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England and Wales Lands Tribunal
You are here: BAILII >> Databases >> England and Wales Lands Tribunal >> Prielipp & Anor v Secretary of State for Environment, Transport & the Regions [2002] EWLands ACQ_127_1999 (08 February 2002)
URL: http://www.bailii.org/ew/cases/EWLands/2002/ACQ_127_1999.html
Cite as: [2002] EWLands ACQ_127_1999
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- This is a reference to determine the compensation payable to W L and A P Prielipp and C Kennerly ("the claimants") by the Secretary of State for the Environment, Transport and the Regions ("the acquiring authority") for the compulsory acquisition of Tollgate Riding Stables, Northumberland Bottom, Gravesend, Kent ("the subject property") in connection with the construction by Union Rail Ltd ("the Company") of the Channel Tunnel Rail Link (CTRL) ("the scheme").
- Mr. Robert Lewis of counsel appeared for the claimants and called Mr. Ian Gordon, Mr. Alan Tuckwell and Mrs Carole Kennerly who gave evidence of fact, together with Mrs Judith Norris FRICS and Mr. Eric Brightwell FCA who gave expert valuation and accountancy evidence respectively. Mr. Michael Humphries of counsel appeared for the acquiring authority and called Miss Carol Wakeford and Mr. Bruce Nottrodt who gave evidence of fact, Mr. Michael Startup who gave expert accountancy evidence, and Mr. James Squier who gave expert valuation evidence.
- It was agreed at the commencement of the hearing that the question as to whether or not I have jurisdiction to determine, as part of the award of compensation, the eviction costs incurred by the acquiring authority (details of which were included with the evidence) would be dealt with by counsel in closing submissions.
- The parties produced a statement of agreed facts. From this, together with the written and oral evidence, my inspection of the former location of the subject property, the new premises from which the claimants currently operate (Pond Farm Harvel), Knights Place (which was in the Company's ownership), and South Street Farm, Meopham, one of the comparables referred to, I find the following facts:
- The issues to be determined in this reference are threefold:
- Mrs Kennerly said she had first become involved with Tollgate Riding Stables in 1969, learning to ride there as young girl. Initially spending weekends helping out at the stables, she eventually bought her first pony and competed in events to County Show level. She left school to pursue an equine career and after about 4 years working with show-jumpers and three-day event horses, set up her own small livery stables. As the business grew she teamed up with Mr. Prielipp at another yard for a few years. When the subject property was offered to the market in 1989, Mrs Kennerly said that she and Mr. Prielipp seized the opportunity to acquire the business and take a new lease, as it would give them the chance to expand into offering riding tuition.
- It had been their intention to significantly improve the facilities at Tollgate to include a larger, purpose built indoor arena and many more stables. There were only 6 or 7 horses at the yard when they moved there, but by the time they left there were 48. The riding school became the only one in the area recognised by the British Horse Society, and whilst the majority of clients were local, many were attracted from all over the county. The business offered a mixture of livery and tuition and, Mrs Kennerly said, over the years they were at Tollgate a sound base of loyal clients was established. The service that was offered was a valuable resource that was appreciated by those clients and the local community in general.
- It was about 1993 when they became aware that the land would be required in connection with the Channel Tunnel Rail Link, but Mrs Kennerly said that they were not too worried about the prospect of moving as a representative from Union Rail said to them at one of the initial meetings: " it will be like picking you up and putting you down over there". However, as time progressed, it became apparent that finding a suitable property would not be easy. Despite their best efforts to find somewhere to move to, by the proposed date of entry nothing had been finalised, and after a short stay-of-execution granted by the Company, they were eventually formally evicted on 22 October 1998.
- Mr. Kennerly said that this had been an extremely traumatic time for her and the rest of the staff. Although they had just found Pond Farm, and considered it to be suitable (even though it would never be able to accommodate all 48 horses in stables), planning permission had to be obtained. Consequently urgent steps had to be taken to find temporary homes for the horses, and they ended up being spread over a number of locations in short-term livery. Not only was this inconvenient, and meant the staff had to spend considerable amounts of time driving between them, but everything happened so quickly that some of the owners did not, initially, know where their horses had gone.
- Lessons had to be stopped and many of the horses suffered mud fever through the limited grazing that was available. The effects on turnover and cash flow were substantial, but the loyal support and understanding of clients and volunteers prevented the business collapsing altogether. Part of the claim was for £36,000 to cover the cost of the temporary accommodation for the horses. Mr. Squier had suggested that this was much too high and that, if accommodation were needed for more than, say, 3 months, a prudent businessman would have disposed of the horses and acquired new ones when the new premises were ready. Mrs Kennerly said that was ridiculous these were animals that were trained. It would not be possible to get suitable stock 'off-the-shelf'. New horses would need to be trained and have inoculations. That would take time and cost more money and in any event, many of the horses belonged to customers so Mr. Squier's option was just not practicable.
- Mrs. Kennerly said that planning permission was eventually obtained for 38 loose-boxes at Pond Farm (although, in fact, only 37 could physically be accommodated) and so about 25 per cent of the horses have to be permanently grazed. The permission was also subject to 27 conditions which included lessons being restricted to daytime only, no lighting to the outside menage, and no formal events. Their new landlord was undertaking all the necessary works, including converting some of the existing buildings, construction of the new indoor riding school (which was the largest for which planning permission could be obtained, but marginally too small to be ideal), provision of a new tack room, toilets and concreted yards and it was anticipated that everything would be finished at the end of 2001. On balance, she said, whilst these new facilities were good, and the surrounding land offered good opportunities for hacking, it was considered that Tollgate was better because it was nearer to Gravesend and had more loose-boxes.
- Nevertheless, she said, the claimants were determined to make a go of Pond Farm and had agreed rental terms with their new landlord. Those terms had been changed since they took occupation, the initial proposal having been for a lump-sum payment of £100,000 towards the cost of the building works, and an annual rent. The up-front payment was not now being made, the landlord carrying out all the works at his own expense, but the annual rent was to be higher, reflecting the cost of those works. Although terms had been agreed, no formal lease had yet been entered into, as, in the absence of compensation, they were not in a position to formalise things. However there was a 'sort of' written agreement which, Mrs Kennerly said, had recently been signed under duress. That agreement, dated 12 June 2001, stated, in addition to the names of the parties:
- In cross-examination, Mrs Kennerly explained that the landlord had come to their rescue when they were evicted from Tollgate. The reason that proper heads of terms had not, to date, been finalised was because the landlord had wanted to 'get things sorted out and the buildings completed first'. However, the reason this agreement had been signed was because everything the planning and compensation was taking so long, and Mr. Nuttall had become frustrated with the delays. He had wanted something in writing urgently, hence the actions he took and the claimants' note attached to the agreement. Nevertheless, she said that the landlord was prepared to let them stay even if sufficient compensation to pay the back rent (more than £70,000) was not forthcoming. The rent at £15 per stable (£29,640 pa based on 38 stables) would reflect the losses that he would suffer in those circumstances.
- It was suggested that when compensation was received the claimants could, if they wished, walk away from the property having occupied it rent-free since 1999. Mrs Kennerly said they had no intention of doing so. They were determined to make a go of the new business and were happy with the proposed rent that would apply from the date the indoor riding school was completed. Even if they did leave, which was a purely hypothetical situation, the landlord would still have permission for a riding school in the green belt, and the benefit of all the works that he had carried out.
- As to why the charges for lessons at the new property were much higher, even allowing for inflation, than they had been at Tollgate, Mrs Kennerly said that due to the circumstances if the impending forced move, they had not put up the Tollgate prices to a level that, in more settled circumstances, people would have been prepared to pay.
- Mr. Gordon is a director of a ship-broking company whose daughters learnt to ride at Tollgate about 10 years ago. He said he had been impressed with the quality of teaching, the enthusiastic encouragement given to children from all backgrounds by the claimants, and safety standards. Deciding himself to take up riding again about 8 years ago after a break from the hobby, he first hired and subsequently bought one of the Tollgate horses and then purchased two show-jumpers which he kept in full livery at Tollgate, and now keeps at Pond Farm.
- He said that one of the reasons he had become so involved with horses again was because of encouragement from the claimants and their obvious commitment to what they do. There had been considerable support from the vast majority of Tollgate's former clientele following the eviction, and during the difficult times that the claimants suffered whilst their horses were spread around 8 different locations. Prior to the eviction, he had joined a ride into Gravesend town centre to foster support for the claimants' cause they were seeking publicity and support to prevent the eviction.
- Mr. Gordon said that about 4.30 am on the day of the eviction, Mrs Kennerly had rung him to advise that the bailiffs were there and that he should come along to secure the safety of his horses, and his £25,000 horsebox that was also kept there. When he arrived he could not believe the number of people who were there carrying out the eviction process. The surrounding roads were blocked, security fencing had been erected and the gates were locked. He said he and his daughter climbed over the fence and were confronted by 'officials' who gave them 5 minutes to check the horses and equipment. His daughter left when asked and, although he said he was leaving voluntarily after 5 minutes had elapsed, he said he was manhandled, punched, knocked to the ground and then hustled off the premises. In his view the steps taken to evict the claimants were heavy handed and excessive in the extreme.
- In cross-examination, Mr. Gordon admitted that he had not complained to the sheriff or the police about the way he had been treated. He accepted that it was appropriate for there to be veterinary officers and members of Stable Management Services on hand bearing in mind livestock was involved, although they did not arrive until later, and that the security services were necessary but not to the extent that they were. In the early morning, when he arrived, he said nobody seemed to know what was going on, and the situation was very tense.
- Mr. Tuckwell was, at the date of the eviction, the elected County Chairman of the British Horse Society, North and West Kent County Committee. The Society is the governing body for recreational riding in the UK and has 700 approved establishments of which 13 are in the north and west Kent area, Tollgate having been the only one within the Borough of Gravesham. Its purpose is to ensure that its approved centres maintain the highest standards of instruction, safety and horse care.
- The enforced closure of Tollgate had a detrimental impact on the development of riding in the Borough and, Mr Tuckwell said, the Society had been keen to ensure an alternative facility was created. He had been requested by the Society's head office to help to resolve the impending crisis caused by the claimants' failure to secure suitable alternative premises, and had attended a meeting at the Company's offices in London on 7 October 1998. Mr. Nottrodt, and Mr. Brian Buckingham of Bidwells, its agents, represented the Company. Mrs Norris represented the claimants.
- Three alternative proposals were put forward on behalf of the claimants, as a temporary measure pending the outcome of the planning application for Pond Farm. The first two suggestions that Tollgate should either remain where it was, but on a smaller site, or move to a new yard and stables to be provided by the Company on other land it owned were rejected. The Company had purchased another property, Knights Place, that had about 18 looseboxes, a barn and some grazing. That was considered by the claimants to be an ideal short-term solution, and in the belief that it was not required for the line of the new railway, it was suggested that they might move there. Despite the Company having promised a quick response to that request, none was forthcoming. Following circulation of rumours that the Company was intending to take possession on 22 October, Mr. Tuckwell said that he had a conversation on the 19th or 20th with Mr. Nottrodt who told him that was not the case.
- Mr. Tuckwell said that at 4 am on 22 October, he was contacted by Mrs Kennerly who advised him that the eviction had commenced. He said he arrived there at about 4.45 am and there were about 40 security people there. Notices were being given to the owners of horses advising of the eviction and seizure of the animals. In his view, the whole process was conducted in a grossly extravagant manner, and if the company had acceded to the claimants' request for temporary accommodation at Knights Place, it would not have been necessary at all.
- In cross-examination, Mr. Tuckwell accepted that the claimants had been aware for at least two weeks that they had to leave, but said that as they had nowhere to go, it was not possible. They had understood that they were not to be formally evicted and had they known in advance that they were, they might have been able to do something, but he did not know what.
- Mr. Prielipp was one of the claimants and actively involved in the running of Tollgate. He said that he and Mrs Kennerly had always understood and accepted that they would have to vacate, and had made strenuous efforts to find a suitable alternative property, but in the absence of sufficient compensation being offered by the Company, they had not been in a position to move. Although, by the date of the eviction, Mr. Prielipp said they had found sufficient temporary accommodation for all the horses 18 at Woodhill House, courtesy of a Mr. and Mrs Popely, and the remainder at Pond Farm, they did not move them as they were still hoping to re-house all the stock in one location. However, he said that if they had known about the impending eviction they would have proceeded to take up the offers of accommodation that they had received.
- He explained that, on 1 October 1998, whilst he was teaching some children to ride, Mr. Nottrodt and 3 other people arrived at the gate (which was locked) and advised that he had "come to take possession". He said that no attempt was made to gain entry, and after a while, they left. However, on the morning of 2nd October a Pickfords container lorry arrived and the driver said he had been instructed to deliver the container to the site. It had been assumed that an eviction was about to take place, and steps were taken to lock the main gate and block the rear access with a vehicle. Supporters were summoned and after a short while a large number of people had gathered at the property, but after a while it was established that that an eviction was not, in fact, imminent. Pickfords had been sent a fax the previous evening to cancel the delivery, but that information had not been transmitted to the driver.
- Mr. Nottrodt's secretary had been telephoned by Mr. Prielipp during the second week of October, and advised that arrangements for temporary accommodation of the horses had been made. However, no efforts would be made to remove the horses because it was still hoped to get them all accommodated in one place. He asked her to arrange for Mr. Nottrodt to advise him when the eviction was to take place, but no such advice was forthcoming. He said he was later comforted by the conversation Mr. Tuckwell had had with Mr. Nottrodt at the meeting in London, despite having just received a telephone call from Pickfords Removals, saying they had been instructed to attend an eviction on the 22nd. It therefore came as a great shock to him when, without warning, the eviction process commenced. That action, he said, was totally unnecessary as Mr. Nottrodt had been advised that the horses would be removed if the proposed date were known.
- Mr. Prielipp said that the claimants had found Pond Farm by August or September 1998, but it did not have an indoor riding facility, planning permission was required to allow them to operate there and more stables would need to be constructed. Obtaining permission and construction of the necessary facilities had taken a considerable amount of time, and it was not anticipated that the new centre would be fully operational until the end of 2001. Whilst they had actually taken occupation there in April 1999, they had been operating on a very reduced basis and this was the reason for the claimed loss of profits. Also, they had not been able to finalise terms with their new landlord due to the failure to agree compensation.
- In cross-examination, Mr. Prielipp acknowledged that under the existing terms of occupation for Pond Farm which, as per the agreement that he had signed 'under duress', was at best probably only a tenancy at will, the landlord could obtain possession at any time. However, he said that Mr. Nuttall had indicated verbally that a proper lease would be forthcoming when everything was sorted out. Mr. Prielipp said the claimants were quite happy with the proposed rent, and stressed that the planning permission for a riding school (rather than a livery yard) was personal to them, and thus they were in a relatively strong bargaining position.
- As to the Company's attempt to obtain possession on 1 October 1998, and the incident on the 2nd, Mr. Prielipp said that his daughter Pippa, in a radio interview on that morning, in which it was stated that there were at least 50 supporters there and the roads were barricaded, had exaggerated the situation. Whilst they had been drumming up support locally, including a horse-ride into the town centre and dispatches to the media, it was certainly not a siege situation. There was, as had been made clear in a press release that Mr. Prielipp had issued, confusion over whether or not the Company would allow them to move to Knights Place. Apparently a Mr. Jones of the Company had told a local newspaper that they could relocate there, but that did not prove to be the case. Mr. Prielipp acknowledged that the Company had given them an extra two weeks to vacate the property, and reiterated that they would have done, peaceably, if they had had prior notice of the eviction. Also, the eviction would not have been necessary if they had been allowed to move to Knights Place, which would undoubtedly been suitable on a temporary basis until Pond Farm was ready.
- Accepting that Pond Farm was smaller in terms of stabling, Mr. Prielipp said that that was counterbalanced by the additional grazing that was available, with the result that savings could be made on feed costs.
- Regarding the claimants' accounts, and the fact that they appeared to be operating on very narrow margins even at the low rent they were paying at Tollgate, Mr. Prielipp said their income had been 'pole-axed' by the drop off in lessons in the 6 months prior to the eviction, due to the publicity surrounding their situation. It was, he said, the claimants' view that they would be able to operate at a profit at the new premises, despite the rent of about £29,000 pa, as the new charges were much higher.
- Mrs Norris is a chartered surveyor with over 20 years experience in rural estate management. Following periods with Strutt & Parker and the National Trust, she set up her own practice in 1987 dealing predominantly with rural estate management, rural planning and compulsory purchase matters. Equestrianism was her spare time interest, and she kept a number of horses.
- In her report she described the subject property, the tenure arrangements under which the claimants had acquired and occupied it, and the nature of the business that had been carried on there. These were agreed, and the details were as set out in the facts above. As to the tenants improvements, she said these included resurfacing of the indoor and outdoor schools in 1992 and 1993, installation of a new water main, conversion of former military and farm buildings to loose-boxes, construction of 5 new stables, provision of new internal lighting and replacement of external floodlights. She acknowledged, in cross-examination, that some of the works had been carried out without planning permission, but no enforcement action had been taken.
- On the subject of planning, Mrs Norris said it was important to distinguish between a riding school and a livery yard. Tollgate had permission for the former (which, nowadays, in the green belt, would be difficult to obtain), and was also licensed on an annual basis by the local authority under the Riding Establishments Act 1964. The licence had been renewed in August 1998. A riding school was run as a business providing lessons in a safe environment for children and adults and from beginner to competition standard. Tollgate also taught for instructors' exams. Horses would normally be owned by the school, although full or working livery may be provided for some horses belonging to others, as was the case here. Working livery meant that although the horse belonged to an outsider, it was available to be used for general lessons. Do-it-yourself livery, where an individual simply hired a stable and undertook chores themselves was not normally acceptable in such an establishment.
- Mrs Norris said that the consultation draft of the study of the CTRL Corridor between Scalers Hill and Pages Hill said of Tollgate: "[that replacement stables] if unavailable locally will result in the loss of the riding stables as a community resource. The effect could be mitigated by providing assistance for relocation to an alternative site". The claimants had spent a considerable amount of time searching for alternative premises, and bearing in mind where the majority of their clients came from, decided it was imperative to be within easy reach of Gravesend. None that offered sufficient accommodation for all the horses could be found, either to rent or to buy, although the claimants would not have had the financial means to purchase.
- Pond Farm was eventually offered to the claimants in September 1998, but those facilities required substantial changes to accommodate the horses, and the change of use and proposed building works required planning permission. Mrs Norris said that because of the lack of funds (an advance payment only having been made by the Company 5 months after the eviction) the claimants had been totally dependent upon their new landlord to undertake the necessary works. Some of the horses spent the winter of 1998/99 in the fields at Pond Farm, with others located temporarily elsewhere. The majority of the horses had been transferred to Pond Farm by mid 1999, and the outside menage was completed in February 2000. The building works were continuing, and, as at the date of the hearing, further works to be completed included the indoor riding school, the tack room (that had unfortunately been ram-raided earlier in the year and had to have its front wall rebuilt), and the yard had to be concreted. The timing of the works had been outside the claimants' control, but it was anticipated that everything would be finished by the end of 2001.
- Mrs Norris went on to set out the background to the negotiations that had taken place between the parties, commencing in 1996 and resulting in an initial offer of £30,000 for disturbance, with nil being offered for the property. In October 1997, Mrs Norris wrote to Martin Oakley of the Company advising him that the claimants had found a property that may be suitable South Street Farm, Meopham, about 6 miles from Tollgate and which comprised 20 boxes, 4.45 ha (11 acres) of land and an outdoor school. There were significant problems in terms of access, turning areas, small yard and planning which would need to be overcome, but Mrs Norris thought that a meeting with the Company's surveyors might help progress matters. They said that a claim should be submitted, and a draft was prepared, but there were problems completing it because the claimants' accounts for the previous 3 years had not been prepared. Additional information and estimates were required, for example those relating to fees for obtaining planning permission and costs of works required at South Street Farm.
- The relevant information was eventually all received and a formal claim was submitted to the Company's agents on 4 September 1998. However, in the intervening period the claimants had encountered planning difficulties with South Street Farm and, due mainly to their concerns over the potentially dangerous access, and the fact that the owner was difficult to deal with and had demanded a £15,000 non-returnable deposit, decided to withdraw. Mrs Norris said that whilst the Company would not accept equivalent reinstatement as the correct basis for assessing compensation, negotiations began in earnest during September. By that time, Mrs Norris said that she was aware the Company required possession of the property on 1 October, the claimant having received a letter from Mr. Nottrodt dated 14 August 1998 to that effect, and pointing out the claimants' entitlement to a 90 per cent advance payment. Mrs Norris said she responded mentioning the difficulties that the claimants might have vacating by then, and asking for a meeting as she understood the Company may have some land and premises (Knights Place) that may be suitable.
- Knights Place comprised a large listed farmhouse (divided into two), a group of farm buildings including 18 stables, large barn, yard and areas of grazing. Mrs Norris said that the claimants were enthusiastic about the prospect of moving there, and even considered, subject to satisfactory terms being available, moving there permanently either on a long lease, or purchase. It was close enough to the subject property to mean it would be possible to relocate there and re-commence training in a couple of weeks. After attending meetings with the Company's agents, Mrs Norris was advised in a letter from Mr. Nottrodt dated 25 September that Knights Place would not be available. Further efforts were made to persuade the Company to allow Knights Place to be used, even for a very short period, but once again permission was refused.
- Regarding the eviction, Mrs Norris said she was at a loss to understand why so many people had been involved. For instance a number of staff from Bidwells, from Stable Management Ltd (who were equestrian estate agents) and even the Company's solicitor were present, together with many security people. Whilst there could be no argument with the presence of vets there was no need for all the others. Everything other than the horses had already been moved by 22 October, and so the Pickfords people were not necessary either. As to the alleged cost of the eviction, at about £60,000, there could be no possible justification for a sum of this magnitude.
- Mrs Norris said that due to the poor condition of the facilities at Pond Farm at the date of eviction, the horses had to be transferred to 7 other locations in the area, and this became a logistical nightmare as far as running the business and looking after them was concerned. In all the time that had passed since the eviction, Knights Place had remained empty and unused and so, in her opinion, it could have been used at least as temporary accommodation.
- She went on to explain the reason why the claim was based upon equivalent reinstatement Rule (5) of s.5 of the 1961 Act stating:
- Reinstatement, she said, is and was bona fide intended, and is indeed taking place. There was no doubt in her mind that the intention to continue was genuine and, as to the fact that a formal lease had not yet been agreed, she produced a letter from Mr. Nuttall of the claimants' prospective new landlord dated 11 September 2001 that said, in part:
- In Mrs Norris's opinion and professional experience there was no general demand or market for land for the purpose of a riding school. Mrs Norris had personally undertaken an analysis of changes of proprietor of British Horse Society ("BHS") approved riding establishments in Kent, Surrey, Sussex and Essex since 1990; a survey of 211 riding schools listed in the Yellow Pages together with a survey of 74 rural estate agency practices in the same counties.
- Only 6 of the 118 BHS riding schools had changed proprietor in the 8 year period. 67 replies were received in respect of the Yellow Pages questionnaire, and these revealed that only 7 had had a change of freehold ownership in the time. 3 replies stated that the owners had tried to sell their freeholds without success, and one leaseholder had had the same problem. 50 replies were received from the rural estate agents that were canvassed. There had been eight freehold sales between 1987 and 1998 and 7 lettings one of which was a livery yard.
- Mrs Norris said that some of the sales might have been for development or other purposes (she knew of one that had definitely been sold for residential development), and the research revealed that there had been no transactions within the catchment area of Tollgate. Overall, the market was at best intermittent and sporadic.
- The claim had originally been calculated by Mrs Norris at £365,263. That sum was calculated by taking the excess rent payable for Pond Farm on a like for like basis (29 and 38 stables) for the period to 31 October 2001 (the date by which it was anticipated Pond Farm would be completed and fully operational) allowing for Mr. Nuttall's proposed rents and increases in the agreement of 12 June 2001. To this was added the Net Present Value ("NPV") of the excess rent that would apply from 1 November 2001 (based upon the 'agreed' £15 per box per week at Pond Farm) and on the premise that Tollgate would have continued where it was for 20 years, at an annual rental of £7,375 from 1 May 2000. The annuity rate quotation from Standard Life was the sum required to replace the difference of £428 per week.
- During the course of the hearing, it was re-calculated at £286,475 to take account of the fact that the appropriate rent for Tollgate, for valuation purposes, was agreed to be £12,250 and it was assumed that would apply from 1 November 2001. This served to reduce the difference between the rents of the two premises from that date, and the NPV figures that had been obtained from Standard Life were therefore pro-rated on the basis of the amount required to replace a difference of £330 per week. The revised calculation was shown as:
- Mrs Norris explained that the reason why she had assumed the rent at Pond Farm would be higher than at Tollgate, on a like for like basis, was because Pond Farm had new and refurbished buildings including a brand new indoor riding school, and the landlord was spending in the region of £400,000 on capital improvements. However she did say, in her written counter-submissions to Mr. Squier's report, that it would be wrong to say that the Pond Farm facilities were predominately new. Most of the works were modifications or extensions, and no improvements such as automatic drinkers were being incorporated. She said the accommodation was similar in standard to that at Tollgate. In any event, she said that she did not agree with Mr. Squier's view that rental values would be the same because, with no market, the claimants had no choice as to what they were required to pay at Pond Farm. However, in her view, the rent that had been agreed at £15 per week per box (which included the use of the indoor and outdoor riding schools), from when the building works were completed at Pond Farm, compared very favourably with the accommodation charges that had had to be paid whilst the horses were temporarily housed those costs ranging from £16 to £20 per week per horse.
- As to Mr. Squier's comments that the relocation had taken far too long, Mrs Norris said that it was being achieved as quickly as planning and lack of finance allowed. His report had not allowed for any cessation of trade, and only one year of reduced income. It had also not made any allowance for the fact that there would be a smaller number of loose boxes at Pond Farm. She dismissed his comparables as inappropriate, especially those references to property in Suffolk that was too far away to be of any assistance.
- As Mr. Squier had prepared his valuation on the basis of total extinguishment (which was not accepted as the appropriate method), Mrs Norris said she had undertaken a similar exercise and arrived at a value of £181,733 for the residual interest in the lease, tenants improvements and fixtures and goodwill. Disturbance in that case amounted to £191,783.
- Mrs Norris's actual calculation for disturbance, in connection with the equivalent reinstatement claim was £272,463.12 together with professional fees to be assessed, but this was superseded by Mr. Brightwell's evidence, in which the sum actually claimed under this head amounted to £372,442 making a total, with the principal claim, of £737,705 plus fees. However, with the amendment to Mrs Norris's calculations (para 49) and Mr. Brightwell's amended disturbance claim at £358,942 (para 74 post), the total value of the claim became £645,417.
- In cross-examination, Mrs Norris said that the reason the claim had not been submitted on the basis of a straightforward relocation was that the claimants had reinstated their business to the only premises that had become available there had been no choice. As the evidence showed, during all the time the claimants had been seeking alternative premises, nothing suitable could be found. They therefore had to take Pond Farm, with all its immediate shortcomings, and had to accept the substantial loss of profits that had been incurred due to the time it was taking to make the property suitable for their purposes. She said the fact that, even at the date of the hearing, there was no formal lease in place should not be a deterrent to the Tribunal finding that a rule (5) claim was appropriate. This had been the case in Lindon Print Ltd v West Midlands County Council [1987] 2 EGLR 200, even though that was a total extinguishment claim.
- In Mrs Norris's view, the four essentials to a successful rule (5) claim as defined in Sparks and Others (Trustees of East Hunslet Liberal Club) v Leeds City Council (1977) 240 EG 66 had been met. There could be no doubt that the land was devoted to a purpose, a Riding School, which would have continued were it not for the compulsory acquisition. Although there was evidence of some transactions having taken place over the 8 year period she had investigated, any such demand was no more than sporadic or intermittent, and was certainly not general. Some of the transactions could have been sales for development and others were livery yards which, as she had explained, were different from riding schools. Mrs Norris accepted, in response to a question from me, that in a no-scheme world, if the claimants had decided to sell their business in the open market, it was likely that a buyer would have been found. Indeed, the claimants had purchased the Tollgate business in 1989 in the market.
- An analysis of Mrs Norris's questionnaires indicated that 0.6 per cent of such properties change hands in any one year, and approximately 1 per cent of farms are sold in the market. Whilst it was accepted that there was a general demand for farms, Mrs Norris said that market was different and in her view such a small turnover of equestrian properties could not possibly signify a general demand.
- There could be no argument that the claimants had a bona fide intention to reinstate indeed they had done so. This left the 4th essential the Tribunal's discretion. Mrs Norris accepted that, with the total value of the claim being in the order of £650,000, the Tribunal would have to carefully consider whether a reasonable businessman would contemplate expending such a sum in the light of the overall size, turnover and profitability of the business. She said she agreed with Mr. Squier's statement that it would not be correct for the acquiring authority to pay compensation relating to expenditure incurred by a third party (the landlord's capital improvements to Pond Farm). In her view, although the agreed rent of £29,000 per annum included an element of recompense for the landlord's expenditure, rent could be looked at in many ways, and whether or not there was some pay-back for the cost of the buildings, that rent was not unreasonable as a market rent in any event.
- As to the costs incurred in the interregnum between eviction and October 2001, Mrs Norris said they were all due to the actions of the acquiring authority, and therefore entirely justified. If they had made Knights Place available the business could have continued there until either Pond Farm was ready, or the claimants entered into a formal, longer term arrangement for Knights Place which they might have been minded to do. Even though there were only 18 boxes at Knights Place, there was a large covered barn and plenty of grazing. As it was, there was no alternative but to spread the animals around several locations with all the consequential effects on the business and costs.
- In respect of the claim for excess rent, Mrs Norris did not accept that, if the rent for Pond Farm was considered to be a market rent, it would be inappropriate for the acquiring authority to make a payment under this head. It was her view that the fact a higher rent would be paid at Pond Farm than would have been the case at Tollgate was due to there being no choice over where they relocated to. However, she accepted that she had failed to allow for the fact that there would have been a rent review at Tollgate in 2003, and this would make a re-calculation necessary.
- In connection with Mr. Brightwell's evidence, where he had said that the costs associated with the temporary arrangements at Pond Farm were irrelevant in the calculations for an equivalent reinstatement claim due to there being no final lease in place, Mrs Norris said she did not agree. As to the Standard Life annuity quotation which took account of inflation over the period of 20 years, Mrs Norris did not accept that the acquiring authority could not take that aspect into account in compensation terms. In overall terms, Mrs Norris accepted that her own calculations amounting to almost £650,000 for the claim did appear significant in relation to the size of the business.
- Regarding the valuation that Mr. Squier had prepared, as an exercise, on an equivalent reinstatement basis, Mrs Norris said that, under disturbance, the following items were agreed:
- The temporary loss of profits (item (vii)) that had been calculated by Mr. Squier at £1,625 and had been recalculated by Mr. Brightwell at £313,900 was the main divergence of opinion, followed by item (vi), the cost of temporary accommodation of the horses which Mr. Squier had put at only £3,840 against Mrs Norris's figure (agreed by Mr. Brightwell) of £36,281.
- The total extinguishment claim that had been prepared by Mr. Squier (and subsequently revised to £51,400) compared with Mrs Norris's calculation on that basis of £181,733. Mrs Norris said that the residual interest in the lease was agreed at £23,416, together with the tenants' improvements at a book value of £4,100. However the main difference of opinion related to the valuation of the goodwill which Mr. Squier calculated at £15,340 and Mrs Norris valued at £148,317 based on £18,359 (taken from the accounts and based upon the rent at the date of the eviction, but excluding any allowance for loss of profit rent) and a multiplier of 8. She did not agree that this figure represented double-counting, on the basis that it had been allowed for in the calculation of the residual interest in the lease. Mrs Norris accepted that she was unable to produce any evidence to support a multiplier of 8, and that the use of that multiplier was the fundamental cause of the difference between the experts.
- Finally, in connection with the two experts' total extinguishment valuations, Mrs Norris agreed that there was little between them on the disturbance items but reiterated that her valuation on this basis was hypothetical, as this was not the basis of her clients' claim.
- Mr. Brightwell is a Chartered Accountant, Registered Auditor and Licensed Insolvency Practitioner and a partner in Eacott Worrall, Chartered Accountants of Burnham, Buckinghamshire. He has over 20 years experience in the sale and valuation of unquoted businesses, and has specialised in insolvency work. He said his instructions were to assess the market value of the business of Tollgate Riding Stables at the valuation date, to comment upon the acquiring authority's valuations and to report on the amount of compensation calculated on the basis of equivalent reinstatement. In this regard, he had analysed the trading accounts from 1991 to 2000 and commented as to whether the reinstated business would be viable, and whether a reasonable businessman would choose to invest his own money in reinstating the business.
- In his report, he calculated the open market value of the Tollgate business at October 1998 at £475,000, the cost of equivalent reinstatement at £309,000 together with ancillary costs of acquiring alternative land, and disturbance at £372,442. This latter figure was amended, following correction of an accounting error, to £358,942 (see para 75 post).
- Mr. Brightwell said that in valuing for compensation it was normal to treat the value of the land and the business separately, but in this case, because the land and the business were so closely related, he thought it appropriate to value these aspects together. Whilst, even if the argument that there was no general demand or market for the business was accepted, it had been established in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 1 All ER 846 ("Shun Fung") there may be a particular value in the land to the claimants. It was said, at p.854:
- In Mr. Brightwell's opinion, the best way of calculating the value of the business was to assess the capitalised value of sustainable future earnings the prospective performance of the business over the foreseeable future. As it was the buyer with the most optimistic view of the prospects who would offer the highest price, and thus be the successful bidder, it was logical, he said, to take an optimistic rather than pessimistic view of the future potential in arriving at value. That basis had been used in Mallick v Liverpool City Council (1999) 79 P&CR 1 and was not challenged. The rate of return to be used for the investment, to be meaningful, should be based upon predicted future earnings, rather than past performance.
- In calculating the value of the business, Mr. Brightwell assessed the future performance on the basis of the 1997 and 1998 accounts. He said that bearing in mind the drop-off in lessons that had occurred during these trading periods, as explained by Mr. Prielipp, if anything his estimates were conservative. He had also made a number of assumptions:
- He said this was a small business, run by the proprietors and to them it was a way of life. The rewards were not, therefore, limited to the figures on the bottom line of the accounts, and include not insubstantial intangible benefits which he had estimated, in value terms, at 'between £50,000 and £100,000'. The valuation was set out as:
- In commenting on the acquiring authority's experts' reports, Mr. Brightwell said that although he noted that Mr. Startup had not prepared a valuation as such, his use of a P/E ratio of 1.5 or 2 was unsustainable and out of line with normal ratios on businesses of this type. Mr. Squier had adopted a ratio of 2 and had also deducted a further £10,000 per annum in respect of the adjusted annual profits to reflect an element of profit rent. His conclusion that a figure of £49,000 (subsequently adjusted to just over £51,000) was sufficient to put the claimants in a position where they were no worse off was, Mr. Brightwell said, beyond the realms of common sense. The claimants, he said, had invested £100,000 in the business (including the whole of the £75,000 originally borrowed) and had built it up from a small unit that had only 6 horses and 27 stables and had a bad reputation (it had been closed down by the authorities) when they acquired the business. By the time they left, it was a thriving operation with 48 horses together with an excellent reputation and substantial goodwill.
- The claimants had taken a new lease which, at the date of eviction, had 5 years left to run and there was no way that a bank would have lent money if there had not been the prospects of the business surviving and with the business having expanded as much as it had, Mr. Squier's suggestion that it was worth less than when they acquired it was not reasonable.
- As to the cost of equivalent reinstatement, Mr. Brightwell said for that concept to exist, there must be an alternative site available, within the vicinity, for those purposes. When he prepared his report he was under the impression that Pond Farm may only be a temporary home for the business and so he restricted himself to commenting on Mrs Norris's projected costs of building replacement facilities (at £309,000) to which must be added costs of acquiring the land and moving to the new site. On the basis of the prospects for the business, he was of the view that a reasonable businessman would be prepared to expend such sums even on a leasehold site (because of the protection afforded by Part II of the Landlord and Tenant Act 1954).
- Those prospects were set out in a schedule to Mr. Brightwell's report, and indicated, after a 12 month settling in period, projected net profits of £95,000 pa. In summary, the projection showed:
- The substantial claim for disturbance was, Mr. Brightwell said, due in no small part to the acquiring authority having failed to offer sufficient compensation to enable the claimants to move elsewhere at an earlier stage. The claim was calculated as (following an adjustment for the cost of temporarily housing the horses from the original sum of £32,835 to £19,335):
- The figure for loss of profits had been calculated by taking the actual results for 1998 to 2000 and comparing them with the anticipated results in the no-scheme world, together with projected actual results for 2001 to 2004 against what they would have been expected to be in the no-scheme world.
- In cross-examination, Mr. Brightwell accepted that he had no experience of valuations for compulsory purchase, but said that the principal was the same for any purpose. However, he acknowledged that the valuation of the business at £475,000 did not form part of the claim, and was not a total extinguishment figure. It had been used purely to support the contention that a reasonable businessman would expend the sums claimed on the equivalent reinstatement basis, proving there was a significant value in the business. The information upon which he had based his valuation was obtained from the claimants, and Mr. Brightwell admitted he had not visited either Tollgate or the new premises at Pond Farm. The P/E ratios were based upon his experience of small businesses in general, and he had no evidence to support the use of those figures specifically in respect of riding stables.
- Mr. Brightwell said that the reason the profitability of the business had continued to rise following the announcement of the scheme in 1996 was because the blighting effect it had on income from lessons had been compensated for by increased livery income. In a no-scheme world, profitability would have been even higher because not only could the claimants have increased the livery turnover, which they had done, but the lessons income would also have held up, or even increased. It was necessary, he said, to look behind the accounts (the summary accounts not showing sufficient detail) to see what the actual effects on the business had been. Allowances had been made for seasonal variations in turnover in forecasting future turnover, and in regard to the rent he had applied for Pond Farm, Mr. Brightwell said he had used the figures that the valuers had thought appropriate for Tollgate (at £12,250 pa) rather than the c. £29,000 that would actually be paid.
- It was not accepted that he had cherrypicked figures from the accounts to produce a rosy forecast for the reinstated business that, in its Tollgate guise, had taken until 1997 achieve the level of profit that had been forecast in the original business plan for 1989. For instance, Mr. Brightwell said the use of just one quarter's livery income as a guide for future receipts was atypical and representative of what should actually be achievable. However, he agreed that that quarter's income was almost twice as high as that shown for any other trading period and accepted that Mr. Startup's analysis, that was based upon actual accounts, rather than forecasts, showed no evidence to suggest that such an income would be sustainable.
- As to the £50,000 to £100,000 that Mr. Brightwell had added to the value of the business to reflect its intangible assets, he said that was a figure which could be achieved in the marketplace for a business that had the attractions that this one did. He did not accept that a large percentage of the premium that had been paid for the original Tollgate business was to reflect the substantial profit rent, and that only £15,000 represented goodwill.
- The projections that Mr. Brightwell had prepared showing what would have happened if Tollgate had continued in the no-scheme world, and for Pond Farm once it had become established at its new location showed higher profitability at the latter, despite there being only 37 horses against 48 at the former. On a per-horse basis, the profitability was shown as 41 per cent higher at Pond Farm. He said he had based his assumptions to a great extent upon the claimants assessments of what was achievable, and upon the level of charges which they were intending to apply in 2001 these being significantly higher than the amounts being charged in 1998 when the business was evicted. The Tollgate charges, Mr. Brightwell said, were not representative of achievable market rates, and it was due to the blight caused by the scheme that they had not been put up. In any event, he said he used his professional judgment as to what he thought could be achieved by the claimants in the future, against figures that Mr. Startup had prepared based upon trading periods when the old business was blighted, and therefore from the past.
- In connection with the disturbance claim, Mr. Brightwell accepted that the calculation of loss of profits had been based upon £12,250 rent for Pond Farm, whereas, in reality it would be £29,000, thus reducing the profits. In showing depressed profits for 3 years after the new business at Pond Farm had commenced, Mr. Brightwell said he had based this upon the time it took the original business to become profitable, and had not taken account of the fact that there was already a waiting list for lessons. He said that whilst there was no evidence to support his projections as to future profitability, his figures were based upon what he thought a reasonable businessman might expect to achieve. However, he accepted that in 1998, he would not have advised a prospective purchaser to 'spend' over £300,000 (the total loss of profits which he calculated would need to be borne if the business was to continue), but in 1998 it was not known that it would take well over 3 years for the business to be re-established.
- In response to a question from me as to whether or not, on the basis of the evidence and the circumstances of the case, it was reasonable to expect the acquiring authority to pay sums amounting to £645,417 in respect of equivalent reinstatement, Mr. Brightwell said he found the concept difficult to grasp, although he was still convinced that there was sufficient value in the business to justify the claimants soldiering on as they had, and that a 'reasonable businessman' would also have done so.
- Mr. Nottrodt is a chartered surveyor employed by the Company as Property Manager for section 1 of the Channel Tunnel Rail Link. He outlined in his main and supplemental reports, the history and background of the case which culminated in the forcible eviction of the claimants on 22 October 1998. He said the claimants had been aware of the scheme since 1993, and had not raised any objections as they considered the CTRL to be a foregone conclusion. Despite efforts made by the Company and its agents to conclude negotiations with the claimants, it had become apparent during 1997 and the early part of 1998 that they were not making sufficient efforts to find alternative accommodation. As time went by, it became evident that steps would need to be taken to enforce possession as there was no opportunity for the acquisition timetable to slip the Company suffered onerous penalty clauses for late delivery of the scheme.
- When the Company attempted to obtain possession by agreement on 1 October 1998, Mr. Nottrodt said that there was no evidence on site that the claimants were making any efforts to move and, bearing in mind the high profile of the case caused by the publicity that the claimants had engendered, steps would need to be taken to ensure that any forced eviction was dealt with properly, and with sufficient resources. Advice was sought from the County Sheriff and the police, the services of vets and stable management specialists would be required, together with assistance from the Company's solicitors and its agents, Bidwells. A modus operandi was developed, and approval to the proposed procedures was obtained from the relevant government Minister, Glenda Jackson MP.
- When the eviction was executed on 22 October, Mr. Nottrodt said that whilst the claimants had got wind that the eviction was to take place, they had been expecting it to commence later in the morning. By arriving at 4 am it was hoped that confrontation could be avoided, and any resulting distress to the horses minimised. However, 2 people were found to be sleeping on the site, and with word quickly getting around, others started arriving shortly afterwards. The situation became volatile, and emotions were running high. As a result, it was decided to increase the number of security personnel to 20. The eviction was eventually successfully completed by the next day, all the horses and other equipment were removed and the site was made secure. Mr. Nottrodt said that in his view all the actions taken and associated costs of the eviction were necessarily incurred.
- Those costs, amounting to just under £60,000 were summarised by Mr. Nottrodt as:
- As to Knights Place, Mr. Nottrodt said that he could not recall ever having given the claimants any assurances as to its availability as, to the best of his knowledge, it was likely to be required by the Company in respect of the scheme. There was certainly no way that land could be released prior to the completion of the scheme, and he assumed that any comment that might have been made by Richard Jones, a senior official from the Company, as to its possible availability must have meant once the rail link was completed. If Tollgate had moved there, it would have had serious effects on the required flexibility over land use in connection with the project.
- In cross-examination, Mr. Nottrodt accepted that the claimants had not openly stated in the press or media interviews that they did not intend to vacate the subject property. He also acknowledged that no formal prior notice had been given to the claimants of the proposed attempt to gain possession on 1 October, but said the claimants were aware that that was the date by which possession was required from the Notice of Entry. Someone from the claimants saw them arrive, and immediately locked the gates in front of them. No attempt was made, at that time, to enter the site. It was accepted that at no time did the claimants state that they would resist entry, although Mr. Nottrodt said that they gained the perception from the press interviews and a Mrs Bradley (who he thought was an employee) that a peaceable entry would not be possible. He acknowledged that the comment he had made in his report to the effect that the media coverage was likely to incite the protestors to violence was an unfortunate choice of words and that that perception was wrong.
- Mr. Nottrodt stressed that the company's main point of concern was that some 3 weeks after the originally proposed date of entry the claimants appeared to be doing nothing about moving. Action needed to be taken, and they were careful to ensure that the eviction procedure was undertaken successfully and with the minimum of disruption. There were scuffles at the eviction and Mr. Gordon was involved. He had tried to break in through the rear entrance and it had been necessary for the security people to contain the situation. Thus, in his view, all the action that was taken was necessary, and the number of people involved was not excessive.
- On the basis of the evidence together with a questionnaire that the claimants' former agents had completed in August 1997, Mr. Nottrodt accepted that serious attempts were being made to relocate and that there was nothing to suggest that Mrs Norris was using delaying tactics. He was unable to explain why he had not responded to Mrs Norris's letter of 14 October 1998 (at the end of the first 14 day stay of execution) in which she had explained the claimants problems and asked that an indication be given as to how the problems could be resolved in a constructive way. Mr. Nottrodt said that following an approach from the claimants' MP a further 7 days was granted but as the site was immediately required and the Company was on penalties of £80,000 to £100,000 per day for delays in the contract, no further latitude could possibly be given.
- Miss Wakeford is a solicitor and partner in Cripps Harries Hall, the Company's solicitors. She set out her involvement in both the planning and execution of the eviction and said she fully endorsed Mr. Nottrodt's recollection of events. In her view all the personnel who were involved were necessary to effect a peaceful and timely eviction, and she said it was important to understand that control was in the hands of the Office of the High Sheriff of Kent, with whose instructions all parties were compelled to comply.
- Although she had no record of any prior warning having been given to the claimants, other than the Notice of Entry, for the intended possession on 1 October, Miss Wakeford said they were well aware that that was the date by which possession was required. The planning for the eviction had to remain secret as it was the intention to effect entry in the early hours of the morning of 22 October whilst nobody was around. Bearing in mind the intense media interest, it had been felt that a considerable number of demonstrators and protestors could be expected if prior notice had been given. As it transpired, the claimants were alerted to the plans and at 4 am on 22nd, there were two people sleeping on the site, and a number of others turned up very quickly.
- Mr. Startup is a chartered accountant and a partner in Day, Smith and Hunter, Chartered Accountants of Maidstone. Experienced in most aspects of accountancy related matters including preparation of accounts for small and medium sized businesses, he has specialised in forensic accounting since 1990. From the claimants' accounts for the years from 1990 to 2000 he prepared a report on the financial state of Tollgate, and gave an opinion on the claimants' calculations of loss of profits and an appropriate years purchase (multiplier). He also considered whether a 'reasonable businessman', using his own money, would relocate the business to Pond Farm.
- It had taken 6 years for a reasonable level of profit to be built up by the claimants and it was not until 1997 that profits (at about £16,000) reached the level that had been forecast to be achieved on taking over the business in 1989. Although a good level of profit was shown in 1998 (£30,138), there were a number of factors to the accounts that had caused Mr. Startup some unease as to whether such levels could be maintained. For instance, there had been a 22 per cent increase in sales after 2 years of static income, rent and rates had reduced for no explicable reason, and motor expenses and loan interest appeared unrealistically low. Whilst appreciating that endowment policies were in place to cover loans, Mr. Startup also noted that liabilities exceeded the assets of the business so, in his view, it was technically insolvent. Bearing in mind that the claimants were also enjoying a substantial profit-rent (of about £10,000 pa) there must be questions over the long term viability of the business.
- In order to fully understand the type of business and to forecast likely future income streams, Mr. Startup said he undertook an analysis of livery and lessons income at Tollgate. This was divided by the number of horses and compared with published price lists from other establishments. Based upon these figures, and taking into account the average occupancy rates (86 per cent) that had been achieved at Tollgate, and the fact that there were to be significantly fewer horses at Pond Farm, Mr. Startup concluded that the new business would be likely to make a loss. An annual turnover of £137,000 would be required just to break even (allowing particularly for the higher rent of almost £30,000 pa at Pond Farm) and this figure was £22,000 more than had been achieved in 1998 with 11 more horses. To achieve a gross profit of 56 per cent on turnover (the average that had been made in the years 1996 to 1998), annual turnover at Pond Farm would need to be £225,000 some £110,000 more than had been taken in 1998.
- Interest payments would also increase at the new premises due to the additional borrowing that would be required, and even if the prices that had historically been charged at Tollgate were substantially increased, with fewer horses, Mr. Startup could not see how sufficient additional income could be achieved. It was his conclusion, therefore, that the proposed business at Pond farm was not viable, and a prudent businessman would not be prepared to invest his own money in such a scheme.
- Considering the marginal nature of the business and its limited if non-existent prospects, Mr Startup felt that a multiplier of no more than 1.5 or 2 for assessing the value of any goodwill.
- In cross-examination, Mr. Startup explained that the multiplier of 1.5 or 2 should be applied only to the goodwill element, and not to any other value attributable to the business for instance the value of the land to which a multiplier of 5 might be applicable.
- In forecasting the possible future income for the business on its re-establishment at Pond Farm, Mr. Startup said he had looked at the past trading history and added 5 per cent. He said he found no evidence that income from lessons was 'poleaxed' as Mr. Prielipp had said. He did not agree that looking at just 3 months worth of livery income, as Mr. Brightwell had done, was appropriate as there must be a question over whether that particular quarter's higher than average figure was sustainable. The suggestion that the claimants had come to realise that extra income could be earned from livery following the alleged drop-off in lessons was a possible answer, but again, Mr. Startup made the point that there were considerably fewer horses at Pond Farm.
- Mr. Squier is a chartered surveyor, a member of the Agricultural Valuers Association and a partner in Bidwells, Chartered Surveyors of Cambridge. He has wide experience of valuations for compulsory purchase for both acquiring authorities and claimants. He said that, in his opinion, the appropriate basis of valuation in this case was total extinguishment in accordance with Rule (2) of the 1961 Act. His assessment of the value on this basis was £49,000 (amended to £51,400 during the course of the hearing). Nevertheless, he had also prepared a valuation on the basis of a 'hypothetical relocation' and whilst not considering it to be an appropriate basis in this instance, arrived at a figure of £47,500. Although he did not agree with the claimants' view that equivalent reinstatement under Rule (5) of the 1961 Act was the appropriate basis for assessing compensation, Mr. Squier also prepared a valuation on this basis in the sum of £49,000.
- Firstly, as to the total extinguishment valuation, this was made up under 3 heads to which disturbance items were added. The value of the residual interest in the lease was calculated at £23,416 on the premise that it could be anticipated that the rent, at the review due in May 1999, could be expected to be increased by 50 per cent of the difference between the existing rent of £2,500 and its actual rental value of £12,250. Tenants improvements were valued at 50 per cent of their book value - £4,100, and goodwill was assessed by taking the average of the last three years management and investment income to May 1998, less the value of the profit rent, and applying a multiplier, as recommended by Mr. Startup of 2 to give £15,340. The disturbance items of forced sale of livestock (a loss of £150 per horse) (£3,000), forced sale of tack and equipment (50 per cent of book value) (£2,050), claimants' time and expenses (£2,000), and Claimants' legal fees (£1,500) totalling £8,550 were added to give a grand total of £51,400.
- On a relocation basis under rule (2) the value of the remainder of the Tollgate lease was assumed to be the same as in the total extinguishment valuation as was the value of tenants improvements and fixtures, but goodwill was calculated at £7,670, approximately 50 per cent of that applicable to total extinguishment because about that percentage of customers could be expected to remain. The valuation became:
- The valuation which Mr. Squier had carried out on the equivalent reinstatement basis, although considered to be inappropriate, was set out as:
- Mr. Squier said that the four essential requirements (per Sparks) under which an equivalent reinstatement claim could be considered were not satisfied. Firstly the purpose for which the land was used riding stables and school was not one that could only be located in the Gravesend district. Whilst many of the customers would be local, there would be many who travelled from further afield and this was important in considering 'general demand or market'. The market for equestrian properties was diverse and the fact that Horse and Hound magazine regularly carried advertisements for equestrian properties of all types, including riding schools and stables proved there to have been a demand, and an active market.
- The fact that the claimants had difficulty in finding suitable premises was possibly due to the fact that most such establishments normally come with a residence, that in this case was not required. The claimants had considered South Street Farm, but had rejected it on grounds of cost. A ten year leasehold interest in Overton Riding School near Basingstoke, Hants, was on the market at an asking price of £48,000 in June 1998. That had 10 acres (2.47ha), a menage and 14 loose boxes.
- With the British Horse Society having over 600 approved schools across the UK, Mr. Squier said that there must be a general market for them and there was no reason why Tollgate had to re-establish specifically within the Gravesham District Council area there were 20 District Councils in Kent alone. A letter was produced from specialist equestrian agents, Pelhams, which confirmed their experience relating to demand for riding schools.
- One of the essences of an equivalent reinstatement valuation was that it should not be possible to establish a correct valuation under rule (2), but such an exercise was possible in this instance, as there was comparable market evidence.
- Due to the serious questions over the viablity of the business not only in an ongoing situation at Tollgate, but also at the new premises where the rent was much higher but there were less loose-boxes, meant that any intention to relocate could not realistically be described as bona fide. In Mr. Squier's view no reasonable businessman would consider relocating to Pond Farm on the terms that the claimants had described. The Tribunal should follow the decision in Festiniog Rly Society Ltd v Central Electricity Generating Board (1962) 13 P&CR 248 where the Tribunal exercised its discretion in not awarding compensation on an equivalent reinstatement basis because the cost of reinstatement would far outweigh the value of the business. As the claimants' valuation demonstrated, the costs of the proposed reinstatement were very substantially higher than the business could possibly be worth. Furthermore, equivalent reinstatement claims normally relate to freehold acquisitions, but in this case not only was the claimant taking a lease, but it was the freeholder, their landlord, who was expending in excess of £300,000 on capital improvements to make the property suitable for the claimants' purpose.
- The claimants had accepted that the rent they were proposing to pay included an allowance for that capital expenditure, and it would not be right for the acquiring authority to pay compensation to a lessee to reflect expenditure that had been incurred by another party, particularly where the sum claimed is intended to provide a return upon investment that would be significantly greater than it would receive had it let its property in the open market. A claim on this basis was tantamount to paying a windfall sum direct to the claimants' new landlord.
- For these reasons, Mr. Squier concluded that a reinstatement claim would be totally unjustified, and the Tribunal should not exercise its discretion in that direction. The hypothetical equivalent reinstatement valuation that he had prepared was based upon reinstating the business on a like for like basis and the figure came out to marginally less than the valuation on a total extinguishment basis. Finally, the reason he had only allowed £3,840 for the cost of temporary accommodation for the horses was because some of them could be moved to Pond Farm straight away, and it would only be viable to house the remainder for a maximum of three months. Otherwise, the costs of livery made keeping them uneconomic, and it would be better to sell them and invest in new stock once the premises were completed and ready to take them.
- In cross-examination, Mr. Squier accepted that by moving to Pond Farm the claimants' business had relocated and re-established itself locally. If it had moved farther afield, and had not been able to retain a proportion of its original customer base, then it would have been considered a new business. However, he did not accept that there was a distinction, in terms of the 1961 Act, between reinstating the business and closing one down and re-establishing it elsewhere with an entirely new customer base. He said that so long as it was the same type of business, with the same class of customer, then it could be considered a relocation of the business.
- The fact that Tollgate was the only registered riding school in the Gravesham area did not mean that there was no general demand. It was appropriate to look regionally, and, as he had said, there was no reason why the business should not be re-established much further away. The advertisements that he had produced from just one issue of Horse and Hound indicated that there was a demand for equestrian properties, but Mr. Squier acknowledged that there were many different types, including private establishments. He accepted that the claimants' business was devoted to the purpose for which it had been established, and that there was undoubtedly an intention to reinstate, but the question was whether or not that intention was bona fide, in terms of the requirements under the 1961 Act.
- From an analysis of his comparables, Mr. Squier accepted that the only property he had produced that was a riding stables sold for that purpose was one at Bury St Edmunds, several of the other riding schools having been sold for other purposes such as use for racehorse training or development. However, he did not accept that that indicated there was no general demand - indeed the claimants had admitted that if the business had been put on the market, a buyer would be found and furthermore they had themselves purchased the business and paid a premium when they set it up in 1989. Although the turnover in relation to the overall number of establishments was acknowledged to be very low (similar in percentage terms to the number of farms sold annually), the fact was that there was a demand whereas with such properties as churches, social clubs run as charities or cattle markets, it had been held that there would be no demand.
- Regarding the viability of the business, Mr. Squier said that he thought the rent that was to be paid at Pond Farm was substantially above the open market rental value and included an element of repayment for the landlord's capital investment in new buildings. Even though the price per box figure at £15 per week was not out of line with the prices that had been paid for the temporary stabling, that had been short term longer term rates probably being negotiable. Mr. Squier said that in exercising its discretion on whether or not to apply rule (5), the Tribunal should bear in mind that it was possible to establish, under rule (2), an open market rental value (which he thought to be in the region of £12,500 and not the provisionally agreed £30,000 pa). In his view the costs of establishing and running the relocated business, particularly considering there were less loose boxes, made the project un-viable to the extent that no reasonable businessman would countenance investing his own money in the project.
- As to the time it had taken to get into the new premises, Mr. Squier did accept that the 3 months costs of temporary housing for the horses he had originally allowed was low, considering that there had been nowhere else suitable to go. However, he did think that the costs being claimed were such that the claimants should have considered getting rid of the horses until such time as the new premises were up and running, and it was unreasonable to expect the acquiring authority to fund those costs. Nevertheless, he acknowledged that during the period the horses were being temporarily housed, the business did continue to make profits.
- Regarding his valuation of the business, Mr. Squier acknowledged that he was not experienced in such matters. He said that in taking the average of the last 3 years' adjusted profits he had adopted the approach that had been taken in previous Lands Tribunal decisions. It was necessary to assess the past performance of the business although he acknowledged that a potential purchaser would, to some extent, consider the future prospects. The multiplier that he had used reflected those prospects which, for the reasons he had given, were not good. Two cases supported his use of a multiplier of 2 Shevlin v Trafford Park Development Corporation [1998] 1 EGLR 115 at 2.5 and Sceneout limited v Central Manchester Development Corporation [1995] 34 EG 77 at 2. In adjusting the profits it was necessary to exclude the value of the profit rent.
- In closing for the acquiring authority, Mr. Humphries pointed out that the claimants' business had not been acquired by the Company. The subject matter of the claim was the remaining unexpired term of the claimants' lease. The Company had already acquired the freehold of the subject property from the claimants' landlords. In his submission, the claimants had not reinstated the Tollgate facilities at Pond Farm those facilities having been provided by their potential new landlord, Beechcroft Retirement Benefit Fund (Mr. Nuttall) and none of the costs associated with the creation or provision of the facilities had fallen on the claimants. A claim, therefore, for the reasonable costs of reinstatement was totally inappropriate. It would not be right for the acquiring authority to compensate Mr. Nuttall for his commercial decision to provide the facilities that the claimants may or may not be using no formal lease or tenancy having been entered into or, indeed, even agreed as to terms.
- The correct description was that the claimants had relocated their business there, and it was the acquiring authority's case that the correct basis of assessment was, therefore, relocation unless, of course, the Tribunal formed the judgment that it was unreasonable for them to relocate, in which case the compensation should be assessed on the basis of total extinguishment. It should be noted, Mr. Humphries said, that the claimants' expert had failed to provide a relocation valuation despite being invited to do so by the Tribunal during the course of the hearing.
- Outlining the background to the establishment of rule (5) as an alternative basis of valuation, Mr. Humphries said that this must be seen as the exception to the normal open market rule as set out in rule (2), and will only be used where it has not been possible to establish an open market value under that rule. Typically, equivalent reinstatement is used where there is difficulty in arriving at an open market valuation such as with non-profit making organisations like churches, schools, theatres, hospitals and clubs. In Festiniog Harman LJ said (at 262):
- Whilst not suggesting that equivalent reinstatement was not available to a business, in such cases the criteria had to be considered very carefully. To establish that that was the appropriate method, it was important that the claimants were able to discharge the onus of proof that the four essentials as defined in Sparks were satisfied. They were spelt out as:
- There was no real issue between the parties as to (1) and it was agreed that Tollgate was a riding school and stables which, but for the compulsory acquisition, would have continued to be so devoted. However, it was the acquiring authority's case that the claimants' contention that that purpose should be narrowed to a 'riding school and stables serving the Gravesend District' was wrong. As Mr. Squier had said, there was nothing about the purpose to which this business was devoted that required it to be exclusively local to the area in which it was in fact situated, and Kolbe House Society v Department of Transport (1994) 98 P&CR 569 supported this view. This point was also particularly important in considering essential (2) demand or market.
- In Kolbe House, where the reference was concerned with the basis upon which compensation should be assessed, it was held that the subject premises (a home in Ealing run by a charity for the relief of Poles and other refugees from Central Europe) were devoted to the purpose of a non-profit making residential care home for poor, elderly persons of Central European origin. As such its purpose was different from de facto use as a residential care home available to a wide range of elderly persons from the community at large and there was no general demand or market for it. The Tribunal also further found that on the evidence of transactions produced there was no proven general demand or market for land for a residential care home for elderly people in and around the borough of Ealing, so the claimant would still come within rule (5).
- Mr. Humphries said that the specific purposes in that case were very much tied to the local community whereas, in the instant case, there was nothing in the purpose to which the land was devoted which required evidence of general demand or market to be restricted to Gravesend District, or indeed Kent. The decision also drew attention to the distinction made in the Sparks case between a non-profit making members club and a proprietary club which had market value to be found in the capitalisation of its net profits. In the present case Tollgate was not operated as a non-profit making body. There was nothing by way of charitable objects or anything else that tied the business into serving exclusively the local community. Whilst some of the claimants' clients were local there were others who came from further afield.
- In respect of essential (2), it was for the claimants to establish that there was no general demand or market for land devoted to the purpose of riding stables and school. It should be noted that the word 'general' applies only to demand, and not to market. That principle was established in Harrison & Hetherington Limited v Cumbria County Council (1985) 275 EG 457 where Lord Fraser stated (at 458):
- There was clear evidence that there was a general demand indeed, Mrs Norris accepted in response to a question from the Tribunal that if Tollgate had been put on the market at the valuation date, a buyer could have been found. Furthermore, it was recorded in the agreed statement of facts that Mrs Norris accepted the figure of £12,250 pa as the 'relevant open market rental value [for Tollgate] as at the date of entry'. For there to be a value, there must be a demand. It should also be remembered that demand for other land may exist even if there is no supply and thus no transactions.
- Two firms of equestrian agents Pelhams and Churchill, had both been advertising in Horse and Hound and indicated that they were 'urgently seeking further equestrian properties to meet the current demand'. Pelhams had stated in a letter to Mr. Squier that "we receive very strong demand for equestrian establishments, with our main area of activity in the south and south east of the country. Interest for established equestrian establishments can derive from a number of sources, not just from a Company or individual wishing to take over the existing activity. Such other interest can be from trainers, breeders and private individuals". They also gave details of two establishments dealt with in 1998 that included stabling and indoor schools.
- Having established that there was a demand, it was submitted that there was also a market. Mr. Squier's example of the Linkwood Riding Centre at Bury St Edmunds was a leasehold transaction and, despite the claimants' protestations to the contrary (in that it was not a freehold sale), provided an excellent example, in his own knowledge, of a deal relating to something similar to the subject property. It further gave an indication of rental levels in the market. The advertisements in Horse and Hound and the information that Mr. Squier had received from specialist agents all indicated that a market did exist.
- Mrs Norris's questionnaires and surveys, far from establishing that there was no market, served to confirm the very point that the acquiring authority was making that transactions did occur. Therefore the claimants had failed to establish the second of the four essentials under the Sparks case.
- In regard to essential 3 bona fide intention to reinstate - Mr. Humphries submitted that the claimants had not established any such intention because they had, instead, relocated their business to Pond Farm. As Mr. Nuttall had carried out all the capital works at his own expense, and the claimants had simply moved in and started using them, there could be no question of them physically reinstating the facilities. The claimants' failure to enter into a legally binding agreement for a lease at Pond Farm undermined their bona fides. They could, upon receipt of whatever compensation was determined, simply walk away and pocket the money.
- It was submitted that even if the Tribunal found that the first three essentials were satisfied, there were a number of factors that should dissuade it from exercising its residual discretion under essential (4). Firstly, the claim under the equivalent reinstatement head was so disproportionate to the value of what has been taken as to be unreasonable. In Festiniog Ormerod LJ expressed the following principle (at 257):
- In this case, it would be quite unreasonable, Mr. Humphries said, for the acquiring authority to pay £286,475 (Mrs Norris's revised assessment of excess rent) by way of equivalent reinstatement for an interest in land which the parties had agreed under rule (2) as worth only £23,416 (the residual value of the Tollgate lease). Bearing in mind the total claim was worth £645,417 (equivalent reinstatement), on the basis of Mr. Squier's assessment of the management and investment income for Tollgate for the past 3 years at an average of £17,419 it would take 37 years to repay the sum expended in connection with the reinstatement. If Mr. Startup's figures (estimating a loss) were taken, the situation became even worse. As he had said in his statement: "As a result of my analysis, I believe that if the business moves to Pond Farm it will not be able to make any profit nor even reach breakeven point. I do not believe any reasonable businessman using his own money would entertain undertaking the move to Pond Farm, Harvel".
- Mr. Humphries said that it was, of course, accepted that it would be reasonable for the Tribunal to allow a moderate degree of latitude, particularly in the light of Shun Fung but the level of expenditure claimed goes well beyond what even a family would consider reasonable in order to continue its business.
- It was submitted that in the light of these factors, the Tribunal should not exercise its discretion in favour of assessment under rule (5) as the claimants had, in reality, relocated their business, and compensation could properly be assessed on that basis. However, if it was concluded that to relocate the business was unreasonable, then compensation should be assessed on the basis of total extinguishment. There should be no doubt that the claim was manifestly unreasonable the sums being claimed, for such a small business, proving that. Furthermore, the reinstatement was not 'equivalent'. That could be seen from the difference in rental levels between the two locations. Whilst it was accepted that the £2,500 pa actually being paid was a discretionary rent, and the rental value of Tollgate was in the region of £12,250 pa, the proposed rent at Pond Farm was about £30,000 pa. If £30,000 pa was, as the claimants contended, the market rent, then there must be considerable betterment at the new premises. If it was held to be above the market rent then, clearly, it was unreasonable.
- There may well be a limited amount of betterment at Pond Farm for instance new stabling and a brand new indoor riding school, but certainly not enough to justify a more than doubling of the former site's rental value. It appeared that the new rent was intended to produce a 10 per cent return for the landlord's capital investment of about £300,000 but, as Mr. Squier had said, it would not be correct for the acquiring authority to pay compensation relating to the expenditure incurred by a third party. This was, in reality, tantamount to paying a windfall sum direct to the landlord.
- It was submitted that there was no reason why the acquiring authority should pay the claimants if they agreed to a higher rent. In Service Welding Limited v Tyne and Wear County Council (1979) 38 P&CR 352 the Court of Appeal said (at 357):
- Mrs Norris had said, in the counter submissions she produced in response to the 'hypothetical' relocation valuation in Mr. Squier's report, that "it is a fact the applicants have relocated; there is nothing hypothetical about it". Mr. Humphries said that, at the time Mr. Squier produced his original report, it was not known that the claimants were in fact relocating to Pond Farm, and he had therefore produced a relocation valuation on a hypothetical basis.
- In that valuation, as to goodwill, Mr. Squier had calculated this at £7,670 in his relocation valuation on the basis of the average of three years investment and management income, less the profit rent and then used a multiplier of 2 (which achieved £15,340) and then said that only 50 per cent of the goodwill would be lost to come back to £7,670. The claimants had not produced a goodwill valuation on the relocation basis, and it was submitted that, if anything, the acquiring authority's figure was generous. Mrs Norris had made it clear in her evidence that hardly any of the business's clients were lost following the move, and had said there was currently a waiting list for livery and lessons at the new premises. The only figure that Mr. Brightwell had produced was a valuation of the business as a whole, but did not give a separate, identifiable figure for goodwill.
- Mr. Humphries said that the value of the tenants improvements and fixtures (that were not re-locatable) was agreed at £4,100.
- Many of the figures for disturbance were agreed but the main area of dispute, and the largest disparity, was in relation to 'temporary loss of profits during initial trading at the new premises'. Also, whilst the claimants had claimed additionally for the cost of the temporary housing of the horses, Mr. Squier had included a figure for this in the temporary loss of profits figure. The approach he had used, analysing the adjusted average profits for the business for the 3 years prior to relocation (excluding the profit rent element), was to assume a 25 per cent reduction during the first year's trading at the new premises. This was submitted to be correct, whereas Mr. Brightwell's altogether different approach could only be described as 'wildly optimistic'. On the basis of the exceptionally rosy picture he had painted of the accounts in a no-scheme world situation (which assumed, in the absence of any evidence to support it, that the business was substantially blighted by the impending scheme), Mr. Brightwell then predicted loss of profits lasting for some 6 years amounting to some £314,000. This was completely unreliable, and bore no relation to the historical trading pattern of this small business.
- As to the total extinguishment valuation, it was submitted that Mr. Squier's approach, which was that normally adopted by surveyors (and indeed was the same approach as Mrs Norris had used although arriving at substantially different figures) was correct. However, Mr. Brightwell's business valuation (which was a proxy for an equivalent reinstatement valuation) followed a completely different approach. His comment that the present case does not fit easily into the accepted methodology for arriving, under rule (2), at an open market value of the land was unacceptable particularly as both the expert surveyors had adopted that very approach.
- Mr. Brightwell was an accountant with an admitted lack of knowledge or experience in valuing interests in land. The plain fact was that the acquiring authority had not purchased the business even on a total extinguishment basis it was not a going concern that was acquired, but an existing business that was extinguished, and there were differences to be taken into account. His analysis of the accounts, and projections for future income predicted levels that in reality would be unsustainable. As an example, it was submitted that it was not credible that a reasonable businessman would value a business on the basis, as Mr. Brightwell had, of projected livery income of £133,000 per annum when the actual accounts showed total income for the last available full accounting year (to include lessons) of only £115,000. This was especially so as there were substantially fewer stables at the new premises.
- Mr. Brightwell's inclusion of the 'benefit' of stabling for 4 of the owners own horses was considered to be inappropriate, as was the removal from the equation of bank interest. The projected adjusted annual profit of £90,000 per annum could only, Mr. Humphries said, be described as extraordinary bearing in mind the actual profits for the 3 years ending May 1996, 1997 and 1998 were £10,417, £16,166 and £30,138 respectively.
- The P/E ratio that he had used, crudely based on an average of all those reported in the Stoy Hayward Private Company Index (which reported across a wide range of businesses and industries), took no account of the specific circumstances of the Tollgate business and, at a figure of '4 to 5' was wildly inaccurate.
- The additional head of claim that Mr. Brightwell had included - £50,000 to £100,000 for 'intangible assets' was also wholly inappropriate and, it was submitted, should be totally disallowed.
- Finally, on the question of the acquiring authority's claim that the eviction costs should be deducted from any compensation awarded, Mr. Humphries submitted that the Lands Tribunal had no jurisdiction to determine that matter. Whilst s.6 of the Compulsory Purchase Act 1965 ("the 1965 Act") allows a claimant or an acquiring authority to refer a question of disputed compensation to the Lands Tribunal, following compulsory purchase, s.13(3) of the 1965 Act allows an acquiring authority to deduct and retain from the compensation payable, the costs of the issue and the execution of any warrant for possession. Those deductions are, therefore, not in themselves issues of disputed compensation, but sums that may be deducted following the determination.
- There was no reported case in which the Tribunal had exercised any jurisdiction over the entitlement to, or the quantum of, eviction costs. In Matthews v Lewisham London Borough Council (1982) 263 EG 266, referred to in the claimants' closing, Mr. Humphries said it was quite clear that the acquiring authority sought to have the Tribunal deduct the eviction costs from the total compensation, but quite rightly the Tribunal declined to do so; in other words it refused jurisdiction.
- In the event that the Tribunal decided it had jurisdiction, the acquiring authority submitted that it had acted entirely reasonably and in accordance with the instructions of the Sheriff of Kent and the Kent Police. In this regard, and as to the costs claimed, it was content to rely upon the evidence of Mr. Nottrodt and Miss Wakeford.
- Mr. Lewis submitted that compensation should be payable under rule (5) equivalent reinstatement. The single most important and fundamental principle to govern the Tribunal's decision must be that the claimants were entitled, under the 'principle of equivalence', to be compensated fully for the losses they had suffered as a result of the scheme. They were entitled to be put into a position, as far as money could do it, to that which they would have been in had the scheme never been proposed subject, of course, to it being accepted that they needed to act reasonably, and not incur unnecessary expense.
- The acquiring authority's assertion that the claimants had not, in fact, reinstated but relocated their business was, Mr. Lewis said, mere sophistry. The words were synonymous. It made no difference whether the cost of providing the facilities at Pond Farm was financed by the landlord or a bank. The re-establishment of the business had involved more than simply providing new buildings, and it was not right to characterise the claim as being recovery of the capital sums expended, somehow disguised as capitalised rent. To portray the claim, as the acquiring authority had done, as one which would effectively compensate the claimants' new landlord was also wrong. There would be no more of a windfall to him than any gain which a landlord would achieve from finding new tenants. The losses claimed were entirely those of the claimants who were faced with the stark choice of either closing down or re-establishing the business elsewhere. If the claimants were not to remain at Pond Farm, the new landlord would not receive any benefit. The claimants would have to use the compensation monies to re-start their business in another location.
- Mr. Lewis also said that for the acquiring authority to emphasise that all that was acquired was a leasehold interest was nothing to the point. The disruption caused to the claimants had been significant, principally in terms of lost profits and the higher rent that they would now be required to pay in order to keep their business running in a new home.
- Mr. Lewis said that the 4 essentials referred to in Sparks were satisfied. The purpose to which the land was devoted, and that, but for the compulsory acquisition, that use would have continued was agreed between the parties, and so essential 1 was satisfied.
- As to essential 2 no general demand or market Mr. Lewis referred to Wilkinson v Middlesborough Borough Council (1983) 45 P&CR 142, in which Sir David Cairns said (at 154):
- This approach was followed in Kolbe House where Dr Tom Hoyes said (at 588):
- This was exactly the situation in the instant case. The claimants business was only capable of being reinstated locally the overwhelming majority of the clientele being local to Gravesend and its immediate environs. To move the business outside the area would have been the establishment of a new business. No evidence had been produced to establish that there was any general market or demand within the relevant area. As had been established in Kolbe House evidence of a market must relate to freehold transactions little assistance being afforded by the grant of leases. Mr. Squier had produced no evidence of actual freehold transactions relating to properties that were devoted to the precise purpose to that which applied at Tollgate, and only one leasehold transaction that was in Suffolk. Surely, Mr. Lewis said, that must prove that there was no general or market demand within the area.
- Also, Mrs Norris's own questionnaire and surveys had revealed only a very limited number of transactions over a 9 year period, this indicating an intermittent and spasmodic market, rather than a general one. Having said that, Mr. Lewis acknowledged that the word 'general' in this context applies to demand rather than to market. Nevertheless, 'market' means general buying and selling and, in retracting her description, in evidence, of the 'appropriate' rent for calculation purposes at Tollgate as 'market rent' Mrs Norris was saying that, with no transactional evidence available, market rent was the wrong term. Any evidence of demand for equestrian properties generally should be ignored as irrelevant to this case but, Mr. Lewis said, other equestrian properties were relevant in establishing the appropriate rent for Pond Farm. As had been proved in evidence, the rent-per-box levels paid for the temporary housing of the horses were in line with the proposed rental figure that had been agreed.
- It was submitted, in the light of the above that essential 2 was satisfied, there being no evidence from which it could be concluded that a general demand or market existed for riding schools.
- Usually, in establishing whether there was a bona fide intention to reinstate, as set out in essential 3, the reinstatement had not taken place. However, in this case, the business had already reinstated to Pond Farm and there could be no question, therefore, that this essential had been satisfied. Many of the same horses were being used, and many of the business's customers were the same. The business had the same management and, applying the tests as to what constituted a particular business as set out in Shun Fung, it was submitted that the claimants' business now operating from Pond Farm was the same business as had been carried on at Tollgate, and it had therefore been reinstated.
- Whatever Mr. Squier had said in his report about the financial implications of such a move, and whether or not a reasonable businessman would use his own money, he had accepted in cross-examination that essential 3 was satisfied and that was the claimants' submission.
- Regarding essential 4, Mr. Lewis said that as a matter of law, all relevant circumstances should be considered by the Tribunal when deciding whether to exercise its discretion on rule (5). There were three factors that were relevant in this case. Firstly, the statement made to the claimants in 1993 by Martin Oakley of the Company that "it would be like picking you up and putting you down over there". As a result they felt assured as to their future and took no steps to petition against the proposed scheme. Secondly, the Tribunal should consider the valuable service provided to the local community by the claimants' business, and the support that had been received in respect of the planning application for the reinstatement of the business at Pond Farm. As with the Liberal Club in Sparks, the business served a valuable local purpose, and in this case was an important educational and recreational resource.
- The third factor related to finance. Claimants are expected to mitigate their loss and cannot claim for expenditure unreasonably incurred. As cited in Shun Fung, there is no rule that a claimant can never be entitled to reinstatement compensation if that exceeds the amount payable on a total extinguishment basis, and the test is whether no reasonable businessman would invest his own money in the reinstated business. The acquiring authority's argument that it would be unreasonable to pay the claimed £286,475 for an interest in land that had a residual value of only £23,416 was flawed. It was not just compensation for the residual value of the lease that was being claimed, but for the consequences of the acquisition and the losses the claimants had suffered.
- It was to be remembered that the value of the Tollgate land, if it was to be considered as a separate item, was the value to the claimants, and as had been made clear, they would be prepared to pay more for it to enable them to stay where they were. As Lord Nicholls said in Shun Fung (at 852):
- Mr. Lewis said that the test adopted by the court (e.g. in Festiniog) was whether the cost of equivalent reinstatement was proportionate to the value of the business, and the only expert evidence that had been produced on the value of the business was that of Mr. Brightwell.
- In considering whether to exercise its discretion, the Tribunal should also consider the nature of the claimants themselves and their business. The Australian case of Commissioner of Highways v Shipp Bros Property Limited (1978) 19 SASR 215 was helpful in this regard where it was stated (at 221):
- Tollgate was a family business and, Mr. Lewis said, this approach ought to apply to it. The evidence from Mr. Prielipp and Mrs Kennerly confirmed that it was far more than just a business, and was certainly a way of life. Mr. Brightwell had valued the business at £475,000 by assessing what it would have made if offered in the market assuming a willing seller and a willing buyer. He had made the point that it would be the purchaser with the most optimistic view of the future prospects for the business who would be successful, so it was logical that the predicted sustainable profits were a more appropriate basis for valuing than just looking at past performance. Mr. Startup had agreed with this premise, and it was submitted that Mr. Brightwell's forecast sustainable profits were founded in reality (based upon what had actually been achieved), and not purely speculative.
- The multiplier that Mr. Brightwell had applied to those profits at 4.5 was below the accepted Inland Revenue range, and thus reasonable. He had used his professional experience to calculate the estimated value of the intangible benefits of the business, and Mr. Lewis said, on the basis of his extensive experience in valuing businesses his approach overall was correct, and should be adopted by the Tribunal. Conversely, the acquiring authority's approach, by two experts who had little experience of valuing businesses was flawed. It was wrong for Mr. Squier to look just at the value of the land and add a figure for goodwill. In businesses where the value of the land is the major asset this might be a reasonable approach, but in this case a valuation of the business was necessary. As had been said, a purchaser would look at what was potentially achievable and would base his bid upon that prospect.
- The use of a multiplier of 2 (the figure adopted by Mr. Squier) had an inevitable result of producing a relatively low value for a business which may have healthy profits, but which did not have significant assets. Both Sceneout and Shevlin cited by Mr. Squier in cross-examination were businesses with significant assets. It was clear that in Sceneout the member did not even use a yp multiplier to arrive at his award. In Mallick the Tribunal adopted the same approach as Mr. Brightwell. It calculated compensation by multiplying the annual income received (from a property let out as furnished tenancies) by 4.25 and paid no regard to the value of the underlying freehold property.
- It was submitted that the acquiring authority's experts had also failed to pay sufficient regard to the business's future potential, and the resultant valuation by Mr. Squier bore no relation to the value placed upon the business by the claimants when they purchased it in 1988. Mr. Squier had no concrete examples of actual transactions upon which to base his valuation and, Mr. Lewis said, Tribunals' attitudes where there was a dearth of comparables was well known. On the other hand, it was submitted that Mr. Brightwell's valuation was based upon a the very best available data of actual market sales having had regard to the BDO Stoy Hayward and Inland Revenue statistics. These showed the consistent level of P/E ratios and proved that, if anything, Mr. Brightwell's use of 4.5 was conservative. Indeed, the Inland Revenue manual stated that a company sold as a going concern "will usually be valued by reference to future maintainable earnings" whereas the acquiring authority's approach of valuing the tangible assets of the business as if on a break up would only be appropriate where the outlook for the business was bleak. There was nothing to suggest that the outlook for Tollgate was bleak. In reality, Mr. Lewis said, Mr. Squier's assessment of the value was absurd. Even if Mr. Brightwell's figures were optimistic, and a purchaser just assumed that the profits achieved in the last full year of trading prior to the eviction would be maintained, Mr. Squier's figure meant he would achieve a 50 per cent return. That was not an appropriate return on anything other than the riskiest of businesses.
- Thus, it was submitted that Mr. Brightwell's assessment of the value of the business at £475,000 was correct, and this needed to be compared with the reinstatement claim of £286,475. That figure related solely to the difference in rent that the claimants would have to pay as a result of their move, capitalised over 20 years a reasonable period bearing in mind the business would be assumed to continue for at least that time if it had remained at Tollgate. Mr. Lewis said that it was not legitimate to add the figure for disturbance to the value of the business in order to ascertain whether a reasonable businessman would reinstate. Disturbance items were not matters which a prospective purchaser would reasonably have to take into account when assessing whether to invest his own money. He would not, for instance, incur the costs of finding and utilising temporary accommodation or double-moves that a forced relocation entails.
- Even in the actual circumstances of this case, disturbance costs would have been very much lower if the problems that had been caused by the Company, as recited at length in evidence, had not occurred. The approach of ignoring the disturbance costs (or most of them) in judging whether a reasonable businessman would relocate is supported by Linden Print which was a total extinguishment case where the acquiring authority argued that the claimant had failed to mitigate its loss by reinstating elsewhere. The claimant did not possess sufficient funds to allow a reinstatement and went out of business. The Tribunal accepted the principle that the claimant should not be prejudiced by its inability to fund a relocation. In the present case the claimants have reinstated, but, as in Lindon Print, they should not be prejudiced by the fact that, in the absence of adequate compensation, they were not in a position to afford a complete move sooner, and thereby save part of the disturbance costs.
- In summary, therefore, it was submitted that it cannot be concluded that a reasonable businessman would not have used his own money to relocate, at an estimated cost of £286,475, a business worth £475,000.
- In determining the question of whether £286,475 constituted a reasonable sum for the equivalent reinstatement, Mr. Humphries' arguments that there had been betterment at Pond Farm needed to be considered. The presumption of betterment is rebuttable, as confirmed in Service Welding and approved by the Court of Appeal in Mallick, and in the claimants' submission it had been rebutted in the present case. Whilst there are some aspects of Pond Farm that are better, there are others that are worse than at Tollgate fewer stables and further from Gravesend and suffering more planning restrictions. In the round, the facilities are no better and no worse. The new rent cannot be considered excessive in the light of the prices that had to be paid for the temporary stabling, and it was due to the fact that, being owned by a Trust, Tollgate rent was not maximised. Also, bearing in mind the fact there was no market, it was not surprising that there should be large variations in rent. Furthermore, in negotiating terms for Pond Farm, the claimants had no choice, it being their only option. The business was locally based and a reinstatement, rather than starting up a new business in a completely new location, was only possible in the same general area. It was submitted, therefore, that the accommodation at Pond Farm was equivalent, and the cost claimed was reasonable.
- The acquiring authority stated that it was possible to arrive at a 'proper and fair' relocation valuation under rule (2). That rule allows for compensation to be based upon open market value. Mr. Lewis said that a relocation valuation can only reflect the actual relocation or reinstatement costs that have been, and are to be, incurred as a result of the compulsory acquisition, and that is the same as the figure being claimed under equivalent reinstatement and disturbance.
- If compensation were to be calculated on the basis of total extinguishment, then what the claimants should be paid is the value their business would have achieved if put up for sale, less any return obtained on the forced sale of any assets they were left with. It is therefore difficult to follow the acquiring authority's assertion that Mr. Brightwell's valuation does not fit into the requirements of rule (2). The compensation code does not lay down the methodology for valuation, and it is for the Tribunal to decide which of the two different approaches is preferred and reflects what the claimants have actually lost.
- As to the corrected disturbance claim of £358,942 Mr. Lewis said it could not be maintained that it was unreasonable to continue to pay for the temporary accommodation for the horses beyond the 3 months that Mr. Squier had suggested as appropriate. Horses were not commodities that could simply be disposed of and replaced. The majority were held in livery, and even during that time the business made a profit. It could be argued that if the claimants had disposed of the horses, they were failing to mitigate their losses by disposing of the principal source of income.
- The loss of profit element which formed the most substantial element of the disturbance claim had been recalculated by Mr. Brightwell to remove any possible double counting. Whilst it was accepted that there must be an element of speculation it was the claimants' submission that Mr. Brightwell's figures were robust. The acquiring authority's challenges to the constituent parts of his calculations had stood up to scrutiny.
- Eviction costs amounting to £60,117 were sought by the acquiring authority to be deducted from whatever compensation the Tribunal awarded. Contrary to the acquiring authority's view, Mr. Lewis said that those costs were but one element of the calculation of the total compensation due, and were, therefore, subject to review by the Tribunal.
- s. 13(3) of the 1965 Act provided that what is recoverable are "the costs accruing by reason of the issue and execution of the warrant, to be settled by the sheriff". In this case, the only costs to which the sheriff had put figures were his own charges at £11,584.91, no reference being made to any of the other claimed costs and nothing being 'settled'. All the other people at the eviction (lawyers, surveyors, vets and grooms) were engaged by the Company and not the sheriff. Those people were not required in order to take possession of the property "by reason of the issue and execution of the warrant", and their fees, therefore, were not costs incurred as part of the eviction.
- In the claimants' submission, in the absence of a figure "settled by the sheriff" there was no statutory basis on which any costs could be deducted from the compensation due to the claimant and in any event, the great majority of the claimed costs were not recoverable as they were not part of the execution of the warrant. At most, it may be contended that the costs of about £11,500 have been 'settled' although even the sheriff's bill has not been 'settled' for the purposes of s.13(3).
- Whatever the situation may be regarding this Tribunal's jurisdiction, Mr. Lewis said it would be entirely wrong for any eviction costs to be deducted in a situation where the eviction was completely avoidable, and could have been avoided if proper procedures had been implemented, and the acquiring authority had acted properly. There was overwhelming evidence that the claimants had resigned themselves to the fact that they would have to move and, despite what he had said in his statement, Mr. Nottrodt accepted in cross-examination that the claimants had not stated openly that they did not intend to move or that they had made any threats of resistance. Whilst Mr. Nottrodt had obviously been under the false impression that that a forcible eviction was required, the facts were that nearly all the claimants' equipment had been removed by the eviction date, they had made arrangements for temporary housing of the horses and were still awaiting a response from Mrs Norris's letter to him of 14 October 1998. There had been a gross failure by the acquiring authority to act reasonably towards the claimants.
- Perhaps if the normal procedure had been followed, and the sheriff had visited the claimants prior to the eviction to impress upon them the fact that, unless they went, a forcible eviction would take place, the procedure that was eventually adopted would have been avoided. Indeed, the sheriff had expressed concern about this in a telephone conversation with Miss Wakeford on 20 October to the extent that he suggested the acquiring authority alter its procedures in future to allow such visits. He had also said, in a letter to Miss Wakeford dated 7 October, "with proper notice a Sheriff's Officer can visit the persons he is to evict. He can often reason with them and arrange for them to leave peaceably. This can save time and costs". Mr. Lewis said this recommendation was not acted upon and there was no reason why the claimants in this case should be financially prejudiced by those failures.
- In Lindon Print the claimant company had been evicted from its premises, and the sheriff had written saying that he had been instructed to proceed with his warrant, and would execute it if possession were not given. No such letter was written in this case, and the claimants were deliberately kept in the dark. Mr. Lewis said it may be no coincidence that in Lindon Print no deduction for eviction costs was either sought or made, and that it might be assumed that due to the sheriff's action, the eviction was a formality.
- Mr. Tuckwell had been specifically told that no eviction was to take place and Mr. Prielipp had said in his evidence that if the claimants had known what was going to happen, there would have been no horses on the site at all. He said that Mr. Nottrodt knew that, and it was therefore completely unnecessary for the acquiring authority to take the action it did. It was the duty of the acquiring authority, as much as it was the duty of the claimants, to mitigate losses, but in this case, in connection with the eviction, it was submitted that they had been maximised.
- Furthermore, if the Company had allowed the claimants to relocate their business to Knights Place, on a temporary basis over the winter months, that would also have served to mitigate the losses that were being claimed.
- The Matthews case was one in which the Tribunal disallowed eviction costs in their entirety, and Mr. Lewis submitted that the same should apply here. Contrary to the contention by Mr. Humphries that the Tribunal 'refused jurisdiction' to make a deduction for eviction costs, it was apparent from the wording of the decision that it had, indeed, considered them and disallowed them a different matter. Mr. C R Mallett FRICS said (at 181):
- Mr. Lewis said that in case this issue should proceed to appeal, the Tribunal was invited to declare what the appropriate eviction costs should be, and whether it considers it does or does not have jurisdiction to rule upon it.
- In summary, Mr. Lewis said it was hard to understand the acquiring authority's case. It appeared to now maintain that compensation should be based upon the cost of relocation, despite initially having plumped for total extinguishment and maintaining that it was 'unreasonable' for the claimants to relocate. Whilst stating that actual relocation costs should be the appropriate basis of compensation, the acquiring authority then concluded that the actual costs, as claimed, were too high. This was attributed to betterment, but the authority reached the conclusion solely on the basis that the Pond Farm rent was significantly higher than that which was either paid or considered appropriate at Tollgate. It seemed to be forgotten that the presumption of betterment was rebuttable.
- The acquiring authority's argument that the payment of compensation on the basis claimed would be effectively providing a windfall to the new landlord was deeply flawed. They were not seeking to recover the capital cost of the new facilities that were being provided for them, but the additional rent that they were obliged to pay as a direct result of the compulsory acquisition.
- The evidence showed the claimants to be genuine people who were determined to continue to operate the business that they loved. It also showed that there was no available alternative location to which they could have relocated and retained their clientele, other than Pond Farm. The rent they will have to pay there is comparable, on a per-box basis with prices charged elsewhere, and the costs they have incurred in moving there, over an extended period of time, are high as a result of the actions of the acquiring authority. In all the circumstances, Mr. Lewis said, the claimants could be forgiven for concluding that they have been treated outrageously by the acquiring authority.
- The first issue to be determined is the basis upon which compensation should be calculated. The claimants argue for the costs of equivalent reinstatement under rule (5), on the premise that the essentials in Sparks are satisfied, together with a significant sum for disturbance, that sum being so high largely because of the acquiring authority's actions. The acquiring authority's case was that the claim should be treated as a relocation, and compensation thus calculated in accordance with rule (2), or total extinguishment as the claimed costs were so disproportionate to the value of the business that no reasonable businessman would contemplate relocating to Pond Farm, as the claimants had now done.
- I look initially at the claim for equivalent reinstatement and the essentials that need to be satisfied before this Tribunal can exercise its reasonable discretion and make an award on that basis.
- I note that there was no real issue between the parties that the subject land was devoted to the purpose of riding school and stables including the provision of the full and working livery facilities that formed part of the business. It was also agreed, and was evident from the claimants' statements, that were it not for the compulsory acquisition, the business would have continued for at least the foreseeable future, and the purpose for which the land was being used land would, therefore, have continued to be so devoted. Mr. Startup had concerns over the viability of the business even if it had stayed where it was, particularly due to the effect that a substantial increase in the rent (from the 'minimal' £2,500 pa being paid) would have had. However, I am satisfied from the evidence and the accounts that not only was profitability beginning to show some semblance of acceptability by 1998, there would also have been, in the no-scheme world, potential to increase turnover (by, for instance, increasing charges to market rates) and thus earn sufficient to cover the increased rent. I find that essential 1 has been satisfied.
- The question of whether or not there was a general demand or market for the land, and the evidence relating to that aspect requires much closer scrutiny, the parties being diametrically opposed on this point. Mr. Lewis said that it was necessary to identify the geographical area to which the evidence must relate and submitted that the relevant area for the purpose was the catchment area of the former Tollgate Riding School. In Kolbe House the Tribunal, having found that there was no general demand or market for a home for Polish and other refugees of Central European origin, considered it relevant, in case it was wrong in law on this narrow finding, to look at the wider purpose of residential care homes for the elderly. It restricted its consideration of the market to the demand for residential care homes for the elderly of Ealing, because in serving the needs of local people, the home needed to be located locally for instance, to facilitate access by relatives. There was no question that residential care homes were needed, and existed, throughout the country, but in Kolbe House the Member restricted his analysis of the evidence to transactions in the local area. It was found that, at the relevant date, there was no such demand, and thus rule (5) applied. There was nothing, Mr. Lewis said, to distinguish that case from the instant reference.
- On the other hand, the acquiring authority said that whilst the specific purposes in Kolbe House were very much tied to the local community, in this case there was nothing in the purpose to which the land was devoted that required evidence of general demand or market to be restricted to the Gravesend area, or even Kent.
- In this regard, it is helpful to look at what was said in Kolbe House. Dr Hoyes said (at 587):
- It seems to me that the Member in Kolbe House, having accepted that due to its limited purpose, restricted availability (for acceptance of residents) and specialised nature as a home for Polish and other refugees of Central European origin, there would be no general market or demand, then considered the wider use in the context of Kolbe House's constitution. In other words, as suggested by Mr. Humphries in closing, he was merely looking at whether removing the restrictions referred to so that the purpose to which the home was put could be extended to occupation 'by the elderly people of Ealing', but otherwise within the confines of a charitable residential care home, would have any effect on demand or market. He concluded that, at the relevant date (June 1994), there was no evidence of such demand in Ealing. Whilst there had been transactions, none of them fell within the 'area', and in accordance Sir David Cairns's comments in Wilkinson, he had confined consideration of the evidence to Ealing and its immediate environs.
- As Mr. Humphries pointed out, there was reference by the claimant in Kolbe House to the distinction in Sparks between a charitable, not-for-profit organisation (which Kolbe House was), and a commercial enterprise upon which a market value could be established by capitalisation of net profits. He said that a charitable institution with a limited catchment and charitable objects that might restrict its modus operandi or tie its activities to a particular locality would serve to narrow any potential market, whereas Tollgate, which was to all intents and purposes run as a commercial partnership would not suffer such restrictions in terms of demand or market.
- Whilst the clientele for Tollgate would, as with a residential care home, be predominantly made up of local people, the difference in this case is that, as Mr. Humphries said, we are here looking at a commercial enterprise that is not subject to charitable status or the other restrictions that applied in Kolbe House. The evidence did show that the majority of Tollgate's clients were local, but there were others from further afield, including Mr. Gordon, who gave evidence to that effect. I accept that, in terms of where their clients came from, the claimants would be reliant upon people within reasonable travelling distance of the subject property. However, if they were to relocate elsewhere, outside the immediate area, they could expect to build up a new client base from the vicinity of that new location as general demand for riding schools and livery facilities is not confined to Gravesend. As Mr. Humphries pointed out, rightly, if the claimants were to lose goodwill because they moved so far away that they lost all their existing customers, that loss was a valid head of claim for compensation, as was loss of profits caused by the disruption of the move, and whilst the new business was being built up. I therefore accept Mr. Humphries's submission that there was nothing to prevent the proprietors of Tollgate operating outside the Gravesend area, and there was nothing in the purpose to which the land was devoted which required evidence of general demand or market to be restricted to the Gravesend district.
- I do not accept Mr. Lewis's submission that, in re-establishing the business elsewhere, the fact that the same type of customer would be found anywhere, (as Mr. Squier had said) was erroneous and based on a misunderstanding of Kolbe House. As I have said, I consider the circumstances of Kolbe House to be sufficiently different to be of little assistance in this case.
- Mr. Lewis said that further justification in reducing the catchment area for the purpose of deciding upon whether or not there was a general demand or market, was that rule (5) concerns equivalent reinstatement, and the claimants' business was only capable of being reinstated locally. To have to re-establish the business so far away that local customers and clients would not be retained would mean that the old business was effectively closed down, and a new business was established. A new business was not reinstatement. The factors that made up a business had been enumerated in Shun Fung.
- The relevant passage read (Lord Nicholls at 855):
- It is, as stated in the final sentence of the above extract, a question of fact and degree. In Mr. Lewis's submission, the connection of Tollgate to the local community was particularly strong, not only in respect of the clientele for lessons, who were predominantly local people, but also the fact that many of the livery horses were also owned by local residents. Thus to remove the business anywhere other than the vicinity of Gravesend would mean that the business would, effectively, have to start again.
- Rule (5) will apply if the original purpose to which the land was devoted can be reinstated at whatever location is chosen, however far away. In my judgment, the agreed purpose, as already determined, could be reinstated at a location other than that which fell within Tollgate's then current catchment area. A commercial riding school and stables could be established in virtually any location (subject to it being accessible to prospective customers and clients), and I therefore conclude that, in all the circumstances, rule (5) could apply in this case.
- Turning now to consider whether, in this case, there was a general demand or market, Tollgate was, as I have said, a commercial enterprise, and one of over 700 riding schools approved by the British Horse Society in the UK. It had, as the evidence showed, a wide remit in that it undertook lessons for all age groups including Riding for the Disabled, and provided both working and full livery. Planning permission existed for those purposes, and that permission (contrary to the situation at Pond Farm) was not subject to conditions. The business had expanded substantially from when it was first established in 1989, and was beginning to show reasonable profits (although I accept Mr. Startup's concerns that some items in the accounts appeared unrealistically low). I cannot believe that if that business, together with the tail end of the lease under which the claimants occupied the land (the lease being protected under Part II of the Landlord and Tenant Act 1954), would not have found a buyer if offered to the market in October 1998. By then the country had emerged from the recession that was still seriously affecting businesses and the property market in June 1994 (see Kolbe House), and may well have had an effect on the number of transactions taking place in the residential care homes sector generally as well as all other sectors at that time.
- Indeed, Mrs Norris said in evidence, and in response to a question from me, that if the claimants had chosen to market their interest in 1998, "a buyer would have been found". Furthermore, she said that the claimants paid a premium for the business, which at the time was run down and had a bad reputation locally, when they acquired it in 1989, and that, in my view, was an indication that there was a market.
- Mr. Lewis said that, in considering the nature of evidence that was relevant to establishing whether there was a general demand or market for riding schools (whether locally or farther afield), it was necessary to have in mind the specific purpose for which the land was used. The acquiring authority's evidence had focused on equestrian property generally, which was extremely diverse in nature, and almost none of it related to riding schools in particular. The one riding school leasehold transaction that was mentioned should not be considered, not only because of its location in Suffolk, but because it had been held in Kolbe House that "hitherto little assistance could be considered to be afforded by the grant of leases". Also, any land which may have been devoted to the relevant purpose, sold or acquired for another purpose, should be excluded from the evidence and land advertised for sale, but against which there was no record of a transaction having actually taken place, is also to be ignored.
- I agree with much of what Mr. Lewis said, although it has to be remembered that Tollgate's remit was fairly wide and was not just a riding school, but also a yard where livery services were available (other than do-it-yourself livery). As to the weight to be given to evidence of leasehold transactions, Mr. Humphries said that although the Tribunal expressed reservations about using leasehold transactions in the case of Trustees of the Manchester Homeopathic Clinic v Manchester Corporation (1970) 22 P&CR241, the Court of Appeal expressed no opinion in Wilkinson as to whether the Tribunal was correct in that approach. Thus the courts have not endorsed the Tribunal's approach in Manchester and it remains open to the Tribunal, having regard to the individual circumstances of the case, to decide whether evidence of leasehold transactions is of assistance. In my view this is correct, as I can see no reason why just because a claimant buys or sells an interest in a property that is subject to the terms of a lease, that transaction cannot be taken into account for the purposes of establishing market or demand. Indeed, the Lands Tribunal determined, in Runcorn Association Football Club v Warrington and Runcorn Development Corporation [1982] 2 EGLR 216 that rule (5) can also apply in the case of a leasehold interest that had more that 1 year's unexpired term at the date of the Notice to Treat.
- Looking now at the specific evidence provided by the experts, Mrs Norris undertook a substantial amount of research to prove that there was no such general demand or market and produced analyses of her questionnaires and surveys. She said this showed that whilst there had been some transactions over the 8 year period she had investigated, it was evident that demand was no more than sporadic or intermittent, and was certainly not general. Also, not all sales or lettings were necessarily for the same purpose. I agree that the number of transactions demonstrated a limited market, but I am not satisfied that it proved a lack of general demand. In coming to that conclusion, I have taken account of Mrs Norris's own statement that if the claimants had offered their business to the market, in her professional opinion it would have sold. Also, they acquired the business in 1989 in the open market, and paid a premium for it.
- Mr. Squier relied principally on one leasehold transaction in Bury St Edmunds and accepted that he was unaware of any others. However, in referring to just one issue of Horse and Hound it was evident from that, together with the letters produced from specialist equestrian agents, that there was a market for such properties. Mr. Lewis submitted that the claimants evidence in Kolbe House suggesting that the existence of specialist agents dealing with the marketing and sale of residential care homes was indicative of a market and demand, was not accepted by the Member, in that he still found there was no general market or demand for residential care homes in Ealing. That is precisely the point he was, as explained above, looking at a very limited catchment area, whereas I have concluded here that it was not necessary, in the instant case, to look just at the Gravesend district.
- I therefore determine that there was a general demand or market for the subject property, and essential 2 is not satisfied. As a result, it is not necessary to consider the third essential - whether or not there was a bona fide intention to reinstate. However, on that subject, as will be seen from my conclusions in respect of the appropriate basis upon which compensation should be calculated, and the fact that a reasonable businessman would, in my judgment, contemplate investing his own money, a bona fide intention to reinstate would have existed.
- The fact is that the business has physically relocated to Pond Farm and at the time of my inspection in October 2001, it was operational in that there were a reasonable number of customers on the premises, lessons were taking place and most, if not all, the loose boxes were occupied. The new indoor riding school was nearing completion and, according to the claimants, there were few outstanding works required other than concreting the main entrance area, completing the wc facilities and effecting repairs (which would be the subject of an insurance claim) to the tack room and store that had been damaged in a ram-raiding attack. It was anticipated that all the works would be complete by the end of the year.
- I accept that when Mr. Squier prepared his initial report, he was unaware of all the circumstances surrounding the claimants' move to Pond Farm, and that he now acknowledges compensation could reasonably be assessed on the basis of relocation, subject, of course, to the proviso that the associated costs did not mean that such a move was not economically worthwhile. In my judgment, as I have said, the business has relocated. It is possible, as the evidence has shown, to establish a value for the land under rule (2), and that is what is necessary in order to decide whether compensation should be based upon relocation or total extinguishment rather than equivalent reinstatement.
- The claimants' expert did not produce a relocation valuation as such, but I consider there to be sufficient information from the evidence relating to the equivalent reinstatement claim, and the alternative total extinguishment calculations that were forthcoming, to make a robust judgment as to the relevant figures. In that regard, and mindful of the plethora of information and calculations that were produced in evidence, I propose to follow the approach in W Clibbett Ltd v Avon County Council [1976] 237 EG 271 where the Tribunal (Sir Douglas Frank QC, President) said:
- This will be the same on both total extinguishment and relocation bases. The residual value of the Tollgate lease was agreed by the parties at £23,416, based upon a rental value at October 1998 of £12,250 pa., Mrs Norris having accepted Mr. Squier's assumption that it would have been likely, at the next rent review on Tollgate due May 1999, that the rent would have been increased from £2,500 pa to £7,375 pa (a figure midway between its real rental value and that being paid) until the end of the lease, and then to £12,250 on the grant of a new lease. Although, according to the signed statement of agreed facts, the rental value was agreed as £12,250 pa, Mrs Norris insisted, in evidence, that that could not be regarded as open market rental value, as there was, in her opinion, no market. However, she was happy for it to be used as an 'appropriate' rent for the purposes of calculating the residual value of the lease.
- Mr. Squier, in assessing the rental value at that level had taken into account the fact that the rateable value, fixed in 1995, was in that sum, together with an analysis of rents agreed on Haggis Farm, Barton, Cambridgeshire and Linkwood Riding Stables, Bury St Edmunds. On the basis of Mr. Squiers analyses, and from the fact that Mrs Norris had agreed that sum, there is no reason for me to interfere with that figure.
- The second item is value of tenants fixtures, agreed at £4,100.
- The compensation for the value of the interest in the land is therefore:
- I now turn to disturbance, and look firstly at total extinguishment.
- The principal figure to be considered is goodwill. This was assessed on a total extinguishment basis by Mrs Norris at £148,317 and by Mr. Squier at £15,340. Mrs Norris had taken the average of the last 3 years profits (£18,359) and applied a multiplier of 8. Mr. Squier took the average management and investment income for the three trading years prior to the eviction (up to May 1998) which was £17,419 less the profit rent that had been enjoyed, leaving a figure of £7,670. To this he applied a multiplier of 2 (as Mr. Startup had done) resulting in a goodwill valuation of £15,340. Mr. Squier said he was comfortable with his multiplier because, for the reasons he had given in evidence, this was a business with virtually no assets and, to a prospective purchaser would be seen as containing a significant element of risk.
- Mr. Brightwell had valued the business at £475,000 and, whilst this figure did not form part of the claim and was in any event, in my view, substantially overstated, he made a number of points that I consider relevant, and helpful. Firstly, both Mrs Norris and Mr Squier had analysed the 3 years accounts ending May 1998 although they had arrived at different conclusions. Mr. Brightwell said that a prospective purchaser would not just look at the business's past trading record, but would "assess the capitalised value of sustainable future earnings the prospective performance of the business over the foreseeable future". The successful bidder, he said, would be the one that had the most optimistic view of the future, and who thus attached the most value. I agree with that hypothesis.
- As to his opinion of an appropriate multiplier at 'between 4 and 5', this was based on an All Company Index of small businesses and in my view was too generalised to be of particular assistance in this case. There was no basis for Mrs Norris's multiplier of 8, which she indeed admitted. I was asked to look at previous decisions of this Tribunal in particular Sceneout and Shevlin in this regard. I refer again to the President's comments in Clibbett, quoted above and to the similar comments that were made in Reynolds v Manchester City Council [1981] 257 EG 939 where RC Walmsley FRICS said (at 939):
- The subject of multipliers was also rehearsed by me, at some length in Halil v London Borough of Lambeth (2001) (LT) ACQ/105/1999 (Unreported). In that case, where there was significant additional value to the claimant, I opted for a multiplier of 3 but, it was anticipated that the claimant (who was beyond retirement age) would retire within the next few years. That is not the case in the present reference, so I think a slightly higher multiplier would be appropriate. Doing the best that I can, and bearing in mind the specific circumstances of this case, I determine a multiplier of 3.5.
- Regarding Mr. Brightwell's calculations (para 70 above) and assessment of adjusted annual profit, he appears to me to have been over-optimistic. Turnover in 1998 was around £115,000 but Mr. Brightwell predicted that increasing to £171,000. It was Mr. Prielipp's evidence that lessons income had been 'poleaxed' by the threat of the scheme, but it appeared that livery income had increased to some extent to compensate. In my view it was reasonable for Mr. Brightwell to look at the 1997 lessons income and add 5 per cent, but to just take the best quarter for livery, and project that forward was risky and I accept Mr. Startup's opinion that a wider analysis was needed. In looking at the actual net profit achieved in 1998, (£30,138) I agree with Mr. Squier that this should, in projecting future profitability, be reduced by £10,000 if allowing for the profit rent that was being enjoyed.
- It also became apparent in cross-examination that Mr. Brightwell's direct and overhead costs were on the low side and the increase in costs (1997 + 5 per cent) did not allow for the profit rent. In my judgment, doing the best that I can from the information and analyses that were provided, I shall assume that a prospective purchaser would estimate that profitability might reasonably increase, in the short term, to £30,000 pa (an increase of 50 per cent on what was achieved in 1998 allowing for the profit rent element). Therefore, applying a multiplier of 3.5, this becomes £115,000 for goodwill.
- In my judgment this figure would reflect the investment that was initially made in the business in 1989, and the improvements and expansion that had occurred whilst acknowledging that it was a small business with virtually no assets or working capital. Compensation should be such amount as, so far as money can do it, would put the claimant in the same position as if his land had not been taken from him. I fail to see how Mr. Squier's goodwill figures could possibly compensate for the business that was extant at the date of eviction, particularly considering that that business would undoubtedly have a value to the claimants in excess of it's value in the open market.
- As to the rest of the disturbance items, Mrs Norris said that there was "little between the experts" as far as these were concerned, and I propose, therefore, to adopt Mr. Squier's figures.
- The compensation on a total extinguishment basis would be:
- I now turn to relocation.
- Mr. Squier suggested that goodwill would be reduced to 50 per cent of the total extinguishment figure on relocation, as, with so many of the original customers remaining, the loss would obviously be less than if the business were closed down. This was not disputed by Mrs Norris. However, in my judgment, there will be no loss of goodwill in respect of a valuation based upon relocation in this instance. The business has relocated more or less locally, and as was stated in evidence, "nearly all" of the claimants' customers have continued at the new facility. Any loss of goodwill that there may have been would eventually be negated by the attraction of new customers, and, as will be seen from my conclusions in respect of temporary loss of profits below, I think the business would be, to all intents and purposes, back to where it was in terms of profitability by May 2002. To make an allowance for loss of goodwill in the circumstances of this case would, in my view, amount to double-counting. If the relocation had been to a location so far away that a substantial proportion of the customers would have been lost, there may have been an argument for partial loss of goodwill.
- Loss of profits was by far the largest bone of contention between the parties in terms of disturbance. Mr. Brightwell had calculated, from his analysis of the accounts, that profits in the no-scheme world would have been £60,000 in 1998 (against the £30,000 that had actually been made) due to the blighting effect of the scheme. They would then have increased to £90,000 in 1999, then to £95,000 in 2000 and continued at that level at Pond Farm each year thereafter until 2004, the date by which any effects of the enforced move would be reduced to nil. Looking then at actual results in 1998 (which, for some reason, he adjusted to £42,500), 1999 at £16,300 and 2000 at £8,600 he then assumed that in 2001 the actual results whilst the business was being rebuilt would be £30,000 (against the projected £95,000); in 2002 £47,500 (50 per cent) and in 2003 £71,300 (75 per cent). On this basis, in his opinion, the total loss of profits that would be suffered as a result of the compulsory acquisition was £313,900.
- In cross-examination, Mr. Brightwell admitted that he had taken many of the figures he had used in projecting future income from Mr. Prielipp and also accepted that the one-quarter's figures he had used to assess livery income was twice as high as that achieved in any other similar trading period. He had also assumed the Pond Farm rent to be £12,250 per annum, rather than the £29,640 that had actually been agreed, and accepted that this difference would have a corresponding effect on the profits. Whilst Mr. Brightwell was probably right in saying that the Tollgate charges were below achievable market rates, he does seem to me to have been over-optimistic as to potential income at Pond Farm.
- He admitted that there was no evidence to support his projections for the predicted future profitability of the business but said that, in assessing the likely loss of profits, this had been based upon the time it took to build up the business when it first started. He did accept, in response to a question from me, that he would be hard pushed to advise a prospective purchaser to budget for a loss in projected profitability of over £300,000.
- In my opinion, as I have said, Mr. Brightwell's predictions were unrealistic both in terms of projected income, and in respect of running costs. It would be most unlikely that there could be a significant increase in turnover given the fact that the smaller number of stables at Pond Farm could affect livery income, (although that is countered to some extent by the fact that all 48 horses from Tollgate could be accommodated some on permanent pasture) and it also has a substantial number of planning restrictions that could have a detrimental effect on earning capabilities, even accepting that lesson and livery charges could be increased from what they were at Tollgate. Also, Mr. Brightwell's assumption that once the business was settled into Pond Farm it would be 2004 before predicted no-scheme world profitability was achieved I find to be wholly unreasonable. It was stated in evidence that, even before Pond Farm was completely finished, there was a waiting list for lessons, and whilst I have some reservations about achievable turnover levels, bearing in mind the claimants' apparent commitment to the business and the fact that they have managed to retain a large number of their former customers, I consider it will not be too long before the business will be up and running to its full potential. Having said that, I do find Mr. Squier's assumption that (as shown in his 'hypothetical' equivalent reinstatement claim) the only loss of profits would be 25 per cent of the first year's profit rather ambitious. In his view, allowing for the profit rent that had previously been enjoyed at Tollgate, likely profitability at Pond Farm would be no more than £6,500 pa. 25 per cent of that was £1,625, and that was the amount he had allowed for loss of profits.
- Before coming to a conclusion as to what the likely level of profits might be at Pond Farm, and the extent to which they have been affected by the enforced relocation, it is necessary to consider the new rent that is proposed - £29,640 pa.
- Whilst I do think that there has been some limited betterment at Pond Farm in that the claimants will be enjoying additional land, newer and better buildings and better local hacking, they will be restricted in potential income terms by the planning conditions that have been imposed and the fact that there are about 25 per cent fewer loose-boxes. The new rent, undoubtedly in my view, is intended to give the new landlord an acceptable return upon the capital invested and, bearing in mind the 'agreed' market rent for Tollgate, I think it is well above the market rate. Some difference in rental levels from one location to another must be acceptable in compensation terms; for instance, it would be most unlikely that, in an enforced move, either the rent or the facilities at the new location would be absolutely identical to the one from which the claimants removed. However, in this case the proposed new rent is more than double that which was previously being paid, and in my judgment it would not be right for the acquiring authority to have to pay compensation for loss of profits that were a direct result of the claimants agreeing to a rent that is significantly higher than open market rental value. This was the conclusion in Service Welding referred to by Mr. Humphries in closing. At nearly £30,000 pa, it does not appear to me that the claimants are receiving value for money, but on balance at, say, £15,000 I think they would be. If that difference is ignored for the purposes of calculating lost profits, then there is no question of the acquiring authority effectively paying a windfall to Mr. Nuttall.
- There is also the question of the claimants' terms of occupation of the new premises and the fact that, as admitted by the claimants in evidence, they could, upon payment of compensation, simply walk away from Pond Farm and pocket the money. However, in reality, I consider this to be most unlikely. Not only have the claimants invested some 12 years in building up a business which was also, and was patently obvious to me, their life, but they are now settled in to the new premises and appear to be operating normally. Furthermore, the landlord has, it appears, committed some £300,000 or thereabouts to providing facilities that have a planning permission which is personal to the claimants and I think he would be unlikely to want to have the premises vacant, and have to go through what would, in the green belt, undoubtedly be a tortuous planning process all over again. If circumstances were to become so difficult for the claimants that they were unable to make a profit from the business at the agreed rent, it would be for them to come to terms with their landlord that could accommodate both sides. However, that is not something with which this Tribunal need be concerned other than in connection with the assessment of whether a reasonable businessman would invest his own money in the project.
- In strict commercial terms, as will be seen from my conclusions below on likely profitability, I think the answer to that is fairly marginal. However, in considering the value to the owners, and the 'lifestyle factor' referred to in evidence, I am bound to conclude that the decision the claimants have taken is not unreasonable, and therefore do not accept the acquiring authority's arguments that no reasonable businessman would invest his own money in the project.
- As to likely profitability, I do think the claimants have an opportunity to make some money, even at the £29,640 rent, but obviously substantially less than if the rent was at a market level of, as I have concluded, about £15,000 pa. Mr. Startup has assumed there will be less horses at Pond Farm, due to the number of stables being less, but that is not the case as the remainder of the original 48 will be out to permanent pasture. Therefore, as I have said, whilst livery income may be affected, overall income should not be as hard hit as Mr. Startup may have presupposed.
- On the basis that Mr. Brightwell's projected income of £175,000 pa is in my opinion too high, and the fact that the income in 1998 was £115,000 (that income being, in my view, not seriously affected by any actual or perceived blight but suffering from below market charges for lessons and livery), I conclude that it would be reasonable to anticipate an income of £150,000 pa in the first full year at Pond Farm.
- In order to prevent the acquiring authority from being penalised, in terms of paying disturbance compensation for loss of profits, by the claimants' decision to pay a higher than market rental, it is necessary, in calculating overheads, to allow for the rent payable at the full level of £29,640. It follows, therefore, that I do not accept Mrs Norris's calculations of loss of profit based upon the NPV of the amount required to compensate for the additional rent.
- Add this rent to annual overheads of, say, £90,000 (excluding rent paid in 1998 they were about £80,000), this leaves a net profit of £30,000. Doing the best that I can, and arriving at a 'robust' judgment, I do not think it unreasonable to anticipate that level of profit being achievable at Pond Farm, once any effects of the scheme have dissipated (by the end of the claimants' 2002 financial year i.e., 31 May 2002). Those profits would, of course, be £15,000 pa higher were it not for the additional rent being paid.
- This, therefore, leaves the level of profits that will have been lost as a result of the acquiring authority's actions, and in this regard, it is necessary to look at the time it has taken to get established at Pond Farm. The claimants say that the reason there has been such a long delay between the date of eviction, and the facilities at Pond Farm being completed was entirely the fault of the acquiring authority. The acquiring authority's expert (Mr. Squier) said that it would only have been three months (in his 'hypothetical' relocation valuation) before the claimants were back in the position of full profitability (albeit on substantially reduced profits). I prefer the claimants' evidence in this regard.
- In 1999 the profits were reduced to £7,727 and in 2000 they were at £3,815. On the basis of the 1998 profits at £20,000 (allowing for the profit rent element that was not accounted for) and making, in my judgment, the reasonable assumption that the profits might have risen by 10 per cent each year, it is possible to calculate the losses. This exercise is complicated by the fact that during this period it is apparent that no rent was being paid (at Pond Farm), and if it had been a loss would have arisen in each year. However, this was the period during which the Pond Farm facilities extended only to grazing, and livery at other premises was having to be paid for. The extra cost of the livery could be said to be taking the place of the rent that would have been paid if the facilities at Pond Farm had been ready. I propose, therefore, to assume that the claimed temporary accommodation costs (amounting to just over £19,000 (Mr. Brightwell's evidence, para 75)) which is close to 2 years profit rent at £10,000 a year, is rental costs and as those costs have actually been paid, and are accounted for, there is no need to adjust the actual 1999 and 2000 profits.
- The loss of profits for 1999 and 2000 therefore become:
- It is now necessary to consider the losses for 2001 and beyond. No evidence was produced in respect of the accounts for the year ended 31 May 2001, but Mr. Brightwell indicated a reduction of two-thirds (albeit from a very high anticipated profit level of £95,000). Bearing in mind the figures for the two previous years, I do not think this unreasonable, so assess this at £26,620 [2000 est. profit + 10 per cent] less two-thirds = loss of profit £17,746.
- As I have said, at the time of my inspection in October 2001 (half way through the claimants' 2002 financial year), the business appeared to be more or less fully up and running, apart from the fact that the new indoor riding school was incomplete. This will have had an effect on lessons income, but none on livery. I do think that, by the time May 2002 comes (the end of the claimants' financial year) the business will have become sufficiently re-established for there to be no ongoing effect on profits. Again therefore, doing the best that I can, I conclude that there will be a one-third reduction in profits in the 2002 financial year this also principally allowing for the first half of the year when building works were still going on. Taking the 2001 estimated profits of £26,620 + 10 per cent (£29,282) less one-third = loss of profit £9,760.
- As I have said, in taking a robust view of the business and its prospects, I anticipated achievable profitability levels of around £30,000 pa once any effects of the move had washed out of the system. The figure of £29,282 above for the year ended 31 May 2002 ties in with that assumption.
- The loss of profits which I determine that the claimants will suffer can therefore be summarised as:
- The only other major item of disagreement was the costs of temporary accommodation, but it will be seen that I have, for want of a better term, wrapped that figure up with the claim for loss of profits (as, indeed Mr. Squier had done). I am satisfied that those costs, as actual items of expenditure in connection with the temporary housing of the horses that could not be accommodated at Pond Farm, can be treated as if they were rent, and the effect of including them as such is the same as if they had been treated separately, and I had made an allowance in the loss of profits calculations to reflect the fact that no rent was being paid. To have done otherwise would have effectively amounted to double counting.
- This leaves the remaining items of disturbance. In my judgment the following items claimed were costs actually incurred as a result of the enforced move, and I allow them:
- It was a mainstay of the claimants' case that the majority of the losses incurred resulted from the fact that they were unable to progress the development and preparation of Pond Farm due to the inadequacy of the compensation offered, together with the Company's failure to come to their aid in their search for alternative accommodation. The evidence relating to Knights Place (the claimants' version of which I prefer) indicates to me that there was an option that could have been used, certainly in the short term, and I am not convinced that it could not have been made available as a temporary measure. However, I suspect that the acquiring authority was reticent to allow such a move due largely to the claimants' actions in attracting the attentions of the media to their plight. Nevertheless, having concluded that the claimants are not necessarily entirely to blame for the delays in getting re-established, I do not propose to make any deduction in the compensation awarded to reflect any delays that may have been caused by them.
- The total compensation, on a relocation basis, therefore becomes:
- This figure is less than that which would apply on a total extinguishment basis, and I therefore determine that the appropriate method for calculating compensation is upon relocation costs and resultant losses, and award compensation in the sum of £119,438.
- This brings me to the final issue the eviction and its associated costs. S. 13(3) of the 1965 Act provides:
- The costs referred to in s.13 of the 1965 Act do not form part of the compensation. They are recoverable by the acquiring authority by way of set-off against the debt constituted by the liability to pay compensation, or by distress where they exceed the amount of compensation. The amount of costs that are payable are determined by the sheriff.
- It is clear, in my judgment, that this Tribunal has no jurisdiction to make any determination on the Company's costs of taking possession.
- This decision so far concludes the substantive issues in this reference and I determine that the acquiring authority shall pay to the claimants compensation for the compulsory acquisition of the subject property in the sum of £119,438, together with surveyor's fees in accordance with Ryde's Scale and interest at the standard rate. 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 in writing and a letter accompanying this decision sets out the procedure.
- I have received submissions on costs from the parties. The claimants said that the compensation awarded significantly exceeded both the sums argued for by the acquiring authority at the hearing, and the sealed offer (which was for £45,000 net of any set-off for costs of forcible possession).
- Even if the claimed eviction costs (of £60,117) were taken into account, the award of £119,438 still exceeded the value of the offer by some £15,000 not an insignificant sum.
- There were no unusual circumstances in the case that justified departure from the normal rule that costs should follow the event. Efforts had been made both before and during the hearing to persuade the acquiring authority to increase its offer, but without success. It had also been made clear that the claimants were prepared to significantly reduce their claim to facilitate a negotiated settlement. Whilst it was acknowledged that the claimants did not 'win' on every point at issue, the major consideration in making a costs award should be the fact that the authority's offer had been comfortably exceeded, thus vindicating the decision to proceed with the reference.
- The acquiring authority pointed out that the award of costs was at the discretion of the Tribunal, and that it should have regard to all the circumstances, including whether the claimants had exaggerated their claim. In this case the claim, amended to £645,417 during the hearing, had been exaggerated. The award was very much closer to the acquiring authority's sealed offer (taking into account the eviction costs), and had only marginally exceeded it.
- Further, the claimants' basis of valuation (on equivalent reinstatement) had been entirely rejected by the Tribunal, and as a considerable amount of time had been spent at the hearing arguing that basis, the acquiring authority should at least get that part of its costs.
- It was also submitted that the claimants' case on disturbance had not been accepted and that the acquiring authority had been put to additional expense in respect of the accountancy evidence of Mr Andrews who was not, in the event, called.
- In all the circumstances, the acquiring authority's costs should, it said, be paid by the claimants.
- In response to the authority's detailed submissions the claimants pointed out that in many respects the Tribunal had had to come to a conclusion that differed from the cases put forwarded by both parties, and to break down the costs issue into a series of awards based upon who won what would be wholly inappropriate.
- Even if the Tribunal were to take eviction costs into account, it was submitted that the only element could be those costs that had been "settled by the sheriff" in this case a maximum of just over £11,000.
- I deal firstly, and shortly, with eviction costs. As I determined, I have no jurisdiction to deal with this issue, and any such costs do not form a part of the compensation. Therefore, for the purposes of determining liability for costs I am bound to consider the acquiring authority's sealed offer in the sum of £45,000.
- This is very significantly less than the award, and whilst, as I indicated during the hearing, I thought the sum claimed was too high (in that equivalent reinstatement appeared to be the wrong basis for calculating it) I also said the acquiring authority's offer was too low. The authority's principal argument was that the claim should be settled on the basis of total extinguishment, and that basis was also rejected. A full consideration of the three possible bases of calculation was necessary and on balance I do not feel that the claimants figure was overstated to the extent that, in defending that figure, the parties were put to significantly inflated costs as a result.
- Therefore, weighing up all the evidence, I am satisfied that, the claimants having achieved an award that significantly exceeded the acquiring authority's offer, they were fully justified in pursuing the reference.
- I therefore determine that the acquiring authority shall pay the claimants costs of the reference, such costs if not agreed to be the subject of a detailed assessment by the Registrar.
[2002] EWLands ACQ_127_1999 (08 February 2002)
ACQ/127/1999
LANDS TRIBUNAL ACT 1949
COMPENSATION Land Compensation Act 1961 s.5, rr(2), (5) and (6) - compulsory acquisition of riding stables and land equivalent reinstatement, total extinguishment or relocation eviction costs Compensation awarded on basis of relocation £119,438 no jurisdiction to determine eviction costs
IN THE MATTER of a NOTICE OF REFERENCE
BETWEEN W L & A P PRIELIPP
and
C KENNERLY Claimants
and
SECRETARY OF STATE for the
ENVIRONMENT, TRANSPORT and the REGIONS Respondent
Re: Tollgate Riding Stables, Northumberland Bottom,
Gravesend, Kent
Tribunal Member: P R Francis FRICS
Sitting at: 48/49 Chancery Lane, London, WC2A 1JR
on
10-13 September and 25 October 2001
The following cases are referred to in this decision:
Lindon Print Ltd v West Midlands County Council [1987] 2 EGLR 200
Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 1 All ER 846
Mallick v Liverpool City Council (1999) 79 P&CR 1
Festiniog Rly Society Ltd v Central Electricity Generating Board (1962) 13 P&CR 248
Sparks and Others (Trustees of East Hunslet Liberal Club) v Leeds City Council (1977) 240 EG 66
Kolbe House Society v Department of Transport (1994) 98 P&CR 569
Harrison & Hetherington Limited v Cumbria County Council (1985) 275 EG 457
Sceneout Limited v Central Manchester Development Corporation [1995] 34 EG 77
Shevlin v Trafford Park Development Corporation [1998] 1 EGLR 115
Matthews v Lewisham London Borough Council (1982) 263 EG 266
Wilkinson v Middlesborough Borough Council (1983) 45 P&CR 142
Commissioner of Highways v Shipp Bros Property Limited (1978) 19 SASR 215
Trustees of the Manchester Homeopathic Clinic v Manchester Corporation (1970) 22 P&CR241
Runcorn Association Football Club v Warrington and Runcorn Development Corporation [1982] 2 EGLR 216
W Clibbett Ltd v Avon County Council [1976] 237 EG 271
Halil v London Borough of Lambeth (2001) (LT) ACQ/105/1999 (Unreported)
Reynolds v Manchester City Council [1981] 257 EG 939
Horn v Sunderland Corporation [1941] 2 KB 26
Robert Lewis of counsel, instructed by Barrett & Thompson, solicitors of Slough for the claimants
Michael Humphries of counsel, instructed by Cripps Harries Hall, solicitors of Tunbridge Wells for the acquiring authority
DECISION
FACTS
4.1 The subject property formerly comprised a Riding School and Stables, of which private Livery formed a part, situated on the A227 Gravesend to Tonbridge road, about 3 miles south of Gravesend on land that had previously been part of a military base. It was located within the Metropolitan Green Belt in the Borough of Gravesham, extended to 3.43 ha (8.47 acres) and contained a number of buildings, some of which had been converted from old military buildings and others constructed by the claimants, together with a yard, exercise areas and grazing. The buildings comprised:
Indoor School 18m x 36m of steel portal frame construction with asbestos roofs and cladding and electric lighting.
Outdoor menage/school with electric floodlighting
Secure tack/feed room
43 Stables
Pole barn/hay storage
Storage shed, further storage building and toilet block.
Further dilapidated buildings
Office
Stockproof and electric fences enclosed the whole area.
4.2 The property was let to the claimants by the Trustees of Sir James Collyer-Ferguson under a lease dated 2 June 1989 for a term of 14 years at a commencing rental of £2,500 pa. The lease contained provisions for the tenant to insure and undertake repairs and was not excluded from the provisions of Part II of the Landlord and Tenant Act 1954. The permitted user was "Riding School and School for the Riding and Stabling of Horses and for no other purpose", there were provisions for rent reviews every 4 years (although none of them were implemented) and assignment was permitted, but not sub-letting. The lessees paid a premium of £40,000 for the lease together with £15,000 for goodwill, and carried out improvements during the course of their occupation to an agreed value of £10,000 on an equivalent reinstatement basis, or £4,100 on a total extinguishment (write-down value) basis. A secured loan of £75,000 was originally obtained to set up the business.
4.3 The property had a rateable value of £12,250 and the riding school had the benefit of a licence granted by the local authority relating to compliance with standards of facilities and service. The client base for Tollgate Riding Stables (the trading name for the business) ("Tollgate"), which was the only licensed riding school within the Gravesham District Council area, came mainly from the Gravesend/Medway Towns area, but some were from further afield.
4.4 The Company acquired the freehold of the subject property, subject to the extant lease, in 1997.
4.5 Notice to Treat and Notice of Entry in accordance with the provisions of the Channel Tunnel Rail Link Act 1996 and the Compulsory Purchase Act 1965 were served upon the claimants on 26 June 1998. The Date of Entry (by eviction) was 22 October 1998, this being the Valuation Date for the purpose of this Reference.
4.6 The lessees' interest in the subject property at the Date of Entry comprised the residual value of the lease, together with tenants improvements, goodwill, stock and fixtures. An appropriate rental figure, for valuation purposes at that date, was agreed to be £12,250 and a suitable yield to reflect the profit rent was 6 per cent.
4.7 At the Date of Entry there were 48 horses at the subject property, 22 being owned outright by the claimants, 7 on long-term loan to them, 8 in full livery, 8 in working livery and 3 belonging to staff. The riding school was recognised by the British Horse Society as a teaching establishment (including training of teachers) and in addition to Mr. Prielipp and Mrs Kennerly (Mrs Prielipp being a 'sleeping partner') there were 10 grooms.
4.8 The claimants' first Notice of Claim was served on 13 August 1999, this being subsequently amended on 10 December 1999.
4.9 Notice of Reference to this Tribunal was dated 17 September 1999.
4.10 The claimants were offered the property to which they eventually relocated, Pond Farm, Harvel, as a possible alternative location in September 1998. It was agreed that the facilities there, in quantitative terms, would be similar to those at the subject property. Although there would be 12 fewer loose boxes, the total area of land, including pasture, was more than at Tollgate. Whilst Pond Farm was slightly further away from Gravesend it did offer better surrounding countryside for hacking. None of the other properties that had been available locally, and which were viewed by the claimants, met their requirements.
4.11 The Riding School's accounts for 6 years from May 1992 to May 1998 were agreed.
4.12 The claim for compensation under s.5 rule (5) of the 1961 Act was amended by Mrs Norris during the course of the hearing to £286,475 and the claim for disturbance, as assessed by Mr. Brightwell was amended to £358,942, the total therefore being £645,417.
4.13 The acquiring authority's assessment on the basis of total extinguishment (s.5 rule (2) of the 1961 Act) was also recalculated during the hearing at £51,400 (including disturbance). In the alternative, a figure based upon relocation was assessed by Mr. Squier at £47,500 (including disturbance) or, as a purely hypothetical exercise, under rule (5) at £49,000 (including disturbance).
ISSUES
a) The basis upon which compensation should be assessed total extinguishment of the business, relocation, or equivalent reinstatement under s.5 Rule (2) of the 1961 Act.
b) The quantum of compensation and disturbance on whatever basis is determined as appropriate and,
c) Whether this Tribunal has jurisdiction to determine the costs of eviction.
CLAIMANTS' CASE
" As at 12 June 2001 Mrs Carole Kennerly and Mr. Wayne Prielipp agree to pay Beechcroft Farm Retirement Benefit Fund all back rent prior to September 1999, for 15 stables that they used from 1 March 1999 to 1 September 1999, a further 10 stables from 1 July 1999 to 1 September 1999 at £10 per stable and planning fees to Graham Simpkin and Gravesham Borough Council totalling £19,704.82. With the proviso that the back rent for the stables or fees to Graham Simpkin and Gravesham Borough Council are only payable if the compensation claim to Union Rail for the relocation to The Whitehorse Riding Centre, Whitehorse Lane, Harvel, Nr Meopham, Kent exceeds the sum of £70,000 (seventy thousand pounds).
In addition they further agree to pay £10 per stable rent from 1 September 1999 onwards for 38 stables, 4 of which were not available until 1 December 1999 and 9 of which were not available until 16 October 2000. They further agree that when the indoor school is completed and ready for use, the cost of the stables will increase to £15 per stable.
All rent arrears to be paid 30 days after the compensation for relocation is received from Union Rail.
They also agree to pay any rates that are charged on the property during their occupation".
That was signed by the parties, and an additional statement, signed just by the claimants, and dated 14 June 2001, read:
"The agreement attached and signed by us [the parties] was signed by us under duress. Mr. Nuttall had previously blocked the front gate, turned the electric and water off, locked the toilets, feed room and office and chained and locked the field gates. We were advised not to sign any agreement and did so as we had no choice .sign or thrown off were the options. We had nowhere to go as the compensation case with Union Rail was not yet heard in the Lands Tribunal".
"Where land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for that purpose, the compensation may, if the Lands Tribunal is satisfied that reinstatement in some other place is bona fide intended, be allowed on the basis of the reasonable cost of equivalent reinstatement"
"On completion of the Pond Farm site I will be offering Wayne [Prielipp] and Carol [Kennerly] a long term lease agreement. We have been unable to deal with this sooner due to the fact that they have not had their compensation from Union Rail, and because of this were unable to put any investment into the site and indeed pay any rent thus far.
I look forward to a long and prosperous future with Wayne and Carol".
| Pond Farm | Tollgate | Tollgate | Tollgate | Tollgate | Tollgate |
| Period | No. stables | Rent pw | Rent pw | Excess rent pw | Excess pa |
| 17.12.99 to 30.4.00 (19.3 weeks) |
29 |
290 |
48 |
242 |
4,671 |
| 1.5.00 to 15.10.00 (24 weeks) |
29 |
290 |
142 |
148 |
3,552 |
| 16.10.00 to 31.10.01 (54.4 weeks) |
38 |
380 |
142 |
238 |
12,947 |
| 1.11.01 to 31.10.2019 |
38 |
570 |
240 |
330 |
265,305 |
| Net Present Value of excess rent over 20 years: | £286,475 | £286,475 | £286,475 | £286,475 | £286,475 |
i) Transport costs £1,650
ii) Claimants' travel expenses £1,018
iii) Vets visits prior to move £ 295
iv) Claimants' time £ 360
v) Legal fees & stamp duty new lease (provisional) £2,000
There was also nothing controversial about:
viii) Redundancy payments Nil
ix) Surveyors fees finding suitable property (provisional) £2,500
x) Costs of notifying customers etc. £2,500
"When determining that value [the land] the tribunal is in effect assessing how much a prudent person in the position of the claimant would himself have been prepared to give for the land sooner than lose it: see Pastoral Finance Association Ltd v The Minister [1914] AC 1083. He would be willing to pay more than others because retention of the site would save him the expense of moving, and the inconvenience of temporary disturbance and also the possible loss of customers. In some circumstances, such as those already mentioned, the extra value of the land to a prudent businessman might even exceed the present value of the business. In such a case that extra is part of the value of the land to the claimant".
a. Livery income would be maintained at the actual reported rate for the third quarter of 1998 (the last full quarter prior to eviction).
b. Teaching income would continue at the rate applicable for the year ended 31 May 1997 plus 5 per cent.
c. Costs would continue at the 1998 level plus 5 per cent.
d. Bank and loan interest excluded, as they do not relate to running of the business but the purchase of it.
e. No depreciation for goodwill, as this was being maintained.
f. Notional proprietors' salary of £22,000 pa
g. Allowance for value of free stabling for proprietors' 4 horses at full livery rates.
Mr. Brightwell adopted a price/earnings ("P/E") ratio of 'between 4 and 5', reflecting a return on investment of 20 to 25 per cent which, he said, was appropriate for this type of business and was within a range readily accepted by the Inland Revenue for fiscal valuations.
Projected Livery - Q3 1998 £133,000
Projected lessons 1997 actual + 5% £ 38,000
Total projected income £171,000
Direct costs 1998 + 5% £ 50,000
Overheads 1998 adjusted + 5% £ 29,000
Projected annual net profit £ 92,000
Less notional salaries £ 22,000
Add benefit of free stabling £ 20,000
Adjusted annual profit £ 90,000
Valuation based on pre-tax earnings
At P/E ratio of 4 = £360,000
At P/E ratio of 5 = £450,000 Say £400,000
Add value of intangible benefits (£50,000 £100,000) Say £ 75,000
Value of business as at October 1998 Say £475,000
Livery: 4 full livery @ £400 per month £19,200
4 part working livery @ £250 per month £12,000
25 working livery @ £200 per month £60,000
1 schooling @ £100 per month £ 1,200
4 own horses £ Nil
11 grazing @ £84 per month £11,088
Say £104,000
Lessons: Projected actual lessons at 12 months after
commencement full trading 25% capacity £ 71,000
£175,000
Less
Direct costs (£10k pa saved in feed and hay from grazing) £ 40,000
Overheads (£10k pa additional property (rental) costs) £ 40,000
Projected pre-tax net profit £ 95,000
The figures were obtained from the claimants and, Mr. Brightwell said, were supported by the actual income received whilst Tollgate had been operational and from his own researches. They were also, for instance in respect of livery income, in line with what the claimants had had to pay whilst the horses were temporarily stabled elsewhere. In his view, the £71,000 pa from lessons was a very conservative figure, as Mr. Prielipp had said that £100,000 pa would be achievable once the new operation was properly established. There could be no question, Mr. Brightwell said, that the prospects for the business were viable.
Disturbance
Temporary accommodation for horses £19,335
Muck disposal £ 2,005
Extra cost of bedding £ 3,430
Telephone connection £ 157
Horse walker £ 740
Legal and professional fees £16,038
Incidental expenses £ 3,337
£ 58,542
Loss of profits £313,900
Total claim for disturbance £358,942
ACQUIRING AUTHORITY'S CASE
| Cost £ | VAT £ | TOTAL £ | ||
| Sheriff | Office of High Sheriff of Kent Charges |
9,859.50 | 1,725.41 | 11,584.91 |
| Security | PSL charges | 10,855.24 | 1,899.67 | 12,754.91 |
| Standby transport | Horse Help call out fee and mileage | 204.00 | - | 204.00 |
| Removals | Pickfords provision of 2x20' containers on site 2/10/98 to 30/10/98 | 1,680.00 | 294.00 | 1,974.00 |
| Agents | Bidwells charges for 7 people in connection with organisation and preparation for abortive possession and subsequent eviction, including inventories, schedules of condition, photo and video records, attendance and supervision | 17,765.15 | 3,093.15 | 20,768.30 |
| Veterinary Surgeon | Dr David Platt Professional Services inc. examination 48 horses, travel costs and accommodation | 2,949.50 | 516.16 | 3,465.66 |
| Legal Services | Cripps Harries Hall Professional services relating to the eviction | 10,727.00 | ||
| Care of Horses | Abbott Anstey Reader Stable Management Services Supply of labour and equipment for temporary management of stables and supply of hay and feed | 8,765.00 | 1,533.88 | 10,298.88 |
| Security Fencing | Provision of fencing materials | 600.00 | 600.00 |
| TOTAL | Net of VAT | £59,317.14 |
RELOCATION
Residual Interest in lease £23,416
Goodwill £ 7,670
Tenants' improvements & fixtures £ 4,100
Transport costs (as claimed) £ 1,650
Travel expenses (as claimed) £ 1,018
Claimants' time (as claimed) £ 360
Vets visits prior to move (as claimed) £ 295
Legal fees/stamp duty new lease (provisional) £ 2,000
Temporary loss of profits 25 per cent of
£7,670 (adjusted ave. 3 yrs profits exc profit rent) £ 1,917
Redundancy payments £ NIL
Surveyors fees for finding new premises (prov) £ 2,500
Notification to customers, advertising & signage £ 2,500
£47,430
Say £47,500
EQUIVALENT REINSTATEMENT
Equivalent reinstatement of leasehold interest -
expressed as value of remainder Tollgate lease £23,416
Premium £ NIL
Improvements to physically reinstate the
improvements that the claimants had carried
out at Tollgate £10,000
Goodwill N/A since business relocated £ NIL
Disturbance items as in relocation valuation £11,948
Add Cost of temporary accom. for horses £ 3,840
£49,204
Say £49,000
CLOSING SUBMISSIONS
Acquiring Authority
"Reinstatement is usually resorted to in cases where the displaced undertaking was some non-productive enterprise such as the church or a hospital which was not intended to make a profit but to perform some public service to the community which could not equally well be performed in another situation"
"There are four essentials in rule (5) to be satisfied by the claimants, on whom is the burden of proof:
1. that the subject land is devoted to the purpose, and but for the compulsory acquisition would continue to be so devoted;
2. that the purpose is one for which there is no general demand or market for the land;
3. the bona fide intention to reinstate on another site; and
4. these conditions being satisfied, that the Tribunal's reasonable discretion should be exercised in its favour.
" the word 'general' applies only to demand. It does not qualify 'market'. The underlying concept is that there cannot be a market unless both supply and demand exist, but there may be a general demand although there is no supply. In that case the demand will be unsatisfied"
In arguing that there was a general demand for land for the purpose of riding stables and school, the acquiring authority submitted that such demand was not confined only to the subject land, but any other land available for that purpose. It was also right for leasehold land to be taken into account.
" it follows, I think, beyond any doubt that if the undertaking in question is a business undertaking, then the question of the relation between the cost of reinstatement and the value of the undertaking is relevant and may be paramount in considering the question of reasonableness".
Harman LJ expressed the principle (at 261) as :
"The point was emphasised, as I have already said, that this was not a hobby but a commercial venture, and I do not see why the Tribunal should not accept that view and it seems to me that, looking at the matter from that point of view, it is quite clear that it would be commercially ridiculous to spend £180,000 in diverting a railway when there was no hope whatever that profits sufficient to pay it would ever be earned."
"What the authorities (to which I need not refer to in detail) very clearly establish, however, is that when an occupier, whether residential or business, does, in consequence of disturbance, rehouse himself in alternative accommodation, prima facie, he is not entitled to recover, by way of compensation for disturbance or otherwise, any part of the purchase price that he pays for the alternative accommodation to which he removes, whether the accommodation is better or worse than, or equivalent to, the property from which he is being evicted. The reason for that is that there is a presumption in law - albeit a rebuttable presumption that the purchase price paid for the new premises is something for which the claimant has received value for money. If he has made a good bargain, and acquired premises that have a value in excess of what he has paid for them, that is not something for which the acquiring authority is entitled to any credit. If the claimant has made a bad bargain and has paid a great deal more for the new premises to which he is moving than they are really worth, that is not something for which the acquiring authority can properly be charged"
The claimants in the instant case had argued that the rent for the new premises was a market, or fair rent and indeed had sought to demonstrate how reasonable it was on a 'per stable' basis in comparison with what they had paid for the temporary accommodation. If that were the case, why should the Tribunal rebut the very strong presumption that the claimants have achieved value for money?
Claimants
"I think it has to be established that practically nobody in the area wants to obtain land for the necessary purpose and that practically no sales for that purpose take place in the area".
"The situation of the land for the specified use must be governed by the nature of the use and that where this involves the resort of people to it, regard will realistically be had to where those people reside; in essence where are the customers and those associated with them who will be seeking the facilities to be provided? A community hospital and various types of school will need to be located convenient to the population they are to serve "
It was submitted, therefore, that only the evidence relating to general demand or market within the immediate vicinity of Tollgate fell to be considered. This was not a call-centre or tele-sales operation that could be located anywhere, but a local business, with exclusively local custom. To suggest, as the acquiring authority had, that the same type of customers as those using Tollgate could be found anywhere was erroneous and, Mr. Lewis said, based upon a misunderstanding of Kolbe House. If it had been right, the Tribunal would have looked to the whole country for evidence of a general market or demand for old peoples' homes, and it did not. As it was, Kolbe House was considering, not as the acquiring authority had suggested a residential care home for the elderly of Ealing, but just a residential care home for elderly people. The purpose was therefore the provision of residential care for those in need of it, and the potential customers would have been of the same 'type' as from anywhere else in the country. The fact was that in looking only at evidence from Ealing and its surrounding area, the Tribunal was simply reflecting the reality that the business could only have been reinstated in the local area because of its local links.
"The expense and any losses (the claimant) incurs in moving his business to a new site will ordinarily be the measure of the special loss he sustains by being deprived of the land and disturbed in his enjoyment of it"
and he went on to state that the value of the land and the disturbance loss were:
"strictly in law no more than two inseparable elements of a single whole in that together they make up the value of the land to the owner"
"For the purposes of cases such as the one before me, the court is not assessing the standing of the subject business in the market as a possible investment; it is determining whether the claimant is acting reasonably in seeking to transplant his business. A potential investor is likely to decline to invest in a small family business (carried on as a proprietary company) where its net maintainable profit does not exceed that of a well-established and diversified public company. But those who control and manage the former may view what is their own quite differently. Their business may represent more than just a means of getting a living it may represent, too, their chosen way of life. Even though conventional accounting practice would present such a company as making only small profits, the salary and wages received, and the other direct and indirect benefits derived from the company may provide the shareholders (who may care little for the glory of announced profits) with satisfactory emoluments, and reasonably inspire them in a determination to carry on elsewhere which the Court could endorse In this connection, a court will pay close attention to any evidence leading to the inference that there is "a reasonable prospect of improvement" The members of the controlling family may, not unreasonably, be willing to expend an amount on re-establishment notwithstanding that it exceeds not immoderately the value of the business computed according to standard accounting procedures based upon net maintainable profits. The dividing line, in practice, between deriving financial rewards from a family company by drawing salary and wages, and deriving them from distributed net profits is often imperfectly drawn. Accordingly, a court may allow itself some latitude in approving the re-establishment of a family company's business, even though, as a matter of cold commercial judgement, an accountant would not recommend a client to invest in the same business".
"Office
The amount claimed is £194.75. The items under this innocent heading appear to relate to the cost of second-hand timber and doors used to prevent entry by the sheriff's bailiff. I do not allow this item. Nor do I allow the amount of £84.32 claimed by the acquiring authority in respect of the sheriff's fees and removal contractors' fees which they suggest should be offset against the claim".
This language was consistent with the Tribunal considering the eviction costs (and the other costs referred to) and disallowed them. Had it been believed that there was no jurisdiction, the Tribunal would surely have said so.
DECISION
Equivalent reinstatement?
" but in case I be found wrong in law in respect of the determination of 'purpose' it is appropriate, because the evidence was before me, that I consider whether there is a general demand or market for land for a residential care home for elderly people. On the authority of Harrison that investigation falls to be undertaken as a contemporary exercise at the relevant date, which in this reference by consent I take to be at or about the date of the hearing. The search is for a general current demand, not a future or latent demand, or one which is intermittent and rarely emerges, Lord Fraser in Harrison. On the authority of Harrison the word 'general' qualifies demand but not market and land means not only the reference land but land in general. By way of summarising the position under rule (5) Lord Fraser in Harrison adopted with approval the following paragraph from the judgment of Waller LJ in Wilkinson:
Rule (5) provides, however, that there must be no general demand or market for land for that purpose. This indicates to me that it is not sufficient that there should be a demand for the land in question but there should be a general demand i.e. a demand not only for that land but for other land elsewhere for the same purpose. Furthermore, the use of the word 'market' connotes, in my opinion, something more than the fact that there are potential users of the land for the named purpose; it connotes that there is buying and selling for that purpose.
In Wilkinson, Sir David Cairns said, when dealing with the absence of a market, "It has to be established that practically no sales for that purpose take place in the area I should not consider the fact that an isolated transaction has taken place would constitute a 'market'". In references where the rule (5) basis is sought it has become an established practice in this Tribunal to test general demand and the existence of a market by reference to sale transactions and hitherto little assistance has been considered to be afforded by the grant of leases: see Nonentities and Manchester.
To provide a framework and context for the consideration of the evidence relating to transactions it is necessary to consider the geographic extent of the market under scrutiny. Sir David Cairns above spoke of sales taking place in the 'area'. Some of Mr. Casey's [District Valuer for the prospective acquiring authority] evidence was directed to the southern half of the United Kingdom including London but later circumscribed in terms of transactions to north, west and south London, including Ealing and Mr. Strathon [for the claimant] expressed opinions mainly in relation to the Ealing area. The situation of the land for the specified use must be governed by the nature of the use and that where this involves the resort of people to it regard will realistically be had to where those people reside; in essence where are the customers and those associated with them who will be seeking the facilities to be provided? A community hospital and various types of school will need to be located convenient to the population they are to serve; that is a common sense interpretation of the word 'area' used by Sir David Cairns in Wilkinson. A successful residential care home requires residents as direct customers and for the home to be attractive to them, inter alia, it needs to be accessible to friends and relatives for the purpose of periodic visiting. For these reasons I would not envisage the market for land for a residential care home for the elderly people living in the Ealing district extending much beyond the boundaries of the borough save for the particular influence of convenient transport routes by bus, train etc. South London is sufficiently far away from Ealing, geographically and by journey time, to constitute a different 'area' with its own supply, demand and market. For this reason alone transactions in that locality can be of little assistance in determining the existence or otherwise of a general demand or market for the land for a home for elderly people living in or close to Ealing".
After reciting the evidence relating to the transactions, the Member went on to conclude (at 589):
"On the evidence of the transactions I therefore find that there is no proven general demand or market for land for a residential care home for elderly people in and around the borough of Ealing in mid-1994".
"A business has several attributes. These include the goods or services it supplies, its management and staff, its suppliers, its customers, its location, its reputation, its name. When a business closes down at one site and reopens elsewhere, there is usually no difficulty in knowing whether, in practical terms, it is the same business or not. Take a simple example. A restaurant in Soho is forced to close when its premises are taken over. On the following day the same management opens a new restaurant of the same style nearby, under the same name and employing the same staff. That would be the case of the same business operating from a new location. That would be so even if there were an interval of a few days or weeks before the restaurant opened at the new site. The matter would stand differently if, four or five years after the Soho restaurant was shut, the same management opened a new restaurant outside London. That could not be regarded as the same business. It would rather be a case of one business having closed down and, some years later, the same management having set itself up in the same line of business again. In between these two extremes would be examples that would not be so clear cut. In each case it is a question of fact and degree whether the new business has retained sufficient attributes of the old business for the new business sensibly to be regarded as the old business at a new site or, which comes to the same, as a continuation of the old business at a new site".
In that case their Lordships upheld the Lands Tribunal's conclusion that the business had been effectively extinguished as there would have been a gap of many years before it could have re-established itself at another location, even though, upon re-establishment it would effectively have been the same business as the one that had been extinguished.
Relocation or Total Extinguishment?
"I was asked to look at certain previous decisions of the Tribunal, but, as I have said and emphasised before, decisions are only relevant to arguments on law or procedure. The assessment of compensation must be decided on, and only on, the evidence. Useful though the respective valuers' calculations are in assisting me to reach a decision in this matter, I do not propose to determine each item in dispute. How can I, for example, say what is the appropriate years' purchase when on the evidence I can choose any number between 1.5 and 10 without any evidence which I should use ipse dixit of each of the valuers? I propose, therefore, to adopt a robust approach similar to that used by the courts in assessing general damages and to award a sum which, in my judgment, in all the circumstances is reasonable. It seems to me that my function is comparable to that of the courts in assessing damages for loss of future earnings".
Value of interest
Residual Interest in lease £23,416
Tenants improvements and fixtures £ 4,100
Total £27,516
Disturbance
"No substantial help is to be derived from figures used in previous decisions of the Tribunal or from evidence as to settlements effected in other cases, because every case falls to be dealt with on its own merits".
In this case, whilst Mr. Squier might be right in looking at a multiplier of 2 to reflect the type of business that this is, that figure does not, in my view, reflect the special value to the claimants, that subject being rehearsed at length in evidence.
Residual interest in lease £ 23,416
Tenants' fixtures £ 4,100
Disturbance
Goodwill £115,000
Forced sale of livestock £ 3,000
Forced sale of tack and equipment £ 2,050
Claimants time and expenses £ 2,000
Legal fees £ 1,500
Total £151,066
1999: £22,000 (£20,000 + 10 per cent) less £7,727 = £14,273
2000 £24,200 (£22,000 + 10 per cent) less £3,815 = £20,385 £34,658
Year ended 31 May 1999 £14,273
Year ended 31 May 2000 £20,385
Year ended 31 May 2001 £17,746
Year ended 31 May 2002 £ 9,760
Total loss of profits £62,164
Muck Disposal £ 2,005
Extra cost of bedding at Popely's £ 3,430
Telephone connection costs £ 157
Horse walker £ 740
Transport costs (agreed) £ 1,650
Travel expenses (agreed) £ 1,018
Claimants' time (agreed) £ 360
Vets visits prior to move (agreed) £ 295
Legal fees in connection with new lease
(Estimated costs agreed) £ 2,000
Professional fees (planning) £13,103
Surveyor's fees finding new premises £ 2,500
Notification to customers £ 2,500
Sub-total £29,758
ADD Loss of profits £62,164
Total disturbance £91,922
Residual interest in lease £ 23,416
Tenants' fixtures £ 4,100
Goodwill £ NIL
Disturbance £ 91,922
Total £ 119,438
I am satisfied that at this figure, rather than the £645,000 postulated by Mrs Norris, is a sum which in all the circumstances is reasonable and which would adequately compensate the claimants for the actual and anticipated losses incurred in respect of the compulsory acquisition of Tollgate Riding Stables and the move to Pond Farm. In my judgment, it is also a sum which a reasonable businessman would consider expending (in exercising a degree of latitude based on the lifestyle factor referred to (per Shun Fung)), on the grounds that this is the relocation of a small, to all intents and purposes family run business, that has some additional value to the owners over and above a pure commercial investment opportunity.
(3) The costs accruing by reason of the issue and execution of the warrant, to be settled by the sheriff, shall be paid by the person refusing to give possession, and the amount of those costs shall be deducted and retained by the acquiring authority from the compensation, if any, payable by them to that person.
This Tribunal's function is to determine compensation where this is in dispute (s.1 1961 Act and s.6 1965 Act). Any compensation so awarded is recoverable as a civil debt in the courts.
DATED 8 February 2002
(Signed) P R Francis FRICS
ADDENDUM ON COSTS
DATED: 12 March 2002
(Signed) P R Francis FRICS