UK Social Security and Child Support Commissioners' Decisions

[2004] UKSSCSC CIS_3197_2003 (21 April 2004)

 
DECISION OF THE SOCIAL SECURITY COMMISSIONER
1. My decision is given under section 14(8)(a)(ii) of the Social Security Act 1998. It is:

I SET ASIDE the decision of the Truro appeal tribunal, held on 2 April 2003 under reference U/03/208/2002/00020, because it is erroneous in point of law.

I make findings of fact and give the decision appropriate in the light of them.

I FIND as fact that the valuation of the claimant's one-third share has at relevant times been nil.

My DECISION is that her entitlement to income support must be calculated on the basis of that finding.

The appeal to the Commissioner

2. This is an appeal made on behalf of the claimant, brought with my leave. Sadly, the claimant has now died. The appeal has been pursued on behalf of her estate by her daughter.
3. I directed an oral hearing of the appeal. It was held before me in London on 5 April 2004. The claimant was represented by Miss N Lieven of counsel. The Secretary of State was represented by Mr V Lewis of the Office of the Solicitor to the Department of Work and Pensions. I am grateful to both for their arguments at the oral hearing.

The issue

4. This case concerns the valuation of the claimant's one-third share in a house; the remaining two-thirds were owned by the claimant's daughter. When the claimant went into a nursing home, the property remained occupied by the claimant's daughter and grandson. The grandson was under 18. He had been in receipt of disability living allowance until 29 April 2000, but there was evidence that he still had some disability.

The law

5. The valuation is governed by regulation 49(1) of the Income Support (General) Regulations 1987. This provides for a valuation

(a) … at its current market … value, less-

(i) where there would be expenses attributable to sale, 10 per cent.; and

(ii) the amount of any incumbrance secured on it'.

6. In Hourigan Secretary of State for Work and Pensions, reported as R(IS) 4/03, the Court of Appeal decided that the relevant interest to be valued was the claimant's share. In this case, that means a one-third share.

The Secretary of State's initial valuation

7. The Secretary of State obtained a valuation of the claimant's share from the district valuer. The valuation of the 'true open market value' was given as follows:

for the entire property         £77,000
for mathematical deemed share         £38,500
for deemed undivided share         £25,000.

8. This is typical of the valuation that is provided by District Valuers. It takes a purely mathematical approach. That is not the correct approach to interests such as those held by the claimant. It is unrealistic in that it takes no account of the difficulties of realising that value.

The valuation for the claimant

9. A valuation report was obtained from Chartered Surveyor by the claimant's daughter. The report concluded with this paragraph:

'Whilst vacant possession value is likely to be worth in the region of £90,000 we have to say that the dwelling is not regarded as capable of being sold, and under the existing arrangement is also not regarded as being mortgageable. Indeed it is impossible to realise the full value of the one-third share or a small proportion of it, even on an investment basis. Whilst technically the one-third share amounts to some £30,000, in reality this can only be regarded as a notional figure which is in effect worthless, other than to the existing occupier. In our opinion the existing occupier, who is the owner of the majority interest, would, if willing and able, only be advised to pay a nominal sum in order to buy out the remaining share, rendering this element effectively worthless on the open market.'

In a supplementary letter, the claimant's share was put, speculatively, at £1,000.

10. This is typical of the sort of evidence that is often given on behalf of claimants. On the face of it, there is much sense in what it says. It also seems in line with the suggestions that judges in the Court of Appeal have given when these issues have come before the Court in social security cases.
11. Personally, I find it difficult to accept that interests like the claimant's have little or no value. I am sure it would have some value for inheritance tax purposes. I notice that Foster and Cranfield regularly auction reversionary interests. As Mr Lewis pointed out, the claimant's share was not a reversionary interest. It is, though, a similar interest and might be an investment opportunity for which there is a market among investors.

The Secretary of State's second valuation

12. The District Valuer gave a further valuation of just the one third share at £15,000. In doing this, the valuer took account of these factors: the claimant's daughter would not agree to a sale; nor was she willing to buy the claimant's share; a court order would be required for the entire interest to be sold; it was unlikely that a court would order a sale until the grandson was 19 or had left full-time education (two years later). The tribunal relied on this valuation.
13. Miss Lieven criticised the tribunal for relying on the District Valuer's evidence. I accept her criticisms of that report. I find this an unfortunately conclusion, because (as I said at the oral hearing) this is the best report I have ever seen from a District Valuer. The difficulty with this evidence is that the valuation required was that of the 'current market value.' However, the report leaves unclear whether there is a market in such a share as the claimant holds. At one point in the report, the report refers to the possibility that a visible market would arise if these interests were regularly presented for sale. Later the report refers to the existence of a private market among the clients of an investment consultant or the like. That leaves it unclear whether there is any current market or whether one would or might develop in the future.
14. Given those deficiencies in the report, the tribunal should not have accepted it as it stood. It did not support the conclusions of fact that the tribunal drew from it. The tribunal thereby went wrong in law.

Disposal

15. That leads to the question: how should I dispose of the case? My inclination was to obtain evidence on my own direction in order to remedy the deficiencies in the valuation evidence. Miss Lieven argued that I should allow the appeal and decide the case in favour of the claimant's estate on the basis that the Secretary of State had not proved that the claimant's share was worth in excess of the capital threshold. She acknowledged the Commissioners' role in developing the law, but pointed out that the claimant's daughter was effectively having to bear the uncertainty of that development. Mr Lewis argued that my jurisdiction was inquisitorial and that a rehearing was appropriate.
16. After some hesitation, I have decided to dispose of the case as suggested by Miss Lieven. I have been influenced by two factors.

•    First, there has been considerable delay in this case already. The decision under appeal was given in September 2001. There is merit in her point that the claimant's daughter is being left in an uncertain position for a long time.

•    Second, the Secretary of State has had ample opportunity to produce evidence before me. I expressly offered that chance before the oral hearing. It was not taken up.

Future cases

17. However, this is not a precedent for the way that the tribunal should have dealt with this case or for the way that tribunals should in future deal with this type of case.
18. The tribunal must first identify the proper legal basis for a valuation. That is found in regulation 49(1) and the decision in Hourigan.
19. Next the tribunal must ensure that the valuer has been instructed in accordance with that law.
20. The valuation report must make clear the assumptions on which the valuation is based. It must also make clear whether there is or is not a current market for the interest.
21. It must also examine critically the basis on which the particular valuation has been given. In some types of valuation, comparables are used. That may not be so easy in the case of shares in property. At least, that is what the District valuer said in this case. If that is so, the tribunal must examine the principles applied in reaching the valuation, which should be made clear. I assume the valuation will involve some discount, which should be open to critical scrutiny.
22. If the evidence is incomplete, the tribunal should not decide the case on the burden of proof. It should adjourn with directions as to the ways in which the evidence should be supplemented. This is the proper operation of its inquisitorial function.
23. I drew attention to the practice of the Lands Tribunal and to the valuation decisions in Cust (1917) and Wight (1982), both reported in the Estates Gazette Digest of cases. I also drew attention to the valuation of an occupation rent or similar in Dennis v McDonald [1981] 2 All England Law Reports 632 and [1982] 1 All England Law Reports 590, applied in Byford v Butler [2004] 1 Family Law Reports 56. Neither party was attracted to the approaches in either line of authority. It may be, though, that they merit consideration in the further development of the law. At least, they may show principles on which a valuation can be determined.
24. Finally, a word about Scotland. As I understand it, Scottish valuations are made on a different basis from those undertaken in the rest of Great Britain. In particular, they do not involve a discount for factors such as delayed right to possession. It may be that the reasoning in this case is not readily applicable in Scotland.

A final word

25. I do not find the outcome of this case satisfactory. I have been persuaded not to fulfil my proper function as I understand it to be. I hope, though, that future cases will provide the opportunity for more useful guidance on the valuation of limited interests in property.

Signed on original on 21 April 2004

Edward Jacobs Commissioner