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23, 1911

statute expressly applies to one of them, of taking the actual ascertained return to the landlord as determining the annual value for the whole of the years of the lease.

I am accordingly of opinion that the appeal should be refused.

LORD JOHNSTON-In this and the follow ing case of Henry Scott, which relate to leases of public-houses for a term of years, and in which a sum outside the lease has been paid by the tenant to the proprietor, who was himself prior to the lease the occupant, in respect of goodwill, the really important question is whether, where the practical method of ascertaining value by taking one-half of the sum paid for goodwill, dividing it by the years of the lease, and then adding the quotient to the stipulated rent, had been adopted, the value so ascertained is to be treated as stereotyped for the rest of the lease.

In this case the appellant Mark obtained in April 1906 a lease of the premises for fourteen and a half years from Martinmas 1905, at a rent of £130, and paid the proprietor and former occupant £4250 for goodwill and fittings.

Prior to 1906 the rent had stood at £130. In 1906 the Assessor, adding a proportion of half the sum paid for goodwill and fittings, less the sum effeiring to fittings, to the rent fixed by the lease, arrived at a valuation of £260, at which sum it remained for four years until 1910, when the tenant appealed, not merely in respect of the increased licence duty but of overvaluation; and he produced evidence of steadily falling drawings and consequently reduced profits to prove that not only had he paid too much for good will at the date of his lease, but that the value of 1906 had not been maintained.

I shall only say of this evidence that, though in concurrence with your Lordships I do not think it based on a sufficient experience, or that it sufficiently discloses a change of circumstances clearly of more than temporary operation, it is still evidence which it was quite reasonable to submit for consideration with a view to reduction of valuation.

The importance of the question arises from the fact that analogous questions have been so frequently before the Court calling for observations by many of our predecessors, which, though made with reference to the special circumstances before them, are more or less general in character, and that in a Court constituted as this, and dealing with matters of a practical nature, consistency of decision and adherence to practical rules once adopted should be maintained, unless experience justifies change or there has been manifest error tending to produce injustice.

I think that there is some misapprehension among assessors, and probably valuation committees, as to the alleged practical rule of taking such payments as that in question in the present case and distributing them over the years of the

VOL. XLVIII.

lease. I have examined most of the leading cases on the subject-I cannot say all, as they are very numerous-and the conclusion which I have come to is that in one or two recent cases the genesis and history of this alleged rule of practice has been somewhat overlooked.

One must always begin with the Act of 1854, sec. 6. The Assessor's duty is to ascertain the rent at which the subjects in question might "be reasonably expected to let" in their actual state from year to year. The exception is that where the subjects are bona fide let for a yearly rent conditioned as the fair annual value without grassum or consideration other than the rent, then the rent must absolutely be taken in place of the Assessor's estimate. Where, then, there is no room for the exception, in respect that there is a grassum or consideration other than the rent, the Assessor's duty is his normal duty, viz., to estimate the rent to be "reasonably expected."

In practice the cases in which a rent is

combined with considerations other than rent are of different kinds. They may beand I do not say that the enumeration is exhaustive-(1) a proper grassum, as, for instance, a "fine" for renewal of a lease; (2) a condition that a tenant shall bear the cost of such alterations or repairs as do not ex lege fall on the tenant; (3) in public-house cases a payment over and above rent, either under the lease or more generally under a separate agreement, of a sum to the landlord, who has been himself the prior occupant, in respect of goodwill; (4) a payment to the landlord in respect of his consent to an assignation; and (5) exceptional conditions which, though clearly considerations of value to the landlord, are difficult if not impossible to value.

In none of these cases can the rent be taken. In all of them the Assessor must estimate. In all of them the considerations of the lease are elements for his consideration in forming that estimate. In none of them in my opinion are these considerations exclusive or conclusive. In many of these cases rules of practical application have to be adopted. But these rules are not in my opinion absolute and to be universally adopted. They are at best merely convenient and valuable guides to

assessors.

In the case of a proper grassum there is probably no difficulty in accepting it as merely rent in advance, though even then I should not be prepared to hold a valuation based on this footing as absolutely conclusive of value for the whole duration of the lease where the statute has not made it so.

In the Dundee Harbour Trust Case, 13 R. 829, valuable observations fell from Lord Fraser as to the character of various stipulations, which must be regarded as considerations other than rent-they had in the case before him relation, though somewhat exceptional relation, to expenditure by the tenants on the subjects. But the result was, not that the Assessor was held bound to value or ascertain the cost of

NO. XXV.

Edinburgh Assessor

work done by the tenants, or the amount of their expenditure, and distribute that equally throughout the lease, but that the existence of these considerations justified him in disregarding the lease, and valuing independently, though no doubt he would be bound to consider these tenants' obligations as elements in that valuation.

Again, Clark's case, 3 F. 455, is a good example of a case of rent stipulated and also certain conditions adjected of such an unusual kind that a money value could not be placed upon them, and it was held that the lease was properly disregarded.

In the Dundee Harbour case (supra) the value of the considerations other than rent was possible though not easy to ascertain. In Clark's case it was quite impossible. But in Shiel v. Assessor of Hawick, 25 R. 592, the ascertainment was a simple and easy matter. Subjects were let for a rent of £14 and an obligation to make certain alterations, the cost of which was £30, which if spread over the lease would have raised the rent to £19. The Assessor disregarded the lease and valued the subjects on a comparison with similar subjects in the neighbourhood. This is the only case which occasions difficulty. For the Court -Lords Kyllachy and Stormonth Darling -found that the Assessor was not entitled to disregard the lease, and that practice required him to fix his valuation on the basis of the rent stipulated in the lease, and the ascertained amount of the tenant's obligatory expenditure spread over the years of the lease. Lord Kyllachy says

If the obligation is to pay or spend a definite sum of money, or a sum which has been or is capable of being ascertained, the practice is, and I think always has been, to take the sum in question and spread it over the whole period of the lease. That has, I think, hitherto been the practice, and whether obligatory or not under the statute, it is, I think, a quite lawful and just practice." His Lordship, I feel sure, exaggerates the age and prevalence of the practice to which he alludes. For if it had been such as his Lordship indicates, something to that effect would certainly be found in the judgment of Lord Fraser to which I have referred. Such a rule has indeed recently been adopted by assessors as a convenient rule of thumb, and in the case of Shiel, and again in a case of the Liverpool, China, &c., Tea Company (February 7, 1906, 8 F. 493, 43 S.L.R. 303) that rule was treated as not only binding but exclusive, though Lord Kyllachy acknowledges it questionable "whether it was obligatory or not under the statutes; and Lord Stormonth Darling says "If the question were open, I am not sure that I should differ from" the Assessor's decision. I respectfully think that their Lordships have over-estimated the prevalence and recognition of the practice, but what is of more importance have expressed themselves in such a way as to elevate this praccal rule from a mere element in the consideration to the exclusive consideration for the Assessor. I think that the true posi

23, 1911

tion of matters on the statute, on the practice, and on the decisions is that by the statute the lease is discarded as absolutely determining the valuation, that it does not become indirectly the statutory criterion by the mere fact that it is possible to ascertain by calculation more or less accurately the value of the consideration other than the rent stipulated, but that, though the lease is not the absolutely determining element in the valuation, it cannot be ignored-it is just one of these facts in relation to the subjects which with others the Assessor may look at, and is, I think, bound to look at. And no doubt the value of the considerations under the lease, ascertained under the practical rule above referred to, is a most important element in assisting him to his statutory estimate.

The fact that it is often the only element for consideration, though I think that this is often too much taken for granted, has, I think, led to the idea that the rule has been adopted as not merely a consideration but an exclusive consideration, as the language used in Shiel's case must, I admit, import.

I am, I think, supported in this by the manner in which certain of the publichouse goodwill cases have been dealt with.

There has grown up of recent years a similar rule of thumb among Assessors of taking half the payment for goodwill and spreading it over the years of the lease. At first it was, as some of the earlier cases show see Lord Wellwood's opinion in Hughes v. Assessor of Stirling, 19 R. 840— assumed that the whole of the price of goodwill might be so treated-but that was held without justification, and the practice of assessors has been gradually crystalised into treating the half in such way. But it is obvious that the rule can be no more than a rule of thumb, and cannot be relied on even as an element for consideration-as an accurate ascertainment of what it affects to be an ascertainment. And it has never been accepted as exclusive and conclusive. For instance, in Crawford, 23 R. 685, it was held that the Committee were not entitled to go entirely on this rule of practice, but were bound to consider all circumstances, and, inter alia, the rents of similar neighbouring premises. Also in dealing-in Paton v. Assessor for Hamilton, 1 F. 588-with a payment to a landlord for his consent to an assignation, Lord Stormonth Darling distinctly says that the value of a consideration other than rent is not conclusive where the accepting it as conclusive would create inequality with other subjects in the district. And the case was even remitted back to the Committee to take all other relevant matters into consideration. In this I entirely concur, as giving the statute its proper force and effect, and, at the same time, the alleged rule of practice, though a rule of thumb, its proper place as a convenient guide, but having nothing of absolute reliance or exclusion about it.

Holding this opinion as to the statutory duty of the Assessor where he finds a con

Edinburgh Assessor

23, 1911

sideration other than rent stipulated in the lease, and as to the nature and effect of these rules of practice, I cannot find any justification for the idea that the Assessor's performance of his duty on one occasion at the commencement of a lease, or when he first learns the true nature of the considerations between the parties, is to stereotype the valuation for the whole period of the lease as if it was a fair rent without other consideration. Nor do I think that any such question was before the Court, who decided the case of Shiel to which I have specially referred. For it must be remembered that the Assessor and the Court were there dealing with a valuation in the first year of a lease which contained stipulations other than rent. And in the light of that fact the opinion of the Court must be read.

Accordingly I conclude that the appellant here is perfectly entitled to have his valuation reconsidered, and that he has shown prima facie grounds, in the continued fall of his weekly drawings, for requiring that that should be done. I, however, accede to your Lordships' views that there is not enough at present to show that that drop is to be attributed to more than temporary causes, and accordingly I do not think that we can disturb the Committee's decision, except to give relief to the extent of one-half of the increase in the licence duty.

What I have said above applies equally to the case of Henry Scott.

The Court were of opinion that the determination of the Valuation Committee was wrong, and reduced the valuation in each case by a sum equal to half the increase in the licence duty.

In Mark's Case

Counsel for the Appellant-C. D. Murray, K.C.-Forbes. Agent - Peter Macnaughton, S.S.C.

Counsel for the Assessor-Clyde, K.C.— Cooper, K.C. Spens. Agent - Andrew M'Dougall, Solicitor.

In Scott's Case

Counsel for the Appellant-A. A. Fraser. Agents-Galbraith Stewart & Reid, S.S.C. 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.)

MERCHANT COMPANY EDUCATION BOARD v. EDINBURGH ASSESSOR. Valuation Cases-Charitable and Educational Trust-School Buildings--"Yearly Rent or Value"-Method of Valuation Pupil Space-New and Old School Buildings - Prospective Feuing Value of Site as an Element in Valuation.

The entry to be made in the valuation roll for the school buildings of a charitable and educational trust, subjects not ordinarily marketable, is under the Valuation of Lands (Scotland) Act 1854, sec. 6, "the rent at which, one year with another, such lands and heritages might in their actual state be reasonably expected to let from year to year," that is to say, the rent which a hypothetical tenant would be prepared to give for them; and this would be settled by the cost of supplying himself with the same accommodation per pupil space, free of ornamentation, though he would give a somewhat lower rate per pupil space for an old structure as compared with modern accommodation. This method of arriving at a valuation ought, however, to be checked by (a) considering any actual let, (b) comparison of the valuations of similar institutions throughout the country, (c) comparison of the cost of erection. The subject must be treated as a unum quid, and prospective values, e.g., site values for feuing, must be disregarded.

Application of above to the Edinburgh Merchant Company's schools. At a Court of the Burgh Valuation Committee of the City and Royal Burgh of Edinburgh, held at Edinburgh on the 23rd September 1910, the Merchant Company Education Board appealed against the following entries in the valuation roll of the burgh for the year ending Whitsunday 1911:

Description and Situation of Subjects. Description. Situation.

College Archibald Place

and

House

Education

Number of Pupils Accommodated Prior

In to Subse. Session Re- quent 1892-3. gula- to said tions Regu of lations 1907.

1. George £1617 £2100 £1300 £1617 1650 1315 1200

Crescent.

5. Daniel

Stewart's
College.

£687 £1300 £687 £900 800 800 550

The Valuation Committee having heard evidence, were of opinion that the various subjects should be entered in the roll at the figures shown in the above statement.

The appellants being dissatisfied with this determination craved a case.

The Case stated: "The following facts were admitted or held by the Committee to be proved or within the knowledge of the Committee:-1. The premises in question are vested in the appellants by virtue of the Edinburgh Merchant Company Endowments Order Confirmation Act 1909, and are occupied as day schools under the administration and control of the appellants. The schools conducted in George Watson's College for Boys, George Watson's Ladies' College, the Edinburgh Ladies' College, and Daniel Stewart's College are secondary schools, but in George Watson's College for Boys, George Watson's Ladies' College, and Daniel Stewart's College there are elementary departments which contain from 38 per cent. to 42 per cent. of the total number of pupils in the respective schools. The school conducted in 10 Atholl Crescent is an elementary one, and forms the elementary department of the Edinburgh Ladies' College.

"2. The cost of conducting the schools is met partly by fees paid by the scholars, partly by Government grants, and partly by the interest on endowed funds administered by the appellants. The total cost of the schools for the year 1909-10, excluding

23

the branch school at Atholl Crescent, was £49,760. To account of this sum, £33,375 was received from fees paid and Government grants, and the balance of £16,385 was met out of the interest on endowments.

"3. In order to obtain Government grants for the said schools, the appellants require to conform to the regulations issued by the Scotch Education Department from time to time. The regulations which have been issued recently have had the effect of limiting the size of the classes in the schools, and thus restricting the number of pupils who can be accommodated in the premises. The most recent regulations by the Scotch Education Department dealing with this matter were issued in 1907, and the maximum number of pupils who could be accommodated in the premises prior to the adoption by the appellants of these regulations and the numbers who can now be accommodated are specified in the statement given above.

4. The valuations of George Watson's College for Boys, George Watson's Ladies' College, and Daniel Stewart's College were, until this year, all founded on valuations made many years ago and never revised. As after mentioned, the schools have been added to and altered from time to time, and as such alterations and additions were made, the valuations previously in force were increased accordingly. The predecessors of the appellants acquiesced in the various valuations mentioned in said table. In making up the valuation roll for the year to Whitsunday 1911 the Assessor carefully scrutinised the valuations of the appellants' schools and of all similar schools in Edinburgh, with a view to bringing them as far as possible to one basis of valuation. In consequence of his scrutiny he raised the valuation of the schools to the figures mentioned in the table given above.

"6. The following is a statement of the principal facts and circumstances of each of the premises so far as bearing upon the subject in question:

"(a) George Watson's Boys' College,
Archibald Place.

"This building was erected in 1818, and was then known as the Merchant Maiden Hospital. It was used originally as a resident hospital for the board and education of girl foundationers. It was opened as a boys' day school in 1872, and has been so used ever since. The original building is still in existence, but it has been considerably altered and added to from time to time to meet the increasing education requirements.

The total area of the ground included in the subjects is 3.16 acres, and this area, so far as not forming the site of the buildings, is used as a playground in connection with the school.

"(b) George Watson's Ladies' College,

George Square.

"The premises forming the main part of this school were at one time occupied as a private school. The appellants acquired