Appeal No. VA89/0/149
AN BINSE LUACHÁLA Dromoland Castle Limited APPELLANT RE: Licensed Hotel, Staff Quarters, Club House, B E F O R E JUDGMENT OF THE VALUATION TRIBUNAL By notice of appeal dated 14th August, 1989, the above appellant appealed to the Tribunal against the determination of the Commissioner of Valuation in fixing the rateable valuation of the above described property at £1,827 (Buildings £1,600). The subject property is a Grade A* Hotel and is situated in West County Clare about eight miles north of Shannon Airport off the Galway - Limerick road. Dromoland Castle Hotel is comprised of 73 bedrooms en-suite, reception, dining room, bar, conference centre, golf club house, staff rooms, stores and gate lodge. There is an 18 hole golf course. It was originally built prior to 1686, demolished in 1826 and rebuilt in the Gothic style. It was the ancestral house of the O'Brien clan and stayed in that family until 1962 when it was sold for conversion to a hotel. The construction is of cut stone and asphalt. Valuation History An additional £20 was added to the rateable valuation in 1966 in respect of a small extension including laundry, canopy and other minor extensions. The area of land was reduced to 295 acres - 2 roods - 12 perches. The property was again revised in 1967 and 1969 to value a new conference room and a small solarium and valuations of £975 and £990 were placed on it in these respective years. In 1974 the property was again listed for revision leading to an agreed reduction to £950 prior to the hearing of the appeal in the Circuit Court. In 1988 the property was listed to take account of an extension to the hotel and the construction of a link corridor. Following this revision the valuation was increased to £1,900 and was subsequently reduced on 1st appeal to £1,600. It is against this amount that the appeal lies before the Tribunal. A written submission on behalf of the appellants was received in the Tribunal on the 27th November, 1989 from Mr. Desmond M. Killen, FRICS, ARVA, a fellow of the Society of Chartered Surveyors and a Director of Donal O'Buachalla & Co. Ltd. of 86 Merrion Square, Dublin 2. With regard to the 1988 revision Mr. Killen said that at 1st appeal stage discussions between the parties resulted in agreement on the following: 1. Areas: 2. The valuation to be attributed to (b), (c), (d), (e), the gardener's house and the gate lodge is approximately £125. 3. The appropriate fraction for conversion from N.A.V. to R.V. is 1/200. No agreement was reached on the valuation to be attributed to the hotel (8,793 m2). Mr. Killen said that he is advised that the Castle Hotel and grounds
(375 acres) and the Clare Inn were acquired in 1987 for a total consideration
of £5.5 million which was apportioned by a firm of professional
valuers as follows: and that building construction work of £1.48 million was required to bring the building up to standard and that £1.5 million was spent on the provision of other items. The building work and refurbishment were required to preserve the castle building and keep the accommodation up to required standards for an A Star Hotel. Mr. Killen referred the Tribunal to the following legal references; Section 5 of the Valuation Act, 1986 Judgment of the Supreme Court in the Roadstone Ltd. V the Commissioner of Valuation 1956 and High Court judgment in the Rosses Point Hotel Company Ltd. V the Commissioner of Valuation 1987 Mr. Killen then outlined how the net annual value of the subject property
might be arrived at using the following methods: 2. Profits Method 3. Comparative Method Hotel Europe, Killarney R.V. £2,700 Other comparisons in the Shannon area are:
List of A Star Hotels
Re: Bedroom Basis Compare Limerick Inn. £12.29 per bedroom. Re: Square Metre Pricing All calculations here are gross external. The valuation is, therefore, calculated on square metre basis: Contractor's Theory Mr Killen stated that it is doubtful if there exists any entrepreneur who would build a hotel of the same construction and layout as the subject premises. He stated that the present owners regard the subject as a long term investment,
with an estimated 5% return. He submitted, therefore, that the N.A.V. of the hereditament is between Nil and £218,000. In a written submission received on 27th November, 1989, on behalf of the Respondent Mr. Thomas D. Brannigan B.Agr.Sc.M.Sc., a valuer with 13 years experience in the Valuation Office outlined the valuation history of the subject property. He said that trade is aimed mainly at the wealthy American market and prices range from £110 - £170 (high season) for a standard superior bedroom to £230 per day for a suite in the high season. Prior to 1987 the hotel had a closed season but, under new management, all year round trade is now in place. Bedroom occupancy from 1983 - 1986 averaged out at 80.3%. In 1987 the hotel closed for renovations and occupancy figures for that year would, therefore, not be realistic. Figures for 1988 indicate a bedroom occupancy of 67% and this must be deemed satisfactory. There is no conflict with the agents on this issue. He said that the hotel is one of the finest hotels in rural Ireland, is very well located and is regarded as the showpiece hotel in Clare and possibly in the country. He said that the Commissioner in arriving at a rateable valuation in
the subject property used the rental evidence method as follows: Purchase Price = 2,801,842.00 Total = 3,571,842.00 Total = £3,551,842.00 Comment: Return on investment from 'Irish Hotel Industry Review '89 (page 33). He stated that whereas 49.7 acres of land are included part of this is water and that £20,000 is a generous allowance for this element. This method results in a valuation based on NAV and also retains the
tone of the Lists. Oral Hearing Mr Killen elaborated on his written submission. Mr Mark Nolan who had been in hotel management for 12 years and had worked in Germany and in Ashford Castle said that he was recently appointed as General Manager of the Dromoland Castle Hotel. He gave evidence to the effect that while there was a common perception that the hotel catered for wealthy clients and it must therefore have wealthy profits, this was not the case although it was the intention eventually to bring this about. He said that the hotel catered for a small clientele and that there was increasing competition in this field such as Mount Juliet and Straffan House. He said that he was appointed to the post of General Manager to reverse a trend whereby the hotel was losing money. His short term target is that the hotel should reach a break even point in two to three years. He said it was essential for this that a large marketing effort be made and that overheads should be reduced. He outlined a number of ways to achieve this and other developments planned. He said that it would take a number of years for the advertising to result in the required increase in customers. He said that the bedroom occupancy rates were 60-70%. Mr John O'Brien Financial Director of the operating company said that in addition to the purchase price a structural survey revealed that a lot of defects had to be remedied and extra bathrooms installed. Given the thickness of the walls in the castle this proved very costly. He said that there were now 73 bedrooms as distinct from 77 when purchased, despite the huge expenditure. He said that while there was a 67% bed occupancy from January to October 1989, in November and December it was in the region of 30% giving an average of 50-55%. Mr O'Brien went through the accounts and highlighted sporting activities's expenses of £104,697 and estimates of £90-100,000 for maintenance and repair. He said that there were new competitors for the same market such as Mount Juliet, Adare Manor and Waterford Castle. He said that the owners were a team of 50-60 Irish American investors who had appointed a New York based management company for the purpose of managing the venture. He said that Dromoland Castle Ltd was formed to acquire staff for the hotel. He outlined the joint marketing operation with Ashford Castle. Mr Aindrias O'Caoimh queried the identity of the rated occupier. When it became clear to the Tribunal that the correct rated occupier could not easily be identified, the hearing was adjourned in order that the parties might resolve the matter. At the resumed hearing which took place in Ennis, Co Clare on the 8th January, 1990 both parties stated that the question of the identity of the rated occupier had been agreed and the appellants were correctly described as Dromoland Castle Ltd. Mr Branigan stated that the most reasonable method to determine the correct rateable valuation for the property was to use the investment or contractor's method. He pointed out that the bedroom basis was invalid since no two hotels are identical. Similarly, since only one year's accounts were furnished, this would be insufficient to assess market value. Mr Branigan pointed out that if the Valuation Office had known at the time of 1st appeal that the actual figure spent on improvement was £1,480,000 and not £770,000 as they had since been informed, no reduction in valuation would have been made at that time. He disagreed with Mr Killen that a yield of 5% was to be expected on this investment. Whereas Mr Killen stated that the owners of the hotel could not expect a return on their investment for some considerable time, Mr Branigan stated that a 9% yield would be the figure expected by businessmen of their experience. Mr O'Caoimh also referring to the question of expected return on investment, said that the owners of this hotel would realistically expect to achieve the highest possible return on their investment. He pointed out, too, that if the rateable valuation of this hotel were to be reduced, this would have a resultant effect on all similar hotels in the area. The Tribunal is satisfied that the correct method of calculating the N.A.V. of the subject property is by using the "investment or contractor's method". It accepts that there is an absence of rental evidence for hotels. There are few, if any, hotels in the area which are directly comparable to this one. Most of the comparisons offered are relatively new and much larger than this older castle building and a square metre breakdown could be misleading. Similarly, to attempt to calculate the N.A.V. on a bedroom basis would not be of any benefit, unless there were other hotels of an identical nature to the subject. Trading figures for only one year were furnished by the appellants, and these are not deemed to be of assistance in assessing N.A.V. Both parties have agreed the capital or market value of the premises at £4,280,000 i.e. the purchase price of £2,800,000 together with the cost of renovations at £1,480,000. The Tribunal is aware that this hotel might well be described as one of the finest in the country. It provides first class accommodation aimed at the top of the market, is widely promoted internationally and is situated in an extremely advantageous location, close to Shannon Airport. The Tribunal is not inclined to look on the intentions of the owners as being entirely altruistic and considers that a yield of 5% on their initial investment would not be considered satisfactory. The fortunes of the hotel would appear to be very definitely climbing. All the evidence offered points to a successful, thriving venture. Taking everything into consideration the Tribunal feels that the N.A.V. of the property is in or around £299,600. Applying the percentage of 0.5% which seems to be the agreed figure for this area, the Tribunal has decided that the correct rateable valuation is £1,500.00
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