England and Wales Lands Tribunal

 

[2004] EWLands LRA_21_2002 (14 January 2004)

LRA/21/2002

LANDS TRIBUNAL ACT 1949

LEASEHOLD ENFRANCHISEMENT – price payable for freehold interest – valuation methodology – tenants' improvements - treatment of development value – comparables – Leasehold Reform Act 1967 section 9(1A)(d) – appeal allowed in part – enfranchisement price £1,941,655

IN THE MATTER of an APPEAL from a DECISION of the

LONDON LEASEHOLD VALUATION TRIBUNAL

BETWEEN

WILLIAM SIMON FATTAL

FRANCINE FATTAL

Appellants

and

THE KEEPERS AND GOVERNORS OF THE

POSSESSIONS REVENUES AND GOODS

OF THE FREE GRAMMAR SCHOOL OF JOHN LYON

Respondents

Re: 81 Hamilton Terrace, London, NW8

Before: P R Francis FRICS

Sitting at: 48/49 Chancery Lane, London, WC2A 1JR

on

2 – 5 September 2003

Michael Driscoll QC and Edwin Johnson, instructed by Julian Holy, solicitors of London SW7, for the appellants

Anthony Radevsky, instructed by Pemberton Greenish, solicitors of London SW1, for the respondents
 


The following cases are referred to in this decision:

Embling v Wells and Camden Charity's Trustees (1978) 247 EG 909

Adams v Trustees of the Eyre Estate (1999) (LT) LRA/11/98 (Unreported)

Sharp v Cadogan (Earl) (1998) (LT) LRA/33 & 95/1997 (Unreported)

Loder-Dyer v Cadogan [2001] 3 EGLR 149

Wellcome Trust Ltd v Romines [1999] 3 EGLR 229

Shalson v St John Lyon's Charity [2003] 3 WLR 1

DECISION

1. This is an appeal by Mr William Simon Fattal and Mrs Francine Fattal ("the appellants"), lessees of 81 Hamilton Terrace, St John's Wood, London, NW8 ("the subject property") from a decision of the London Leasehold Valuation Tribunal for the London Rent Assessment Committee ("the LVT") dated 12 February 2002 under section 9(1C) of the Leasehold Reform Act 1967 ("the 1967 Act").
2. The appellants were represented by Mr Michael Driscoll QC and Mr Edwin Johnson who firstly called Mr Simon Fattal who produced a statement setting out the facts relating to his acquisition of the leasehold interest in the subject property, the planning and other consents obtained, and the extensive works of improvement and extension that he and his wife had carried out. Counsel also called Mr Victor Belcher MA, an architectural and building historian who gave his opinion in respect of the facilities and amenities that would have been present in the subject property in 1927/28 (when the current leases were granted), and Mr Gavin Buchanan BSc (Est Man) MRICS, a director of Colliers Conrad Ritblat Erdman, who gave valuation evidence.
3. The respondents were represented by Mr Anthony Radevsky who called Mr Julian Briant BA MRICS, a partner in Cluttons, and Estate Surveyor to St John Lyon's Charity who gave valuation evidence.
4. I inspected the subject property, both internally and externally, on 9 September 2003 and made external inspections of a number of the comparables that had been referred to in evidence.

FACTS

5. The parties produced a statement of facts agreed and matters in dispute from which, together with the evidence and my inspections, I find the following facts.

5.1 The subject property, which although not listed is in the St John's Wood Conservation Area, comprises a double-fronted, detached house that was originally constructed in about 1840 and which has recently been very substantially extended and improved. It now offers accommodation on 4 floors and in addition has the benefit of 2 attached garages and an indoor swimming pool complex to the rear.

5.2 The property, which was originally known as 57 and 57a Hamilton Terrace is subject to two leases for 80 years which were granted in December 1927 (No57 – main house and garden) and March 1928 (57a – further area to side and additional garden at rear) respectively. Both leases expire on 28 September 2007. It is agreed that, for the purposes of this appeal, nothing turns on the fact that there are two leases. The appellants acquired the leases in January 1993 although, due to the substantial extent of their proposed works of improvement and extension, and delays in obtaining planning permission and other requisite consents, did not take up occupation until May 1997. Having completed the statutory 3 year period of residence, the appellants served Notice under part 1 of the 1967 Act claiming the freehold interest on 31 August 2000, that claim being admitted by the freeholders on 8 December 2000. The date of claim is the valuation date, and there were thus 7.07 years remaining on the leases at that time.

5.3 As agreement could not be reached on the price, an application by the lessees was heard by the LVT in November 2001, who, by their decision of 12 February 2002, determined an enfranchisement price of £2,468,985. Notice of appeal to this Tribunal was dated 22 March 2002, on the following grounds:

1) The LVT was wrong to determine that the value of the unimproved interest in the subject property, at the valuation date, was £3,400,000

2) The LVT was wrong to determine the value of the unimproved leasehold interest at £714,000

3) The LVT was thus wrong to determine the enfranchisement price at £2,468,895

5.4 The valuation experts relied upon 7 principal comparables, in respect of which the following factors were agreed:

43 Hamilton Terrace. Sold unimproved in August 1999 for £2,400,000. Gross internal area ("GIA") 4,155 sq ft. Subsequently extended to 4,791 sq ft.

82 Hamilton Terrace. Sold unimproved in August 2001 for £3,150,000. GIA 5,155 sq ft

90 Hamilton Terrace. Sold unimproved in July 1999 for £3,000,000. GIA 7,000 sq ft plus swimming pool complex 1,740 sq ft. This property subsequently extended to 9,500 sq ft (pool removed)

96 Hamilton Terrace. Sold unimproved in August 2000 for £3,100,000. GIA 4,704 sq ft. subsequently extended to 8,000 sq ft.

97 Hamilton Terrace. Sold improved in August 1998 for £3,250,000. GIA 5,300 sq ft.

102 Hamilton Terrace. Sold improved in December 2000 for £4,500,000. GIA 6,000 sq ft.

123 Hamilton Terrace. Sold unimproved in May 1999 for £2,300,000. GIA 4,973 sq ft.

5.5. There was also agreement in respect of the gross internal areas relating to the subject property as it was at the commencement of the principal lease (no 57) at 3,834 sq ft. In addition, two small extensions shown on the 1927 lease plan at front and rear were agreed at 99 sq ft, but there was a dispute as to whether they actually existed then or were subsequent tenants' improvements. The GIA of the living accommodation within the 2000 house (as extended by the appellants) was agreed at 7,041 sq ft if the area of the two former external walls (amounting to 174 sq ft) which Mr Briant had incorporated, were excluded. The total, with the new swimming pool complex, adjacent linking covered way and garages is 9,192 sq ft.

5.6. The parties also agreed the capitalisation and deferment rate in respect of the subject property at 6%; the capitalised value of the right to receive the rent payable under the leases for 7.07 years is £310 and the marriage value is to be divided equally between the parties.

ISSUES

6. The two matters in dispute between the parties are:

1) The value of the unimproved freehold interest.

This was determined by the LVT at £3,400,000. The appellants provided figures on 3 different bases at £1,590,025 (the first basis, and that which was contended to be correct); £1,779,428 (second basis) or £2,146,184 (third basis, and similar to the basis adopted by the LVT). The respondents, in rejecting the first and second bases, provided a valuation of £3,500,000 on the third basis, but said that, nevertheless, they accepted the LVT's determination.

2) The value of the unimproved leasehold interest.

The LVT determined this at £714,000, adopting the respondents' figure of 21% of the freehold value. This was therefore not disputed by Mr Briant, but the appellants contended that the figure should be £397,506, £444,857 or £536,546 depending upon which basis was adopted, this being 25% of the freehold value.

The enfranchisement price contended for by the appellants, on the basis of the above, and the other agreed valuation factors was £1,112,742 on the first basis, £1,256,431 on the second basis or £1,515,360 on the third.

Mr Buchanan's 3 valuations are at Appendix 1 – 3 of this decision.

7. In determining the above, the primary issue to be considered, under the provisions of section 9 (1A)(d) of the 1967 Act, is what, as a matter of law, is the correct basis of valuation. If I conclude that the second or third bases are correct, the basis upon which development value is calculated falls to be considered. There are also number of subsidiary issues upon which the experts failed to agree, and which impact upon the mathematical analyses of the comparables and the subject property in respect of each or all of the bases of valuation. They are:

In respect of the 1927 house

1) Were the two small additions at the front and rear of the property in existence at the date the lease was granted, or were they constructed subsequently as tenants' improvements?

2) Was there a bathroom provided in the house at that time?

3) Did off-street parking exist within the grounds of the property at that time?

In respect of the 2000 house

4) Whilst the area of the 1927 house is all but agreed (subject to (1) above), as is the overall area of the fully extended and improved house, there is disagreement as to how the following areas of the 2000 house should be treated for valuation purposes:

a) The original external wall to the right hand (north) side of the house

b) The swimming pool complex and associated plant and changing rooms

c) The original external wall to the left hand (south) side of the house

d) The 2 attached garages, one on each side of the house

e) The covered accessway at ground floor level to the left-hand side of the house

5) Should some of the works undertaken by the appellants (the extent of which is agreed) be taken as repairs or replacements rather than improvements and not therefore considered in valuation terms in respect of section 9 (1A)(d) of the 1967 Act?

Appellants' Case

8. Put in simple terms, the first basis of valuation, and that for which the appellants contend, excluded development potential and any value attributable to the existence of planning permission. The value was calculated by taking the value of the improved and extended house, and diminishing it by the value of the tenants' improvements. In assessing the value of the improved house, the sales of improved properties were used as the principal comparables.
9. The second basis, as an alternative should the Tribunal not find for the first, allowed for development potential, but on the assumption that when considering the house in its notionally unimproved state, the existence of the planning permissions which had, in fact, been obtained was to be ignored. The value would therefore reflect what a prospective purchaser thought he might be able to achieve, rather than that which was actually obtained.
10. The third basis took account, in assessing the value of any development or extension potential, the planning permissions that had, at the valuation date, actually been obtained.
11. In support of their contention that the first basis of valuation was correct, the appellants case was that the LVT was wrong in law to take development value into account in its determination of the freehold value and, regardless of whether or not such value should have been included, it was wrong in fact in its analysis of the comparable evidence.
12. Mr Driscoll explained that it was agreed that the price falls to be determined in accordance with section 9(1A) of the 1967 Act but, in respect of this appeal, the statutory assumption to be made under sub paragraph (d) was the key issue. It provides:

"(d) on the assumption that the price be diminished by the extent to which the value of the house and premises has been increased by any improvement carried out by the tenant or his predecessors in title at their own expense"

At the valuation date of 31 August 2000 the house and premises had been extended and improved to such an extent that there was no further potential for improvement. In other words, he said, any development potential that there may have been had, by then, been fully expended.

13. Mr Briant had accepted, in his proof of evidence, that the Act does not require one to disregard the existence of the tenants' improvements, but only to disregard the value of them. Mr Driscoll said that assumption (d) makes it clear that one must start with the value of the improved house, and not some notionally unimproved house for, in order to "diminish" a price by the value of its improvements, it is necessary to start with the value as improved. Having determined the price (or value) of the improved house (as Mr Buchanan had done by analysing the values of the two improved comparables, 97 and 102 Hamilton Terrace), it was then necessary to apportion the price between (a) the parts of the house that have not been improved or created by an improvement and (b) the parts of the house that have been created by an improvement. Although this second part of the exercise is not always carried out by valuers in the market it is, he said, a statutory requirement. He said that although there were difficulties in making such an apportionment, it did not entitle the valuer to adopt the approach of valuing the house as if it had been unimproved – as Mr Briant (and the LVT) had done.
14. It was the clear policy of Parliament underlying paragraph (d), Mr Driscoll said, to prevent the freehold owner receiving the value or a share of the value of improvements carried out at the tenants' expense. To take development value into account, in this case at 40% of site value of the notionally unimproved property, as the LVT had done in accepting Mr Briant's approach, resulted in the freeholder receiving part of the value that had been added as a result of tenants improvements. The value of the development, improvement or extension potential, however it may be described, is absorbed into the value of the improvements, and is not, therefore, something to which the freehold landlord is entitled.
15. Mr Buchanan's valuation on the first basis was, it was submitted, in accordance with the provisions of paragraph (d) and took no account of development potential; that potential as Mr Driscoll had said, already having been expended. It diminished the improved value back to the unimproved value ignoring any potential for improvement.
16. The LVT made the mistake of valuing the house as if it were unimproved at the valuation date, Mr Driscoll said. They therefore disregarded the existence of the improvements, as well as their value – something that was not required by statute.
17. The LVT said, at paras 20 and 21:

"20. The tribunal agree with the landlord's counsel that in relation to the development potential of the unimproved property there is nothing in the 1967 Act which precludes the tribunal from taking into account any features of the unimproved property which would be taken into account in the market.

21. The tribunal are valuing the property on an agreed valuation date. At the agreed valuation date, 31 August 2000, the property had planning permission for alterations and additional accommodation. There is nothing in the Act to say that one disregards these facts which were in existence at the valuation date. There was a potential to add to the order of 430 sq m of floor area".

18. Mr Driscoll said that, on this basis, the tenant gets the worst of both worlds. The freehold is valued on the basis of a fiction that the improvements in fact actually made have not been made, and that there is development potential at the relevant date. But, as he had said, that development potential did not in reality exist, as it had already been expended.
19. The valuation that Mr Buchanan had prepared on the second basis, in case I were to find that the arguments for the first basis were wrong, took development potential into account but not on Mr Briant's basis of assuming the unimproved house to be the same as its site value (or 'standing house value') and adding an arbitrary 40% for development potential based upon the extensions that were actually achieved. Mr Buchanan had considered what a potential purchaser, in looking at the unimproved and unextended house, would foresee as its potential for development. Mr and Mrs Fattal and the previous prospective purchaser of the house, a Mr Hammerson, had spent years and a considerable amount of money obtaining planning permission and the other necessary consents for extensions and improvements which, in reality, have more than doubled the size of the original house. Most purchasers would, it was submitted, take the view that obtaining permission for anything more than about 1,000 to 1,500 sq ft of extensions would be difficult and time consuming, and would not therefore take any further potential into account.
20. To have to take account the fact that the planning permissions for the development that actually took place existed at the valuation date was the approach that the LVT and Mr Briant took (although Mr Briant attributed no value to those permissions) and was Mr Buchanan's third basis.
21. In summary, Mr Driscoll said that Mr Buchanan's approach of looking at the improved property, and then diminishing it by the value of the improvements (apportioned to the area of the original house) was the usual approach that valuers adopted. Whilst accepting that Mr Briant's approach of looking at the notionally unimproved property and assessing its value by comparison to sales of unimproved houses and adding development potential was a method that was adopted in certain circumstances, it was inappropriate here and, as he said, did not accord with the statutory provisions. Nevertheless, he acknowledged that the potential for improvement and development would be reflected in the achieved sale prices of unimproved properties. If it were not for the fact that Mr Briant added 40% for development value, and failed to adjust the value of improvements down to the original 'envelope', Mr Driscoll said the valuers were not too far apart in their opinions. Mr Briant was using, in arriving at his 40% for development potential, an approach used in arriving at a section 15 ground rent at a time when there was no statutory disregard of improvements. There had been criticism of the adoption of a standing house approach in Embling v Wells and Camden Charity's Trustees (1978) 247 EG 909, but in any event that was a case where there was no house – it was a bare site. It would not be right, therefore, to import such an approach into this context.
22. Finally, Mr Driscoll said that in respect of its determination of the leasehold value, the LVT was wrong to accept the respondent's contention that it should be 21% of the freehold value – the correct figure (as confirmed by Mr Briant's own analysis graphs) was 25%.
23. Mr Fattal, in a comprehensive witness statement, set out the background to the improvements and extension works that had been carried out since he and his wife had purchased the property. He estimated that, of the total amount that he had spent on the project, approximately £730,000 related the works of improvement within the original 1927 'envelope' of the house, the rest being attributable to the substantial extensions that had been added. In cross-examination he admitted that he had not produced a definitive mathematical breakdown supported by copy invoices, but had not been asked for that. It was the result, he said, of an extensive personal analysis of all the costs that had been incurred, and as to works which could not be specifically apportioned, such as those that were applicable to the whole property, he had apportioned the cost pro-rata on the basis of floor areas. For example, with the lift he had allowed 75% as applicable to the original envelope, the former house having had 3 floors, and the extended one having 4.
24. Mr Belcher had been instructed to investigate the amenities that were present in the subject property at the commencement of the leases in December 1927 and March 1928, and the extent of the works that were carried out to the house at the commencement of the first lease. In preparing his report, he had investigated the two leases, local drainage records, various editions of large scale Ordnance Survey sheets, licences that were granted for alterations subsequent to the grant of the leases and historical plans and photographs of the property.
25. Referring to the lease plans, he said that although the lease of no 57 (the December 1927 lease of the original house and garden) showed a garage, it had been agreed at the LVT that this had been constructed subsequently and was thus treated as a tenant's improvement. As to the specific matters that remained in issue between the parties, he said that although the small front and rear extensions were also shown on the same plan, there was no evidence of any major works having been undertaken between 1872 and 1927, the property during that period having been occupied by short-term under-lessees. He said this was supported by the photographs of the extensions which showed they were stylistically of the late 1920s.
26. Prior to the grant of the new leases, the property had been owned and let by a Mrs Marjorie Orr. The purchaser of the new leases was a Mr Lowenthal who paid £7,000, a sum which, Mr Belcher said, was very high for an unmodernised house of the time. Although, as was evident from the plans submitted to the local council, and the council's records, the house would have contained basic amenities including electricity, internal wcs (there being no evidence of outhouses or 'privvies' shown on the relevant plans), and internal bathing facilities, it would not have had many of the facilities that a purchaser paying that price would expect. Mrs Orr had given notice of proposed alterations on 2 November 1927, evidence from council records showing that that work was commenced in December 1927, and continued into the early part of 1928. Although no plans and specifications have been traced in relation to those works, in Mr Belcher's opinion they would have included the extension to the front over the portico and the extension to the rear to provide improved internal sanitary arrangements, over and above those that existed in December 1927. The works were either carried out by the landlord, but paid for by Mr Lowenthal prior to him taking occupation in January 1928 (reflected in the high purchase price), or carried out by the new lessee and were thus to be regarded as tenant's improvements.
27. In Mr Belcher's opinion, there was no evidence to show that off street parking was in existence at the time the leases were granted. The 1915 map showed a continuous kerb line in front of the property, as was the case with the majority of houses in the street at that time, and, with it having been accepted that the garage was built later, the access to it would have been provided at that time.
28. Mr Buchanan said that the dispute in this appeal raised issues of law which were not for him to deal with. He set out in his proof the summary of the case on the legal issues that had been prepared by the appellants' legal representatives, to place in context the valuations that he had been asked to provide.
29. Of the 3 alternative bases of valuation that he had calculated, Mr Buchanan said the appellants were relying on the first. That was to value the property as it existed at the valuation date, extended and improved. That figure must then be reduced (or diminished) by the amount by which the value of the property has increased as a result of the extensions and improvements carried out by the tenants or their predecessors in title at their own expense. In making this reduction, he said, the property must necessarily have no development potential as, at the valuation date, any such potential had been fully realised.
30. At the commencement of the hearing he said that it was agreed that, whether or not the two small extensions to the 1927 house amounting to 99 sq ft were tenants' improvements, little, in terms of valuation, turned on it. His valuations had been prepared on the basis that they did not exist, and his GIA on the 1927 house was therefore 3,834 sq ft. When calculating the size of the 2000 house he had excluded the areas taken up by what were originally the two external side walls of the 1927 house where, following the construction of extensions, they were now incorporated in the total GIA of the extended house. His reasons for doing this were that he saw no reason why the tenant should be penalised by having to pay (if Mr Briant's arguments for the inclusion of development value were accepted) between £32,000 and £52,000 for an area that was unusable, and added no value.
31. Whilst the overall areas of the swimming pool complex, the changing/plant rooms, a covered way and the two new garages were agreed, Mr Buchanan said he had treated them in a different way. He said the swimming pool complex, at 1,494 sq ft, should not be taken at the same rate as the main living areas, and, as this was only secondary accommodation, had calculated its value per sq ft as 50% of that applicable to the main accommodation. Although the costs of construction could be as high as, or higher than the cost of extending or modernising the main living accommodation, in value terms it was not appropriate to use the same figure.
32. He had also excluded the two garages and the covered way between the house and the left-hand garage from the analysis, and attributed spot values to them, as to include them within the GIA of the main house, as Mr Briant had done (including the old external walls), gave them development value of between £165,000 and £290,000 and overall values of between £412,000 and £726,000 which, in reality, was far too much. In cases where garages and other 'additional' areas were integral to, and could effectively be incorporated within, the main house, Mr Briant's approach would be more acceptable. Mr Buchanan described his revised areas, resulting from his treatment of the swimming pool complex, as blended areas, and the figures used as blended rates.
33. Mr Buchanan also said that, for valuation purposes, he had assumed that the 1927 house did not include a bathroom and basic sanitary arrangements, and had no off-street parking.
34. In calculating the value of the tenants' improvements by reference to comparable properties, it was necessary to differentiate between the 'space additions' at the subject property (extensions) and 'other improvements' (improvements to the exterior and grounds, driveways etc and to the interior of what was the 1927 house). It was then necessary to make adjustments for such matters as market movement, difference in size between the 2000 house and the comparable, differences in quality, condition and amenities and size of garden.
35. In his view, No 102 was the best comparable, being 1 of only 2 that had been fully modernised and improved and had been sold close to the valuation date (December 2000). The house had been sold with 2 adjacent mews cottages, but the experts agreed the proportion of the price attributable to the main house at £4,500,000. Mr Buchanan produced a detailed breakdown on the basis that he had outlined as follows:

102 Hamilton Terrace

Sale price December 2000	£4,500,000
Less market increase Aug – Dec 5%	(£ 225,000)
Value of 102 at August 2000	£4,275,000
Less 7% to account for more opulent fixtures and fittings at 102	(£ 300,000)
Value of 102 at Aug 2000 assuming same quality as 81	£3,975,000

This equates to £662.50 per sq ft.

Add Adjustments for size differential

(a) Living Area (81 is 1,041 sq ft larger than 102)

1,041 sq ft @ £662.50 £ 689,662

(b) Swimming pool complex (at 50% house value)

1,494 sq ft @ £331 £ 494,514

(c) Two garages at 81(spot values @ £30,000 each) £ 60,000

(d) Covered way at 81 £ 10,000

£1,254,176

Value of 81 after adding for its larger size and facilities £5,229,176

Note 1: On the basis of the blended area for the 2000 house

of 7,788 sq ft (7,041 + 1,494/2) this gives a blended rate

value of £672 per sq ft.

Note 2: The additions in (a) to (d) above become eliminated

in the process of deducting the value of these improvements from

the value of the 2000 house to give effect to statutory assumption (d).

The next step was to:

Add for larger garden at 81, say £ 100,000

Add for larger forecourt at 81, say £ 100,000

£ 200,000

Value of 81 as improved in August 2000

by reference to the sale of 102 £5,429,176

This equates to a blended rate of £697 per sq ft.

Mr Buchanan then deducted the value of the tenants' improvements, as follows:

"(a) As a first step I have to eliminate the additional areas of the 2000 house brought about by the improvements carried out in the 1990s by the present lessees, such as the swimming pool complex, the garages and covered way as well as the GIA of the new living areas added to those of the 1927 house. For simplicity, I do this in two stages so that the additions made in (a) to (d) above are first eliminated. The GIA of the living areas is initially reduced back down to the GIA of the 6,000 sq ft at 102. This, together with the elimination of the swimming pool complex, garages and covered way amount to (£1,254,176) [as shown above].

(b) As a second step I reduce the area from the 6,000 sq ft of 102 to the 3,834 sq ft of the 1927 house at 102: 6,000 – 3,834 = 2,166 sq ft @ £662.50 (£1,434,975)

The value of the 2000 house, reduced to its 1927 size, but in its improved condition therefore becomes £5,429,176 - £2,689,151 = £2,740,025"

Mr Buchanan then went on to deal with the diminution in value attributable to tenants' improvements carried out to the exterior of the property, and to the interior of what was the original 1927 house (the "other improvements").

He said that in the process of valuing 90 Hamilton Terrace, he had established the value of 'relatively simple and straightforward' modernisation and improvements at £206 per sq ft. This had been done by taking the 'blended rate' of £672 per sq ft for 81 as improved, and £465 per sq ft that 90 came to on the same basis, a difference of £207. [The parties agreed that nothing turned on the £1 difference]. The improvements at 81 were of a better standard so, rather than being £789,904 (3,834 @ £206), Mr Buchanan estimated them at between £1,000,000 and £1,300,000, say £1.15million.

The final figure for the 2000 house, less the value of the tenants' improvements, therefore became £2,740,025 - £1,150,000 = £1,590,025.

36. Mr Buchanan said that once the initial rate per sq ft of £662.50 had been established, if that sum was multiplied by 3,834 sq ft (the size of the 1927 house), and the £200,000 garden and forecourt adjustments were added, the same figure of £2.74 million was reached. This was a considerable short-cut, and whilst it could be appropriate for the analysis of 102, it was needed for the breakdown of 90 Hamilton Terrace which had had a pool complex, to establish the 2000 value. He said that he had, therefore, adopted the same more complex approach for all the comparables.
37. Mr Buchanan also relied upon 97 Hamilton Terrace, an improved house of 5,300 sq ft, sold at £3,250,000 in August 1998, but accepted that a larger allowance had to be made for market movement (£975,000) as the sale was 2 years earlier than 81, and it was thus less reliable than 102. That adjustment gave an August 2000 price of £4,225,000 from which it was then necessary to deduct £295,650 to reflect the superior fittings it had over 81. The equivalent August 2000 price was therefore £3,929,250 – a value per sq ft of £741. Then, carrying out the adjustments for size as per the analysis of 102, he came to a value of £5,924,858 for 81 as improved at August 2000 (a blended rate of £761 per sq ft). After deducting for tenants' improvements, again on the same basis as 102, the value of the 1927 house became £1,792,944.
38. 90 Hamilton Terrace had been sold in July 1999 for £3,000,000 for an 84 year lease. Mr Buchanan had said it was in poor decorative condition when sold, after having been on the market for a considerable period, but during the hearing acknowledged that it was, in fact, in very poor order at the date of sale. It shared a number of features in common with 81 as it was after it had been extended in that it was a large residence (7,000 sq ft) with 9 bedrooms and 5 bathrooms; it had a carriage drive, lift, and a swimming pool complex of 1,740 sq ft, balconies, security systems and landscaped gardens.
39. Firstly, in the analysis of value, Mr Buchanan reduced the price by 5% (£150,000) in order to disregard the right to purchase the freehold under the provisions of the act. He then adjusted the figure to reflect the difference in value between an 84 year lease and a freehold, taking into consideration the capitalised value of the ground rent. This was, in his view, a further £200,000, leaving an adjusted figure of £3,050,000 on a freehold basis. Then, 20% was added to allow for the increase in value from July 1999 to give an equivalent freehold value for 90 at August 2000 of £3,660,000.
40. Taking the upwards adjustment of £207 per sq ft that he referred to in his analysis of 102 to take account of the difference in the state and condition of 90 (the blended area of 90 being 7,870 sq ft allowing for the pool at 50% of the house rate) at the time of its sale in 1999, and 81 in its improved and extended state, produced an additional £1,629,090. After making a small adjustment (of £55,104) for difference in sizes, the derived value of the 2000 house in its improved condition became £5,233,986 (a blended rate of £665 per sq ft).
41. Mr Buchanan advised that, following the purchase, the new owner of 90 removed the swimming pool complex, incorporating part of its area into the main accommodation, and the GIA of the house was eventually extended to 9,500 sq ft.
42. As to Mr Briant's other comparables, Mr Buchanan said that 43 Hamilton Terrace was sold to speculators in August 1999 for £2.4 million. He believed they planned to extend it from 4,155 sq ft by some 1,345 sq ft but subsequently were only able to achieve an additional area of 700 sq ft. It was thence extended by that amount, and was re-marketed for £4.5 million during 2000. It failed to sell, despite a number of price reductions down to £3.5 million and was subsequently let in May 2002. As there was a 36% increase in the market between July 1999 and the date it was let (effectively increasing the purchase price of £2.4 million to £3.26 million), a failure to sell at £3.5 million would have represented a substantial loss as no account had been taken of the cost of extending and modernising the house, or of holding costs over the period. This example, Mr Buchanan said, demonstrated the unreliability of attempting to compare the value of a house in good condition (the subject property at August 2000) with one that was acquired speculatively for modernisation. It transpired, he said, that the purchasers had paid too high a price, but that would not have been known at the purchase date.
43. 123 Hamilton Terrace was sold in 1997 for £2.6 million, and again in 1999 for £2.3 million, a reduction in value at a time when the market was rising. The market increase between May 1999, the date of most recent sale, and August 2000 was 22% according to the Savills Index – adding £506,000. The resultant equivalent value (in terms only of time) at £2,806,000 equated to £564 per sq ft, and Mr Buchanan went on to explain how this squared with the blended value of 81 at £697 per sq ft. However, he did not do a detailed valuation analysis and Mr Briant pointed out, in his rebuttal report, that it would be inappropriate to deduce anything from the difference in overall rates where 81 was on the basis of blended rates and 123 was not.
44. Mr Buchanan also commented on 96 Hamilton Terrace, the comparable that had been principally relied upon by the LVT. It had been acquired by speculators in August 2000 for £3,100,000 at which time it was divided into flats and maisonettes. There were non-contentious plans to increase its size to some 8,000 sq ft and planning permission existed for some of the proposed extensions at the date of purchase. Thus, Mr Buchanan said, the property cannot be directly related to 81 in its improved condition, as any purchaser of 96 would not be interested in a property that had already been fully improved and extended as far as it was possible to do so.
45. As it had transpired, the purchasers of 96 have undertaken the conversion/improvement works (to a single private residence) to a shell finish and Mr Buchanan said he thought that it would need a further £1 million to complete it. The asking price of £6.95 million that was set in 2001, before the works had been completed, has subsequently been reduced to £5.95 million (£744 per sq ft) and the property was still available. Its actual improved (although uncompleted) value could not therefore be established, and it was thus an unreliable comparable. However, Mr Buchanan acknowledged that when he wrote his report he was unaware that the property was, in fact, sold in June 2003 at £4,200,000.
46. 82 Hamilton Terrace was bought as flats by a private purchaser who intended to convert the property back to a private house for his own occupation, although that work has yet to be undertaken. In Mr Buchanan's view, the circumstances were too different for a meaningful comparison to be drawn with the subject property.
47. In summary, as to his first basis of valuation, Mr Buchanan said that 102 was the best comparable and from that he had derived a value for the 2000 house in August 2000 at £5,429,176. Using 97 gave £5,924,858 and using 90 gave £5,233,986. Although they are less reliable, he said the range of values produced supported his conclusion based on 102. From the improved figure, Mr Buchanan arrived at the value of £1,590,025 for the 1927 house (unimproved) by making the adjustments he had set out at length in his evidence. This figure did not, he said, take into account development potential (as Mr Briant had done) due to the fact that all such potential had been fully expended by the valuation date.
48. Whilst in appropriate circumstances Mr Buchanan agreed that 40% was the correct figure in St John's Wood for a cleared site, the use of the 'standing house' approach was not appropriate in this case. This was not a cleared site; 81 existed at the valuation date as a 3,834 sq ft house in good condition and with potential for improvement and extension. In any event, this was an existing house in a conservation area and as such it could not be demolished and replaced. It was accepted that the costs of conversion and renovation could be, and often were, more than building from scratch, and those extra costs would serve to reduce the price that a builder was prepared to pay for the extension element. The uncertainties and difficulties of having to work around the original house, the additional time involved, strengthening of existing foundations where necessary (to, for instance, take an additional floor), design constraints and restrictions imposed by the old building, VAT at 17.5% and higher architects and surveyors fees are all additional costs. Mr Buchanan said the total extra costs in building extensions onto existing property could well be upwards of 30% of the cost of the extension, or 15% of the entirety value. It was for this reason that, in undertaking valuations on the second and third bases, he adopted 25% of the entirety value of the potential extensions as the value of development potential.

Second basis of valuation.

49. Mr Buchanan said that on this basis he was assuming the unimproved 1927 house, without the benefit of the extant planning permissions. He referred to the factual evidence provided by Mr Fattal, outlining the considerable difficulties he and Mr Hammerson had encountered in obtaining the requisite consents for the substantial extensions that had eventually been constructed. This information, and the included extracts from the council's planning policies supported his view that any prospective purchaser looking at the unextended and unimproved house at the valuation date would not anticipate, or realistically be able to achieve, extensions to the living area of more than 1,053 sq ft, and garaging of 393 sq ft, giving 1,500 sq ft in total.
50. On the basis of the valuation of the living accommodation at £662.50 per sq ft (from his initial valuation), the gross development value for the additional living area becomes £697,612. Adopting 25% for development value gives a figure of £174,403. He then added £15,000 for the development value of the potential garaging to give a total development value of £189,403. This then needed to be added to the freehold unimproved value he had come to on the first basis of valuation (£1,590,025) to give a total on the second basis of £1,779,428.

Third basis of valuation

51. Mr Buchanan then carried out an exercise on the basis that it had to be assumed that the full development potential can be achieved in accordance with the consents that were actually obtained by both Mr Hammerson and the appellants, but that the works of improvement had not yet been carried out. The total area of the extensions to the living accommodation including the new second floor and the right hand side living area was 3,207 sq ft. Using his previously adopted figure of £662.50 per sq ft gave a development value of £2,124,637. 25% of this (representing the development potential) was £531,159.
52. He then took a nominal value for development value of the pool complex of £10,000 as, in the market place, swimming pool complexes add little value to a property in this area. This particular one was extremely expensive to build for a number of reasons and that cost would never be recouped in terms of value. To his knowledge two former swimming pools in Hamilton Terrace properties (including no. 96) had been decommissioned, and hardly any other houses in the area had them. He then added 25% of the spot values he had earlier given for the garages to give a total development potential value of £556,159. Added to the figure for the 1927 house from his first basis of valuation produced a value on the third basis of £2,146,184.
53. As to the leasehold value, it had been agreed that, due to the lack of open market evidence of sales of short leases, a percentage of the freehold value was the most appropriate approach. The graph of settlements prepared by the freeholder's agents, Cluttons, clearly showed 25% for a 7 year lease. On this basis, his figures became £397,506 on the first basis, £444,857 on the second or £536,546 on the third. In his view, even in the no 1967 Act world the freeholders would have been prepared to negotiate the sale of the freehold or a new 99 year lease, although he accepted that there was no guarantee that would be the case, or that the terms that might be offered would be acceptable.
54. In cross-examination, Mr Buchanan accepted (as did Mr Briant) that, historically they had both used either method (looking at improved or unimproved properties) as comparables, depending upon circumstances. However, whilst reiterating that in this case he thought that the 5 unimproved comparables that Mr Briant had referred to bore no relation to the 1927 house, he accepted that, at the valuation date, the 1927 house was, and had to be assumed to be (because it was a full repairing lease), in good condition. Comparables that were currently flats with potential to convert to houses were, he said, particularly poor because whether or not there was any value in the flats and their fixtures and fittings (for redevelopment purposes), a purchaser would have to pay for them – otherwise there would be nothing in it for the lessee of the flat.
55. He accepted that his report was not in the format that he usually adopted, but insisted that it was 'all his own work' and he had not been influenced by others as to its format. However, he did say later on in his cross-examination that he had been asked to do his valuation in the way that he did. He said that, in his view, this house was unique in terms of the extent and complexity of the extensions and improvements that had been carried out and as such, his was the most appropriate method to arrive at the value. He acknowledged that, whilst he had considered 102 and 97 to be the best comparables before the LVT, he had not produced valuations for that tribunal in anything like the detail that they were now in. He had looked at both unimproved and improved properties in his earlier valuation but, on balance, the improved ones provided the best guidance. He said that since the LVT hearing he had had more time to research and consider the matter, hence his very much more detailed valuation analyses. Mr Buchanan also conceded that this was the first time he had specifically excluded or disregarded development potential; in previous cases, and in this case before the LVT, allowances having been made.
56. As to the first basis of valuation, Mr Buchanan accepted that in the calculation he had made in respect of the diminution in value attributable to increases in size brought about by the tenants' improvements (a deduction of £2,689,151), he had deducted the full value, including the value of the land. That effectively gave the tenant credit for the value of the land itself. It was put to him that if it was correct to value the development potential at 40% of the value of the improvements, as Mr Briant contended, Mr Buchanan should have taken 60% of the value in his calculations. He said that was part of the legal issue that was in question.
57. Regarding the additional £1.15 million that Mr Buchanan had deducted for other improvements, this was not, he admitted, a figure arrived at by scientific analysis. It was his opinion assisted by no.52 Hamilton Terrace (GIA 7,267 sq ft) (not one of the agreed comparables, but a property that had been before the LVT and with which both he and Mr Briant had been involved) where there were major works of improvement and extension.
58. It was accepted as a fact that Mr Buchanan had not undertaken, for the purposes of this hearing, a valuation exercise on Mr Briant's basis of looking at unmodernised comparables, and adding for the value of improvements. He had relied upon 102 as a modernised and extended property, even though, as he acknowledged, he had not adopted this methodology in the case of 98 Hamilton Terrace which had subsequently gone to the House of Lords (Shalson v St John Lyon's Charity [2003] 3 WLR 1). In that case he had valued the property, which was a re-conversion of four flats into a single house, and used as comparables only properties that were sold as flats. He did not accept that if one 'stood back' and looked at all the figures globally, it was patently obvious that his figure for the unimproved 1927 house was markedly too low. He reiterated that he did not think the unmodernised comparables were of any real assistance, although he acknowledged that there could be equal criticism as had been made of Mr Briant for not providing, despite requests to do so, a valuation on Mr Buchanan's first basis.
59. Mr Buchanan stood by his assumption, on the second basis of valuation, that a purchaser would only anticipate up to 1,500 sq ft overall of extensions, although he did accept that Mr Hammerson (the appellants' predecessor who failed to complete his purchase) would, when making his bid, assume he could achieve the consents (for larger extensions) that he sought.
60. As to the third basis, where the existence of the planning permissions was to be taken into account, Mr Buchanan did not accept Mr Briant's suggestion that, on the assumption there was 40% development value, on the strength of his figures, the 1927 house in its unmodernised state would have a negative value.

Respondents' Case

61. Mr Briant admitted that he had often used Mr Buchanan's approach on the issue of tenant's improvements (to determine the value by looking at improved comparables and then making a deduction for the value of the improvements), but in this case such a method was wholly inappropriate, as Mr Buchanan's valuation on the first basis demonstrated. However it was, he said, illogical to exclude development potential. For example, if one were to assume two identical properties upon which the lessees serve notice claiming the freehold on the same day, but only one of the houses has been extended, the enfranchisement price for the extended house would be less than the price for the unextended one using Mr Buchanan's methodology. Using the appellants' first basis of valuation, and the figures that Mr Briant had derived for the subject property in his valuations, the value of the freehold for the extended house would, he said, be £2,300,000 but for the unextended house it was £3,400,000.
62. It was because of the very short unexpired term remaining on the lease, and the substantial extent of improvements that the appellants had carried out (the size of the house having been more than doubled) that what he had initially described as his "usual approach" (subsequently amended to "an approach I often use") had not been used in this case. To do so would have resulted in an under estimate of the value of the existing lease disregarding improvements because the value of those improvements would be in excess of the value of the property before the works had been carried out. This would, therefore, suggest a negative value for the lessees' interest which would be incorrect. With only 7 years remaining on the lease, a prospective purchaser would not contemplate undertaking such extensive works, a point that Mr Fattal had made in his witness statement.
63. For these reasons, Mr Briant said he had valued the property according to its original size, assuming it to be in a good state of decoration and repair, but with a 1927 level of facilities. It would have had bathrooms and a kitchen that had been generally updated over the years, but would not have had central heating or the high quality fixtures and fittings that exist in the improved house. The valuation included the value of any latent development potential – that value being based upon the level of improvements that were, in reality, actually achieved, and he had calculated that development potential at 40%. Such value had to be tempered by any similar potential at the comparable properties.
64. In preparing his valuation of the freehold, Mr Briant said he looked at unmodernised comparables – principally 96, 82, 90, 43 and 123 Hamilton Terrace, although he had also analysed the modernised properties, 102 and 97. The valuation that he had submitted to the LVT is at Appendix 4 to this decision. He said that that valuation produced an enfranchisement price for the subject property of £2,541,455 against that determined by the LVT at £2,468,895. The LVT, he said, arrived at their capital values a different way, but as their figure was not significantly at odds with his own assessment, the respondents accepted that determination.
65. He had not made a reduction, as Mr Buchanan had done in his second basis of valuation, for any perceived risk of obtaining a less favourable planning permission than that which was actually obtained, or for the possibility of the need to go to appeal, and any delays that that process would cause. The Act did not require him to do that, and does not require one to disregard the existence of the tenant's improvements, just the value of them. The fact was that, at the valuation date, all the planning permissions and consents that were required for the extensions and improvements were in place and it could be assumed that both the appellants and Mr Hammerson would have had the extent of their proposed improvements in mind when they formulated their bids for the property. Mr Briant said he took the planning permissions into account in his valuation as their existence crystallised the development potential that actually existed. Nevertheless, he said, if it was found in law to be the case that their existence was to be ignored, there would, in his opinion, be no negative effect on value due to the strength of the market at the valuation date and the fact that there was so much scope for extension. This was because there was room at each side, and, with the 1927 house being much lower, in terms of number of floors, than the immediately adjacent and nearby properties (giving scope for upwards extension), a purchaser would, rightly as it transpired, assume that the sort of permissions that were actually obtained would be available in accordance with Westminster City Council's stated planning policies.
66. Neither did Mr Briant agree with the appellants' contention that the obtaining of planning permission should be regarded as a tenant's improvement. The Act refers to physical improvements carried out to the property, and there is nothing in the Act that requires the grant of planning permission to be disregarded. Whether or not it is to be taken into account, (and that, he said, was a legal issue), it is the effect on value that has to be found. In his view, the value of the property was not affected by the ease or difficulty in obtaining planning permission.
67. Having set out the approach to the valuation that he had used in his first proof of evidence, Mr Briant subsequently produced, on the second day of the hearing, re-worked analyses of all his comparables. This, he said, was partly the result of the experts' late agreement on floor areas meaning minor adjustments had to be made. However, more significantly it was needed because following the criticisms made by Mr Buchanan in his rebuttal statement, he had realised that in adjusting for the difference in size between 81 and a comparable that had extension potential at the date of sale, he should have added to the existing gross internal area of the comparable, 40% of the gross internal area of the potential to extend it.
68. In his main proof of evidence, he had set out a calculation for the extension potential that took account of the potential to extend at the comparable property. As he had now taken account of the extension potential at the comparable in adjusting for the difference in floor size, it was not right to take it into account again in adding for the extension potential at the subject property. Therefore, he said, he had added 40% of the value of the extensions at the subject property. He accepted (and said it had only become apparent to him at the commencement of the hearing) that the flaw in his original approach had been that he derived from his comparables values that were not freehold values before adding site values. They were freehold values that were derived from prices that already reflected development potential – in other words that included site value for extension.
69. Turning then to his principal comparables, (the unmodernised properties) the first one he had considered was 96 Hamilton Terrace. Although not the most reliable, he said it had been sold in the same month as the valuation date for the subject property at £3,100,000. It was a detached house on 5 floors that was converted into flats. The condition at time of sale was similar to how he would have expected the subject property to be (as the 1927 house) but it was somewhat larger at 4,704 sq ft. The leases of the individual flats were acquired by a developer at the same time as he acquired the freehold, and the property was subsequently extended and reconverted to a private house of some 8,000 sq ft. At the sale date it had planning permission to extend it to 5,510 sq ft, but it was eventually, by 2002, extended to 8,000 sq ft.
70. Mr Briant said that the value of the extension potential is the increase in value of the site. To derive that value, he had adopted the "entirety" value method of valuation that was sometimes used when valuing under section 9(1) of the Act. However, he said he had applied that method only to the increase in value from the extensions, and had adopted 40% as appropriate in St John's Wood. As there was a substantial difference between the sizes of the extensions that were permitted when the property was sold, and those which actually took place, he provided two analyses and said that, by adopting the simplistic approach that it had done, (perhaps reflecting the reality of the market place rather than adopting his detailed mathematical analysis) the LVT had come to a figure midway between the two. It was for the Tribunal, he said, to conclude which of his approaches was correct in the circumstances.
71. His analysis of 96 was:

	1999 PP	As built
	£	£
As for 96 Hamilton Terrace	3,100,000	3,100,000
1999 pp Less for size 3,933* sq ft of 81: 4,704 + (40% (5,510-4,704) = 5,026 sq ft No 96	(674,154)
As built 2002 Less for size 3,933 sq ft of 81: 4,704 + (40% (8,000 – 4,704) = 6,022 sq ft 96		(1,075,374)
	2,425,846	2,024,626
Add for larger garden at 81	50,000	50,000
	2,475,846	2,074,626
Add for site value of extension potential at 81: (a) 2,475,846/3,933 ((8,630 – 3,933) x 40%)	1,182,841
(b) 2,074,626/3,933 ((8,630 – 3,933) x 40%)		991,157
Freehold value of 81 by comparison with 96	3,658,687	3,065,683

*Mr Briant's 1927 subject property size including 99 sq ft for the 2 small extensions

72. He explained that by this method of analysis it was not necessary to make adjustments for improvement potential, as that was already reflected in the sale price. He was only making adjustments for extension potential. He said that as the valuation date and the condition of the subject property were the same as for the sale of 96, and the unextended area of 81 was a little lower than 96, but the extended area a little greater, the freehold value of 81 might in broad terms be considered to be in the region of £3,100,000. However, he said he thought that was on the low side because the extension potential at 96 was not clear at the date of sale.
73. Having gone on to explain in detail the precise methodology by which he had arrived at his two figures on the basis of the analyses of 96, Mr Briant then acknowledged that the difference in final figures was quite large and admitted that the "LVT in their decision used a much simpler approach". They had said that the sale price of 96 was a good starting point, but then added £300,000 for the superior garden, outlook and privacy at 81 to come to their final figure of £3,400,000. Mr Briant said that that figure was midway between his two approaches (although it was acknowledged that his second 'as built' valuation had not been before the LVT), and accepted that "on balance, a simple approach may more accurately reflect the reality of the market place dominated as it is by estate agents and a number of different purchasers who tend not to analyse their offers in the same way as valuers [analyse sale results]".
74. Undertaking a similar exercise in respect of the other comparables, Mr Briant's values for the subject property became:

82 Hamilton Terrace £3,390,279

90 Hamilton Terrace £2,974,232 to £3,214,516

43 Hamilton Terrace £3,693,010

102 Hamilton Terrace £3,845,500

123 Hamilton Terrace £3,538,009

97 Hamilton Terrace £3,703,034

75. In cross-examination it was put to Mr Briant that the sale price (of 96) would have included both improvement (additional value created by conversion from flats to a house) and extension potential, but as no adjustment had been made for improvements in his analysis, it could not be relied upon. This was not accepted, Mr Briant saying that a purchaser would not have known if there was any additional potential (in value terms) for conversion to a single dwelling. He acknowledged that the LVT had valued the garden at the subject property at £250,000 more than he had, but said that if he had not included an allowance for development potential, he would have valued the garden at a higher figure.
76. He insisted that his use of 40% to represent the site value of the extension potential was appropriate to St John's Wood. It took regard of how the market calculated development potential, but accepted that that was not necessarily what a purchaser would do in calculating his bid for an existing property. In response to a question from me, Mr Briant said that he had used the site value method of calculating development value in one other case before this Tribunal (relating to 26 Marlborough Place – Adams v Trustees of the Eyre Estate (1999) (LT) LRA/11/98 (Unreported)) but this was used as a check valuation to support his comparable method in determining the ground rent. He acknowledged that, in respect of Shalson, which was also a property for conversion from flats to a house, he had not attributed any additional value to that aspect.
77. Mr Briant did not accept that the purchase price of £3.1million for 96 was too high, the fact that it had remained unsold following conversion after it had been very substantially converted and extended being due to the unusual way that it had been done. The sales particulars stated that "No 96 has recently undergone a complete reconstruction to provide a light, open and contemporary living space extending to almost 8,000 sq ft. The unique build system employed has resulted in a vast shell with no internal walls whatsoever, and offers the eventual purchaser the ultimate blank canvas for the house of their dreams". The fact was that the house was uncompleted, and the open plan layout had, he said, severely restricted the market.
78. In respect of 82, another property sold as flats, but where there was a requirement to re-convert it to a house, Mr Briant accepted that his analysis ignored any extension potential, whereas the property had, in fact, subsequently been extended.
79. Mr Briant's analysis of 90 Hamilton Terrace had been undertaken on a similar, dual basis to that which he had prepared for 96. He said that even though the 'as built' analysis suggested less than £3 million for 81, he really felt that it should be £3.5million "in the light of all the comparables".
80. In carrying out his detailed analyses, Mr Briant said that he had assumed the small front and rear extensions (extending to 99 sq.ft.) were in place in 1927, and were therefore not tenants improvements to be discounted. Hence his analysis of the 1927 area of the subject property at 3,933 sq ft. Regarding whether or not there had been off street parking at the subject property in 1927, Mr Briant said this did not materially affect the value of the unimproved house, as even if there were none, the provision of it would be easy. As to the extent of improvements that had been carried out to the subject property, he said the value should be discounted by any elements that were replacements although, in the overall scheme of things, as he was looking at unimproved comparables, there would be little overall difference to his figures.
81. In calculating the area of the extended house, he had included the two new attached garages as they were capable of being incorporated into the main accommodation, as was the covered way between the left hand garage and the house. As the garages were included, it was therefore correct, he said, to include what had been the former external walls on each side, at the appropriate floor levels, within the GIA. This was how the GIAs of all the comparable properties had been calculated, and to exclude them would mean that areas were not being treated on a like for like basis. Mr Briant said that he had included the area of the swimming pool complex in the GIA of the 2000 house, but had ignored that part in assessing comparables that did not have such facilities.
82. Mr Briant then went on to explain that he had attempted, in his third witness statement, to undertake a valuation in accordance with Mr Buchanan's first basis. This involved analysing the sales of 102 and 97 Hamilton Terrace, and following some last-minute revisions to account for the recent agreement on areas his valuation based on 102 became, [after correcting minor mathematical errors pointed out by the appellants in closing]:

Sale price of 102 Hamilton Terrace	£ 4,500,000
Less Rise in market	£ (225,000)
	£ 4,275,000
Add for larger size 81 (8,630 sq ft vs 6,000 sq ft)	£ 1,873,875
Add for larger garden at 81	£ 50,000
Less For superior fixtures and fittings at 102	£ (300,000)
Value of 81 improved (extended – 2000 house)	£ 5,898,875
Less value of extensions at 81 (4,697 sq ft)	£ (3,210,540)
Value of 81 unimproved (unextended - 1927 house)	£ 2,688,335
Add for site value of extension potential at 81	£ 1,283,320
Value of 81 including development potential	£ 3,971,655

83. The valuation based on 97 was:

Sale price of 97 Hamilton Terrace	£ 3,250,000
Add for rise in market (35% per Savills N. London houses Index)	£ 1,137,500
	£ 4,387,500
Less for size (3,933 sq ft (81) 5,300 sq ft (97))	£ (1,131,644)
	£ 3,255,856
Less 97s better condition and fixtures/fittings	£ (800,000)
Add 81s larger garden	£ 50,000
Unimproved value of 81 exc. extension potential	£ 2,505,856
Add site value of extension potential:
£2,505,856/3,933 ((8,630 – 3,933) @ 40%	£ 1,197,178
	£ 3,703,034

84. However, following the criticisms of his methodology, and particularly the fact that he had failed to take into account the 'other improvements' that Mr Buchanan had assessed at £1.15 million, he produced further substantially revised workings on the third day of the hearing.
85. Whereas in his third witness statement he had accepted Mr Buchanan's adjustment of £300,000 to represent the 'more opulent' fixtures and fittings at 102, he had reconsidered this and said he was now of the view that, in reality, the adjustment should be on the basis that the value of the fixtures and fittings at the subject property should be £500,000 more than those at 102. This was because, on reflection, he now felt that those more opulent fittings at 102 were not to everybody's taste and might act as a deterrent. Also, the accommodation at the subject property was more family orientated than at 102, and therefore had a more marketable layout. This, in effect, had served to alter his valuation to the tune of £800,000, but he then deducted £800,000 to take account of the improvements within the envelope of the 1927 house (for which he had previously made no allowance at all), giving an unimproved value for the 1927 house of £2,252,917. He then added 40% for development value, to give a revised freehold value of £3,329,469 based on 102 (previously 3,971,655), and £3,527,927 based on 97 (previously £3,703,034).
86. The analysis of 102 (on his latest analysis) was thus:

Sale price 102 Hamilton Terrace	£ 4,500,000
Less rise in market	£ (225,000)
	£ 4,275,000
Add size 8,630 sq.ft. (81) 6,000 sq.ft. (102)	£ 1,873,875
Add for larger garden at 81	£ 50,000
Add 81s superior fixtures & fittings	£ 500,000
Value of 81 improved:	£ 6,698,875
Less value of extensions at 81 (4,697 sq.ft.)	£(3,645,958)
Less value of improvements (2000 to 1927)	£ (800,000)
Value of 81 unimproved (exc development value)	£ 2,252,917
Add Value of extension potential at 81 *	£ 1,076,552
Unimproved value of 81 including dev't potential	£ 3,329,469
*Calculation of extension potential:
Value of 81 exc. development potential	£2,252,917
Divide by unextended area (orig. envelope)	3,933
Rate per sq.ft. applicable to 1927 house	573
Multiply by increase in floor area	4,697
Value of extension	£2,691,381
Site value of extension potential at 40%	£1,076,552

87. The valuation based on 97 became:

Sale price of 97 Hamilton Terrace	£ 3,250,000
Add for rise in market	£ 1,137,500
	£ 4,387,500
Add for size 8,630 sq ft (81) 5,300 sq ft (97)	£ 2,756,674
	£ 7,144,174
Less 97's better fixtures and fittings (1997-2000)	£ (200,000)
Add for 81s larger garden	£ 50,000
Improved value of 81 (as extended)	£ 6,994,174
Less extensions at 81 (4,697,sq ft)	£(3,806,678)
Less for "other improvements" at 81	£ (800,000)
Unimproved value of 81 (exc dev't value)	£ 2,387,496
Add site value of extension potential at 40%	£ 1,140,432
	£ 3,527,927

88. Mr Briant accepted in cross-examination that his revised figures represented a last minute 'about face' and acknowledged that he had been wrong not to make an allowance for the value of improvements to the 1927 'envelope' in his earlier top down analysis (that allowance, by Mr Buchanan's calculations being £1,150,000). Mr Briant said he was now allowing £800,000 for the value of those improvements which was £70,000 more than the minimum cost as estimated by Mr Fattal. He did not accept that that figure was too low, bearing in mind the value of the improvements was likely to be more than the cost and that, with a rise in property values of 40% between the works being carried out and the valuation date, that would effectively make his figure £570,000. It was accepted by Mr Briant that, if the development value that he had added to his valuation were removed, and if Mr Buchanan's value of improvements at £1.15 million were adopted, there was virtually nothing between the experts. He also insisted that the adjustments he had made to reflect the differences between 81 as improved and 102 (already improved) from his previous figure of minus £300,000 to plus £500,000 (a net increase in value of the improved 2000 house of £800,000) resulted from a re-consideration of the actualities. It was not he said, in response to a suggestion in cross-examination, an attempt to substantiate his previously adopted value for the unimproved freehold value of the 1927 house of £3,500,000 by arbitrarily increasing the improved value by the same amount as the £800,000 he was, at the last minute, adopting as the value of the 'other improvements'. It was only now that he had realised his earlier error of allowing nothing for the other improvements, despite it having been pointed out in Mr Buchanan's rebuttal statement several months ago.
89. Mr Briant said that the effect of performing these last minute re-calculations served to make the unimproved value of the 1927 house £2,252,917 (based on 102) against £2,688,335 in his earlier valuation or £2,387,496 (based on 97) against £2,505,856 – excluding extension potential. He reiterated that his attempts to analyse the sales of these two improved comparables on Mr Buchanan's basis was an exercise carried out as a result of the appellants' request to do so, and it was not the basis upon which he relied. The fact that his revised analysis based upon 97, for example, resulted in an unimproved value for the subject property, excluding development potential some £200,000 lower than in his earlier valuation was, he said, due to the fact that the exercise had been carried out in a different way. He dismissed criticism of the fact that, as a result of his revisions, the improved 2000 house showed a value of £6.698 million (based on 102) and £6.99 million (based on 97), between £8 and £900,000 more than he had originally concluded. He said that he had intimated to the LVT that the improved and extended value could have been "up to £7 million", and in any event such wide variations could result from an overly mathematical approach.
90. In his first valuations based on 102 and 97 he explained that he had gone straight to the improved value as a 1 stage exercise, whereas his latest figures, on Mr Buchanan's basis, was a 2 stage approach which was not incorrect in those circumstances. The differences were the results of taking a mathematical approach to analyses. The fact that by adopting Mr Buchanan's methodology gave a figure of £3.5 million (on the 97 analysis) against £3.7 million on his previous valuation was of no great significance, Mr Briant said in answer to a question from me, as, in any event, he was accepting the LVT's figure of £3.4 million. The differences between him and Mr Buchanan in respect of 97 could partly be explained, he said, by the fact that he had allowed £1,137,500 for the rise in the market and Mr Buchanan had allowed £975,000.
91. As to the unimproved leasehold value, whilst Mr Briant said that the graphs produced by the John Lyon and Eyre Estates to demonstrate the percentage relationship between freehold and leasehold values were a useful check and indicated the figure promulgated by Mr Buchanan (25%) to be appropriate, there was no substitute for actual comparables. However, whilst acknowledging that he could find no evidence of sales of leases with 7 years remaining unexpired, he said that in his opinion the figure should be 21%. He said that the freehold figure of £3.5 million that he had argued for included, on his basis of valuation, the value of extension potential but there was no such potential with such a short reversion as, not only would no purchaser of a 7 year term contemplate major improvements and extensions (as Mr Fattal had confirmed in his evidence), but also the Act requires one to assume that there is no right to acquire the freehold. He did not accept Mr Buchanan's suggestion that a purchaser could anticipate that the freehold would be available, even in a non-Act situation and said there could certainly be no guarantee of this.
92. Mr Briant said that the LVT had adopted 21% as the appropriate ratio, and he was happy to accept their figure (based upon their determined freehold value of £3,400,000) of £714,000.

Closing Submissions

93. Mr Radevsky produced, for the respondents, brief closing submissions in writing following the close of the hearing, to which Mr Driscoll and Mr Johnson responded for the appellants, in addition to their own closing, at considerable length. The respondents submitted that it was perfectly acceptable, in practice, to use either method of valuation to produce the correct result – to look at improved comparables and then disregard the value of the improvements, as Mr Buchanan had done, or to look at unimproved properties as comparables to establish what the subject property would have been worth, in its unimproved state, at the valuation date. Whichever method was the most appropriate would depend upon the facts of the case, and here it was Mr Briant's methodology that produced the right answer due mainly to the short term remaining on the lease, and the fact that such extensive improvements and extensions had been carried out. There were a number of unimproved comparables whereas there was effectively only one (102) upon which Mr Buchanan could rely. Indeed, it was submitted, Mr Buchanan had used Mr Briant's approach himself in Shalson which was also a property where very substantial works were to be carried out (the re-conversion from 4 flats to a single private residence).
94. The appellants' arguments on methodology were that it was wrong, in law, to use Mr Briant's approach, as had been set out in their opening. Section 9(1)(A)(d) did not refer to disregard, but stated "the price had to be diminished" by the value of the improvements. In order to diminish the value, the appellants said, it was necessary, first and foremost, to establish the value of the property as improved, and then deduct the value of the improvements. It was not possible to do that by assuming that improvements had not been carried out because to do that amounted to a disregard of the existence of the improvements. There was no justification for that approach in (d).
95. Such an argument, according to the respondents, was entirely novel and had never been advanced previously, since section 9(1)(A) had been introduced into the 1967 Act by the Housing Act 1974. It is not correct for the appellants to say that a valuer is not entitled to value the property as if it were unimproved under (d); the Act does not specify how the value of the tenant's improvements must be disregarded. As the Member (Mr P H Clarke FRICS) said in Sharp v Cadogan (Earl) (1998) (LT) LRA/33 & 95/1997 (Unreported) at p.7:

"I agree with the passage from Hague, "Leasehold Enfranchisement" (Second Edition) at para 9-47:

"The manner in which the assumption is given effect is for the property to be valued (at all stages of the valuation) as if the improvements had not been made, i.e. as if the property had been in the same condition as when originally let, and it is their value, and not their costs, which fall to be disregarded"."

96. Mr Clarke had then cited Norfolk v Trinity College, Cambridge where the Lands Tribunal (W H Rees FRICS) had held that treating the house as unimproved in all the constituent parts of the valuation contains no error in principle.
97. It was also wrong, the respondents submitted, for the appellants to allege that the legislative policy will be defeated if a freeholder can obtain a slice of the improved value under the guise of a right to the value of potential for improvement. The landlord is being compensated for the loss of the market value of his reversionary interest, and that value will include any development potential that there is in the property. There is nothing in the 1967 Act that requires the landlord to be deprived of improvement potential in a case where the property is valued as if unimproved – if that were the case, an anomaly would arise. A tenant of a house who had not carried out improvements would pay the landlord the deferred value of the development potential because the prices of unimproved comparables include any development potential they have in their sale prices. A tenant who had undertaken improvements (and the value of those improvements would be disregarded) would not, therefore, pay the development potential.
98. However, despite the legal arguments, the respondents submitted that the main problem with Mr Buchanan's approach was that "massive and controversial" discounts had to be made for the improvements (in this case over £3,800,000). This discount produced an unimproved value that, if he had stood back and considered his resulting figure, he would have realised that it was substantially out of line with the evidence provided by Mr Briant's unimproved comparables. In producing his extremely complex analyses, Mr Buchanan had admitted in cross-examination, that when dealing with the core of the 1927 house, he had made an analysis of 102 which he then applied to 90 to reflect back on the subject property, and this was a circular argument.
99. As to Mr Buchanan's second basis of valuation – assuming that development potential is to be taken into account, but the value of any planning permissions is to be ignored, it was submitted by the respondents that Mr Briant's 40% of the improved value is the conventional approach being, as it is, based on what happens in the marketplace and similar to the 'standing house' approach used in a section 9(1) valuation. Mr Buchanan had said that he had used that approach in the past, it was adopted by the LVT in 58 Hamilton Terrace, and was used in Loder-Dyer v Cadogan [2001] 3 EGLR 149 and in Wellcome Trust Ltd v Romines [1999] 3 EGLR 229.
100. In response, it was pointed out by the appellants that Mr Briant had not taken 40% of the improved value, but 40% of the rate per square foot of his calculation of the unimproved value of the 1927 house (the original envelope) and applied it to the area of the extensions (which included former external walls and the covered way, changing rooms etc but not the swimming pool). On the premise that he considered the leasehold value was 21% of the freehold value to represent the lack of development potential, i.e. 4/25 less than the accepted 25% where there were 7 years remaining on the lease, this meant that the freehold value (taken as 100%) should also be reduced by 4/25. This would reduce the freehold value by 16% to reflect the absence of development potential. That figure represented the logic of Mr Briant's reduction from 25% to 21% of the proportionate value of the leasehold interest to represent the absence of value in the remaining lease. The Tribunal was being asked to determine what the market would pay for the potential to add 4,697 sq.ft. of new extensions, and it was accepted that the market would carry out some form of residual valuation, but Mr Briant had produced no evidence as to what that value should be.
101. The appellants said that whilst it was acknowledged that the site value approach was not a new concept, it was used in section 9(1) cases and not section 9(1)(A), it was not a market approach and even if 40% were appropriate for a site value valuation, it was not so for an existing house with development potential. They said that Loder-Dyer was concerned with an unimproved house and the Member rejected the site value approach there in favour of actual market evidence. Romines was a case concerned with the determination of a premium for a new lease under Schedule 13 to the Leasehold Reform and Urban Development Act 1993 where the wording was different to a section 9(1)(A) case in that there is an express disregard, rather than diminution in relation to the value attributable to tenant's improvements.
102. Turning to the planning permissions, the respondents submitted that their existence should not be disregarded, there being nothing in the Act requiring such a disregard to be made. The permissions attach to the property, and were not, as the appellants suggest, 'spent' at the valuation date in that they existed on the planning register for anyone to see. It is the increased value created by the improvements that is to be disregarded and the permissions that allowed those improvements could not be considered improvements themselves.
103. In respect of the leasehold value, it was accepted by the respondents that, if Mr Buchanan's first basis of valuation were correct then 25% of the freehold value would be the appropriate figure. However, as Mr Briant had explained, where the remainder of the lease is so short and the improvements are so substantial, the LVT's adoption of 21% was right.
104. Regarding the state of the 1927 house at the valuation date, Mr Radevsky submitted that the onus was upon the tenants to prove the facts which entitle them to establish a disregard of improvements. As had been established in Shalson, the landlord is 'prima facie entitled to the full value of his interest in the property as it stands at the valuation date'. The property was in good condition (that being agreed) but may only have had a free-standing bath. The small 99 sq ft front and rear extensions were believed to have existed at the date the lease was granted, and it was up to the tenants to prove that they did not.
105. In general terms, it was submitted by the respondents that Mr Buchanan's use of blended rates and spot values regarding various parts of the improved property only served to complicate the valuation process, and it was preferable, as Mr Briant had done, to ignore the swimming pool in order to compare like for like. Similarly, the inclusion of the former external walls and the garages in the GIA of the extended house meant that the subject property and the comparables were analysed on the same basis.
106. The severe criticisms that had been made of Mr Briant in cross-examination for providing last minute revisions to his valuations were, it was submitted, wholly unjustified. He had recognised a mistake, and had sought to correct it – that correction being in the appellants' favour.
107. In closing, the appellants sought to add weight to the arguments relating to the primary issue (the interpretation of section 9(1)(A)(d)) promulgated in their opening skeleton. There was, it was submitted, no precedent in respect of a decision binding upon the Lands Tribunal on this issue, the statutory interpretation being contended for by the appellants never having previously been tested. However, in Sharp the Tribunal decided the price should not reflect the £650,000 which the value of the tenants improvements contributed to the value of the freehold, and neither was any value attributed for the potential to carry out those improvements. Furthermore, in Norfolk the Tribunal started with the value of the improved house and then reduced it by the value of the improvements.
108. Mr Buchanan had been asked in cross-examination if he had ever previously approached the valuation of improvements in accordance with his approach in this case. In answer to this point, it was submitted that the correct statutory interpretation of (d) was not a matter of valuation expertise or experience. If the appellants are right, it matters, they said, nothing that valuation experts in other cases may have approached the matter in a different way. This case is also unusual in that the extent of improvements was such that the area of the house was more than doubled and extensive improvements were also carried out within the original envelope. The case brings into focus, in ways which previous cases have not, the question of how paragraph (d) operates where such extensive works have been undertaken. It is only in recent years that valuations for enfranchisement purposes, in the case of improved houses, have included value for improvement potential.
109. This, the appellants said, was amply illustrated in Shalson (relating to 98 Hamilton Terrace). In that case, which was upheld in the House of Lords, Mr Shalson's argument was that the conversion of his house from flats to a single house qualified as work of improvement falling within paragraph (d). For the purposes of that argument, the expert valuers were required to express their opinion on the increase in value caused by the conversion of the flats into a single house. For the respondent (the same as in this case – John Lyon's Charity) Mr Briant valued the house as if it were divided into flats. However, he emphasised the point that it was worth more as a house than as flats. Notwithstanding, he valued by reference to individual flat values and aggregated them to give a total.
110. He did not suggest that the aggregate value was too low because that value contained no uplift to reflect the potential to turn the flats into a more valuable single house. He had thus, in the appellants' submission, adopted the very approach that Mr Buchanan was using, and was being argued for in the instant case. Whilst it was not being suggested that Mr Briant's approach in Shalson meant he could not argue against that approach being used in this case, it does illustrate the nonsense of using what is alleged to have been previous valuation practise in order to solve questions of statutory interpretation that have not previously arisen in such acute form.
111. In response, the respondents submitted that the increase in value resulting from improvements did not affect the potential that existed before those improvements were carried out. The appellants were mistaken in deducting not only what they considered to be the value of the improvements, but the value of the potential as well. The value of the potential would be reflected in the freehold vacant possession value – the one part of the valuation that was market led. It was not correct to suggest that the interpretation of valuation assumptions under the Act was not a matter for valuers. They have the job of undertaking the whole valuation process, and their methodology had developed by convention over a considerable period of time. There was nothing wrong in valuing the property as if the improvements had not been made and, furthermore, the suggestion that this case was unusual was simply incorrect. Most of the high value properties in St John's Wood have been considerably improved by lessees and valuers are well used to dealing with the treatment of those improvements in reaching agreement as to price.
112. As to the comparables, the appellants pointed out that both valuation experts had agreed that if the first basis of valuation (as promulgated by Mr Buchanan) was correct, in order to arrive at the value of the improved 2000 house, 102 is the best comparable. It was sold in its improved state for £4,500,000 only 4 months after the valuation date. In analysing 102, Mr Buchanan had used blended rates but, if he had adopted Mr Briant's basis (of ignoring the swimming pool and incorporating the garages and covered way into the GIA), his freehold valuation would have been over £100,000 less. In the revised figures that Mr Briant produced on the second day of the hearing (before the second revision produced on the 3^rd day), it could be seen that his analysis, before adding on the site value of the extension potential, produced a sum of £2,688,335 for the 1927 house as improved. The equivalent figure from Mr Buchanan was £2,696,760 – virtually nothing between them.
113. Then, in getting to the unimproved value of the 1927 house, Mr Briant adopted a figure of £800,000 for the improvements (this, it was contended, was an adjustment to Mr Fattal's calculation of £730,000) and, after allowing for a small mathematical adjustment for the disputed small extensions, the resultant figure appeared to be £1,820,666. Mr Buchanan's estimate of the value of the improvements to the 1927 envelope was £1,150,000 which, if applied to his valuation on the first basis using the same area GIA figures as Mr Briant of 8,630 sq.ft. served to reduce his figure to of £1,479,879. Thus, it was the valuers' opinions of the value of the improvements that created the principal difference between them, and, if the first basis were to be found by the Tribunal to be correct, it would have to take a view on that. It was, of course, Mr Briant's subsequent addition of improvement or extension potential that was the main bone of contention.
114. In the appellant's view, Mr Briant's first revisions most closely resembled Mr Buchanan's approach and at that stage both valuers had agreed an adjustment of £300,000 to reflect 102's superior fixtures and fittings. However, Mr Briant's substantial volte face on the third day of the hearing converted that downwards adjustment to an upwards adjustment of £500,000 (a net change of £800,000) that happened to cancel out the £800,000 for the value of the improvements to the 1927 house that he had failed to allow for in his first valuation. For Mr Briant to only produce a valuation on Mr Buchanan's first basis during the hearing, despite the appellants requests for him to do so over a period approaching 2 years, and then to make such a huge last minute adjustment suggested, the appellants submitted, that it must be, at the least, unreliable. It beggared belief, the appellants said, that after all the months spent considering and reconsidering Mr Buchanan's suggested £300,000 downwards adjustment to allow for for 102s superior fixtures and fittings, and eventually accepting it, Mr Briant should then, on the third day of the hearing, suddenly decide that that should, in fact, be an upwards adjustment of £500,000. This, it was suggested, was an attempt to avoid the problem that had been caused by the fact that he had originally failed to allow a figure for the other improvements.
115. Finally, the appellants submitted that, pursuant to Rule 50(4) of the Lands Tribunal Rules 1996, if I find that Mr Buchanan's first basis of valuation is not the appropriate basis, but his second is, I should make alternative findings as to the freehold and leasehold values on the first basis. Similarly, if I find for the third basis, alternative valuations were sought on both the first and second bases.

CONCLUSIONS

116. The appellants' case raises two points of principle:

1. Whether development potential, including in particular, the value of any planning permission, is to be left out of account in valuing the house.

2. Whether the value of the house should be assessed by taking its improved value and then deducting the value of tenants' improvements.

The first is a matter of law, and the second was advanced as such in argument. I deal with these two issues first, before turning to the subsidiary issues referred to in para 7 above, and then the comparables and valuations.

117. Under section 9(1)(A), the price is to be determined subject to certain assumptions. It is assumption (d) that requires consideration:

"(d) on the assumption that the price be diminished by the extent to which the value of the house and premises has been increased by any improvement carried out by the tenant or his predecessors in title at their own expense."

118. The answer to point 1 depends upon the meaning of "improvements". Addressing himself to the provision in Shalson, Lord Hoffman said (at para17):

"17. In my opinion the language of section 9(1)(A)(d) is clear. A diminution in the open market value is to be allowed only by the extent to which that value has been increased by "any improvement" which has been carried out by the tenant or a predecessor at their own expense. For the tenant to secure a reduction, he must therefore, first, identify improvements which he or his predecessors have carried out at their own expense, and secondly, satisfy the tribunal that but for those improvements the house and premises would have been worth less.

18. The first of these two conditions requires consideration of any changes which have been made to the premises during the term of the lease, or the period which section 3(3) deems to have been the term of the lease. "Improvement" is a word of ancient lineage in the law of landlord and tenant and land law generally: see, for example, section 25 of the Settled Land Act 1882 (45 & 46 Vict c 38). In general terms it means additions or alterations to the house and premises which are not mere repairs or renewals: see Hague on Leasehold Enfranchisement, 3^rd ed (1999), para 9-30. It is important to bear in mind that an improvement is a physical and not an economic concept. It refers to the works themselves and not to the effect, if any, which they have upon the value of the premises….."

"19….What does it mean to say that the value of the house and premises has been increased by the improvement? In my opinion, it signifies a simple causal relationship: but for the improvement, the house and premises would have been worth less. The comparison is between the value of the house as it stands and what its value would have been if the improvement had not been made.

20. The hypothetical house envisaged by this comparison is in my opinion one which has all the features of the real house, including its history, save for one: that the improvement in question had not been made…."

119. It is clear from this that "improvements" relate to the works themselves – the physical changes that have been made to the property. Such economic benefits as may attach to the house from the grant of planning permission, or from its development potential are not improvements and therefore do not fall to be disregarded under the provision. Thus the arguments for valuations assessed on either Mr Buchanan's first or second bases cannot, in my judgment, be sustained in terms of his treatment of development potential or the exclusion of any value attributable to the fact that planning permission existed, as if it were a tenants' improvement. In its assumed unimproved state the house would have had the potential for improvement, and any planning permissions which would have been granted for such improvements would fall to be taken into account. The fact that planning permission had already been granted is plainly relevant. I do not accept the appellants' argument that because the permissions had been implemented, they have to be ignored.
120. As to point 2, the argument was advanced by the appellants that the words "that the price be diminished" required the valuer to start with the value of the house as improved, and then diminish it by the value of those improvements. The appellants said that their arguments on valuation methodology in this context had not previously been tested before the Tribunal or the courts, and in response to the question as to why it had not been, it was submitted that it was the subject of development value, that had only recently been included in enfranchisement valuations, that made it necessary for a precedent to be established. Just because a particular valuation practice had developed by convention over many years, the appellants said, did not make it right.
121. The suggestion that there was a statutory obligation restricting the valuer in his analysis to this basis, thus preventing him from considering unimproved comparables, is plainly wrong. What the valuer has to establish in order to apply the provision in (d) is "what its value would have been if the improvement had not been made" (see Lord Hoffman at Shalson para 19 above). How that value is established is clearly a matter of valuation, and the valuer is not constrained by law to adopt a particular method in doing so. Indeed both Mr Buchanan and Mr Briant admitted they adopt either method (described in evidence as valuing from the top-down, or from the bottom up) depending upon the circumstances, in enfranchisement valuations.
122. It seems to me that the appellants are simply trying to force an interpretation of the wording of (d) that imposes a restriction on how a valuer arrives at the open market value of the house. The difficulty, however, is that the deductions that are made, on a purely mathematical basis, may necessarily be somewhat arbitrary and there is the potential for ending up with a negative value. As the respondents pointed out, by Mr Buchanan's calculations ignoring any development potential, the subject property would have had a negative value at the valuation date. Mr Buchanan accepted in cross-examination that achieved sale prices of unmodernised properties include the value of any development potential. However, he sought, in his valuation performed by a method with which, it seemed to me, he was clearly uncomfortable, to exclude any such potential. In my judgment, both valuers should, at the outset, have been prepared to consider both bottom-up and top down approaches and, perhaps, if they had done so, and had been left to their own devices the considerable costs, effort and time that has been expended in trying to narrow the issues could have been substantially reduced.
123. In my view, the best evidence of the value that the house would have had if the improvements had not been made would come from recent sales of similar but unimproved houses in a similar location. The value could be assessed just by reference to those unimproved comparables and if the evidence is sufficiently good, no doubt it should be. But in circumstances where there are no, or insufficient, unimproved comparables from which a figure can be derived, there is nothing to stop the valuer resorting to the top-down basis, either as his primary method or as an additional method in his search for the right answer.
124. It follows that, in my judgment, the appellants' case fails on both of these two points, and I now turn to the subsidiary issues that are referred to in para 7(1-5) above. Firstly, in connection with the 1927 house, the appellants had commissioned a report from an architectural historian, whereas the respondents produced no evidence in support of their contentions as to the history of subject property. I found Mr Belcher's evidence helpful and convincing in respect of the likelihood as to whether or not the two small extensions amounting to 99 sq ft were in existence when the leases were granted, and I accept it. I therefore adopt Mr Buchanan's area of 3,834 sq ft. for the unimproved, unextended house. Encouraged by Mr Belcher's views, I conclude that there would have been basic internal facilities (including wcs and a bath) but the evidence as to whether or not the bath had its own room was less clear cut. It seems to me that the two extensions that were probably built very soon after the leases were completed were, due to their very small dimensions, almost certainly designed to house improved wc and bathroom facilities, more in keeping with a property in this area. It is conceivable, therefore, that there was only, as suggested by the respondents, a free standing bath but I do not think this has any material affect on the overall value.
125. As to off-street parking, I accept that there was almost certainly none (as indicated on the copy ordnance survey sheets relevant to the time) but that would not, in my view, have had any detrimental affect on value as there was ample room to provide driveways to each side of the house, and indeed, as subsequently occurred, a carriage drive.
126. In respect of the 2000 house, I look firstly at the treatment of the former external walls (on both east and west elevations) that are now enclosed by the extensions. Whilst I have some sympathy with the appellants' argument that if included, for the purposes of analysis, they become a rather expensive 'dead' and unusable area, there would be an anomaly if those areas were excluded because analyses of all the comparables included them. Although it was evident when I inspected the property that the external walls of the two recently constructed attached garages appear to be of single skin brickwork, if it was proposed to include them within the main accommodation and use them for residential purposes, it would not, in my view, be particularly difficult to convert them to more profitable use. It is common practise where there is adequate off-street parking (as there is here) for garages to be brought within the residential envelope, and particularly bearing in mind one of the garages is somewhat narrow for anything more than a small car, I do not think it appropriate to adopt, as Mr Buchanan has, spot values for the garages. For the same reason, I cannot accept Mr Buchanan's argument that the covered way between the left-hand garage and the house should be treated any differently.
127. Mr Buchanan admitted that he had not previously used his blended rate arguments relating to the treatment of the swimming pool complex and I accept Mr Briant's comment that it is not a conventional tool of analysis. They did, in my view, serve to unnecessarily complicate the analyses and I prefer Mr Briant's methodology in this regard. I also accept Mr Briant's arguments to include the changing and plant rooms as part of the main accommodation because, if the pool were not there, those rooms (which are within the envelope of the main house) would be used for other residential purposes. The overall area of the 2000 house I therefore take as 8,630 sq ft.
128. This leaves the question of whether some of the works undertaken within the original 1927 house should be treated as repairs or replacements rather than improvements. This turned out to be something of a non-point and, as Mr Briant did not provide any quantification and accepted that the affect on value would be minimal, in the overall scheme of things, I take all the works as tenants' improvements.
129. Before turning to the comparables and valuations, I need now to deal with the treatment of development value (and by that I mean the value attributable here to extension potential). The appellants argued that it was not right for Mr Briant to adopt the 'standing house' approach, as that was more appropriate for the valuation of cleared sites. However, it seems to me that that is not exactly what he has done. If he had, he would have taken 40% of the value of the whole property as improved (or gross value), but instead he sought to apply, in his revised valuations submitted during the hearing, that percentage only to the value of the extensions. In his view, a purchaser would attribute 40% of the value of the extensions to development potential, whereas Mr Buchanan said that, if development value was to be taken into account, it should be no more than 25% to reflect the additional costs associated with works of improvement and extension over new build (including the liability for VAT not applicable on new properties).
130. Whilst I consider it perfectly reasonable to adopt an approach that uses a percentage of the anticipated increase in value created by the extensions, I accept the appellants arguments in support of a lower percentage. The costs incurred in extending an existing property will undoubtedly be higher than if a building was being started from scratch, all the more so in a sensitive Conservation Area, and in my judgment, 25% does not, on the face of it, seem to be unreasonable.
131. The price that a purchaser will pay for an unmodernised, unimproved and unextended property will reflect what he sees as its potential for modernisation, improvement and extension, but will be no more and no less than he would have to pay for a similar property, along the road. The prices that have been achieved in the vicinity for comparable properties will have included, as Mr Buchanan admitted, development potential where any such potential existed.
132. I now turn to the comparables, and in my view 82, 90, 96 and 102 are the most appropriate. These are considered in relation to what was Mr Buchanan's third basis of valuation, and Mr Briant's principal approach. In his second basis, Mr Buchanan had adopted the approach that he had used under the first basis but then added £189,403 for the development potential on the premise that only 1,053 sq ft of additional living accommodation would be permitted. This included an allowance for the garages and a very nominal £10,000 for the swimming pool. I have no argument with his use of £662.50 per sq ft as his analysis of the value of the living accommodation – this figure being justified as a fair median in all the analyses that were carried out. However, as I have said, the development potential should be based upon what was actually achieved. This is what Mr Buchanan did on his third basis to give an overall value of the development potential (at his adopted 25%) of £556,159. Adding this to his opinion of the value excluding the development potential gave a figure for the freehold of the unimproved 1927 house of £2,146,184.
133. Mr Briant's revised valuation, produced on the second day of the hearing, based upon several unimproved comparables and upon analyses of the improved properties (102 and 97) appeared to support his contended for freehold unimproved value of the 1927 house at £3,500,000 (although he accepted the LVT's determination at £3,400,000). The valuation (based upon 102 and 97) that resulted from his attempt to replicate Mr Buchanan's first basis produced a figure for the improved value of the 1927 house that was remarkably close to Mr Buchanan's.
134. However, as became apparent during cross-examination, he had failed to take into account the value of the improvements to the original envelope of the 1927 house in his analysis. He admitted this in producing, on the third day, a substantially re-worked analysis of 102. Whilst that showed an allowance of £800,000 for those improvements, it also included a substantial change (also amounting to £800,000) to allow for his "change of mind" overnight regarding the differences in layout (family friendliness) and opulence of fixtures and fittings between the subject property and 102. One figure, therefore, effectively cancelled out the other (although, by using a different methodology his valuation of the freehold unimproved house dropped by £200,000) but this, he said, was an insufficient difference to warrant a change that would suggest the LVT's figure of £3,400,000 was no longer appropriate as his initial valuation had been £3.7 million and was now between £3.3 and £3.5 million (based on analyses of 102 and 97 respectively).
135. The appellants said the new analysis lacks credibility and should be ignored. Mr Briant's analysis produced on the second day bore more resemblance to Mr Buchanan's and should, they said, be preferred. I agree. It is a fact that, after the experts had approached the valuation exercise in this case on diametrically opposed bases, Mr Briant eventually, in his third witness statement, attempted to provide a valuation by Mr Buchanan's preferred method. However, this was amended on the second day of the hearing to allow for the recent agreement on areas and at that stage, before adding his estimate of the value of development potential, the valuers were not far apart concerning the value of the 1927 house as improved.
136. The amendments produced on the third day are illuminating. Firstly, it appears that, at last, Mr Briant had realised that he had made no allowance for the value of improvements to the original envelope despite that fact having been pointed out by the appellants many months previously, and therefore deducted a figure of £800,000 rather than, as Mr Buchanan had done, £1,150,000 to take the improved 1927 value back to its unimproved figure (before adding for development potential). I have to form a view on this point as to what the appropriate figure should be, because both valuers admitted that their estimates were not arrived at scientifically. I was not persuaded by Mr Buchanan's rather circular way of valuing the improvements (his method of arriving at a figure of £206 per sq ft), neither was I convinced by Mr Briant's figure which, as was pointed out in cross-examination, would have broken back to £570,000 at the time the works were carried out when Mr Fattal, in fact, spent in the region of £730,000. Especially in a rapidly rising market, I do not think that the type and standard of improvements that the claimants actually effected would be worth less than they cost. Doing the best I can, I adopt a midway figure of £1,000,000.
137. If it had been left there, it would not be too difficult to analyse the two experts' top down valuations, but Mr Briant then made a net £800,000 adjustment because of his change of mind over the quality of fixtures and fittings as between 81 and 102. This I find extraordinary bearing in mind the earlier agreement of £300,000 for 102s better standard. I find I can give no weight to the last minute suggestions regarding the glitzy opulence of the fixtures and fittings, and the unusual layout at 102. Mr Briant had ample time to consider these points and, as I have said, he had previously agreed a figure with Mr Buchanan. I therefore need to compare Mr Briant's second day analysis with Mr Buchanan's valuation based on 102.
138. As I have said, in adjusting for size, a figure of £662.50 per sq ft appears appropriate looking at the comparables in the round. However, in valuing the extensions, Mr Briant uses £683 per sq ft (the pool area being ignored) and I can see no justification for using a higher figure. Mr Buchanan also uses £662.50 for this adjustment as far as the main accommodation is concerned although by the time he has arrived at a blended rate (which I do not accept) this becomes £500 per sq ft, having allowed 50% for the pool complex and spot values for the garages. On balance, I consider it appropriate to use the same rate of £662.50per sq ft for the extensions, including the garages, covered way and changing/plant rooms, but ignoring the pool.
139. I accept Mr Buchanan's figures for the increased value of the garden and forecourt at 81 in the sum of £200,000 and think that Mr Briant's £50,000 is too low. As to the calculation of development value I prefer Mr Buchanan's figure of 25% of the value of the extensions, rather than Mr Briant's 40%. His reasoning as to why Mr Briant's percentage is too high seems to me to be altogether reasonable.
140. On the basis of these findings, a valuation of the subject property by comparison with the principal improved comparable, 102, becomes:

Sale price of 102 Hamilton Terrace	£4,500,000
Less for rise in market	£ (225,000)
	£4,275,000
Less for 102's better fixtures and fittings	£(300,000)
	£3,975,000
Adjust for size (8,630 – 6,000) = 2,630 sq ft @ £662.50	£1,742,375
Add for larger garden and forecourt at 81	£ 200,000
Improved, extended value of 81 (2000 house)	£5,917,375
Less value of extensions (8,630 – 3,834) = 4,796 sq ft @ £662.50	£3,117,350
Value of 1927 house, improved	£2,800,025
Less value of other improvements	£1,000,000
Value of 1927 house, unimproved, excluding development potential	£1,800,025
Add development potential at 25% of value of extensions	£ 779,337
	£2,579,362
Value of 1927 house, unimproved, including development potential, say	£2,580,000

141. This valuation is arrived at by analysing, and taking a view, as to the evidence before me relating to what was agreed to be the most appropriate improved comparable (the top-down basis). However, as I said when dealing with the legal issues above, where there is good evidence of unimproved comparables, that is to be preferred.
142. I do think that 96 Hamilton Terrace is a helpful comparable (as did the LVT). It was sold within 1 month of the valuation date, and although 20% larger than 81 and converted for occupation as flats, offered much the same potential. I fail to see the relevance of the appellants' arguments that Mr Briant had not attributed any value to the potential to increase the value by converting the property to a house. In my judgment, a prospective purchaser of a property in St John's Wood offering potential for substantial improvement and extension would not be detracted by the fact that one was used as flats and the other was a totally unmodernised house. Looking at Mr Briant's analysis I take the 'as built' column as appropriate because, in my view, a prospective purchaser would probably have recognised the additional potential, over and above that which was permitted under the then extant planning permission. Adjusting the development potential to 25% as above, the valuation of 81 becomes (on the basis of 96):

Sale price of 96 Hamilton Terrace	£ 3,100,000
Less for size 3,834 sq ft of 81
4,704 + (25%(8,000 – 4,704)) = 5,528 sq ft 96	£ (949,964)
	£2,150,036
Add for larger garden at 81	£ 200,000
	£2,350,036
Add for site value of extension potential at 81
£2,350,036/3,834 ((8,630 – 3,834) x 25%	£ 734,922
Value of 81 by comparison with 96	£ 3,084,958
Say	£3,085,000

143. It will be seen from this calculation that I accept the LVTs' increased value for the larger garden, outlook and privacy at 81.
144. I now consider 90. Mr Buchanan said in re-examination that if he had been relying upon unimproved comparables, this would have been his first choice. Undertaking the same exercise as above gives a figure of £2,600,000. This is based upon Mr Briant's calculations, accepting his allowances for lack of rights under the Act and adjustments for leasehold to freehold values gives a figure of £2,600,000. However, I have adjusted the allowance for the better garden at 81 from £50,000 to £100,000 and have ignored Mr Briant's adjustments of £100,000 for 81's fixtures and fittings because I accept the appellants arguments that 90 had many of the features when it was sold, that the improved 81 had. The valuation is thus:

Sale price of 90 Hamilton Terrace	£ 3,000,000
Less for rights under the Act (5%)	£ (150,000)
Adjust to nominal rent	£ 173,670
	£ 3,023,670
Adjust to freehold from graph	0.92
	£ 3,286,598
Add for rise in market	£ 657,320
Add for 81s larger garden etc	*£ 100,000
	£ 4,043,918
Less for size (90 as built)
3,834 sq ft (81) 7,000 + ((9,500 – 7,000) @ 25%)	£ 2,157,946
	£ 1,885,972
Add for site value of extension potential at 81
£1,885,972/3,834 ((8,630 – 3,834) @ 25%)	£ 589,788
	£2,475,760
Say	£2,475,000

* This allows for the larger garden at 81, but acknowledges that 90 had extensive off-street parking and a wide plot.

145. I now turn to 82. This is not the best comparable, and I accept it had little if any extension potential. However, it is extremely close to the subject property, is a similar size (to the 1927 house) and was sold unmodernised. Using the same parameters as 90 regarding the allowance for the larger garden at 81 (82 also had off-street parking) the figures become:

Sale price of 82 Hamilton Terrace	£ 3,150,000
Add cost to acquire freehold	£ 30,000
Less rise in market	£ (238,500)
Less for size 3,834 sq ft (81) 5,155 sq ft (82)	£ (753,907)
	£ 2,187,593
Add for larger garden, 81	£ 100,000
	£ 2,287,593
Add site value of extension potential at 81
£2,287,593/3,834 ((8,630 – 3,834) x 25%)	£ 715,275
	£3,002,868
Say	£3,000,000

146. These four properties (82, 90, 96 and 102) were, in my view, the best comparables. On the top down basis we arrive at figure for 81 of £2,580,000 and on the basis of the unimproved comparables, between £2,475,000 and £3,085,000. At this point, the valuer will use his judgement to arrive at an appropriate valuation. In my judgment, as I have said, the unimproved comparables are the principal ones to be considered, and a figure between the three, at £2,750,000 to my mind reflects a fair value whereas Mr Buchanan's figures, on his first and second bases at £1.59 million or £1.78 million respectively were clearly considerably understated. The figure based upon 102 falls within the range. Simply looking at 96 on its own – a slightly larger property that had slightly less (extension) potential than 81, even if it had, as suggested by Mr Buchanan, been sold at a price that was on the high side, it should have alerted him to the fact that 81 could not possibly be worth (on his first basis) a little over half what 96 sold for.
147. I am satisfied that, 'standing back' from the mathematical analyses (and the four examples above prove that such calculations do not produce a finite answer), and looking at the evidence in the round, the figure that I have arrived at for 81 fairly reflects its open market value at the valuation date, disregarding the value of tenant' improvements. I therefore determine the freehold, unimproved value of 81 Hamilton Terrace at £2,750,000 and turn now to the leasehold value. There is, in my opinion, no justification whatsoever for Mr Briant to adopt a figure of 21% when it is his own firm's graph which supports 25%. Indeed, on the analysis of 90 Hamilton Terrace, Mr Briant simply used the graph, and I see no reason for him to depart from that for 81. On the basis of a value for the remaining leasehold interest at 25% of the freehold, I determine this at £687,500.
148. Taking the capitalisation and deferment rates at the agreed figures, and marriage value being shared equally between the landlord and tenant, the price for enfranchisement becomes £1,941,655 [see Tribunal's valuation at Appendix 5]. It follows that I consider the LVT was wrong in its determination, but this was a re-hearing and the parties agreed that there was considerably more evidence before me than had been before the LVT. I do not, therefore, criticise the LVT for coming to the conclusion that it did. Indeed, it seems to me that they took a very pragmatic and simple approach in arriving at their conclusions.
149. This just leaves my alternative valuation under rule 50(4) of the Lands Tribunal rules 1996. If I had accepted the appellants' valuation on the first basis, the freehold unimproved value would have been £2,750,000 less £794,337 (4,796 sq ft @ £662.50 x 25%) = £1,955,663 – say £1,950,000. However, I stress that such a figure is so clearly out of line with the comparables that it could not, by any stretch of the imagination, be taken as the freehold open market value of the unimproved property at the valuation date. The enfranchisement price would have been £1,376,855.
150. Had I accepted the appellants' second basis (anticipated development potential for only 1,500 sq ft) the freehold unimproved value would have been £2,750,000 less £248,437 (1,500 sq ft @ £662.50 x 25%) = £2,501,563 – say £2,500,000. The enfranchisement price would have been £1,765,155.
151. This concludes my decision on the substantive issues in this appeal, and I determine the enfranchisement price for the freehold interest in 81 Hamilton Terrace, London, NW8 in the sum of £1,941,655. This decision will take effect when the question of costs has been resolved, and a letter is enclosed setting out the procedure for written submissions on costs.

DATED 5 December 2003

(Signed) P R Francis FRICS

ADDENDUM ON COSTS

152. Submissions on costs have been received from the parties. The appellants pointed out that the enfranchisement price determined by the Tribunal was some £527,000 less than that decided by the LVT. At £1,941,655 the determination was also over £308,000 lower than the sealed offer that had been made by the respondents in May 2003, and as a result the appeal had entirely succeeded and it was appropriate for the appellants to have all their costs of the appeal.
153. They gave 6 reasons why no variation from such an order should be made to reflect the fact that they had not succeeded in their legal arguments on valuation methodology or the treatment of development value. It was reasonable, they said, for those arguments to have been raised and, in terms of the overall time involved in that aspect, including writing the decision, comparatively little was involved. Time at the hearing was saved, they said, due to the fact that the legal issues were principally dealt with in written submission and the expert valuers were not cross-examined upon them.
154. Whatever the outcome of the legal arguments on Mr Buchanan's valuations 1 and 2, the appellants submitted that the evidence upon which they were based was the key which unlocked the analysis of 102, and provided crucial input to the valuation (valuation 3) that was finally adopted.
155. The respondent submitted that, in the circumstances of this case, it would be correct to order that each party should bear their own costs. Not only were the appellants' legal arguments novel but the case before the Lands Tribunal was substantially different to the one advanced before the LVT. The Tribunal has held that where an appellant puts forward a new or substantially different case before it, it should not be awarded its costs, even if successful on the appeal – see Sinclair Gardens Investments (Kensington) Ltd v Franks (1997) 76 P & CR 230 and Cadogan Estates v Shahgoli [1999] 1 EGLR 189.
156. Even if I do not find in the respondent's favour on this point, they said, I should take account of the fact that the enfranchisement price determined was over £800,000 more than the figure sought by the appellant in its principal case (valuation 1) and some £300,000 closer to that contended for by the respondents (i.e. that set by the LVT and thus, in that sense, the respondents had succeeded to a greater extent). It could also be argued, they said, that the appellants' claim was exaggerated. Furthermore, the appellants had insisted upon producing a trial bundle running to 6 lever arch files and over 2000 pages, much of which was considered unnecessary and was not even referred to at the hearing. They had also employed two counsel to the respondent's one, and it was considered inequitable that the respondents should have to pick up such costs.
157. In response, the appellants pointed out that the normal rule is that costs should follow the event and that the case, in terms of facts and valuation (on the third basis) is what they succeeded upon. It was the third basis of valuation that the LVT had adopted and, before me, the comparables referred to and the witnesses were the same. They said that the claim was not exaggerated – the appellant, on the third basis of valuation (in the alternative to its principal basis) sought £1.5 million, the respondents sought £2.5 million and the Tribunal determined £1.95 million; those figures spoke for themselves.
158. I accept the appellants' submissions in their entirety. They were the successful party (to a considerable degree) and whilst it is a fact that they did not succeed on the legal arguments, I am not satisfied that there is sufficient merit in the respondents' argument to support any reduction in their costs liability. Indeed, even if there were, any such arguments are, in my view, countered by the additional time that was taken up at the hearing, in the production of the closing submissions and responses and in decision writing time, by the complications caused by Mr Briant's various last minute revisions to his valuations.
159. I therefore determine that the respondents shall pay the appellants' costs of this appeal, such costs to be subject to a detailed assessment by the Registrar if they are not agreed.

DATED 14 January 2004

(Signed) P R Francis FRICS

APPENDIX 1

G BUCHANAN VALUATION I – FIRST BASIS

THE LEASEHOLD REFORM ACT 1967 (AS AMENDED)

DATE:	1 September 2003
PROPERTY:	81 Hamilton Terrace , London NW8
VALUATION DATE:	31 August 2000
LEASE DETAILS	(2 Leases)
DATE	09/12/1927 and 06/03/1928
TERM	80 years from 29/09/1927
EXPIRY DATE	28/09/2007
UNEXPIRED TERM	7.07 years
GROUND RENT	£55 p.a.
VALUES	UNIMPROVED
FHVP	£1,590,025
UNEXPIRED TERM	£397,506
LESSEE'S
IMPROVEMENTS
VALUE OF FREEHOLD PRESENT INTEREST
TERM	GROUND RENT	£55 p.a.
	x YP 7.07 years 6% 5.63	_________	£310
REVERSION	FHVP (less improvements)	£1,590,025
	x PV 7.07 years 6% .662	_________	£1,052,596
	Lessors interest	£1,025,906	£1,025,906
MARRIAGE VALUE
	FHVP (less improvements)	£1,590,025
Less
	Lessor's Present Interest	£1,052,906
	Lessee's Interest (less improvements)	£ 397,506
		_________
Marriage Value		£ 139,613
	50% Marriage Value	£ 69,806	£ 69,806
		TOTAL	£1,122,712

APPENDIX 2

G BUCHANAN VALUATION II – SECOND BASIS

THE LEASEHOLD REFORM ACT 1967 (AS AMENDED)

DATE:	1 September 2003
PROPERTY:	81 Hamilton Terrace , London NW8
VALUATION DATE:	31 August 2000
LEASE DETAILS	(2 Leases)
DATE	09/12/1927 and 06/03/1928
TERM	80 years from 29/09/1927
EXPIRY DATE	28/09/2007
UNEXPIRED TERM	7.1 years
GROUND RENT	£55 p.a.
VALUES	UNIMPROVED
FHVP	£1,779,428
UNEXPIRED TERM	£444,857
LESSEE'S
IMPROVEMENTS
VALUE OF FREEHOLD PRESENT INTEREST
TERM	GROUND RENT	£55 p.a.
	x YP 7.1 years 6% 5.63	_________	£310
REVERSION	FHVP (less improvements)	£1,779,428
	x PV 7.1 years 6% .662	_________	£1,177,981
	Lessors interest	£1,178,291	£1,178,291
MARRIAGE VALUE
	FHVP (less improvements)	£1,779,428
Less
	Lessor's Present Interest	£1,178,291
	Lessee's Interest (less improvements)	£ 444,857
		_________
Marriage Value		£ 156,280
	50% Marriage Value	£ 78,140	£ 78,140
		TOTAL	£1,256,431

APPENDIX 3

G BUCHANAN VALUATION III – THIRD BASIS

THE LEASEHOLD REFORM ACT 1967 (AS AMENDED)

DATE:	1 September 2003
PROPERTY:	81 Hamilton Terrace , London NW8
VALUATION DATE:	31 August 2000
LEASE DETAILS	(2 Leases)
DATE	09/12/1927 and 06/03/1928
TERM	80 years from 29/09/1927
EXPIRY DATE	28/09/2007
UNEXPIRED TERM	7.07 years
GROUND RENT	£55 p.a.
VALUES	UNIMPROVED
FHVP	£2,146,184
UNEXPIRED TERM	£536,546
LESSEE'S
IMPROVEMENTS
VALUE OF FREEHOLD PRESENT INTEREST
TERM	GROUND RENT	£55 p.a.
	x YP 7.07 years 6% 5.63	_________	£310
REVERSION	FHVP (less improvements)	£2,146,184
	x PV 7.07 years 6% .662	_________	£1,420,773
	Lessors interest	£1,421,083	£1,421,083
MARRIAGE VALUE
	FHVP (less improvements)	£2,146,184
Less
	Lessor's Present Interest	£1,421,083
	Lessee's Interest (less improvements)	£ 536,546
		_________
Marriage Value		£ 188,555
	50% Marriage Value	£ 94,277	£ 94,277
		TOTAL	£1,515,360

APPENDIX 4

J BRIANT'S VALUATION BEFORE LEASEHOLD VALUATION TRIBUNAL

THE LEASEHOLD REFORM ACT 1967 (AS AMENDED)

DATE:	15 November 2001
PROPERTY:	81 Hamilton Terrace , London NW8
VALUATION DATE:	31 August 2000
LEASE DETAILS	57	57A
DATE	09/12/1927	06/03/1928
TERM	80 years	80 years	80 years
EXPIRY DATE	28/09/2007	28/09/2007
UNEXPIRED TERM	7.07 years	7.07 years
GROUND RENT	£50 p.a.	£50
VALUES	UNIMPROVED
FHVP	£3,500,000
UNEXPIRED TERM	£735,000 21%
VALUE OF FREEHOLD'S PRESENT INTEREST
TERM	GROUND RENT	£ 55 p.a.
	x YP 7.07 years @ 6.00%	5.6305	£310
REVERSION	FHVP (unimproved)	£3,500,000
	x PV 7.07 years @ 6.00%	0.6622
			£2,317,603
	Lessor's interest	£2,317,912	£2,317,912
MARRIAGE VALUE
	FHVP (less improvements)	£3,500,000
Less
	Freeholder's Present Interest	£2,317,912
	Lessees' Interest unimproved	£ 735,000
		_________
Marriage Value		£ 447,088
	Take 50% Marriage Value	£ 223,544	£ 223,544
ENFRANCHISEMENT PRICE		£2,541,455	£2,541,455

APPENDIX 5

81 Hamilton Terrace

London

NW8

LANDS TRIBUNAL VALUATION

Value of freeholder's present interest
TERM	Ground Rent	£            55
	YP 7.07 years @ 6%	5.63	£          310
REVERSION	Freehold VP Value (unimproved)	£2,750,000
	PV of £1 for 7 years @ 6%	0.662
			£1,820,500
	Value of Freeholder's interest	£1,820,810	£1,820,810
Marriage Value
	Freehold VP Value (unimproved)	£2,750,000
Less	Freeholder's present interest	£1,820,810
	Lessees' interest (unimproved)	£687,500
Marriage Value		£    241,690
	50% Marriage Value		£ 120,845
	Enfranchisement Price	£1,941,655	£1,941,655