“The valuation of land by trained, competent and careful professional men is a task which rarely, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumption… Thus, two able and experienced men, each confronted with the same task, might come to different conclusions without anyone being justified in saying that either of them has lacked competence and reasonable care, still less integrity, in doing his work.”
“a busy traffic thoroughfare which lies close to the Aldgate office district but …is not a recognised retail or office location. The main retail location is along Whitechapel High Street/Whitechapel Road, less than ¼ mile to the north. Most retail units nearby are used as showrooms predominantly by the garment trade.”
“This is a predominantly commercial area traditionally associated with the wholesale and manufacture of garments. There is also a mix of residential properties of various types and ages nearby. Aldgate and Whitechapel suffered generations of economic and environmental decline until the early 1980’s, when incipient improvement began. Traditional rag trades that dominated this part of the East End have been declining as large and smaller scale, mostly residential, developments have been completed. The run down image of parts of the area is gradually changing, as it is becoming an increasingly fashionable City Fringe residential and business quarter. At the rear of the property on Alie Street are offices which are intended for redevelopment as planning permission has been granted for a large mixed commercial and residential scheme.”
“Market demand for manufacturing space and in particular, offices, is limited. Commercial Road is a fringe office location and given the current economic climate, there are competitively priced and more modern offices available to let around Aldgate. Although it is in close proximity to the City, the building is unlikely to appeal to most occupiers in the market place and lacks sufficient off-street parking, which is a major drawback for a building of this size.”
“Based on the above and, in particular, the state of the market in February 2010; the size of the building relative to these investments; the inferior location; the likely void period in achieving lettings of the remaining floors; the perceived poor tenant covenants and lack of sufficient rent deposits, I adopt a cautious approach, as would a prospective investor purchaser, and imply a yield in the order of 10%.”
“A 6.5% or 7% yield could easily be justified if the building was fully let. However I have deliberately used 8% …to reflect on the fact that any prudent purchaser would allow for the part vacant state and the necessity to partially update the building to modern standards. I have also taken into account the current tenancies existing.”
“When the company’s assets have been calculated by direct valuation it will be necessary to make an adjustment for taxation in respect of the chargeable gains or the chargeable realised development value which would be taxable if the assets were to be disposed of at the realised value. This adjustment is normally only made in respect of interests in property and, unless the company being valued on a break-up basis, it will be necessary to take account of the fact that such taxation would not be immediately payable as there would be no actual disposal. It would normally be appropriate to discount the potential tax charge to take account both of the fact that it would be over stating the net asset value of the company to ignore the tax charge, but also to recognise the fact that there is no immediate intention to dispose of the properties concerned and therefore no actual crystallisation of the tax charge. The extent of the discount on the tax charge depends on the circumstances. If there is very little possibility of the tax charge crystallising, then only a small percentage of the potential tax charge should be deducted but if, for example, a controlling interest is for sale in a company which has no possibility of profits so that it is to the purchaser’s advantage to liquidate, then the whole of the potential tax charge is a good deduction.”
“The reality is that the corporation tax liability is unlikely to be triggered unless the asset is actually disposed of, usually on sale. Some companies do dispose of their assets on a regular basis, changing, for example their property or share portfolios in order to realise the profits. For such companies it would be perfectly acceptable to make a fairly full deduction from the value to reflect the incidence of taxation on these gains, although what might represent fairly full is of course a subjective judgement dependant upon the circumstances. For companies that do not change their assets in this way, it may be sensible to take a different view. Even if such assets are to be included in the financial statements at full current value, ie the amount which they might be expected to fetch if sold, if there is in fact no probability of sale within the foreseeable future, is there any case for the inclusion of any of the tax liability at all? Clearly it will be important to understand the directors’ intentions in relation to possible sales of assets, and it is probably dangerous to presume that simply because assets have been retained for capital appreciation thus far, that position will continue in perpetuity. The consensus appears to be that there should be some recognition of the possibility of tax becoming payable, even where, as is often the case, payment is actually a remote possibility, that can be postponed indefinitely, and in many cases not arise at all. Those possibilities argue strongly against the deduction of the entire amount of contingent tax. Indeed, SAV have a rule of thumb, which is that only 10 – 15% of the contingent tax should be deducted from the Company value for valuations for any fiscal purpose. This appears in the author’s experience to amount to a general rule with little variation irrespective of size of shareholding, although SAV are sometimes rather more flexible in cases where substantial or control holding is being valued.”
“The natural aspiration of the seller would be to achieve no deduction for contingent tax liability. The natural aspiration of the buyer would be to achieve 100% deduction. Both the hypothetical buyer and the hypothetical seller are willing. I do not think that anyone suggested any particular reason why one would have a stronger bargaining position than the other. If the parties are of equal bargaining power, it seems to me that they would meet in the middle and agree a deduction of 50% of the contingent tax liability.”