Tesco loses appeal against council rent valuation following opening of rival Morrisons

The Lands Valuation Appeal Court of the Court of Session dismissed an argument by Tesco that the opening of a larger Morrisons store in Kirkcaldy town centre constituted a “material change of circumstances”.

The Lord Justice Clerk, Lady Dorrian, sitting with Lord Malcolm and Lord Doherty, heard that the subjects were, until their closure in April 2015, operated by the appellent at 20 The Postings in Kirkcaldy, Fife.

At the 2010 revaluation the Fife Council Assessor entered them in the roll at an NAV/RV of £755,000.

A running roll appeal against the entry was brought under section 3(4) of the Local Government (Scotland) Act 1975, as amended, on the ground that the opening of the Morrisons supermarket in December 2013 constituted a material change of circumstances, reducing the value of the subjects with effect from 1 April 2014.

However, that argument was rejected by the committee, which concluded that the opening of a competitor store, the closure of the subjects or the landlord’s subsequent offer of a much reduced rent did not, either cumulatively or individually, amount to a material change of circumstances in terms of section 37 of the 1975 Act.

The committee found that trading conditions at the subjects mirrored the drop in sales being felt by the other big four supermarkets nationally, and that the closure of the subjects came about due to the “ebb and flow of a dynamic industry”.

The committee also observed that the scope of section 37 of the 1975 Act was “severely limited”, adding that there had to be some “exceptional, extraordinary or significant event” affecting value which was absent in this case.

On appeal, the appellant contended that the respondent “misdirected” itself as to the questions to be considered and in the conclusions reached.

The appellant’s case was not that the closure of the subjects or the landlord’s reduced rental offer were, individually or cumulatively, a material change of circumstances, but that the opening of a competitor was itself such a change, of which the reduced rental value and subsequent closure of the store were evidence.

It was argued that the committee to have proper regard to its own primary findings in fact and failed to recognise that the opening of the Morrisons supermarket “fundamentally altered” the nature of the subjects and had a “specific and permanent effect” on their rental value.

The important findings which demonstrated that fundamental change included that: the subjects had been the dominant supermarket until Morrisons opened; after that, it was unlikely that a supermarket operator would rent the subjects if they became vacant; the subjects were transformed from the dominant supermarket to a marginal unit; the drop in sales increased after Morrisons opened and was not apparently felt by Asda and Sainsbury’s; and the landlord’s offer, followed by unsuccessful marketing of the subjects.

Had it given proper consideration to these and other primary findings, the committee could not reasonably have concluded that the effect of the opening of Morrisons was simply part of the ebb and flow of a dynamic industry.

It was also argued that the committee gave no consideration to the question of the extent of the reduction in value.

The appellant’s expert witness’s opinion was that one-half of the reduction in rental value could be attributed to the opening of Morrisons, and he proposed a reduction in the net annual value from £755,000 to £500,000.

But the Lord Justice Clerk, with whom the other judges agreed, held that the grounds of appeal had not been established and the appeal should be refused.

In a written opinion, Lady Dorrian said: “It is clear from the decision of the committee that they considered that any effect on the subjects from the opening of Morrisons did not go beyond the normal ebb and flow to be expected in a competitive business.

“It is true that in expressing themselves the committee from time to time made reference to the reasons for the closure of the subjects, rather than addressing the effect of the opening of Morrisons, but looking at the stated case as a whole I do not think it is correct to suggest, as the appellant did, that the committee had addressed the wrong question.

“The formulation used by them came about because of the way in which the evidence for the appellant was presented, and because of the way the appellant’s argument was advanced.

“The primary factors relied upon by the appellant as proof of the impact on the subjects of the opening of Morrisons were the rental offer, the turnover impact and the store closure.

“As the matter was put in argument before us: the argument was not that the worse drop of itself established the change in circumstances, but it was an effect specific to these subjects, raising the question whether it could also constitute a material change of circumstances as showing more than the normal process of change.

“Looked at in this way, one can understand why the committee considered matters in the way they did and we do not consider that they misdirected themselves.”