The following cases are referred to in this decision:
Urban Edge Group Ltd v London Underground Ltd [2009] UKUT 103(LC)
Abbey Investments Ltd v London Development Agency
[2010] UKUT 325 (LC)
Harvey v Crawley Development Corporation [1957] 1 QB
485
Horn v Sunderland Corporation [1941] 2 KB 26
Director of Buildings and Lands v Shun Fung Ironworks
[1995] 2AC 111
Lindon Print Ltd v West Midlands County Council (1987)
283 EGLR 70
Loring v Davis (1886) 32ChD 625
Pointe Gourde Quarrying and Transport Ltd v Sub-Intendent
of Crown Lands [1947] AC 565
RMC (UK) Ltd v London Borough of Greenwich [2005]
ACQ/3/2003 (LT)
Waters v Welsh Development Agency [2004] UKHL 19
DECISION
Introduction
1.
This is a consolidated reference relating to the compulsory acquisition
by London Development Agency (now Greater London Authority and referred to
hereafter as the acquiring authority) of a 1.1 acre waste transfer site (WTS) at
Clearun Wharf, 151 Marshgate Lane, Stratford, London E15 2DT (the reference land)
under The London Development Agency (Lower Lea Valley, Olympic and Legacy)
Compulsory Purchase Order 2005 (the CPO). The CPO was made on 16 November
2005 and, following a public inquiry, was confirmed by the Secretary of State
on 18 December 2006. A General Vesting Declaration was made on 14 May 2007
and the land vested in the acquiring authority on 2 July 2007, which is the
valuation date for the purposes of this reference.
2.
The initial reference (ACQ/274/2010) was made by the first and second
claimants on 8 January 2010 and related to a claim for the value of the land under
section 5, rule (2) of the Land Compensation Act 1961 (the 1961 Act). On the
same date, a reference (ACQ/280/2010) was made by Clearun Limited (Clearun),
the company which operated the WTS, relating to a claim for compensation for
disturbance under rule (6) due to the alleged extinguishment of its business
together with other miscellaneous heads of claim. An application for them to
be consolidated was accepted and subsequently ordered by the Tribunal. On 28
June 2013 a further reference (ACQ/88/2013) was made by Dominion Mosaic and
Tile Company Limited (Dominion) which dealt with a technicality regarding the
first claimant’s interests and, following an application, that reference was
also consolidated with the above by an order dated 24 September 2013.
3.
As at the commencement of the hearing, the claimants’ claim for the
value of the reference land under rule (2) was predicated upon three alternative
bases: Firstly, that the reference land had a value of £6,000,000 pursuant to
section 16(3) of the 1961 Act on the assumption that planning permission for a
scheme comprising a mixed use development in accordance with their planning
expert’s “Notional Scheme 2” would have been granted by the valuation date. Secondly,
pursuant to section 14(3) of the 1961 Act, the said value discounted by 20% (£4.8
million) on the assumption that no such permission existed at the valuation
date, but that it could be expected to be granted within 18 months thereof.
Thirdly, that if the Tribunal determines that there was no short to medium term
prospect of planning permission being obtained, a value of £2.7 million representing
the existing use value enhanced by a sum to reflect the long term “hope” of
such a permission being forthcoming. The acquiring authority’s case was that
planning permission was not to be assumed under section 16(3), and that having
regard to both the existing use value, and development prospects under section
14(3) (whereby it was agreed that planning consent for a mixed use development
could have been expected to be obtained within 18 months of the valuation date),
the rule (2) value was £1,850,000.
4.
In terms of disturbance, the claimants’ forensic accounting expert assessed
compensation for the extinguishment of Clearun’s business in the sum of
£1,482,549 to which should be added £282,133 (revised to £401,000 immediately
prior to the hearing) relating to pre-possession losses incurred by the
business. The acquiring authority’s case was that the evidence did not support
the conclusion that the business was extinguished, and compensation under that
head should therefore be nil. However, if it were to be established that the
business was extinguished to some degree, it was contended that no more than
50% of it was extinguished and, on the basis of their accountancy expert’s
evidence, compensation should be no more than £83,990. In the event that the
Tribunal were to find that the business had been totally extinguished, and that
there was no failure to mitigate (which the acquiring authority say there was
due to a failure to dispose of what was left of the business in a timely
fashion), the acquiring authority said the compensation properly payable in
respect of the value of the business was £238,721. As to pre-possession
losses, these were valued by the acquiring authority at £97,313
5.
The acquiring authority contended that the claim for £80,000 relating to
Mr Halpern’s management time expended in progressing the claim was unproven.
6.
Mr Halpern also sought reinvestment costs in the sum of £2,250,000
pursuant to section 10A of the 1961 Act, but the acquiring authority disputed
that such were payable and that element of the claim was withdrawn on the fifth
day of the hearing.
7.
The principle of the claimants’ claim for pre-reference costs was
accepted by the acquiring authority, and was subsequently agreed at £57,000, as
was the entitlement to a Basic Loss Payment in the sum of £75,000.
8.
Mr Barry Denyer-Green and Mr Daniel Robinson of counsel appeared for the
claimants and called Mr David Mosche Halpern as a witness of fact, together
with the following expert witnesses: Mr Ben Kelway (Planning), Mr Neal Matthews
(Valuation), Mr Jeffrey Nedas (Forensic Accountancy - disturbance) and Mr
Andrew Murdoch (Transport). The second claimant, Mr Patrick William Gladwell,
did not appear and was not represented.
9.
Mr James Pereira and Mr Alexander Booth of counsel appeared for the
acquiring authority and called the following witnesses of fact: Mr Roger
Tuffley (Crossrail Safeguarding Manager), Mr David Clarke (Consultant to GLA),
Mr Ralph Luck (Director of Property for the Olympic Delivery Authority), Mr
Geoffrey Spiller (evidence relating to the Carpenters’ land) and Mr John Burton
(Director of Development, Westfield). A witness statement was also received
from Mr James Fergusson (Crossrail Engineering Consultant) but he was not
called. Expert evidence was provided by Mr Sean Bashforth (Planning), Mr Colin
Smith (Valuation), Mr Gordon Hodgen (Forensic Accountancy – disturbance) and Mr
Mike Axon (Transport).
Facts
10.
The experts helpfully produced statements of agreed facts and issues in
dispute from which, together with the evidence and the assistance received from
counsels’ comprehensive skeleton arguments, closing submissions and replies,
which were all received by 7 January 2014, and our accompanied inspection of
the former site of the reference land and surrounding area on 26 November 2013,
we find the following facts.
11.
The reference land was included within the CPO as Plot 477 and until the
valuation date was operated as a licensed waste management station (WTS) by
Clearun Ltd. It comprised a site of approximately 4,460 sq m (1.1 acre) with
open yard areas together with buildings that totalled 9,731 sq ft (905 sq m)
and included a large warehouse/recycling shed and an office. The site was located
within the London Borough of Newham on the north-western side of the northern
end of Marshgate Lane, Stratford E15, about 80 metres from its junction with Carpenters Road. The site was approximately triangular in shape, having Marshgate Lane
forming its south-eastern boundary and the confluence of the River Lea, Waterworks River and City Mill River providing its western and northern boundaries. A line of
high-voltage overhead power lines ran directly to the west of the site between
pylons that were located to the north-east and south-west across the three
rivers respectively. At the valuation date, the reference land and adjacent
land was subject to Crossrail Safeguarding, but the acquiring authority
declared that for the purposes of this reference, that fact shall be
disregarded only as to the subject site.
12.
Prior to the compulsory acquisition, the wider surrounding area in
general was occupied by low grade industrial and warehouse uses, railway lines
and sidings and vacant or disused plots. The land immediately to the west of
the reference land, across the River Lea, was occupied by Carpenters Business
Park which principally comprised modern, steel portal frame buildings, and the
land on the opposite side of Marshgate Lane was occupied by the fourth
claimant, Dominion Mosaic and Tile Company (the Dominion site), as a tile
warehouse, showroom and parking. The area to the south of the reference land
(known as Thornton Fields) comprised open space and operational railway sidings
beyond which was the elevated Great Eastern Railway Line. This was carried by
a bridge over the southern section Marshgate Lane which formed a crescent or
loop and contained further industrial and commercial buildings and
occupations. The link between the north and south sections of the Marshgate Lane loop was known as Pudding Mill Lane, which contained Pudding Mill Lane DLR
station, and once rejoining Marshgate Lane, led into the south-western section
of Stratford High Street. The junction with the High Street was over 960 metres
from the reference land and Stratford Regional Station was close to the
junction.
13.
Stratford International Station, which was completed in 2006 and became
operational in November 2009 lies approximately 1km to the north of the
reference land and is incorporated within Stratford City, the substantial commercial
and shopping centre development undertaken by Westfield Plc and which itself
opened in 2009. Immediately to the north of Stratford City was a residential
area known as the Clay Lane Estate. Hackney Wick DLR station was within 912
metres walking distance of the reference land via Marshgate Lane and Carpenters Road, and the nearest bus stop to the north east corner of the reference land
(service 276) was 120 metres walking distance.
14.
Factual evidence relating to the parties and their relationships
together with other germane background details were comprehensively set out in
the first claimant’s witness statements and his evidence before us. To prevent
unnecessary repetition here, we refer to them below where relevant under the
heading “The Evidence of the First Claimant, Mr David Mosche Halpern”.
Issues
15.
The issues that remained to be determined by us can be summarised as
follows:
16.
The Value of the Freehold Interest in the Reference Land (Rule (2))
1. Whether the reference land was “allocated” under
section 16(3) of the 1961 Act, with the consequence that, if it was, it is to
be assumed that planning permission would have been granted, at the valuation
date, for residential use, being a use within a range of uses identified in the
relevant policy, or
2. Whether the reference land should, instead, be
valued on the basis of the hope or expectation of planning permission being
granted, preserved under section 14(3) of the Act. (It is common ground
between the claimants and the acquiring authority that permission might be
expected to be granted by 18 months after the valuation date for a mixed use,
predominately residential, development.)
3. Whether the hoped for permission would have been
granted earlier than 18 months after the valuation date, and if so what, if any
difference, would that make to the value.
4. What density of residential development, in terms
of habitable rooms per acre (hrha) would be anticipated to receive planning
permission.
5. When, after the grant of planning permission, a
reasonable purchaser would expect development in accordance with it to be
viable.
6. The existing use value (EUV) of the reference land
Disturbance Issues (Rule(6))
1. Whether the business of the third claimant,
Clearun Ltd, was extinguished, either fully or partially; and if so the value
that should be placed upon that business at the valuation date.
2. Pre-possession losses
3. First claimant’s
management time
17.
Mr David Halpern, the first claimant, was the first witness and set the
scene for his various claims and those of the other claimants. He was the main
and often the only witness to give evidence about a number of important matters
relating to the various claims for business loss. So far as the value of the
land taken is concerned he had less to say (although his evidence was
interesting and important on several points) and the argument on land value was
developed by the expert witnesses. For that reason it seems to us sensible,
after dealing with Mr Halpern’s evidence, to first consider the issues relating
to the claim for disturbance and business loss and then to turn to the issues
arising over the valuation of the land taken.
The evidence of the First Claimant
18.
Mr David Mosche Halpern began his evidence by explaining the
historical background to his interests in land in Marshgate Lane. Dominion
Mosaic and Tile Company Limited ('Dominion') (the fourth claimant and the
company of which he was sole director) had for many years owned a site at 44 Marshgate Lane (the Dominion site) and this had originally included what became the
reference land. In 1987 the London Borough of Newham ('LBN') bought a strip of
land to connect Marshgate Lane with Carpenters Road. This effectively divided
the site into two separate parcels. The Dominion site remained in the hands of
Dominion (and does to this day) but the severed section became 105 Marshgate Lane and on 10 February 1988 that area was sold by Dominion to Mr Patrick
Gladwell, the second claimant, who moved Clearun Ltd, his waste management and
skip hire business, onto it. That is the reference land.
19.
Mr Halpern said that as time went by he came to appreciate that there
was significant development potential in the land and he gave a short account
of his discussions with Mr Gladwell about the possibility of buying back all or
part of his interest in it. He also explained the discussions that had been
held with LBN and the applications that were made in respect of residential
development of the Dominion site and by Clearun Ltd. He explained why he came
to the view that the Thornton Fields site, the Dominion site and the reference
land had a very special value. He also thought that Clearun Ltd was a valuable
asset, would continue to be a successful operation and would be a good
investment. He said that he had been talking with Mr Gladwell for some time
about the Clearun business and that Mr Gladwell had indicated that as he was
suffering from ill health and stress he would welcome somebody who would assist
him with his responsibilities, and who would enable him to release some capital
from the business.
20.
Those discussions culminated in an option agreement (the 2006
Agreement), signed on the 7th June 2006, and made between David Halpern and
Patrick and Mary Gladwell. By this contract Mr Halpern was to pay £1.7 million
for the reference land (clause 3) and £1,050,000 for 50% of the issued shares
of Clearun Ltd (clause 4). Clause 2 said that Mr Halpern had the right to
exercise the option until 5:00pm on 22 June 2006, although that appears to have
been varied by a written note at the bottom of the first page of the contract
which required him to exercise his option by "the end of June 06". The
sale and purchase of the property and shares was to be completed six months
from the date of exercising the option and time was said to be of the essence. Clause
10 provided for the total consideration of £2.75 million to be paid by three
instalments: the first £950,000 to be paid within a month of exercising the
option, the second £900,000 to be paid within two months and the remaining £900,000
on completion. Mr Halpern exercised his option at the end of June 2006. He
paid £1 million in October 2006, £500,000 in January 2007 and a further £ 1.25
million on 21 June 2007. However the latter sum was not paid to Mr Gladwell but
held by Mr Greenwood, his solicitor.
21.
Mr Halpern said that this option had been attractive to Mr Gladwell,
firstly because he could carry on his waste transfer operation whilst Mr
Halpern would see to the business side of the affairs, and secondly because it
meant that he would receive a substantial payment at an early stage, rather
than have to go through the process of extended negotiations with the acquiring
authority in connection with the compulsory purchase order. It was put to Mr
Halpern that the £1.7 million agreed between him and Mr Gladwell was good
evidence of the value of the land. Mr Halpern did not agree. He conceded that
both he and Mr Gladwell were prudent businessman who knew about buying and
selling land in the locality at the time and understood the planning context.
He acknowledged that Mr Gladwell had been independently advised about the value
of the reference land, Jones Lang LaSalle having valued it at £1.87 million in
early 2007. To finance the purchase of the land, Mr Halpern had approached the
First Bank of Israel, which was the bank he uses for general business and
securing mortgages. They instructed AtisReal to carry out a valuation for
commercial mortgage purposes. The valuation was dated October 2006 and was
undertaken on a RICS Red Book basis and on the assumption that the Olympics
were not taking place. The valuation was for £1.8 million but Mr Halpern said
he did not believe that hope value had been taken into account, despite what
was said in the valuation itself. He agreed that he had refused to disclose
this valuation until ordered to do so by the Tribunal, as he had not considered
it to be necessary. The valuation had been made nine months prior to the
vesting date and he said that in his experience bank valuations are generally
cautious and below market value. His opinion was that the valuation was simply
wrong.
22.
Mr Halpern confirmed that he gave evidence as an objector to the CPO
inquiry. He did so in respect of the Dominion site, but not the reference land or
Clearun. Clearun made a separate objection on the basis that the business was
likely to be extinguished if the CPO was confirmed. He understood that the
prospect that the CPO would be confirmed was very good. It was put to him that
he exercised the option in the full knowledge that it was highly likely that
the CPO would be confirmed, the position of Clearun would be very difficult and
it would be unlikely that an alternative site for the business would be found. He
responded that there was still 12 months to go before the land would be
required; it would not be easy but the LDA had said they would find somewhere
and, with the right money, he was confident a place could be found. He
acknowledged that he had never run or invested in a waste company and thus had
no experience of such a business. If the CPO had not been made he said he
would still have completed the acquisition of the freehold of the property and
50% of the shares in Clearun. He would have sought planning permission to
develop the property and would have intended to relocate Clearun's business
when the time came to redevelop. In the meantime Clearun would have continued
to operate from the reference land. However, he agreed that was not
what he expected to happen.
23.
Mr Halpern said that the acquisition of the property became 'frustrated'
(although not in the technical legal sense). This was partly due to the
compulsory purchase order and the difficulty in finding alternative premises
for Clearun. He also said that Mr Gladwell had not fulfilled some of his
obligations requiring the production of accounts, tax returns and other
information. As it transpired, neither the land nor the shares were transferred
to Mr Halpern at that stage and he and Mr and Mrs Gladwell entered into another
contract on 6 February 2008. This contract, briefly summarised, recorded that
the London Development Agency had vested the reference land in themselves under
the CPO and the parties were therefore unable to complete the transfer of it.
Instead Mr Gladwell assigned his rights to compensation for the land and for
disturbance to Mr Halpern. In addition the remaining 50% of the shares would
also be sold to Mr Halpern. The total price for 100% of the shares would now be
£850,000. This new contract meant that Mr Halpern had overpaid by £200,000 and
that sum was returned to him.
24.
Examination of Clearun's accounts shows that there was about £700,000 in
the company's account when Mr Halpern acquired it. Making proper allowance for
various debts of the company brought that sum down to something like £650,000.
That meant, as Mr Halpern acknowledged in cross-examination, that instead of Mr
Gladwell getting £1.050 million for half the shares in the company, he got
about £200,000 for all the shares in the
company. Mr Halpern initially said that because Mr Gladwell ‘received a lower
price for the shares’ there was an oral 'gentleman's agreement' that, if he
were to receive compensation over and above the price that Mr Halpern paid to
Mr Gladwell, the two of them "would come to an arrangement regarding
payment of an additional amount." In cross-examination Mr Halpern said,
on reflection, he did not think that was the reason. It was because by then the
business was of very little value – much of its value having been “destroyed”
by the CPO. Mr Gladwell wanted to close the matter so Mr Halpern agreed to pay
him £850,000 with an agreement for overage if more money than that were paid in
compensation. Mr Gladwell was not well. He was feeling very elderly and said
that he could not take it any longer and that is why the agreement was
"remade." It was put to Mr Halpern in cross-examination that the
reason that Mr Gladwell did not get his money was because Mr Halpern had
realised that he had overvalued the company under the option agreement. Mr
Halpern denied that. It was also put to him that he never had any intention of
running Clearun as a going concern; his only purpose was to use it as a vehicle
for claiming disturbance compensation. This Mr Halpern also denied, maintaining
that he proposed to run the company in partnership with Mr Gladwell.
25.
Whilst the shares were duly transferred on 6 February 2008, the reference
land was not. It was submitted on behalf of Mr Halpern that he has an
equitable interest in the freehold of the reference land by virtue of the
option Agreement of 7 June 2006 and this entitles him to claim compensation for
the value of the land. Insofar as Mr Gladwell still had a compensatable
interest in the freehold, he had agreed to assign his compensation claim to Mr
Halpern by virtue of the February 2008 contract. As for the disturbance claim,
it was submitted that Mr Halpern is entitled to maintain it as the owner of
100% of the shares in Clearun or alternatively because the right to claim for
disturbance was also expressly assigned in the 2008 Agreement. There is also a
dispute as to whether Mr Halpern had an equitable interest in 50% of the shares
of Clearun at the valuation date.
26.
Mr Halpern explained in some detail the efforts that were made to
relocate Clearun and the negotiations that took place over various suggested
sites. It is unnecessary to set these out at any length as the acquiring
authority does not now maintain that Clearun failed to take reasonable steps to
relocate or mitigate its loss on those grounds.
27.
As for the total extinguishment of Clearun Ltd's business, Mr Halpern
said that as the company was unable to relocate by the valuation date, it had
no choice but to arrange to sell its assets by auction and its goodwill to
selected parties, in order to mitigate its losses. The auction took place on
27 June 2007 at the reference land. A copy of the schedule of sales prepared
by the auctioneers, Malcolm Harrison Auctions Ltd, was exhibited. This showed
that a substantial number of skips, some vehicles and a variety of equipment
were sold for a price of £165,053.70p.
28.
The sale of the goodwill, as Mr Halpern described it, is said to have
taken place on 14 May 2008 (although the precise date is not clear from the
copy of the agreement before the Tribunal). The sale was to 0S Hire Ltd,
trading as Olympic Skips and the price was £75,000. Thus, he said, the Clearun
business was extinguished.
29.
Although the sale agreement was made in May 2008, the ‘transfer date’,
which is the date from which the purchaser takes the business "as a going
concern", is said to be 9 July 2007. Mr Halpern said he believed £25,000
had been received by the solicitor in 2007 and held as a deposit. He thought
that there was a payment of £50,000 by the solicitor to Clearun on 28 May 2008.
He was cross examined about the Chaps Receipt details, which shows a payment
from the solicitor to Clearun of £75,000 on 28 May, but responded by pointing
out that was a payment made by the solicitor and he may have received money
earlier. Completion was on that day but it was backdated to the valuation date
on the solicitor's advice.
30.
In a letter dated 16th July 2007 Mr Gladwell wrote to five potential
buyers to ask for offers. He said:
“We have sold
by auction the bulk of our equipment and machinery but in order to service our
loyal customers we have kept back a small amount of equipment until we find a
suitable company to look after them. We are now offering for sale our client
base along with the remaining stock.
Our turnover
until July 2005 was circa £1.6 million, and in July 2006 was in excess of £2
million. We anticipate that if the customers continue to be served at the least
half the turnover will be secured. We now wish to sell the goodwill including
transfer of the telephone lines as soon as possible."
The letter invited offers to be forwarded to
Mr Huggins, Mr Gladwell's solicitor, by ‘close of business July 18 2007’. This
gave the potential offerors less than a day to assess the offer and make up
their minds.
31.
The terms of the May 2008 agreement, drawn up by a solicitor, are of
interest. The vendor was Clearun Limited. Mr Gladwell was noted to be
"the guarantor". Clause 2 said
"SALE AND PURCHASE OF THE ASSETS
for the
consideration the Vendor will sell … and the Purchaser will buy with effect
from the transfer date the Business as a going concern and comprising all of
the following assets:
2.1 the
Goodwill and the full benefit (so far as the Vendor can assign the same) of the
Contracts and all the licences held by the Vendors in relation to the Assets
2.2 the Work in Progress
2.3 all books and records (except accounting records) ….
2.4 vehicles and plant."
32.
Schedule 1 listed the vehicles and plant, including four skip lorries
and approximately 60 skips.
33.
In clause 6.1 it was recorded that:
"THE PARTIES AGREE that the Business
is transferred as a going concern as from Completion …"
34.
Clause 8 set out undertakings, amongst other things, that neither the
vendors nor guarantor would engage in a competing business for three years nor
solicit former customers.
35.
Mr Halpern said that he regarded the sale as no more than the disposal
of the remaining goodwill and equipment of Clearun. The company itself
effectively ceased to exist at the valuation date, in his view. He did not
think it traded after that date. He accepted that if the business had been
extinguished in July 2007 it could not be sold as a going concern in May 2008,
however the words "as a going concern" was simply wording put in by
the solicitor. The sale was no more than an attempt to mitigate the loss. He
acknowledged that he was not involved in that deal in 2007 at all. He did not
think the details of the contract were important: his only concern was to get
the £75,000 in order to mitigate the losses.
36.
Mr Halpern was asked about the lorry P 421 NNM which was photographed
working in the London congestion charge zone in 2008 and was wearing the
Clearun name and telephone numbers. This was not one of the vehicles that had
been sold at auction. The photographs showed it removing a skip from outside
House of Fraser off Oxford Street. Enquiries of that company suggested that
payment was made to OS hire Ltd for work done by 18 March. Mr Clarke gave
evidence that a lorry in Clearun livery was in the congestion charge zone on a
number of dates in late 2007 and early 2008. Clearun was shown as the
registered keeper of the lorry until 11 March 2008. Penalty charges were
issued and sent to Clearun's registered address and two of them were paid in
February 2008. Mr Halpern replied that obviously somebody was using a Clearun
lorry in late 2007 and 2008 but that did not mean it was Clearun; he could not
say who it might have been.
37.
In his evidence in chief Mr Halpern made a claim for his management
time. This was said to be in respect of his time in his capacity as the
equitable owner of the freehold of the reference land from June 2006, and also
working as Clearun Ltd's agent before that date. On that basis he claimed the
sum of £80,000, being 1000 hours at the rate of £80 an hour. In
cross-examination he agreed that he had not been acting as Clearun's agent
before June 2006. He had misquoted himself, he said. It was just a mistake. As
for the element of management time spent in connection with the reference land,
he said he was investing in a compensation claim so he had to incur some costs.
He had been involved in writing letters from a date that he could not remember
but he acknowledged that he had no specific evidence of the work he had done as
equitable owner of the freehold.
38.
Having heard Mr Halpern, we have concluded that, occasionally, he would
yield to the temptation to make assertions for which he could have no
first-hand evidence and there did seem to be a tendency for the strict
historical accuracy of his recollection to become a little clouded by an
understandable concern for the prospects of his claim. We have therefore been
inclined to look for independent support for his evidence before putting more
weight on it than would be fair.
Disturbance - The Law
39.
The disputes between the parties were about the application of the law
to the facts; there was no serious disagreement about what the basic principles
of the applicable law were. We therefore summarise them very briefly. The
long recognised principle of law is "that any loss sustained by a
dispossessed owner (at all events one who occupies his house) which flows from
a compulsory acquisition may be properly regarded as the subject of
compensation for disturbance provided, first, that it is not too remote and
secondly, that it is the natural and reasonable consequence of the
dispossession of the owner." (Per Romer LJ in Harvey v Crawley
Development Corporation [1957] 1 QB 485 at 494.) Such a dispossessed owner
is entitled "to be put so far as money can do it, in the same position as
if his land had not been taken from him. In other words, he gains the right to
receive a money payment not less than the loss imposed upon him in the public
interest, but on the other hand no greater." (per Scott in LJ Horn v
Sunderland Corporation [1941] 2 KB 26 at page 42. (The principles were more
recently reiterated in the case of Director of Buildings and Lands v Shun
Fung Ironworks [1995] 2AC 111.) Both occupation and ownership are crucial
to a successful claim under this principle. Section 5, Rule (6) of the Land
Compensation Act 1965 left the right to disturbance compensation that had been
created by judicial authority unaffected by Rule (2).
40.
In the Land Compensation Act 1973, section 37, Parliament came to the
aid of persons displaced from land who did not have a legal interest in it. That
provides:
"37 (1) where a person is displaced from any land in
consequence of-
(a) the acquisition of the land by an authority possessing
compulsory purchase powers ...
he shall,
subject to the provisions of this section, be entitled to receive a payment
(hereafter referred to as a "disturbance payment") from ... the
acquiring authority.
(2) a person shall not be entitled to a disturbance
payment -
(a) in any case, unless he is in lawful possession of the
land from which he is displaced;
(b) in a case within subsection (1)(a) above, unless
either-
(i) he has no
interest in the land for the acquisition or extinguishment of which he is ...
entitled to compensation under any other enactment."
The amount of the
disturbance payment is defined by section 38 as follows:
“38 (1) the amount of a disturbance payment shall be equal
to -
(a) the reasonable
expenses of the person entitled to the payment in removing from the land from
which he is displaced; and
(b) if he was
carrying on a trade or business on that land, the loss he will sustain by
reason of the disturbance of that trade or business consequent upon his having
to quit the land.
(2) in estimating the loss of any person
for the purposes of subsection (1)(b) above, regard shall be had to the period
for which the land occupied by him may reasonably have been expected to be
available for the purposes of his trade or business and to the availability of
other land suitable for that purpose.”
41.
The claimant is under a duty to act reasonably to reduce or mitigate his
loss. The standard of reasonableness is not to be set too high and it is for
the acquiring authority to prove that a claimant has failed to mitigate his
loss. (See Lindon Print Ltd v West Midlands County Council (1987) 283
EGLR 70.) The availability or non-availability of alternative accommodation
for a business is likely to be a very relevant matter in deciding whether the
action taken by the business owner was reasonable. Losses resulting from a
reasonable forced sale of equipment may well be another example of
compensatable losses. Loss of profit or goodwill may also form an important
head of claim either where the business has to be extinguished completely or
where there is a partial or temporary loss. In principle, of course, the
returns produced by successful efforts to mitigate the loss, such as the
proceeds from sales of equipment or a sale of the goodwill of a business,
should be set-off against the loss of profit.
42.
Those general principles are undisputed, but there is an important
distinction between what is claimable in principle and what can be proved on
the evidence in any particular case. In every case the claimant has to prove on
the balance of probabilities that he has suffered the losses in respect of
which he is claiming. The Tribunal can only reach a conclusion in his favour on
the basis of credible and admissible evidence.
Disturbance - The Issues
Ownership of shares
43.
Before turning to the specific disturbance claims upon which a
determination is required, it is necessary for us to first say something in
connection with the parties’ arguments relating to equitable ownership of the
shares in Clearun.
44.
The claim for disturbance is made by Clearun Ltd. It was emphasised in
closing on behalf of the claimants that Clearun Ltd, the third claimant, is a
separate legal personality and the identity of its shareholders has no bearing
on the loss suffered by the company. However, it was argued, the identity of
the owner of the shares had a bearing on Clearun's chances of remaining in
occupation of the land until it was required for redevelopment and the rent it
would have to pay. If Mr Halpern was a 50% owner of Clearun Ltd, it was
inconceivable, it was said, that he would have evicted Clearun or done anything
that damaged or extinguished its business. Secondly, the sale of the shares in
the company might have a bearing on the valuation of the total extinguishment
claim. It was argued that Mr Halpern was the equitable owner of 50% of the
shares in Clearun at the valuation date because the option to buy the shares
was exercised before the valuation date and from that moment half the shares
were held on trust for Mr Halpern. Reference was made to Loring v Davis (1886) 32ChD 625, per Chitty J at page 630 et seq, and particularly at page 624
where he said:
"If a man makes a transfer, there
being no previous contract whatever, and executes a transfer to another of
shares or stock, on the face of the transfer it is a sale, and if the intended
transferee pays the purchase-money upon the transfers, and takes the transfer
into his own possession and keeps it, has not the transferee by thus accepting
the transfer of the shares, as between himself and the transferor become the
equitable owner of the shares, and that not withstanding that the transferee
does not execute the transfer?"
45.
It was submitted that the equitable interest passed when the contract
was executed and not when the full purchase price was paid. The option was
exercised on 22 June 2006 and what happened thereafter can be disregarded; the
parties were entitled to vary the terms, which is what they did.
46.
The acquiring authority argued that Mr Halpern had not acquired a
beneficial interest in Clearun limited by the valuation date. He had not
adhered to the terms of the 2006 agreement and the payments he had made were
not in accordance with it. The 2006 agreement was never completed by Mr
Halpern. There was no evidence of any variation in its terms. It was observed
that the instance given by Chitty J in Loring v Davis postulated that
the purchase money on the transfers had been paid.
Consideration and conclusion on
share ownership
47.
It seems to us that this issue is of limited relevance. It makes little
difference to the claim itself. There is no suggestion that Clearun Ltd is not
entitled to claim for its business loss. Mr Halpern appears, now, to own 100%
of the shares in Clearun and thus compensation awarded to Clearun could
eventually profit Mr Halpern. The only relevance is the degree of control that
Mr Halpern was in a position to exercise at the valuation date, and the way
that exercise of control might have a bearing on the value of the company. It
seems to us that, in practical terms and as a matter of fact, at the valuation
date Mr Halpern was in a position, regardless of his strict legal rights, to
influence decisions made by and about the company. Nonetheless that does not
persuade us that Clearun's occupation of the land would have been secure or
unburdened. Mr Halpern's attitude to his agreements with Mr Gladwell and his
answers to some of the questions in cross-examination about whether he would
have contemplated charging Clearun a substantial rent, leave us in no doubt
that Mr Halpern would have taken a strictly commercial attitude and that the
welfare of Clearun would not have been his primary concern.
48.
We do not believe that it is necessary to decide whether Mr Halpern was
or was not legally an equitable owner of the shares and we do not do so. Suffice
it to say that it seems to us that there is force in the argument that Chitty
J's words in Loring v Davis are distinguishable on the facts from the
current case and we are inclined to agree with the acquiring authority that
there is no evidence that there had been any variation of the contract upon
which it would be prepared to rely.
Business losses – total or
partial extinguishment
49.
It is strongly contended on behalf of the claimants that the business of
Clearun was totally extinguished. A substantial proportion of Clearun's
equipment was auctioned on 27 June 2007, raising £160,053 (£145,748 nett). It
is said that "a little while later, but still in 2007" there was an
agreement to sell the remaining assets, described as the 'rump' of the
business, to OS hire Ltd. This was recorded in the May 2008 agreement. The
consideration was £75,000. This, it is submitted, effectively disposed of the
business of Clearun. Clearun had been operating profitably and had reasonable
prospects of continuing to do so, at least until Mr Halpern required the land
for development. Mr Nedas had put a value on the business (£1,482,549) and,
subject to taking account of the auction proceeds and the £75,000, that was the
measure of disturbance compensation due. The only real issue was whether the
acquiring authority had discharged the burden of proving that Clearun had
failed to act reasonably in attempting to mitigate its losses. Attention was
drawn to Mr Gladwell's health difficulties, about which Mr Halpern gave
evidence. (We also recall the e-mail from Adrian Huggins dated 27th June 2007
which spoke of Mr Gladwell’s robust health until about a year ago followed by a
catalogue of illnesses, which Mr Gladwell put down to the stress of the CPO.)
That is something that might have a bearing on the reasonableness of the
efforts at mitigation.
50.
The acquiring authority submitted that the business of Clearun Ltd was
clearly not extinguished. Mr Gladwell was the man who could have given evidence
on this issue but no evidence was forthcoming from him. Mr Halpern gave
evidence but it was very unclear on what basis he did so since he had no active
role in Clearun Ltd until he became a director in 2008 and before that he had
no involvement with that or any other waste business. Mr Nedas simply relied
upon what he was told by Mr Halpern and could add nothing factual. By contrast
the 2008 sale agreement expressly refers to the business of Clearun Ltd being
sold as "a going concern". There was little evidence of sensible
efforts to mitigate the loss by an effective sale of the business. The
acquiring authority pointed to the surprising and inadequate letters sent out
on 16 July 2007, two weeks after the authority took possession of the land.
51.
In closing, the acquiring authority confirmed that its position on the
duty to mitigate was that Mr Gladwell should have taken steps to bring about
the timely sale of the business of Clearun once the possibility of a move to Thames Wharf had disappeared in March 2007. The steps he did take were too little and too
late. The acquiring authority did not maintain that there was a failure to
take reasonable steps to mitigate loss prior to the confirmation of the CPO.
52.
The acquiring authority drew attention to the evidence of a waste
removal lorry, of which Clearun was the registered owner, making several trips
into central London between the date of extinction in July 2007 and the sale to
OS hire in May 2008. Several congestion charge penalty notices were issued to
Clearun Ltd and some of them were paid. It was submitted that somebody was
making money from this although it was impossible to say who.
Consideration and conclusion
– total or partial extinguishment
53.
We accept that there is a danger of putting too much emphasis on whether
there was a total or partial "extinguishment" of the business. A
total extinguishment may occur where a business cannot be relocated or sold as
a going concern and loss of goodwill and future profits will be permanent and
total. Such a loss is compensatable. However, it may often be the case, where
a business is displaced, that it will be a sound mitigation strategy for the
claimant business owner to identify a core business, which can be sold as a
going concern together with its contacts and goodwill and an adequate supply of
plant and equipment. The remaining plant and equipment can be disposed of
separately. That may be a sound way of mitigating the claimant's loss. Whether
it is described as a total or partial extinguishment is of little concern as
long as it is clear what has actually happened. Of course, in such a case, the
sale of the core business as a going concern is intended to recoup some of the
value of goodwill and future profits. Indeed it may recoup all of that value. A
claimant cannot simultaneously sell a business as a going concern, which
implies a price reflecting future value, and claim compensation for a total
loss of future profits. But in such a case, providing the evidence is clear
that there was still a loss, there is no reason why a claimant should not
recover compensation to reflect the loss the business has suffered through
having to sell the core business off as a going concern, rather than being able
to make its own profits in the future.
54.
In this case the evidence put forward by the claimants has all been
directed to establishing that there was a total extinguishment of Clearun's
business at the valuation date and Mr Nedas's valuation evidence was based on
that proposition.
55.
We are satisfied that there was not a total extinguishment of the
business, finding on the evidence that a significant core of Clearun's business
was sold "as a going concern" to OS Hire. That is what the contract
of May 2008 said was being sold. We do not accept Mr Halpern's evidence that
this was no more than a meaningless flourish by the lawyers. The sale included
"the goodwill and the full benefit (so far as the vendors can assign the
same) of the contracts and all licences held by the vendor". It included
work in progress and the business telephone number. It included vehicles and
plant. The contract was also consistent with the letters sent out on behalf of
Clearun Ltd by Mr Gladwell on 16 July 2007. The letter said:
"We have
sold by auction the bulk of our equipment and machinery but in order to service
our loyal customers we have kept back a small amount of equipment until we find
a suitable company to look after them."
And then:
"Our
turnover until July 2005 was circa £1.6 million, and in July 2006 was in excess
of £2 million. We anticipate that if the customers continue to be served at
least half the turnover will be secured. We now wish to sell the goodwill
including transfer of the telephone lines as soon as possible."
We read that
as a clear indication that Clearun Ltd was continuing to service their loyal
customers until they found another company to take them over. That is why the
company had kept back "a small amount of equipment."
"Them" plainly refers to the "loyal customers" who were being
serviced in the interim.
56.
Therefore, an element of the concern was, indeed, still going. The
business had not been extinguished at the valuation date. That may be part of
the explanation for the sighting of a Clearun lorry removing waste in the West End on 3 March 2008 and for the congestion charge penalty notices, issued to Clearun
Ltd, some of which were paid. No doubt the loyal customers were continuing to
pay someone to have their rubbish removed, although no such payments can be identified
in the accounts of Clearun. Perhaps Mr Gladwell could have explained. Mr
Halpern could not. Neither could Mr Nedas, who appeared to suggest that what
was said in the letter was a lie, a suggestion which did not impress us.
57.
The timing of the sale to OS Hire is also confusing. The written
contract of May 2008 says that "the transfer date" from which the
sale has effect is 9 July 2007, the valuation date. But this can only be a
notional date since Mr Gladwell's letters of invitation went out a week after
the valuation date on 16 July 2007. It is a peculiarity of those letters that
they required an answer on 18 July, giving potential buyers little more than 24
hours to make a sensible offer. It is not obvious what purpose such a short
opportunity to consider the offer can possibly have had, even if Mr Gladwell
had suddenly decided time was pressing, unless it was to prevent Clearun being
embarrassed by offers, or other offers, for its business. Mr Halpern thought
that there had been a preliminary agreement between Clearun and OS Hire in
August 2007 although he had no direct knowledge or evidence of that. It
certainly appears that payments towards the £75,000 price were made to a
solicitor in the autumn. There is no explanation why there was no formal
agreement or final payment until May 2008.
58.
The acquiring authority submitted that the circumstances exposed a
significant lack of clarity in the financial arrangements of Clearun and OS Hire.
We agree. There is, indeed, a troubling lack of clarity in the financial and
business arrangements of Clearun up to and following the valuation date. The
business was not totally extinguished at the valuation date and, for an
uncertain period and to an uncertain extent it must have continued. If it
continued, the presumption is that some money was made by it, of which there is
no trace. We are left with the clear impression that we do not have the whole
picture and that it would be unwise to put much weight on the sum of £75,000 as
a simple market sale of the ‘rump’ of the business. Mr Halpern gave unreliable
evidence on these matters and Mr Gladwell has not been available to enlighten
us further. Given that uncertainty, we are not satisfied on the evidence that
disturbance to the business should be measured simply by valuing loss of
profits on the total extinguishment basis, less the proceeds of the auction and
the sale to OS Hire.
59.
On what basis, then, can the Tribunal act? Mr Hodgen undertook an
alternative valuation of the Clearun business in which he made the assumption,
relying upon the assertion in Mr Gladwell's marketing letters, that half the
turnover might be retained and that the compulsory acquisition was responsible
for the partial extinguishment of 50% of the business. On that basis he
calculated compensation for the loss of Clearun’s business as being £83,990. However,
the acquiring authority pointed out that this valuation had been undertaken purely
to assist the Tribunal and they were not positively advancing it; any such
valuation having to assume that (a) adequate efforts had been made to mitigate
the loss and (b) that Clearun would be able to continue occupying premises for
at least 10 years. Both of those assumptions were contested by the acquiring authority.
60.
On behalf of the claimants in closing some reliance was placed on that valuation
as an alternative position. It was asserted that at least 50% of the business
was extinguished for which compensation was due. On the other hand, this
exercise was fairly described by the claimants as "entirely arbitrary” and
"an extremely unsound basis for the Tribunal to decide that only 50% of
the business was extinguished."
61.
Another view might be that the May 2008 sale was the work of a tired and
ill seller anxious to dispose of the business even if it was at a substantial
undervalue and was thus reasonable mitigation in the circumstances. We have
considered that possibility, but do not think the evidence justifies such a
conclusion. The apparent efforts to sell the business were very late and
limited, to say the least, and no satisfactory explanation, supported by
adequate evidence, has been put forward. We have set out our reasons for not
being satisfied that the business was totally extinguished. So far as what was
happening with the business of Clearun in 2007 and 2008 can be fathomed, it is
consistent with a coherent and determined, but undeclared, strategy to maximise
the remaining value of the business. For those reasons and the reasons
identified by both the acquiring authority and the claimants we are not satisfied
that we have any sound basis for deciding that 50% or any other percentage of
the business was extinguished.
62.
In those circumstances it is not necessary for us to set out in these
reasons an analysis of the extinguishment valuations of Mr Nedas on the one
side and Mr Hodgen on the other. Suffice it to say that we followed them both
with interest and thought there was force in the criticisms levelled at Mr
Nedas's valuation. Had it been necessary to do so, we would have preferred the
valuation of Mr Hodgen.
Pre-possession losses
63.
Mr Jeffrey Nedas said he calculated Clearun’s pre-possession loss
by assessing what the company’s profit would have been for the year ended 31
July 2007 but for the CPO. He then compared that estimated profit with the
loss that actually occurred, the difference, he contended, being the loss
caused by the CPO. Mr Gordon Hodgen’s approach was that
pre-acquisition losses should be solely based on those increased costs or lost
profits that can be directly attributed to the acquisition, on the grounds that
Mr Nedas’s methodology assumed that the whole of the difference between the
estimated profit and the actual loss was caused by the CPO.
64.
In the business extinguishment valuation (BEV) included as an appendix
to his first expert witness report, Mr Nedas calculated losses under this head
in the sum of £431,383 being the loss of profits based upon his assessment of
the maintainable gross profit before tax and the actual operating profit before
tax achieved “in the year ended 31 July 2007” assuming turnover of £2.0 million
and a gross profit percentage of 29%, and subject to a number of adjustments. In
the report itself, he made an adjustment to allow for a higher notional rental
liability (an increase from £80,000 to £120,000pa), and the figure became
£391,383. In his rebuttal of Mr Hodgen’s first report, Mr Nedas said he did
not agree either with his approach or his figures and set out a detailed
explanation of his views as to why the estimated gross profit percentage was
fair, and why Mr Hodgen’s analysis of the rubbish disposal expenses and the
redundancy costs was incorrect. However, acknowledging that the notional rental
liability should have been even higher (at £155,000 pa) he did make a further
adjustment to produce a figure of £356,383.
65.
In his third report, dated 25 July 2013, Mr Nedas said that the notional
rental figure had now been agreed at £120,000 pa and his figure was therefore
further revised to £391,383. However, on 16 October 2013, the day before he
was due to appear before the Tribunal, Mr Nedas produced a letter and a revised
valuation, calculating these losses at £401,000 based upon 11 months trading
figures, having acknowledged the fact that Clearun ceased to operate on 7 July
2007. He pointed out that that had been recognised in the valuation set out as
in Appendix C to the agreed statement of facts and issues dated 27 September
2013, but made other adjustments including revision of the gross profit
percentage to 27.47% based on an increased turnover of £2.2 million. The
valuation was set out at his revised Appendix C thus:
£
£
Estimated Turnover for Y/E 31 July 2007 2,200,000
11/12 thereof 2,017,000
Gross profit @ 27.47 % (see below)
554,000
Less
Administration expenses [agreed] 230,000
Depreciation [agreed]
60,000
290,000
11/12 thereof
(266,000)
Estimated profit before tax
288,000
Actual loss per 2007 accounts
(113,000)
Pre-possession loss
401,000
Gross profit percentage:
Gross profit per Clearun’s 2007 Accounts
459,754
Less
Wages 293,796
Additional redundancy related costs
(£122,941 - £113,569 inc in wages) (
9,372)
(284,424)
175,330
Rubbish disposal expenses per accounts 1,009,270
At 37.1% of turnover (
667,656)
T herefore, additional rubbish
disposal expenses 341,614
Less landfill tax adjustment (
22,589)
Adjusted gross profit
494,355
Gross profit % on turnover of £1,799,612 27.47%
66.
Mr Nedas said that, in making his further adjustments, he had agreed
with Mr Hodgen that he should not have included the rent in his earlier
valuations as no payment was made during the “shadow period”. He also
acknowledged that he should not have added back a proportionate part of what he
considered to be non-commercial wages, such sums having been paid during the
shadow period and would have been paid in the no-scheme world. He further made
allowance for additional landfill tax. Mr Nedas went on to say that during
the 2006 financial year, Clearun’s turnover was £2.026 million which
represented growth of 28% over 2005. It also grew by 11.22% during the
quarter ended 31 October 2006. Turnover fell from 2006 onwards. In his view,
based upon these factors, turnover in a full year to 31 July 2007 could have
been expected to be £2.2 million hence his increase from the £2 million
previously used – to then be adjusted by 11/12 as set out in his revised
valuation.
67.
As to losses “caused solely by the CPO”, Mr Nedas said that on the basis
of Mr Hodgen’s methodology, there were two specific issues and no others.
Firstly, additional rubbish disposal costs (which Mr Nedas calculated at £341,614
and Mr Hodgen said they were no more than £52,439) and secondly redundancy and
staff related costs at £122,941 which were arithmetically agreed, although Mr
Hodgen and counsel queried part of this sum, concluding that only £48,935 was
payable. However, he said Mr Hodgen’s approach made no allowance for loss of
gross profit on lost turnover [although, in fact, it did, in his assessment of
loss of profits of £27,499 – see para 71 below]. In Mr Nedas’s view, the whole
of the difference between an anticipated profit of £288,000 and an actual loss
of £113,000 (£401,000) was caused by the CPO as there were no other factors
that could said to be responsible.
68.
In connection with the rubbish disposal costs, Mr Nedas said that a
“common sense” check of Clearun’s 2007 accounts proved these to be unusually
high in comparison with previous years. He said Mr Hodgen had arbitrarily chosen
to only account for invoices from 16 June 2007, amounting to £52,438.94 whereas
Clearun had been taking steps to clear the site for a much longer period. In
reality, the clearance costs for 2007 were over £1 million (56% of turnover),
whereas the average for the previous three accounting years was 37.1%.
Allowing for the increase in Landfill Tax rates from 1 April 2007, Mr Nedas
calculated the extra rubbish disposal costs entirely attributable to the CPO to
be £341,614. He did not agree with the suggestion that because Clearun had
allowed “vast volumes” of waste to build up over many years and had not made
any provision in each year’s accounts for the disposal of same, the whole of
the extra costs incurred in completely clearing the site should not be
compensatable.
69.
It was accepted in submissions that Clearun had historically made no
provision in its accounts for terminal site clearance liabilities, but to
introduce such an allowance in the final years trading for the purposes of
assessing compensation would result in an unacceptable change to the accounting
policies used from year to year. In any event, if Clearun had made such an
allowance during the period it had been trading, it would have been immaterial
(about £18,000 per year). It was a fact that the only reason for the
substantial increase in disposal costs was the need, caused solely by the CPO,
to vacate the site. The acquiring authority submitted that, if Mr Nedas’s
additional costs were to be awarded, it would mean the claimants were getting
away scot free with costs that they would, at some stage, have had to incur.
It was pointed out that the question of a change to accounting policies had not
been raised during the hearing, or put to the witnesses. The suggestion, it
was submitted, was akin to a company making no allowance in its accounts for
tax liability and then saying the business should be valued on the basis that
it never had to pay dues to HMRC.
70.
On the question of redundancy costs, Mr Nedas produced a table setting
out how his figure was made up. Payments in lieu of notice, NIC on those and
redundancy payments amounting to £122,941 would not, he said, have been
incurred if the business had continued to operate. In his letter of 16 October
2013, Mr Nedas said that this figure had been agreed with Mr Hodgen, Mr
Hodgen said that he did not disagree with Mr Nedas’s arithmetic, but was not
sure whether payments in lieu of notice were really recoverable in addition to
statutory redundancy payments as, surely, there had been enough time prior to
the date of acquisition for the requisite notice to be given. However, this
was a matter for submissions, and he said in re-examination that he did not
consider the payments claimed to be inappropriate. In submissions, it was
stated that whilst it was accepted that £48,935 was payable as a matter of
principle (despite the fact that there was a question over whether the payment
to Mr Davidson was applicable as he had emigrated to Spain), there was no
evidence produced that any of the employees were contractually entitled to the
additional payments in lieu.
71.
In his first report, Mr Hodgen valued pre-possession losses in the sum
of £128,873 inclusive of rubbish disposal costs which he calculated at £52,439
from 13 June 2007 to the valuation date. In his second report, in the light of
further information that had been made available by the claimants, the
pre-possession costs were revised to £202,879. That figure was made up as to
£122,941 redundancy and payments in lieu, £52,439 for additional rubbish
clearance and £27,499 loss of gross profit from sales for the period 17 June to
2 July 2007. This loss of profits was based upon his Schedule 3a (Bundle 12
p.6307) which showed the actual and expected gross profit in 2007. However, it
was submitted that as there was no evidence from the claimant to justify
entitlement to any of the additional rubbish costs, or £53,127 of ‘notification
pay’ in connection with the redundancy costs, the compensation payable should
be reduced to £97,313. Mr Hodgen accepted in cross-examination that in making
adjustments in his Schedule 3a, the year on which he relied was 2007 which was
the year in which compulsory acquisition took place, and there were therefore a
number of uncertainties – including how much of the rubbish disposal expenses
were attributable to the CPO.
72.
Mr Hodgen said that there were a number of reasons why he did not agree
with Mr Nedas’s methodology. His claim for £391,383 (revised to £401,000) assumed
that all losses incurred (including his assessment of loss of profits) were
caused by the compulsory acquisition, but no attempt had been made to identify
all the individual components of the ultimate loss figure being claimed.
Further, Mr Nedas’s calculation of the operating profit of £288,000 was based
upon his forecast of 2008 turnover, not 2007. That figure, Mr Hodgen said, was
£58,000 higher than the earnings before interest and tax that Mr Nedas had himself
previously calculated for 2007.
73.
It was submitted for the claimants that Mr Nedas’s approach should be
preferred in that his estimate of turnover and calculations of profit
percentage took into account the uncertainties caused by the CPO whereas Mr
Hodgen’s did not.
Conclusions – pre-possession losses
74.
It seems to us that there are merits in both sides’ arguments, but in
general terms, as we said in connection with the evidence relating to
extinguishment, we prefer Mr Hodgen’s approach. We accept that Mr Nedas’s
methodology, by which all losses based upon his, in our view, overstated
expected profitability against an actual loss for 2007, are due to the CPO is
not supported by evidence. Mr Nedas’s revised appendix C, provided with his
letter of 16 October 2013 is somewhat confusing, as also is Mr Hodgen’s
appendix 3a referred to above.
75.
We consider that the most appropriate way forward is to deal with the
two specific items in dispute, redundancy and rubbish disposal costs,, and then
“take a view” as to what other profits were lost. Firstly, we accept the
claimants’ evidence on redundancy costs. There is no dispute that some £122,941
was paid, and the argument that pay in lieu of notice (and NIC costs thereon)
had to be paid also because the claimants were trying to relocate up until the last
minute seems reasonable. The acquiring authority’s argument in closing that
the relevant employees’ contracts were not produced was, in our view, a red
herring. The fact is that the payments were made.
76.
As to the rubbish disposal costs, it is clear from the evidence that
they were very significantly higher than in previous years as a percentage of
turnover and this can only have been due to the need to completely clear the
site. Nevertheless, we accept the argument advanced by the acquiring authority in
closing that allowance should be made for that the fact that the claimants had
historically made no provision against a growing terminal liability that would
eventually accrue. This meant that the additional clearance costs were very
much more than they would have been, and the principal of equivalence would be
exceeded if the whole amount were allowed. It is quite right that the “vast
mountain” of waste would eventually have to be removed, and if the full claim was
allowed, the acquiring authority would be paying compensation for something that
was not entirely caused by the CPO. However, looking at Mr Hodgen’s
assessment, that does seem to us to be totally arbitrary and somewhat unfair.
To take only the invoices from early June to the valuation date and to ignore
the fact, as confirmed by the claimants, that they had been taking steps to
clear the site from much earlier on, cannot in our view be right.
77.
In reality, the additional clearance costs accounted for 19% of turnover
in the 2007 financial year and, doing the best that we can, taking into account
what we have said above, we think that 50% of this difference would be fair
compensation – amounting to £170,807.
78.
Turning to compensation for loss of profits, preferring as we do, Mr
Hodgen’s methodology, he allows losses for the period 17 June to 2 July 2007 in
the sum of £27,499, but gives no reason why these dates are used. Nevertheless,
whilst we think this sum is inadequately justified, it is a figure which the
acquiring authority is prepared to pay, and we accept it. Mr Nedas has
produced, as we have said, no evidence to support his conclusion that his
additional losses were caused by the CPO and we therefore reject them.
Compensation for loss of profits is, therefore, determined at a total of £321,247.
Management time – discussion and conclusion
79.
Mr Halpern claimed management time calculated in the total sum of
£80,000, being 1000 hours at £80 per hour. However, in closing it was accepted
on behalf of the claimant is that in the absence of any documentation showing
payments being made to Mr Halpern for his services, neither he nor Clearun can sustain a claim for management time. Nonetheless
it is submitted that the Tribunal has sufficient material before it for it to
"arrive at a robust view as to the amount that would be fair and
just." It is said that this would be in accordance with the usual
practice of the Tribunal in such matters. In reply the acquiring authority
said that whatever time Mr Halpern spent on the claim was caused by his own
actions in acquiring land with a view to making the claim for compensation and
not by the CPO.
80.
Where a claimant seeks compensation for the personal time that he has spent
dealing with a compulsory acquisition he must prove that ingredient of his
claim just as he must prove any other element. This is one of several aspects
of the claim for which the only evidence is that of Mr Halpern himself. The
Tribunal needs some tangible evidence of the time that was worked and some
justification of the value that is put on it. It cannot simply assume that
because the claimant had an interest in the land it must also be assumed that
he had performed chargeable work for which he is entitled to be compensated. In
this case there is no evidence upon which we can conclude that Mr Halpern is
entitled to £80,000 compensation for his personal time, or to justify arriving
at any other sum.
The Rule (2) Valuation
81.
Prior to setting out and drawing our conclusions upon the evidence, the
law and the policies relating to the planning issues against which any
consideration of value must apply, we deal firstly, and shortly, with an issue
that arose in connection with the safeguarding by Crossrail of a corridor of
land that included the reference land.
Safeguarding
82.
The factual position in relation to the safeguarding was set out in the
evidence of Mr Tuffley, Safeguarding Manager with Crossrail. He explained that
the safeguarding was to protect the proposed railway lines to a proposed
Crossrail 2 depot at Thornton Fields. It covered a broad corridor of land that
included the totality of the reference land and, amongst others, the Dominion
site. It would have been necessary to divert Marshgate Lane to the West across
the reference land in order to accommodate a viaduct and embankments carrying
those lines. The safeguarding would have left a strip of land on the Western
side of the reference land to which any development would have had to be
confined. He referred to a letter dated 5 March 2003 to the London Borough of Newham
that recorded the position. This safeguarding designation was, of course,
overtaken by the Olympic CPO but if, on the valuation date, the CPO was to be
taken as having been cancelled, his recommendation to the LBN would still have
been to refuse planning permission. He did not agree, in cross examination,
that the safeguarding would have been modified to permit development of a
larger portion of the reference land or the land surrounding it. He thought it
would have been necessary to preserve the safeguarding in its entirety. Mr
Kelway suggested in his evidence in chief that this safeguarding would have
been under review at the valuation date and probably lifted a year after that,
although he agreed in cross examination that this was by no means certain.
83.
It was agreed between the parties that the safeguarding should be
disregarded so far as it related to the reference land itself because of
section 9 of the Land Compensation Act 1961. Section 9 reads:
"no account shall be taken of any
depreciation of the value of the reference land which is attributable to the
fact that (whether by way of allocation or other particulars contained in the
current development plan, or by any other means) an indication has been given
that the relevant land is, or is likely, to be acquired by an authority
assessing compulsory purchase powers."
84.
A difference of opinion arose between the parties about whether the
safeguarding of the land to the north and south of the reference land should
also be ignored insofar as it caused any depreciation in the value of the
reference land. It was argued on behalf of the claimants that it was unreal to
contemplate for valuation purposes that embankments might be constructed on the
land to the north and south of the reference land in order to carry a railway
line, whose purpose would be completely defeated if the reference land formed
an unbridgeable gap in middle of it. The tribunal should ignore the whole of
the safeguarding.
85.
The acquiring authority argued that the words of section 9 should be
given their full natural meaning, which is that the disregard applies only to
depreciation of the value of the reference land attributable to an indication
that the relevant land (not the other land) is likely to be acquired. However
the only real valuation point was whether it should be contemplated that the
Dominion site might have a mixed-use development on it or only an embankment.
That was insignificant compared with the issues relating to the likelihood that
the Carpenters Lands and Stratford City were likely to come forward.
86.
In our judgement the acquiring authority is right on the strict
interpretation of section 9; the disregard of a depreciation in value of the
reference land goes only so far as attributable to an indication that the relevant
land is likely to be acquired by CPO, not so far as attributable to an
indication that other land is likely to be acquired. However, the claimant is
right to say that it makes little sense to try and contemplate a world in which
there might be a railway line to the north and to the south but a gap at the
relevant land in the middle. In the tribunal's view the result would be that
would-be purchasers, understanding the purpose of the safeguarding,
disregarding any safeguarding on the relevant land but noting that it continued
to exist on the rest of the corridor, would take a pragmatic and commonsense
view and conclude that the safeguarding to the north and the south was unlikely
to form much of an impediment to ultimate development. Therefore, in the circumstances,
it is hard to contemplate that there would be any significant depreciation of
the relevant land that was due to the safeguarding of the other land and it is
not a factor upon which we place any weight.
Planning
87.
Three witnesses gave evidence of fact about
the prospects for development in the area in a no-scheme world, meaning a no
Olympics world.
88.
Mr Geoffrey Spiller gave evidence about his involvement in
proposals to develop the area of land to the north of the reference land owned
by the Worshipful Company of Carpenters. Until 2009 he was Managing Partner in
Glenny LLP, chartered surveyors and property consultants. Throughout the 1990s
he had been actively involved in the Stratford property market and became aware
that 19.57 acres of land owned by the Carpenters was to come onto the market.
He described the land and the area within which it was located, and said that
he introduced the IO Group to the opportunities it presented. He described how
schemes were prepared and discussed with LBN and the IO group became the
Carpenters’ Preferred Purchaser. Just before a formal application was put in,
LBN produced a new draft planning framework document "Newham's Arc of
Opportunity", which sought to achieve a more comprehensive regeneration of
an area totalling 28 acres. It was proposed that there would be a substantial
residential element in this development. IO joined with Barrett Homes and together with LBN worked up a master plan. New schemes had to be devised after LBN
announced that to achieve planning permission for such an important
regeneration project it would be necessary to employ a "trophy
architect". It became clear that LBN's insistence on a section of the
site being developed for B1 office development after an initial phase of
housing development was likely to become an impediment to development. The
view of the market was that there was no demand for office development on the
scale proposed at the subject site, nor would there be in the foreseeable
future. A DTZ research report concluded that it was unlikely that there would
be demand for large scale offices on the site until the proposed development
around Stratford station had been completed successfully and let. The
Worshipful Company of Carpenters had evidently become frustrated at the delay
in finalising the planning application and agreeing the final contract. They
called a meeting with IO in October 2003 and told them that they were selling
the site to the LDA.
89.
Mr Spiller agreed with the view that there would have been no demand for
large-scale offices on the Carpenters' land until development round Stratford station had been completed. LBN's position did not change and therefore, in the
absence of the Olympics, he saw no prospect of development on the Carpenters
land in the foreseeable future.
90.
Mr John Burton is a Director of Development with Westfield
Shoppingtowns Ltd. He had been with Westfield since October 1994 where his
title was "Director Stratford City". He gave evidence about the
background to Westfield's involvement in the development of Stratford City and commented on the likely involvement of Westfield with that development in
the absence of the 2012 Olympics. He explained that Westfield is one of the
largest retail property groups in the world with worldwide interests, particularly
in large retail developments. In 2005 and 2006 Westfield was also investing in
west London at White City. That development was not opened until 2008. In the
absence of the Olympics, he said, White City would have been Westfield's
priority. He was cross examined as whether he had been involved in any other
schemes in this country that were supported by a CPO , and he instanced a
proposed development at Guildford. This had come to nothing, he said, because Westfield sold its interest due to doubt about its viability. He pointed out that it was
wrong to assume, simply because land had been compulsorily purchased, that it meant that viability did not need
to be considered. If the development turned out not to be viable Westfield might sell its land, even at a loss.
91.
He explained how Westfield came to be involved with potential
development at Stratford city in 2004, acting as part of a consortium. At that
time the prospects of the development going ahead were not high. He listed a
number of particular challenges. The presence of power lines running across
part of the Stratford City site was a problem. He explained that these were not
a physical impediment to the shopping centre but they were an aesthetic obstacle
to making an exciting new place. There were difficulties with road access. He
did not mean difficulties in a planning sense, but some of the land to build
new roads on still had to be acquired. He agreed that it could have been done
by compulsory purchase order if that had been set in train. There was a need to
require various rights over and under land owned by Network Rail in order to
provide services for development on the site. He said that whereas, in
principle, one might not have expected any particular difficulty, his
experience with Network Rail had been that nothing was ever easy despite the
best intentions being expressed. He was asked in cross-examination to consider
the points that they raised and concluded that it seemed to him that together
they had a huge potential for difficulty. He also foresaw difficulties with
the procurement of infrastructure and utilities to service the overall site and
said he had considered the possibility of utility "bundling" but
failed to reach any agreement with utility providers. In answer to the
proposition that the nature of the problem here was no different in principle
to problems elsewhere, he said the magnitude of the task was significant. Scale
was important: on smaller scale developments it was much easier to quantify the
cost. At the scale of Stratford City the risks were much greater. Even with
the Olympic CPO the task was of immense complexity. There were substantial
upfront costs necessary to install infrastructure and deal with section 106
obligations. The costs had been estimated at £125 million but Westfield thought
they might prove closer to double that.
92.
As a result there was a serious concern about the financial viability
of the project. Westfield had acquired a 25% interest initially. The matters
listed meant that Westfield was not convinced that there was a viable scheme
there. Historically there had been a poor trading record in Stratford and
rental levels had been at a low level. It was felt that the risk had been
underplayed and Westfield doubted its ability to bring retailers into the
development. In 2004 Westfield's view was that there was not yet a viable
scheme. They put the smallest possible value in the scheme in their 2004
accounts - Mr Burton thought it was about £5 million.
93.
Against that background in a ' non-Olympic world" he suspected that
the scheme would only just be starting in 2013. Without a contribution for Stratford City infrastructure, the funding gap, perhaps as much as £500 - 600 million,
would be too great. The residential and the office development on other zones
and on the railway land had to be brought forward at the same time as the
retail development. This meant the majority of the infrastructure, not simply
the infrastructure for the shopping centre, had to be brought forward
immediately. He was of the opinion that the development would have been
extremely uncertain without the Olympics. It was clear prior to the Olympic
announcement that there were difficulties in raising and funding any such
development through the markets. He did not accept, in cross-examination, that
if the Olympic bid had been unsuccessful he was saying it would simply go onto
the 'back burner; he thought that the development would have been worked up
anyway, but the likelihood of it coming forward in short order was remote.
94.
Mr Ralph Luck, now the Real Estate Director for King's College,
said that he was formerly the Director of Property for the Olympic Delivery
Authority (the ODA), responsible for all property transactions undertaken by
the authority and the delivery of the Olympic village for its legacy use. He
continued to be retained by the ODA as a consultant. The ODA was the statutory
body responsible for creating the infrastructure and facilities for the Olympic
and Paralympic games in 2012. He had considerable experience in development and
regeneration projects, particularly in London. From September 2005 he took
part in all the negotiations with Westfield, Stratford City Developments Ltd,
the LDA, Network Rail and the Secretary of State for Transport in order to
bring about the Olympic facilities and the development of Stratford city. Mr
Luck described the Stratford Rail Lands, pointing out that the land had only
two access points and had been used to stockpile the arisings from the
construction of the Channel Tunnel rail link works, substantially increasing
the level of the land. He drew attention to the planning history and in
particular the outline planning permission granted by the London Borough of
Newham on 17 February 2005 for a comprehensive mixed-use development scheme of
the rail lands. The scheme involved a number of highway proposals including the
creation of five new access points of which four were approved. Agreement on
the fifth could not be reached until the Olympic Park planning consent on 28
September 2007. Mr Luck then summarised the somewhat involved process for
making and confirming the Olympic and Legacy CPO 2005 (the CPO) and the
Powerlines CPO. He dealt with the efforts that were made following the
confirmation of the orders to find a development partner for Westfield that
would secure the necessary finance. Lend Lease was selected as a development
partner but by early 2008 it became clear that it would not be able to raise enough
money on sufficiently attractive terms due to the collapse of the financial
debt and equity markets. Further negotiations followed and the need for
agreement became urgent as the time for beginning the works rapidly approached.
Arrangements were put in place on 16 July 2008. Zone 1 of the land was
transferred to Stratford City Development Ltd (SCDL) which was obliged to
deliver the shopping and leisure centre and certain other infrastructure
relating to the wider regeneration. The ODA provided £232.6 million grant
funding and the SCDL funded £150 million. The agreements covered the large
number of transfers of land and rights necessary to bring about the
development. Mr Luck said that in order to agree the various agreements he had,
on behalf of the ODA, to see and understand SCDL's financial viability appraisals.
As a result he can say that viability was marginal and, in his experience,
less than most developers would accept, even after the substantial funding
provided by the ODA. He was clear that the Zone 1 development was not viable
without that funding contribution.
95.
Mr Luck identified the impediments to the delivery of Stratford City in the absence of the Olympics and the CPO. Five new vehicular accesses and
another major pedestrian access were needed. The necessary land needed to be
acquired and in the absence of the CPO there would have been long and difficult
negotiations with several parties possibly seeking to extract ransom value for
their land. Zone 5, which it was planned to develop for residential purposes,
was crossed by two main overhead electricity cables and pylons. The relocation
of such lines was very expensive. Because of the potential adverse effects on
residential values SCDL would not have started development until the removal of
the pylons had been resolved. In the absence of the Olympics, National Grid
did not regard the Stratford City proposals as of national significance and
would not have relocated the lines. Mr Luck said that the installation of
utilities was a major undertaking which involved negotiations with a number of
landowners, including Network Rail. Without the CPO he was confident that
negotiations would have been long and tortuous, particularly in relation to
Network Rail which had originally sought to extract a ransom payment for
vehicular and utility service access. Even with the CPO it was difficult and
time-consuming to agree terms with Network Rail, which originally objected to
the making of the CPO. The objection was finally withdrawn and in 2008 a
complex Rights Agreement provided for the provision of the necessary rights and
for the assessment of compensation. Only in the summer of 2012 was it possible
to agree compensation with Network Rail.
96.
Mr Luck expressed his view that without the CPO the Rights Agreement and
compensation would still not been agreed and the Stratford City scheme could not have commenced. The coming of the Olympics was a major catalyst on a
large number of fronts. There were a very considerable number of planning
issues and he was sure that it would have taken LBN a considerable time to resolve
them in the absence of the Olympics. After setting out other problems
concerning the cost of acquisition and the nature of the development consortium
and the difficulty of getting people to talk to each other constructively, Mr Luck
turned to the amount of funding provided. He pointed out that this had come
forward at a time when commercial funding was becoming very scarce. He listed
the public funds that were being put forward in support of various elements.
The total amount of public funds that went towards elements of the development
that would have been necessary for Stratford City amounted to approximately £2
billion. In the absence of the Olympics the scheme would have had to be
undertaken in phases. He concluded that there was ample evidence that, in the
absence of the Olympics and the CPO, the scheme would not have commenced for
some years: certainly not before the valuation date and indeed, he added,
probably not for several years after it. Without the scheme, given the
circumstances of the site and the number of interested parties he could not be
certain when, or even if, the difficulties would be satisfactorily resolved. He
thought that the various parties would be tempted to play a long game, to the
detriment of bringing any scheme forward.
97.
Asked to imagine and consider the situation where the Olympics and CPO
and the funding were cancelled, Mr Luck replied that in such a situation, with
the funding gone, the ODA would have had to be disbanded and planning put back
in the hands of the four boroughs. Westfield would be left with no certainty
whatsoever and a number of the agreements that have been reached would simply
fall apart. He instanced the length of time that his negotiations with Network
Rail had taken: they had claimed £30-£35 million and it took until the summer
of 2013 to agree £3 million. He thought the situation would have taken years to
resolve and he doubted if development would have started even by now.
98.
In cross-examination, Mr Luck did not agree that the difficulties were
being exaggerated and were, in effect, no different from those normally
experienced. He said that the parties had quite different aspirations and
aims. The scale was much greater and he did not see how the funding could have
been resolved in the usual way. He could not say how much of the £232 million
was solely due to the Olympics, but the problem was that in a non-Olympic world
Stratford City had not progressed sufficiently far for important details, the
position of services for example, to be known. He did not agree that in the
absence of the Olympics it would not have been necessary to underground the
power lines. That depended upon the development. Residential development was
sensitive so it was necessary to pay to either put the lines underground or leave
large areas undeveloped. Nor did he agree that the undergrounding could have
been funded in any event. Although he acknowledged that it was an economic
decision, he had not yet come across a situation where it had been economic to
underground power lines. He was taken through several of the points he had made
in his evidence but was unshaken on his conclusion that, bearing in mind the
circumstances, he doubted that the development of Stratford City would have happened for a long time. He pointed out that the development of King's Cross
had taken some 15 years.
The planning experts’ evidence
99.
There was a very great deal of planning evidence about the development
of policies over many years supporting redevelopment for mixed-use purposes on
and around the Stratford rail lands. It is unnecessary to set it all out in
great detail because, happily, the planning witnesses were able to agree that a
mixed-use planning permission on the reference land could reasonably have been
expected by 18 months from the valuation date. Much of the policy background
was the subject of a helpful agreed statement of facts. The important issues
that remain seem to us to come down to the question of timing, whether
permission could be expected significantly earlier than 18 months after the
valuation date, and to the amount or density of residential development that
could be expected on the site.
100. The question of
timing depends, firstly upon the issue was to whether or not planning
permission is to be assumed under section 16(3), which we deal with separately
below. Timing is then important for the assessment of land value which
depends, to a degree, upon the view that a purchaser of the land on the
valuation date would take about the length of time he would have to wait before
redevelopment of the reference land would become a viable proposition. To that
end, the circumstances in which new residential development would be likely to
find itself are relevant.
101. The amount of
redevelopment on the reference land, particularly residential development, that
might be expected to achieve planning permission, is central to the valuation
of the land.
102. In his evidence
in chief, Mr Ben Kelway, for the claimants, said that he thought that a
development with a larger mass had been conditionally accepted on the
Carpenters site.
103. He drew
attention to the London Plan (2004) which, at policy 2A.1, identified as
criteria to be used by the Mayor in assessing planning applications
"optimising" the use of previously developed land, "using a
design led approach to optimise the potential of sites" and ensuring the
development occurred in locations "accessible by public transport, walking
and cycling". The Opportunity Areas identified on the map included ‘16 The
Lower Lea Valley’ and ‘20 Stratford.’ They were described as areas "with
potential for significant increases in density" at paragraph 2.8. Policy
4B.3, "maximising the potential of sites" spoke of achieving the
"highest possible intensity of use compatible with local context". Boroughs
should adopt the density ranges in Table 4B.1, "Density location and
parking matrix (habitable rooms and dwellings per hectare)". This table
related ranges of density to locations an accessibility index and various
settings. Paragraph 4.47 said that appropriate density ranges were related to
location, setting in terms of existing building form and massing, and the index
of public transport accessibility (PTAL). "Urban" locations were
"dense development with a mix of different uses and buildings of 3 to 4
stories, such as town centres along main arterial routes and substantial parts
of London" while "suburban" was "lower density development,
predominantly residential, of 2 to 3 stories as in some parts of the London and much of outer London".
104. The Mayor of
London's "London Plan Density Matrix Review" June 2006 recorded as a
"Key Finding" that 67% of schemes granted permission in 2004/05 were
at densities above their recommended band. It recommended a
"simplified" density matrix which left the ranges within the central,
urban and suburban settings essentially the same. Mr Kelway referred to a
table at paragraph 5.13 of his second rebuttal report. This showed a number of
approved developments in Stratford and the lower Lea Valley around the
valuation date and expressed as a percentage the degree to which their approved
density was above the London Plan range. He noted that considering Notional
Development 2 on the reference land as having a PTAL of 2, anticipating an
increase to 4, (a range of 300 to 450 habitable rooms per hectare (hrh)) at 592
hrh that development would be 31.6% above the London Plan range. He said that
would be far from exceptional and the table illustrated his point about the
flexibility with which the density ranges were treated. Mr Kelway set that out
in the context of the need for housing in Newham. He agreed that the starting
point for density calculation was the net area of the site but in the case of
the reference land the site was surrounded by rivers and that immediate context
should be taken into account. In re-examination he observed that paragraphs
4.76 and 4.77 of the Newham UDP (2004) said that it was important to make the
best use of available land albeit not at the expense of residential amenity and
design quality. Density would be only one of the considerations to be taken
into account and for some sites the setting or location might allow for design
approaches at higher densities, while still meeting other criteria. That might
apply to Major Opportunity Zones (MOZs) or sites with waterside locations, as
well as sites with good transport links. He drew attention to the Newham
residential planning guidelines at page 4. It gave the site some breathing
space.
105. Mr Kelway made his
point in relation to the assumption of planning permission under section 16(3),
and we have recorded that in that section of this decision.
106. The policies for
urban regeneration and in particular MOZ1, the Stratford Rail Lands Land Use
Proposals, were considered in detail by both planning witnesses. Mr Pereira
asked Mr Kelway about paragraph 2.133 and 2.136 which referred to the isolated
Clays Lane Estate, and the need for residential uses to decrease its isolation.
His view was that the development of the reference land would be part of
overall regeneration and as part of the redevelopment of Stratford City it would reduce the isolation of that estate. Clearly the reference land could not do that
on its own. He acknowledged that to take that reasoning to its logical
conclusion would mean that any development within MOZ1 could be said to assist
in reducing the isolation of that estate, in which case it is difficult to see
what point there was in expressly imposing that qualification on residential
development.
107. Mr Kelway was
cross examined in some detail about his reliance upon the PTAL calculation and
his interpretation of the GLA matrix. He said that the matrix was only a
starting point. He would regard the reference land as a central/urban site with
reasonable access. His attention was drawn to the document ‘Stratford - A 2020
vision: Rail Lands Framework Plan SPG’ and the passages (referred to above)
about Thornton fields dealing with access, the need for high quality design,
and that residential development should fall within the range of 150-200
habitable rooms per hectare. Mr Kelway did not accept that advice so far as it
related to density. So far as road access was concerned, it was not as bad as
all that and would be improved. He advanced various statements by planning
officers as indicating support for higher density which were examined together
with permissions on other sites. The matter was summed up when Mr Pereira put
to Mr Kelway that some exceptional quality was identified in the cases that had
been looked at that was said to justify a higher density. Mr Kelway replied
that arguments in favour of granting planning permission should always be
judged on the totality of the benefits, not just single issues.
108. Mr Kelway was of
the opinion that the Stratford City scheme would still have proceeded in a no
scheme world and would have begun to transform the rail lands by the valuation
date. He was challenged in cross-examination on this. Reference was made to
the Secretary of State's decision dated 21st September 2012 allowing the appeal
in the case of the section 18 appeal regarding the Rooff Goods Depot on Carpenters Road. Both parties referred to passages in the Inspector's report. Mr Kelway
conceded that if there were no CPO to assemble the site and no funding for Stratford City, then that scheme would probably not be viable at the valuation date.
However that scheme might be reasonably anticipated in the longer term on a
phased basis although he could not say when it might have started. He accepted
that in that world, the undergrounding of the power lines would fall away,
while emphasising that it was not a requirement for permission on the reference
land.
109. In his evidence
in chief Mr Kelway said that he thought that a development with a larger mass
had been conditionally accepted on the Carpenters site. He was asked about the
timing of development on the Carpenters land and the difficulties of access
that faced that development. A CPO would probably have been needed for the road
and possibly for site assembly as well. The strategy appeared to have been to
devise an implementable first phase, although there did not appear to be
anything tangible to show how it would be done.
110. There were many
questions about the notional development schemes, their scale and the densities
that had been assumed. The relationship with the power lines was explored as a
particular potential constraint although one, Mr Kelway said, that should not
be exaggerated. He gave an example of a very modern development close to the
Excel Centre and next to the DLR which was close to power lines. (This development
was viewed on our site visit.) The setting of the notional development schemes,
both when surrounded by other new developments and when isolated amid the then
circumstances of Marshgate Lane were considered at some length.
111. Mr Sean
Bashforth, a director of Quod, gave planning evidence for the acquiring
authority. He said that he had been a planning
consultant for various developers at Stratford City since 2002 and had visited
the reference land and the surrounding area many times in the course of 2002
and 2003. He described Carpenters Road at that time as being industrial, dusty
and with lots of lorries. In places derelict cars covered the pavements. Marshgate Lane had a better appearance because of the more modern industrial units along it
but it was still busy with heavy traffic, being a popular route up to the
motorway network. He did not regard it as a very pleasant environment. He
explained why other areas that had been discussed in the evidence, such as Fish Island, had a different and much more pleasant feel.
112. He gave evidence
of the progress of plans for Stratford City, the timing of the planning
permission and the progress of reserved matters, and the difficulties that
development faced. He referred to the view expressed in his report that, in
the absence of the Olympics, significant parts of the Stratford City development would not have started until well after the valuation date. He said that a
new primary school would not have started until the end of 2012, a secondary
school in 2015 and much of the residential development and offices would not
start on site until 2013 or 2014. On reflection even those dates were perhaps
optimistic. He explained the importance of proper access to the development of
the Carpenters’ land and Marshgate Lane. He thought it was unrealistic to
expect the level of access that was necessary without the development of Stratford City which would enable it. In his view it would have been difficult to bring
the Carpenters Land forward incrementally in an effort to avoid access
difficulties; the policies really contemplated comprehensive redevelopment. In
the absence of new access created by the development of Stratford City and the Carpenters’ land, a development on the reference land would have been much more isolated,
with consequences for its PTAL assessment.
113. Mr Bashforth had
set out a full account of the relevant policies and had explained why, in his
view, the reference land could not be said to be "allocated" within
the meaning of section 16 (3) of the LCA 1961. This was a point upon which he
was cross examined but adhered to his view. He also explained why, in his
opinion, any development on the reference land was likely to be at a
substantially lower number of habitable rooms per hectare than contemplated by
Mr Kelway. He did not accept that a valid method of approaching the scale and
layout of development on the reference land was that it should be design led.
The policies made it plain that one should start with a PTAL calculation, and
some time was spent in examining the nuances of the various policies on that
topic. These, also, were matters upon which he was cross-examined at some
length, particularly with regard to the notional designs put forward for
development on the reference land. He agreed that a reasonable amount of
amenity space could probably be provided on the site, but he was concerned
about its quality and whether it would be acceptable to the planning
authority. His main concern was that much of it would be at rooftop level and
would be next to power lines. He acknowledged that it might be possible to
re-arrange the scheme, although it would not necessarily be capable of staying
within the same building envelope and that would probably result in a lesser
number of habitable rooms.
114. Mr Bashforth was
cross examined about the timing and deliverability of development on the
reference land. He also spoke to the importance of access and the significance
of the Carpenters land and the southern part of the Stratford City development to that. He agreed that permission might reasonably be expected for
development on the reference land within 18 months from the valuation date and
gave his reasons. However he emphasised in relation to the reference land and
development at Stratford City and the Carpenters land that it was one thing to
get permission and quite another to deliver the development. He said that he
was aware of 5 or 6 town centre schemes that were acceptable in planning terms
but had never come to fruition.
Consideration and Conclusion
115. We found the
evidence of Mr Burton, Mr Spiller and Mr Luck compelling. Those gentlemen were
able to speak from direct experience of involvement at high-level in the
circumstances they described and the evidence they gave was detailed and
authoritative. We find that, at the valuation date, whether on the cancellation
assumption or in a no-scheme world, the vision of Stratford City and the comprehensive redevelopment of the area that it would bring would still have been many
years away.
116. In our opinion a
prospective developer of the reference land would have been entitled to be more
optimistic about the number of habitable rooms that it could accommodate than
Mr Bashforth was prepared to admit. The evidence does suggest that the
planning authority has been prepared to be more generous in the densities it
allows than strict application of the planning matrix and PTAL might suggest. PTAL
is but one factor, and in this case we found it rather a marginal one. It was
clear from the evidence of Mr Axon and Mr Murdoch that the calculation could
change quite significantly if the measurements were taken from a different part
of the site - a difference of not very many metres. We think that it is likely
that a developer who had studied the development of the policies and the way
that they had been applied by the planning authorities would reasonably start
with a proposal that looked at densities at the sort of level advanced by Mr
Kelway. However, we also think that there is force in Mr Bashforth's
criticisms of the notional development schemes on the reference land. Of
course it would be possible to redesign the development satisfactorily but in
our opinion it would be difficult to do so while retaining the same number of
flats or habitable rooms. A prospective developer would accept a reduction in
order to achieve a satisfactory design without incurring undue delay. How much
that reduction would be can only be a broad judgement but we conclude that, dealing
with issue 4, the sort of figure would be of the order of 450 habitable rooms
per hectare.
117. The planning
evidence is also important to a judgement about the amount of delay that a
developer would have to contemplate before his permitted development became
viable (issue 5). We accept the distinction drawn by Mr Bashforth about the
important difference between obtaining planning permission and being able to
fund the building of it. We do not see that development on the reference land
could have a realistic prospect of viability until the wider development of Stratford City and the Carpenters land to the north was likely to happen in the reasonably
near future. We have considerable doubt that the sort of development proposed
on the reference land would be viable if it faced an indefinite period as a
standalone residential development in the comparatively unwelcoming
circumstances of Marshgate Lane at the valuation date.
The value of the freehold interest in the reference land
Issues 1, 2 and 3: Whether
planning permission at the Valuation Date should be Assumed under Section 16(3)
LCA1961, or whether, in accordance with section 14(3) there was a realistic
hope that planning consent would be forthcoming within 18 months of the
valuation date, or even earlier.
118. Mr Halpern,
standing in the shoes of Mr Gladwell, the second claimant, is claiming
compensation for the value of the freehold interest in the reference land,
assessed pursuant to Rule 2 of the 1961 Act. The claimant argues that planning
permission is to be assumed to have been granted in respect of the reference
land, pursuant to section 16(3) of the Land Compensation Act 1961, and that
such an assumption makes the land more valuable. Assuming planning permission
for mixed-use development, as described by the claimant's planning witness, and
development without undue delay, the claim would be for £6 million.
119. The acquiring authority
argues that the land should be valued on the basis of hope value, preserved
under section 14(3) of the LCA 1961, and that it would be unrealistic to expect
planning permission until 18 months after the valuation date. On the agreed
basis that permission might be expected for development on the reference land
within 18 months from the valuation date, the claimant contends for a value of
£4.8 million. The acquiring authority challenges the claimant's valuations on
two main grounds. Firstly a purchaser of the reference land in the no scheme
world would recognise the existing use value of the site and would anticipate
such a degree of delay before any development on the site would be viable that
he would value it on the basis of its existing use value with a small addition
to reflect long-term hope value. Secondly the mixed-use development that is
assumed by the claimant's planning witness is unrealistic: as a consequence of
both the planning policies and the constraints of the site it would be
unreasonable to anticipate a development with such a high density. Mr Kelway
assumes about 600 habitable rooms per hectare whereas Mr Bashforth suggests
somewhere between 300 and 450 hrh.
120. Whether the
valuation should be under section 16(3) or section 14(3) is an issue of law and
fact that must be determined. However, before turning to that sub-issue, it
should be noted that it is common ground that the planning policy framework for
the reference land and other land in the locality was supportive of
redevelopment for mixed uses in the interests of regeneration. It is also common
ground that the mere assumption of a grant of planning permission either at the
valuation date, or within 18 months, need not necessarily confer any additional
market value above existing use value. The real issue is whether the assumed
grant of planning permission under section 16(3) or hope value under section
14(3) would have enhanced the market value of the reference land above its
value for its existing use.
The Law
121.
Section 14 of the act
deals with the specific assumptions mentioned in sections 15 and 16 of the act.
It says, so far as relevant:
“(1) For the purpose of assessing
compensation in respect of any compulsory acquisition, such one or more of the
assumptions mentioned in sections 15 and 16 of this Act as are applicable to the relevant land
or any part thereof shall be made in ascertaining the value of the relevant interest.
(2) ….
(3
Nothing in those provisions shall be construed as requiring it to be assumed
that planning permission would necessarily be refused for any development which
is not development for which, in accordance with those provisions, the granting
of planning permission is to be assumed;”
122. It is agreed
between the parties that subsections 16 (1) and (2) do not apply
123.
Section 16, so far as relevant, reads:
“(3) If the
relevant land or any part thereof (not being land subject to comprehensive
development) consists or forms part of an area shown in the current development
plan as an area allocated primarily for a range of two or more uses specified
in the plan in relation to the whole of that area, it shall be assumed that
planning permission would be granted, in respect of the relevant land or that
part thereof, as the case may be, for any development which -
(a) is
development for the purposes of a use of the relevant land or that part
thereof, being a use falling within that range of uses, and
(b) is
development for which planning permission might reasonably have been expected
to be granted in respect of the relevant land or that part thereof, as the case
may be.
(7) Any reference in this section to
development for which planning permission might reasonably have been expected
to be granted is a reference to development for which planning permission might
reasonably have been expected to be granted if no part of the relevant land
were proposed to be acquired by any authority possessing compulsory purchase
powers.”
124. Whereas section
16(2) says that where the relevant land is allocated "primarily for a use
specified in the plan" it shall be assumed that permission would be
granted for that use, section 16(3) refers to an allocation "primarily for
a range of two or more uses" in which case the assumption is that
permission would be granted for a use within that range. As we set out below,
policy UR14 of the development plan refers to ‘seeking development’ for
"primarily employment-generated land uses" and then goes on to set
out what is included in that phrase. It is the claimant's case that policy
UR14 amounts to an allocation "primarily for a range of two or more
uses" and that range includes residential use. Therefore, it is argued,
there is an assumption created by section 16(3) that there is, effectively,
permission on the valuation date for residential development. The acquiring
authority argues that the authorities show that the words of UR14 cannot amount
to an allocation. Therefore the issue for the Tribunal is whether the relevant
land forms part of an area allocated in the current development plan.
125.
In the case of Urban Edge Group Ltd v London Underground Ltd
[2009] UKUT 103(LC) the President of the Lands Chamber, George Bartlett QC,
considered the application of section 16 in the context of a UDP. After a
detailed and careful analysis of the changing statutory provisions the Tribunal
rejected the contention that section 16 only had application to development
plans prepared under the 1947 and 1962 Acts and concluded that it applied
equally to a UDP. That is common ground for the purposes of this case. The
difficult issue is to decide whether, in the words of section 16(3), the
relevant land consists of or forms part of an area shown in the current
development plan as an area allocated primarily for a range of two or more uses
specified in the plan in relation to the whole of that area. In Urban Edge
the Tribunal said that this task:
"falls,
self-evidently, to be determined by examining how the relevant land is shown on
the proposals map and relating this to the policies and other provisions of the
plan. This is, as will be seen, a much harder task than it would usually have
been in relation to first generation development plans, which, in accordance
with the provisions of section 5 in the 1947 Act, used to show areas allocated
for housing or other use is and to define the sites of new roads etc, leaving
the rest as white (unallocated) land or Green Belt."
The Tribunal noted that second or third
generation development plans did not define sites or allocate areas of land in
this way.
126.
In the Urban Edge case the Tribunal had to consider a policy that
the council would "seek to protect and enhance the mixed employment and
special land-use character of the South Shoreditch Inset Area". There
would be a "presumption of approval in principle to proposals for
industrial (B2) development" in the South Shoreditch Defined Employment
Area.(The SSDEA) In paragraph 30 of that decision the Tribunal expressed
difficulty in accepting the contention that the whole of the SSDEA was
allocated for employment purposes within the meaning of section 16. The
Tribunal continued:
"the SSDEA is a very large expanse of
densely developed urban land (it is over 100 acres in extent) containing roads
and buildings of many sorts in a great range of uses, industrial, residential,
commercial, retail, leisure etc - and a principal policy is that its mixed
employment and special land-use character should be maintained rather than that
it should be put to a particular use or particular uses. Moreover, to the
extent that the UDP does provide for industrial development of land in the
SSDEA, the policies dealing with this part are qualified: "favourable
consideration" will be given to employment generating development… but subject
to particular provisos."
127. The Tribunal
contrasted the policies that provided safeguarding for particular uses on
particular sites and concluded that the whole of the SSDEA, although an area in
within which employment uses would be favoured, could not be said to be an area
allocated primarily for such uses. (The Tribunal in that case was considering
section 16(2).)
128.
A similar task was undertaken by the Tribunal (Her Honour Judge Alice
Robinson and Paul Francis FRICS) in the case of Abbey Investments Ltd v
London Development Agency [2010] UKUT 325 (LC). That case also concerned
the LB Newham UDP and the London Plan. At issue was whether planning permission
was to be assumed pursuant to section 16(3). However the relevant land formed
part of the site known as ‘m7’ in the UDP. It was shown separately on the
proposals map and was not part of a MOZ. There was no specific policy
underpinning the ‘m’ sites. The proposal was for "mixed development
including B1, live/work and residential." A permission of that nature had been
granted in 2001. The Tribunal found (at paragraph 19) that m7 allocated land
for the purposes of section 16(3) :
"It proposes development of a
specified area for specified uses. Whilst most of the ‘m’ sites are relatively
small, proposal m7 happens to be one of the larger ones. It does straddle a
number of roads and pre-existing development blocks and does not specify more
precisely the specific location or quantum of development. However this is
perhaps understandable given that the proposal is intended to perform a
regeneration function rather than to provide a specific quantum of floor space
or residential units in order to meet a strategic target. We do not consider
that an "allocation" must necessarily be confined to a site such as a
pre-existing development block, it may relate to an "area" which
includes or amalgamates a number of existing features and development. The ‘m’
sites can be contrasted with the MOZ areas which are much larger and, for
example, the EMP4 sites which are also larger and are the subject of a policy
which seeks to control development rather than propose development."
129.
In paragraph 20 the Tribunal explained why it did not consider it
necessary for a proposal to specify a quantum of development as opposed to a
particular use. After noting that, before section 16 was an issue, others had
described the order lands as being "allocated", the Tribunal went on
(in paragraph 21) to say that the situation was very different from that in Urban
Edge and that:
"the
policies which are applied to the SSDEA sought to control development which
might come forward, rather than specifying that the land should be put to a
particular use or uses. By contrast, m7 is a proposal that the land should be
developed for particular uses, not a development control or criteria-based
policy."
The Tribunal
continued (paragraph 22):
"Finally, we do not consider that the
UDP envisages that the ‘m’ sites would necessarily be the subject of
development frameworks that would identify in more detail how much development
of what type would go where on the site. There is no policy in the UDP
requiring a detailed development brief or framework to be prepared to guide
development of the ‘m’ proposal sites as opposed to the MOZ areas"
The Policies
130. Mr Kelway's
evidence was that section 16(3) of the 1961 Act applied to the reference site
because it was allocated in the then current development plan by MOZ1 and UR14,
which actively promoted mixed-use development and identified a specific range
of uses, including commercial and residential uses.
131. Mr Bashforth was
of the contrary view. He said that the policy was not an allocation but merely
identified the area as being suitable for employment generating uses.
132. The statutory
development plan at the valuation date consisted of the London Borough of
Newham Urban Development Plan which was adopted in June 2001 and the London
Plan adopted in February 2004. Following the decision to award the 2012 Olympic
Games to London, the London plan was updated with a series of Early Alterations
but the relevance of these is more questionable, given the need to ignore the
value affect of the "scheme".
133. The Newham UDP
incorporated several policies for urban regeneration. Policy UR1 designated a
list of sites of strategic significance called Major Opportunity Zones.
(‘MOZ’). The reference land was shown on the proposals map as lying within MOZ1
the "Stratford Rail Lands". Paragraph 2.55 explained that "given
the size of these sites -- ranging from 8 ha (20 acres) to over 40 ha (100
acres) - the policies below set out only broad parameters for development to
address. To assist understanding of the possibilities and constraints that
exist within each site the Council will prepare Urban Framework Plans (UFPs)
and issue them as Supplementary Planning Guidance.”
134. The detailed
description of the Major Opportunity Zones opens, in paragraph 2.57, with the
declaration that due to the size and prominent position of the sites designated
as MOZs "it is not possible to be prescriptive about rigid land-use
proposals. The Council is seeking to provide sufficient flexibility in order to
encourage imaginative proposals that can respond to rapidly changing local,
regional and international circumstances."
135.
The relevant land was on the western edge of MOZ1. Paragraph 2.122
recorded that MOZ1 consisted of the Stratford Rail Lands, Thornton Fields,
Chobham Farm, land in the ownership of the Worshipful Company of Carpenters and
land in various ownerships bounded by Waterworks River, Carpenters Road and the
A11. It had an area of approximately 156.3 ha (386 acres) of which the
developable area comprised about 100 ha (247 acres). There were several
paragraphs considering different aspects of this large area. It was said that
a draft Urban Framework Plan ‘had been prepared’ to ensure the comprehensive
planning of the area and Newham Council had approved its use for development
control purposes. Paragraph 2.136 set out the wide range of uses that the
Council would support. This range was then reflected, but not exactly
reproduced, in policy UR14 which declared:
“THE COUNCIL
WILL SEEK DEVELOPMENT OF THE STRATFORD RAIL LANDS PRIMARILY FOR
EMPLOYMENT-GENERATING LAND USES. THE RANGE OF USES WILL INCLUDE:
A) USE CLASSES B1 ... AND B-2 ...
B) LEISURE USES;
C) TOURISM-RELATED USES, INCLUDING HOTELS;
D) RESIDENTIAL USES WHICH SERVE TO REDUCE THE ISOLATION OF
THE CLAYS ESTATE; AND
E) A MAJOR RETAIL AND MIXED
DEVELOPMENT (INCLUDING RESIDENTIAL, LEISURE AND TOURISM-RELATED USES)
INCORPORATING AND INTEGRATED TRANSPORT INTERCHANGE SERVING STRATFORD'S INTERNATIONAL
AND REGIONAL RAILWAY STATIONS, AND BUS STATION. THE DEVELOPMENT MUST BE UNIFIED
WITH THE EXISTING TOWN CENTRE TO ENHANCE THE RANGE OF FACILITIES AVAILABLE, AND
SO THAT IT DOES NOT AFFECT THE OVERALL VITALITY AND VIABILITY OF STRATFORD OR CENTRES IN ADJACENT BOROUGHS.”
136. Policy UR15
announced that the council would prepare an Urban Framework Plan before
proposals for individual parcels would be considered.
137. Supplementary
planning guidance was published in accordance with that policy, the most relevant
document for this site being ‘Stratford - A 2020 Vision’, published in May 2004
as providing ‘a tool for guiding development and outlining a vision for the
area. It sets out the borough’s aspirations, establishes guiding principles
and identifies ways in which the regeneration potential might be maximised. The
relevant land lay at the western tip of the Thornton Fields area in that
document, section 8 at page 33 (B3801). Under ‘Development Principles’ it was
said that the whole site was suitable for mixed use development consisting of
residential and commercial uses. It continued “for development to proceed
access to the site will need to be improved with the most suitable access point
likely to be via Marshgate Gate (sic) in the north”. Under Transportation it
was said that "road access to the site is currently poor and it may be
necessary to improve access arrangements from Marshgate Lane in the north. At
present there is no public transport serving the site with the nearest bus
services being located on Carpenters Road." It continued "any
development of the site should be of high quality and should reflect the site's
waterside location. Given the relatively isolated nature of the site any
residential development should fall within the range of 150-200 habitable rooms
per hectare."
Consideration
138. The issue is whether
the reference land is "allocated" by the proposals map and the
relevant policies. It may be useful to start by noting that the verb
"allocate" includes the meanings to place, to locate, to apportion
and that its root comes from "locus", the Latin word for a place. This
is consistent with the distinction that appears to underlie the approach
derived from the cases of Urban Edge and Abbey Investments
between a policy that proposes specific development for a specific place and a
policy that seeks to control or guide development or encourage particular uses
within a broad area rather than propose it. It is not easy to say on which
side of the line a particular policy falls. It must always depend upon the
wording of the particular policies and study of the proposals map. The size of
the area covered by the policy may be an indication against allocation. That
is not because size in itself is a determinative factor - it is perfectly possible
for a very large area to be allocated to a very specific use such as an airport
- but because it is likely that the bigger the area is, the less inclined the
policymaker may be to be prescriptive about what uses go in what places. Another
indication against allocation may be where the policy contemplates that the
disposition of uses on particular sites within the broad area will depend upon
some further analysis or plan.
139. With those
factors in mind our conclusion is that the reference land was not "allocated"
for the purposes of section 16(3). The MOZ covers a very wide area, 100 ha of
developable land, which includes very different opportunities and constraints
and had a very wide range of uses on it. As Mr Bashforth pointed out, many
areas within MOZ1 were either not suitable for development at all or certainly
not for ‘employment-generating’ uses, unless that phrase is given a breadth of
meaning that would include almost everything. MOZ1 included operational
railway land and train stations, rivers, roads, schools, and protected green
spaces. It is not surprising that the language of Policy UR14 is not
prescriptive: the council will ‘seek’ development of the whole area ‘primarily’
for ‘employment-generating’ uses. “Employment - generating" describes
what is potentially an enormously wide class of use. It is not entirely clear
whether the policy means that the whole range of uses set out in UR14 as
included are seen to be "employment-generating"; many of them
obviously are, and all of them may be. It is, however, tolerably clear that
not all the specified range of uses could be expected across the whole MOZ; the
residential uses must "serve to reduce the isolation of the Clay Lane estate” and the major retail and mixed development is centred on Stratford City and railway stations. It is, therefore, not surprising that policy UR15 says
that "before proposals for individual parcels will be considered"
there is to be an Urban Framework Plan. It seems to us hardly consistent with
an allocation on a specific site within the MOZ that the development plan says
there has to be a framework plan before the specific site can be considered.
140. We do not
overlook the Rooff inquiry inspector’s statement that UR14 ‘allocates’ land (in
her report, para 278), but in our judgement it gives little support for the
proposition that the UDP allocates land in the sense section 16 uses the word.
On the contrary, the inspector emphasises the very general nature of the
policies and that the best that can be said for the Carpenters land is that it
falls within the policy that applies to the whole area of MOZ1, namely that the
council "will seek" primarily employment-generating uses within the
specified range of other uses. It is also right to note that there are a
number of places where the UDP, MOZ and UR policies are spoken of by officers
of LB Newham as if they "allocated" land. Phrases such as
"within the broad land-use allocation, the proposed development is
therefore acceptable" occur in several officers' reports relating to
development in MOZs. We put little weight on such phrases in that context,
agreeing with Mr Bashforth that it is highly unlikely those officers had
section 16 in mind.
The ‘Statutory Disregard’ under
s.6 LCA1961 and the Pointe Gourde principle.
141.
The statutory disregard is set out in section 6 and Schedule 1 of the
LCA 1961. Section 6 reads:
“6 (1) ….. no
account shall be taken of any increase or diminution in the value of the
relevant interest which, in the circumstances described in any of the paragraphs
in the first column of Part I of the First Schedule to this Act, is
attributable to the carrying out or the prospect of so much of the development
mentioned in relation thereto in the second column of that Part as would not
have been likely to be carried out if—
(a) (where the
acquisition is for purposes involving development of any of the land authorised
to be acquired) the acquiring authority had not acquired and did not propose to
acquire any of that land;
FIRST
SCHEDULE
Part I
Description
of Development
|
Case
|
Development
|
|
1. Where
the acquisition is for purposes involving development of any of the land
authorised to be acquired.
|
Development
of any of the land authorised to be acquired, other than the relevant land,
being development for any of the purposes for which any part of the
first-mentioned land (including any part of the relevant land) is to be
acquired.
|
The way these statutory provisions are set out
in the act does not contribute very positively to their understanding. However
in our view the basic valuation exercise is a simple one. Has the relevant land
been acquired for purposes that involve development of any of the other land
included in the same compulsory purchase order? If so, disregard any increase
or reduction in value of the relevant land that is due to carrying out
development of any of the other land in the CPO for any of its purposes, or is
due to the prospect of it, except where that development would have been likely
to be carried out even without compulsory acquisition or the prospect of it.
142. This is a
statutory exercise. Both its nature and purpose are easily comprehensible in
principle, even though its application to the facts may not be easy. It is
quite distinct from the Pointe Gourde principle developed by the courts.
(Pointe Gourde Quarrying and Transport Ltd v Sub-Intendent of Crown Lands
[1947] AC 565). The Pointe Gourde principle requires that any increase
or decrease in the value of the subject land that is wholly attributable to the
underlying scheme be left out of account. That principle and the statutory
disregards in section 6 and schedule 1 share the purpose of ensuring a
dispossessed owner receives fair compensation but not more than fair
compensation. However they do not necessarily have the same effect. The
statutory provisions are confined to any of the other land ‘authorised to be
acquired’. The Pointe Gourde principle contemplates that the underlying
scheme may well include much more land than is involved in a particular
compulsory purchase order. (See for example RMC (UK) Ltd v London Borough of
Greenwich (2005) ACQ/3/2003 (LT). In such a situation the Pointe
Gourde principle may be regarded as a supplement to the section 6 code and
should be applied by analogy with its provisions. (See Waters v Welsh Development
Agency [2004] UKHL 19, per Lord Nicholls at paragraph 63.) The tribunal has
very much in mind the view expressed by the House of Lords in Waters
that the Pointe Gourde principle had come to be applied too widely and
should be restricted in its application (see Lord Nicholls at paragraph 56 and
Lord Brown at paragraph 148).
143. In the parties’
closing submissions and replies a dispute appeared to arise about the
definition of the scheme and the application of the disregards. The claimant
argued that the scheme should not be defined as including any development or
prospects of development that would be likely to occur anyway in the absence of
proposals to acquire compulsorily. The acquiring authority argue that first the
scheme must be defined and then disregards applied in respect of development
that would be likely to occur anyway, so far as appropriate. We understand that
this debate stems mostly from the different views of the parties about the
prospects for Stratford City and the Carpenters land. We are not sure that
there is really an issue of law between the parties on this point.
144. We are clear
that the nature of the exercise is to start with the statutory code and to
apply section 6. We then apply the Pointe Gourde principle as a
supplement and consider whether any further adjustment to the value of the
subject land due to an increase or decrease wholly attributable to the
underlying scheme should be made. However we apply that principle by analogy
with the statutory code and we give proper weight to the words 'wholly
attributable’ (our emphasis added). If the relevant land can be said to have
added value because of the prospect of a particular development included in the
underlying scheme, but which would have been likely to be carried out anyway
sufficiently soon to affect the value of the relevant land, then that added
value would not be 'wholly attributable' to the scheme and should not be
disregarded. The application of those principles to the facts of this case is a
matter of the Tribunal's judgement.
The
Basis of Valuation - Conclusion
145. We proceed,
therefore, on the basis that no assumption as to the grant of planning
permission is to be made by virtue of section 16(3). But, on the other hand in
accordance with section 14(3), neither is there any assumption as a result of
any of the provisions of the act that planning permission would necessarily be
refused for development not actually assumed. The parties agree that planning
permission for a mixed-use development including a substantial residential
element would have been likely to be granted within 18 months of the valuation
date. On the basis of the facts that are set out above we do not think that
permission would have been granted any earlier. There were plainly a number of
issues to do with the assumed circumstances of the relevant land, the
appropriate form of development upon it, and progress on important nearby areas
that would probably have taken 18 months to resolve with the planning
authority.
146. Planning
permission is one thing. When it is commercially viable to implement it is
another. Concerning the longer term, as we have said above, we found the evidence of Mr Spiller, Mr Burton and Mr
Luck persuasive. We find that in a world without the Olympics there would have
been the prospect of an eventual major development at Stratford City with Westfield at its heart and, once that was becoming established, there would have been
sufficient demand to support development on the Carpenters' Land. However,
without the spur of the Olympics and its CPO, that development would have been
long delayed. We do not accept the claimants' suggestion that Mr Spiller, Mr
Burton and Mr Luck were exaggerating the various impediments. We think that it
is quite possible that the developments would only have been starting to get
underway by 2012 or 2013. Of course it is true that the major redevelopment of
a large area has to start somewhere, but we do not think that any sensible
developer or potential investor, aware of the comparatively peripheral position
and access difficulties of the reference land, would have thought that it was a
good idea to start there. The predominantly residential development of the
reference land would have been unlikely to make financial sense until, at the
very least, it was clear that Stratford City was in the process of realisation
and that the Carpenters Land and the highway improvements that would bring were
committed for the near future.
147. We therefore
conclude that a prospective purchaser of the reference land would have recognised
that it had potential development value, but would have thought that it would
probably be some seven years or so before that hope could be realised. In the
meantime the reference land was valuable as a waste transfer station. In our
view the most realistic way to value it in a world without the Olympics is to
take its existing use value and add a percentage to reflect the relatively
long-term hope value.
Existing Use and Hope Value
148. It follows from
these conclusions that to establish this value, it is not necessary for us to
consider here the extensive evidence relating to the development value of the
land that was produced and spoken to by Mr Matthews and Mr Smith. It is the
existing use value that is relevant, and the percentage addition that a
purchaser would consider appropriate to reflect the prospect of the development
for which we have concluded planning consent would be obtained becoming viable.
149. Nevertheless, we
do, of course, appreciate that a developer or investor might go through the
exercise of calculating the present day (valuation date) value of the
expectation that he could receive, in seven or eight years time, the full
development value of the land. Using the relevant tables, the present day
value of £1 in 7 years at, say, 6% is 0.6650. On the basis of Mr Matthews’
valuation in which he calculates its development value at the valuation date at
£4.8 million on the assumption that planning consent would be obtained within
18 months that would produce £3,192,000. However, that exercise assumes that
such development value is guaranteed, which of course it is not. In our
judgement, he would make a very substantial discount from that sum to reflect
the not inconsiderable risks underlying such an assumption.
150. The greatest
risk, apart from the prospect of general volatility in the market, the
possibility of recession and the fact that in the no-Olympics world there were
several local authorities involved, would be the very real possibility, in our
view, of the Stratford City scheme being delayed or even shelved. We think
that, bearing in mind the need to crystal-ball gaze for such a long period of
time, the prospective purchaser would discount the present day value of the
potential “best case scenario” by at least 40% and possibly more. Therefore,
at 60% of the potential value on Mr Matthews’ basis it becomes £1.915 million –
say £2,000,000. We are, of course, mindful of the acquiring authority’s
arguments against Mr Matthews’ opinion of development value, and we “park” this
valuation scenario in the back of our minds whilst considering the evidence on
existing use value (EUV).
151. In his first
valuation, Mr Matthews adopted £2.50 psf on the reference land, giving a
rental value of £120,000 pa to which he applied a yield of 6.8% resulting in an
EUV of £1.76 million. To this he added 5% for the development prospects giving
a value of £1.85 million. In support of that opinion, he said that he had
considered a number of valuation bases as there was limited evidence of
directly comparable open market transactions of open storage sites and depots
with large ancillary yards in north and east London at the time. He referred
to a number of open storage sites including Phoenix Wharf, Edmonton, N18 where
in 2005 he had acted for the landlord in the letting of 47,500 sq ft secure
open storage and 3,000 sq ft offices to be used as a car pound. He said the
lease stated that the rent for the open storage area was assessed at £2.11 psf.
He was also aware of a further letting in 2003 at that location of land to be
occupied as a bus depot at £2.04 psf, and the rent there was reviewed in 2008
to £2.40 psf. Although no date was given, Mr Matthews said that a third area
at Phoenix Wharf was let by him at £2.85 psf.
152. Further
comparables including Leeside Works, Tottenham N17 (bus depot), an ancillary
yard at Parcelforce, Stephenson Street E16, land at Hackney Wick (bus parking),
Stability Works Waterden Road E15 (bus depot) and Edison Road Enfield
(builder’s yard) produced rentals in the range £2.02 to £2.70 psf for lettings
within the period 2004 – 2008, but none of these had planning permission for
waste transfer use. In that regard, Mr Matthews said that the Upper Tribunal
(Lands Chamber) (PR Francis FRICS) in Prittam and Kuldeep Kaur Singh v
London Development Agency (ACQ/291/2008) relating to a 3.76 acre site
occupied as a bus garage and yard at Stability Works, Waterden Road, E15, had
concluded that the rental value for secure, concreted and well drained open
storage land in the area was £2.20 psf in April 2007, and taking the
capitalisation rate applied in that case, such sites were worth £1.41 million
per acre. Applying that to the reference land gave a value of £1.55 million
for storage land. However, in the knowledge that demand for waste transfer
sites was strong, and from a thorough analysis of his schedule of comparable
evidence he said, at paragraph 13.23: “I derive the existing use valuation
(reflecting the waste transfer premium) as being in the order of £1.76
million…” That equated to a rental value of £2.50 psf at a yield of 6.8%. The
addition of 5% he then added was to reflect “long-term development prospects”
which, in cross-examination, he said assumed planning permission being obtained
within 10 to 20 years.
153. In his second
report, (in rebuttal of Mr Smith’s evidence), Mr Matthews revised his valuation
to £2.7 million based upon a rental value of £3.25 psf (£155,727 pa) and a
yield of 5.75%. This was due to his having considered additional evidence
relating to the waste transfer site at 28 Marshgate Lane (itself the subject of
a reference to this Tribunal), Randall Works, Epping and the McGraths site at 54-58 River Road, Barking. He said that his revised figure did not specifically include any
enhancement for development hope value as to do so would be inappropriate where
an adjustment had already been made (for the value of the waste transfer
permission).
154.
Firstly, in connection with 28 Marshgate Lane, Mr Matthews said
(starting at paragraph 5.8 of his first rebuttal report):
“5.8 My
further research of the 28 Marshgate Lane transaction, a 2003 letting to
Brewsters Waste Management, used as evidence by AtisReal in their 2006
valuation, suggests they have concluded incorrectly. Whilst I have not had
sight of the lease (although requested) I believe the broad terms set out in
the AtisReal valuation to be correct – a 25 year term at £104,000 per year
initial rent from 2003. Why a £270,000 premium was, I understand, paid by the
ingoing tenant to the landlord is not clear. Whether the premium was in
payment of works undertaken by the landlord or a sum to financially secure the
site I cannot say but the tenant must have perceived it as having some value or
they would not have agreed to pay it. What is most unclear is what the area
of the demise was in 2003. The AtisReal valuer states the area was 0.9 acre
(which Colin Smith has adopted) and the CPO Schedule and plan shows plot 517
(which I assume was the leasehold element of Brewster’s occupied estate) as
being 0.67 acre…..
5.9 Taking
the site area as being 0.9 acre (as per the AtisReal report) the 2003 £104,000
annual rent equates to £115,555 per acre (£2.65 psf) and at 0.67 acre (as per
the CPO Schedule) equates to £155,224 per acre (£3.56 psf). As Brewster owned
adjoining parcels of land it may be that AtisReal assumed the entire occupied
site to be the let area (0.244 acre + 0.67 acre = 0.9 acre) – whereas Brewsters
owned the freehold of the adjoining site – which I presume is the site referred
to by Colin Smith in Knobs Hill Road. This leads me to conclude that the
demised area…is likely to be 0.67 acre…
Mr Matthews went
on to say that all rental indicators show industrial rents increased from 2003
to 2007 and, from information provided within Mr Smith’s firm’s (CBRE) Rent and
Yield Monitor, said it was appropriate to apply a 3.4% pa increase for that
period giving an increase by the first quinquennial review of 14.3% . He
continued:
“5.10 … Applying this increase to the 2003
annual rent of £155,224 per acre (£3.56 psf) equates to £177,421 pa (£4.07
psf). The [reference] property was 1.1 acres which suggests an annual rent of
£195,163. Applying the agreed 6.5% capitalisation rate to this produces a
capital value (ignoring the contentious and unclear £250,000 (sic) premium
payment) of £3.0 million for a 1.1 acre site with waste use in Marshgate Lane. This does not, of course, include any amount for development value nor
development hope value.”
155. Mr Matthews went
on to say that whilst the above had indicated a rental value in 2007 of around
£4.00 psf, the headline rents achieved in the Randall Works letting in July
2008 at £2.52 psf and the 80 River Road, Barking letting to OS Hire in July 2006
at about £2.30 psf suggest that a headline rental of £4.00 psf “may be
bullish”. But, with the reference land being some 7 miles closer to central London he said he was of the view that a rental value of about £3.50 psf would be
appropriate. However, due to the admitted lack of actual comparable
information, he said he should remain cautious, and therefore arrived at a
final figure of £3.25 psf. Adopting Mr Smith’s 6.5% capitalisation rate (he
had originally used 6.8%), Mr Matthews said the resultant capital value became
£2.4 million. However, he adjusted the yield further to 5.75% to reflect
CBRE’s published research figures for secondary industrial estates, thus
concluding that the value should, in fact, be £2.7 million. In arriving at
this revised figure, he pointed out that Mr Smith agreed with his analysis of
the 28 Marshgate Lane transaction, and that it was possibly the most important
comparable in that it was the only truly nearby site with waste transfer
permission. As to Randall Works in Epping, Mr Matthews referred to this as an
off-market transaction where a private landlord negotiated a rent review on a
30,962 sq ft waste transfer site, including buildings, in 2008 at £2.52 psf.
It was in a rural location further from London and “the accommodation appeared
basic”. Thus a significant upwards adjustment was required.
156. The 80 River Road letting to OS Hire appeared, Mr Matthews said, to have been concluded before
planning consent for a WTS was obtained in which case the rental figure agreed might
not have reflected a premium for waste transfer use.
157. 54-58 River Road, Barking was an off-market acquisition by McGrath Bros (Environmental) Ltd
in June 2006 of a 10.26 acre site at £18.25 million. It had planning consent
for waste transfer use. That price equates to £1.78 million per acre, but
allowing 10% for quantum, this would give a value for a site the size of the
reference land in Barking of some £2 million per acre. Allowing for the fact
that the reference land is better located for central London, this transaction,
in his view, further supported his conclusions.
158. He ended by
saying that he had used his extensive experience as an industrial property
agent to adjust the comparable evidence to reflect all the relevant differences
in characteristics, location and demand.
159. In
cross-examination, Mr Matthews accepted that he had no previous experience of
valuing waste transfer sites. He accepted that Mr Gladwell, who had been
professionally advised in respect of the sale to Mr Halpern at £1.7 million,
and who also had personal knowledge of the 28 Marshgate Lane and Knobs Hill
Road sites, had not been called to give evidence and that both he and Mr
Halpern were prudent businessmen. Whilst he acknowledged that the transaction
in 2007 had been at arms length, and that there was no evidence that the CPO
had affected the price, he pointed out that the sale meant that Mr Gladwell,
who was ageing and ill, would not have to endure the hassle of dealing with the
CPO. This may have affected the figure that was achieved, but he agreed that
if there had been any question over whether or not it was a sale at market
value, Mr Gladwell could have been asked to provide witness evidence.
160. Mr Matthews
accepted that the AtisReal valuation was relevant, and should be given some
weight, but it was tempered by the inaccuracies that he had highlighted.
However, he did agree that, for the purposes for which it was undertaken, it
should include development value if it existed.
161. As to the uplift
of 5% that he had applied in his first valuation to reflect development value,
he said that this was based upon the development prospects coming to fruition
in “ten to twenty years”. However, in respect of his second valuation he said
that, where he had already allowed a significant premium specifically for a
special use, it would not be appropriate to add a further uplift for the
prospect of long term redevelopment.
162. Regarding his
revised valuation, Mr Matthews accepted that the agreed Schedule of
transactions (at page 6777F) indicated that his new figure of £3.25 psf was
higher than all of the waste transfer site comparables referred to, and that the
closest one was 24 River Road where the £3.00 psf was an asking price. He also
agreed that the adjustments he had included in his second report had not been
set out in his first one, and that it was the 28 Marshgate Lane evidence that
was the principal reason for the increase in rental value.
163. Challenged on
his view the £2.00 psf rental that OS Hire agreed to in 2007 occupation of 80 River Road was for a bare storage site without planning consent for waste transfer use,
he said that he did not know whether it might have reflected the expectation of
obtaining permission (which they in fact achieved in July 2007).
164. Regarding the
McGrath site at 54-58 River Road, Barking, it was accepted that the market for
a 10 acre site would be very different, and that it included extensive wharfage
although there was some question in his mind over whether that would attract a
higher value.
165. In connection
with his revisions to the yield, Mr Matthews did not accept the argument that
it was not appropriate to reduce the yield and increase the rental value in
this instance. His only reason for making the alteration to yield was the
figures in the CBRE report for secondary industrial which, he thought, was
appropriate
166. In submissions,
it was suggested that Mr Matthews’ revised valuation should be approached with
considerable caution. Not only had he admitted that he had had no previous
experience of valuing waste transfer sites, but it was also clear that the
figure of £2.7 million contended for was very much a lone voice within a wealth
of valuation opinion. He had abandoned the figure sought in his first report
(one that had been agreed by his senior colleague Mr Fisher) in favour of one
that was significantly out of step with so much other evidence. Indeed, in his
first witness statement, Mr Halpern had said that a purchaser could be expected
to have to pay “at least £1.75 million” for an existing waste transfer site.
167.
Mr Smith said he had been involved with a large number of the
Olympic CPO sites, many of them being similar in user to the reference land,
and all had been agreed at existing use value. He said his primary approach
had been to rely upon what he described as the compelling evidence available
from the AtisReal valuation in 2006, and the actual sale of the land to Mr
Halpern in 2007. He quoted various relevant sections of the AtisReal report
from which, he said, it was abundantly clear that the question of development
potential had been considered. In particular, the paragraph that read:
“In arriving
at our valuation we have had regard to the following characteristics of the
property - the potential for redevelopment ass per the designation under the
2002 Planning Framework, prior to the 2012 London Olympic Plan.”
That appeared, he said, to put the position
beyond doubt; the valuation report is at full market value and reflects hope
value to the extent that such value exists.
168. There were,
however, a number of factors not mentioned in the AtisReal report which, he
said needed to be taken into account, and of which the valuer had presumably
been unaware. One of these was the Crossrail 2 Safeguarding, the existence of
which would impact upon hope value. There was also the fact that Atisreal’s
valuer had appeared to rely upon erroneous information relating to 28 Marshgate Lane. As a result, Mr Smith made some adjustments and, also considering the
evidence relating to the OS Hire letting in River Road, Barking in 2007, and
the McGrath acquisition of 54-58 River Road, concluded that the value of the
reference land including a 10% uplift for hope value was £1,354,000.
169. In his second
report, the rebuttal of Mr Matthews’ first report, Mr Smith referred to the
fact that Mr Matthews had been, to a large extent, relying upon rental
comparables of open storage sites and, referring to the Singh v London
Development Agency case had said he adopted a rental value of £2.20 psf (giving
£1.55 million for the reference land) and adjusted this upwards by 13.5% to
reach his pre-hope value figure of £1.76 million (based upon a rental value of
£120,000 pa). Mr Smith said he did not disagree with this approach, when a
direct comparison is made between open storage and waste transfer sites. He
also agreed that it was appropriate to apply a further uplift to reflect the
long-term hope value.
170. In the light of
some further evidence, relating to his own negotiation of the part waste
transfer and part skip hire site at the rear of 28 Marshgate Lane, which equated
to £1.355 million per acre, Mr Smith said he had revised his valuation to £2.00
psf (£95,832), capitalised it at 6.5% and added his previously adopted 10% for
hope value to produce £1,692,307 – say £1.7 million. However, he said that as
this was very close to Mr Matthews’ first valuation, he was prepared to accept
that figure (£1.85 million). As to the yield, Mr Smith said in
cross-examination that the range for industrial sites such as this at the
valuation date was 6.5 to 8.0% (and he had settled a number of cases at the
higher figure) so his adoption of 6.5% was being as generous to the claimant as
he felt able.
171. In his second
rebuttal report, Mr Smith explained the background to Brewster’s Waste
Management taking a lease at 28 Marshgate Lane, and said that it was a forced
acquisition due to them being dispossessed from their previous site in
connection with the CPO elating to the redevelopment of Arsenal FC’s former
ground at Highbury. The rent they agreed to pay, which was very much out of
kilter with the general level of rents for such sites reflected that urgency.
An indication of this, he said, was the fact that a tenant’s only break clause
was inserted in the lease exercisable at the fifth anniversary at the date of
the first rent review. The ability to exercise such a break at that time would
give them the opportunity to negotiate a lower rent (it being an upwards only
rent review) on the basis that if Econometric (the landlord) did not agree,
they risked being left with a vacant site. Such a process was not unusual, he
said, in circumstances where a lessee agrees to a long term (25 years) at a
very high initial rent.
172. There was also,
Mr Smith said, the fact that Econometric obtained planning consent for a new
tipping hall, and other site works, which they undertook at what he believed to
be an overall cost of some £427,000.
173. Mr Smith went on
to say that in his opinion the McGrath site at 54-58 River Road referred to by
Mr Matthews was a strong comparable, subject some adjustments to reflect the
value of the wharfage and the fact that it was a scheme world transaction where
the operator would be benefitting from the waste arisings generated by the
Olympic scheme. Far from there needing to be a downwards adjustment to reflect
the fact that it was such a large site, the rarity of very large waste transfer
sites would, if anything, make it more valuable.
Conclusions on value
174. As to existing
use value, we are satisfied that there is overwhelming evidence to support a
conclusion that, at the valuation date, the existing use value was very much
closer to the figure promulgated by Mr Matthews in his first report (£1.85
million) and accepted by Mr Smith.
175. Firstly, the
land was acquired by the first claimant under an option which he exercised in
June 2006 for the sum of £1.7 million. The Tribunal is fortunate, as the
acquiring authority submitted, to have contemporaneous evidence relating to a
sale of the actual land very close to the valuation date. It was a sale in the
real world, by a vendor who had been professionally advised in respect of value
(by Jones Lang LaSalle) and who had recent experience of selling other land in
the vicinity. There can be no question, in our view, that Mr Gladwell was
aware that the land may have held some long-term planning potential, as he had
himself submitted an application for residential development in 2004. It was
confirmed in evidence that there was no overage agreement entered into between
Mr Halpern and Mr Gladwell as a condition of the sale, any such agreement that
there may have been being in connection with the sale of shares in Clearun Ltd.
176. It was submitted
for the claimants that when the land was acquired by Mr Halpern, it had not
been exposed to the open market and that it must be seen as linked to the acquisition
of the shares in Clearun. Also, it was conducted at a time when the
compulsory acquisition was very much a live issue and that may have tainted the
price. Further, Mr Halpern knew that Mr Gladwell was elderly, in poor health
and “just wanted to get out”. Thus it was the claimant’s case that he bought
at an undervalue, and that little weight should be given to that evidence.
177. As we mentioned
earlier in this decision, we have no evidence from Mr Gladwell which might shed
some light on his views of the price achieved, his state of mind or his alleged
illness and we are also conscious of the fact that he was professionally
advised by a respected firm that was well aware of the CPO situation. If there
had been any risk that he was not achieving market value, either his appointed
valuers or his solicitor would surely have insisted on a formal overage
provision being entered into the contract. As to any suggestion that, with the
price having been agreed in 2005, there may have been some upward movement in
values in the interim, we accept the acquiring authority’s submission that it
was at all times open to Mr Gladwell, or for that matter, Mr Halpern, to
renegotiate the price at any time up until the date the option was exercised –
that being less than 12 months before the valuation date. Accordingly, we
attach significant weight to this evidence.
178. Secondly, the
AtisReal valuation report, carried out on the instructions of Mr Halpern’s
proposed mortgagees, First International Bank of Israel, in October 2006.
This was an open market valuation carried out in accordance with the
requirements of the RICS Red Book – described by Mr Smith as the “Gold
Standard” in terms of valuation practice. The valuation, a copy of which was
produced in evidence, it having only been disclosed by Mr Halpern following an
Order from the Tribunal, adopted the approach that was accepted by Mr Matthews
as to all intents and purposes being the same as a rule (2) valuation under the
Compensation Code. It was stated that the valuation took into account the
special assumption that the 2012 Olympics were not taking place, and that it
was therefore an assessment in the no-scheme world. It is clear from several
locations within the text of the report that the question of no-scheme world development
potential had been taken into account and it was stated that “the value of the
asset would, in part, be underpinned by the ability to form part of the
comprehensive development in the area known as Thornton Fields…”.
179. It was submitted
for the claimants, and set out in Mr Matthews’ first rebuttal report, that the
AtisReal valuation was incorrect because the land area of one of the
comparables (28 Marshgate Lane, the only one nearby) relied upon by its valuer
had been miscalculated. Due to that misunderstanding the area of land was
valued at £2.64 psf whereas it was actually £3.56 psf if the correct area of
0.67 acre was used. This appeared to be a critical element in Mr Matthews’
re-assessment of the value of the reference land at £2.7 million set out in his
second report. For the acquiring authority, it was submitted that there were a
number of factors relating to the 28 Marshgate Lane leasehold transaction that
made it an unreliable comparable in any event. It was pointed out that the new
lessee was a cash-rich purchaser who was desperate to find a suitable waste
transfer site as he was also being dispossessed by a different CPO; that he
paid a very substantial premium and that there were unresolved questions that
brought any analysis of that transaction into question.
180. For the
claimants, it was submitted that, as opposed to what the acquiring authority
suggested would be the result if the £270,000 sum paid by Brewsters to
Econometric was in fact a premium, the answer would be precisely the opposite.
If it was, it made the £104,000 rental value an undervalue rather than an
overvalue, which could justify an even higher rental value per sq ft to reflect
its true rental value.
181. We agree that
little if any weight can be applied to 28 Marshgate Lane. It is, in fact, at
the time of writing this decision, the subject of a reference to this Tribunal and
there are a number of valuation issues peculiar to that site which (not least
the effect that an alleged premium paid by the ingoing tenant at the
commencement of its lease in 2003 might have on rental value) make it
potentially unreliable. It would be inappropriate to place any reliance upon
an analysis of that transaction until such time as those issues have been
resolved. Having said that, we are mindful of, and agree with, the submission
made by the acquiring authority, that Mr Matthews’ analysis of that transaction
shows the comparable to be so significantly out of line with all the other
evidence as to make it of little assistance in this case. Ignoring the premium
issue, the rent of £104,000 pa agreed in 2003 equated to £3.56 psf for the 0.67
acre site, and this was far in excess of anything that had been achieved
anywhere else within the vicinity.
182. Whilst it would
appear that there may have been some misunderstanding of the area of land at 28
Marshgate Lane in the AtisReal valuation, and that if the correct area had been
adopted, this may have led to the valuer adopting a slightly higher figure, we
are satisfied in the round that the valuation of £1,800,000 (which was stated
to have included consideration of development potential but did not quantify
the amount, if any, of hope value attributed to it), is supported by the
general tenor of the evidence overall and falls into line with it. The
question has to be asked: having considered a number of other comparables (as
we have), would the Atisreal valuer have reached the same conclusion as to 28 Marshgate Lane’s usefulness in the overall scheme of things.
183. Thirdly, the advice
provided to Mr Gladwell by Jones Lang LaSalle (JLL). This was in the sum of
£1.87 million (£1.7 million per acre) and we were guided to contemporaneous
correspondence. Although it is clear that, in some earlier advice (in 2004 and
2005), JLL referred to higher values it was evident that, in regard to the
later letter, that advice was to be used as a starting point for negotiations.
Mr Norman of JLL later made it clear in that letter that to justify those
figures, evidence of actual transactions would be needed. The acquiring
authority pointed out that there was no evidence actually produced to support
those figures. In the following 12 months, JLL advised Mr Gladwell of its
views that the reference land was worth £1.7 million per acre. Although we are
unable to attach significant weight to these submissions in the light of there
being little documentary evidence relating to JLL’s advice, it does support the
range of values that were clearly being considered at the time.
184. As to the rest
of the comparables, we agree with the acquiring authority’s submission that the
transactions at 80 River Road, Barking are good evidence of the parameters for
waste transfer sites (July 2007 at £2.00 psf and May 2009 at £2.25 psf). We do
not accept Mr Matthews’ suggestion that the £2.00 psf that OS Hire paid in July
2007 reflected an open storage site. The planning application for waste
transfer use was made in September 2006, and obtained in July 2007. We also
note that Mr Matthews said he was acting for the landlord and would as letting
agent have been fully aware of the fact that the application had been made, and
that a positive result could be expected due to the prevalence of waste
transfer uses in the area. We do not think that, if he thought at the time that
there was an additional premium for such use, he would have advised his client
to accept a rent that did not reflect it. However, we do accept the argument
that the reference land is much closer to central London, and that it would not
be unreasonable to expect the rental value in Marshgate Lane to be more than it
was in Barking, some 7 miles further out. Although Mr Matthews accepted in
cross-examination that he had no specific evidence to support that contention,
it stands to reason, in our view, that the considerable savings that an
operator would expect to achieve in terms of transport and fuel costs would
result in an increased bid for such a proximate site.
185. We are satisfied
that the evidence that was before us, when considered in the round, supports a
rental value of the reference land of £2.50 psf at the valuation date. This is
some 50p psf above the £2.00 at River Road, which we think adequately reflects
a premium to cover the reference land’s closer proximity to the City. We were
not persuaded by Mr Matthews’ arguments in support of the significantly reduced
yield he adopted in his revised valuation, particularly in the light of the
wealth of other evidence before us. However, we adopt Mr Smith’s figure of
6.5% rather than Mr Matthews’ initial yield of 6.8%.
186. Turning to the
allowance for long term development potential – anticipated to reflect the
expectation of achieving planning consent for a predominantly residential
development after no less than 10 years and possibly considerably longer, Mr Matthews
adopted 5% in his first report. Mr Smith thought a 10% allowance was
appropriate on the same basis. In our conclusions above, we have found that a
development would become viable within about 7 years, and this therefore, in
our view, warrants a higher figure. In our judgement a prospective purchaser
would consider an uplift of 15% to be appropriate. The resultant valuation
becomes:
Rental value at £2.50 psf (49,030 sq ft) £122,575 say
£120,000pa
Years Purchase in Perpetuity @ 6.5% 15.385
£1,846,200
Say £1,850,000
Add 15% for development potential £
277,500
£2,127,500
187. This conclusion
is, in our view, further supported by the alternative approach that a developer
might take (as described in paragraph 150 above).
188. The value of the
reference land net of the addition for development hope value equates to just
under £1.7 million per acre, and in our view that figure is also particularly
well supported by the open market freehold sale of 54-58 River Road, Barking,
the much larger site with wharfage, at £1.78 million per acre in June 2006. Mr
Smith was correct, we think, to point out that there is some not insignificant value
in the wharfage and that there should be no adjustment for size as the very
large plots come onto the market extremely rarely. It is however noted that
both valuers accept there should also be a discount to reflect the Olympic
effect. Nos. 72-76 River Road, that was also referred to in the Schedule, and
a transaction upon which both valuers rely, was a sale at £1.76 million per
acre in 2006. Both of these were waste transfer sites.
189.
Having decided the issues above, we determine compensation as follows:
Value of the reference land at 2 July 2007 £2,127,500
Disturbance £
321,247
Pre-reference costs £
57,000
Statutory Basic Loss Payment £
75,000
£2,580,747
190. This decision
will become final when the question of costs is determined, and not before.
The accompanying letter sets out the procedure for making submissions in
writing.
DATED:
18 March 2014
HH
David Mole QC
P
R Francis FRICS
