England and Wales Lands Tribunal

[2003] EWLands ACQ_102_2002 (14 March 2003)

ACQ/102/2002

LANDS TRIBUNAL ACT 1949

COMPENSATION – Compulsory acquisition of shop and premises included in clearance area – value of freehold – whether disturbance assessed on basis of total extinguishment of business or relocation – compensation of £63,840 awarded on the basis of total extinguishment.

IN THE MATTER of A NOTICE OF REFERENCE

BETWEEN MARK PENNINGTON & ALICE PENNINGTON Claimants

and

BURNLEY BOROUGH COUNCIL Acquiring Authority

Re: 32 Hargher Street, Burnley, Lancs

Tribunal Member: P R Francis FRICS

Sitting at: Manchester Combined Tax Tribunal,

9th Floor, West Point, 501 Chester Road, Manchester, M16 9HU

on

22 January 2003

The following case is referred to in this decision:

Director of Buildings and Lands v Shun Fung Ironworks [1995] 2 AC 111

John Barrett, instructed by Haworth and Nuttall, solicitors of Blackburn for the claimants

David Talbot, senior solicitor of Burnley Borough Council for the respondent


 


DECISION

1. This is a reference, heard under the Simplified Procedure (Rule 28, Lands Tribunal Rules 1996, as amended), to determine the compensation payable to Mr Mark Richard Pennington and Mrs Alice Pennington ("the claimants") by Burnley Borough Council ("the acquiring authority" or "the council") for the compulsory acquisition of the freehold interest in 32 Hargher Street, Burnley, Lancs ("the subject property") in connection with The Burnley (Howard Street 1-4) Clearance Areas Compulsory Purchase Order 2001 ("the CPO").
2. Mr John Barrett appeared for the claimants and called Mr Mark Pennington to give evidence of fact, and Mr David Briffett BSc (Hons) MRICS to give expert valuation evidence. Mr David Talbot appeared for the acquiring authority and called Mr Stephen Hudson MRICS, its expert valuer.

FACTS

3. From the evidence, I find the following facts:

3.1 The subject property comprised a stone built and slate roofed end of terrace corner shop with storage accommodation above and a basement. It was located at the junction of Howard Street and Hargher Street and was originally constructed in about 1882.

3.2 The accommodation comprised, on the ground floor, a retail shop of 18.48 sq.m. with display windows to both road frontage elevations, preparation room of 13.73 sq.m. and kitchen of 3.96 sq.m. There was a basement beneath the shop of 18.48 sq.m., used for storage. At first floor there were two storage rooms totalling 29.68 sq.m. and a bathroom. There was a small courtyard to the rear and the property had planning permission for A1 retail use.

3.3 Following assurances from the council that the property was not one of those in the area that was likely to be compulsorily acquired in connection with a proposed clearance and regeneration scheme, the claimants completed their purchase in May 2000 at a price of £5,000. It was the intention to use it as a sandwich shop and hot-food takeaway to be run by Mrs Pennington, a former employee of Warburtons Bakery, which was about ¾ mile distant. It had been agreed that she would supply meals and sandwiches to Warburtons, and by the time the property was compulsorily acquired, that made up about 30% of the claimants' business. Mr Pennington, a builder and property repairer, undertook a full modernisation and refurbishment scheme as the property was derelict when it was acquired, and following confirmation from the council that the premises met the necessary environmental health requirements, opened for business in March 2001.

3.4 Both prior and subsequent to the purchase, the claimants had applied for permission to use the property as a hot food take-away (A3 use), but on all occasions that was refused, and the principal activity undertaken was, therefore, the sale of sandwiches, pies and other cold food. Pre-cooked food such as breakfasts and lunches, were also prepared on the premises, allowed to cool, and delivered cold to customers for re-heating. At the date of possession the business was trading at an average turnover approaching £2,000 per week.

3.5 The claimants first became formally aware that the property was to be compulsorily acquired in February 2001, just before they commenced trading. The CPO was eventually made on 6 September 2001, confirmed on 26 October 2001 and written notification was sent to them on 9 November 2001. Mr Briffett was then appointed to negotiate, and a claim was submitted to the council on 19 November 2001.

3.6 The General Vesting Declaration was issued on 28 February 2002 with an effective date of 2 April 2002 (the valuation date for the purposes of this determination) and a Sheriff's warrant for possession was dated 29 July 2002. The keys were handed to the council on 5 August 2002. Notice of Reference to this Tribunal was dated 11 September 2002.

ISSUES

4. The issues for determination are:

1. Whether disturbance should be assessed upon the basis of total extinguishment or relocation of the business.

2. The value of the freehold interest in the subject property and, if total extinguishment is the appropriate basis of calculation, the value of the business and other items of disturbance..

3. Whether the solicitor's fees claimed in the sum of £940 were appropriate.

CLAIMANTS' CASE

5. Mr Pennington is a self-employed builder and property repairer who owns a number of properties in Lancashire, and operates another sandwich shop in Nelson. Since Mrs Pennington left Warburtons, she had been providing sandwiches and other meals to them from a converted fish and chip van, but the company stipulated, for hygiene reasons, that they required future supplies to be from a shop. Mr Pennington said that he and his wife knew the subject property, and although it was derelict, considered it could, with extensive renovation, be made suitable for use as a hot and cold food take-away. The owner was contacted and terms for purchase, at a price of £5,000, were agreed.
6. Although the property had planning permission for A1 retail use, an application needed to be made for A3 use to permit the preparation and sale of hot food. On contacting the planning authority, prior to concluding the purchase, Mr Pennington said that he was advised not to submit an application, as the property was being considered for compulsory purchase. However, subsequent written assurances were received, confirming that it was not within the compulsory purchase scheme, and an application was made. Even though this was refused, as the vast majority of the proposed business would relate to cold food, the purchase was completed in May 2000 and Mr Pennington set about a refurbishment programme. Further applications for A3 use, made following the commencement of trading, were also refused. Much of the refurbishment and modernisation work, he said, was done by him but some was carried out by a contractor, Monkstone Ltd, in the sum of £10,925. The total value of the works, including his own time and materials was estimated by Mr Briffett at about £25,000 and they took approximately 8 months to complete.
7. Mr Pennington said that, shortly before opening for business in March 2001, and despite the assurances that he had earlier received, he received a letter from the council indicating that they had resolved to include the property in a clearance programme. Following formal notification on 9 November 2001, Mr Pennington said he immediately instructed Mr Briffett to act on his behalf and continued looking for alternative premises, his search having commenced as soon as he was aware that the property was, indeed, likely to be compulsorily acquired. After the General Vesting Declaration was issued, he was contacted by the council in June 2002 saying vacant possession was required, and following the sheriff's warrant for possession, which was to be effective 29 July 2002, the keys were eventually handed to the council on 5 August.
8. In seeking other premises, Mr Pennington said that Mr Briffett had asked Mr Stephen Hudson, the council's surveyor, if he was aware of anything suitable, but he had not been able to suggest anything. However, he did look at several potential alternatives, including going concerns, but none of these were considered suitable in terms of location or condition of the properties. Although Mr Hudson had referred to two comparable properties in his proof of evidence, Mr Pennington said that 178 Howard Street was not even on the market at the time he was looking, and the other, 72 Harold Avenue needed, in his opinion, £35,000 spending on it to bring it up to an acceptable standard. He said he did not wish to be back in the same position he was when he first purchased the subject property, and in any event, time was limited, and he needed to find something that was virtually ready to move into, and operate from. Furthermore, with no indication of the level of compensation that was likely to be forthcoming (despite Mr Briffett's attempts to elicit an offer from Mr Hudson), he was not in a position to proceed.
9. The acquiring authority had suggested that, despite the claim for total extinguishment of the business, the claimants had continued to trade after 29 July 2002. Mr Pennington said that he had been advised by Mr Briffett that they should do everything they could to minimise their losses, and the Warburtons' business was continued at a rate of about £400 per week between August and November 2002 from his other sandwich shop at Nelson, some 7 miles away. However, the contract was terminated by Warburton's on the premise that the quality of the food had deteriorated and the fact that Mrs Pennington had said it was becoming uneconomic to continue the supplies from Nelson for that level of turnover. The quality had deteriorated as the supplier nominated by Warburtons was unable to supply ingredients early enough in the morning, so they were having to use the previous day's stock.
10. In cross-examination, Mr Pennington said that even though the menu boards in the shop listed some hot food, such as soups and burgers, and there was a hot counter and microwave oven, the demand was limited and amounted to only about 5 percent of the overall sales. The cooking ranges in the kitchen were used to cook the sandwich ingredients such as chicken and beef, together with the meals for delivery to Warburtons. However, all prepared meals were allowed to cool, and were not sold from the premises hot.
11. Mr Pennington confirmed that he had started to seek alternative premises as soon as it became apparent the subject premises were to be compulsorily acquired, although was severely restricted as he could not establish what compensation he was likely to be offered. He said that he had not sought an advance payment as he was waiting for an offer to be made. The prices of properties he was viewing ranged between £78,000 and £100,000, but was unable to raise independent finance especially as he was completely in the dark as to the level of compensation he might receive. The acquiring authority had only made its first offer two to three weeks before the hearing.
12. As to the claim for solicitors fees in the sum of £940, Mr Pennington said they all related to his fight for compensation and were for meetings, letters and phone calls.
13. Mr Briffett is a chartered surveyor, and managing director of Thomas V Shaw & Co Ltd, Chartered Surveyors of Blackburn. He has over 20 years experience in the sale and transfer of retail businesses, including those of the type conducted by the claimants, and of conducting compulsory purchase and compensation negotiations. He confirmed that he had been instructed to act by the claimants on 19 November 2001, 11 days after they had received the notification of the CPO, and submitted an unquantified claim on that day. On 20 November, he wrote to Mr Hudson advising of his appointment and indicating that unless suitable local premises could be found, it was likely that any claim for compensation would be on a total extinguishment basis. He also gave details of some of the properties that had been inspected by the claimants, and sought assistance with identifying others.
14. His report set out the background to the claim including a description of the subject property and details of the modernisation that had been undertaken. He said that, along with the Monkstone invoice, the claimants had invoices amounting to a total of £14,000, but in his opinion, the total value of the work, including what Mr Pennington had done himself, was in the region of £25,000. Mr Briffett also provided an inventory of the fitments and fittings utilised on the premises and produced a quotation from Prisma – 'Intelligent Solutions For Commercial Kitchens' for the supply and installation of equivalent equipment at £37,919 exclusive of VAT. That would be the total replacement cost, but it was accepted that the full value could not be claimed. There was an actual invoice relating to much of the equipment, dated August 2000, for £9,500 together with invoices for £930 relating to floor coverings and £60 for curtains and tracks. He had been advised that the claimants had spent £14,000 altogether on the fittings and fitments and only £384 net had been achieved at auction when most of the equipment was sold. The net loss on forced sale was therefore £13,556.
15. As to the value of the shop, Mr Briffett said that his firm had 40 sandwich businesses (as distinct from hot food takeaways) of a similar type to the claimants' business for sale at the present time, so he was fully conversant with appropriate rental values. He said capitalisation of rental value was the correct valuation approach, as opposed to Mr Hudson's method of using residential properties as comparators. Market evidence suggested a rental value of £80 per week (£4,160, rounded to £4,100 per annum). To support this, achieved sale prices indicated 'zone A' figures for shop rooms of £95 per square metre, and halving this for the kitchen and preparation rooms (£47.50) and halving again for the store rooms and basement (£23.75), gave £3,737 to which 10 per cent should be added to allow for the good condition of the subject property, giving a rental value of £4,100. An appropriate multiplier for secondary properties of this type was 10% giving a capital value of £41,000.
16. With regard to the value of the business, Mr Briffett said his firm had recently completed the sale of 4 sandwich shop businesses (Tasty's, 28 Richmond Terrace, Blackburn; 235 Blackpool Road, Preston; 119 Whalley Road, Clayton-le-Moors and 26 Well Terrace Clitheroe). Tasty's was a leasehold lock-up building let at £333.33 per month. It had a turnover of £60,000 and a gross profit of £34,000. It sold at £28,000 plus stock at valuation (SAV) in August 2002. Draft trading figures had been relied upon by the purchaser in formulating his bid. 235 Blackpool road, another lock-up shop let at £320 per month and having a turnover of £1,600 per week sold for £34,000 plus SAV.
17. 119 Whalley Road had been sold early in 2002 at £24,950 against a rental figure of £3,900 per annum. Trading now at a turnover of £2,000 per week it was being re-marketed at £35,000 plus SAV. 26 Well Terrace had a turnover of £124,000 and a gross profit of £68,000. The sale was anticipated to proceed at £35,000 plus SAV.
18. From these figures, and the one set of accounts that was available, Mr Briffett calculated the total extinguishment claim thus:

Estimated Maintainable Turnover £98,641

Net Profit as shown £20,444

Deduct notional rent £ 4,100

Interest on capital @ 10% of £15,000 £ 1,500

£ 5,600 £14,844

Add back loan interest £1,091

Bank Charges £ 91

£1,182 £16,026

Adjust net profit £16,026 x 1.75 YP (to reflect new business)

Total Extinguishment Claim £28,045

19. Taking into account the loss on forced sale of stock assessed at £500 and an allowance for the proprietors time in arranging removal of fixtures and fittings and seeking alternative premises at £400 (40 hours x £10 per hour), the claim became:

Compensation for value of freehold property £41,000

Total extinguishment of business £28,045

Loss on forced sale of fixtures and fittings £13,655

Loss on forced sale of stock £ 500

Proprietor's time £ 400

£83,600

Plus Legal and surveyors fees to be assessed together with solicitor's invoice as claimed by the claimants in the sum of £940.

20. Regarding the negotiations that had been carried out with Mr Hudson, Mr Briffett said he understood that the council had a policy of not negotiating prior to the confirmation of CPOs. No written reply had been received to his letter of 20 November 2001, or to the quantified claim that was submitted to the council on 29 January 2002. Following the GVD Mr Briffett wrote to Mr Hudson on 9 April suggesting that compensation negotiations commence. In June, following the claimants being advised that the requirement for possession was imminent, he wrote to the council's Michelle Hall expressing his concerns over their handling of the case. He said that despite his attempts to negotiate compensation from November 2001 "the council has made no attempt to respond to letters or negotiate with my client".
21. On 8 July 2002 Mr Hudson advised Mr Briffett that the council "might offer £18,000 for the property" and a that claim for total extinguishment was not warranted. Mr Briffett said he could not accept the council's contention that the claimants should have relocated – the time span between confirmation of the CPO and possession being far too short for anything meaningful to have been achieved. Not only did the claimants have to actually find something suitable, negotiate a purchase and prepare it for trading, but they would also have to wait for an Environmental Health Officer's inspection before they could commence.
22. In cross-examination, Mr Briffett accepted that whilst there were only invoices amounting to £14,000 in respect of the renovation works carried out to the subject property, his estimate of the value of the time and effort personally expended by Mr Pennington was based upon his professional experience and expertise. Bearing in mind the standard of works carried out, he felt an overall value of £25,000 should be placed on the work.
23. As to what percentage of hot food sales he thought would be acceptable to the local authority before enforcement action was taken, he said that whilst he could not give a definitive answer, he thought up to 20 per cent would be acceptable. In any event, he said, the property would have been inspected by the council when the planning applications were made, and it was notable that no enforcement action had been taken or proposed. As to the reasons why the council did not enter compensation negotiations earlier, Mr Briffett accepted that he did not produce the trading figures until Mr Hudson requested them, although he had reported them orally at an early stage.
24. Regarding his valuation, Mr Briffett said that even though some of his comparables were in better areas, the market for sandwich shops was 'a market within a market' and 10 YP was the appropriate rate. Similarly, with regard to the multiplier he used to value the business, the sale of Tasty's at a figure that represented almost once times the gross profit more than justified his 1.75 estimate based upon net profits. He said so long as there was evidence of profitability businesses like this would sell.
25. Asked whether a buyer would be discouraged by the fact that planning permission did not exist for the sale of hot food, Mr Briffett said all sandwich shops sell a percentage of hot food, whether or not planning permission exists, but so long as that percentage remained small (as it did in this case), the likelihood of enforcement action was negligible.
26. In closing Mr Barrett pointed out the fact that Mr Briffett had many years experience in the valuation of businesses, whereas Mr Hudson had none. The total extinguishment claim was fully justified as the sole reason for the closure of the claimants' business was the compulsory acquisition. Despite attempts to mitigate their losses by continuing to supply Warburtons from the premises at Nelson, this had not proved successful due to the distance involved. No suitable alternative premises could be found, and even if they had been available locally, there was barely time to negotiate a deal, let alone ready the premises for the transfer of the business due to the short timescale set by the acquiring authority.
27. It was evident, Mr Barrett said, that the council had been singularly unhelpful and had not lifted a finger to assist the claimants.

ACQUIRING AUTHORITY'S CASE

28. Mr Hudson is a chartered surveyor who, for the past 15 years, has been employed as a senior surveyor by Burnley Borough Council. Part of his responsibilities include the negotiation of all the council's acquisitions under its clearance programmes, totalling over 600 properties in the last 5 years.
29. He firstly confirmed that it was the council's policy not to enter into negotiations regarding compensation until CPOs had been made which, in this instance, meant October 2001. He said that the fundamental issue was that the council disputed that there was a valid claim for total extinguishment of the business – the claimants could, and should, have relocated and, in his view, they had ample time to do so. The fact that the claimants would have had to effectively 'start again' in terms of finding, modernising and preparing a property should not, he said, be a barrier. There were plenty of vacant houses in the vicinity that could be converted.
30. Mr Hudson said that there was very little worthwhile comparable evidence, the market for suburban corner shops having substantially diminished in recent years. A significant number had been converted to residential use, from which it could be inferred that the value of such a property, as a business unit, could be less than an equivalent house. Residential properties, when let, achieved rentals in the region of £65 per week, and as investments could be sold for in the region of £10,000, representing a 30 per cent return.
31. Although, in his view, adopting an investment approach to the valuation of the subject property was not the customary way of determining capital or rental values of such tertiary premises, Mr Hudson said he had carried out such an exercise. Whilst he generally agreed with Mr Briffett's rental values assessed on a floor area basis, he disputed the value of the basement, and calculated this at £5 per sq.m. The 10 per cent uplift was also inappropriate, and thus his rental value became £3,600 pa. Bearing in mind the tertiary position and the unattractiveness of the investment, he felt a return of 20 per cent would be required, giving a YP of 5. Thus, his valuation of the building became £18,000.
32. Looking then at the value of the business, Mr Hudson said he could see no justification in the council giving the claimants value for their business when it could have been relocated and continued elsewhere. The principal of compulsory purchase compensation is equivalence, so far as can be achieved by money. There is a presumption that a business will relocate and not be extinguished except on the grounds of a claimant's age (which did not apply here). The claimants cannot arbitrarily assume that compensation on the basis of total extinguishment will be paid. Whilst the claimants are saying they have been unable to find suitable alternative accommodation, Mr Hudson said the council was not satisfied that there was ever a bona fide intention to relocate, or that it had been responsible for the termination of the claimants' business. The claimants had not, in his view, taken sufficient steps to identify suitable alternative premises.
33. However, there was indeed evidence that the business had, at least partly, relocated, in that the contract with Warburtons continued after the date of entry. In producing a valuation based upon total extinguishment (in case the Tribunal found that to be the appropriate method), Mr Hudson said therefore, that the element of the income shown in the draft trading accounts relating to Warburtons should be removed. He did accept that the short trading period between August and November, when the contract was terminated, was the only evidence of any relocation.
34. Mr Hudson also said that in his view a significant proportion of the claimants' business was the sale of hot food, his perception being that that could have made up 30 per cent of the business. Although he was unaware of what the local authority's criteria was, and had made no enquiries to establish the policy, he said he thought anything over 20 per cent would be considered more than ancillary. He said that, under rule 4, section 5 of the 1961 Act any value attributable to an unlawful use should be ignored and in his valuation of the business, therefore, he reduced the gross income (which had already been adjusted downwards to reflect the 'ongoing' Warburtons business) by a further 30 per cent. The fact that the claimants made repeated planning applications for A3 use bore out the perception that hot food sales were very much higher than indicated by Mr Briffett or the claimants.
35. The valuation of the business became:

(Based on draft accounts for Year Ended 7 April 2002)

Gross Turnover (Excluding Warburtons) £68,512

Less Purchases (reduced in proportion to Warburtons' sales) £36,310

Gross Profit £32,202

Less 30% reduction to reflect hot food sales £ 9,661

Adjusted Gross Profit £22,541

Deduct expenses:

Wages £ 5,050 (Reduced by 50%)

Rates £ 203

Light and Heat £ 2,000 (Reduced by more than 50% to reflect cooking costs)

Insurance £ 1,791

Telephone £ 650

Wrapping and Bags £ 38 (Reduced to reflect non-delivery to Warburtons)

Cleaning £ 546

Post, Print, Stationery £ 43 (Reduced by 50%)

Motor Expenses £ 1,560 (Reduced to reflect non-delivery to Warburtons)

Repairs & Maintenance £ 885

Overalls/Clothing £ 91 (Reduced by 50%)

Bank Charges £ 144

Loan Interest £ 2,231

£15,932

Net profit £ 6,609

Note: No adjustment for wages

As the net profit, excluding proprietor's wages, reflected an income of considerably less than the national minimum rage, and it was a new business, it was considered that for capitalisation purposes, a multiplier of 1 would be appropriate.

The extinguishment value thus became £6,609, to which the value of fixtures and fittings should be added (assessed by Mr Hudson at £2,500) giving a total extinguishment value of, say, £9,500.

36. In cross-examination, Mr Hudson accepted that the premises had been refurbished to a high standard, that the business was operating at an average turnover of approximately £2,000 per week, that the claimants had taken immediate steps to appoint a surveyor to act on their behalf following the CPO and that a claim had been submitted virtually straight away. He said that he had not mentioned to the claimants the opportunity for them to apply for an advance payment, and this subject only came up at a joint meeting at the subject property later on in the process. Mr Hudson accepted that the council had initially vacillated on whether or not to purchase the property.
37. As to why he had suggested that there were plenty of residential properties in the area suitable for conversion when there were a number of other sandwich shops available, Mr Hudson said it was another option especially if none of the shops that had been inspected were considered suitable. Also, he had produced evidence of two nearby vacant shops that he considered could have been suitable. However, he accepted that 178 Howard Street was not on the market at the relevant date, and that 72 Harold Street, being in need of total refurbishment, was not comparable.
38. Mr Hudson said that he had no experience in the valuation of sandwich shop businesses but had not considered it necessary for the council to appoint external advisors in respect of this matter. At the time he was approached by Mr Briffett in November 2001, he had no information as to alternative premises that might be suitable for relocation of the business.
39. As to the deduction of 30% from the adjusted turnover to reflect 'illegal' hot food sales referred to in his valuation, Mr Hudson said that it was purely his perception that that was the level of hot food sales conducted from the premises. He acknowledged that he had not made any enquiries of the planning department to establish what percentage might be considered ancillary and that, when the planning applications were made for permission to undertake hot food sales, the property would have been inspected by a planning officer. He was unaware of any proposals to take enforcement action.
40. Although, as a matter of principle, the council did not agree that this was a total extinguishment claim, Mr Hudson said there was no real dispute as to Mr Briffett's method of valuation. However, he did not agree with the multiplier proposed by Mr Briffett, even though it was accepted that he had considerable hands-on experience in the valuation of businesses. The loss on fixtures and fittings was also too high, as it was felt that by putting the equipment in a specialist rather than a general auction sale, would have achieved a better return.
41. Mr Hudson stressed that the council should be looking at compensating the claimants solely for the value of the property (together with the usual disturbance items) so that they could purchase equivalent premises, and continue their existing business, rather than paying for an existing business as well.
42. Regarding the continuing Warburton's business, Mr Hudson accepted that the claimants were attempting to mitigate their losses and that the loss of the subject property was the major reason why that business was eventually terminated by the customer.
43. In closing, Mr Talbot said, as to the alleged 30 per cent of hot food sales, the council did not need to show that enforcement action was being taken. According to rule 4 of section 5 of the 1961 Act, where the value of land is increased by reason of a use, the manner of which could be restrained by a court, the amount of that increase is not to be taken into account. As regards the solicitor's invoice for which claim was being made, no satisfactory explanation had been given as to how it was calculated, and should therefore be disallowed.

DECISION

44. I will deal firstly with the question of the basis of assessment – total extinguishment of the business, or relocation. The 1961 Act is clear as to the distinction, and there is an abundance of authorities that have served to clarify the circumstances in which a claim for total extinguishment is appropriate. Despite the fact that no authorities were referred to by counsel, I find the references in perhaps the best known of these, Director of Buildings and Lands v Shun Fung Ironworks [1995] 2 AC 111, helpful in explaining the reason for my conclusion that the claim in this case is, indeed, appropriately made on the basis of total extinguishment of the business.
45. Shun Fung was an appeal from the Court of Appeal of Hong Kong where a decision of the tribunal which had determined that the business which the claimant intended to establish in China would not be the same, and that compensation for the claimant's business loss had to be determined on an extinguishment basis by valuing the business at the date of resumption [compulsory acquisition], was dismissed. In allowing the appeal, the House of Lords held that the claimant's business had been effectually extinguished at the date of resumption and since, despite the claimant's genuine intention to relocate its business, a reasonable businessman would not take that course, compensation had been properly determined by the tribunal on an extinguishment basis.
46. In discussing the principle of fair compensation, Lord Nicholls said, at 125:

"The purpose of these provisions [the relevant compensation Acts], in Hong Kong and England, is to provide fair compensation for a claimant whose land has been compulsorily taken from him. This is sometimes described as the principle of equivalence. No allowance is to be made because the resumption or acquisition was compulsory; and land is to be valued at the price it might be expected to realise if sold by a willing seller, not an unwilling seller. But subject to these qualifications a claimant is entitled to be compensated fairly and fully for his loss. Conversely, and built into the concept of fair compensation, is the corollary that a claimant is not entitled to receive more than fair compensation; a person is entitled to compensation for losses fairly attributable to the taking of his land but not to any greater amount. It is ultimately by this touchstone, with its two facets, that all claims for compensation succeed or fail.

Land may, of course, have a special value to a claimant over and above the price it would fetch if sold in the open market. Fair compensation requires that he should be paid for the value of the land to him, not its value generally or its value to the acquiring authority. As already noted, this is well established. If he is using the land to carry on a business, the value of the land to him will include the value of his being able to conduct his business there without disturbance. Compensation should cover this disturbance loss as well as the market value of the land itself. The authority that takes the land on resumption or compulsory acquisition does not acquire the business, but the resumption or acquisition prevents the claimant from continuing his business on the land. So the claimant loses the land and, with it, the special value it had for him as the site of his business. The expenses and losses he 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. If, exceptionally, the business cannot be moved elsewhere, so it simply has to close down, prima facie his loss will be measured by the value of the business as a going concern. In practice it is customary and convenient to assess the value of the land and the disturbance loss separately, but strictly in law these are no more than two inseparable elements of a single whole in that together they make up the value of the land to the owner: see Hughes v. Doncaster Metropolitan Borough Council [1991] A.C.382, 392 per Lord Bridge of Harwich.

Lord Nicholls continued, on the subject of extinguishment versus relocation, at 127:

"Three principal questions arise on relocation claims. (1) Can the business be relocated, or has it effectually been extinguished? Most businesses are capable of being relocated, but exceptionally this may not be practicable: for example, another suitable site may not exist. If the business is not capable of being relocated, then perforce compensation will have to be assessed on the extinguishment basis. (2) Does the claimant intend to relocate? The claimant must have reached a firm decision to relocate his business, and he must be reasonably assured that he will be able to do so. (3) Would a reasonable businessman relocate the business."

47. It is these three questions that, from the evidence, I have to answer if I am to conclude that, as the claimant contends, extinguishment of their business was the only option.
48. I find the claimants' evidence altogether more compelling, and can attach little weight to that produced by the acquiring authority's expert who, he admitted, had no experience in the valuation of businesses such as that carried on by Mr and Mrs Pennington. Mr Hudson seemed, for no credible reason, to dismiss the claimants evidence that they had taken extensive steps to seek out suitable alternative premises and had commenced their search very soon after it became apparent that the subject property was, after all, going to be compulsorily acquired. The suggestion that they should have considered residential property in the area, or even the dilapidated shop premises at 72 Harold Street, and embarked upon a major refurbishment or conversion programme indicates to me that Mr Hudson had little perception of the practicalities of the situation or, for that matter, the principle of equivalence. As Mr Barrett said, the acquiring authority appear to have been singularly unhelpful to the claimants, and, with no offer transpiring until a very late stage, it is not surprising that the business had to be totally extinguished.
49. I can see no reason why Mrs Pennington, who was running the business, should not want to relocate to suitable alternative premises after all the effort that had been expended to get the existing business up and running, and the fact that, as Mr Briffett indicated, it appeared to be trading successfully after a very short time. Indeed, the evidence suggests that despite their inability to find new premises, the claimants were trying to hold the business together, by continuing the Warburton's contract.
50. In that regard, I refer again to Shun Fung where Lord Nicholls in considering whether a business has been extinguished said, at 128:

"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 a 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 which 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 at a new site, or which comes to the same, as a continuation of the old business at a new site."

51. Even though the claimants may have been undertaking some limited activities which were similar to those that had been carried out from the subject property (the sales to Warburtons), I am satisfied that those activities did not contain sufficient attributes of the old business to warrant the suggestion that the business had relocated. It was a very limited operation, undertaken from a vastly different location (that being one of the reasons why the contract did not continue), and there was no evidence to suggest that anything other than the Warburtons business was being continued (as acknowledged by Mr Hudson). This conclusion will have an impact when I come to deal with the valuation of the business.
52. Returning to the subject of alternative properties, it was clearly evident to me that, with the assistance of Mr Briffett, the claimants had been actively seeking alternative premises but, despite what Mr Hudson said, why should they, even if they had the time or the inclination to do it, have to start again from scratch. Whilst compensation for disturbance could be claimed under rule 6 of section 5 of the 1961 Act, in connection with finding premises, fitting out costs of advertising and stationery etc, and any losses of profits in the re-establishment period, to have to take on a project of such magnitude as would have been required on virtually any of the available alternatives would have been totally impractical, and unreasonable of the acquiring authority for expecting them to do so.
53. This was a newly established business, with little trading history, and bearing in mind the time and effort it would have taken to get itself re-established, there was, in my view, a pretty fair chance that any goodwill (and certainly the Warburtons business) would have been lost. In my judgment, therefore, even putting aside the severely restricted time-scale available to the claimants, no reasonable businessman would have taken this course. There was also the fact that no offer had been forthcoming from the acquiring authority, despite their being badgered by Mr Briffett, and so the claimants, who admitted that obtaining business loans would have been difficult, if not impossible, had no idea of how much they could spend.
54. I am satisfied on the evidence, therefore, that the claimants had a bona fide intention to relocate, but were unable to do so on the options and in the timescale available. A reasonable businessman would not, as I have said, have contemplated taking any of the courses open to him, and therefore a claim based upon the total extinguishment of the business is well founded.
55. I turn now to the questions of value. As I have already indicated, I found Mr Briffett's evidence of more assistance. He has valued the freehold interest in the subject property at £41,000 using the investment method which, in my view is appropriate in valuing shop premises, and I do not accept Mr Hudson's contention that such a method is inappropriate for tertiary premises. However, I note that Mr Hudson did prepare a valuation on the investment basis, and the only real areas of dispute were the value of the basement area, and whether or not the rental value should be subject to an uplift to reflect the quality of the modernisation works that had been carried out.
56. In regard to those two points, I do find Mr Hudson's approach convincing. I cannot see how a basement could possibly have the same rental value as the first floor storerooms and also no evidence was provided by Mr Briffett to justify his 10 per cent uplift to reflect the quality of the premises. Basically, the argument is about whether the premises are worth £70 or £80 per week and bearing in mind the area in which the subject premises were located (it being accepted by Mr Briffett that most of his comparables were in better locations), I prefer Mr Hudson's rental value of £3,600 per annum. I also think that Mr Briffett's addition of 10 per cent to the rental value appeared somewhat speculative.
57. The other area of dispute related to yield, Mr Briffett opting for 10 per cent, and Mr Hudson for 20 per cent. I have already said that I have taken into account the location of the premises, which in the absence of the scheme would still have been on the edge of a clearance area. A 10 per cent return (10 YP) does seem, in all the circumstances, to be high, but 20 per cent (5 YP) appears to me to be unduly pessimistic. As there was no actual evidence of comparable freehold sales, doing the best that I can, I adopt a YP midway between the two – 7.5. (13.3 per cent return). The valuation of the freehold therefore becomes £27,000.
58. Now, as to the value of the business, Mr Briffett assesses this at £28,045 on the strength of a number of comparable business sales and the evidence seems to generally support his overall conclusion. However, he deducted the notional rent at £4,100 pa whilst I have determined the value of the freehold on the basis of a rental value of £3,600 pa, and this will need to be taken into account. Mr Hudson said he could not see why the acquiring authority should pay for the business, when the claimants could move elsewhere and continue to trade, but as I have already determined, total extinguishment is the appropriate basis of calculation. It is helpful, therefore, that he did produce a valuation of the business, but it does seem to me to have been constructed in a rather arbitrary way. I have already concluded (para 51 above) that I do not consider the short term continuance of the Warburtons contract to constitute relocation and it is not, therefore appropriate to deduct a proportion of the gross income, per the accounts, that related to that business.
59. Regarding the percentage reduction Mr Hudson applied to reflect his perception of the value of hot-food sales, I find his reasoning unconvincing. I accept that it is normal for sandwich shops to sell some hot items, such as soup and heated pies, and am satisfied from Mr Pennington's evidence that such only made up a small proportion of the turnover. Whilst accepting Mr Talbot's submission that any value attributable to a use, the manner of which could be restrained by a court, should not be taken into account, I do not think that issue arises here. The element of sales of hot food was undoubtedly, in my mind, ancillary to the main use and if it had been otherwise the local authority would have been most likely to take enforcement action – but they did not. I do not, therefore, accept Mr Hudson's deduction of 30 per cent from the reduced gross income that he has applied.
60. He had also made reductions to the expenses to reflect the reduced turnover and then applied a multiplier of 1 to the adjusted net profit to reflect the fact that it was a new business, as against Mr Briffett's 1.75. I have already said that it seems to me the business that had been established over a short period appeared to be building up well, although I accept that it was relatively new and was in a trading position that was not as good as some of the comparables. It is also unfortunate that net profit figures were not referred to in the analyses of the comparables, so it is difficult to establish beyond doubt that the multiplier of 1.75 was supportable. Again, doing the best that I can on the basis of the evidence, and on the premise that whilst I think Mr Hudson has been unduly pessimistic, Mr Briffett's figure could not be clearly supported, I take a multiplier of 1.5 against Mr Briffett's figures, adjusted to reflect the determined rental value.
61. The valuation of the business therefore becomes:

Estimated Maintainable Turnover £98,641

Net Profit as shown £20,444

Less

Notional Rent £ 3,600

Interest on Capital @ 10% of £15,000 £ 1,500

£ 5,100 £15,344

Add

Loan Interest £ 1,091

Bank Charges £ 91

£ 1,182 £16,526

£16,526 x 1.5YP = £24,789 Say £25,000

62. I now turn to the loss on forced sale of fixtures and fittings. It does seem to me that net auction proceeds of £384 against all the fairly new equipment is remarkably low, and I accept Mr Hudson's point that a better price might have been achieved if it had been put into a specialist, rather than general sale. However, his arbitrary figure appears unnecessarily low, and, adopting a robust approach, consider £10,000 to be a fair figure.
63. There was no dispute as to the loss on forced sale of stock or the claim for proprietor's time, so the compensation becomes:

Freehold property £27,000

Total extinguishment of the business £25,000

Loss on forced sale of fixtures and fittings £10,000

Loss on forced sale of stock £ 500

Proprietor's time £ 400

£62,900

64. This leaves the pre-reference solicitor's invoice claimed in the sum of £940. I am satisfied the expenditure was wholly incurred in connection with this matter, and therefore allow it.
65. This concludes my decision on the substantive issues in this case, and I determine that the acquiring authority shall pay compensation to the claimants in the sum of £63,840 (Sixty three thousand eight hundred and forty pounds).

Costs.

66. Mr Barrett made submissions at the conclusion of the hearing to the effect that the acquiring authority had not responded to the claim in an appropriate manner. The claimants had set out a balanced and reasonable claim following the appointment of their surveyor, Mr Briffett, immediately the CPO was confirmed. The business figures that the acquiring authority said had not been provided until a very late stage had not been called for by Mr Hudson. When they were asked for, they were provided, and, in any event, there was nothing to stop the acquiring authority making an offer subject to proof of the accounts. In this case there was, he said, adequate evidence to demonstrate exceptional circumstances that supported an award of costs to the claimants.
67. Mr Talbot said that the acquiring authority was not in a position to make an offer prior to July 2002, and the business information had not been provided in written form until very late in the day. He sought no order for costs.
68. Rule 28(11) of the Lands Tribunal Rules 1996 states:

(11) No award shall be made in relation to the costs of the proceedings except in cases to which section 4 of the 1961 Act apply, save that the Tribunal may make an award of costs

(a) in cases where an offer of settlement has been made by a party and the Tribunal considers it appropriate to have regard to the fact that such an offer has been made

(b) in cases in which the Tribunal regards the circumstances as exceptional

69. It appears to me that sub-para (a) only has application for the purpose of benefiting the party by whom the offer has been made. Thus the fact that here an offer was made by the acquiring authority that was very substantially below the amount awarded cannot be treated as counting against the authority under sub-para (a). They cannot be worse off by virtue of this provision than if they had made no offer at all. On the other hand, the failure to make any offer or the making of an inadequate offer can, in my view, amount to or form part of exceptional circumstances under sub-para (b).
70. It follows, therefore, that the question here arises under (b), and in considering this, I think it would be helpful to set out the reasoning behind the rule 28 simplified procedure regime. This procedure was specifically designed to provide for the speedy and economical determination of cases in which no substantial issue of law or valuation practice, or significant conflict of fact, is likely to arise. The objective is to deal with the case with a minimum of formality and cost in situations where the amount at stake is small and the issues are relatively straightforward. The adoption of the simplified procedure by agreement between the parties, allows them to pursue such a case before the Lands Tribunal without, except in exceptional circumstances or where section 4 applies, being at risk as to the other side's costs.
71. In terms of the overall conduct of this simplified procedure claim, I have already said in the body of the decision that I do not think the acquiring authority has acted in a reasonable and responsible way in relation to it, and have I every sympathy with the claimants. The compensation to be paid far exceeds the offer (of £18,000) that was eventually, and at a very late stage, made by the acquiring authority, and I am of the opinion that the claimants are fully justified in seeking their costs in the reference. The circumstances are, in my judgment, sufficiently exceptional to warrant an award of costs in the claimants' favour under rule 28 (11)(b) as, under those circumstances, it would be inequitable if they were to have to bear their own costs. I therefore determine that their costs shall be paid by the acquiring authority, such costs to be subject to a detailed assessment by the Registrar if not agreed.
72. The question of costs having been determined, this decision takes effect from the date hereof, and 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 come into operation.

Dated 14 March 2003

(Signed) P R Francis FRICS