Compulsory purchase – Compensation – Valuation – Acquiring authority acquiring claimant’s empty property by compulsory purchase – Property sold at auction on building lease with requirement to carry out refurbishment and option to acquire freehold once works completed – Whether auction price providing reliable guide to freehold value for purpose of assessing claimant’s compensation – Whether claimant entitled to reinvestment costs where purchasing new property from company in which owning 80% share – Application determined accordingly
In March 2008, the acquiring authority acquired an empty five-storey, Georgian terraced house in London SE11 from the claimant pursuant to a compulsory purchase order (CPO) made under section 17 of the Housing Act 1985. The property was Grade II listed and was in a conservation area. It had been on English Heritage’s “at risk” register since December 2003. In April 2006, listed building consent had been granted to convert the property into three flats but that work had not been carried out. The authority made the CPO on the grounds that the property was on their empty homes register, had remained unoccupied for a lengthy period of time and was in disrepair; they sought to bring it back into a state of repair suitable for occupation.
In July 2008, the authority sold the property at auction for £580,000, on a 125-year building lease which required the purchaser to carry out certain prescribed refurbishment works and entitled it to acquire the freehold interest for £1 within 28 days of those works being completed. Assignment or subletting of the lease was not permitted, save by a mortgagee in possession, and the lessee could not occupy the property save for carrying out the refurbishment works. The initial rent under the building lease was £200 pa, rising to £20,000 pa in January 2010 and with further upwards-only increases, linked to RPI indexation, from January 2015.
In March 2009, the claimant purchased a replacement property, in which he was at that time residing, from a company in which he owned 80% of the share capital.
The Upper Tribunal determined various issues that arose in connection with the claimant’s claim for compensation as a result of the CPO, including: (i) whether the auction price achieved for the building lease provided a reliable guide to the value of the claimant’s freehold title; and (ii) whether the claimant was entitled to “reinvestment costs” of more than “£13,500, under section 10A of the Land Compensation Act 1961, as the costs of acquiring his replacement property including stamp duty land tax and fees. On the latter point, the authority argued that the new property could not be regarded as a replacement since the claimant had effectively already owned it.
Held: The claim was determined accordingly.
(1) In principle, auctions provided a transparent and reliable guide to value at the date of the auction. However, the auction sale price of £580,000 in the instant case represented the open market value at July 2008 of a building lease under which the lessee would have to incur the cost of refurbishment and would be locked into the lease until he carried out refurbishment work. He could not assign or underlet, and after a period of relatively nominal rent, was liable for a rent of £20,000 pa, subject to upwards-only indexation, for the remainder of the 125-year term, in respect of a property that could not be occupied until the refurbishment works had been completed. The terms of the building lease were sufficiently unusual to cast doubt on the reliability of the auction price as evidence of value of the unencumbered freehold interest without reference to further comparable evidence: Stephenson v East Riding of Yorkshire Council [2013] UKUT 64 (LC); Allen v Leicester City Council [2013] UKUT 16 (LC) considered.
The best approach to valuation in the instant case was by reference to the views of estate agents from whom the claimant had requested marketing and valuation advice. Those agents had valued the property as a house in its existing condition, less sale costs. Although the opinions of three of the agents were untested, and their evidence comprised marketing or valuation reports to the claimant rather than expert evidence to the tribunal, their reports nonetheless represented the contemporaneous opinions of agents in the local market at a time only three months before the March 2008 valuation date. More credible and reliable evidence was provided by a fourth agent who had given evidence to the tribunal, who had inspected the property in January 2008 and who had long experience working in the relevant geographical area. Although he was not a chartered surveyor, he was a practitioner in the market and was in the best position to express a view as to value. On the basis of his evidence, the open market value of the property at the valuation date was £800,000.
(2) The claimant’s claim for reinvestment costs should not fail as a result of him having an interest in the company that owned the replacement property. The claimant and the company were two separate legal entities. The fact that there was a link between the two was irrelevant. The real question was whether the claim fell within the circumstances envisaged by section 10A of the 1961 Act. The claimant should, under the principle of equivalence, be no better nor worse off as a result of the CPO. He had previously owned an investment property in London SE11, of which he had been deprived by the CPO. As a result of the CPO, he purchased the new property as an alternative investment, albeit one that he lived in. Accordingly, his purchase was made in consequence of the CPO and the items for which he claimed fell squarely within those envisaged by section 10A.
James Winbourne, of Winbourne Martin French, appeared for the claimant; Mary Cook (instructed by the legal department of Southwark London Borough Council) appeared for the acquiring authority.
Sally Dobson, barrister
Click here to read the transcript of Behchet v Southwark London Borough Council
