ABBEY NATIONAL PLC v TIMOTHY O’HARA (Valuation Officer) RA/20/2003

UPPER TRIBUNAL

LANDS CHAMBER

RA/20/2003

Case No RA/20/2003

Between

ABBEY NATIONAL PLCApplicant

TIMOTHY O’HARA (Valuation Officer)Respondent

Before

N J Rose FRICS

Mr J P Scrafton for Appellant

solicitor for Appellant

Timothy Morshead (instructed by Solicitor of the Inland Revenue) for Respondent

Venue Procession House, 110 New Bridge Street, London, EC4V 6JL

Date 6 July 2005

Hearing 21 April 2005

Property: Bank and Premises, Abbey House, Queen Street, Oxford OX1 1EJ

Catchwords: RATING – annual value – 1995 rating list – ground floor bank premises – return frontage – whether to be zoned from one or two frontages – appeals dismissed.

[1]These two ratepayers’ appeals, which were consolidated by order of the Tribunal, are from a decision of the Oxfordshire Valuation Tribunal (“the VT”), determining assessments in the 1995 rating list at values which had been previously agreed by the appellants, Abbey National plc.

[2]Both appeals relate to bank premises, situated on the south side and at the eastern end of Queen Street, Oxford, at the crossroads with Cornmarket Street, High Street and St Aldates. This crossroads is referred to in Oxford as Carfax. The first appeal relates to the position as at 1 April 1995, the compilation date of the 1995 list, when the hereditament comprised the ground floor and basement of a six storey building. The second appeal relates to the situation as at 2 August 1999, when the unit of assessment changed to include offices on the first floor. All future references in this decision to the appeal premises will use the common designation of the appeal property.

[3]On 1 April 1995 the appeal property was entered in the 1995 list as “Bank and Premises. Abbey House, Queen Street, Oxford. RV £268,000.” Two proposals to alter the list in respect of this assessment were made on 12 November 1998 and 6 October 1999 on behalf of the appellants by Messrs Gooch Webster. The first proposal was agreed in October 1999 at RV £231,000 with effect from 1 April 1995 and with an unchanged address and description. The second proposal was agreed in June 2000. This was on the basis that the existing entry in the list for Abbey House (together with that for the 1st floor, Abbey House, 121 St Aldates, Oxford, described as Offices and Premises and with an RV of £15,950) should be deleted with effect from 2 August 1999 and replaced with a new single entry. Gooch Webster agreed with the respondent valuation officer that the new entry in the list should be “Bank and Premises. Ground Floor, Basement and First Floor, Abbey House, Queen Street, Oxford. RV £244,000”.

[4]On 7 March 2001 two proposals were made by r2g Ltd on behalf of the appellants in respect of the previously agreed entries. The resultant appeals were referred to the VT, which confirmed the assessments in the list. The material day and effective date for the first and second appeals are 1 April 1995 and 2 August 1999 respectively. The appellant’s case was that the assessments should be reduced to £130,000, or in any event no more than £182,000, as at 1 April 1995 and to £137,700, or in any event no more than £193,000, with effect from 2 August 1999.

[5]It was suggested by both parties and ordered by the Tribunal that the simplified procedure provided for in rule 28 of the Lands Tribunal Rules 1996 would apply to this reference. Mr J P Scrafton, solicitor, appeared for the appellants and called Mr M O’Neill MRICS, IRRV, a director of r2g Ltd of Thame. Mr Timothy Morshead of counsel appeared on behalf of and called the respondent valuation officer, Mr T F O’Hara MRICS, a senior valuer 2 in the Reading (Oxford) Group Valuation Office. By agreement with the parties I made an unaccompanied external inspection of the appeal property and certain other properties referred to as comparables on the afternoon of Thursday 5 May 2005.

[6]From the statement of agreed facts and the evidence I find the following facts. The Carfax crossroads stands at the confluence of the four major arterial routes leading into the mediaeval city centre and has long been recognised as the commercial heart of Oxford. The appeal property is located at the eastern end of Queen Street and has a return frontage to St Aldates. For many years Queen Street has been one of the two main shopping streets in Oxford and the Zone A values of shops in this street were the highest applied anywhere in the county for the 1995 rating revaluation. Since at least 1985 use of the street has been limited to pedestrians and public service vehicle (such as buses), although access is allowed for servicing of properties within certain specified hours.

[7]For the first appeal the appeal property comprised the ground floor and basement of a building with stone faced elevations under a stone slate roof. The main part of the ground floor was occupied as a banking hall and the remainder as an ancillary office. The basement contained further offices, together with storage and staff facilities. There was an air conditioning system serving both floors. The longer frontage was to Queen Street. It comprised approximately 50% glazing above waist height and an entrance door, with the remainder being a solid wall. There was a similar frontage to St Aldates, except that here the glazing started at chest height due to the lower level of the pavement. There was an entrance exactly on the corner of the two streets and in practice this was used in preference to that on the Queen Street frontage. In St Aldates there was a third entrance, but access to the appeal property could only be obtained here via a lobby and stairwell shared with the occupants of the upper floors of the building.

[8]For the second appeal the premises were the same, except that the first floor of the building now formed part of the hereditament. The first floor was occupied as office space, and part of it was air conditioned. The appeal property was occupied within Class A2 of the Town and Country Planning (Use Classes) Order 1987. This includes banks, insurance offices and other offices appropriate to be situated in shopping streets.

[9]Mr O’Neill said that, in the absence of any direct rental evidence, the best and only evidence on which to base the valuation of the appeal property was provided by the agreed assessments of two other bank premises at Carfax. The premises on the north-eastern corner, at the junction of Cornmarket Street and High Street, are known as 1-5 High Street and occupied by Lloyds TSB Bank. The assessment from 1 April 1995 was agreed at RV £290,000 by the bank’s surveyors, Black Horse Agency, based on zoning from both frontages. The premises on the north-western corner of Carfax, at the junction of Cornmarket Street and Queen Street, are known as 63-65 Cornmarket Street and occupied by HSBC Bank (formerly Midland Bank). The 1995 assessment was agreed on behalf of the bank by Gerald Eve at RV £197,000, based on zoning from the more valuable frontage of Cornmarket Street. The agreed RV incorporated a deduction of 10% for the non-retail frontage and 7½% for an excessive frontage to depth ratio. There was no addition for the return frontage or for prominence. 3

[10]Zone A rates used to value these two properties, and indeed the whole of central Oxford, had been settled following negotiations between the valuation office and a committee of the British Retail Consortium. Mr O’Neill accepted these values. Applying the “banana zoning” approach used to value 1-5 High Street, and valuing at £1,500 per m2 in terms of zone A (“ITZA”) from Queen Street and £600 per m2 ITZA from St Aldates produced a value for the appeal property of £130,000 with effect from 1 April 1995 and £137,700 with effect from 2 August 1999. As a back-up valuation, the application of the basis adopted for the agreed HSBC assessment, namely zoning back from the more valuable frontage but making no allowance for return frontage or prominence, produced figures of £182,000 and £193,000 respectively.

[11]Mr O’Hara said that, in preparing his valuations, he had zoned from the Queen Street frontage rather than that to St Aldates. This was done for two reasons. The first was that by far the majority of the accommodation and the greater proportion of display window space was in Queen Street. In addition, Queen Street had an entrance direct into the banking hall, whereas the entrance from St Aldates was via a lobby and stairwell shared with the occupiers of the other floors. The second reason for zoning from the Queen Street frontage was that, if the premises were zoned from St Aldates, this would result in a much lower RV, unless some additional adjustment was incorporated in the valuation. This was because the zone A value applicable for this part of St Aldates (£600 per m2) was much lower than that for Queen Street (£1,500 per m2); and the area of the ground floor ITZA was also lower when zoned from the former rather than the latter. As a result, if zoned from St Aldates, the value of the appeal property would fall below its value if it were in a terrace position within Queen Street and therefore had to be zoned from that direction. Clearly, that was illogical, and would not form the basis of a rent agreed under the hypothetical tenancy. Mr O’Hara adjusted the valuation based on Queen Street zoning to reflect: the location of the appeal property on the corner of Queen Street and St Aldates, which provides a return frontage to the latter and makes the property highly prominent when viewed from Cornmarket Street and High Street; the limited amount of window display to the Queen Street frontage compared to what is typical for premises elsewhere in the street; and the disadvantage of the relatively high proportion of the area in zone A compared to the total area of the ground floor, caused by the width (when zoned from Queen Street) being greater than the average depth.

[12]Mr O’Hara adopted the rate of £1,500 per m2 ITZA which had been agreed for all the retail properties in Queen Street. When considering the particular adjustments appropriate to reflect the characteristics of the appeal property, he had regard to the agreed assessments of the premises occupying the other three corner positions at Carfax. For each of these properties, proposals in respect of the 1995 list had been made and settled prior to those made by Gooch Webster in respect of the appeal property. There were no further outstanding 1995 list proposals against any of the three. The agreed assessments had all been arrived at by zoning. Mr O’Hara’s analyses of the ground floor elements of these three assessments may be summarised as follows: 4

[13]1/5 High Street – Lloyds TSB Ground floor £1,400 per m2 ITZA zoned from Cornmarket Street £800 per m2 ITZA zoned from High Street Adjustments Length of display frontage and prominence of location reflected in zone A rate adopted on the parts zoned from High Street (£800 per m2 ITZA compared with £650 applied to neighbouring premises at 6-17 High Street). The uplift would have been greater had the proportion of zone A accommodation not been above the norm. 10% deduction agreed from value of ground floor. Break-down not agreed, but apportioned by Mr O’Hara as to 7½% for layout and 2½% for inferior display frontage

[14]Although the valuation was actually agreed on the above basis, Mr O’Hara produced an alternative devaluation of the agreed RV assuming zoning from Cornmarket Street only, at the agreed basis for that street of £1,400 per m2 ITZA. In this case, the adjustments were as follows: Frontage not excessive relative to width, no allowance. Poor layout and inferior display frontage, minus 10%. Position. Plus 10% for return frontage to High Street and plus 10% for prominence from Queen Street and St Aldates.

[15]63-65 Cornmarket Street – HSBC Bank Ground floor – £1,400 per m2 ITZA – all zoned from Cornmarket Street Adjustments Poor display frontage, minus 10%. Excessive frontage to depth, minus 6.75%. Poor layout (premises formed from two buildings), minus 6.5%. Negligible return display and poor prominence , no addition.

[16]141-142 High Street – Edinburgh Woollen Mill Ground floor – £700 per m2 ITZA – all zoned from High Street Adjustments Net addition of 10% for prominence and return frontage to St Aldates, partly offset by poor display frontage, poor layout and excessive frontage to depth. Mr O’Hara’s personal breakdown of this adjustment was as follows: Poor display and poor layout, minus 5%. Frontage to depth, minus 5%. Return frontage, plus 5%. Prominence from Queen Street and Cornmarket Street, plus 15%. Net effect, plus 10%. 5 Conclusions

[17]Both experts included in their written reports a declaration to the effect that the report complied with the requirements of the Royal Institution of Chartered Surveyors as set out in Surveyors Acting as Expert Witnesses:Practice Statement. Having seen and heard both valuers giving their evidence, I regret that I have come to the conclusion that Mr O’Neill has merely paid lip service to his duty to give impartial evidence to the Tribunal. The reasons for this conclusion are these. Firstly, he has been selective in his choice of comparable evidence. Although the 1995 list assessments of the four ground floor units at Carfax had all been agreed by rating surveyors on behalf of the occupiers, he disregarded the agreements reached on the appeal property itself and on 141-142 High Street. He was asked in cross-examination why, if agreed assessments could be undone at will, he placed confidence in the Lloyds TSB and HSBC assessments, rather than in the assessments which had previously been agreed for the appeal premises. He replied that he had relied on his knowledge of the rating surveyors concerned. Asked by me to clarify that answer, he said that he disagreed with the assessments which had been agreed for the appeal property, but he did not contend that assessments agreed by one firm of rating surveyors were more reliable than those agreed by any other firm. Mr O’Neill also ignored the agreed assessment of 141-142 High Street on the grounds that, unlike the appeal property, the Edinburgh Woollen Mill unit had A1 planning use. Bearing in mind his acceptance of the settled basis in central Oxford, which does not distinguish between ground floor premises in A1 and A2 use, that explanation was fanciful.

[18]Secondly, Mr O’Neill adopted a cavalier approach to the decision of the VT, which explained its reasons for rejecting Mr O’Neill’s valuation approach in these terms:

“In a case such as Lloyds Bank, where a property on a corner site has its main frontage to the lower valued High Street, the use of ‘banana zoning’ results in an addition to the value compared with other premises in that part of the High Street. This reflects the considerable advantage conferred by the Lloyds Bank’s return frontage onto the more valuable Cornmarket. In the case of the Abbey National, however, the premises are zoned from the higher valued main frontage of Queen Street. ‘Banana zoning’ would produce the paradoxical result that the appeal property would attract a lower valuation than the neighbouring properties in Queen Street who enjoy no return frontage at all. We therefore consider that zoning exclusively from the Queen Street frontage is appropriate.”

[19]On 15 November 2004, the date originally listed for the hearing of the appeal, Mr Morshead pointed out that the appellant’s statement of case offered no comment on this point. Nonetheless, Mr O’Neill ignored it in his expert report and in his oral evidence in chief. In cross-examination, he accepted that he could put forward no explanation of any valuation principle to justify the paradox to which the VT had referred. In my judgment, Mr O’Neill’s adherence to banana zoning, despite the fact that he had no answer to the VT’s reasoning, is not what one would expect from an independent expert who is trying to assist the Tribunal.

[20]The absence of any credible evidence to support them is, subject to one qualification, fatal to the appeals. The qualification arises from the fact that Mr O’Neill and Mr O’Hara have 6 agreed that the floor areas of the appeal property are slightly smaller than those which were put forward at the VT hearing. Mr Scrafton submitted that, since the assessments determined by the VT were based on excessive floor areas, they must be too high. Although there is at first sight some force in that submission, there is in fact no evidence to support it. Mr O’Hara said that a precise arithmetical adjustment to reflect the reduction in areas would produce revised values within approximately one per cent of the figures in the list. Bearing in mind the difficulty of valuing unusual properties of this nature with precision, differences of that order were within an acceptable valuation tolerance. Mr O’Neill’s opinion as to the acceptable valuation range was less modest; his alternative valuation of £182,000 as at 1 April 1995 was 40 per cent higher than his primary valuation of £130,000. In the light of that evidence, I am satisfied that the slight alteration to the floor area of the appeal property does not of itself justify a reduction in the assessments under appeal.

[21]The appeals are therefore dismissed. I confirm the assessments of the appeal property in the 1995 rating list at RV £231,000 and £244,000, effective on 1 April 1995 and 2 August 1999 respectively.

[22]The Tribunal’s power to award costs in cases conducted under the simplified procedure is limited. Mr Morshead indicated, however, that he wished to apply for costs. This decision will take effect in 14 days and there will be no order for costs, but if an application for costs is made within that time, the decision will only take effect when the question of costs has been determined. A copy of any such application should be sent simultaneously to the other party, who may submit written representations thereon within a further 14 days. May 20 2005 N J Rose FRICS Addendum on costs

[23]I have received written submissions on behalf of the respondent, seeking an order for his costs. I have also received a written response on behalf of the appellant, submitting that there should be no costs order.

[24]The respondent’s case was that the following circumstances of the appeal were sufficiently exceptional to justify an award of costs. The VT had pointed out that the appellant’s valuation would produce a paradox, which showed that it could not be correct. It was incumbent upon the appellant to overcome this difficulty. Yet its statement of case and expert report failed to identify any question of law or valuation principle to show that the VT’s 7 decision was wrong. They failed even to refer to the paradoxical result of the appellant’s own preferred approach. Moreover, the report failed to consider all the available comparables and failed to explain the basis upon which its preference for particular comparables had been formed. At the hearing, as the Tribunal held, it became apparent that the appellant’s expert had merely paid lip service to his duty to give impartial evidence to the Tribunal, despite having certified that he had complied with the requirements of his professional body. As the Tribunal also held, the appellant’s expert witness adopted a cavalier approach to the VT’s decision, being unable to offer any explanation of valuation principle to support his preferred approach.

[25]For the appellant it was pointed out that an appeal to this Tribunal involves a hearing de novo. It was asserted that the President had made it clear that he regarded decisions of the VTs as being of little or no weight in appeals coming to the Tribunal. Accordingly, notwithstanding the view expressed in paragraph 18 of the decision, Mr O’Neill was not adopting a “cavalier approach” to the VT’s decision; he was merely adopting the principle of an appeal de novo and having regard to what was perceived to be the current practice of the Tribunal. The appellant was therefore not properly to be criticised for having paid little or no heed to the decision of the VT in its conduct of the appeal. Certainly, such conduct could not form an “exceptional circumstance” as claimed by the respondent.

[26]Both parties also referred to delays in the proceedings which they suggested were the responsibility of the opposing party.

[27]The appellant is right to point out that appeals to this Tribunal are conducted de novo. It does not follow, however, that parties should conduct themselves as if the VT proceedings had never existed. The weight to be attached to the decision of the VT will depend upon the particular circumstances, and I do not understand the President to have suggested otherwise. In this case, in rejecting Mr O’Neill’s primary valuation based on “banana zoning”, the VT pointed out that it produced the paradoxical result that, despite the advantage conferred by its frontage to St Aldates, the appeal property would attract a lower valuation than the neighbouring properties in Queen Street which enjoyed no return frontage at all. This reasoning was relied on by the respondent. If Mr O’Neill considered that there was a reasonable explanation for this paradox, it would have been perfectly reasonable for him to appeal against the VT’s decision and provide that explanation to this Tribunal, whose decision would be based on all the material before it. To pursue an appeal based on banana zoning as he did, whilst failing to explain the paradox is entirely different, however. The respondent described that failure as an abuse of the appeal procedure. In my judgment that description is justified and, together with Mr O’Neill’s selective approach to the comparable evidence, amounts to an exceptional circumstance justifying an adverse award of costs.

[28]The appellant must pay the respondent’s costs of the appeal. In default of agreement such costs are to be the subject of a detailed assessment by the Registrar on the standard basis. The appellant submitted that the award of costs should have regard to the fact 8 that the respondent’s solicitor was not put on the record of the Tribunal until almost the date of the substantive hearing. To the extent that there is any merit in that submission it is a matter for the assessment of costs and not for their award. Dated: 6 July 2005 N J Rose FRICS 9