HOTEL GOODWILLS

Otago Daily Times, Issue 26130, 17 April 1946, Page 6

HOTEL GOODWILLS

INCREASE CAUSES CONCERN MORE APPLICATIONS HEARD The Otago Land Sales Committee, which has dealt with about 80 applications relating to the sales of hotel properties since it commenced its sittings in October, 1943, had five more cases before it yesterday. Three of the hotels had previously been dealt with by the committee, and concern was expressed at the substantial increases in the amounts apportioned for goodwill. Thomas Clarke Muir and Mary Frances Muir sought approval for the transfer of the Ocean View Hotel, at the corner of King Edward road and Macandrew road, South Dunedin, to James McLean Wilson and Elizabeth Wilson, at a consideration of £28,000, of which the sum of £22.000 represented goodwill. The vendors were represented by Mr G. W. Ferens, the purchaser by Mr I. B. Stevenson, and the Crown by Mr J. R. Hampton. Mr Ferens explained that the hotel had changed hands on June 19 last for £25,300, goodwill representing £17,300 of this amount. The sum of £22,000 was now being asked for goodwill, the increase being £4700. The deputy chairman (Mr W. M. Taylor) commented that the increase in goodwill was causing the committee concern. Mr Ferens submitted that the only satisfactory method of assessing hotel goodwill was not on the takings but on the net taxable income. Previous Valuation Evidence was given by Robert James Knowles, taxation consultant, concerning a valuation made by witness on June 16, 1945, in connection with the previous sale of the property. Because of the absence of reliable accounts witness explained that he had not been able to draw conclusions from the accountancy records, and he had made his calculations on the basis of an assumed rental value of the undertaking as a going and well-established concern. He had stated as his opinion that an experienced hotelkeeper of average business acumen would have no difficulty in earning a substantial income in the hotel after paying £35 a week rental, and the figures for the 404 weeks ended March 31 last, furnished by the owner-licensee, revealed that his contention was justified. “In my view,” witness continued, “ the price for the hotel buildings, the adjoining property, and the goodwill of the hotel business is fully justified at £28,000 on the basis of the income figures furnished.” Edmund Robert Grace, public accountant, said he had calculated the annual net profits on the basis of the nine months’ trading disclosed in the profit and loss account to be 13s 4d, exclusive of any allowance for taxation. Crown’s Contentions Mr Hampton said that on the figures submitted, the Crown could not contest the amount asked for goodwill, but the question was whether the increase in takings for nine months was sufficient to justify such a big increase. The committee would also have to consider whether the vendors were not doing something that they had no right to do under the Servicemen’s Settlement and Land Sales Act, and that was speculating in hotel property. . The chairman said that a point which the committee wanted to clear up was whether Muir was not something more than an average efficient hotelkeeper. If that was the position, then it could be contended that he had received his reward in increased profits resulting from the improved trading position which his own ability had brought about. In such a case it was his own personality that was the factor and not the hotel. . Mr Stevenson said that the proposed purchaser and his wife had had a good deal of experience in the control of hotels, and. had been highly successful in another Dunedin hotel. Mr Wilson, from his experience, was prepared to believe that the takings would amount to £290 a week. ■Mr Ferens, in further submissions, said that the price was quite reasonable in view of the other sales approved by the committee. Counsel denied that Mr Muir was engaged in hotel speculation, and said this was shown by the fact that he had only four hotels in four years. There was nothing to prevent a man selling a hotel property three months after he acquired it. The committee reserved its decision. Arrowtown Hotel Douglas Colville Galt and Roma Kathleen Galt applied to have the Royal Oak Hotel, Arrowtown, transferred to Lee Charles Stapp for £6500, of which goodwill amounted to £3500. Mr Ferens appeared for the vendors, and Mr Edmund J. Smith for the purchasGr Mr Ferens explained that the vendors had purchased the freehold of the hotel in August, 1944, for £3600, the goodwill amounting to £6OO. A considerable increase had been made in the takings. Improvements amounting to £240 had also been carried out. The property included a butcher’s shop, a bakehouse, and a garage. Mr Galt was selling owing to his wife's health. Mr Smith said the purchaser was a returned soldier who was anxious to acquire the property. Mr Hampton said the Crown could not object to the price on the figures submitted, but he wished to emphasise that if the committee was going to increase the amount allowed for goodwill on increased takings, “ then somebody is going to be badly hit when hotel takings drop.” The application was granted. Decision Reserved The committee reserved its decision in the case in which Robert Sherriff sought permission to sell the Goldfields Hotel, Roxburgh, to George Spowart Proctor and Winifred Marguerite Proctor for £14,000, the goodwill being £10,125. Mr J. C. Robertson appeared for the vendor and Mr H. S. Ross for the purchasers. The vendor, in a statement. read to the committee, said he had taken over the hotel in April, 1943. He had increased the business considerably. “ Central Otago," he added, “ is becoming increasingly popular with tourists and the future is particularly bright »because of the Government’s proposed irrigation works." His reason for selling was that he was getting married and his future wife did not wish to live in an hotel. “ Staggering Returns ” The application for the sale of the Criterion Club Hotel, Alexandra, from George Mountney to Avis Lancaster Young, for £17,000 (land and building £6IOO. goodwill £10,900), was not contested by the Crown. Mr Hampton explained that the property had been sold two years ago for £II,OOO, but the “figures showed a staggering return on the capital outlay.” The deputy chairman commented that the committee would sooner or later have to make a stand, especially with the number of hotels which were being sold for a second time. In the present application the goodwill had been increased by £5600. The application was adjourned for a hearing of the parties, the committee expressing the opinion that it was not satisfied that the increase in goodwill was jusified. Alleged Undue Aggregation The application of David Porter Wilson for the transfer to New Zealand Breweries, Ltd., of the Crown Hotel, Rattray street, for £27,000, was adjourned for a hearing on the grounds of alleged undue aggregation on the part of the purchasers.