Compulsory purchase – Derelict property – Section 17 of Housing Act 1985 – Assessment of compensation to claimant – Acquiring authority reselling property by informal private tender – Whether price achieved on sale by tender providing reliable basis for valuation for compensation purposes – Compensation assessed
In 2000, the acquiring authority made a compulsory purchase order (CPO), under section 17 of the Housing Act 1985, to acquire the claimant’s freehold interest in a house in Clapton, London E5. The house was a two-storey four-bedroom Victorian property with an attic floor and with a small front and larger back garden. Squatters had been occupied it after the claimant’s family moved out in 1997, and it had become derelict and uninhabitable. Following confirmation of the CPO, the property vested in the acquiring authority in November 2000, which was the relevant valuation date.
The acquiring authority proposed to auction the property, but withdrew it when the claimant applied for judicial review of the CPO. The judicial review claim was dismissed and the authority invited offers on an informal tender basis, with a closing date in July 2001. In the invitation to tender, the property was described as having suffered extensive fire damage and being in a derelict and dangerous condition. Bidders were informed that the successful purchaser would have to provide a bond for £80,000 in order to guarantee that the property was renovated to the required standard and make a contribution of 3% to the council’s valuation and legal costs. The highest tender was £135,000, although, in the event, the authority sold to the second highest bidder for £133,150 on the basis that it would begin the renovation works at an earlier date.
For the purposes of assessing compensation, the claimant’s expert valued the property at £230,000 at the valuation date, relying upon the sales of three properties in the vicinity between November 2000 and March 2001 at prices between £220,000 and £250,000. He considered that no weight should be attached to the results of the sale by informal tender since the property had not been properly marketed. The expert for the acquiring authority valued it at £120,000, partly based upon the price actually achieved by the acquiring authority on the sale in April 2002, and partly upon the sales of other properties in the area, some by private treaty and some by auction.
Decision: Compensation of £147,000 was payable.
Since the experts had not inspected their comparables internally, they had had no information other than guesswork as to their condition, size and the accommodation layout. Nor had they been able to provide a reliable estimate of the works necessary to bring the subject property into a habitable condition. Accordingly, the evidence of comparables was of little assistance and the most reliable starting point was the price achieved by the acquiring authority on the sale of the subject property. In that respect, there was no reason why the highest bid of £135,000 should be disregarded.
In considering the price achieved by the tender process, it was necessary to take into account that prospective purchasers had been required to submit their tenders on the basis of an external inspection only and that the description provided in the tender particulars would have encouraged them to overestimate the extent of the necessary building work. There was evidence that the reference to fire damage was an exaggeration, the reference to “dangerous condition” suggested that the main structure was unsound and might require total renewal, when this was not the case, and the requirement for a bond of £80,000 might well have led a prospective purchaser to assume that the works would cost that amount, whereas the real cost would be significantly less.
Taking those matters into account, it was to be assumed that the highest bid, namely £135,000 plus £4,050 towards the authority’s fees, underestimated the value of the subject property by 15%. Accordingly, the market value in July 2001 was £163,500. Adjusting that figure by reference to the Land Registry Index, to reflect the increase in house prices between November 2000 and July 2001, produced a value at the valuation date of £147,000.
Richard Colbey (instructed under the direct access schemen) appeared for the claimant; Megan Thomas (instructed by the legal department of Hackney London Borough Council) appeared for the acquiring authority.
Sally Dobson, barrister