Harrods Ltd v Baker (Valuation Officer), Court of Appeal - Lands Tribunal, June 21, 2007, [2007] EWLands RA_36_2005

Resolution Date:June 21, 2007
Issuing Organization:Lands Tribunal
Actores:Harrods Ltd v Baker (Valuation Officer)

RA/36/2005 LANDS TRIBUNAL ACT 1949 RATING valuation department store comparables adjustments location internal arrangement modernity and quality repair and maintenance costs loading facilities very large store whether allowance for quantum held no justification for quantum allowance rateable value reduced from £19,750,000 to £16,575,000 IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE LONDON (SOUTH WEST) VALUATION TRIBUNAL BETWEEN HARRODS LIMITED Appellant and STEPHEN ANTHONY BAKER Respondent (Valuation Officer) Re: 87-135 Brompton Road, London, SW1X 7XL Before: The President and Mr N J Rose FRICS Sitting at Procession House, 110 New Bridge Street, London EC4V 6JL on 12, 15-19, 22-24 January and 17 April 2007 David Holgate QC and Richard Glover, instructed by Herbert Smith, for the Appellant Timothy Mould QC and Daniel Kolinsky, instructed by HMRC Solicitor, for the Respondent © CROWN COPYRIGHT 2007 The following cases are referred to in this decision: Robinson Brothers (Brewers) Ltd v Houghton and Chester-le-Street Assessment Committee [1937] 2 KB 445 Hoare (VO) v National Trust [1998] RA 391 London County Council v Erith [1893] AC 562 Poplar Assessment Committee v Roberts [1922] AC 93 Mersey Docks and Harbour Board v Liverpool Overseers (1873) 9 QB 84 The following cases were also cited: Fir Mill Ltd v Royton UDC & Jones (1960) 7 RRC 171 IRC v Gray [1994] STC 360 Benjamin v Anston Properties [1998] RA 53 Eastbourne BC & Wealden DC v Allen (VO) [2001] RA 273 John Lewis & Co Ltd v Goodwin (VO) [1980] RA 1 Trevail (VO) v C&A Modes Ltd, Trevail v Marks & Spencer Ltd (1967) 13 RRC 194 Humber Ltd v Jones (VO) (1960) 6 RRC 171 Lotus and Delta Ltd v Culverwell (VO) and Leicester City Council [1976] RA 141 H J Banks Ltd v Speight and Snowball (VO) [2005] RA 61 DECISION Introduction

1. This case is about the appropriate rateable value to be entered in the 2000 rating list for Harrods department store. The assessment in the compiled list with effect from 1 April 2000 was £19,750,000. On 15 June 2005 the London (South West) Valuation Tribunal determined that this should be reduced to £18,850,000. Both the ratepayers and the valuation officer appealed against the decision and the two appeals were consolidated. The ratepayer contended for a value of £11,300,000 and subsequently increased this to £11,450,000 (Appendix 1). The first expert report submitted by the VO proposed a value of £19,500,000. The VO subsequently reduced this figure on two occasions, the second of which was at the commencement of the ninth day of the hearing in the course of his examination in chief, when he put forward a valuation of £17,950,000 (Appendix 2). The antecedent valuation date (AVD) for the purposes of the appeal is 1 April 1998. The material day is 1 April 2000. There is agreement that the value should be assessed using the overall method, applying a single rate per square foot to the total floorspace of the store. There is agreement also that the rate per square foot should be derived from department stores in Oxford Street, where there is an agreed rent for House of Fraser and, based on this, agreed assessments for that store, John Lewis, Debenhams, Marks and Spencer and Dickins and Jones.

2. In adjusting the base value derived from Oxford Street there is disagreement between the parties on the following: (a) Location. The ratepayers contend that Harrods' location Knightsbridge is less valuable than Oxford Street. The VO's ultimate position is that the locations are of equal value. (b) Internal arrangement. Unlike the Oxford Street stores Harrods was only partly purpose-built as a department store. Most of it consists of converted mansion flats. This has resulted in a compartmentalised arrangement and a circulation that is dependent on an irregular location of escalators and lifts. The ratepayers contend for a greater adjustment to reflect these matters than the VO is prepared to concede. (c) Modernity. There is disagreement as to the value effect of what was referred to as modernity, and in particular Harrods' lack of atria. (d) Quality. The VO makes an upwards adjustment to reflect what he regards as the exceptional quality of Harrods' internal fittings and exterior appearance. The ratepayers make no adjustment for this (e) Maintenance costs. It is agreed that an allowance should be made for exceptional maintenance costs, but the size of such allowance is not agreed. (f) Goods delivery facilities. Harrods' storage and goods delivery facilities are separate from the store and are connected to it by tunnels under Brompton Road. The valuers disagree as to the amount of the allowance to be made for this disability. (g) Quantum. Harrods is very much larger than any other department store. It is

4.5 times the size of House of Fraser and 2.3 times the size of John Lewis, the largest of the Oxford Street stores with agreed assessments. It is 1.5 times the size of Selfridges, whose assessment has not been agreed and is the subject of an appeal. The ratepayers make a 20% adjustment for quantum, the VO none, and this is the most important difference between them. There was agreement that, if the value of Harrods was to be derived by comparison with those stores that had air-conditioning, a specific deduction should be made to reflect the fact that Harrods does not have air-conditioning. The amount of this was agreed. Evidence

3. Mr David Holgate QC and Mr Richard Glover, counsel for the appellant, called two witnesses of fact and two expert witnesses. The first factual witness was Mr Malcolm Derek Wiffen, the appellant's house architect from 1984 until his retirement in 2005. Mr Wiffen gave evidence about the structural history of the appeal hereditament and its internal and external maintenance costs, including the impact of the building's listed status. The second factual witness was Mr Nigel Charles Craig Blow, the appellant's buying and merchandise director and a director of the appellant and its parent company. He described the operational difficulties resulting from the size and layout of the property and its remote storage facilities, the turnover achieved in different parts of the building and the importance of the appellant's branded souvenir goods.

4. The expert witnesses called on behalf of the appellant were Ms Sarah Jane Key BSc (Hons), MRICS, a director in the retail department and national skills director for landlord and tenant of DTZ Debenham Tie Leung, and Mr Nicholas Peter How BSc (Est Man), FRICS, a past president of the Rating Surveyors Association and a partner in the rating department of Montagu Evans LLP. Ms Key's valuation was £12,840,000 (Appendix 3). It was prepared on the basis of the statutory definition of rateable value and on the additional assumption that sub-letting in parts was permitted. Mr How's valuation of £11,450,000 was prepared on the statutory rating basis.

5. Mr Timothy Mould QC and Mr Daniel Kolinsky appeared for the respondent valuation officer and called two expert witnesses. The first was Mr Paul Lewis FRICS, FCIArb, a director responsible for retail landlord and tenant matters at Nelson Bakewell Ltd. The second expert was the respondent, Mr Stephen Anthony Baker BA, Dip Rating, FRICS, IRRV, the valuer in the special rating unit of the Valuation Office Agency in London responsible for the valuations of department stores, large shops and food stores within the London area. He is a former chairman of the rating diploma holders' section of the Royal Institution of Chartered Surveyors. Both Mr Baker's valuation of £17,950,000 and Mr Lewis's of £21,000,000 (Appendix 4) were prepared on the rating basis.

6. We made two accompanied inspections of the appeal hereditament, on 10 January 2007 prior to the hearing and on 30 April 2007 after it. We also made accompanied inspections of John Lewis, Debenhams, Marks and Spencer and House of Fraser, and an unaccompanied visit to Selfridges on 1 May 2007. We had previously visited John Lewis, alone, on 11 January

2007. The appeal hereditament: description

7. The appeal property is a department store which is situated on an island site, bounded by Brompton Road, Hans Crescent, Basil Street and Hans Road. The main frontage is to the south side of Brompton Road. The hereditament also includes a building in Trevor Square, used for ancillary storage purposes and lying behind the properties on the north side of Brompton Road opposite the main building. The two buildings are linked by a tunnel beneath Brompton Road, through which the goods delivered to Trevor Square are distributed to the main building. The store is located approximately 250 metres to the west of the Harvey Nichols department store, which is on the corner of Knightsbridge and Sloane Street. An entrance to Knightsbridge underground station is adjacent to one of the store's entrances on Hans Crescent.

8. The appellant has had a presence on the site since 1849 and has been the only occupier of the hereditament since its completion. It is the largest department store in Europe. The main building is of steel construction, clad with pink terracotta blocks. It provides accommodation on eleven floors, including two basements. Trading takes place on basement, ground, first, second, third, fourth and fifth floor levels. On the material day the Trevor Square building provided the main loading facility on the ground floor with two basements of storage below, and further storage on the first to six floors above. In September 2001 the upper floors were sold for residential development. The Brompton Road building was listed Grade II as at the material day. In May 2000 the listing was upgraded to Grade II*. The listing applies to the interior and exterior.

9. The site area of the main building is 1.8 hectares (4.5 acres). The site is broadly rectangular in shape and is bounded by: Brompton Road display windows and entrances 7, 8 and 9 Hans Road display windows, minor goods delivery and...

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