valuation is justified.” In argument the following authorities were referred to:-(1) For the appellants-Aberdeen Cemetery Company v. Assessor for Aberdeen, February 17, 1891, 18 R. 936, 28 S. L. R. 619; Forbes Irvine v. Assessor for Aberdeenshire, March 16, 1893, 20 R. 626, 30 S. L. R. 617; Oakbank Oil Company v. Assessor for Midlothian, March 15, 1902, 4 F. 520, 39 S. L. R. 581. (2) For the Assessor -Blyth Hall's Trustees v. Assessor for Fife, February 24, 1883, 10 R. 659, 20 S. L. R. 433. At advising LORD JOHNSTON-These premises, forming No. 74 Queen Street, were in 1901 acquired and internally largely rebuilt and extended backwards by the Supreme Grand Royal Arch Chapter of Scotland, at a cost stated as £14,550. It would appear that the acquisition and erection had two objects-first, to provide a permanent habitation for the Chapter, befitting its dignity, and second, to do so on such a footing that the premises, when not required for Chapter purposes, might be made remunerative, or be made to produce a return on the cost, which could be applied to the general purposes of the Chapter, which are chiefly charitable. The first object has apparently been attained to the satisfaction of those concerned. But in the matter of the latter I think it must be admitted that expectation has been. disappointed. This makes the premises a very difficult subject to value under the Act. For the combination of the two objects, viz., a building so designed as to give an office for the conduct of the business of the Chapter, and halls for holding their ceremonial and social functions, and a building at the same time so laid out that it can be turned to profitable use, is a somewhat inconsistent object, and likely to produce a result not having anything like the value in the market which its cost would otherwise warrant. In fact it really leaves, as the only uses to which the subjects can be put, those for which they were constructed, if they continue to be occupied by the appellants or some similar body, or the simple leasing of them to a tenant, who would make his private business the letting of the premises for similar ceremonial and social functions. 1. I agree with the Committee that the cost of erection in such a case forms Royal Arch , 1911 no guide whatever to the annual letting value. 2. I also agree that comparison with similar premises, not necessarily confined to the same street, forms a valuable guide. But before I can accept this comparison as conclusive, I must know on what the valuation of these alleged premises is based. When I find that it is not based on market value, but on a mere arbitrary application of floor area at empirical rates, I am led to suspect that it may be fallacious and delusive. I think that it is so here. The Assessor simply says-My valuation of 1901 was based on certain rates for floorage area, taking every square foot of basement, street floor and first floor, quite irrespective of whether and to what effect the respective areas conduce to the letting value of the whole. But he does not say either on what he bases this idea, or whence he derives his rates. His supporting witness Mr Rhind, however, is bolder. He says"These halls" (the Kintore Rooms and Aitchison's Rooms, Nos. 74 and 77 Queen Street) "are adjacent, and, let for similar purposes, justify the Assessor's valuation." If "let for similar purposes" meant that the premises were subject of lease the argument might deserve attention. But this is not so. The adjacent premises referred to are not let, but are used by the owners and occupiers, in competition with the appellants, for the hiring of them out by the afternoon or evening for ceremonial and social functions, chiefly the latter. Accordingly one must ask how was their valuation arrived at. This appears in Mr Rhind's cross-examination. The rates put on the other halls are made from the floor spaces of actual lets. (Q) Have you made Aitchison's and Kintore Rooms on actual lets?-(A) No, I have compared them with the rates of actual lets." What then is the basis of his comparison? His "actual lets," so far as disclosed, reduce themselves to a simple one, viz., the Society of Actuaries Hall, a small portion of No. 14 Queen Street, estimated at some 1000 superficial feet all told, the rent of which Mr Rhind indirectly indicates is something like £75 per annum. But what sort of comparison does this give for valuing the premises in question, the area of whose halls alone is 4200 feet, and the total area 9229, and the purpose for which they can be used and are used are so totally different. Faculty of Actuaries may properly give £75 a year for the limited extent of area required by them; would they give £315 a year for the halls alone of the appellants even if the rest of the accommodation were thrown in gratis? And does it follow that because the Faculty of Actuaries pay £75 for premises adapted to their needs, that therefore any other tenant would give £315, much less £450, for the premises in question? These questions I think answer themselves. The Assessor and Mr Rhind have in fact no proper basis of comparison on which they can base their floor space valuation. The The mere comparison of floor space when applied to such subjects is therefore wholly delusive and fallacious. The fact is that floorage area may be a suitable basis of comparative valuation when you are dealing with certain subjects, such as factories, warehouses, &c., and have comparable instances of real lets from which to deduce a reliable datum level. Just as there are other cases in which structural cost may give a suitable basis of comparison. But the floor space comparison fails, except as an incidental adjunct, in many cases such as this. As a test, the floor space of the appellants is 2000 feet more than that of the Kintore rooms, and 2700 more than that of Aitchison's rooms when the whole area is taken into account. But when the hall accommodation alone is considered, the degree of difference is increased out of all proportion to the gross floor space. For the purpose for which these premises are used, and none other was seriously suggested, it by no means follows that the lettable value of these three subjects is in proportion to either the gross or the net fioor space. The Kintore rooms may well prove, though the smallest of the three, the most lettable, as better adapted to prevailing requirements. Moreover, it must be remembered that these three subjects are not merely to be rated fairly against one another, but in comparison with property generally, and the fact of there being three of them in a row, working in competition, does not improve their individual lettability or rental capacity. If there were three music halls and assembly rooms side by side in George Street, I think the present valuation of the existing ones could hardly be maintained. The question then really just comes back to that which the statute puts before the valuing authority, viz., What is the lettable value, ascertain it as you may, but according to the particular class of subject with which you are dealing, keeping the statutory object and the statutory directions always in view. Now in order to get at lettable value, particularly where the subjects are at all exceptional, the first consideration is, for what purpose can they be used, and for what purpose can they be let. Naturally they will preferably be used and let for the purpose for which they are built, or have been adapted by alteration. If one is to look for some alternative use for which they could be used or let, one must keep in mind that the statute says in their "actual state." I do not think that that expression is to receive a narrow but a fair interpretation. I think it excludes substantial structural alterations, but admits, at any rate, of such alterations as a tenant might be permitted and would undertake to do for himself to adapt the premises to his particular business. If, then, one looks at the primary purpose for which these premises are used, and might be expected to let, viz., to somebody who wanted office accommodation, and to use the halls occasionally for their own purposes, and was prepared to take the risks of making a profit out of the halls by hiring them out when not required, The the first inquiry such a prospective tenant would make is what is the demand-what business have the halls been doing. same would be the first question, if one supposes an individual coming forward and proposing to take the premises merely as a personal venture, proposing to let off the office accommodation and make a living by hiring out the halls. If, then, one looks at the revenue producing capacity as shown by the data which are submitted, it is very clear that no tenant would look at the premises at the present valuation. I am prepared to take it on the footing that an individual working the place in his own private interest might do as well as the appellants and make a profit over and above. But even so, and making a liberal estimate in favour of the Assessor, I cannot see where any prospective tenant could be found to offer more than £250. But the subjects are also the habitation or domicile of the Chapter, and while I do not disregard the authority of Irvine v. Assessor for Aberdeenshire, 20 R. 626, I think that this double use of which the premises are capable can not be disregarded, and that an addition of £100 to the valuation is in the circumstances fair, making £350 in all. a But it is necessary before fixing the valuation to consider whether there are any other market factors which should be entertained. In the evidence there is no suggestion of any other basis of valuation than the experience of past years' working the property on the present lines on the one hand, or a floor space valuation on the other. At the discussion there was slight, though evidently half-hearted, suggestion that the premises might be made available for an insurance company or some such institution. The situation is unpromising. But even then it is evident that premises, designed for their present purpose, could not be converted to such as is suggested without material structural alteration. But what condemns the proposal is the existence of two halls, the more important of which is not merely at the back but on the first floor. I really do not think that the suggestion need be seriously considered, and none other occurs to me which would even problematically produce even as good a rental as that which I have named. I therefore propose to your Lordship that the Committee's valuation be reduced to £350. LORD SALVESEN-The subject of this appeal is a block of buildings in Queen Street, Edinburgh, which were bought and reconstructed by the appellants as a meeting-place of their Chapter and also for general letting purposes. They contain, inter alia, two large halls suitable for their meetings, of which there are five annually. On other occasions the halls are let for marriages, dances, and dinners, and the actual drawings during the past three years have averaged £585, allowance being made for the same rent being charged in respect of the meetings of the Chapter as are obtained when the halls are let. From these gross receipts the appellants deduct a sum of £381, 9s., which they say represents the cost of earning them. The result is to bring out a net profit of only about £200 per annum. Some of the deductions claimed are either not admissible or appear to be overstated; but if the proper test were a true one to apply in estimating the value of these subjects for assessment purposes the average net profit could scarcely be stated at a higher figure than £300. In my opinion, however, the Valuation Committee were right in holding that the amount of the appellants' profits cannot be treated as the measure of the rent or annual value of the premises, although as they state it is an element to be taken into account. This was so decided in the case of the Blyth Halls Trustees, 10 R. 659, which dealt with subjects not dissimilar to those belonging to the appellants. Besides, it cannot be left out of view that the primary purpose of the appellants in reconstructing the buildings was to provide a suitable meeting-place for their members and not merely to obtain commercial profits. The appellants' main contention therefore fails. No serious exception can in my opinion be taken to the principles on which the Valuation Committee have proceeded in valuing the subjects. These are stated under four heads, with one of which I have already dealt. Comparison was made with similar premises in Queen Street, and especially with the houses adjoining the appellants' property on either side, both of which contain halls let for dancing purposes. I think, however, the appellants are justified in their contention that the value of floor space may not be a conclusive test in the case of a house or hall devoted to letting, as extension of area may actually endanger the chances of letting, and does not fix the number of lets or the prices that can be got. At any rate, if this method of comparison is to be adopted, as I think in the general case it may be where suitable subjects for comparison exist, it must be applied with perfect fairness. I do not think there is any serious criticism on the figures applied to the basement and street floor of the appellants' property as compared with its neighbours on either side; but I cannot see any justification for applying so high a rate as 13. 6d. per square foot to the hall on the first floor when 9d. is the rate applied to a similar although somewhat smaller hall on the first floor of No. 77 Queen Street. If the rate of 9d., which is the rate adopted by the Assessor for the front block on the first floor, be applied to the whole first floor, the valuation would be reduced by about £52, and the respondent's own witness considers that the upper floor is rated £10 too high. If these two sums be added together, the assessment would fall to be reduced by £62; and in addition allowance should be made for the fact that the halls owing to their size and situation are not so easily let as those in the neighbouring buildings. Taking all these things into account, I think we should not be doing Royal Arch , 1911 any injustice to either party if we reduced the valuation by £100 and held that the proper yearly rent or value of the subjects is £350 instead of the sum at which it has been entered by the Assessor. LORD CULLEN-I agree in thinking that the valuation of these premises will be fairly fixed at £350. The subjects in their actual state are structurally adapted for use, and are de facto used, (1) as the place where the appellants hold their periodical meetings, and (2) so far as this direct use by the appellants will allow, as premises to be let out to the public for temporary purposes. The appellants' direct use of the premises is so limited as to permit of their being let out in this way during almost the whole year. Such being the conditions under which annual value is derivable from the subjects, and there being no means of comparison with other similar subjects actually let, it would seem to be of essential importance to inquire what is the revenue earning capacity of the premises under the business of letting them out to the public in the manner above mentioned. This business is different in character from an ordinary mercantile business, because it consists of what is virtually a sub-letting of the premises themselves. From the point of view of a tenant who rented the premises from the appellants for the purpose of carrying on such a business, subject to the appellants' reserved right of periodical use, the sum of the available sub-rents during the year would be the all-important consideration, and would directly regulate the rent which he would be willing to pay to the proprietors. The appellants accordingly found, and in my opinion quite properly on the returns which have been yielded by their sub-letting of the premises. It is conceded that the premises have been offered in the market under fair conditions of management. It is observable, however, that the returns have latterly shown a material increase. On the other hand, the estimate of working expenses presented by the appellants is, I think, considerably overstated. The Assessor has practically ignored this aspect of the matter, and has proceeded by way of comparing the floor space contained in the premises with the floor spaces of two sets of adjoining premises in use to be let out temporarily in the same way, and on the basis of this comparison he has fixed an annual value corresponding with the assessed values of these other premises. I consider this method as a sole method of valuation unreliable. Not only is the field of comparison small and the test of a rent actually paid awanting, but it is, in my opinion, fallacious to assume that in the case of premises of this kind the demand for the use of them on the part of members of the public-which is the source of their revenue-will be proportionate to their floor space. Those seeking the use of such premises for the purposes of meetings and entertainments of one kind and another will not necessarily resort to the largest premises available in preference to the smaller. On the contrary, one would be justified in assuming that premises of moderate size, well arranged as regards distribution of available space, would, all over, command the best prospect of patronage. While, therefore, the amount of accommodation in the appellants' premises is a proper element for consideration, I think that the Assessor has been guided by a too exclusive regard to it. Much more weight than he has allowed is, I think, to be given to the experience of the revenue earning capacity of the premises. On a due consideration of both factors, and taking also into account the value presumably derived by the appellants from their own direct use of the premises, I am satisfied that £350 represents a fair estimate of the annual value. The Court sustained the appeal and fixed £350 as the annual value. Counsel for the Appellants - A. A. Fraser. Agent-William Calder, Solicitor. Counsel for the Assessor-Clyde, K.C.Cooper, K.C. Spens. Agent Andrew M'Dougall, Solicitor. Thursday, February 23. (Before Lord Johnston, Lord Salvesen, and Lord Cullen.) MARK v. EDINBURGH ASSESSOR. SCOTT v. EDINBURGH ASSESSOR. Valuation Cases - Annual Value - Consideration other than Rent - PublicHouse-Goodwill--Revision of Valuation during Currency of Lease-Change of Circumstances. Two public-houses were let on lease for a term of years at certain rents. In each case the tenant paid to the landlord a sum for goodwill, and in one case the tenant was further taken bound to take his supply of spirits from the landlord. In each case the assessor assigned half the sum paid for goodwill to heritage, and spreading that over the years of the lease, entered the subjects in the roll at sums which represented the stipulated rent, with the addition of a proportion of what had been paid for goodwill. In a subsequent year, during the currency of the lease, the valuation was objected to as excessive, on the ground that an increase in the licence duty and a decline in drawings had rendered business less profitable. Held that the subjects being let for consideration other than rent, the entry in the valuation roll could be reconsidered during the currency of the lease, the rule of practice for dealing with the price of good will being merely a rule of thumb of no binding force - dissent |