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UPPER TRIBUNAL
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UT Neutral citation number: [2013] UKUT 431 (LC)
UTLC
Case Number: ACQ/145/2012
TRIBUNALS,
COURTS AND ENFORCEMENT ACT 2007
COMPENSATION – compulsory
purchase – freehold shop and premises – valuation – comparable settlements and
open market sales – disturbance – compensation determined at £89,250
IN
THE MATTER OF A NOTICE OF REFERENCE
Mr
KWAN SHING WONG & Claimants
Mrs KAN FONG WONG
and
MANCHESTER CITY COUNCIL Acquiring Authority
re:
1 Silverdale Street, Openshaw
Manchester M11 1FS
Before:
P R Francis FRICS
Sitting
at: Manchester Magistrates Court, Crown Square,
Manchester M3 3FL
on
26
June 2013
The claimants in person
Anthony Gill, instructed by
Manchester City Council Legal Services for the acquiring authority
DECISION
Introduction
1.
This is a reference, heard under the Tribunal’s simplified procedure, to
determine the compensation payable to Mr Kwan Shing Wong and Mrs Kan Fong Wong
(the claimants) arising from the compulsory acquisition by Manchester City
Council (the council) of a shop and premises at 1 Silverdale Street, Openshaw,
Manchester (the subject premises). They were acquired under the Manchester
City Council (Toxteth Street, Openshaw) Compulsory Purchase Order 2008 (the
CPO) which was made on 24 March 2008 and confirmed by the Secretary of State on
21 January 2009. The council made a General Vesting Declaration on 7 May 2009
and the subject premises were duly vested on 11 June 2009 which is the date of
valuation for the purposes of this reference.
2.
The claimants (who are husband and wife) submitted the notice of
reference on 31 July 2012 following failure to agree terms of compensation.
They appeared for themselves. Mr Anthony Gill of counsel appeared for the
council and called Mr Stephen John Lashmar BA (Hons) MRICS of Keppie Massie,
Chartered Surveyors and Property Consultants of Manchester, who gave expert
valuation evidence.
3.
The claimants initially claimed a total of £321,631 for the freehold of
the subject premises and a number of items of disturbance (including VAT on
some elements of disturbance), whereas the council valued compensation in the
sum of £89,233.61.
Facts
4. From the
evidence, I find the following facts. The subject premises (which have now been
demolished) comprised a two-storey end-terrace former residential dwelling of
rendered brick construction under tiled roofs located in a corner position at
the junction of Silverdale Street and Toxteth Street in an area of high density
terraced housing approximately 500 metres north of Openshaw District Centre.
The property, the freehold of which was owned by Mrs Kan Fong Wong, had been
constructed towards the end of the 19th century as a private
dwelling house, and had subsequently been converted into a retail unit at
ground floor leaving ancillary residential accommodation above. As at the
valuation date, the shop, which extended to some 469 sq ft, was occupied as an
A5 hot-food retail unit (fish and chip shop) and was divided into three areas:
the public counter area with traditional frying range and tiled walls, a
storeroom and a kitchen/preparation are to the rear. At first floor, accessed
only from an internal staircase within the storeroom, the basic living
accommodation comprised living room, bedroom and bathroom.
5. In the
statement of claim, it was stated that Mr Kwan Shing Wong occupied the shop
under the terms of a lease from his wife at an annual rental of £10,920, and
although payment of that sum was shown in the books of the business, no documentary
evidence was provided and it was admitted that no formal lease existed. Mr Wong
had operated the business since 2007, following the departure of a previous
tenant who had been paying the same annual rental under the terms of a business
lease.
6. The compulsory
acquisition was made for the purposes of acquiring some 520 plots of land in
some 200 different ownerships covering approximately 25.5 acres in the Toxteth
Street Neighbourhood Area in order to achieve the policy objectives set out in
the 2008/2018 East Manchester Strategic Regeneration Framework and the UDP. The
area, which was predominately residential in nature, had become extremely run
down and suffered from a variety of social, economic and environmental
problems. The purpose of the scheme was to provide for the comprehensive
redevelopment of the area with the provision of some 432 new residential units,
new street layout and high quality public realm.
Issues
7.
The issues between the parties are:
1. The value of the freehold interest in the subject
premises as at 11 June 2009 assessed under the provisions of section 5, rule
(2) of the Land Compensation Act 1961 (the Act).
2. Disturbance
compensation arising in accordance with section 5, rule (6) of the Act.
The claimants’ case
8.
The claimants provided a statement of case on 10 October 2012 which
included a number of general criticisms of the compensation culture within the UK and a demand that the council rebuild the property at the same location, and reimburse
the rent that had been lost between the date of vesting and the date the
replacement property is completed. The claim was set out thus:
i) Rebuild the property at 1 Silverdale Street and “pay
our rents from the day they affected our shop, until the day they hand a key
[of the rebuilt premises] to us.”
ii) The council to pay “enough a value of all
the cost to buy another shop elsewhere”:
The property £150,000.00
Replacement shop sign £
630.00 (plus £124 VAT)
Chip range £
35,000.00 (plus £7,000 VAT)
Chinese cooker £
3,206.00 (plus £641 VAT)
Extraction hood for cooker £
4,200.00 (plus £840 VAT)
“….plus etc. fixtures
and fittings.”
Total £201.631.00
[actually £201,641]
iii) Shop rental compensation £120,000.00
Grand total £321,631.00
[£321,641]
9. By a
letter to the Tribunal of 31 May 2012, it appeared that the claim under (i)
above was not pursued, although the loss of rent claim was maintained at (iii).
10.
Prior to the hearing, the claimants also provided website details of two
properties that were on the market at around the valuation date in support of
their claim for the freehold value, a 2010 price list for Chinese cookers and
quotations for a new chip fryer and for a new shop sign. They also provided a
priced schedule of items relating to the disturbance claim that had been
prepared by their formerly appointed valuer, Mr Prowse of Bruton Knowles (who
was no longer acting), together with a copy of the lease to their former
tenant, their business accounts and tax returns.
11.
At the hearing, the claimants said that they had found Mr Prowse, who
had been negotiating with Mr Lashmar on their behalf, “annoying” - hence a
breakdown in communication which I understand to have resulted in him refusing
to act in the matter of the notice of reference. He had attended a joint visit
to the subject premises with Mr Lashmar with the intention of agreeing the
schedule of fixtures and fittings, and had valued all the equipment in the
depreciated sum of £20,000. Asked why this schedule had not been mentioned in
the statement of claim, and why it appeared that the claim submitted was for
certain items of new equipment, and other fixtures and fittings were not
mentioned, the claimants accepted that they could not be expected to receive
compensation on a new for old basis. They said that they agreed Mr Prowse’s
list, but they disagreed with Mr Lashmar’s assessment of value which was far
too low.
12.
Asked in cross-examination what evidence they had to support their claim
for £150,000 in respect of the subject premises, the claimants referred to the
two properties that had been for sale and said that they were broadly similar. The
claimants accepted that Mr Wong did not have a formal lease of the premises,
which he took over temporarily from the former tenant who had left after being
told by the council that he would have to vacate because of the impending
scheme. However, as could be seen from the accounts, the money had actually
been paid to Mrs Wong.
13.
As to the claim for loss of rent, the claimants said that with the
council having told the previous tenant that he would have to vacate due to the
CPO, and with there being no chance of finding another tenant, they had lost
the potential investment income from 2007.
The council’s case
14.
Mr Lashmar, in a comprehensive report and accompanying appendices, set
out the background to the case (the relevant details of which are summarised
under “facts” above) and said that there had been a long and difficult history
to this particular acquisition. The claimants had first been approached on
behalf of the council by his predecessor in March 2005 but a pre-CPO offer to
purchase was rejected. In March 2007, Mr Lashmar who was by then dealing with
the matter, was approached by Mrs Wong who advised that their former tenant had
left, and that Mr Shing intended to re-open the shop. A revised offer was
made and again rejected, Mrs Wong saying that she would only consider a
property exchange and, later, that she also required a valuation of the
business. A ledger book was provided, as no accounts were then available.
15.
In July 2008, the claimants appointed Mr Prowse and without prejudice negotiations
continued with him, but no settlement could be reached on the value of the
subject premises or on the value of the business, the problem with the latter
being the lack of available accounts information. Mr Prowse had also,
following the vesting of the subject premises, submitted an advance payment
request which was approved on the basis of 90% of Mr Lashmar’s valuation and an
acceptance form was despatched to the claimants for signature. However this
was never returned and the payment had not, therefore been made.
16.
Mr Lashmar said that the claimants had refused to give up possession of
the subject premises on the vesting date, and had remained in occupation, rent
free, until the Sheriff took possession on 18 January 2011. In the meantime,
Mr Lashmar said, he had attended a site meeting with Mr Prowse in December 2010
at which Mrs Wong said she had never received the offers for the subject premises.
He said he explained to her at that meeting that he had been liaising with her
agent and had also approved the advance payment request. Nevertheless, a
further offer was made in January 2011 just before the premises were possessed,
but that was rejected.
17.
Mr Lashmar said that he continued to chase Mr Prowse to progress the
matter up until October 2011, but was advised that instructions were still
being awaited. He said that, in August 2012, Mr Prowse informed him that a
recommendation had been made to the claimants to settle the matter but he had received
no further instructions from them, and in September 2012 Mr Prowse confirmed
that he was not instructed to act in the matter of the reference to this
Tribunal.
18.
In respect of his valuation of the subject premises, Mr Lashmar said
that he had looked at the matter on two bases. Firstly, by reference to
capital value transactions, of which there was little direct comparable
evidence in the vicinity and secondly his preferred “investment” method of
comparing rents and yield comparables. Regarding rental evidence, he
considered comparables for both the retail and residential elements and, in
respect of investment yields as part of the land assembly required for the
scheme, he sought evidence from acquisitions in connection with the scheme,
from adjacent areas and then properties further afield across Greater
Manchester. He thought that the investment approach was the most appropriate,
particularly as Mrs Wong held the subject premises as an investment.
19.
As to capital value transactions, Mr Lashmar recited the sale of 846 Ashton New Road, Manchester some eight months prior to the valuation date for £90,000.
Although similar in terms of configuration and use (it was a Chinese
take-away), it was larger at ground floor (64%) and significantly larger in
terms of its first floor residential accommodation (135%). It was also in a
better trading position, fronting one of the major arterial routes into the
city. Nos.56-58 Cheeryble Street, which sold for £95,000 6 months prior to the
valuation date was also 75% larger than the subject premises and had fully self
contained residential accommodation. Although the property was acquired under
the shadow of the Toxteth Street CPO, the price was negotiated and agreed in
accordance with the terms of the compensation code and the vendor was also
professionally represented. These two capital value comparables, Mr Lashmar
said, fully supported his assessment of the value of the subject premises at
£65,000.
20.
He then went on to consider the retail rental evidence. Firstly, in
respect of the rent paid by Mr Wong and the predecessor tenant, he said this
was historic and, in terms of the relationship between the two claimants,
thought it unreliable. The passing rent had been agreed in 2002 at a time when
the market was very different, and it was also notable that the tenant was not
local but had been based in York. The available local evidence suggested
rental values for the retail part of the premises at between £13 and £22 per sq
ft (psf) in terms of Zone A (ITZA) in the vicinity of the Openshaw District
Centre, and he cited 1258 Ashton Old Road which had been let at £6,800 pa in
2005, representing £18.32 psf ITZA as an example. Also, 1361 Ashton New Road,
which was an A5 hot food retail outlet, had a rent review in 2008 to £9,355 pa
which equated to £22 psf ITZA. He concluded that the rental value of the
ground floor of the subject premises equated to £20 psf ITZA, or £4,020 pa.
21.
Turning to the value of the residential part, Mr Lashmar said that his
comparables, which were all self contained and principally comprised
one-bedroom units indicated an annual value of £2,640. His comparables
comprised three properties in Ashton Old Road, and 48 Kenyon Street, Abbey Haye.
22.
This brought the annual rental value of the whole premises to £6,660pa.
23.
With regard to yields, Mr Lashmar took into account a number of
transactions in the CPO area, the nearby Edison Street CPO area and within the
wider Manchester area generally. Whilst acknowledging that the CPO
transactions were scheme related, they were, as he had previously said,
negotiated with professional representatives on a no-scheme world basis.
24.
Within the Toxteth Street scheme, the acquisition of 1361 Ashton Old
Road was agreed at £80,000 with Morris Dean acting as agents for the vendor.
Based upon the recently reviewed passing rent (see above) the initial yield
equated to 11.69%. 1363 Ashton Old Road, which required some adjustment due
to the fact that it was under-rented produced an equivalent yield of 10.76%.
Similar yields were recorded on the Edison Street transactions and figures of
between 10.5% and 12.5% applied to open market transactions in the wider area.
In the light of the evidence, Mr Lashmar concluded that an appropriate yield
for the subject premises was 10.5%. He said that he felt his valuation was
robust, and if anything, generous to the claimants and he could easily have
opted for a higher yield.
25.
On the basis of his conclusions, the valuation became:
Rental Value £6,660
pa
YP in perpetuity @ 10.5% 9.524
£65,000
26.
In respect of the disturbance claim, Mr Lashmar said that the principle
that the claimants were entitled to compensation under rule (6) of section 5 of
the 1961 Act had been accepted, and he had agreed with Mr Prowse that claims
were appropriate in respect of loss on the forced sale of fixtures and fitting
and the extinguishment of the claimants’ business (goodwill), together with
statutory Basic and Occupier’s Loss payments.
27.
Firstly, regarding the loss on the sale of fixtures and fittings, Mr
Lashmar said that he had undertaken research to establish what similar items
had achieved in the market, both from the internet and from considering
settlements agreed with other claimants who had occupied A5 hot food takeaway
premises. He also produced by way of appendices to his report, the evidence
upon which his conclusions were based. Using the agreed schedule, he costed
the second hand value of each item which came in total to £12,000. He then
made a percentage allowance to reflect the losses that would be incurred were
the equipment to be sold on a forced sale basis. Items that were bespoke to
the property, such as the frying range and the extraction system, which could
not easily be removed would suffer a loss of 75% of the expected second-hand
value. Other items could be expected to be sold at a 50% loss other than
general cooking equipment which would attract a 60% loss.
28.
The resulting loss amounted to £8,000. It was not reasonable, Mr
Lashmar said, to expect the acquiring authority to pay compensation on a
“new-for-old” basis as was being argued for by the claimants, and he also
disagreed with Mr Prowse’s assessment.
29.
Turning to the goodwill of the business, Mr Lashmar said in his report
that he had only recently had sufficient accounts information provided to
enable him to undertake a valuation. Having considered the accounts for the
years 2007/08 and 2008/09 together with the period 1 May 2009 to 31 December
2009, he said it was clear that, at the “inflated” rental of £10,920 pa the
business would have made an average loss of £5,381 and, even at his assessed
rental value of £6,660 pa, there would still be a loss of £1,000 pa. Making
the required calculations to establish the adjusted net profit, and applying an
appropriate multiplier, he said it was clear that the business was not viable
and had a negative value, resulting in a negative value for goodwill.
30.
However, Mr Lashmar said that it would be unreasonable to conclude that
the claimants should not be entitled to some form of compensation for
undertaking the business, and upon the assumption that it could be expected
that it would produce some form of reasonable living wage, he said that the sum
of £10,000 would be a fair and reasonable offer.
31.
On the basis of a value for the subject premises of £65,000 the basic
loss payment, calculated at 7.5% would amount to £4,875. The Occupier’s Loss
Payment was to be calculated as the greater of (a) 2.5% of the value of the
interest, or (b) £25 per sq m of the size of the building taken or (c) a
minimum payment of £2,500. As Mr Wong did not have a formal interest in the
property, effectively occupying it under the terms of a verbal agreement, Mr
Lashmar assessed that payment under (c) at £2,500.
32.
Finally, Mr Lashmar said that the costs incurred by the council in
taking possession of the subject premises as they were not given up voluntarily
should be deducted from the disturbance calculations. The Sherriff’s costs were
£951.60 which, with VAT, amounted to £1,149.39
33.
In total, therefore, the compensation should be assessed as:
Rule (2) value £65,000.00
Rule (6) disturbance
Fixtures & Fittings £ 8,000.00
Extinguishment £10,000.00
Basic
Loss £ 4,875.00
Occupier’s
Loss £ 2,500.00
Bailiff’s costs £-
1,141.39
£24,233.61 Total £89,233.61
34.
In specific response to the claimants’ statement of claim, Mr Lashmar
pointed out that, in connection with the value of the subject premises, neither
the claimants themselves, nor Mr Prowse had produced any evidence in support of
the value claimed, other than the later submission of copies of the marketing
particulars relating to two allegedly similar properties in Stockport Road,
Levenshulme. The first property had been on the market at an asking price of
£150,000 since 2010 and remained unsold. The location was, he said, entirely
dissimilar. The second property, which was also not directly comparable in
terms of size location or timing, had been placed in a local auction and had
failed to sell.
35.
Regarding the fixtures and fittings, Mr Lashmar said that the claim for
the new cost of the chip fryer and other items did not accord with the
principle of equivalence and were unsustainable. As to the loss of rent
claim, he said that any rental income derivable from the subject premises would
be reflected in the value of the freehold. Further, there could be no claim
for loss of rent as the Mr Wong had chosen to occupy the retail area himself.
Conclusions
36.
This matter can be dealt with very shortly. It is clear from what the
claimants said in their statement of case, and at the hearing, that they have
issues with the compensation culture within the UK, but this Tribunal, of
course, only has jurisdiction to determine matters within the existing system
and in accordance with the statutory provisions.
37.
As to the claim itself, looking firstly at the value of the freehold, I accept
Mr Lashmar’s evidence in its entirety. I am satisfied that he has undertaken
a full and comprehensive exercise to research the investment value of the
subject premises, and that in arriving at his valuation his conclusions are
sound. The claimants only, at a late stage, produced sales details of two
properties that were unsold and, as Mr Lashmar pointed out, they were not
directly comparable. I can, therefore, afford them no weight.
38.
The claimants had not made a specific claim in terms of goodwill, and on
the basis of his conclusions I think that, if anything, Mr Lashmar’s offer was
generous. However, in the light of what he said, I accept it.
39.
I also accept Mr Lashmar’s evidence regarding the claim for fixtures and
fittings, and agree that new for old replacement values would not accord with
the principle of equivalence. Mr Prowse’s evidence on this matter was not
before the Tribunal, and particularly bearing in mind the extensive research
that Mr Lashmar clearly undertook to establish fair compensation, I have no
reason to doubt his conclusions.
40.
As to the alleged loss of rent, this is in my judgment a totally
unsustainable claim and I agree with Mr Lashmar’s observations. Any rent that
was derived from the subject premises would be reflected in the freehold value.
Mr Wong, whilst entering into a private arrangement with his wife to occupy and
trade from the premises, has of course had the benefit of that opportunity and
would have had to pay rent elsewhere if the business had not been run from the
subject premises. He could not expect the “rent” that he paid to his wife to
be reimbursed. Further, it appears that the claimants continued to occupy the
subject premises for a not inconsiderable period beyond the vesting date, for
which no payment has been sought from the council.
41.
In the light of these conclusions, I determine compensation in
accordance with Mr Lashmar’s analysis, as set out at paragraph 33 above which I
round to £89,250.
42.
This reference having been determined under the simplified procedure,
the question of costs only arises in exceptional circumstances. In my view,
there were none, and I therefore make no such order as to costs.
DATED
5 September 2013
P
R Francis FRICS
