Outer House case considering a contract between the Bank of Ireland and Knight Frank relating to a valuation which Knight Frank provided to the Bank in respect of a client’s property over which the Bank received a standard security.

Background
The Bank claimed that it had suffered substantial loss as a result of the valuation and sought damages for negligence from Knight Frank. However, Knight Frank’s standard terms provided that any contract to provide a survey report was subject to English law and that the English courts would have exclusive jurisdiction in respect of any dispute arising from it. The issue for the court was whether the standard terms formed part of the contract and, consequently, whether the court had jurisdiction to hear the case.

Knight Frank had provided a valuation for the Bank’s client in relation to the property (near Kilmacolm) which was to be the subject of a development. The Bank instructed its own valuation of the property from Knight Frank (by letter dated 2 May). This was provided and included Knight Frank’s standard terms. However, in a departure from its normal practice, Knight Frank had not sought to ask the Bank in advance for written confirmation that the standard terms formed part of the contract. Following receipt of the valuation, the Bank advanced a loan of £2.35m to the client in return for a standard security.

Arguments
The parties were agreed that the Bank’s letter of instruction constituted an offer that the offer had been accepted by conduct. The Bank argued that the offer was accepted by Knight Frank when it delivered the valuation report to the bank. The contract was accepted at the moment the report went through the bank’s letterbox at which point it was too late to introduce new terms (the bank argued that it would have been odd if the fulfilment of the contract –i.e. providing the valuation- were to be treated as a counter offer.)

On the other hand, Knight Frank argued that the delivery of the valuation report along with the standard terms constituted a counter offer which the bank had accepted when it relied on the report to grant the loan.

Decision
Lord Woolman preferred Knight Frank’s argument noting that it had been open to the bank to raise an issue with Knight Frank regarding the standard terms and it had not one so. It was irrelevant that the officer of the bank dealing with the transaction had not read the standard terms. The Bank could not “cherry pick” the document: i.e. it could not accept the valuation without also accepting the standard terms attached. In coming to his conclusion, Lord Woolman also took account of the facts that it had not been surprising to the bank’s employees (giving evidence in the case) that surveyors would seek to introduce their own standard terms into the valuation agreement and that the terms introduced were not unusual.

As such, Lord Woolman found that the court did not have jurisdiction to hear the dispute.

The full judgement is available from Scottish Courts here.

Outer House case in concerning the interpretation of the lease of a plot in a chalet park in Lochgoilhead.

Mr and Mrs Ramsay bought a (removable) chalet in the park (for £20.5k) from Drimsynie. As part of the same transaction, the Ramsays entered into a 10 year ground lease of the plot on which the chalet was located. The lease provided that, on expiry of the lease, Drimsynie would have:

 “..the option to acquire the chalet at a price to be agreed, failing agreement at a price to be determined by an arbiter to be appointed in terms of clause FIFTEENTH…or offer to (the Ramsays) a renewal of the lease for a period to be determined by (Drimsynie)….”

When Drimsynie terminated the lease (following a change policy which involved replacing chalets with newer, larger, and more expensive chalets), an arbiter was been appointed to determine the sum to be paid for the chalet and a dispute developed as to how the arbiter should approach the valuation of the chalet. The Ramsays argued that the chalet should be valued on the assumption of a continuing right to occupy it on the plot on which it was located. Alternatively, Drimsynie contended the arbiter should consider only the market value of the chalet itself on the basis it would be removed from the plot.

Lord Malcolm found that his task was to interpret the lease by reference to the understanding of a reasonable person in the position of the parties at the time the lease was entered. It was important to note that the lease was not a stand alone contract and was linked to the associated purchase of the chalet. The effect of the relevant clause was that the Ramsays could remain in occupation of the chalet on the plot in terms of the lease until the chalet was purchased by the Drimsynie. If Drimsynie wanted to put a new chalet on the site and sell it to someone else they would require to purchase the old chalet first. In Lord Malcolm’s view the parties would have understood that Drimsynie was buying out the Ramsays’ right to continue to use the chalet on the plot in terms of the lease. As such, a reasonable person in the position of the parties at the time of the lease would have understood that Drimsynie would purchase the chalet on the same footing as they sold it. He found support for this view from the element of permanence associated with the chalet, noting that:

• the lease described the chalet as having been “erected” on the plot
• although simply resting on its foundations, it was connected to services, including water and drainage
• the chalet had been on the site since about 1967 and was shown on the OS map
• the Ramsays paid council tax in respect of the chalet.

Lord Malcolm therefore held that that the arbiter should value the chalet on the basis that it could be used on the site for so long as it remained habitable.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Decision of the Lands Valuation Appeal Court in which a number of ratepayers appealed against the values entered in the roll at the time of the 2005 Revaluation and for their retail premises in Sauchiehall Street in Glasgow. Following the appeal, the Glasgow Valuation Appeal Committee found that a combination of events consisting of the opening of out of town shopping centres, the economic downturn, the withdrawal from the market place of various traders and the expansion and improvement of the St Enoch Centre brought about a material change of circumstances[1] affecting rental values in virtually all retail premises within the principal trading sections of Sauchiehall Street. As such, the values were reduced by 30%.

The Assessor appealed and the Lands Valuation Appeal Court found that only the economic crisis constituted a relevant material change of circumstances and returned the case to the Appeal Committee. After hearing expert evidence from both sides as to how much of the reduction was due to the economic crisis, the Committee allowed the appeals and found that the valuations should be reduced by 6.66%[2]. The ratepayers argued that the reduction should have been the full 30% and requested that the Committee state a case for the Appeal Court. The Assessor cross appealed arguing that there should be no reduction at all.

Before the Appeal Court the ratepayers argued that the court should:

1. resile from its previous decision in this case and decide instead that any change in rental value in an intermediate year, whatever the cause, was per se a material change of circumstances, except where it was trivial;
2. restore the original decision of the Committee (and reduce the values by 30%).

The Appeal Court rejected those arguments and refused the appeal (and cross appeal). The court was satisfied its previous decision was sound in law. It noted that, while a material change of circumstances may now[3] consist of a fall in rental value, not every fall in rental value constitutes a material change of circumstances. If that were the case the whole system of quinquennial revaluation would be undermined:

 “The system of quinquennial revaluation is based on the principle that subjects entered in the roll at a revaluation will remain at the same value until the next revaluation, unless a material change of circumstances occurs in the interim. In reality, the rental values of commercial subjects of all kinds may fluctuate constantly throughout the quinquennium. The submission for the appellants, if sound, would apply to all lands and heritages that are entered in the roll. If every downward fluctuation, whatever the cause, constituted a material change of circumstances, the whole basis of quinquennial revaluation would be undermined. The quinquennium would consist of an endless series of material change appeals relating to all kinds of lands and heritages.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Case concerning five linked appeals in the Land Valuation Appeal Court of the Court of Session.  The appeals related to entries in the 2010 Valuation Roll for five large industrial buildings in Inchinnan (ranging from 5,311 sq. m to 52,393 sq. m).

The valuation of the subjects had been difficult due to a lack of comparable rental evidence.Instead of using a revaluation scheme by the Scottish Assessor’s Association (SAA), the assessor had used local rental evidence to devise his own scheme. The first step was to derive a basic rate from rental evidence of smaller units in the area then to make a quantum adjustment to reflect the fact that the unit rate deceases as size increases.  The principle issue in this case was the size of the quantum adjustment applied.

The assessor’s approach was accepted by the Renfrewshire Valuation Appeal Committee. However, whilst the court refused the appeals in relation to the two smallest buildings (it considered that the assessor had reliable rental evidence for buildings of up to 6,000 sq. m), it allowed appeals in relation to the three larger buildings.

The assessor was entitled not to apply the SAA valuation scheme if in his judgement the scheme was not suited to the circumstances in the valuation area. The Committee had also been correct to reject Rolls Royce’s valuation which followed the methodology of the assessor’s scheme but applied the quantum adjustment from the SAA scheme. However, there were two main problems with the assessor’s calculation of the quantum discounts:

1. the assessor had relied on agreed valuations under the 2005 Valuation Roll and evidence of rental growth from those valuations (whereas, on the correct approach, a revaluation should be based on a fresh appraisal of the subjects without regard to their earlier values); and
2. the assessor had also relied on the current rent for the Rolls Royce premises which, on the evidence before the Committee, had not been an open market rent and had been based on pre-ordained contractual increases rather than contemporaneous review.

The cases in respect of the three larger buildings were returned to the Committee for a re-hearing and the assessor directed to reconsider his valuations in the light of the decision.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Appeal in the Land Valuation Appeal Court of the Court of Session concerning the valuation of unit in the Silverburn Shopping Centre in Glasgow. The unit was a deli selling food and coffee as a franchise of Coffee Republic. The assessor entered the unit on the Roll as a shop with an annual value of £159,000 as it was not a licensed restaurant, was adjacent to shops and could be easily altered to shop use. However the Valuation Appeal Committee allowed an appeal by the unit’s owner, Monti Marino and applied a lower ‘restaurant’ rate entering a value of £87,000. The assessor then appealed the Committee’s decision to the Court of Session.

The court refused the appeal noting that it has long been established that lands and heritage are valued in their current state without regard to the potential for physical adaption (providing that use is beneficial and is not subject to arbitrary restrictions).

The question of whether the subjects should have been entered in the Roll as a shop or as a restaurant or café was a question of fact for the Committee. At least five considerations pointed to the unit being a café or restaurant:

1.  the layout of the premises with tables and chairs for diners and seats outside;
2. the extent of food-based spending at the premises by comparison with food outlets that are valued as shops;
3. the fact that only a minority of the trade was take-away;
4. the fact that food was prepared on the premises for service at the tables; and
5. the availability of customer toilets.

The Committee’s decision was not unreasonable and there was therefore no error in law. Also, with regard to the assessor’s contention that the Committee should not have ignored the rental evidence of the zoned shops, the Committee was entitled to adopt that valuation which it considered to be supported by the evidence relating to other food outlets at the Centre. Since the Committee regarded the subjects as a restaurant, it was entitled to reject the values taken by the assessor from shops in the mall.

The full judgement is available here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

HMRC launched 9,368 investigations into Inheritance Tax valuations over the last year and is actively targeting estates and beneficiaries say tax advisers UHY Hacker Young.

In instances where additional tax was payable, this averaged £24,600 per case.  Based on HMRC figures, approximately £70 million of additional tax was raised as the result of HMRC challenging the valuations of properties included in the estate of a deceased person in 2010.

HMRC has previously advised estate beneficiaries to obtain several property valuations and strongly recommends the engagement of a professional valuer or chartered surveyor.