Assessor for Lothian Region v British Airports Authority
| Jurisdiction | Scotland |
| Judgment Date | 06 February 1981 |
| Docket Number | No. 16. |
| Date | 06 February 1981 |
| Court | Lands Valuation Appeal Court (Scotland) |
L.V.A.C.
Lords Avonside, Ross, Allanbridge.
ValuationValueParticular subjectsAirportContractor's principleDecapitalisation rate"Public" buildings"End allowance"Subjects bound to operate at a lossOccupier with duty to carry on management of subjects on business basis so that they were self-supporting financiallySpecial circumstances in which additional "end allowance" appropriate.
The British Airports Authority is a statutory body regulated by the Airports Authority Act 1975 (cap. 78). It is required to manage certain British airports, including Edinburgh Airport ("the airport") which it took over from the Department of Trade and Industry on favourable terms in February 1971. It would not have been prepared to undertake the ownership and management of the airport except on such favourable terms. The Authority cannot discontinue management of an airport without the written consent of the Secretary of State. It is required to conduct its business so that its revenue is not less than sufficient to meet its revenue charges, and it is directed to charge all proper charges to revenue each year, including provision for the depreciation or renewal of assets and the proper allocation to general reserve. In terms of government policy relating to nationalised industries, the objective is a return of 5 per cent in real terms before tax. In the five years of account, the airport made no operating profit.
In the valuation roll for 1978/79 the net annual value proposed by the assessor for the airport was obtained by use of the contractor's principle of valuation and a decapitalisation rate of 6 per cent, the public buildings rate. The valuation appeal committee was satisfied, however, that the rent offered by the hypothetical tenant would be very much less than the figure brought out by the contractor's principle valuation. It decided that a rent approximately half that appropriate to buildings of a public character would be a realistic figure which the hypothetical tenant might be expected to pay. It therefore allowed an "end allowance" of 50 per cent, reducing the net annual value of the subjects by half. The assessor appealed to the Lands Valuation Appeal Court on the ground that the committee had erred in making an end allowance.
Held (1) that the Authority was, in a sense, "hybrid." Its duties were "public" but were to be conducted in a business-like manner. Its affairs could not properly be equiparated with those of the usual "public" undertakings, many of which were basically "charities."
(2) That, in applying the contractor's principle to public buildings of a specialised character such as an airport, one is endeavouring to ascertain what a hypothetical tenant would be prepared to pay by way of rent. Merely to calculate what return the hypothetical landlord would look for on his investment does not necessarily show what amount the hypothetical tenant of such buildings would be prepared to pay.
Magistrates of Perth v. Assessor for Perth and KinrossSC1937 S.C. 549 and Lochaber Power Co. v. Assessor for Inverness-shireSC1946 S.C. 272referred to.
(3) That, in the case of public buildings such as the airport, where the Authority were under a statutory duty to make charges and raise revenue, profitability was a factor to which the committee was entitled to have regard.
(4) That the committee was entitled to make an end allowance of 50 per cent.
At a meeting of the valuation appeal committee for Edinburgh District of Lothian Region, the British Airports Authority appealed against an entry in the valuation roll for the year 1978/79. The Authority was shown as occupier of Airport (1), Edinburgh Airport, Edinburgh. The net annual value was entered as 1,139,997. The valuation appeal committee allowed the appeal and reduced the net annual value to 510,591.
The committee found admitted or proved the following facts, inter alia:"1. The subjects of appeal are the land, runways and buildings, particularly the new terminal building, known as Edinburgh Airport, shown on Nl. The subjects of appeal incorporate parts of the old Turnhouse Airport, including two old runways. The subjects of appeal exclude certain parts of the airport and certain parts of the terminal buildings which are separately occupied and assessed. 2. The excluded parts are those parts of the airport and the terminal buildings which are either separately let out or are the subject of concessions to traders, etc., in such circumstances that the traders are regarded as separate occupiers10.All the airports owned and managed by the said appellants (the British Airports Authority) with the exception of Heathrow presently operate at a loss, but the trading profit from Heathrow exceeds the total losses on all other airports. This at least was the position up to and including 1976/7711. Around 1970 the future development of the airport now known as Edinburgh Airport was under consideration. The former City of Edinburgh Corporation declined to take over management of the airport from the Department of Trade and Industry. The details of the scheme adopted to enable the old Turnhouse Airport to be developed and expanded is outlined in N2. The runways and most of the land of the old airport were transferred by the Department of Trade and Industry to the Appellants, the British Airports Authority, under an agreement reached in February 1971. The basis of the agreement was that the transfer was not subject to any consideration and that the Department of Trade and Industry were to bear three-quarters of the expenditure required to develop a new runway and new terminal buildings, by way of capital grant, to which no interest was applied. The British Airports Authority would not have been prepared to undertake ownership and management of the airport except on favourable terms such as these13. A hypothetical tenant of the appeal subjects would not have the benefit of the income from tenants and concessionaries. The said hypothetical tenant would show a substantial loss throughout the quinquennium. The scale of landing fees is drawn up by the appellants, the British Airports Authority, in consultation with the airline operators, subject to control and approval by the Secretary of State. The level of landing fees is influenced byinter alia considerations of governmental policy. Landing fees would be subject to normal market considerations in that if they were to be raised beyond a certain level the airlines would cease to use Edinburgh Airport. There is no prospect of their being raised sufficiently to enable a profit to be made on Edinburgh Airport. The Royal Air Force pay only nominal landing fees55. There is a possible tenant for the subjects of appeal, namely the appellants, the British Airports Authority themselves. As a public authority carrying out its duty to deliver a service to the public it would pay some rent in respect of the heritage in order to enable it to discharge that duty. It is possible to envisage some other public authority being the tenant. Any such tenant would be very much less attracted by the subjects of appeal than by the whole airport and terminal buildings including the areas covered by tenancies and concessions. The rent offered would be very much lower than a full commercial rent. The rent offered would be very much lower than the figure brought out by the contractor's principle valuation at the decapitalisation rate for public buildings. Such a tenant would not be prepared to pay a rent which represents such a high proportion of the income which can be produced by the subjects of appeal."
The decision of the committee, so far as relevant to this report, was as follows:"Decapitalisation Rate. On the evidence, and on the authorities to which they were referred, the Committee felt that there was no practice and precedent in favour of a lower decapitalisation rate to be applied to the appeal subjects than that appropriate for buildings of a public character. The Committee did not consider that the appellants had produced any acceptable evidence to show that the Assessor's rate of 6 per cent for net annual value valuations, in the case of buildings of a public character, was inappropriate in this revaluation. End Allowance. The Committee were, however, persuaded, by the evidence and submissions, that an end allowance of 50 per cent in respect of certain exceptional factors affecting the subjects of appeal is appropriate. The Committee accepted on the authorities that it is appropriate in a contractor's principle valuation to check the result against any evidence relating to the amount of rent which the hypothetical tenant would pay and if necessary to make an appropriate modification. In the particular circumstances of this case, the Committee felt that substantial modification was required. There is a hypothetical tenant for the appeal subjects, namely the appellants themselves, and there would be a rent. However, the Committee were satisfied that the market was extremely limited, and any tenant would not accept a lease of the subjects of appeal either on a commercial basis or even on the basis of the lower level of return to the landlord which is envisaged by the reduced decapitalisation rate for buildings of a public character. The evidence of the actual transactions in relation to Edinburgh and Glasgow Airports involving the appellants...
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