[2004] EWLands ACQ_125_2003 (13 September 2004)
	ACQ/125/2003

LANDS TRIBUNAL ACT 1949

COMPENSATION – Compulsory Purchase – factory/warehouse and premises – value of freehold investment – whether existing lease to be reflected in valuation – settlement evidence – compensation awarded £437,000.

IN THE MATTER OF A NOTICE OF REFERENCE

B Y
SECRETARY OF STATE FOR TRANSPORT
Applicant
(No Respondent)

Re:
Unit E1
Northfleet Industrial Estate
Lower Road
Northfleet
Kent

Before: N J Rose FRICS

Sitting at Procession House, 55 Ludgate Hill, London EC4M 7JW
on 2 September 2004

The following cases are referred to in this decision:

Farr v Millersons Investments Ltd (1971) 22 P & CR 1061
Rugby Joint Water Board v Shaw-Fox [1973] AC 202

Robert Walton, instructed by Ashurst, solicitors, for the Applicant

	DECISION
1.	This is a reference by the Secretary of State for Transport (“the applicant”) to determine the amount of compensation payable for the freehold interest in an industrial/warehouse property known as Unit E1, Northfleet Industrial Estate, Lower Road, Northfleet, Kent (“the subject property”).  That interest was compulsorily acquired under section 4 of the Channel Tunnel Rail Link Act 1996 from Mr Alan Grummitt and Mr Geoffrey Sherlock (“the freeholders”).  In April 1993 Woolwich Plc (“Woolwich”) entered into possession of the subject property as first mortgagee.  The property was also subject to charges in favour of Barclays Bank Plc (“Barclays”).  Notices to treat and notices of entry were served on the following dates:  
Woolwich 	7 February 2001
Mr Sherlock	7 February 2001
Mr Grummitt	9 February 2001
Notice to treat only was served on Barclays on 7 February 2001.
2.	The applicant took possession of the subject property on 8 June 2001, which is the valuation date.  At that time it was subject to a lease for a term expiring on 28 October 2002 at a rent of £18,400 per annum exclusive.  The lease was contracted out of the provisions of Part II of the Landlord and Tenant Act 1954.  It had originally been granted to Brash Brothers Limited (“Brash”).  On 22 March 1999, Brash assigned it to the applicant, together with certain other properties which it occupied on the Northfleet Industrial Estate.  The subject property was then sub-let to Knight Link Limited for a term of six months commencing 10 June 1999.  The sub-tenant held over and finally vacated the property shortly before the date of possession.  
3.	In September 2000 the applicant commenced negotiations on compensation with a firm of surveyors instructed by Woolwich.  These resulted in provisional agreement on the value of the freehold interest.  It was not possible to reach agreement with the freeholders, however, and the matter was eventually referred to the Tribunal on 19 November 2003.
4.	Mr Robert Walton of counsel appeared for the applicant.  He called one expert witness, Mr R A Owen, BA, MRICS, IRRV, a partner and head of the valuation department of Messrs Drivers Jonas.  The freeholders and both mortgagees were advised of the reference but took no part in the proceedings.
5.	In the light of the evidence I find the following facts.  The subject property is located on the Northfleet Industrial Estate, between Lower Road and Galley Hill Road, approximately 22.5 miles from central London.  Junction 1A of the M25 is approximately 3 miles to the west via the A226 (London Road).  The Northfleet Industrial Estate was constructed in the early 1970’s.  The area immediately surrounding the property is largely industrial, although there is some residential and leisure accommodation south of Galley Hill Road.  
6.	The subject property comprises two separate parcels, divided by a rear access road.  At the valuation date the access road was merely a dirt track, and the smaller, and more southerly of the two parcels was wasteland.  The main site contained a single bay, end of terrace warehouse/industrial building with integral two storey office/toilet block fronting the road.  It was of pre-cast reinforced concrete portal frame construction with brick elevations and some high level profiled plastic coated cladding.  It had a double pitched, profiled asbestos cement sheet covered roof with a number of transparent roof lights providing daylight.  A single full height timber concertina door provided access from the concrete yard fronting the road.  The office block had uPVC double glazed windows together with a uPVC pedestrian door.
7.	Internally, the property provided open plan storage accommodation with a painted concrete floor.  The brickwork had been painted, with electricity distributed by perimeter trunking.  The accommodation was lit by two rows of metal floodlights with electricity provided by a three-phase system.  Heating to the industrial area was by gas-fired hot air blowers.
8.	The office accommodation was on two storeys.  At ground floor, the walls were of unplastered brick construction.  The floor was solid concrete.  At first floor level the accommodation had been created from timber studwork with plasterboard panels to walls and ceiling.  The first floor was accessed by a metal staircase from the warehouse floor.  On both levels the specification was basic with painted walls and plastered/artexed ceilings.  
9.	The total site area of the subject property was 0.135 hectares (0.33 acres).  The gross internal floor areas were as follows:
	m2	Ft2	
Warehouse	828.36	8,916	
First floor offices	  37.89	  408	

10.	Mr Owen’s valuation of the freehold interest was £437,000, calculated as follows:
Term
08.06.2001				
	Rent Passing			£18,400		
	YP 1.39 years @ 8.00%	1.268			
				£23,334	
Reversion
12.10.2002				
	Ground Floor 8.916 sq ft	@ £5.40 psf		£48,146		
	First Floor         408 sq ft	@ £3.50 psf		£  1,428		
	Total ERV			£49,574		
	YP in Perp @ 10.00%	10.00			
	Deferred 1.39 years @ 10.00%	0.876		  	
				£434,271	
	Gross Value		£457,605	
	Less Purchaser’s Costs @ 4.75%		 (£  20,751)	
		Net Value		£436,854	
		Say		£437,000	

11.	He explained that this valuation had been arrived at having regard to two compensation settlements, with both of which he had been involved personally.  The first was part of the Kent Kraft Industrial Estate (KKIE), erected in the late 1980s adjoining the Northfleet Industrial Estate.  The part acquired comprised ten industrial units and five plots of land used as yards.  The units varied in size from 125m2 (1,345 sq ft) to 1,082m2 (11,646 sq ft) and the plots varied from 400m2 (4,306 sq ft) to 2,031m2 (21,861 sq ft).  The valuation date was 4 July 2001.  No explicit breakdown of the acquisition price of £2,700,000 was agreed.  However, Mr Owen’s analysis of the transaction showed rental values ranging from £75.34 per m2 (£7.00 per sq ft) for the smallest unit to £64.58 per m2 (£6.00 per sq ft) on the largest unit.  The income stream was capitalised at a single yield of 9.75% overall.  This reflected the fact that the KKIE provided good quality units let to tenants of good local and national covenant strength.  The property acquired was of steel portal frame construction and completed to a higher specification than the subject property.
12.	Mr Owen’s second comparable formed part of the same industrial estate as the subject property.  It comprised Units B6, C7 and E4 to E6.  These properties were acquired by private treaty.  The price was agreed in December 2000 although, because of a problem relating to the conveyance, the sale was not completed until 4 July 2001.  
13.	Units 4 to 6 were part of the same terrace of industrial units as the subject property and were formerly occupied by Brash.  Unit B6 was formerly occupied by a local business, Bedtime Kent.  All of these leases had been assigned to the applicant prior to the date of purchase.  Unit C7 was let to Rapid Reel, a subsidiary of Bunzle Plc.  The units varied in size between 542m2 (5,838 sq ft) and 1,324m2 (14,263 sq ft) and were of the same specification as the subject property.  The range of rents adopted as representing the full rental value was from £56.51 per m2 (£5.25 per sq ft) on the smallest units to £53.82 per m2 (£5.00 per sq ft) on the largest unit.  The income stream was capitalised at a single yield of 10.5% overall.  £2,250,000 was paid for the freehold interest subject to the existing leases with a valuation date of 4 July 2001.  There were only four leases as there was a single lease over Units E4 and E5.
14.	Having considered the two comparable transactions to which Mr Owen referred, I am satisfied that his valuation is consistent with them.  Indeed, by making no allowance for a potential void period on the expiry of the existing lease of the subject property – which was occupied by a sub-tenant holding over after an expired, short term lease – he has perhaps been somewhat generous.  As I pointed out, however, Mr Owen has only produced evidence of settlements.  This Tribunal has on several occasions referred to the deficiencies of such evidence.  They were explained clearly by the Member, Mr R C Walmsley FRICS in Farr v Millersons Investments Ltd (1971) 22 P & CR 1061 in the following terms:
“Unless the settlement evidence is shown to provide solid support, the Tribunal attaches little weight to it: for instance, if the tenants who settled had done so without professional advice, or despite such advice; or if there is no clear evidence as to the basis on which the settlements were negotiated; or if the valuer producing the settlement evidence was not personally concerned in the negotiations; or if there is market evidence which puts in doubt the site value contended for; then in any or all of these circumstances the evidence afforded by settlements is readily displaced by other evidence.”
15.	Farr was concerned with a valuation for leasehold enfranchisement purposes, but the principle applies equally to compensation valuations.  In the present reference, Mr Owen was personally involved in the two settlements he relied on and both owners were professionally represented.  In answer to a question from me, Mr Owen said that the settlements were reached after a consideration of a wide variety of open market transactions of varying degrees of comparability.  None of those transactions was produced in evidence before me, however, and I am therefore unable to form a judgment on whether or not they “put in doubt” Mr Owen’s valuation.
16.	In support of his approach, Mr Owen drew attention to the fact that the valuer instructed by Woolwich had been prepared to recommend his client to agree a settlement at £437,000.  However, since the total balance due to Woolwich on 22 July 2002 was only £242,641.27, it would have been a matter of indifference to that company whether or not the suggested figure was correct.
17.	Of more significance, it seems to me, is the position adopted by Barclays.  In a letter to the applicant’s solicitors dated 1 April 2003 Messrs Robinson and Co, the solicitors acting for Woolwich, said:
“I … have now heard from my clients that Barclays Bank have reported to them that in their opinion the value of £437,000 is a fair value.”
18.	There was no direct evidence from Barclays to that effect.  On 7 March 2001, however, the amount secured against Barclays’s charges was £518,467.73.  They would therefore suffer a very significant shortfall if Mr Owen’s valuation figure – contained in his expert report which was provided to Barclays – was determined by the Tribunal.  In my judgment, the fact that Barclays nevertheless decided not to participate in these proceedings strongly suggests that Mr Owen’s valuation – even though it is only based on settlement evidence – is not too low. 
19.	I should add that Mr Owen’s valuation was prepared having regard to the lease to the applicant which was in place at the valuation date, even though that lease would not have existed in the absence of the scheme underlying the compulsory acquisition.  The reason for this approach, he said, was that there was no statutory or common law rule that should be applied so as to alter the nature of the interest in land which was to be valued.  If he was wrong, and the lease to be assumed was the lease that was likely to have been in existence in the absence of the scheme, his valuation would have been £445,000.  In my judgment Mr Owen was right to adopt the approach that he did (see Rugby Joint Water Board v Shaw-Fox [1973] AC 202).
20.	I therefore determine that the compensation payable for the freehold interest in the subject property is £437,000.  Woolwich Plc’s surveyor’s fee based on the former Ryde’s scale and the proper legal costs of transfer are to be paid in addition.
21.	I make no order as to costs.
					Dated 13 September 2004

					N J Rose FRICS