UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2010] UKUT 371 (LC)

LT Case Number: LCA/284/2010

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

COMPENSATION – compulsory purchase – amenity land – residual valuation for potential school development – building cost – compensation of £500 awarded, based on existing use value.

 

IN THE MATTER OF A NOTICE OF REFERENCE

 

 

BETWEEN NIGEL J G MOCKFORD Claimant

 

and

 

DURHAM COUNTY COUNCIL Acquiring

Authority

 

 

Re: Land at rear of

22 The Bank

Barnard Castle

Durham

DL12 8PQ

 

 

Before: N J Rose FRICS

 

 

Sitting at Durham Civil and Family Justice Centre, Old Elvet, Durham, DH1 3JW

on 26 August 2010

 

 

Claimant in person

Mr David Taylor, solicitor, Durham County Council Legal Services Department, for the acquiring authority

 

The following case is referred to in this decision:

 

London Borough of Wandsworth v Greenweb Limited [2008] EWCA Civ 910

 

 

DECISION

Introduction

1.           This is a reference by Mr Nigel J G Mockford (the claimant) to determine the compensation payable by Durham County Council (the acquiring authority), as the successor local authority to Teesdale District Council, for the freehold interest in approximately 242 square metres of land (the subject land) at the rear of 22 The Bank, Barnard Castle, Durham, DL12 8PQ.  The land was the subject of a purchase notice under section 137 of the Town and Country Planning Act 1990, served by the claimant on 24 September 2008 and accepted by Teesdale District Council on 9 January 2009, which is the valuation date.

2.           The reference was conducted in accordance with the Tribunal’s simplified procedure.  The claimant appeared in person.  Mr David Taylor, a solicitor employed by the acquiring authority’s Legal Services Department, appeared for the acquiring authority.  It was agreed that I would not be assisted by an inspection of the subject land.

Facts

3.           In the light of the evidence I find the following facts.  The claimant inherited the house known as 22 The Bank from his parents.  The subject land lies to the east of The Bank.  It comprises an area of amenity ground with a number of semi-mature trees.  Part of it is bounded by stone walls.  It was formerly the site of the National Girls School.  In April 2006 the claimant acquired most of the site – with the exception of a small area in the south west corner – from the Diocese of Durham Board of Finance.  In or about January 2007 he purchased the balance of the site from Teesdale District Council.  The prices paid were £8,146 and £733.50 respectively.  Both transactions were entered into following a competitive tender. 

4.           On 4 June 2007 the claimant applied for planning permission to change the use of the subject land from amenity land to private garden.  Permission was refused on 30 July 2007 and that decision was upheld on appeal on 19 December 2007.  In September 2009 the local planning authority issued a certificate of appropriate alternative development to the effect that the subject land was only suitable for use as public amenity land.

5.           The former school building was in existence before 1 July 1948 and was demolished after 7 January 1937.  Consequently it is agreed that the compensation should be assessed on the assumption that the site had planning permission for an educational establishment of the size that occupied the site previously (LB Wandsworth v Greenweb Limited [2008] EWCA Civ 910).

Expert evidence

6.           Expert evidence for the acquiring authority was given by Mr M D Harvey BSc, FRICS, a partner in Carver Commercial, chartered surveyors and property consultants of Darlington, County Durham.  The claimant’s expert was Mr M J Charlton BSc, FRICS, principal of Messrs Charltons, chartered surveyors and estate agents of Richmond, North Yorkshire.  Mr Charlton agreed with Mr Harvey that, in the absence of comparable land sales, the site value based on planning permission to erect a school on the subject land should be calculated using the residual valuation method.  The experts also agreed that the assumed building would be on two storeys, with a gross external floor area of 175m² per floor, and that the market value of the completed building (gross development value) would be £210,000.  The experts further agreed that the cost of constructing a pair of two storey semi-detached houses of stone and slate would be a helpful proxy for the cost of building a school with similar materials. 

7.           In Mr Harvey’s opinion the subject land had a negative value as a site for educational development; his residual site value was minus £27,840.  Mr Charlton, on the other hand, produced a calculation showing a positive value of £28,365.

8.           Based on his experience with developers and builders in the area, Mr Charlton considered that the cost of construction would be £300 per m², plus £10,000 for site preparation and £5,000 for services.  He allowed interest at 6% per annum on site preparation costs for one year and on the total costs of construction and services for six months (based on a rolling programme of work).  He thus arrived at a running total of £123,900 and assumed that architect’s and associated professional fees would be 12% of that figure.  Adding interest on those fees at 6% for six months produced a second running total of £139,214, to which was added a contingency fee of £4,176 (3%) and developer’s profit of £30,949, based on 15% of the net development value of £206,325 (gross development value less sale fees at 1.75%).  This produced gross development costs including fees and profit of £174,339. 

9.           Mr Charlton arrived at his site value as follows:

Net development value £206,325

Less gross development costs  174,339

  31,986

PV £1 in 1 year @ 6% 0.9433962

Surplus for land   30,175

Less acquisition costs @ 1.75%       528

Land finance 6% for 1 year    1,811

Residual site value £ 28,365

10.        Mr Harvey’s residual calculation was somewhat less detailed.  It was this:

Gross development value £210,000

Costs:

1.  Build cost £500 per m² £175,000

2.  Finance of project over 12 months @ 8% £14,000

3.  Cost of connecting main services £5,000

4.  Sales and marketing 2% of GDV £4,200

Developer’s profit 20% of 1-4 £39,640

Development costs £237,840

Residual value - £  27,840

11.        The principal point of difference between the experts related to the cost of construction.  Mr Harvey produced an extract from the BCIS quarterly review of building prices for residential properties for April 2010, which was the earliest issue still retained by his office  (BCIS is an abbreviation of the Building Cost Information Service, published by the Royal Institution of Chartered Surveyors (RICS)).  He adjusted the relevant figures downwards by 7 per cent to reflect changes in prices since the valuation date.  He said that the RICS recommended valuers to use these figures as a guide-line and that they pointed to a build cost in the region of £750 per m² for the assumed development of the reference property.  He accepted that this figure was only a guide and he had reduced it to £500 in an unsuccessful attempt to reach agreement without recourse to the Tribunal.  In his view £500 per m² was the absolute minimum figure which could be adopted.

12.        Mr Charlton dismissed the BCIS figures on the grounds that they were mere guide-lines, specifically subject to regional variations. 

13.        Both experts supported their estimate of building costs by reference to previous appraisals of residential developments which they had carried out in the area, but neither produced any written details of such valuations.  I therefore directed that they should exchange details of the valuations to which they had referred in oral evidence.

14.        Mr Harvey prepared a supplementary report, dated 2 September 2010, to which he attached details of five of his valuations.  I am satisfied that he has produced sufficient documentary evidence in respect of four of them, as follows:

(1)        Browney, County Durham – 9 terraced houses – valuation July 2007 – build cost adopted £750 per m²

(2)        Fell View, Cockfield – 9 semi-detached houses – valuation August 2007 – developer estimated £850 per m² – residual valuation prepared showing cost of £650 per m².

(3)        Ford Cottage, Thornton le Street – 2 semi-detached houses – valuation November 2008 – build cost adopted £750 per m².

(4)        Residential sites in Darlington – flats and maisonettes – valuation January 2008 – build cost adopted £70 per sq ft (£755 per m²).

15.        Mr Charlton produced a schedule, listing six sites which he had valued between April 2007 and June 2009.  It showed that build costs between £280 and £300 per m² were adopted in five cases involving flats, terraced or semi detached houses, and £350 was adopted for one detached house.  In each case, spreadsheets in identical form were provided showing the valuation, but there was no further supporting evidence.  At the hearing I had directed that closing submissions be submitted in writing following the exchange of the supporting material I had requested.  Mr Taylor’s submission included the following observation:

“Determination of the issue was deferred at the hearing on 26 August 2010 to allow both sides an opportunity to produce evidence of comparable constructions suitably redacted for the purposes of client confidentiality.  The respondent has done that but the applicant has simply extracted data from sources where his expert has declined to disclose the original material.”

16.        On 18 October 2010 I caused a letter to be written to the claimant.  It said:

“The Member has asked me to say that he has noted the suggestion in the Acquiring Authority’s summing up that Mr Charlton has not been prepared to disclose the original material used in compiling the schedule of additional information relating to six sites, dated 3 September 2010.  The Member would be grateful if Mr Charlton would provide photocopies of the said original material.  He has asked me to say that it is likely that the absence of such verification would affect the weight to be attached to this evidence.”

17.        The claimant replied on 27 October.  He said:

“Mr Charlton absolutely refutes suggestions made in the Acquiring Authority’s summing up that he has not been prepared to disclose original material used in compiling his schedule of additional information.  It was stressed and agreed at the hearing that full details of the valuation instructions could not be released for professional and contractual reasons.”

18.        The claimant enclosed a copy of a letter he had received from Mr Charlton dated 22 October 2010.  It said:

“I would confirm that the valuation information provided included copies of the original detailed residual valuations previously undertaken on behalf of various clients including major banks and lenders.

I also would again confirm, as stated and confirmed at the tribunal hearing, that full details of the valuation reports cannot be released as these are contractually and professionally strictly confidential to the instructing clients.”

Conclusions

19.        Compensation for the deemed compulsory purchase of the subject land is to be assessed in accordance with section 5(2) of the Land Compensation Act 1961 (the Act), as follows:

“The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise.”

In assessing that amount, it is necessary to have regard to the value of the subject land, both for its existing use as amenity space, and as a site for potential development.  Most of the evidence adduced in this reference related to the latter basis, and I shall consider it first.

20.        The planning assumptions to be made when assessing compensation are contained in sections 14 to 16 of the Act.  It has not been suggested that any of the provisions of section 14 are relevant to the circumstances of this case.  Section 15(3) applies, it being agreed that planning permission would be granted for the rebuilding of the school which was in existence on the site before 1 July 1948 and destroyed or demolished after 7 January 1937.  Otherwise, sections 15 and 16 are not applicable.

21.        The Local Planning Authority has issued a certificate under section 17(3) of the Act to the effect that the land was only appropriate for use as public amenity land.  The effect of that certificate, and of section 14 to 16, is that the only use of the subject land apart from amenity land to which regard should be had is as the site of a school.

22.        Both experts gave evidence on the site value for school use, both at the hearing and subsequently in writing.  Mr Charlton’s emphasis on client confidentiality was surprising, given that he provided brief details of a number of his previous residual valuations during the course of his oral evidence, and in each case felt able to give the name of the developer.  In fact, no agreement was reached at the hearing to the effect that calculations and reports, redacted where necessary in the interests of client confidentiality, would not be produced.  I would add that it is difficult to imagine what reasonable objection a client could have to disclosure of such information, provided any sensitive material was removed.

23.        Assuming in the claimant’s favour, however, that Mr Charlton was indeed estimating build costs at the time at the levels suggested by his schedule,  I have no doubt that they were too conservative.  In his closing submissions, the claimant submitted that Mr Harvey’s approach was flawed, because his build costs of £500 per m²  “are further from his own comparable build costs than they are from the Respondent’s” (presumably this should have read “Claimant’s”).  I cannot accept that submission.  Notwithstanding their limitations, the figures in the BCIS index provide an objective guide to contemporary costs which, I am satisfied, is generally respected in the surveying profession.  They provide strong support for the levels of cost which I find Mr Harvey was adopting in valuations at the time.  I conclude that, in adopting a build cost of £500 per m²,  Mr Harvey has given the benefit of any doubt to the claimant.  I accept the details of his residual calculation in all respects where they differ from those of Mr Charlton.  It follows that the site value of the subject land for development as an educational establishment was nil.

24.        For completeness I should add that the claimant produced a letter dated 15 March 2010 from BIT Construction Ltd of Barnard Castle, signed by a Mr Ian Thompson.  The letter read as follows:

“Dear Mr Mockford

Re: Building Quote

Following our meeting recently I can confirm that the type of building you described we can compare build costs with recently constructed buildings in the local area.  The constructions were steel portal framed with half height brickwork, insulated panels to the walls and roof. 

Building 1: Stainton Grove Ind Estate 370 sqm over one and a half floors, office and workshop space constructed 2008 £380 per sqm.

Building 2: Manufacturing unit Middleton in Teesdale 500 sqm over ground floor, construction type as above.  Constructed 2008/2009 £385 per sqm.

Both these comparisons were constructed on a Design and Build Contract and were inclusive of all costs, fees and services but excluding financing costs and profit.

As the location of your building would be in a conservation area and may be subject to increased cost of materials ie natural stone, traditionally constructed timber windows, I would suggest you allow £395 per sqm for your construction costs.

If you require any further information please do not hesitate to contact me.”

25.        I attach no weight to this letter.  The author was not called to give evidence and face cross-examination.  More importantly, in my judgment the cost of constructing the buildings described in the first paragraph of the letter is of no assistance in assessing the cost of building two-storey semi-detached houses with stone walls and slate roofs.

26.        Mr Harvey considered that, viewed only as amenity space, the value of the subject land was £500.  That valuation was not challenged in cross-examination.  In his closing submissions the claimant argued that the minimum compensation should be £11,453.17, being the total he had paid for the subject land, including costs, some two years or more before the valuation date.  I note that at that time the claimant had hoped to use the land as a private garden, for which planning permission was subsequently refused.  No expert evidence was given to support such an approach, and I reject it.

27.        I determine that the compensation payable by the acquiring authority in respect of the acquisition of the subject land is £500.

28.        In the letter accompanying his closing submissions the claimant said that he wished to have the opportunity of applying for costs in view of the exceptional circumstances of the case.  A letter regarding costs accompanies this decision, which will take effect when the question of costs has been determined.

Dated: 11 November 2010

 

N J Rose FRICS