England and Wales Lands Tribunal

[2002] EWLands TMA_15_2001 (12 August 2002)

TMA/15/2001

LANDS TRIBUNAL ACT 1949

CAPITAL GAINS TAX - former hotel and rear land - value as at March 1982 - need for comprehensive development - uncertain planning position - rear land subject to lease - value determined at £230,000 - Capital Gains Tax Act 1979, s150

IN THE MATTER of a NOTICE OF REFERENCE

BETWEEN ISOBEL M KIRKWOOD Applicant

(Inspector of Taxes)

and

PETER BOLAND Respondent

Re: The Esplanade Hotel,

Penarth, Vale of Glamorgan

Before P H Clarke FRICS

Sitting at Cardiff on 13 February 2002 and then written representations

under rule 27 of the Lands Tribunal Rules 1996

The following cases are referred to in this decision:

Boland v Pontyway Developments Ltd (1986) (unreported)

Newman (Inspector of Taxes) v Hatt (2001) (unreported) (TMA/207/00)

David Lowe & Sons Ltd v Inland Revenue (1984) 24 RVR 199

Honeychurch v McKenna (Inspector of Taxes) (1997) 37 RVR 270

Henderson (Inspector of Taxes) v Karmel's Executors [1984] STC 572

Lady Fox's Executors v Commissioners of Inland Revenue [1994] 2 EGLR 185

At the hearing on 13 February 2002 Mr David Forsdick of counsel (instructed by Solicitor of Inland Revenue) appeared for the applicant and Mr Mark Boland, with leave of the Tribunal, appeared for the respondent


 


DECISION OF THE LANDS TRIBUNAL

1. This is a reference to determine the market value as at 31 March 1982 for capital gains tax purposes of a former hotel in Penarth near Cardiff. The Inspector of Taxes puts the value at £175,000; Mr Boland, the taxpayer, says it should be £350,000. Following an adjourned hearing the reference has proceeded by written representations under rule 27 of the Lands Tribunal Rules 1996.

Facts

2. The parties have not prepared a statement of agreed facts. However, the expert report lodged by Mr W J C Thomas FRICS of the Valuation Office Agency, Cardiff contains a comprehensive statement of facts with which Mr Boland is in general agreement. I find the following facts.
3. The property which is the subject of this reference is the former Esplanade Hotel situated on the seafront opposite the pier and Marina Pavilion in Penarth. I refer in this decision to the whole of the property as "the reference land". The town centre and railway station are a short distance to the west, linked to the seafront through attractive gardens, Alexandra Park, which end immediately to the rear of the gardens of the former hotel. To the north of the reference land is a block of flats, Seabank, built in the 1960s and then an area of housing. Immediately to the south are Public Baths, built in 1884, closed in 1985 and converted to a public house in 1990. The property was still in use as a public baths in March 1982. The area further to the south of the reference land is predominantly residential with commercial uses along The Esplanade.
4. The reference land is in two parts. At the valuation date the front land comprised the former Esplanade Hotel built in 1887 with frontage to The Esplanade. The hotel had public rooms and bars on the ground floor with two floors and an attic floor above with yards, outbuildings, garage and coachman's cottage at the rear. The site area of the front land is 0.58 acre. I refer to this part of the reference land as "the front land". In May 1977 the roof and upper parts of the hotel suffered serious fire damage. Trade continued in the ground floor lounge bar. The fire damaged building was demolished in June 1988 and the site is now occupied by a block of flat, Alexandra Court. Vehicle and service access to the hotel was at the rear from Bridgeman Road. Beyond this access, to the rear and extending back to Alexandra Park, were the gardens of the hotel with a site area of 0.89 acre. I refer to this part of the reference land as "the rear land". It is now a small housing development, The Glades, with access from Bridgeman Road.
5. The freehold of the whole of the former Esplanade Hotel was originally owned by the Earl of Plymouth. On 23 September 1958 he granted a lease of the whole property (front and rear land) for a term of 99 years from 1 May 1958 at a rent of £262 per annum. The lease reserved an easement to the local authority for three water pipes supplying sea water to tanks in Alexandra Park.
6. On 18 June 1976 Mr Peter Boland, the taxpayer in this reference, took an assignment of the part of the above lease relating to the front land for a consideration of £62,500. The rent was apportioned £187 per annum to the front land and £75 per annum to the rear land. The assignor, who retained the rear land, reserved rights of way across the yard at rear of the hotel which formed part of the front land. Clause 7 of the assignment provided that neither party will acquire the freehold or take a revised or extended lease without the full knowledge and consent and co-operation of the other party. In the event of either party acquiring the freehold reversion or a new lease in respect of that part of the property vested in the other party, then the party acquiring the freehold or lease shall be deemed to be a trustee for the other party of that part of the property so vested in him and shall, upon payment of such purchase monies, capital payments, rental and expenses as relate to that part and an indemnity, convey or assign such part to the other party. This clause gave rise to litigation (Boland v Pontyway Developments Limited (1986)) following Mr Boland's subsequent acquisition of the freehold of the front and rear land referred to in the next paragraph. I have been provided with a transcript of the decision of the Court of Appeal on 13 January 1986 allowing the appeal in the above case but not the order arising out of that decision. The judge at first instance (Falconer J) determined that Mr Boland held the freehold of the rear land absolutely. The Court of Appeal allowed an appeal against that decision but the wording of the order (required to be considered by counsel) is not known. The other two questions in the originating summons were (b) whether the freehold in the rear land was held by Mr Boland upon trust for Pontyway, or (c) upon some other, and if so what, trust.
7. Following the fire in May 1977 Mr Boland received the insurance monies but the freeholder, the Earl of Plymouth, claimed an entitlement to them on grounds of alleged breaches of covenant by Mr Boland. Litigation followed which was compromised by an out of court settlement. This provided for the conveyance in November 1980 of the freehold interest in the reference land to Mr Boland for the sum of £75,000. Thus, in March 1982 Mr Boland held the freehold interest in the whole of the reference land. He was in possession of the front land but the rear land was subject to the residue of the 99 year lease then held by Pontyway Developments Limited.
8. On 4 March 1988 Mr Boland granted to Wimpey Homes Holdings Limited an option to purchase his freehold and leasehold interests in the reference land. The consideration for the option was £2000. The consideration for the property was £470,000 with provision for stage payments. The option was exercised and the transfer completed on 22 April 1988. It is provided in the option agreement that, if on the date of exercise of the option, Wimpey shall have acquired or contracted to acquire the leasehold interest in the rear land, Mr Boland will, pursuant to an order of the Court of Appeal dated 13 January 1986 in Boland v Pontyway Developments Limited transfer to Wimpey his freehold interest in the rear land without payment by Wimpey over and above the consideration agreed. On 7 March 1988 Wimpey bought the leasehold interest in the rear land from Modern Building Wales Limited for £270,000. Wimpey subsequently sold the freehold interest in the rear land to C F Palmer (Cardiff) Limited in August 1989 for £324,000.
9. The reference land was within the area of the Draft East Vale District Plan ("the draft local plan") which was approved by the local authority for public consultation on 2 August 1982, a few months after the valuation date. Previous stages in the preparation of the plan had been the publication of a programme leaflet in April 1980, a Local Plan Brief in October 1981 and the Report of Survey in March 1982.
10. Policy C6 in the draft local plan applies to the reference land:-

"THE BOROUGH COUNCIL FAVOURS THE COMPREHENSIVE REDEVELOPMENT OF THE ESPLANADE HOTEL SITE, PENARTH

The Esplanade Hotel was destroyed by fire in 1977 and the burnt out shell has scarred the sea front and the Conservation Area since that date. The site offers considerable potential for redevelopment and the Borough Council has maintained the policy that the site should be developed comprehensively with adjoining land to ensure that the best use is made of the site. Proposals for the development of the site will require to conform with policy C.1 and take note of the contents of the Guide to Conservation Appendix 3."

Policy C1 provides for development in the Penarth Conservation Area to be "strictly controlled in accordance with certain design criteria." The reference land is within this conservation area which was declared in 1971.

11. On 8 May 1984 the East Vale Local Plan, as amended following public participation, was approved as a basis for adoption as a statutory local plan and put on deposit for public inspection. Policy C6 in the draft local plan referred to above was omitted. Para 8.5 of the deposit plan states:-

"Draft Plan Policy C.6 relating to the Esplanade Hotel Site has been omitted in the light of the recent Welsh Office Appeal decision and Council's resolution to granting conditional planning permission to develop the site subject to the site owner securing a Section 52 agreement to the satisfaction of the Local Planning Authority to retain as undeveloped amenity area the land at the rear of the Esplanade Hotel site."

I refer to this appeal decision later.

12. The following planning decisions on the reference land are relevant. On 31 July 1979 three planning applications in respect of the rear land for 21, 24 and 18 flats respectively were refused on two grounds: the site should be developed as part of a comprehensive scheme for the front and rear land and not in isolation; the development required the felling of mature trees.
13. On 5 February 1980 consent was refused for the demolition of a derelict cottage on the grounds that it forms part of a large complex of buildings the future of which should be considered comprehensively and not on a piecemeal basis.
14. On 19 May 1981 planning permission was refused on three applications for the erection of 18, 21 and 24 flats on the rear land. The grounds of refusal were the same as the refusals given on 31 July 1979 referred to above. Appeals against these decisions were dismissed on 11 August 1983 but the inspector made the following observations regarding the comprehensive development of the front and rear land:-

"5. In addressing myself to the council's wish to consider the appeal site and the hotel site redevelopment together, it seems to me that the wooded appeal site appears to be more closely linked with Alexandra Park and the land to the rear of the Esplanade frontage than it does to a natural future amenity area to the hotel site. Although the appeal site forms part of the original hotel garden area, the dividing rear access road and the site's heavily overgrown and wooded appearance tend to emphasise the land's more reasonable association with the parkland to the west. Whilst I think the council and those persons who support their views are right to wish to see that considerable care is exercised in the development of both sites, I am not persuaded that they cannot be considered separately. It is right, of course, to have regard to the effect of any development on neighbouring land but I find no convincing reason to suggest that the reasonable development of the appeal site would prejudice the proper redevelopment of the former hotel site. In arriving at that view I have considered the terms of Policy C6 contained in the draft East Vale District Plan but I do not regard compliance with the letter of that policy to be essential to ensure the satisfactory development of the 2 sites."

These observations resulted in the omission of Policy C6 from the approved local plan referred to above.

15. On 11 March 1981 Mr Boland applied for planning permission for a public house and 67 flats on the front land. The Public Works and Planning Committee on 1 September 1982 resolved to grant planning permission subject to Mr Boland first entering into a section 52 agreement to retain the rear land as open space. The Director of Planning Services was requested to report back to the next meeting of the council regarding suitable conditions. In December 1982 the application was recommended for refusal but no decision was taken by the council. There was subsequently an appeal against the council's failure to determine this application. The Secretary of State decided that he was unable to accept jurisdiction and the appeal was withdrawn on 25 May 1983.
16. In June 1983 Mr Boland submitted a planning application for shops and residential apartments. Permission was recommended subject to a section 52 agreement requiring the rear land to be retained as an undeveloped amenity area. No section 52 agreement was entered into and planning permission was refused in January 1985.
17. On 3 January 1985 outline planning permission was granted for three detached houses on the rear land and the refurbishment and extension of the coachman's cottage. On 25 June 1985 planning permission was refused for the erection of shops and residential apartments on the front land and an appeal was dismissed on 19 March 1986. On 6 May 1987 planning permission was granted to Wimpey for the building of 53 flats on the front land. These flats have now been built (Alexandra Court).

The reference

18. On 11 September 1989 the Inspector of Taxes issued a notice of assessment on Mr Boland in respect of chargeable gains for the year ended 5 April 1989. An appeal against this assessment was made on the following 25 September. On 6 February 2001 the Inspector of Taxes served notice of reference on this Tribunal requiring a determination as to the market value as at 31 March 1982 of the reference land for capital gains tax purposes.
19. On 2 April 2001 directions were issued for the filing and exchange of expert reports, with extensions of time given on 26 April and 6 July 2001. An expert report on behalf of the Inspector was lodged on 28 September 2001 and a copy of a letter dated 17 September 2001 from Mr Boland to the Inland Revenue containing a valuation and list of comparables was lodged with the Tribunal.
20. On 14 December 2001 the reference was listed for hearing on 13 February 2002. On 4 February Mr Boland wrote to the Tribunal regarding an adjournment, asking for a solicitor to be appointed to act for him on legal aid. An application for an adjournment on the grounds of health and the need for professional representation was then made by Mr Bowland (received on 11 February) but without adequate supporting medical evidence. The parties were advised that the hearing would take place on 13 February. Mr Boland was informed as to the medical evidence which should be produced to support his application for an adjournment.
21. At the hearing in Cardiff on 13 February Mr David Forsdick of counsel (instructed by the Solicitor of Inland Revenue) appeared for the Inspector and Mr Mark Boland (with leave of the Tribunal) appeared for his father, Mr Peter Boland. He renewed the application for an adjournment and produced a letter dated 12 February from his father's doctor which I accepted in support of his application. At my suggestion both parties agreed to the use of the written representations procedure under rule 27 of the Lands Tribunal Rules 1996 and I issued directions for the future conduct of the reference on 14 February. Mr Forsdick requested that I give my reasons for this change of procedure. These are set out in the next part of this decision.
22. In accordance with the directions of 14 February and earlier directions I have received the following documents:-

(i) from the Inspector of Taxes, an expert report dated 9 April 2002 with exhibits and appendices, a supplementary report dated January 2002, a second supplementary report dated 9 April 2002 and a further supplementary report dated 7 June 2002, all prepared by Mr W J C Thomas FRICS of the Valuation Office Agency (Cardiff), and written submissions from the Solicitor of Inland Revenue;

(ii) from Mr Boland, a letter to the Inland Revenue dated 17 September 2001 and a statement of case dated 14 May 2002.

23. During the proceedings Mr Boland has complained that Mr Thomas had not included in his report information regarding certain comparable transactions and that he put pressure on the Land Registry to withhold this information from Mr Boland. The confidential nature of this class of information and its disclosure were considered by this Tribunal (N J Rose FRICS) in Newman (Inspector of Taxes) v Hatt (2001) (unreported) (TMA/207/00) and I do not need to consider it here. It is sufficient to say that the member decided that, in appropriate cases, the Tribunal could order disclosure of sale prices without the consent of the person who provided that information. The Solicitor of Inland Revenue brought this decision to the attention of Mr Boland and invited him to apply to this Tribunal for an order for disclosure. He did not apply but the Solicitor of Inland Revenue, very fairly, offered to disclose the comparable sale prices requested by Mr Boland and applied himself to the Tribunal for orders of disclosure. These were made on 21 and 29 January and 14 February 2002 and the information is contained in Mr Thomas's supplementary report of January 2002 and his second supplementary report dated 9 April 2002.
24. On 9 May 2001 the Solicitor of Inland Revenue wrote to the Tribunal stating that Mr Boland should be described in these proceedings as the appellant and the Inspector of Taxes as the respondent. At that time the name of the case was changed but I do not think that this change is correct. This reference has been made under section 47(1) of the Taxes Management Act 1970 which provides as follows:-

"If and so far as the question in dispute on any appeal against an assessment to tax (whether capital gains tax or corporation tax) on chargeable gains, … is a question of the value of any land, or of a lease of land then -

(a) if the land is in England or Wales the question shall be determined on a reference to the Lands Tribunal,"

The provisions relating to references (other than references by consent) are in Part IV of the Lands Tribunal Rules 1996. They are distinct from the provisions relating to appeals which are in Part III of the Rules. These proceedings arise out of a notice of reference, not, in the case of the Tribunal, a notice of appeal, and require a determination of value. They are not an appeal against the decision of another tribunal or body. Mr Boland is the appellant in the appeal against the notice of assessment. But, in my view, he is not the appellant in these proceedings, where he is responding to the reference for a determination made by the Inspector of Taxes, who should be referred to as the applicant with Mr Boland as the respondent. This position may be contrasted with another part of the jurisdiction of this Tribunal in matters of taxation, inheritance tax. Here, there is an appeal to this Tribunal under section 222(4) of the Inheritance Tax Act 1984 against a notice of determination where the appeal is "on any question as to the value of land." I therefore direct that Miss Isabel M Kirkwood (Inspector of Taxes) is the applicant in this reference and Mr Peter Boland is the respondent.

Procedural decisions

25. It is necessary for me to give reasons for two procedural decisions. The first, as requested by Mr Forsdick, relates to the adjournment of the hearing and the future use of the written representations procedure. The background is the extreme delay in the settlement of this dispute. The sale giving rise to the capital gains tax liability on Mr Boland occurred in April 1988, notice of assessment was issued on 11 September 1989 and an appeal made on 25 September. There was then a period of nearly 12 years before the question of value was referred to this Tribunal. Proceedings continued to move slowly. This was not entirely due to Mr Boland but a consideration of progress after the reference shows that two of the obstacles to a hearing were Mr Boland's continued ill-health and his reluctance to prepare his case, lodge documents or obtain representation. It seemed to me essential that there should be no further delay. A hearing adjourned to a later date would have the likelihood of a further request for an adjournment due to Mr Boland's ill-health or failure to prepare his case. I therefore suggested to the parties that the matter could be resolved without an oral hearing under the written representations procedure in rule 27 of the Rules. Mr Forsdick agreed subject to strict time limits and other conditions to limit Mr Boland's scope for delaying the proceedings. Mr Mark Boland agreed on behalf of his father, after obtaining his instructions over the telephone. I adjourned the hearing sine die and issued directions on 14 February for written submissions. An oral hearing would be preferable but this would inevitably lead to delay and Mr Boland, representing himself and in ill-health, would be at a disadvantage.
26. The second procedural decision relates to my deletion of much of Mr Boland's evidence submitted following the adjourned hearing. In the earlier stages of the proceedings Mr Boland did not lodge expert evidence by the extended time limit of 28 September 2001. On 10 July 2001 he was informed by the Registrar that save in exceptional circumstances no further extension of time would be granted. Paragraph 4 of the order dated 14 February 2001, after the adjourned hearing, was as follows:-

"Not later than 15 May 2002 [Mr Boland] shall serve on the [Inspector of Taxes] and lodge with the Tribunal a written statement of case and a witness statement setting out the facts on which he relies. The statement of case and witness statement shall each be signed by [Mr Boland] and contain a statement of truth in the following form: I believe that the facts stated in this document are true. THIS PARAGRAPH IS A PEREMPTORY ORDER. If [Mr Boland] shall fail to comply, for whatever reason, he shall be debarred from taking any further part in the proceedings. No further submissions or evidence from [Mr Boland] will be allowed after 15 May 2002."

I made it clear in this direction that the further submissions and evidence were to be those of Mr Boland; there is no reference to expert evidence. Nevertheless, on 17 April 2002 Mr Boland wrote to the Tribunal indicating his intention to include an expert report by Mr Michael Lawley in his representations. This produced an objection by the Solicitor of Inland Revenue on the grounds that the last date for lodging expert evidence was September 2001. On 23 April Mr Boland made application to lodge an expert report out of time which I refused on 9 May. I should add that the Solicitor of Inland Revenue consented to the application but only on two conditions, one of which was that the Inspector may withdraw her consent to the written representations procedure and require a hearing, a condition which I could not accept. Mr Boland lodged his statement of case on 15 May but, notwithstanding the order of 9 May, most of it consisted of Mr Lawley's expert evidence. By an order dated 27 May I struck out those parts of the statement of case which consisted of expert evidence prepared by Mr Lawley. On 24 June a further application was made by Mr Boland to reinstate the evidence struck out. I refused this application on 9 July.

27. The reasons for the above decisions, which all effectively relate to the late admission of expert evidence, are as follows. First, the last date for the lodging of expert reports (after several extensions of time, all at the request of Mr Boland) was 28 September 2001. He was informed in the previous July that no further extensions would be granted save in exceptional circumstances. Mr Boland's recent applications were effectively to lodge expert evidence seven months out of time.
28. Second, in his application of 24 June 2002 Mr Boland said that he intends to rely on three valuation reports which are included in the evidence of Mr Thomas. To allow him to lodge further expert evidence would permit him to adduce expert valuation evidence from four different sources. Rule 42(2) of the Rules allows only one expert witness on either side in a case such as this, unless the Tribunal orders otherwise.
29. Third, Mr Boland should have been ready to present his case at the hearing on 13 February 2002. The purpose of the order of 14 February, particularly paragraph 4, was to enable him to put in writing the case which he could have put orally at the hearing and to refer to further comparables which the Inspector agreed to disclose at Mr Boland's late request; and for the Inspector to present her case in writing instead of orally. The directions were not intended to allow Mr Boland to add to his case by adducing further expert evidence seven months out of time. The wording of paragraph 4 set out above makes it clear that the statement of case and witness statement are to be Mr Boland's documents, prepared by him and containing his own submissions and evidence. I can accept that Mr Boland might have needed assistance in the preparation of these documents, due to his ill-health, but that assistance does not extend to a new expert report nor does it allow Mr Boland to include that report in his own statement.

Inspector's case

30. Expert valuation evidence was given by Mr W J C Thomas FRICS. Mr Thomas qualified as a chartered surveyor in 1973 and after private practice he joined the Valuation Office in Cardiff in 1970. Since 1976 he has been a senior valuer working in the south-east Wales area. The following is a summary of Mr Thomas's written evidence.
31. The planning position at the valuation date and for some time after the appeal decision on 11 August 1983 was that the local planning authority wished to see the comprehensive development of the front and rear land. Alternatively, it might be reasoned that planning permission would have been granted for a public house and flats or shops and residential apartments if Mr Boland had been able to secure the agreement of the owner of the rear land to retain this land as amenity open space. In 1992, 1993 and 1995 there were indications that planning permission would have been granted in March 1982 for 35 to 40 or 53 flats (as built by Wimpey). Mr Thomas has included in his valuations a development of 53 flats on the front land.
32. Mr Thomas referred to numerous comparables. These may be divided into two groups: those which he found helpful when preparing his valuations and those which he included in his reports at the request of Mr Boland. I consider all the comparables later in this decision. Having regard to his analysis of the comparable transactions in the first group, Mr Thomas concluded that site values in March 1982 for the reference land were: £3,600 for a one-bedroom flat, £5,150 for a one-bedroom flat with sea views, £4,300 for a two-bedroom flat, £5,600 for a two-bedroom flat with sea views and £23,000 per house plot for the rear land. Mr Thomas analysed his comparable land transactions for flat development according to the size of the flat using the following factors: 0.75 bed-sitting room, 1.0 one-bedroom flat, 1.1 a larger one-bedroom flat, 1.2 a two-bedroom flat and 1.25 a larger two-bedroom flat.
33. Mr Thomas's approach to value involved considering the following questions. First, what scale of development would have secured planning permission on the front land? Mr Thomas answered this question by adopting the actual development of Alexandra Court, namely 53 flats comprising four inland one-bedroom flats, five sea view one-bedroom flats, 20 inland two-bedroom flats and 24 sea view two-bedroom flats. Second, how would the market have dealt with or discounted the need for comprehensive development of the front and rear land and the need for access from Bridgeman Road? Mr Thomas concluded that Mr Boland would have needed to accommodate the leaseholder of the rear land in order to be able to enter into a section 52 agreement, but the rear leaseholder might well have sought a share of the development value. The market would have discounted the value to reflect these risks and uncertainties. Third, how should the £75,000 acquisition cost of the freehold be apportioned? Fourth, what risk rates should be used in the valuation?
34. As to the need for rear access, this was from Bridgeman Road and in March 1982 was controlled by the leaseholder of the rear land. This could have led to a ransom situation, a further obstacle and risk to be considered when valuing the front land. In this statutory valuation the situations of the hypothetical vendor and purchaser have to be considered: prudent and willing but not overanxious. An alternative rear access might have been available from Beach Road.
35. Mr Thomas referred to the £75,000 paid by Mr Boland on his purchase of the freehold in November 1980. This should be apportioned to the front and rear land by reference to the apportioned rent, i.e. £75 per annum to the rear land, giving an apportioned consideration of £21,500 to this land. A purchaser in March 1982 would have used this approach.
36. As to the risk rates to be used in the valuation, Mr Thomas stated that base rate was 13% in March 1982 having recently fluctuated between 12% and 15%. The local authority wished to see the comprehensive development of the reference land and a purchaser would have anticipated difficulties in obtaining planning permission to develop the front land in isolation. Furthermore, he would have been aware of the unresolved disagreement over the interpretation of clause 7 of the assignment of June 1976. Having regard to the decisions of the Lands Tribunal for Scotland in David Lowe and Sons Limited v Inland Revenue (1984) 24 RVR 199 and this Tribunal in Honeychurch v McKenna (Inspector of Taxes) (1997) 37 RVR 270, Mr Thomas adopted a risk rate of 25% over 18 months in his first valuation and between 12 and 20% averaged over up to five years in his second and third valuations.
37. Mr Thomas prepared three valuations of the reference land as at 31 March 1982. These are set out in an Appendix to this decision.
38. Valuation 1 (£175,000) assumes that the purchasers had a reasonable expectation of obtaining planning permission for the development which was eventually built and adjusted their valuation at a risk rate to reflect the short time within which planning permission might have been obtained on the front land in isolation. Mr Thomas's cost of demolition (£17,000) was estimated by the local authority in February 1984 as at 1980. Mr Thomas deducted £30,000 for the cost of the rear access and arrived at this figure from his analysis of the purchase of the leasehold interest in the rear land by Wimpey in April 1988 (£60,000 attributed to this access) and his conclusion from other comparables that values doubled between 1982 and 1988.
39. Valuation 2 (£160,000) considers the prospect of resolving all the problems of planning, tenure and access over a period and adjusts the valuation to reflect risk as in the David Lowe and Honeychurch decisions.
40. Valuation 3 (£175,000) looks at the planning permission which have been expected to be granted for the whole of the reference land and considers what amount the rear leaseholder could have obtained in order that Mr Boland or his purchaser could secure a section 52 agreement (i.e. the price at which the leasehold interest in the rear land could have been purchased).
41. The Solicitor of Inland Revenue in his written submissions referred to Henderson (Inspector of Taxes) v Karmel's Executors [1984] STC 572 at 577e and said that the valuer must look at the asset as he finds it at the valuation date and value it as it stands. He may not assume that steps have been taken to remedy any defects, physical or legal, before the valuation date. The valuer must consider what price would be given for the property by a willing purchaser properly informed as to the property, who is not to be assumed to have perfect foresight of those events in the future which he, with hindsight, knows subsequently to have occurred. The hypothetical purchaser is to be taken to make a fair assessment of the risks and opportunities which the property presents and to adjust his bid to make fair allowance for them.
42. It is common ground that the hypothetical purchaser would have bid on the assumption that he should concede the claim of the leaseholder of the rear land to be entitled to buy his freehold for an apportioned part of the price paid by Mr Boland. There would remain the need for the purchaser to secure adequate access for any development and to comply with the planning requirement that development of the front land should be conditional on a section 52 agreement preserving the rear land as amenity land. Both requirements could only be satisfied with the concurrence of the rear leaseholder. Discount must be made for these factors. The leaseholder of the rear land would have been in a strong negotiating position and could have extracted a ransom payment for the sale of his interest. So far as the section 52 agreement is concerned the leaseholder of the rear land would be giving up the possibility of being able to realise a profit by developing that land in order to secure a valuable planning permission for the owner of the front land. He would wish to receive a substantial share of the profits of the development of the front land. This is a matter of value judgment.
43. While it is correct to say that Mr Thomas had reached the conclusion that the hypothetical purchaser might expect to compromise the dispute with the leaseholder of the rear land on the basis that the freehold of that land should be transferred for £21,500 (a figure which Mr Boland appears to agree), the owner of the rear land would still be in a strong bargaining position. He had control of the access and there was the need for his concurrence in the section 52 agreement. A purchaser would make a significant discount in his bid to reflect this position.
44. It appears to be common ground that the bid for the reference land should be on the basis of a permitted development for 53 flats on the front land.

Mr Boland's case

45. In his letter of 17 September 2001 Mr Boland puts the value of the reference land at £350,000 assuming planning permission for 64 flats. He did not explain how he had arrived at this valuation. He has listed five comparables in support but does not say how he has used them to assess the value of the reference land. These comparables are included in Mr Thomas's evidence and I consider them later in this decision. Mr Thomas's evidence includes three valuations submitted by Mr Boland during negotiations and Mr Boland, in a letter to the Tribunal dated 24 June 2002, appears to rely on these valuations. In particular, he appears to accept a development of 53 flats on the front land as mentioned in the letter of Fitz^2+CQ, one of the three valuations. I consider these valuations later in this decision.
46. In his statement of May 2002 Mr Boland makes the following points. In March 1982 he held the freehold of the whole of the reference land subject to part of the original lease over the rear land at a rent of £75 per annum. The reference land is virtually unique in terms of its location in Penarth, close to amenities on the Esplanade, with uninterrupted sea views, close to high quality parks and near the town centre. In the 1976 assignment of the leasehold interest in the front land there was provision for a split between the parties if either of them purchased the freehold. The position at March 1982 was that it had not been resolved what Downglade would pay Mr Boland for the freehold and there was a wide difference of opinion. The dispute developed into complicated litigation not resolved until the Court of Appeal decision in 1986. The essence of the dispute was that Mr Boland did not consider that he could be forcibly dispossessed of the freehold of the rear land except by agreement. If he had accepted in 1982 that he had to convey the freehold, as subsequently confirmed by the Court of Appeal and as a hypothetical sale assumed, then the only issues would be the price and the terms for severing the site. The circumstances of a hypothetical sale in 1982 would have envisaged the circumstances suggested by Mr Thomas, in that the leaseholder of the rear land would have to pay the apportioned value of the purchase of the freehold (reflecting the original purchase price and the ground rent apportioned) while the access to, and the rights over, the front land were regularised. Mr Boland said that he would have had to accept these terms if he had wanted to sell in 1982. He would therefore have concluded that as at 1982 the element of value relating to the rear land had been agreed at £21,500. This agrees with Mr Thomas's conclusion.

Decision

47. I have inspected the reference land and the surrounding area. I am required to determine the market value of the freehold interest in the reference land as at 31 March 1982. Market value is defined in section 150(1) of the Capital Gains Tax Act 1979 as "the price which [that interest] might reasonably be expected to fetch on a sale in the open market." No reduction is to be made because the whole of the property is assumed to be placed on the market at one and the same time (section 150(2)).
48. Case law has added to this brief definition of market value. The question is what a purchaser in the open market would have paid to enjoy whatever rights attached to the property at the relevant date. The property must be valued as it actually existed and not some other property, even if in real life the vendor would have been likely to make some changes or improvements before putting it on the market. It is to be assumed that the hypothetical vendor and purchaser did whatever reasonable people buying and selling such property would have been likely to do in real life. The hypothetical vendor is an anonymous but reasonable vendor, going about the sale as a prudent man of business, negotiating seriously without giving the impression of being either overanxious or unduly reluctant. The hypothetical purchaser is slightly less anonymous but he is also assumed to have behaved reasonably, making proper inquiries about the property and not appearing too eager to buy. Although the sale in March 1982 is hypothetical the open market in which it took place is in the real world (Lady Fox's Executors v Commissioners of Inland Revenue [1994] 2 EGLR 185 at 186 B-G; Henderson (Inspector of Taxes) v Karmel's Executors [1984] STC 572 at 577c-578a). Thus, the reference land, and the interests therein, must be valued as they existed on 31 March 1982. This is particularly important regarding tenure and planning, both of which affected the value of the reference land at the valuation date. Mr Thomas, on behalf of the Inspector of Taxes, puts the market value at £175,000; Mr Boland says that it was £350,000.
49. Before looking further at the value in March 1982 it will be convenient to consider the three valuations sent by Mr Boland to Mr Thomas and his predecessors during negotiations and now relied upon by Mr Boland.
50. The first is a valuation prepared in November 1989 by Mr S A G Young FRICS FSVA of Edwards Milsom and Co, chartered surveyors of Caerphilly. It is in the form of a short report addressed to Mr Boland. The freehold values given are £360,000 for the front land and £8,000 for the rear land. I give no weight to this report. No reasons are given for the valuations, they are on an incorrect basis (open market value under the RICS Red Book and not under section 150 of the 1979 Act) and the planning position underlying the valuations is not clarified.
51. The second valuation is an undated single page report from A U Crofts Davies & Co, chartered surveyors of Cardiff, giving the value of the reference land as £650,000 in May 1986. Mr Boland said that this valuation was prepared on behalf of his former wife in divorce proceedings. The value in May 1986 was subsequently agreed at £450,000. I give no weight to this valuation. The valuation date is more than four years after March 1982; no explanations are given for the valuation; and it was subsequently agreed at a much lower figure.
52. The third valuation is a letter dated 8 November 1995 from Fitz^2+CQ, chartered architects and surveyors of Barry, to the District Valuer referring to various values and asking him to accept a value of £350,000. This is clearly not a valuation but a letter in negotiations. I give it no weight.
53. The question I am required to answer is what would the freehold interest in the reference land have sold for in the open market on 31 March 1982? The sale is hypothetical but the market is real. I must reflect in the price the complicated tenure position and the uncertain planning position which existed in the real world in March 1982. These are referred to earlier in this decision but it will be convenient to summarise them before considering my valuation.
54. First, tenure. Mr Boland, and the hypothetical vendor, held the freehold interest in the reference land (front and rear) in March 1982. The front land was in possession, the rear land was subject to a lease for 99 years from 1 May 1958 at an apportioned rent of £75 per annum. Mr Boland acquired the part of this lease relating to the front land in June 1976 (which subsequently merged with the freehold which he acquired in November 1980). The assignment of the leasehold interest to Mr Boland dated 18 June 1976 includes two provisions affecting value: the reservation to the assignor of a right of way across part of the roadway and car parking area which formed part of the front land, and the mutual rights of acquisition under clause 7 which became important when Mr Boland acquired the freehold of the front and rear land in November 1980. I refer to both provisions later when considering value.
55. The second matter affecting value is planning. On 31 March 1982 it was the policy of the local planning authority to require the comprehensive development of the whole of the reference land. This is set out in Policy C6 of the draft local plan and is seen in the refusals of planning permission on 31 July 1979, 5 February 1980 and 19 May 1981 and the planning decisions regarding the proposed development as a public house and flats in September and December 1982.
56. A purchaser of the reference land in March 1982 would have seen the need to prepare a comprehensive development scheme for the front and rear land in order to obtain planning permission. As to the front land it is now common ground that it can be assumed that planning permission would have been granted for 53 flats, the development for which planning permission was granted in May 1987 and which has now been built (Alexandra Court). As to the rear land, the planning decisions of September and December 1982 (public house and flats) indicate that the local planning authority were then seeking to retain the rear land as open space. However, planning permission was granted in January 1985 for three detached houses and the extension and refurbishment of the existing coachman's cottage. In his third valuation Mr Thomas has assumed four building plots on the rear land. I accept this assumption, which is more favourable to Mr Boland than open space.
57. The position at the valuation date therefore is that a purchaser of the reference land would have made his offer on the assumption of the need for comprehensive development, 53 flats on the front land and four houses on the rear land.
58. I now arrive at my valuation, the basis of which is similar to Mr Thomas's third valuation . There are three stages. Stage 1 is the valuation of the freehold interest with vacant possession in the front and rear land, assuming a development of 53 flats on the front land and four houses on the rear land. Stage 2 is a deduction for the cost of acquisition of the leasehold interest in the rear land. This will allow comprehensive development, remove the rear leaseholder's rights of way over part of the front land and remove the problem of the clause 7 rights arising out of Mr Boland's acquisition of the freehold of the rear land in 1980. The third stage is deferment to allow for the period needed to obtain planning permission and to acquire the leasehold interest in the rear land.
59. Stage 1 is the valuation of the freehold of the reference land with vacant possession, assuming a development of 53 flats on the front land and four houses on the rear land. I divide the 53 flats in the manner adopted by Mr Thomas in his valuations 1 and 2. The questions I must answer at this stage are: what was the site value per flat (to be derived from the comparables) and whether a deduction should be made for the cost of demolishing the fire damaged hotel.
60. I have considered all Mr Thomas's comparables. I give no weight to the following for the reasons given. Two were valuations as at March 1982 (an unspecified site and Westwood Court). These are not transactions in the market but opinions of value. Mariners Heights (in Paget Place) is in a dissimilar area and the sale was in August 1986, nearly four years after the valuation date. The comparables, Westwood Court, Oakenhurst and Glynne Tower, are sales in June and July 1989, September 1990 and May 1992, too far removed in time from the valuation date to be helpful. The Public Baths are immediately adjoining the reference land and were sold in August 1988 and May 1989. This property was not sold for residential development, however, and is now a public house. All these transactions are too far removed in time and use to be of assistance in valuing the reference land. Ashdene in Bridgeman Road was sold in July 1980 but has remained a single dwellinghouse and was clearly not a development sale.
61. The other comparable transactions to which I give no weight all relate to the reference land and have been referred to earlier in this decision. They are the purchase of the freehold interest in the front and rear land by Wimpey in April 1988, the purchase of the leasehold interest in the rear land by Wimpey in March 1988 and the sale of the freehold in that land in August 1989. All transactions took place in a wholly different market, about six to seven years after the valuation date and with the existence, and not the mere hope, of planning permission. The adjustments necessary to relate these transactions back to the position in March 1982 are too uncertain and too great to make these comparables helpful. I give them no weight.
62. I now consider the comparables which I find helpful. A vacant site, 26-8 Stanwell Road (later called Penarth House), was sold in February 1980 for £70,000. This property is in the town centre. Various planning permissions had been granted before the sale. On 12 March 1979 outline planning permission was granted for sheltered housing comprising 18 two-person flats, one guest suite, warden's flat and communal rooms. Mr Thomas devalued the price to show 20 flats at £3,500 or one one-person flat at £3,215 (100%) and 19 two-person one-bedroom flats at £3,515 (110%). I agree with Mr Thomas's figures. These show a range for one-bedroom flats between £3,215 and £3,515 per unit site value.
63. Land of 2.36 acres (later known as Homeside House) comprising allotments and woodland in Bradford Place, overlooking the sea, a short distance to the north of the reference land, was sold in July 1984 for £300,000. At the date of sale planning permission had been granted on appeal for 30 flats and a planning application was outstanding for 48 flats, one warden's flat and communal facilities. This application was refused on 31 July 1984 but granted on appeal in May 1985. Mr Thomas analysed the sale price on the basis of the planning permission granted on appeal for 49 flats to show £6,122 per flat or £5,600 and £6,175 for the one-bedroom flats (100% and 110%) and £6,275 for the two-bedroom flats (120%). I accept these figures.
64. In Bridgeman Road the site of the former gardens of two adjoining houses (0.9 acre) was sold in June 1986 for £235,000. This property is now known as Bridgeman Court and is a short distance from the reference land. At the date of sale planning permission had been granted for 33 sheltered flats and permission was given for an additional flat in July 1986. Mr Thomas analysed the sale price to show £6,912 per flat or £5,850 for the one-bedroom flats (100%), £7,050 for the two-bedroom flats (120%) and £7,300 for the larger two-bedroom flats (125%). I accept these figures. This site was assembled before sale by purchases, one in May 1984 for £77,500 and the other in May 1985 for £20,000. Mr Thomas analysed the £235,000 sale price to indicate a land value of £261,000 per acre.
65. In January 1982 a building plot with planning permission for one detached house (0.13 acre) in Alberta Road was sold for £14,000. Alberta Road is some distance to the south of the reference land.
66. A building site in Marine Parade, a short distance to the south of the reference land, was sold by auction on 22 October 1981 for £93,000 with outline planning permission for four detached houses. This price devalued to £23,250 per plot.
67. In November 1985 a former hospice at 15 Bridgeman Road (otherwise known as Holme Tower, Ty Mor or Park Tower) was sold for £200,000 with outline planning permission for conversion to six flats. The buildings were later demolished and nine apartments built on the site (no details of accommodation given). The price devalues to £22,222 per apartment but lack of information makes this devaluation of little weight. This site is close to the reference land but gives only a general indication of land values. Mr Thomas analysed the sale price to show a land value of £270,000 per acre.
68. In January 1982 a property known as Courtlands, Bridgeman Road was sold for £220,000 with planning permission for the alteration and extension of the existing building to provide seven residential units plus two new houses. In October 1982 planning permission was granted to the purchasers to demolish the existing buildings and construct a 38-bed hospice. Mr Thomas analysed this sale to show a land value of £333,000 per acre.
69. In the light of this evidence I consider the land value per unit for the flats and houses on the reference land. Mr Thomas's figures in his valuations are: £3,600 (one-bedroom flats), £5,150 (one-bedroom flats with sea views), £4,300 (two-bedroom flats) and £5,600 (two-bedroom flats with sea views); and £23,000 per house plot on the rear land. In my judgment these figures are too low. The reference land is situated in a very good location for residential development and I do not think that Mr Thomas has fully reflected this in his valuations.
70. For one-bedroom flats the evidence shows £3,215 to £3,515 for Penarth House in February 1980, two years before the valuation date and a town centre location which, in my view, is inferior to the reference land with its sea views. Homeside House is a similar location to the reference land and the July 1984 figures are £5,600 to £6,175. Bridgeman Court, another similar location, shows £5,850 in June 1986. On this evidence, having regard to differences of location and date, I adopt £4,500 for the one-bedroom flats without a sea view and £5,250 for those with a sea view.
71. For two-bedroom flats the evidence is £6,725 for Homeside House in July 1984 and £7,050 to £7,300 for Bridgeman Court in June 1986. Having regard to differences of location and date, I adopt £5,500 for the two-bedroom flats without a sea view and £6,500 for those with a sea view.
72. For the house plots on the rear land the building site in Marine Parade which sold for £23,250 per plot in October 1981 is the best comparable but I regard The Esplanade as a better location. I use £25,000 per plot for the reference land.
73. I agree with Mr Thomas that a deduction should be made for the demolition of the fire damaged hotel and I adopt his figure of £17,000 (the comparables are vacant sites).
74. On these figures the value of the freehold interest with vacant possession in the reference land, assuming that planning permission has been granted for 53 flats and four houses, was £393,250 in March 1982.
75. Stage 2 of the valuation is a deduction for the cost of acquiring the leasehold interest in the rear land. This will then allow the comprehensive development assumed in Stage 1, remove the rear leaseholder's rights of way over part of the front land and remove the problem of the clause 7 rights. There are therefore two hypothetical transactions, one depending on the other. The primary transaction is the hypothetical sale of the freehold interest in the reference land subject to the lease of the rear land; the secondary transaction, without which the full freehold value in Stage 1 cannot be realised, is the purchase of the lease of the rear land.
76. In March 1982 the leaseholder of the rear land was in a strong bargaining position. I am of the opinion that he would have sold his interest to the hypothetical purchaser of the freehold of the reference land for a substantial proportion of the increase in the value of the rear land to the freeholder by the acquisition of the lease. In the circumstances of this case, I put that proportion as 80%, a high figure but one which I think is justified in the particular circumstances of this case. I have found that the value of the freehold with vacant possession of the rear land with planning permission for four houses was £100,000. It is common ground between the parties that the value of the freehold reversion in this land, subject to the lease, was £21,500. The total increase in value as a result of the acquisition of the rear leasehold interest was therefore £78,500. An 80% share to the leaseholder gives a purchase price for his interest of £62,800. Deducted from the Stage 1 value this gives a net value before deferment of £330,450.
77. Stage 3 is deferment to allow for the time needed to obtain the planning permission and to acquire the lease of the rear land. Two elements are involved, time and the interest rate. In my view a purchaser of the freehold of the reference land in March 1982 would have anticipated that it would take two years to obtain planning permission and agree terms with the rear leaseholder. In March 1982 bank rate was 13%. There was a considerable element of risk as to both planning permission and the purchase of the lease of the rear land. I increase the rate to 20% to allow for this risk and uncertainty. The Stage 2 net figure is therefore deferred for two years at 20%.
78. My valuation is £230,000 calculated as follows:-

Value of reference land with vacant possession & planning permission	Value of reference land with vacant possession & planning permission	Value of reference land with vacant possession & planning permission
4 1-bed flats @ £4,500	£18,000
5 1-bed flats (sea views) @ £5,250	26,250
20 2-bed flats @ £5,500	110,000
24 2-bed flats (sea views) @ £6,500	156,000
	£310,250
Less: demolition of hotel	17,000	£293,250
4 house plots @ £25,000		100,000
		£393,250
LESS
Purchase price of leasehold (rear land)
Value of freehold (4 house plots)	£100,000
Less: value of freehold subject to lease	21,500
Increase in value	£78,500
Proportion to leaseholder, 80%	0.8	£62,800
		£330,450
Defer 2 years @ 20%		0.694
Value of freehold		£229,332
		say £230,000

79. I determine that the market value of the freehold interest in the reference land under section 150 of the Capital Gains Tax Act 1979 as at 31 March 1982 was £230,000 (two hundred and thirty thousand pounds).
80. This decision concludes my determination of the substantive issues in this case. It will take effect as a decision when the question of costs has been decided and at that point, but not before, the provisions relating to the right of appeal in section 3(4) of the Lands Tribunal Act 1949 and order 61 rule 1(1) of the Civil Procedure Rules will come into operation. The parties are invited to make submissions as to the costs of this reference and a letter accompanying this decision sets out the procedure for submissions in writing.

DATED: 12 August 2002

(Signed) P H Clarke

ADDENDUM

81. I have received written representations on costs. On 22 February 2001 the inspector made a Calderbank offer to settle the dispute at a figure of market value above my determination. This offer remained open for acceptance until 15 March 2001. It explained to Mr Boland the possible consequences as to costs of the non-acceptance of this offer. It was not accepted. The only representation on behalf of Mr Boland is that he opposes any award of costs against him. The inspector asked for her costs from the date for acceptance of the offer, each party bearing their own costs prior to that date. I agree. Mr Boland has gained no more than he would have achieved by accepting the offer by proceeding with the reference, which has been a waste of time and money. Mr Boland must bear his own costs and pay the inspector's costs from the date for acceptance of the offer.
82. Accordingly, I order that each party shall bear their own costs of the reference up to 15 March 2001 and from that date Mr Boland shall bear his own costs and pay the inspector's costs, such costs, if not agreed, to be the subject of a detailed assessment on the standard basis by the Registrar of the Lands Tribunal.

DATED: 2 September 2002

(Signed) P H Clarke

APPENDIX

VALUATIONS OF W J C THOMAS FRICS FOR THE INSPECTOR OF TAXES

VALUATION 1
Front land
4 1-bedroom flats (100%) @ £3,600		£14,400
5 1-bedroom flats (sea view) (143%) @ £5,150		25,750
20 2-bedroom flats (120%) @ £4,300		86,000
24 2-bedroom flats (sea view) (156%) @ £5,600		134,400
Value as cleared site		£260,550
Less: Demolition and site works	£17,000
Cost of rear access	30,000	£ 47,000
Value of front land encumbered by ruins		£213,550
Defer for planning
18 months @ 25%		0.72
		£153,756
Rear land		£ 21,500
		£175,256
		say £175,000

VALUATION 2
Front land
Value encumbered by ruins (Valuation 1)		£213,550
Defer for 4½ years @ 10% (Honeychurch v McKenna)		0.65
		say £139,000
Rear land		£ 21,500
		£160,500
		say £160,000

VALUATION 3
Value for development for public house and 67 flats (recommended for approval 1 September 1982)
Public house site		£75,000
Flat sites:- 15 1-bedroom flats @ £3,600 }
19 1-bedroom flats (sea view) @ £5,150 }
15 2-bedroom flats @ £4,300 }	£317,630
18 2-bedroom flats (sea view) @ £5,600 }
Less 10% (above public house)	31,763	£285,867
		£360,867
Less demolition costs		17,000
		say £344,000
LESS
Existing use value of Mr Boland's interest
Public house site less demolition costs	£58,000
Rear land	21,500
	£79,500
Add
Value of rear land to leaseholder
4 house plots @ £23,000 }
less freehold value (£21,500) }	65,500
add value of access (£30,000) }
adjusted for risk, etc (0.65) }		£145,000
Potential marriage value		£199,000
Apportion to freeholder (?)		0.667
		£132,667
Add existing use value		79,500
		£212,167
Defer 1 year @ 13%		0.885
		£188,000
Less profit and risk (15%)		28,000
		£160,000
but standing back from the detail the leaseholder of the rear land would have bought Mr Boland's freehold interest for £175,000.	but standing back from the detail the leaseholder of the rear land would have bought Mr Boland's freehold interest for £175,000.	but standing back from the detail the leaseholder of the rear land would have bought Mr Boland's freehold interest for £175,000.