England and Wales Lands Tribunal

[2003] EWLands TMA/89/2002 (20 October 2003)

TMA/89/2002

LANDS TRIBUNAL ACT 1949

TAX – corporation tax – market value in June 1988 – backland formerly part of petrol filling station – likely grant of planning permission for housing – access – comparables – value determined at £900,000 – Capitals Gains Tax Act 1979, s150

IN THE MATTER of a NOTICE OF REFERENCE

BETWEEN DAVID RICHARD ELLIS Applicant

(Inspector of Taxes)

and

NORBURY HILL LIMITED Respondents

(in liquidation)

Re: land at the rear of Norbury Hill Garage

Dunstable Road,

Toddington,

Bedfordshire

Member: P H Clarke FRICS

Determination without an oral hearing under

rule 27 of the Lands Tribunal Rules 1996


 


DECISION OF THE LANDS TRIBUNAL

1. This is a reference to determine for the purposes of corporation tax the market value as at 20 June 1988 of land at Toddington in Bedfordshire.

FACTS

2. The land which is the subject of this reference is in the village of Toddington, to the north-west of Luton in Bedfordshire. It is within the area of South Bedfordshire District Council. At the date of valuation it formed part of the south-western boundary of the village. The reference land (site B) is situated on the west side of Dunstable Road at the rear of a petrol filling station redeveloped in 1986 (site D). The land has no frontage to Dunstable Road and is entirely backland. At the valuation date it was bounded on the north by housing (a cul-de-sac, Stockdale) and to the south and west by agricultural land (sites A, C and E). The reference land was a rectangular parcel with an area of 1.77 acres. The eastern part of the land was part of the petrol filling station site and comprised a workshop and lock-up garages in poor condition, demolished before the valuation date. The western part of the site was grassland, at some time a tennis court. There was a footpath across the land.
3. The freehold of the reference land and the contiguous petrol filling station (now redeveloped) was acquired by the respondents before 1987. Before June 1988 the petrol filling station was redeveloped. The remaining land (now the reference land) was sold by the respondents to Cathcart Enterprises Inc of Panama for £55,000 with a completion date of 30 June 1988. The land was then sold by Cathcart to Bovis Homes Limited for £1,060,000 with a completion date of 31 October 1988. The land, together with other land to the south (sites A & C), was developed with housing in 1989.
4. The valuation date for the purposes of this reference is the date of contract on the sale by the respondents to Cathcart, 20 June 1988.
5. In June 1988 the development plan covering the reference land was the Bedfordshire County Structure Plan Alterations No.1, approved on 17 December 1986. There was no town map or local plan for Toddington. In April 1987 South Bedfordshire District Council commenced the preparation of the Rural Areas Local Plan. An amended draft of this plan appeared in January 1988. On 15 September 1988 it was certified as being in conformity with the structure plan and was placed on deposit on 10 October 1988.
6. On 18 May 1989 South Bedfordshire District Council granted outline planning permission for the erection of 59 dwellings comprising detached and terraced houses and flats on the reference land and adjoining land (sites A, B and C).
7. The following planning permissions have been granted on land adjoining the reference land. On 25 March 1987 outline planning permission was granted for residential development on land off Russell Road (site E) to the west of the reference land. On 23 September 1987 outline planning permission was granted for 10 dwellings on land adjoining and at the rear of 84 Dunstable Road (site A), to the south of the reference land. On 3 March 1988 outline planning permission was granted for the erection of 61 dwellings on land off Leighton Road (site H), to the west of the reference land and site E. On 7 July 1996 outline planning permission was granted for residential development on land fronting Dunstable Road (site G), to the south of the reference land.
8. On 19 November 1991 the applicant inspector of taxes issued a first further assessment to corporation tax on the respondents for the accounting period ended 30 September 1988 and then issued an alternative further assessment dated 21 February 1995. Notices of appeal were given on 11 December 1991 and 17 March 1995. On 4 July 2002 the inspector served notice of reference on this Tribunal under section 47 (1) of the Taxes Management Act 1970 requiring a determination as to the market value of the reference land as at 20 June 1988 for corporation tax purposes.
9. On 9 April 2003 the Companies Court ordered that the respondent company be wound-up by the Court under the Insolvency Act 1986 and that one of the Official Receivers attached to the Court be appointed liquidator. The Tribunal was advised of this order by the respondents' former solicitors on 6 May 2003. On 27 August 2003 the Official Receiver informed the Tribunal that he will not attend or be represented at the hearing to be held on 2-4 September 2003. On 28 August 2003 the Solicitor's Office, Inland Revenue applied on behalf of the applicant to have the matter dealt with by written representations. The Official Receiver agreed and indicated that he will not be making a written submission. Accordingly, on 29 August 2003 I ordered that this application be determined without an oral hearing under rule 27 of the Lands Tribunal Rules 1996 and vacated the hearing fixed for 2-4 September. The written representations were prepared for the hearing on behalf of the inspector and comprise expert reports by Mr W G Paynter, Mr N J W Davey and Mr R D Singleton and a skeleton argument by Mr Timothy Mould of counsel.

INSPECTOR'S CASE

10. It is the inspector's case that the reference land in June 1988 had potential for residential development and a market value of £900,000. This is supported by the expert evidence of Mr Davey, Mr Singleton and Mr Paynter.
11. Mr Nicholas John William Davey BSc MRICS is a partner in The JTS Partnership, chartered valuation surveyors and town planning consultants of Brentwood, Canterbury and Leeds. In his opinion, as at 20 June 1988, planning permission for stand-alone residential development on the reference land, with appropriately designed access through Norbury Hill Garage or land to the south or west, would have been granted. Planning permission would also have been granted for residential development on the reference land as part of the development of a larger site. It was a matter of policy in June 1988 that the majority of the reference land would be developed for housing.
12. Mr Robert David Singleton BSc CEng MICE FIHT ACGI is a senior consultant to Singleton Clamp and Partners, consulting engineers and transportation planners of Enfield. Mr Singleton considered four access opportunities for residential development on the reference land. He would have advised a prospective developer in June 1988 that no objection would be raised by the highway authority on an application to develop the land. There were three satisfactory accesses, through the petrol filling station and through adjoining land to the south and west respectively.
13. Mr William George Paynter TD MRICS Dip Rating is now a principal valuer with the special rating unit of the Valuation Office Agency in London. In June 1988 he was deputy district valuer and valuation officer, Luton, responsible for the area containing the reference land. Mr Paynter's valuation of the land in June 1988 is £900,000, which he said reflected the development potential at that date. There was a ready market for housing land. His valuation is derived from comparable transactions discounted for the need to obtain planning permission and secure access through other land. Mr Paynter's valuation is as follows:-

1.77 acres at £850,000 per acre	£1,504,500
Allow 60% of full value for backland with alternative access	£902,700
Zoned residential but without detailed planning permission Say	£900,000

DECISION

14. I am required to determine the market value of the freehold interest in the reference land as at 20 June 1988 for corporation tax purposes. 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 (subsection (2)).
15. The reference land must valued as it existed in June 1988. This is particularly important regarding planning and access, both of which affected the value of the land at that time. Mr Paynter puts the market value at £900,000. I have no valuation on behalf of the respondents. It is necessary for me to consider Mr Paynter's valuation before making my determination. His approach, is to consider:-

(a) the likelihood of the grant of planning permission for residential development;

(b) the likelihood of obtaining access to the reference land through other land;

(c) the value for residential development in June 1988 on the assumptions of grant of planning permission and access;

(d) the allowance to be made for lack of planning permission and access.

16. I look first at the planning position as set out in the evidence of Mr Davy. The original Bedfordshire County Structure Plan was approved in January 1980 and contained a green belt in the south of the county, including Toddington. In 1984 the county council submitted for approval the Alterations No.1 Plan. This was approved in December 1986, became operative on 15 January 1987 and was therefore in force at the valuation date. Policy 1 made provision for 38,750 net additional dwellings in the county, including 7,150 in South Bedfordshire. Under Policy 8 a green belt was to be maintained in the south of the county but several villages were to be excluded, including Toddington. The boundary of the green belt around those villages was to be defined in local plans. The Secretary of State's letter of approval says that, in respect of the villages excluded from the green belt, it will be for local planning authorities to determine the scale and location of further expansion.
17. Before preparing the first draft of a Rural Areas Local Plan South Bedfordshire District Council undertook a number of village appraisals in 1987, including one for Toddington. This concluded that land to the south of the village could be allocated white land and, if there is a need to release land within the village for development, this is the location where that need would best be met. The plan attached to the appraisal shows most of the reference land as white land. On 1 April 1987 the Planning Committee were advised that housing needs in the Alterations No.1 Plan would affect the white land designation in Toddington and the Committee subsequently resolved to release land for development adjoining the reference land. In April 1987 the Draft Rural Areas Local Plan was published and the undeveloped part of the reference land was designated as a "housing site" and included within the proposed settlement boundary. The amended Rural Areas Local Plan was published in January 1988 with the same designation. Housing sites were considered appropriate for residential development. At the Planning Committee meeting on 1 April 1987 it was resolved that there be a presumption in favour of granting planning permission for residential development on designated housing sites, subject to detailed requirements being met and the normal consultation process. In September 1988, after the valuation date, the Rural Areas Local Plan was certified as being in conformity with the Structure Plan and was placed on deposit in the following month.
18. Against this background of changes in planning policy, I look at the grants of planning permission on land adjoining the reference land. By June 1988 planning permission had been granted for residential development on contiguous sites to the south and west of the reference land (sites A and E) and on land fronting Leighton Road to the west of site E (site H). All this land has access to existing roads and sites E and H adjoined the existing housing which then formed the southern boundary of Toddington village. Planning permission had not been granted on the reference land at the valuation date but just under one year later outline planning permission was granted for 59 dwellings on that land and the adjoining sites A and C to the south. In my judgment, having regard to the Alterations No.1 Plan, which now treated Toddington as an "excluded" settlement within the green belt with the boundaries to be determined by the local plan; the Draft Rural Areas Local Plan, which designated the undeveloped part of the reference land as a housing site within the settlement limits of Toddington; and the grants of planning permission on adjoining land (sites A, E and H); a purchaser of the reference land in June 1988 would have considered it very likely that, if suitable access to the land could be arranged, planning permission would be granted for housing development on this land.
19. I now consider the question of access. At the valuation date the reference land, having formerly been the rear part of a petrol filling station with frontage to Dunstable Road, was backland.
20. Mr Singleton considered four possible accesses to the reference land. First, through the petrol filling station on to Dunstable Road. He concluded that, although the access arrangements for the petrol filling station would need to be altered, the resultant layout and access to the reference land would be safe and acceptable in highway terms. Second, access from the housing to the north of the reference land, Stockdale. Mr Singleton concluded that this would not be practicable. Third, through site A, immediately to the south of the reference land. Site A has a narrow frontage to Dunstable Road. Mr Singleton's proposed access is a road from Dunstable Road leading into site A and on to site C with an arm leading off to the reference land. This is the road layout actually built after the valuation date when the reference was developed with sites A and C. Mr Singleton's inevitable conclusion is that the reference land could be accessed through site A. Fourth, Mr Singleton considered access through site E to the west of the reference land. He said that this was dependent on a satisfactory connection between the reference land and an access road on site E and the extent to which the roads serving the housing to the north of site E (the access points for the development of that land) could accommodate further development on the reference land. He concluded that it would have been possible to connect the reference land to a road on site E (given the indicative layout on the planning application) and that the residential access roads giving access to site E could have accommodated a further 20 dwellings on the reference land.
21. Mr Singleton's conclusion is that there would have been three alternative access solutions available at the valuation date for the development of the reference land. My conclusion is that access through the petrol filling station would not have been practicable but the other two solutions to the problem of access would have been considered possible by a purchaser of the reference land in June 1988. The facts speak for themselves: the land was later developed with access through site A.
22. I turn now to the value of the reference land in June 1988. Mr Paynter's figure is £900,000 based on £850,000 per acre discounted by 60% for lack of access and then rounded down. He supported his value per acre with eight comparables including the sale of the reference land to Bovis in October 1988. Two of his comparables are in Leighton Buzzard. They show £897,310 and £932,226 per acre in July and November 1988 respectively. The reference land (site B) was sold by Cathcart to Bovis with completion on 31 October 1988 at a price of £1,060,000 equating to £589,870 per acre. This was then backland without planning permission. Mr Paynter's other comparables are adjoining or close to the reference land. Site A was purchased by Bovis in November 1988 for £1,800,000, equating to £740,740 per acre. At that time planning permission had been granted for 10 dwellings on this land. Site C (to the rear of site A) was purchased by Bovis in April 1989 for £550,000, equating to £478,261 per acre. This was backland and did not have planning permission at the time of purchase. Site H1 was backland purchased by Connolly Homes Limited in April 1988 for £140,000 equating to £368,421 per acre. Site H2 was purchased by Connolly in July 1988 for £1,120,000 equating to £658,823 per acre. This was frontage land. And H3 was backland purchased by Connolly in October 1988 for £682,500 equating to £401,470 per acre. At the time of these three purchases site H had planning permission for 61 dwellings.
23. From Mr Paynter's report and his value per acre of £850,000 it would appear that he has had most regard to the two sales of land in Leighton Buzzard (£897,310 and £932,226 per acre) and the sale of the reference land shortly after the valuation date at £589,870 per acre. Other points made by Mr Paynter in his evidence are that, if the reference land had been offered for sale in the summer of 1988, having regard to the changing planning situation, Bovis or Wimpey (who already owned adjoining land) or some other developer might have been in the market for it. A developer would have been prepared to purchase backland before securing access. This is seen by the first purchase to be completed by Bovis (i.e. the reference land).
24. Having regard to the sale of the reference land in October 1988 and the sales of other adjoining or nearby land, I do not find it helpful to consider further the comparables in Leighton Buzzard, some 4 to 5 miles distant from Toddington. Prima facie, the best evidence of value is the sale of the reference land by Cathcart to Bovis. This was a few months after the valuation date, it was the same backland and the only changes in the planning situation were the certification of the Draft Rural Areas Local Plan as in conformity with the structure plan and the placing of the plan on deposit. The use of this primary evidence of value and the other nearby sales makes it unnecessary to use the two-stage approach to value adopted by Mr Paynter. It is possible to go directly to a value taking into account the lack of access and the absence of planning permission. I must, however, answer two questions regarding the sale of the reference land in October 1988. Was it an open market sale? How does the price per acre compare with the nearby comparables?
25. I look first at the nature of the sale in October 1988. Mr Paynter has included in his evidence statements from Mr Paul Graham Doyle and Mr Michael S Lee which explain the background. At the time of the sale of the reference land to Bovis Mr Doyle was a Land Manager with Bovis, investigating sites and negotiating with owners and their agents. He said that he became interested in land at Dunstable Road, Toddington early in 1987 due to the proposed re-zoning to permit residential development. He was interested in sites A, B and C. In the summer of 1988 he was in negotiation with a representative of Cathcart regarding the reference land. Bovis subsequently entered into a conditional contract to purchase in September 1988 with completion in October at a price of £1,060,000. Planning permission had not been obtained but he had a letter from the local authority giving comfort as to the grant of permission. Negotiations took only 3 to 4 weeks and Bovis were put under pressure to complete the deal quickly, pending possible approaches by the vendors to Trencherwood or Wimpey. Mr Doyle considered the price paid by Bovis to be reasonable in the context of the overall transaction. Mr Lee was a Land Director of Trencherwood Homes (Eastern Region) in the summer of 1988. He gave details of his interest in the reference land and the adjoining land.
26. I am satisfied from this evidence that the sale of the reference land by Cathcart to Bovis in September and October 1988 was an open market sale and is reliable evidence of value.
27. I look now at my second question, a comparison of prices per acre for the sales of adjoining and nearby land. The price for the reference land in October 1988 devalues to £589,870 per acre; this was back land without planning permission. In November 1988 Bovis purchased site A at a price of £740,740 per acre. This was frontage land and the key to unlock the development potential of the backland, sites B and C, and also had planning permission. It is to be expected that this price would be higher than the prices for the related backland. In April 1989 Bovis purchased site C, backland without planning permission, at £478,261 per acre. This was 10 months after the valuation date when the residential land market may have been less active than the boom period in 1988. The average price per acre for these three Bovis acquisitions is £602,957. To the west of the reference land, site H on Leighton Road, Connolly Homes Limited were assembling a site and made three purchases between April and October 1988. The whole site had planning permission granted in March 1988 for 61 dwellings. A narrow strip of backland (H1), only 0.38 acre, was purchased in April 1988 at a price which showed £368,421 per acre. In July 1988 a much larger site of 1.7 acres of frontage land (H2) was purchased at £658,823 per acre. Finally, the site was completed by the purchase of 1.7 acres of backland (H3) in October 1988 at £401,470 per acre. The average price paid for site H was £573,889 per acre.
28. It is to be expected, having regard to the imperfections of the land market, and particularly in a time of rapidly rising prices as was experienced in 1988, that there is variation in the prices per acre for individual sites. The above figures, however, show that the sale of the reference land to Bovis in October 1988 was broadly in line with other nearby sales. The reference land was sold at £589,870 per acre; the average price per acre for the Bovis site was £602,957 and the range was from £487,261 to £740,740 per acre. On site H (Connolly) the average price per acre was £573,889 and the range was from £368,421 to £658,823 per acre. On this evidence I am satisfied that the sale of the reference land to Bovis in October 1988 was an open market sale and should be given the greatest weight in the valuation of that land in June 1988. No adjustment need be made for the lack of planning permission and access; these factors are already reflected in the price.
29. Mr Paynter's valuation of the reference land in June 1988 of £900,000 (or £508,457 per acre) is in line with the sale of that land a few months later for £1,060,000 (or £589,870 per acre) It is also in line with the other comparables. Although I disagree with Mr Paynter's method of valuation I think that he has arrived at the right answer. Accordingly, I determine that the market value under section 150 of the Capital Gains Tax Act 1979 of the freehold interest in the reference land as at 20 June 1988 was £900,000 (nine hundred thousand pounds).
30. 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: 20 October 2003

(Signed) P H Clarke