England and Wales Lands Tribunal

[2004] EWLands LCA_32_2004 (10 November 2004)

LCA/32/2004

LANDS TRIBUNAL ACT 1949

COMPENSATION – water – pipe-laying works beneath dwellinghouse – whether any resultant diminution in value offset by proposed closure of neighbouring sewage treatment works – compensation awarded £12,500 – Water Industry Act, 1991, Schedule 12.

IN THE MATTER OF A NOTICE OF REFERENCE

BETWEEN

MR AND MRS MARTIN SCALES

Claimants

and

THAMES WATER UTILITIES PLC Compensating

Authority

Re:

The Elms

Bassetsbury Lane

High Wycombe

Bucks HP11 1RB

Before: N J Rose FRICS

Sitting at Procession House, 110 New Bridge Street, London EC4V 6JL

on 14 October 2004

Mr E S McEwen, FRICS of McEwen and Timberlake, of Great Missenden, Bucks, for the Claimants

Mr C Smith, FRICS, IRRV of Bruton Knowles, of Gloucester, for the Compensating Authority.


 


DECISION

1. This is a reference to determine the compensation payable to Mr and Mrs Martin Scales (the claimants) under Schedule 12 of the Water Industry Act, 1991 (the Act) for the depreciation in the freehold value of a house known as the Elms, Bassetsbury Lane, High Wycombe, Bucks, HP11 1RB (the subject property) caused by pipe-laying works. The works were carried out as part of the High Wycombe Sewage Treatment Works Transfer Project (the TP) by Thames Water Utilities Plc (the compensating authority).
2. It was suggested by both parties and ordered by the Tribunal that the simplified procedure provided for in rule 28 of the Lands Tribunal Rules 1996 would apply to this reference. Mr E S McEwen, FRICS of Messrs McEwen and Timberlake of Great Missenden, Bucks appeared for the claimants with permission of the Tribunal and gave evidence. Mr C Smith, FRICS, IRRV of Messrs Bruton Knowles of Gloucester appeared for the compensating authority with permission of the Tribunal and gave evidence. At the hearing the amount claimed was £50,000. The compensating authority denied that any compensation was payable.
3. From the evidence I find the following facts. The subject property is a two-storey detached private dwellinghouse, constructed during the 1960s. It is of conventional construction with mainly cavity brick elevations under dual pitched lined and tiled roofs. The accommodation is principally arranged on two floors, with a further attic bedroom. The gross floor area is approximately 144 m² and includes an entrance hall, cloakroom/wc, 2/3 reception rooms, kitchen, four bedrooms and bathroom/wc. There is a detached garage and gardens extending to just over one-third of an acre.
4. The property forms part of an established residential location on the eastern outskirts of High Wycombe. The High Wycombe Sewage Treatment Works (STW) is located approximately 150m north of the subject property and is separated from it by a heavily wooded area. At the relevant date, being the date of entry on 16 July 2003, the property was occupied by a Mr and Mrs Lincoln under an assured shorthold tenancy which had commenced in April 2001.
5. The TP involves the closure of the existing High Wycombe STW and the upgrading of the Little Marlow STW. Although the route of the tunnel is generally across undeveloped land, it passes beneath the house, garage and gardens of the subject property. It is 3.3km in length and has an external diameter of 3.36m. It is constructed of concrete with steel fibre reinforcement. Between each tunnel segment are compression gaskets to create a watertight seal. The tunnel contains two pipelines constructed of glass reinforced plastic. One pipeline 1m in diameter transfers sewage flows from High Wycombe to Little Marlow and the other is 600mm in diameter and transfers treated effluent from Little Marlow back out to discharge into the river Wye. At Bassetsbury Lane the top of the tunnel is at a depth of approximately 11m (36 feet).
6. So far as is relevant, Schedule 12 of the Act provides as follows:

"2–(1) If the value of any interest in any relevant land is depreciated by virtue of the exercise, by any relevant undertaker, of any power to carry out pipe-laying works on private land, the person entitled to that interest shall be entitled to compensation from the undertaker of an amount equal to the amount of the depreciation.

(2) Where the person entitled to an interest in any relevant land sustains loss or damage which –

(a) is attributable to the exercise by any relevant undertaker of any power to carry out pipe-laying works on private land;

(b) does not consist in depreciation of the value of that interest; and

(c) is loss or damage for which he would have been entitled to compensation by way of compensation for disturbance, if his interest in that land had been compulsorily acquired under section 155 of the Act,

he shall be entitled to compensation from the undertaker in respect of that loss or damage, in addition to compensation under sub-paragraph (1) above …

(5) In this paragraph 'relevant land' in respect of any exercise of a power to carry out pipe-laying works on private land, means the land where the power is exercised or land held with that land …

3–(1) Any question of disputed compensation under paragraph 2 above shall be referred to and determined by the Lands Tribunal; and in relation to the determination of any such compensation the provisions of sections 2 and 4 of the Land Compensation Act 1961 shall apply, subject to any necessary modifications.

(2) For the purposes of assessing any compensation under paragraph 2 above, so far as that compensation is in respect of loss or damage consisting in depreciation of the value of an interest in land, the rules set out in section 5 of the Land Compensation Act 1961 shall, so far as applicable and subject to any necessary modifications, have effect as they have effect for the purpose of assessing compensation for the compulsory acquisition of an interest in land …

(4) Where, apart from this sub-paragraph, any person entitled to an interest in any land would be entitled under paragraph 2 above to an amount of compensation in respect of any works, there shall be deducted from that amount an amount equal to the amount by which the carrying out of the works has enhanced the value of any other land which –

(a) is contiguous or adjacent to that land; and

(b) is land to an interest in which that person is entitled in the same capacity."

7. Mr McEwen gave a number of reasons for his view that the construction of the tunnel would have a detrimental effect on both saleability and market value. In particular, the claim was based on the public reaction to the unusual nature of the tunnel. Although tunnels of comparable size existed in city centres, they were rarely found in out-of-town locations. He considered that many prospective purchasers would be put off at the outset simply because of the rarity of the situation. There were a number of broadly similar houses within the immediate area which were not affected by the tunnel. Prospective purchasers would therefore simply seek alternative properties. Homes were generally looked upon as investments and most purchasers would not wish to risk potential re-sale problems resulting from the existence of the tunnel. Mr McEwen thought that most purchasers would be concerned, and even possibly distressed by "the unknown quantity within the ground beneath their home", notwithstanding the availability of technical information on the tunnel. Moreover, although the compensating authority and its engineers had provided assurances that there would be no risk of structural damage, he considered that most uninformed lay prospective purchasers would still have concerns regarding the risk of future structural damage due to the existence of a substantial tunnel beneath their property. In addition, the compensating authority would require notice of any substantial alterations or extensions to the property, including information regarding the design and construction techniques. Mr McEwen assumed, therefore, that the authority would have some right of veto concerning inappropriate design or techniques.
8. Assuming a prospective purchaser could be found, there would inevitably be delays in the sales process whilst technical information was obtained through legal advisers, and clarification regarding any future limitations on development of the site or buildings. These complications might well result in the loss of buyers and would put the claimants in a disadvantageous position as prospective purchasers themselves.
9. Mr McEwen considered that, in order to make the property saleable, it would be necessary to market it at a figure significantly below the prices of comparable houses. He suggested that prospective purchasers tended to seek properties within a particular price bracket. In these circumstances, in order to attract purchasers from a lower bracket, who in normal circumstances would not be able to afford a property of this type, it would be necessary to reduce the price by a figure in the region of £50,000. He produced letters from three firms of estate agents in practice in High Wycombe. They all suggested that the tunnel would have a detrimental effect on the saleability of the subject property. One firm, Crendon House, thought that the discount could he as high as £50,000 "unless the vendor was in the fortunate position of having a number of competing bidders".
10. Mr Smith pointed out that the effect of the TP was two-fold: the construction and use of the tunnel beneath the subject property and the closure of the High Wycombe STW situated opposite. He accepted that it was unusual to find such a large tunnel in a location such as this. However, he gave details of seven other tunnel schemes that had been undertaken by the compensating authority in and around London. Although many thousands of residential properties had been affected by tunnels at depths between 23m and 66m, and with diameters from 2.5m to 2.9m, no claims for depreciation in value had been sustained, although some had been submitted and subsequently withdrawn. In addition, his firm had acted for Welsh Water in respect of the Newport sewerage scheme. This involved approximately 3.4km of 3m diameter tunnel at an average depth of 24m which affected 120 residential properties. Again, no claims for depreciation in value of affected properties had been sustained.
11. Although Mr McEwen had referred to a perceived risk of structural damage, the compensating authority had prepared a schedule of condition, describing the subject property before the tunnelling works commenced. Moreover, it was a matter of agreement that no physical damage had been caused to the subject property. In the unlikely event of any such damage occurring in the future, the provisions in Schedule 12 provided the claimants with ongoing protection.
12. In response to the claimants' worries about a veto on future alterations to their property, the compensating authority had provided them with a letter which had allayed their concerns.
13. In his expert report, Mr Smith said that he was not aware of any market evidence which supported a diminution in value of residential property as a result of the construction of a water company tunnel beneath such property. Despite many thousands of residential properties having been affected by tunnelling, to the best of his knowledge any claims for diminution in value had been successfully resisted. Moreover, regard must be had to para 3(4) of Schedule 12. In his opinion, the closure and proposed removal as part of the overall scheme of the High Wycombe STW only a short distance from the subject property had a beneficial effect on both the value and saleability of that property. He understood that there had in the past been complaints from residents in Bassetsbury Lane about smells from the STW. Clearly the presence of the STW would be likely to cause potential purchasers concern that a nuisance may exist or arise in the future.
14. In the course of giving oral evidence Mr Smith said that, on the day before the hearing, he had heard about a case in 1997 where Wessex Water had paid compensation to the owner of a property affected by tunnelling. The property, at Uphill, Western Super Mare, had suffered from ground borne noise and vibration during the construction of a 3m diameter tunnel 6m below it. The claimant had made strong representations to Wessex Water and a payment of £25,000 had been made. Mr Smith said that his knowledge of the area in question was limited, but the ground conditions were different from those of the subject property. In answer to a question from me, he said that he did not know how the compensation figure of £25,000 compared to the unblighted value of the property.
15. In answer to another question from me, Mr Smith said that he was not sure that Schedule 12 entitled a property owner to require the compensating authority to make good any damage caused as a result of pipe-laying works, as opposed to paying compensation for such damage. He had therefore asked the compensating authority whether they would provide a settlement deed at the hearing, undertaking to put right any future damage to the subject property. He had not been able to produce such a deed at the hearing, but one would be made available if requested.
16. Mr McEwen did not agree that the proposal to redevelop the site of the High Wycombe STW would have had any positive effect on value at the relevant date.

Conclusion

17. Mr McEwen's suggestion that there has been a substantial depreciation in value is based primarily on his view that the public reaction to the tunnel would be adverse, that this would make a sale more difficult and that the price obtainable would therefore be reduced,. Mr Smith "did not necessarily disagree" that it would take longer to sell the subject property with the tunnel than without it, but he considered that this would not have any effect on value. In the light of the evidence I find as a fact that the existence of the tunnel would have extended the time taken to effect a sale.
18. Mr Smith's opinion that the freehold value of the subject property was not depreciated by pipe-laying works is based principally on settlement evidence. Although he referred to numerous cases where no compensation had been paid for properties affected by tunnels, on each occasion the depth of the tunnel below ground level was between two and six times the depth of the tunnel below the subject property. That is a potentially important distinction. Mr Smith also referred to a case in Uphill where significant compensation had been paid. He was, however, unable to provide full information on that settlement and he first mentioned it at such a late stage that Mr McEwen could not make his own investigations into the circumstances leading to the payment of £25,000. This Tribunal tends to treat settlement evidence with some caution. In this case I obtain no assistance from Mr Smith's settlements.
19. I am required to determine the market value of the subject property on the relevant date with and without the compensating authority's pipe-laying works. The experts agree that the value on the latter basis was £375,000. On the former basis the willing seller, who must be assumed for the purposes of the exercise, would have known that the only way he could hope to obtain £375,000 would be by offering the property for sale for a longer period. Since, however, the hypothetical sale must have taken place on the valuation date and not at a later date, the option of a longer marketing period would not have been open to the vendor. In those circumstances, I find that it would have been necessary to accept a figure below £375,000 in order to achieve a sale at the valuation date.
20. As for the size of the reduction that would be appropriate, Mr McEwen's figure of £50,000 was effectively based on an assumed sale in poor market conditions. He considered that the residential property market was reasonably strong on the valuation date and he accepted that the diminution in value was likely to be smaller in a strong market than in a weak one. That was not in his view a valid reason for reducing the compensation payable, however. When the claimants eventually sold the subject property market conditions may have deteriorated and it would therefore not be fair to compensate them on the basis of a good market.
21. The valuation exercise must be carried out at the valuation date. The question of fairness does not arise. It could equally be argued that it would be unfair to the compensating authority to pay compensation on the basis of a poor market to a claimant who subsequently sold the property in a good market. I accept Mr McEwen's evidence that a price reduction in the region of £50,000 might well have been necessary to sell the subject property in a bad market. I also accept his evidence that the market at the valuation date was reasonably strong. In those circumstances, I find that the diminution in the value of the freehold interest in the subject property caused by the exercise by the compensating authority of its powers to carry out pipe-laying works was £12,500.
22. I do not accept Mr Smith's suggestion that this reduction in value was offset by the proposed closure and demolition of the High Wycombe STW. There would clearly be some delay before that closure took place; the works were still operational on the day of the hearing, some fifteen months after the valuation date. In my judgment, any future benefit which might accrue to the area once the STW had been demolished and redeveloped would be of little comfort to a potential purchaser who knew that there would still be a STW in the close vicinity for an uncertain period in the future.
23. Accordingly, I determine that the compensation payable to the claimants by the compensating authority is £12,500. In addition the compensating authority will pay the claimants' surveyor's fee based on Ryde's scale immediately prior to its abolition. With certain limited exceptions, in proceedings determined in accordance with rule 28 no award is made in relation to costs. I therefore intend to makes no order as to costs unless, within two weeks from the date of this decision, either party makes a written application for costs. A copy of any such application should be sent simultaneously to the other side, who may submit written representations thereon within four weeks of the date of this decision. Any application for costs should be accompanied by a detailed explanation, together with supporting documentation, of the amount claimed.

Dated 10 November 2004

N J Rose FRICS