Lothian valuation board wins appeal over council tax on ‘golden share’ affordable housing

The Inner House of the Court of Session has allowed an appeal on how affordable housing units subject to ‘golden share’ provisions ought to be valued for council tax purposes.

The Assessor for Lothian Valuation Joint Board appealed a decision of the Lothian Valuation Appeal Committee regarding a ground floor flat at Stanwell Street, Edinburgh, owned by the respondent, Mark McLaughlin, and his wife.

The case was heard by the Lord Justice-Clerk, Lady Dorrian, sitting with Lord Malcolm and Lord Doherty.

80 per cent value

The respondent and his wife purchased the property, which formed part of a new development of 49 houses and flats, in November 2016 for £129,600. The flat was one of 11 housing units on the site designated as Affordable Housing Units, allowing the respondent and his wife to purchase it at 80 per cent of its open-market value using a ‘golden share’ provision they were eligible for, subject to sale restrictions if they later disposed of the property preventing them from selling the property except to an eligible purchaser for an amount not above 80 per cent of open market value.

The appellant listed the property as being in Band D for council tax purposes, for values above £45,000 but not exceeding £58,000, in December 2016. The respondent submitted a proposal in April 2017 that because of the golden share restrictions the value band should be Band C, values above £35,000 but not exceeding £45,000. The appellant disagreed with this proposition, which was referred to the Appeal Committee.

During the appeal, the respondent gave evidence that he accepted the property would normally be valued in Band D, but maintained that the golden share ought to be taken into account. The appellant argued that golden share provisions were not everlasting, and were required to be ignored in the valuation process.

The respondent also cited Assessor for Grampian v Brownlie, a case in which a property was subject to a planning restriction limiting occupancy to employees of the farm it was located on, or their dependent(s) or widow(er). It was held by the Inner House that the restriction was not incompatible with a sale on the open market but would reduce the number of potential interested buyers, thus lowering the hypothetical open market price enough to allow a reduced valuation band.

The committee decided that the provision ought to be taken into account for valuation purposes, with the matter to be remitted to the Assessor to reconsider the banding, which could have been either Band C or D depending on the property’s uplift factor.

On appeal to the Court of Session, the appellant argued that the committee had erred in law in its interpretation of the relevant regulations. The Assessor was required to determine the hypothetical amount the property would sell for on the open market if it was not limited by the golden share provision. It maintained its arguments regarding the transitory nature of the provision, and submitted that the respondent’s lack of evidence for a Band C classification required the committee to have dismissed this argument. It was also argued that the committee erred in remitting the case to the Assessor, and that they should have made a decision themselves.

Incompatible with open market sale

The opinion of the court was given by Lord Doherty. After comparing the law of council house right to buy, he examined the arguments relating to Brownlie, saying: “While at first blush the restriction […] might be thought to be similar in nature to the restriction in Brownlie (both provisions restrict the category of persons who may occupy the dwelling) there is a material difference. In Brownlie the occupation restriction did not preclude an open market process, though it made the class of purchasers likely to be interested in bidding smaller than it would have been but for the restriction.”

Noting the conditions of the sale restrictions imposed by the golden share as preventing such a process, he continued: “In Brownlie the restriction on occupiers was not incompatible with there being a sale on the open market in accordance with the statutory hypothesis. Here the position is different. The combined effect of the restrictions in clause 1 and clause 4 is incompatible with an open market sale on the statutory hypothesis.”

Addressing the committee’s decision, he said: “The committee focussed on the sale price which a proprietor could have achieved at the tone date if constrained by the golden share restrictions, instead of focussing on the dwelling’s open market value in accordance with the statutory hypothesis. It looked for the ‘value to the seller’ on the footing that the seller was affected by the restrictions, rather than for the open market sale value. It failed to appreciate that, unlike the restriction in Brownlie, the golden share restrictions are incompatible with the statutory hypothesis.”

He continued: “That is sufficient to dispose of the appeal. However, we also think it appropriate to express agreement with [counsel for the appellant] that the committee’s jurisdiction was to grant or refuse the appeal on the basis of the material before it. It had no supervisory jurisdiction over the Assessor’s exercise of his statutory functions. It ought to have decided the appeal one way or the other on the basis of the evidence. It had no power to direct that the Assessor revalue the appeal subjects.”

Briefly addressing the other grounds of appeal, he said: “It is unnecessary to express views on the other grounds of appeal and we prefer not to do so. In particular, we think there are good reasons for reserving our opinion on the proper construction of clauses 2, 3 and 6 of the Schedule [to the regulations]. First, it is clear to us that those provisions are not central to this appeal. Second, in view of the way in which battle lines were drawn before the committee we do not think it is open to the Assessor in the present case to argue that the golden share restrictions ought to be left out of account because they might be of transitory effect. At committee both parties proceeded on the basis that if the restrictions were consistent with the statutory hypothesis then the value of the appeal subjects would be less than it would have been had the restrictions been left out of account.”

For those reasons, the appeal was allowed.