AN BINSE LUACHÁLA
VALUATION TRIBUNAL
AN tACHT LUACHÁLA, 1988
VALUATION ACT, 1988

Brian McEniff Group t/a Holyrood Hotel APPELLANT
and
Commissioner of Valuation RESPONDENT

RE: Licensed Hotel and Carpark at Map Reference 3 to 17.25a, Ballyshannon Road,
Townland: Drumacrin, UD: Bundoran Co. Donegal
Quantum

B E F O R E
Con Guiney - Barrister at Law Deputy Chairman
Barry Smyth - FRICS.FSCS Member
Marie Connellan - Solicitor Member

JUDGMENT OF THE VALUATION TRIBUNAL
ISSUED ON THE 18TH DAY OF NOVEMBER, 1998

By Notice of Appeal dated the 13th day of October 1997 the appellant appealed against the determination of the Commissioner of Valuation in fixing a rateable valuation of £775 on the above described hereditament.

The grounds of appeal as set out in the said Notice of Appeal are that:
"1. The valuation is excessive and inequitable.
2. The valuation is bad in law".

The appeal proceeded by way of an oral hearing which took place on 3rd July 1998 at the Courthouse, Letterkenny, Co. Donegal. The appellant was represented by Mr. Desmond Killen FRICS FSCS IRRV, a director of Donal O'Buachalla & Company Limited. The Respondent was represented by Mr. Christopher Hicks, a Valuer in the Valuation Office.

Having taken the oath each valuer adopted as his evidence in chief his respective written submissions which had previously been exchanged by them and submitted to the Tribunal.

Material facts agreed or found by the Tribunal
The property is located on the main street in the centre of Bundoran. Bundoran is a holiday resort, with a population of approximately 1,800. It is a very active tourist location in June, July and August but throughout the rest of the year is quiet. The town enjoys little or no passing business or trade.

This is a three star, 85 en-suite bedroom hotel with 2 bars, a restaurant, function room and basement disco. It is open all year but only at weekends from January to March. Occupancy rates in the peak months is 90% but 50% for the remainder of the year. 70% of the business is coach tours. The function room caters for approximately 10 weddings per annum and dinner dances. The total gross external floor area is 7,107 sq.m. (73,506 sq.ft.).

Mr. Killen provided the unaudited accounts prepared by chartered accountants McArdle, Cassidy, McQuaid for the years ended 3rd December 1995 and 1996 from which the following information is obtained.

The Appellant's Case
Mr. Killen stated that this is a basic three star hotel, a piecemeal development of an old family hotel. Mr. Killen drew the Tribunal's attention to a number of Tribunal decisions on Donegal hotels in recent times.

1. VA94/3/032 - Jody Gysling t/a Harvey's Point Hotel
R.V. £290

2. VA93/1/069 - Donegal Hotels Limited (Mount Errigal, Letterkenny)
R.V. £875

3. VA96/3/015 - Killybegs Hotel Limited
R.V. £475

4. VA96/3/016 - Seaview Hotel (Bunbeg)
R.V. £290

As a result of these decisions Mr. Killen expressed the view that valuations were available on a capital value basis, receipts and accounts basis and comparative basis i.e. price p.s.f. He therefore proposed R.V.'s on each basis as follows:

1. Capital Value
The N.A.V. of £175,000 on the Mount Errigal Hotel is 10% of the 1988 estimated capital value of £1.75m. The subject property, based on the 1995 accounts has land and buildings included at £1,093,000. Adjusting this figure to 1988 gives a figure of £800,000. At 10% this would give rise to an N.A.V. of £80,000 and thus an R.V. of £400.

2. Accounts/Receipts and Expenditure
Mr. Killen did not provide a complete receipts and expenditure valuation but took the N.A.V. as a percentage of turnover adjusted to 1988. He provided three comparisons where a range of percentages was used, namely the Mount Errigal Hotel at 13.3%, the Central Hotel, Donegal at 11.36% and the Seaview Hotel, Bunbeg at 8.5%.

The turnover in the subject in 1996 was £1,164,954 which adjusted to 1988 gives a turnover of £952,000. Mr. Killen then applied the above percentages to the figure of £952,000 giving rise to N.A.V.'s of £126,616, £110,432 and £80,920 and thus R.V.'s ranging from £633 to £552 to £404. He offered the opinion that the most appropriate percentage to use to derive an N.A.V. from the turnover, was 11.1% which is a simple average of the three figures noted in the comparisons above and gives rise to an N.A.V. of £105,672 and thus an R.V. of £528.

3. On the comparative or rate p.s.f. basis, Mr. Killen produced two comparisons namely the Mount Errigal Hotel in Letterkenny, a four star 82 bedroom hotel of 75,800 sq.ft., the R.V. of which can be analysed to arrive at a rate of £2.30 p.s.f. and the Central Hotel in Donegal town, a three star 91 bedroom hotel of 67,228 sq.ft. which can be analysed at £2.38 p.s.f. He stated that both hotels are in superior locations and trade better than the subject. In Mr. Killen's opinion the appropriate rate p.s.f. to apply to the subject premises was £1.75 p.s.f on 73,506 sq.ft. equal to £128,635 N.A.V. or R.V. £643, say £645.

Mr. Killen requested the Tribunal to reduce the valuation to an equitable assessment of £528/£645.

Respondent's Case
Mr. Hicks dealt with the matter on a rate p.s.f. basis only and made in his written submission no reference whatsoever to the accounts.

Mr. Hicks provided three comparisons:

1. The Tower Hotel, Sligo town
A new three star hotel in a designated area comprising 33,200 sq.ft. and 58 bedrooms, let from June 1995 either at £230,000 per annum or £250,000 per annum. He stated that the N.A.V. was taken at 70% of this figure to allow for both backdating to 1988 and distortion caused by designation. The R.V. of £875 thus devalues at £5.27 p.s.f.

2. Abbey Hotel, Donegal town
Three star hotel of 50,000 sq.ft. R.V. agreed at £725 equivalent to an N.A.V. of £145,000 or £2.90 p.s.f.

3. Slieve Russell Hotel, Ballyconnell
A new four star hotel in rural Co. Cavan of 181,189 sq.ft. The R.V. was agreed at £2,930 in 1994 or an N.A.V. of £586,000 which devalues at £3 p.s.f. on the main area. This hotel has 156 bedrooms, a leisure centre and conference centre.

Respondent's valuation on the subject premises
73,506 sq.ft. @ £2.10 = £154,363.
Say = £155,000 N.A.V.
@ 0.5% = £775

Determination
While the respective valuers were largely in agreement on the nature of the location of the premises and the physical description and accommodation and type of trade in the premises, they are as much as 47% apart on their estimates of N.A.V. and R.V. In view of the fact that two years accounts i.e. 1995 and 1996 were available albeit unaudited it seems surprising to the Tribunal that the Respondent did not take any cognisance of these accounts in assessing N.A.V. and R.V. and relied simply on the comparative method. It is also surprising to the Tribunal that in view of the fact that accounts were available, that the appellant dealt only with the turnover and applied a simple percentage thereto to derive an N.A.V. This percentage varies from case to case depending on the nature of trade and profitability but the appellant takes the simple average of three comparisons and makes no argument as to why a certain percentage should be used or as to what that percentage might be.

The parties are aware that two other hotels in Bundoran are also the subject of appeals to the Tribunal, which appeals were heard on the same day as the subject premises.This is referred to in Mr. Hick's submission ,where he states that the properties therefore cannot be considered in isolation. In view of the availability of the accounts for all three properties it is a matter of regret to the Tribunal that this appeal was dealt with without significant cross-reference by the appellant and without any reference to the accounts by the respondent.

The capital value basis outlined by the appellant is flawed in that the capital value provided is simply the book value of the property and does not necessarily refer to a market value of the property which was the case in the comparison provided of the Mount Errigal Hotel. The market value of a property could vary significantly from its book value. Under these circumstances this is not a method which finds favour with the Tribunal in this case and in fairness it is not proposed by Mr. Killen.

The comparative or rate p.s.f. method has been used in many hotel cases at least partly because a rate p.s.f. can be derived from the agreed or determined R.V. It is seldom that an actual passing rent is available for analysis in a hotel although the comparison of the Tower Hotel in Sligo town provided by Mr. Hicks is noted. The difficulty of the comparative method is adjusting the rate p.s.f. to be applied to reflect the size or quantum of the building, the physical condition and efficiency of the building and the trade that the hypothetical tenant considers the building capable of. It is perfectly possible that even in similar locations buildings of the same size could have quite different accommodation and thus quite different potentials for trade and these are matters that the hypothetical tenant would take into account. It would therefore have been useful for the Tribunal if comparison had been made between the size and accommodation of the subject property and the two other hotels under consideration at the same time and the accounts of all three.

The Tribunal has drawn together the evidence presented to it in relation to the three hotels, the subject of these appeals, as set out in the tables which follow:

Comparison of Three Bundoran Hotels

HOTEL Area (Sq.ft.) Turnover Gross Profit% Operating Profit (Before depreciation and financial expenses)% Proposed R.V. VO/APP
VA97/6/011
Allingham Arms Hotel
3*88B/R
R/R £20/29 53,897 '96 £1.247m

'95 £1.120m

'94 £ .955m

63.4

61.6

62.3

27.2%

21.6%

28.4%
£675/£500
VA97/6/014
Great Northern Hotel
4* 96 B/R
Leisure Centre Golf Course Was old Great Northern Hotel 72,206 '96 £1.15m

'95 £1.07m

65.6

63.4 20.1%

21.1% £810/£630
VA97/6/025
Holyrood Hotel
3*85 B/R
Function Room & Disco 73,506 '96 £1.164m

'95 £0.736m

'94 £1.075m

60.9

56.6 24.5%

25.4% £775/£645

Comparison per year of turnover, gross profit and operating profit.
Hotel 1996 Hotel 1995 Hotel 1994
Turnover

Allingham £1.247m Allingham £1.12m Holyrood £1.075m
Holyrood £1.164m Holyrood £1.07m Allingham £0.955m
Great Northern £1.15m Great Northern £0.736m Great Northern N/A
Gross Profit

Great Northern 65.6% Great Northern 63.4% Allingham 62.3%
Allingham 63.4% Allingham 61.6% Great Northern N/A
Holyrood 60.9% Holyrood 56.6% Holyrood N/A
Operating Profit (Before depreciation and financial expenses) Allingham 27.2% Holyrood 25.4% Allingham 28.4%
Holyrood 24.5% Allingham 21.6% Holyrood N/A
Great Northern 20.1% Great Northern 21.1% Great Northern N/A

From the above and from the evidence given by the valuers it is clear that The Great Northern and The Holyrood are very comparable in terms of size and turnover but the gross profit in The Great Northern is greater yet the operating profit is less. The Allingham Arms has a much smaller floor area but a greater turnover; gross profit similar to The Great Northern but considerably better operating profit. These factors clearly indicate that deducing an N.A.V. solely from the turnover requires further information. The hypothetical tenant would obviously seek such further information but is not an 'innocent abroad' and would be able to ascertain from inspection of the respective properties their efficiency as buildings and reasonably estimate the operating costs.

Having regard to the foregoing and the evidence adduced by the parties the Tribunal determines the rateable valuation at £735 calculated as follows:

73,506 sq.ft. @ £2.00 p.s.f. = £147,012 N.A.V.
@ 0.5% = £735