England and Wales Lands Tribunal

[2000] EWLands ACQ_162_1996 (24 May 2000)

ACQ/162/1996

ACQ/163/1996

(Consolidated)

LANDS TRIBUNAL ACT 1949

COMPULSORY PURCHASE - compensation - petrol filling station and premises - relevant years for determining core volume of petrol sales - appropriate adjustments to reflect claimant's cut-price policy and planning permission for competing station - whether property to be valued by capital value or investment method - comparables -whether property of interest to major oil companies - whether redevelopment commercially viable - relevance of accountancy evidence - compensation awarded £1,753,375

IN THE MATTER OF TWO NOTICES OF REFERENCE

BETWEEN TELEGRAPH SERVICE STATIONS LIMITED Claimant

and

(1) TRAFFORD BOROUGH COUNCIL Acquiring

(2) THE COMMISSION FOR THE NEW TOWNS (NORTH) Authorities

Re: Filling Station, Garage Premises and Forecourt

at Junction of Cornbrook Road and

Chester Road, Old Trafford, Manchester

Before: N J Rose FRICS

Sitting in public at Wigan County Court on 27-29 March

and at Trafford Magistrates' Court on 4-7 April 2000

The following case is referred to in this decision:

Jelsen Ltd v Blaby DC [1977] 1 WLR 1020

Edward Davidson QC and Keith Rowley instructed by Metson Cross, Solicitors of London for the Claimants.

Michael Humphries instructed by Masons, Solicitors of Manchester for the Acquiring Authority.


 


DECISION OF THE LANDS TRIBUNAL

1. These are references to determine the compensation payable to Telegraph Service Stations Limited ("the claimant") for the freehold interest in a petrol filling station with ancillary facilities known as Cornbrook Service Station, Chester Road, Old Trafford, Manchester ("Cornbrook"). The land was compulsorily acquired under the Borough of Trafford (City Link and White City Interchange) Compulsory Purchase Order 1992 and the Trafford Park Development Corporation (City Link Part) Compulsory Purchase Order 1992 ("the CPOs"), which were both made on 18 January 1993. Following objections to the CPOs, a public inquiry was held in late July/early August 1993. In December 1993 the Inspector reported to the Secretaries of State for Transport and the Environment and the CPOs were confirmed on 9 January 1995. The sites became vested in Trafford Borough Council ("TBC") and Trafford Park Development Corporation ("TPDC") by vesting declarations on 29 April 1995 (TBC) and 2 July 1995 (TPDC). Possession of all the land was taken on 3 July 1995, which is the agreed valuation date.
2. The functions of TPDC were subsequently vested in The Commission for the New Towns (North), which was joined as a party in place of TPDC on 4 February 2000. I refer in this decision simply to "the acquiring authorities", without drawing any distinction between TBC or TPDC and its successor. Moreover, I was informed that no issue arises as to the apportionment of the compensation payable between the acquiring authorities, since they have made their own internal arrangements in this respect.
3. By order of this Tribunal both references were consolidated. At the commencement of the hearing the claimant's valuation was £3,655,000, the figure spoken to by its surveyor valuation expert (Appendix 1). In closing, Counsel for the claimant submitted that, in the light of the totality of the evidence, compensation should be assessed at £2,937,000 (Appendix 2). The acquiring authorities' valuation at the beginning of the hearing was £1,035,572 (Appendix 3) and this remained unchanged.
4. Mr Edward Davidson QC and Mr Keith Rowley of Counsel appeared for the claimant. They called four factual witnesses, Mr C Wolstenholme FCA, Mr P K Blackmore, Mr D W Phillips and Mr M A Sanders and two expert witnesses, Mr A H Salisbury FRICS, formerly a partner and now a consultant with FDP Savills based at their Bath Office and Mr R D Bolton FCA, formerly a partner in Binder Hamlyn and Arthur Andersen and now a partner in Pannell Kerr Foster of London. Mr Michael Humphries of Counsel appeared for the acquiring authorities. He called three factual witnesses, Ms G Galley, Mr J D Tracey and Mr J M Tomlinson. He also produced witness statements from Mr G J Ball and Mr A Barnett and hearsay statements from Mr A Hollins. Mr Davidson indicated that he did not intend to cross-examine Messrs Ball and Barnett, and that he did not object to the admission of Mr Hollins' statements, while reserving his position as to their weight. Finally, Mr Humphries called two expert witnesses, Mr D W Millington FRICS, a senior director of Dunlop Heywood of Manchester and Mr A B Woolf FCA, a partner of KPMG based at their Manchester office.

Facts

5. The valuation and accountancy experts produced statements of agreed facts and facts in dispute. From these statements and from the evidence I find the following facts in relation to Cornbrook and its history.
6. Cornbrook no longer exists, having been demolished during the construction of the City Link, a new highway running between the White City Interchange and the existing A56 at Cornbrook, so as to provide improved connections between Trafford Park and Manchester city centre. It was situated on the south-western side of Manchester, and occupied a corner location at the junction of the main Chester Road (A56) with Cornbrook Road, close to Old Trafford. The surrounding area was predominantly industrial, but Chester Road formed an extremely busy commuter route serving the dormitory areas to the south and west and linking with junction 7 of M63 on the motorway network, some three miles distant.
7. Briefly, it comprised a long established petrol service station, with a frontage to Chester Road of about 226 feet (68.9m), a maximum depth of some 137 feet (41.75m) and a total area of approximately 0.475 acre (0.192 hectare). Chester Road itself was a single carriageway, four lane highway.
8. Cornbrook was an older style petrol service station, having a partially modernised petrol forecourt with canopy, and a single storey building of brick construction under a flat roof housing a retail shop, service bay, stores, office and toilets. At the rear was a modern, automatic drive-through car wash.
9. The accommodation provided by the sales/service building was as follows:

	Net Floor Areas	Net Floor Areas
	Sq ft	Sq m
Retail Shop Service Bay Stores (2) Office Tea Point Staff Cloakroom	442 374 535 69 55 - ____ 1475	41.06 34.76 49.72 6.41 5.11 - _____ 137.06

10. The petrol forecourt had a concrete surfaced pump apron with tarmacadam surrounds and dual cross-overs to Chester Road. There was a separate access from Cranbrook Road to the rear. It was equipped with 6 x 1 pump islands for self-service operation, supporting Gilbarco Highline 2 pumps serving four star, unleaded and super unleaded petrol and diesel fuel. There was a free standing flat topped steel canopy overall. To the side of the building were two separate air pressure lines with gauges and a coin operated Car Vac machine and two drained concrete hardstandings, fitted with DIY jet car wash equipment. To the rear northern side of the forecourt was a drive-through car wash of brick construction, part glazed under a flat roof, having a drained concrete ramp with runway and fitted Wesumat electric automated car wash machine. The underground tank storage comprised five tanks, having a total capacity of approximately 23,000 gallons. The site operated continuously on a 24 hour basis. All main services were available to the property.
11. The claimant was originally an independent petrol retailer which was the creature of an entrepreneurial businessman, Mr C A Southworth and which commenced trading in 1973. It bought Cornbrook from British Petroleum ("BP") in 1985 and by 1990 Cornbrook had become by far its most successful outlet. By a letter dated 22 December 1987 the claimant was notified by TPDC of possible alternative routes for an improved City Link. By September 1988 it was clear that both of the acquiring authorities' alternative proposals would involve the total destruction of Cornbrook.
12. The share capital of the claimant was purchased in 1989 by Gulf Oil (Great Britain) Limited ("Gulf"), a subsidiary of Chevron UK Ltd ("Chevron"), and in December 1997 Shell UK Limited ("Shell") acquired Gulf (including the claimant as a Gulf subsidiary) from Chevron. Prior thereto, on 3 October 1997, the claimant had assigned the benefit of its compensation claim in respect of the compulsory acquisition of Cornbrook to Chevron and thereafter this reference was continued by Chevron as assignee in the name of the claimant.

Issues

13. It is agreed that the comparison method is the one most widely used by surveyors valuing filling stations and that a fundamental factor in any such valuation is the adjusted level of throughput or "core volume". In my opinion, the principal issues relevant to the parties' valuations are as follows:

(1) Which years should be used to determine Cornbrook's actual throughput?

(2) What reduction, if any, should be applied to the actual throughput to reflect the grant of planning permission for the construction of a filling station at the junction of Chester Road and Darwen Street (about half a mile south of Cornbrook and on the same side of the road) to a company called Magiview Investments Ltd on 28 April 1994?

(3) What percentage reduction should then be applied to reflect the claimant's pricing policy at Cornbrook?

(4) Is the value to be determined as a capital sum expressed in terms of £s per gallon - "the capital value method" - or by determining a rental value per gallon or litre and then applying a multiplier - "the investment method" - and what are the appropriate figure or figures to be adopted?

(5) Which of the comparables are to be preferred in determining the open market value of Cornbrook?

(6) To what extent, if at all, is the valuation evidence of accountants of assistance?

14. The following subsidiary issues also arise:

(a) Was the claimant's fuel pricing policy at Cornbrook one of matching the prices of competing filling stations or deep price cutting, or do these two policies amount to the same thing?

(b) Were the attributes of Cornbrook such that, if offered for sale at the valuation date, it would have attracted the bid of a major oil company?

(c) Was redevelopment of Cornbrook at the valuation date commercially viable?

(d) Assuming that valuation evidence from accountants is of assistance, what price earnings ratio should be applied to the agreed maintainable profits of £161,000?

Disturbance compensation is agreed at £20,000 in respect of closure costs.

Inspection

15. During the course of the hearing I was shown a short video film of Cornbrook and adjacent areas prior to its demolition. In company with Messrs Salisbury and Millington I inspected certain filling stations which had been referred to as comparables on 11 May 2000.

Throughput - the relevant years

16. It is agreed that the valuation of Cornbrook is to be based on its core volume, calculated by reference to the average throughput in the last three full calendar years prior to closure, excluding atypical years.
17. In preparing his valuation, Mr Salisbury adopted the throughput figures for 1990, 1992 and 1993. He excluded 1991, when Cornbrook was partially closed for improvement works and 1994, due to the effects of the construction of the new Mancunian Way underpass which commenced in January of that year. Mr Millington assumed the same gallonage figures for the purposes of his first report. In his second report, however, he said that, having considered Mr Woolf's report, he had decided to adopt the normal convention of taking the three most recent complete years, namely 1992, 1993 and 1994. Thus, the two surveyor valuation experts relied between them on the number of gallons sold at Cornbrook in the five years from 1 January 1990. The relevant figures were as follows:

Year 1990 1991 1992 1993 1994

Gallons 2,421,768 2,011,529 2,391,441 2,350,061 1,912,114

1994

18. I consider firstly whether Mr Salisbury was right to exclude the 1994 throughput because of the nearby roadworks. Those works involved the dismantling of the Mancunian Way flyover and its replacement with a new flyover, the conversion of Chester Road from a single carriageway road to a dual carriageway road and the construction of a new road, which joined Chester Road near to Cornbrook. The works started on 28 January 1994. Mr Blackmore gave evidence about their effects. He was first employed by the claimant as marketing manager in June 1986. He was appointed a director in 1988 and, following the Gulf acquisition in April 1989, he became general manager. He specifically recalled that he saw roadworks during his periodic visits to Cornbrook in 1994 and on at least two occasions one half of Chester Road near to the flyover was down to only one lane, with a contra-flow system using traffic lights in operation. He sent a memorandum on the subject on 5 April 1994 to Mr Wolstenholme, who was concerned among other matters with the day-to-day financial operations of each of the claimant's outlets. A copy was also sent to a Mr Jim Chalmers. The memorandum read:

"We are suffering substantial loss of volume and disruption due to the Mancunian bridge demolition and associated roadworks. Can we therefore lodge the necessary claim.

Upon receipt of copy of this memo can Jim please obtain full details of the start date of the work and likely disruption period."

19. In cross-examination Mr Blackmore agreed that this memorandum was based on what has been reported to him by staff operating in the field. He also agreed that the contra-flow system did not extend as far as Cornbrook and that there was no objective evidence that the roadworks had led to a reduction in traffic flow past the filling station. He was adamant, however, that during rush hour periods the works had resulted in traffic backing up past Cornbrook and, in such circumstances, motorists would be easily dissuaded from buying fuel.
20. As I have said, Mr Millington also excluded the 1994 sales figures as being atypical, until he read Mr Woolf's report. That report suggested that gallonage sales at Cornbrook went into decline from March 1993. If that trend had continued into 1994, the 1994 gallonage would have been only in the region of 2 million gallons. When he expressed that view, Mr Woolf was not aware of the very successful marketing campaign undertaken by the claimant during the latter part of 1992 and the early part of 1993. That campaign was described by Mr Wolstenholme. He said that the years 1992 and 1993 were a time of change for the petrol retailing industry, involving the switch from pricing in gallons to pricing in litres. Whilst that was taking place, retailers were allowed to display prices in both gallons and litres, but space limitations on pole signs made it difficult, if not impossible, to display both prices for all grades. For this reason the major oil companies decided to display prices in litres with sometimes a second, less prominent, price per gallon being displayed for unleaded fuel only. During 1992 general increases in the price of oil combined with increases in duty lifted the retail price of fuel to around £2 per gallon. Because breaking the £2 barrier was a matter of some comment in the press, and because many customers still thought in terms of gallons rather than litres, the claimant devised a sales promotion campaign which emphasised the prices in gallons rather than litres. This involved setting the price for unleaded fuel at 199.6p per gallon - i.e. just below the sensitive £2 price barrier, and about the same price as the major oil companies, although they displayed prices in pence per litre. Large posters showing the price per gallon were displayed on all the claimant's forecourts and an advertising campaign on local radio stations in the north-west made motorists aware of the "bargain" fuel available at its sites. This campaign proved highly successful and boosted fuel sales throughout the claimant's network during the latter part of 1992 and the early part of 1993.
21. Despite his suggestion that the 1994 sales were not adversely affected by the impact of the Mancunian Way roadworks, when preparing his own valuation based on profits Mr Woolf gave the claimant "the benefit of the doubt" and excluded the profits earned in 1994. It was put to Mr Millington in cross-examination that he ought to have followed Mr Woolf's example by disregarding the 1994 sales figures. He replied that he would not necessarily disagree.
22. I consider that Mr Millington was right to make that concession. He is a surveyor based in Manchester with considerable experience in valuing petrol filling stations. In the light of that experience, his initial view was that the 1994 sales had been adversely affected by the roadworks and should be ignored. He changed that opinion because of Mr Woolf's first report. I am not persuaded that there is any force in Mr Woolf's argument for excluding 1994. It was based on an assumed decline in sales from March 1993, whereas in the light of Mr Wolstenholme's evidence I am satisfied that sales in the period up to that date had been artificially boosted by a one-off sales campaign, after which they reverted to normal levels. Moreover, Mr Woolf's view was itself equivocal, since he excluded the 1994 profits in preparing his own valuation. Mr Davidson submitted that there was nothing in the evidence except the roadworks to explain the marked fall in volume in 1994. I agree and I shall disregard the 1994 figures when calculating the core volume.

1991

23. In preparing his valuation, Mr Salisbury excluded the 1991 throughput figures entirely because of the disruption caused by improvement works. Those works comprised raising the canopy and extending and refurbishing the shop. Mr Blackmore said that they resulted in Cornbrook being partially closed over a period of six weeks, but totally closed for only 7 to 8 days in September. Both Mr Wolstenholme and Mr Blackmore suggested that the effect of closure was that customers' trading patterns did not revert to normal until three months after the works started.
24. In his closing submissions, Mr Davidson said that, in the light of all the evidence, it was appropriate to "normalise" the actual sales in 1991 in the manner described by Mr Bolton in re-examination. Mr Bolton had been asked to assume that the site had been closed for one week, that the business was disrupted for a total of about six weeks and that it took another two months or so for normal buying patterns to be re-established. On that basis, Mr Bolton concluded that the effective disruption to the business was equivalent to approximately six weeks trading. He therefore suggested that the total sales in 1991 should be increased by a factor of 6/46.
25. Mr Humphries, on the other hand, submitted that the effect of the closure was restricted to sales in September 1991, when they were approximately 39,000 gallons less than in the previous month, when there had been no disruption. By the following month, October 1991, sales were back to almost the same as the figure for August. Thus, the effect of the September 1991 works was to reduce Cornbrook's throughput by less than 40,000 gallons.
26. I agree with Mr Humphries on this issue. 1991 was a poor trading year for Cornbrook quite apart from September. Its throughput in 1991 was more than 400,000 gallons below that in 1990 and the fuel sales in each month preceding September 1991 were lower than the corresponding months in the previous year. Moreover, the sales in the two months immediately following September 1991 averaged 162,983 gallons per month; almost identical to the average sales of 162,980 gallons that had been achieved in July and August of that year. In my opinion, any potential purchaser of Cornbrook who was considering its sales potential by reference to historic sales would have concluded that the effects of the disruption were restricted to the difference between the actual sales in September 1991 (122,667 gallons) and the average sales in the two months immediately before and immediately after September. The effect of increasing the actual sales by this amount is to increase the 1991 sales from 2,011,529 to 2,051,845 gallons.
27. In my judgment, the throughput to be used as the starting point for calculating Cornbrook's core volume is therefore 2,264,449 gallons, calculated as follows:

1991 2,051,845

1992 2,391,441

1993 2,350,061

Average = 6,793,347 ÷ 3 = 2,264,449 gallons

The effect of Magiview's planning permission

28. Mr Davidson submitted that, in the no scheme world, Magiview Investments Ltd would not have applied for planning permission to construct a competing filling station in 1994. Even if it had done so, he suggested that permission would probably not have been granted because of traffic considerations. He referred to Jelsen Ltd v Blaby DC [1977] 1 WLR 1020.
29. Mr Humphries submitted that there was no evidence before the Tribunal on which it could reasonably conclude that the actual planning permission granted to Magiview would not have been granted in the no scheme world. None of the claimant's witnesses had produced any evidence on the matter. On the other hand Mr Millington, when asked, had made it clear that he considered that the Magiview planning application would have been made and planning permission would have existed in the no scheme world. I accept Mr Humphries' submissions on this issue. The Magiview planning permission is therefore a factor which must be reflected in the valuation.
30. Mr Millington considered that the Magiview site would have been redeveloped as a dealer site in the no scheme world. He said that it was of similar size to Cornbrook, although more conveniently proportioned, it occupied a wide straight stretch of Chester Road and, above all, it was locationally capable of "milking" the benefit previously enjoyed by Cornbrook of the two mile separation from the nearest existing competitor on the ingoing lane of Chester Road. In Mr Millington's opinion, a realistic allowance to reflect the risk of future competition from the Magiview site was 10%.
31. Mr Salisbury did not think that the Magiview site would be considered to be an attractive location for a new filling station. He made no allowance in his valuation to reflect the existence of the planning permission, because he felt that the prospect of a further site being developed in that location was remote. In cross-examination, however, he suggested that a discount of one or two per cent might be appropriate.
32. There is no external evidence to support the different percentages suggested by the valuers. I have come to the conclusion, however, that a prospective purchaser of Cornbrook would have been less sanguine than Mr Salisbury about the possibility of further competition and would have reduced the actual throughput by 7.5% to reflect the risk involved.

The claimant's pricing policy

33. Both surveyors agreed that a downward adjustment should be made to Cornbrook's actual throughput to reflect the claimant's fuel pricing policy, but they disagreed about the extent of that adjustment; Mr Salisbury said that 20% was appropriate and Mr Millington suggested 40%. Before determining the correct discount, it is necessary to consider the nature of the pricing policy that was adopted at Cornbrook. In his first report Mr Millington said:

"The subject property is heavily dependent on deep price cutting to achieve its throughput levels. The subject site is known as a source of cheap petrol, and as such, will attract a level of custom well in excess of that normally generated by passing traffic."

34. Mr Salisbury's first report, dated 27 November 1996, said that the claimant

"has always pursued a strategy of matching the superstore forecourts on prices as well as the Jet/Conoco group, the other major discounter in the region. It is fair to say that the company is reactive rather than proactive to the market and follows the prices set by the market place. Indeed in today's market Telegraph is not doing anything different from Esso Petroleum since the introduction of their Price Watch strategy last year."

35. Mr Blackmore gave factual evidence on this issue, describing the claimant's pricing policy in some detail. He said that until 1990, when Sainsbury's opened a superstore in the area, Cornbrook's prices matched those charged at the nearby Conoco cut-price station. From 1990 onwards prices at Cornbrook matched those charged by Sainsbury's, who effectively became the claimant's pricing manager. Until the introduction of litre pricing Cornbrook's prices were between 2p and 4p per gallon below mainstream prices. Thereafter, they were about 1p per litre (or 4.5p per gallon) below them. Although data on the fuel prices at Cornbrook and its marker sites had apparently been destroyed following the takeover by Shell, some support for Mr Blackmore's evidence on this point was provided by Mr Sanders, who was marketing director of Amoco (UK) Ltd until 1990, when he was appointed to a similar post at Elf Oil (UK) Ltd. He became managing director of Repsol Petroleum Ltd in 1994. He said that a typical discount by Sainsbury's in the early 1990s was 5p per gallon.
36. In the light of all the evidence, I consider that the claimant's policy was one of matching the prices of competing stations, as described by Mr Salisbury, rather than one of "deep price cutting" as suggested by Mr Millington. Mr Humphries submitted that the two policies amounted to the same thing. He said that price conscious motorists were only concerned to obtain the cheapest fuel in the area and the extent of the discount below mainstream prices was irrelevant. I disagree. As a matter of impression, it seems to me that fewer motorists would be likely to go out of their way to buy petrol from a station offering a discount of 5p per gallon than if the discount were, say, 10p per gallon or more.
37. The significance of the distinction between the two pricing policies arises from the fact that Mr Millington's 40% deduction was substantially derived from the benchmark provided by sales at three filling stations in the Manchester area, originally operated by Carand Limited, as cut-price outlets, and subsequently reverting to full pricing levels. One of the Carand stations was in Princess Road. Ms Galley was the licensee of Parkway service station, a BP owned site also on Princess Road operating at mainstream prices. In the course of her evidence she said that the Carand-operated station was selling petrol at approximately 10p to 12p per gallon less than at Parkway - a substantially greater discount than that offered by the claimant.
38. Under cross-examination, Mr Millington conceded that the evidence relating to the three Carand stations was "defective". He accepted that his suggested adjustment of 40% to reflect the claimant's pricing policy should be amended "to a limited degree", but he declined to quantify the extent of the adjustment that he considered appropriate.
39. Mr Salisbury pointed out that, despite the claimant's keen pricing policy, its net profit before tax had increased steadily, excluding 1994 onwards, and a gross fuel margin in excess of 16p was latterly being enjoyed. Bearing in mind that an acceptable full price dealer gross margin had probably been running at between 18p and 20p per gallon, the margin being achieved by the claimant was very satisfactory and could not justify a downward adjustment of more than 20% in the notional volume. Indeed, when buying high volume sites, Mr Salisbury suggested that major oil companies tended to bid a capital sum based on the existing gallonage and this sum appeared not to be significantly reduced where petrol was being sold at a discount. In making an allowance of 20%, therefore, he considered that he had adopted a "conservative and highly realistic stance". In cross-examination, he agreed that there was not a direct relationship between relative profit margins and the price sensitivity of consumers. When re-examined, however, he also agreed that the actual throughput should be reduced by the percentage by which the claimant's gross profit margin had fallen as a result of price discounting. If the appropriate percentage were more than 20%, he would increase his adjustment accordingly.
40. I have not found it easy to determine the appropriate percentage deduction to reflect the claimant's pricing policy, not least because the evidence of both surveyors on the point was either inconclusive or inconsistent. By the end of the hearing, Mr Millington had abandoned his figure of 40% but had declined to put forward an alternative. Mr Salisbury had suggested that the percentage should equal the reduction in the claimant's gross margin, although he had previously accepted that there was no direct relationship between the two figures. I agree in principle with the latter proposition, subject to one qualification. That is that, as Mr Humphries pointed out, the claimant's cut price policy would only make commercial sense if it resulted in a percentage increase in throughput which more than offset the effect of the reduced profit per gallon. Otherwise, the claimant could have made more money by charging mainstream prices, whilst saving itself the effort involved in constantly monitoring its competitors' charges.
41. Mr Salisbury's uncontested evidence was that the full price dealer margin was between 18p and 20p per gallon. In fact, the average gross margin earned by the claimant at Cornbrook in 1991, 1992 and 1993, which I have found to be the relevant years, was only 15.5p per gallon. This represents a reduction of 22.5%, assuming a normal margin of 20p or 13.88%, assuming a norm of 18p. Moreover, some of the sales achieved in late 1992 and early 1993 resulted from an unusually successful marketing campaign, the success of which was unlikely to be repeated in future years. Doing the best I can, I find that the actual throughput at Cornbrook should be reduced by 30% to reflect the claimant's pricing policy.
42. Thus, the adjusted core volume of Cornbrook was 1,415,000 gallons, calculated as follows:-

Gallons

3 year average throughput -

1991 (adjusted), 1992 and 1993 2,264,449

Less for cut price operation (30%)

and potential milking side competition (7½%) 849,168

Adjusted core volume 1,415,281

Say 1,415,000

Comparables, method of analysis and appropriate value

43. Mr Millington supported his valuation by reference to four comparables. Mr Salisbury relied on fifteen, of which three were introduced for the first time in his second report dated July 1988. All of Mr Millington's comparables were located in Manchester or the north-west of England, as were two of those referred to in Mr Salisbury's first report dated 27 November 1996. Of the remainder, one was in Scotland, one in south Wales, one in Bristol, one in Peterborough and the remaining nine were in London and the south-east.
44. Mr Salisbury suggested that it was appropriate to have regard to transactions throughout the United Kingdom, since the market for filling stations was a national one and "geographical location is of no great significance in itself". On the other hand, Mr Millington considered that there was a wide discrepancy between the value of filling stations in London and the south-east and those in the rest of the United Kingdom. I have no hesitation in preferring Mr Millington's opinion on this aspect. All the comparable evidence showed that markedly higher values had been achieved on sites in the south-east than on sites with comparable throughputs in the north-west. Indeed, in his closing submissions Mr Davidson conceded that in the light of all the evidence it was difficult to resist an inference that there was a difference in capital values between stations in the two locations. I consider that concession to have been inevitable and, further, that the most reliable comparable evidence is provided by the six open market sales of existing filling stations or sites in the north-west of England. The attached Appendix 4 summarises these transactions in ascending order of throughput. In my opinion, the following points should be borne in mind when applying this evidence to Cornbrook:

(1) The transactions extend over a period of six years and one month commencing January 1990. Mr Salisbury expressed the view that those sales which took place several years before July 1995 should be disregarded. Mr Millington disagreed. I prefer Mr Millington's opinion on this issue for two reasons. Firstly, Mr Salisbury accepted that for "lower volume sites generally there was a lack of growth during the early 1990s due to the recession". Secondly, in my opinion, the various sale prices summarised in Appendix 4 do not show a discernible variation in value with time.

(2) It is agreed that at the relevant time there was a two-tier market for filling stations, with major oil companies prepared to pay significantly higher prices than private dealers and independent garage companies. It is also agreed that it was market practice to apply increasing levels of value to increasing levels of throughput. Mr Millington's primary valuation was prepared on the assumption that Cornbrook would not have been of interest to a major oil company. That valuation assumed an adjusted core volume of 1.109m gallons, whereas I have found the correct figure to be 1.415m. The six comparables which I consider to be most relevant were all purchased by major oil companies. The prices paid ranged from 88p to £1.23 per gallon for stations with throughputs of between 1.03m and 1.426m gallons. In the course of his evidence Mr Millington expressed the view that, if the true throughput of Cornbrook were 1.5m gallons, his valuation would have been £1.25 per gallon. In my view, this is entirely consistent with the level of prices in the six transactions on Appendix 4, all of which were paid by oil companies. I therefore conclude that, notwithstanding the paucity of oil company purchases in central Manchester in the years preceding the valuation date, Cornbrook would have been bought by an oil company if it had been for sale at that time. It is therefore unnecessary for me to resolve the conflicting evidence of Mr Phillips and Mr Tomlinson - both former employees of BP - as to BP's perception of Cornbrook's qualities before it sold the site to the claimant in June 1985. Moreover, my conclusion as to the likely purchaser in 1995 is not inconsistent with the fact that no oil company made an offer for Cornbrook in 1985. It is clear that Mr Millington - who effected the sale in 1985 - was not instructed to advertise the property's availability before offers were invited from a restricted number of interested parties, none of which was an oil company.

(3) A price of £1,082,000 was paid for the Leyland station by Shell UK Ltd in February 1996. Prior to that date Mr Tracey's company, A Tracey (LSS) Ltd, operated the station as a dealer outlet. Mr Tracey said that, at the time of the sale, there was a "tie" agreement with Shell which had approximately two years unexpired. In his view, the existence of the tie had depressed the price achieved by roughly £250,000. There was no evidence to indicate whether Shell agreed with this opinion. Moreover, if the "non-tied" value of Leyland were £1,332,000 as suggested by Mr Tracey, this would be equivalent to £1.17 per gallon of throughput. This seems to me to be a full figure compared with the prices paid for other stations with similar levels of throughput, considering that they were all more modern than Leyland. In the absence of clear evidence as to Shell's approach to the purchase price, I consider that this transaction should be treated with some caution.

(4) It will be noted that I have analysed all the sale prices as a capital sum in terms of £s per gallon. This figure encompasses the filling station and all the ancillary facilities. It was the approach adopted by Mr Salisbury, who referred to it as the "capital value method". Mr Millington preferred what he termed "the investment method". He analysed the sale price of each comparable by applying a rental value per gallon to the forecourt; another rental value per gallon to the shop and a spot figure to the car wash. He capitalised the resultant aggregate rental value by applying a figure of years purchase, which varied according to the quality of the facilities. A very modern station was valued at 7%, a modern station at 8% and an ageing one at 8.33%. The experts agreed that both methods of analysis were valid, although each considered his own to be preferable. I agree that, if properly applied, both approaches should produce the same result. It does seem to me, however, that the investment method is open to the criticism that it requires the valuer to make a number of judgments which are not capable of being tested by reference to reliable market evidence. In any event, when Mr Millington was asked to value Cornbrook assuming it had a throughput of 1.5m gallons he chose, as I have indicated, to express his answer in terms of the capital value method. I propose to adopt a similar approach, and to disregard the analyses which were submitted by both experts on the investment basis.

(5) Both experts described the location of Cornbrook in terms of its attributes as an urban filling station. Mr Salisbury considered the location to be "prime and of outstanding potential". It occupied a prominent position with good access and excellent approach visibility on the threshold of the city centre, fronting a very high volume local commuter route. Mr Millington entirely disagreed. In his view, the location of the site on the "wrong" side of the road, with restricted visibility from the south in a run-down inner city area "could not be further removed" from the optimum locational criteria. In my opinion, the characteristics of Cornbrook in terms of access and visibility fall between the two extremes mentioned by the experts. I agree with Mr Davidson who suggested that the true merits of Cornbrook as a location for a petrol filling station were best judged by reference to its adjusted core volume. This reflects, not only the amount of traffic passing the site and its accessibility and visibility, but also the existing competition, whether on the milking side or otherwise. I consider that the pattern of value indicated by my preferred comparables should be considered in this light, whilst bearing in mind that a site with all necessary modern facilities is likely to be more attractive to a purchaser than one which will require more or less extensive improvement in the foreseeable future.

45. Taking all these factors into account, I have come to the conclusion that the capital value of Cornbrook as it existed at the valuation date was equivalent to £1.225 per gallon of the adjusted core volume.

Viability of redevelopment

46. In Mr Salisbury's first report he expressed the view that, if Cornbrook had not been blighted by the scheme underlying the CPO, it would have been redeveloped to a "state of the art" petrol filling station with new retail shop, automatic drive-through car wash and manual jet washes. He considered that such redevelopment would have cost approximately £600,000 and would have increased the throughput by 20%. Mr Salisbury subsequently agreed with Mr Millington that the appropriate cost of such redevelopment would have been £675,000, including fees and finance costs. In the course of cross-examination, he accepted that it was the hypothetical purchaser at the valuation date who was assumed to be valuing on the basis of redevelopment. He also agreed that his valuation did not in fact incorporate any blight element - i.e. he had valued Cornbrook as it actually existed at the relevant date.
47. Mr Millington allowed a 10% increase in volume for the effect of the improved facilities. He considered that, with the threat of greater competition and the increasingly higher standards demanded by motorists, the main justification for redevelopment would have been the protection of the existing gallonage. In cross-examination he agreed that, if the risk of milking side competition posed by the Magiview site were to be disregarded, Mr Salisbury's estimated volume increase of 20% generated by redevelopment would be appropriate.
48. Mr Davidson submitted that Mr Millington had double-counted the effect of the risk of competition from the Magiview site. He had reduced the "redevelopment uplift" from 20% to 10% and he had then made a further specific deduction of 10% to reflect the same factor. Mr Humphries suggested that the developer purchaser had more at risk than a purchaser who intended to continue operating the existing facilities and so it was reasonable to make two adjustments to reflect the risk of competition. I agree with Mr Davidson on this point. In my view, a prospective purchaser would have reduced the existing throughput by 7.5% to reflect the risk of milking side competition and would then have assumed that a "state of the art" redevelopment would increase the resultant throughput by 20%.
49. I have not overlooked Mr Salisbury's suggestion in the course of cross-examination that the form of redevelopment would depend on the level of throughput and that less than £675,000 would have been spent if the throughput were substantially below his estimate of 2.388m gallons. It seems to me, however, that a less extensive form of redevelopment would be less effective in increasing throughput; otherwise there would be no point in incurring the additional expenditure on a "state of the art" station. I therefore propose to consider the viability of redevelopment by assuming an expenditure of £675,000 and an increased gallonage of 20% - i.e. 1.698m gallons, say 1.7m.
50. Although there is no comparable evidence relating to filling stations in the north-west with this level of sales volume, as I have said both valuers agreed that the capital value per gallon increased in proportion to throughput. In the course of his evidence, Mr Millington expressed the view that, if the core volume at Cornbrook were 2.2m gallons, the appropriate capitalisation rate would be £1.45 per gallon. Mr Salisbury adopted an identical rate in the valuation contained in his first report, applied to an assumed volume of 2.293m gallons. He said that this value was based on "my own experience and knowledge of the market at around June 1995" as well as his analysis of the then available comparables. It is true that he subsequently increased this rate to £1.88 per gallon. This was, however, entirely due to his discovery of three transactions, all relating to stations situated in London or the south-east and, as I have previously decided, such evidence is not relevant to a station in the north-west. In the light of the opinion evidence of both experts, I conclude that Cornbrook should be valued at £1.45 per gallon if its core volume were between 2.2m and 2.3m gallons. I have previously found that its value should be £1.225 per gallon based on a volume of 1.415m gallons achieved with the existing facilities. Against that background, and bearing in mind that the facilities at Cornbrook would be improved as a result of redevelopment I find that, if its core volume then increased to 1.7m gallons, its value would have been £1.325 per gallon.
51. Mr Millington considered it appropriate to test the viability of redeveloping Cornbrook by preparing valuations before and after redevelopment. I agree with this approach and the appropriate calculations are as follows:

Value as existing, excluding disturbance (see Appendix 5) £1,733,375

Value assuming redevelopment (see Appendix 6) £1,577,500

52. In the light of these valuations, I agree with Mr Millington that compensation for Cornbrook should be based on the value of the filling station as it existed at the relevant date. It is true that in 1987 the claimant gave detailed consideration to a major redevelopment of the site. Mr Blackmore said that those works did not proceed because of the uncertainty caused by the proposed CPOs, but a limited form of refurbishment took place in 1991, which did not exploit the site's full potential for car washes. This information provides an interesting historical background, but it is in my view not material to the question whether the site as it existed at the valuation date - including the benefit of the 1991 improvements was then ripe for further comprehensive redevelopment.

Accountants' Valuations

53. Both Mr Bolton and Mr Woolf prepared valuations of Cornbrook on the basis of it being sold as a single site on the open market. Their valuations consisted of the application of a multiplier (known as the price earnings or PE multiple) to Cornbrook's maintainable earning stream. The latter was agreed at £161,000, but there was a very considerable difference between the PE multiples that were considered appropriate by the two accountancy experts.
54. Mr Bolton's report was prepared in response to that of Mr Woolf. He expressed the view that it was more appropriate for a surveyor than an accountant to value Cornbrook. Although both the surveyor's and the accountant's approach to value should give the same result if applied correctly, in practice their effectiveness was limited by the valuer's experience in the industry and the amount of contemporaneous data available to guide the valuer in selecting the appropriate multiplier. Petrol filling stations, he said, were rarely valued by an accountant and so there was little data available on which to base a PE multiple. Surveyors, on the other hand, regularly valued petrol filling stations and were therefore able to arrive at their valuation by reference to actual multipliers used in the actual sales of filling stations
55. The accountants who gave evidence were from two of the best-known and largest firms in the country. Neither produced a single example of an occasion when an accountant had valued a filling station. Mr Woolf accepted that such properties were normally valued by surveyors, but he insisted that accountants were often called upon to value businesses with no readily available comparables. That is no doubt true, but this reference concerns a property, not a business. Moreover, I agree with Mr Bolton that the "no comparables valuations" to which Mr Woolf referred are likely to be much less accurate than they would be if the accountant were able to refer to a substantial body of comparable evidence. Indeed, in answer to a question from me Mr Woolf said that, if he were asked to advise a potential purchaser as to the value of a filling station, he would include in his report a recommendation that the client should consult a surveyor.
56. Mr Bolton and Mr Woolf are both highly experienced accountants. On the question of the appropriate multiplier to be used in assessing the capital value of Cornbrook, however, I do not consider that they were able to add materially to the evidence of Mr Salisbury and Mr Millington.
57. The amount of compensation payable to the claimant is therefore £1,753,375. The appropriate surveyor's fee on Ryde's scale and the proper legal costs of transfer are to be paid in addition.
58. Finally, I wish to express my appreciation to Counsel for the considerable assistance they gave me while the numerous witnesses were giving evidence and during the course of closing submissions.
59. What I have said so far concludes my determination of the substantive issues in this case. It will take effect as a decision when the question of costs is decided and at that point, but not before, the provisions relating to the right of appeal in section 3(4) of the Lands Tribunal Act 1949 and Order 61 rule 1(1) of the Civil Procedure Rules will come into operation. The parties are invited to make submissions as to the costs of this reference and a letter accompanying this decision sets out the procedure for submissions in writing.

Dated 24 May 2000

(Signed) N J Rose

Addendum on Costs

60. I have received submissions on costs from the parties' solicitors.
61. The claimant asks for all its costs. It points out that the compensation awarded exceeded the amount of the acquiring authorities' sealed offer by a considerable margin. It also asks the Tribunal to state that in its opinion the hearing was fit for the attendance of two counsel on behalf of the claimant. Finally, it asks for interest to be payable on all outstanding compensation and outstanding statutory interest at the rate prescribed under the Judgments Act 1838 from the date of the decision until payment.
62. The acquiring authorities accept liability for payment of the claimant's reasonable costs. They, too, seek the Tribunal's opinion as to whether the hearing was fit for the attendance of two counsel. They do not express a view on the matter, although they point out that they were represented by only one counsel. Nor do they comment on the claimant's request for interest from the date of the decision.
63. Since the amount of the sealed offer was less than the amount of compensation awarded, the acquiring authorities will pay the claimant's costs of the reference. Such costs, if not agreed, will be the subject of a detailed assessment on the standard basis by the Registrar of the Lands Tribunal in accordance with rules 44.4 and 44.7 of the Civil Procedure Rules. The procedure laid down in Rule 52 of the Lands Tribunal Rules 1996 will apply to such detailed assessment.
64. The acquiring authorities have not put forward any reason why the claimant should not be entitled to interest on outstanding moneys from the date of the decision until payment at the rate prescribed under the Judgments Act 1838. I am not aware of any reason why it would be unjust to award such interest and I so order.
65. Finally, I confirm that the hearing was fit for the attendance of two counsel on behalf of the claimant.

Dated 22 June 2000

(Signed) N J Rose


 


Appendix 1

CORNBROOK SERVICE STATION

CHESTER ROAD, MANCHESTER

Valuation by A H Salisbury FRICS

Valuation of freehold interest with vacant possession and free of tie as at 3 July 1995 assuming 'no scheme' world

Petrol Forecourt	£
EAC (3 year average excluding 1991 and 1994) - say 2,388,000 gallons
Add 20% uplift for redevelopment - say 480,000 2,868,000
Less 20% for cut price operation - say 575,000
Adjusted core volume 2,293,000 gallons @ £1.88 p.g. Less Redevelopment cost (including fees and finance) Add For disturbance	4,310,840 675,000 3,635,840 20,000 3,655,840
BUT SAY - SITE VALUE- £3,655,000

Appendix 2

CORNBROOK SERVICE STATION

CHESTER ROAD, MANCHESTER

Claimant's Amended Valuation

Valuation of freehold interest with vacant possession and free of tie as at 3 July 1995 assuming 'no scheme' world

Petrol Forecourt	£
EAC (3 year average 1991 (adjusted), 1992 and 1993) 2,338,500 gallons
Add 20% for redevelopment - say 467,700 2,806,200
Less 20% for pricing policy 561,240
Adjusted core volume 2,244,960 Say 2,245,000 gallons @ £1.60 p.g. Less Redevelopment cost (including fees and finance) Add For disturbance	3,592,000 675,000 2,917,000 20,000 2,937,000

Appendix 3

CORNBROOK SERVICE STATION

CHESTER ROAD, MANCHESTER

Valuation by D W Millington FRICS

As Existing Forecourt Current average throughput (1992/1993/1994)	Gallons 2,218,000
Less 50% for cut price operation and potential milking side competition Adjusted Core Volume	1,109,000 1,109,000
	£PA
1,109,000 gallons @ 6p Shop: 1,109,000 gallons @ 1p Car Wash, Say Jet Wash, Say	66,540 11,091 5,000 2,000 84,631
YP in perpetuity @ 8.33% Add for closure costs, Say	12 1,015,572 20,000 1,035,572


 


Appendix 4

CORNBROOK SERVICE STATION -

ANALYSIS OF COMPARABLE SALES

IN NORTH-WEST ENGLAND

Site	Sale Price £	Development Costs £	Gross Outlay £	Date	Throughput Gallons	£/Gallon Overall	Layout	Size Acres	Miles from Cornbrook
Imperial, Blackpool	910,000	-	910,000	Jan 94	1.03m	0.88	Modern No car wash	0.28	50
Penway, Wirral	950,000	120,000	1,070,000	Oct 93	1.10m	0.97	Modern No car wash	0.27	45
Leyland, Central Lancs	1,082,0001	-	1,082,000	Feb 96	1.14m	0.95	Ageing Mixed use Jet washes	0.54	36
Sevenways, Stretford	850,000	550,000	1,400,000	Dec 91	1.15m	1.22	Very modern Drive-through car wash	0.29	3
Ewood, Blackburn	1,322,000	-	1,322,000	Nov 94	1.20m	1.10	Modern 2 automatic car washes. 2 jet washes	0.58	25
Mersey Lights, Manchester	1,149,0002	600,000	1,749,000	Jan 90	1.426m	1.23	Very modern Drive-through car wash	0.64	4

Notes: 1. After deducting agreed value of showroom/offices.

2. After deducting £3,000,000 for restaurant site included in sale.


 


Appendix 5

CORNBROOK SERVICE STATION

CHESTER ROAD, MANCHESTER

Valuation as existing prepared by Lands Tribunal

Adjusted core volume 3 year average throughput - 1991 (adjusted) 1992 and 1993	Gallons 2,264,449
Less For cut price operation (30%) and potential milking side competition (7½%) Adjusted core volume Say 1,415,000 gallons @ £1.225 per gallon Add for disturbance	849,168 1,415,281 £1,733,375 20,000 £1,753,375

Appendix 6

CORNBROOK SERVICE STATION

CHESTER ROAD, MANCHESTER

Valuation assuming redevelopment prepared by Lands Tribunal

Adjusted core volume as existing Add 20% for redevelopment Say 1,700,000 gallons @ £1.325 per gallon Less redevelopment costs (inc. fees and finance)	Gallons 1,415,000 283,000 1,698,000 £2,252,500 675,000 £1,577,500