England and Wales Lands Tribunal

Malec & Ors v City of Westminster [2004] EWLands ACQ_37_2001 (11 April 2005)

ACQ/37/2001

LANDS TRIBUNAL ACT 1949

COMPENSATION – compulsory purchase – valuation – freehold house subject to equitable interest and charges – compensation assessed for separate interests

IN THE MATTER OF A NOTICE OF REFERENCE

BETWEEN BOZENA MALEC (1)

LECH JAREMKO (2) Claimants

MOHAMMED ASHRAF QURESHI (3)

and

THE LORD MAYOR AND CITIZENS

OF THE CITY OF WESTMINSTER Respondent

Re: 71 Elgin Avenue

London W9

Before: The President and Mr N J Rose FRICS

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

on 21 March 2005

Appearances: Alexander Khan and Shelley White instructed by Edwards, solicitors of Melton Mowbray, for the first and second claimants.

Annette B Prand instructed by J R Jones for Ms Asma Ilyas and Mr Sajad Ilyas, children of the deceased third claimant.

Barry Denyer-Green instructed by the Director of Legal and Administrative Services, City of Westminster, for the acquiring authority.

The following case is referred to in this decision:

Martin v London Chatham and Dover Railway Co (1866) 1 Ch App 501

The following cases were referred to in argument:

Corrie v MacDermott [1914] AC 1056

DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852

Oppenheimer v Minister of Transport [1942] KB 242

Pinekerry Ltd v Needs (Kenneth) (Contractors) Ltd (1992) 64 P & CR 245

Saunders v Vautier (1841) 4 Beav 115


 


DECISION

The reference

This reference, made by the acquiring authority on 6 March 2001, arises from the City of Westminster (71 Elgin Avenue, W9) Compulsory Purchase Order 1999, which was made under powers contained in section 17 of the Housing Act 1985 and was confirmed by the Secretary of State for the Environment, Transport and the Regions on 20 August 1999. The acquiring authority made a general vesting declaration on 14 January 2000 vesting title in them on 18 February 2000, which accordingly is the valuation date. The property is a four-storey terrace house, divided into flats, one of which, on the lower ground floor, was, at vesting, subject to a protected tenancy.

Background

At the vesting date the registered proprietors of the subject property were Lech Jaremko and Bozena Malec, who held the beneficial interest in equal shares. On 18 March 1999 the former had been appointed the personal representative of Jan Malec, who died on 7 October 1998. There was, however, a dispute about the ownership of the property. On 27 October 1986 Jan Malec had agreed to sell the property to the third claimant, Mohammed Ashraf Qureshi, for £150,000. Mr Qureshi paid £90,000, leaving £60,000 outstanding. This £60,000 was the subject of a further agreement on 8 January 1987, the terms of which became the subject of dispute. Jan Malec's contention was that the agreement provided that Mr Qureshi would give a charge on the property as security with interest on the principal at 16%. Mr Qureshi entered into possession, but the transfer to him was not registered. In 1990 Jan Malec began proceedings in the Chancery Division, claiming, among other relief, a declaration that the alleged legal charge had been executed and repayment of the £60,000 with outstanding interest. Mr Qureshi counterclaimed seeking an order that Jan Malec should register the property in Mr Qureshi's name. Other relief that he sought included damages for the alleged failure of Jan Malec to repay a Westminster City Council grant of £28,800 plus interest and orders requiring him to procure the vacation of the basement flat and the second floor flat at the property.

The High Court proceedings remained unresolved at the time of the CPO and vesting declaration, and they remain unresolved to this day. The acquiring authority made the CPO in order to ensure that works were carried out to provide proper living conditions in the flats. Because of the long-running ownership dispute the necessary repairs had not been carried out. Following a claim for compensation made on behalf of the first and second claimants on 6 December 2000 in the sum of £1.1m, the acquiring authority on 6 March 2001 made reference to this Tribunal, referring to a claim value of £600,000. Mr Qureshi applied to be joined as a claimant and on 13 March 2002 the Tribunal ordered that he should be joined.

Expert reports of Mr G R Hunt MRICS, the acquiring authority's valuation witness had been served and filed on 7 August 2001 and 14 January 2002, and copies of these were sent to Mr Qureshi on 2 April 2002. On 8 October 2002 the Registrar held a pre-trial review. Mr Qureshi did not attend. The Registrar ordered that the first claimant should provide a statement setting out the steps she had taken to revive the dormant litigation on ownership of the house. Further directions were given on 6 January 2003. A further report by Mr Hunt was filed and served on 17 February 2003. Mr Qureshi asked for an extension of time for the service of evidence and on 17 April 2003 the President made an order extending time but subject to an order that would debar him from calling expert evidence. The case was set down for hearing on 22 September 2003.

The claimants were not ready to proceed at the hearing. A Mr Hirani had on 12 September 2003 said that he would act for Mr Qureshi but would need time to prepare. On 17 September 2003 the acquiring authority had received notice of acting from Edwards, solicitors for the first and second claimants. On 19 September 2003 a report by Mr M D L Green BSc MRICS was filed and served on behalf of the first and second claimants. He valued the property at £660,000. At that stage there was no material before the Tribunal that would have enabled the question of ownership to be resolved for the purpose of determining what compensation should be awarded to the respective claimants, and the President adjourned the hearing with directions for the disclosure of documents of title.

On 16 December 2003 Mr Qureshi was adjudged bankrupt. On 15 February 2004 he died. Probate has yet to be granted. At the hearing we heard submissions from Ms Annette Prand on behalf of two of Mr Qureshi's children, Ms Asma Uyas and Mr Sajad Uyas, whose intention it was, we were told, to be appointed, with the agreement of Mr Qureshi's family, as personal representatives of his estate. The Trustee in Bankruptcy had also, shortly before the hearing, become aware of the proceedings, and we heard from Mr Gary Turner of the Official Receiver's office, that the Trustee in Bankruptcy, in whom any compensation would vest, was happy for the proceedings to be brought to a conclusion.

On the afternoon of the last working day before the hearing, Edwards, the solicitors for the first and second claimants, faxed a letter to the Registrar in which they referred to the recent appointment of a representative of Mr Qureshi's family and to the handling of his estate by the Trustee in Bankruptcy and submitted that the matter should go to ADR. They requested that the hearing be vacated. They were told, by a telephone call from the Tribunal in response, that the hearing would not be vacated, and if they wished to apply for an adjournment that would have to be done at the hearing. Miss Shelley White appeared on behalf of the first and second claimants at the hearing. She said that she had no instructions other than to apply for an adjournment. She said that her clients would not be ready to proceed until after Easter and that it would be unfair for the hearing to go ahead in their absence. We refused an adjournment.

At what should have been the conclusion of the hearing, by which time we had heard the evidence on behalf of the acquiring authority and the submissions of Ms Prand and those of Mr Barry Denyer-Green on behalf of the acquiring authority, Miss White said that she was instructed to ask that counsel for the first and second claimants should be allowed to make submissions the following morning. We decided to agree to this, on the basis that the acquiring authority's costs of the adjourned hearing should be paid by the first and second claimants in any event. When Mr Alexander Khan came to make his submissions for them on the next day, we said that the need for the second day's hearing was entirely due to Edwards' failure to provide substantive representation on the first day and that, although we had no power to order Edwards to pay the costs we had awarded, we considered it appropriate that they should do so.

In the event Mr Khan said that he did not dispute the submissions made by Mr Denyer-Green on behalf of the acquiring authority. Miss Prand also accepted Mr Denyer-Green's analysis of the parties' respective interests, and her submissions were confined to certain matters of quantum, to which we will refer later. In view of this agreement we can deal shortly with the question of the legal relations between the parties and the interests that have resulted. We express our gratitude to Mr Denyer-Green for his analysis on the basis of the very extensive, although incomplete, documentation provided by the claimants following the order made on 22 September 2003.

We accept that the position is as agreed. On 27 October 1986 Jan Malec agreed to sell the property to Mr Qureshi for £150,000. Mr Qureshi paid £90,000, leaving £60,000 outstanding. The transfer was not registered, so that under section 123(1) of the Land Registration Act 1925 the transaction became void in relation to the conveyance. The effect of the failure to register was to make Mr Qureshi beneficial owner in equity with Jan Malec and his wife, the registered proprietors, holding the legal estate as bare trustees pending any registration of the transfer. On 8 January 1987 the parties agreed that Mr Qureshi would give Jan Malec a charge on the property as security for the £60,000 at 16% interest and that Jan Malec would repay the council an unredeemed charge on the property of £28,800. The £60,000 has not been repaid and interest is outstanding on it. The £28,800 has not been repaid and interest is outstanding on that.

Interests in the land acquired

The acquiring authority acquired the interests in the subject land using the vesting declaration procedure. Despite the dispute as to ownership, therefore, those interests have vested in them. Under section 7 of the Compulsory Purchase (Vesting Declarations) Act 1981 the provisions of the Land Compensation Act 1961 and the Compulsory Purchase Act 1965 apply as if notice to treat had been served on every person on whom, under section 5 of the 1965 Act, the acquiring authority could have served such notice. Section 5(1) of the 1965 Act requires the acquiring authority to give notice to treat "to all the persons interested in, or having power to sell and convey or release, the land, so far as known to the acquiring authority after making diligent inquiry". A person with an equitable interest in the land is entitled to notice to treat (see Martin v London Chatham and Dover Railway Co (1866) 1 Ch App 501 per Lord Cranworth LC at 505-506, referring to the predecessor provision of section 5(1), section 18 of the Lands Clauses Consolidation Act 1845), and the same would apply to a legal mortgage or charge.

The claimants are entitled to compensation under section 10(1) of the Compulsory Purchase (Vesting Declarations) Act 1981 as if possession had been taken under section 11(1) of the Compulsory Purchase Act 1965. On the basis of the legal position of the parties as set out above the estate of Mr Qureshi is entitled to compensation consisting of the open market value of the house subject to the tenancy of the lower ground floor flat less the £60,000 and the unpaid interest at 16% on that amount. Although Miss Prand submitted that we should, as a matter of discretion, make an award based on a lower rate of interest, we have no discretion to do so. What we have to determine is the amount that would have been payable on redemption, and we have nothing before us to suggest that something less than the contractual rate would have been payable. The first and second claimants are entitled to compensation in the sum of £60,000 plus accumulated simple interest at 16% per annum since 8 January 1987 but minus the £28,800 charge arising from the housing grant and simple interest at 12.625% per annum since 2 July 1985. The outstanding question is the value of the subject property, and we now turn to this.

The subject property

The subject property is a mid-terraced building. It was constructed, probably in the early 20^th century, on lower ground, raised ground and two upper floors, although an additional floor was subsequently created within the main roof space. The external walls are of solid brickwork and the roof is partly flat and partly pitched, the latter covered with concrete tiles at the front and artificial slates at the rear. The floors are of suspended timber construction throughout, except for the lower ground floor which has a solid floor. The main entrance to the property is at the front approached via a short flight of steps. This entrance gives access to all floors except the lower ground floor, which has its own entrance door approached by a short flight of steps leading down from the small front garden.

On 24 February 1983 planning permission was granted for the conversion of the property "to five self-contained flats, including the addition of new third floor." This consent was implemented in about 1983. Subsequently, but prior to the valuation date, each flat apart from that on the lower ground floor was altered to provide two separate self-contained one bedroom flats, although the third floor flat contained a studio flat within its front portion. At the valuation date these latter works were incomplete. The flats were in need of comprehensive refurbishment and re-conversion in accordance with the 1983 planning permission. The gross internal floor areas were as follows:

3rd floor	653 sq ft
2nd floor	612 sq ft
1st floor	608 sq ft
Raised ground floor	649 sq ft
Lower ground floor	700 sq ft

At the valuation date the property was vacant, apart from the lower ground floor, which was subject to a protected tenancy to Mr and Mrs Martinez.

Valuation

Mr G R Hunt is an equity partner in The Bowen Partnership, chartered surveyors, based at his firm's office in Whetstone, London N.20. His three expert reports each reflected the latest information available on the ownership of the freehold interest. His second supplementary report was dated 14 February 2003. At that stage he assumed that there had been a contract in January 1987 to sell the subject property to Mr Qureshi and that the only sum which Mr Qureshi would have to pay to complete the contract was £60,000.

On the assumption that the 1987 contract remained enforceable on the valuation date, Mr Hunt considered that the value of the first and second claimants' interest at that date was £54,000, being the outstanding balance less an allowance of 10% to reflect the risk and costs involved in obtaining that sum. His valuation of the third claimant's interest was £486,000. This was arrived at by deducting the balance of the contract price from the value of the freehold interest subject only to the single protected tenancy, which value he assessed at £600,000. From the balance of £540,000 he deducted 10% to reflect risk and the costs of securing title, producing a value of £486,000. Mr Hunt pointed out that his valuations made no allowance for any accumulated interest which might be payable, and that such sums would be substantial in view of the number of years involved.

We state firstly our conclusions regarding the interest of the first and second claimants. We have found that they were entitled to receive the outstanding balance of the sale price – £60,000 – plus accumulated simple interest at 16% per annum since 8 January 1987. Following the hearing Miss Prand calculated such interest at £125,845. The other parties have not expressed disagreement with this calculation and we adopt it. The value of the first two claimants' interests is therefore £185,845. As we have said, from that sum, the first two claimants are obliged to repay to the acquiring authority £28,800 in respect of the housing grant, together with interest at 12.625% per annum since 2 July 1985. Miss Prand calculated such interest at £53,186 and this calculation has not been questioned by the other parties.

We do not consider it is necessary to adjust the value of the first two claimants' interest to reflect risk. Mr Hunt explained that his allowance of 10% was based on the convention which is adopted when a part interest in a property is valued in isolation. In such a case the purchaser would require a discount to reflect the fact that full control of the property would not be available. No such consideration arises in this reference, where the entire freehold interest is deemed to be disposed of to a single purchaser, who will assume full control of the asset.

In order to calculate the value of Mr Qureshi's interest, it is firstly necessary to assess the value of the freehold interest, unencumbered apart from the single protected tenancy. Mr Hunt's valuation of £600,000 was based on the assumption that the subject property would have been purchased by a developer or investor, or possibly by a housing association, who would refurbish the property, convert it into the five two-bedroom flats which had been permitted by the local planning authority and then sell the individual flats on the basis of new long leases, or alternatively let them on short-term tenancies.

He prepared a residual calculation, making the following allowances: building costs of £25,000 per flat plus £25,000 for the exterior and common parts; professional fees at 10% of those costs; interest on capital employed at 9% for a building period of nine months; 2% for selling agents fees; 0.5% for legal costs and an allowance for profit based on 15% of the estimated gross development value of £1m. The latter figure was arrived at follows:

Third floor	£ 200,000
Second Floor	£ 220,000
First floor	£ 220,000
Raised ground floor	£ 200,000
Lower ground floor (65% of vacant possession value)	£ 160,000
	£1,000,000

In the course of his oral evidence Mr Hunt commented on the valuation report which had been prepared for the first two claimants by Mr Green, a partner in Messrs Copping Joyce, chartered surveyors, based at their office in Shaftesbury Avenue, London WC2. Mr Green valued the subject property at £660,000, also on the basis of a residual calculation. He prepared his report after he had seen Mr Hunt's first report and he did not give oral evidence before us.

Having considered all the evidence, we have concluded that Mr Hunt's valuation of £600,000 is somewhat conservative, for the following reasons. Firstly, he valued the refurbished raised ground floor flat at 9% less than the first floor flat, although it was some 6.7% larger and he was unable to provide a convincing explanation for the discrepancy. Secondly, his residual calculation assumed that the purchaser would carry out substantial works to the lower ground floor flat and sell it nine months later. In our judgment, a purchaser who intended to retain the lower ground floor flat in the hope of eventually obtaining vacant possession might well value this section of the property separately and not incorporate it in a residential calculation as Mr Hunt has done. This would be likely to produce a higher value for that part of the property than Mr Hunt's figure. Mr Hunt agreed that there was a good demand for residential property in Maida Vale at the valuation date and that, whilst he considered the true value was £600,000, Mr Green's figure of £660,000 was not unreasonable; the precise amount realised would depend on precisely who was in the market at the time.

In the light of these considerations, we find that the value of the subject property, subject only to the protected tenancy, was £650,000. The value of the first and second claimants' interest is £103,859 (£185,845 less the £28,800 of the council's charge and interest of £53,186). The value of the third claimant's interest is £464,155 (£650,000 minus £185,845). Accordingly, we determine that the compensation payable by the acquiring authority is £103,859 to the first and second claimants and £464,155 to the third claimant. In addition in each case statutory interest will be paid from the valuation date until the date of payment. The parties are now invited to make representations as to costs, and a letter relating to this accompanies this decision, which will take effect when but not until the question of costs has been determined.

Dated: 11 April 2005

George Bartlett QC, President

N J Rose FRICS