[2023] UKUT 217 (LC)

The leisure industry experts, Mr Hunter and Mr Owens, were in agreement that the leisure market in 2014 was relatively buoyant. Activity was characterised by a number of large scale corporate transactions in both the pub and restaurant sectors with pub companies exhibiting a new-found optimism after the large-scale disposals which followed the financial crisis of 2008. Mitchells and Butlers, a managed pub restaurant operator with 1,600 sites, acquired 173 Orchid group sites for £266m in June 2014. Greene King and Marston’s also had requirements for new premises and an increasing interest in greenfield development sites. In the year before and after the valuation date, growth was largely driven by the success of food-led managed houses as the consumer trend for eating out continued.

The experts took different views of the attractiveness of the Cheshire Lounge site to the market. Mr Hunter considered that it fitted the criteria for a food-led managed house of the type the market was looking for. Mr Owens disagreed.

Mr Hunter described the acquisition activity of seven pub operators who were expanding at the valuation date. He was unable to say which of these operators would have looked seriously at the Cheshire Lounge in 2014 because the sale of took place ‘off market’. We fail to see why the level of marketing should prevent him from expressing a view as to who had a requirement and might have been interested, but his evidence was at a more general level.

Greene King had acquired Cloverleaf Restaurants in 2011 and by 2017 had expanded its operations from 12 units to 67 units. In 2016 Greene King had opened one restaurant a month under the renamed Farmhouse Inns brand, having developed greenfield sites. Its 2015 Annual Report of 2015 spoke of ‘growing our branded retail presence in the eating and drinking out markets’ and noted that the total number of sites with a retail brand or format had increased by 53, with Hungry Horse and Farmhouse Inns receiving the most expansion investment. Without revealing what Greene King’s locational criteria were Mr Hunter suggested that the Cheshire Lounge was a match for them.

Marston’s was also developing 20 to 25 new build sites each year. Again, Mr Hunter did not say what Marston’s site requirements were and how they might be met by the Cheshire Lounge but referred instead to its 2014 Annual Report which mentioned its intention to spend about £80 million on the construction of at least 25 new pub-restaurants. The Report did not say whether the sites had already been purchased or whether they were actively acquiring new opportunities.

Mr Hunter also identified a number of well-funded regional and local operators whom he considered very acquisitive in around 2014. J W Lees is a brewery and pub operator which had around 140 sites. It made two acquisitions in 2014 in a transaction worth in excess of £5 million and reported having amassed a £20 million ‘war chest’ to open 15 new restaurants. Mr Hunter had written to the company seeking confirmation that they would have been interested in the Cheshire Lounge in 2014 had they known about it, and Mrs Ramsbottom also contacted them. They replied in the affirmative, but we place no real weight on that nine year old hindsight.

Hydes was a local pub operator with around 50 sites and was said by Mr Hunter to have been acquisitive. In 2014 it purchased pubs in Chester and Helsby and a former clothes shop in Manchester to develop into a pub, restaurant and hotel. In 2015 it purchased a small chain of six food-led pubs. Holts was another local brewery and pub operator with around 125 sites. In 2014 it was focusing on its food-led business by purchasing greenfield sites and had secured two in Warrington and Lytham St Annes.

Two smaller operators, Hickory’s Smokehouse and Cheshire Cat Pubs & Bars Ltd were also included in Mr Hunter’s list of possible suitors. The former opened its first restaurant in 2010 and began expanding rapidly in 2014 eventually opening 10 additional restaurants. The latter acquired the Church Inn in Mobberley in August 2013, increasing the number of pubs in its portfolio to five.

Mr Hunter thought the most likely purchaser of the Cheshire Lounge on the open market in 2014 would have been one of these local or national operators looking to develop the site to its own specification, possibly as part of a joint venture with a developer. The site was extensive and would support a destination food-led venue with external trading areas and car parking. There was enough space for future expansion into letting accommodation which he thought would be popular given the proximity of Manchester Airport.

Mr Owens did not agree that the Cheshire Lounge would have appealed to either of the national operators Mr Hunter had identified. His firm acted for both Greene King and Marston’s and Mr Owens analysed 17 sites selected on a random basis which had been developed by those operators at around the valuation date. The majority of the sites were within a short distance of arterial roads, usually close to a roundabout in what he described as an “established area of density”. They were often in mixed use locations such as retail/leisure parks and in the vicinity of residential areas. Mr Owens contrasted those sites with the Cheshire Lounge. Although it adjoined a motorway and an A road, the situation was rural and some distance from densely populated areas.

Mr Owens also took issue with Mr Hunter’s reference to the regional operators, J W Lees and Hydes, each of which had acquired a number of pubs in 2015. Those were examples of regional brewers acquiring existing pubs to operate in their existing format and not for redevelopment. As for the smaller local operators, Mr Owens said that both Hickory’s Smokehouses and Holts preferred sites in densely populated urban areas. Cheshire Cat Pubs and Bars and Brunning and Price favoured destination locations in attractive, countryside areas and operated from character buildings often alongside rivers or canals. Mr Owens’ conclusion was that the most likely purchaser of the Cheshire Lounge in an open market transaction in 2014 would have been a smaller or more local business, such as the claimant.

Despite the detailed evidence provided about the leisure and hospitality market, and the strongly held views of the experts, it was not suggested that the identity of the assumed purchaser of the Cheshire Lounge was critical to the value of the site in 2014. It was broadly agreed that the market was in good heart and that development sites were in demand. It was not suggested either that the site would attract intense competition or that it would be difficult to dispose of. Those conclusions are sufficient to enable us to consider the rival valuations.