Valuation — Marriage value — Lotting — Farmhouse and adjoining land — Valuation under Inheritance (Provision for Family and Dependants) Act 1975 — Whether three parcels of adjoining land having marriage value — Private property companies — Discount to net asset value — Whether discount 15% or 30%
The claimant, the former wife of the deceased, sought an order under the Inheritance (Provision for Family and Dependants) Act 1975 for financial provision against the executors (the deceased’s widow and a solicitor). The district judge directed the hearing of a preliminary issue to determine “the true value” of the deceased’s assets. The assets included: (a) a farmhouse; (b) 252 acres of farmland, held in the name of a company, BCL; (c) a group of farm buildings held by BCL; (d) a further 2.1 acres of land; (e) the deceased’s 75% shareholding in BCL; and (f) the deceased’s 50% shareholding in a further company, CIL, which held flats, shops and land (later sold for £366,000). Although there were small differences between the valuers as to the separate values of (a), (b) and (c), the claimant’s valuer contended that the value of these three assets as a whole was £2m, which exceeded the value of the individual parts; the farmhouse was surrounded by the farmland and close to the farm buildings, and a purchaser would pay a premium to ensure that the land and buildings close to the farmhouse were in his control. The executors’ valuer denied that there was any marriage value, and contended that the value of the three properties totalled £1.35m. In respect of the shares in the private companies, it was agreed that the valuation should be on a net asset value basis subject to a discount to reflect the difficulties of the realisation of assets in a private company; the claimant’s expert contended for a discount of 10% or a maximum of 15%, and the executors’ expert for 30%.
Held: There was a marriage value and the properties ((a), (b) and (c)) should be valued as a whole. Having regard to the comparables, the value of the three properties was £1.7m. As the properties were in separate legal ownerships, a value was attributed to each in the same proportions as the individual values contended for by the claimant’s valuer. In respect of the shares in both of the private companies, the discount should be 15% to the net asset value.
No cases are referred to in this report.
This was a hearing of a preliminary issue to establish the value of assets of the deceased for the purposes of a claim under the Inheritance (Provision for Family and Dependants) Act 1975 by the claimant, Elizabeth Frances Quilter, against the defendant executors, Susan Jacqueline Quilter and Sarah Elizabeth Judd.
Michael Curtis (instructed by Mayo & Perkins, of Eastbourne) appeared for the claimant; Christopher McCourt (instructed by Thomson Snell & Passmore, of Tunbridge Wells) represented the defendants.
Giving judgment, Mr David Mackie QC said:
Background and issues
[1] This has been the trial of a preliminary issue to establish the value, at the date of death, of certain assets owned by the estate of Michael John Quilter, deceased. The issue arises out of proceedings by the claimant, the former wife of the deceased, for an order under the Inheritance (Provision for Family and Dependants) Act 1975. The first defendant is the deceased’s widow and is an executor with the second defendant, a solicitor.
[2] This matter started in the Chancery Division and was transferred to the Family Division. It is back here for the purpose of determining the preliminary issue directed by para 2 of the order of District Judge Roberts, dated 18 February 2003. The assets in question are:
(a) Blackham Court Farmhouse and gardens of some 4 acres (the farmhouse), held in the name of the deceased. This is a 15th century Grade II listed farmhouse with five bedrooms, situated between Tunbridge Wells and East Grinstead, in East Sussex. It is in a poor state of repair but is at the heart of the farmland I mention next.
The claimant’s expert, Mr Nicholas Young values the farmhouse, standing alone, at £750,000. The defendants’ expert, Mr Simon Calcutt, gives a value of £575,000.
(b) Some 251.62 acres of farmland (the land) surrounding the farmhouse, held in the name of Blackham Court Ltd (BCL). It has some buildings, including an oast house. The experts value this on its own at between £393,000 and £400,000.
(c) A group of farm buildings held by BCL known as Priory Park (after an 11th century priory that stood on the site) at Blackham Court Farm, across a road from the farmhouse. Priory Park has been converted into office units but the tenants have no security of tenure. Priory Park, as its brochure indicates, is more than a group of farm buildings cobbled into offices. Mr Calcutt’s firm describes it as “a sympathetic development of court yard offices situated within a unique and unspoilt rural location” and the photograph confirms this. Mr Young values Priory Park, on its own, at £350,000, and Mr Calcutt at £401,000.
Mr Young considers that the value of (a), (b) and (c) as a whole exceeds that of the individual parts, and places an overall value of some £2m upon them. Mr Calcutt does not accept that there is any premium or “marriage value” attributable to all three assets being sold together.
(d) 2.1 acres of land in the deceased’s name next to Holme Place, Blackham (the two acres), which Mr Young values at £13,500 without access and £20,000 with access. Mr Calcutt values them at £6,000.
(e) The deceased’s 75% shareholding in BCL, which owns the farmland and Priory Park. There is disagreement about discount rates.
(f) The deceased’s 50% shareholding in Clayshaw Investments Ltd (CIL), which, at his death, owned a property at 29/31 High Street in Edenbridge, Kent. This was sold for £366,000 in February 2002. The claimant’s experts, and, it seems, Mr Calcutt and the defendants’ probate accountants, put the value at the date of death as some £375,000, but the expert accountant for the defendants, Mr Philip de Nahlik ACA, arrives at |page:80| a figure of £310,000. There is disagreement as to the value of the property and about discount rates and related matters.
[3] The only witnesses have been four experts. The documents we have examined have been their reports and the attachments to them. Unfortunately, provisions of the CPR relating to the preparation and service of expert reports and the district judge’s orders about this were not properly complied with.
[4] Before I turn to each of the matters in dispute, I point out that, while the order requires the “true value” of these assets to be established, that is not possible in a case where all turns on judgments about what an unidentified buyer would be likely to pay for a special group of assets. Both valuation experts freely acknowledge the limitations of the comparables upon which they rely and the assumptions they have to make. The evidence is comparatively limited, and, in reaching conclusions, the words “doing the best I can” have frequently come to mind. The judge deciding the provision claim may or may not wish to have regard to the approximations and uncertainties of this valuation.
Value of property
[5] The written statements of the surveyors are not in conventional form. The evidence of Mr Calcutt consists of two undated valuations made in 2001 for probate purposes: the first of the land owned by BCL and the second of the farmhouse. This is supplemented by an undated statement with exhibits, mainly comparables. Mr Young has produced a valuation, dated January 2002 and 2003, of the “entirety value” of the farm, the farmhouse and Priory Park. This, too, is supplemented by an undated statement with exhibits, mainly comparables. The experts had meetings on 18 and 20 March, producing a joint statement summarising their respective positions. The experts are both highly experienced chartered surveyors with good knowledge of the property market in the relevant area. Mr Young has slightly less experience of this type of property, and less knowledge of Blackham Court and its main comparable. Mr Calcutt is well known to the first defendant, who has been a client for a number of years. There is also a connection between Mr Calcutt’s brother and that brother’s father-in-law, who provide farming services for the first defendant. There is no suggestion of bias on the part of Mr Calcutt, but the claimant submits that he would have been a sympathetic person to approach when probate valuations were being sought. It is suggested that, having begun an exercise valuing assets individually for probate, it would be difficult for him to move away from his original findings when making an appraisal for a different purpose. I found both witnesses to be truthful, candid, competent in their field and helpful to the court.
Farmhouse
[6] Mr Calcutt’s starting point, looking at the farmhouse on its own, is £750,000, but he deducts £175,000 to take account of the substantial renovation and repair necessary for it to be brought up to modern standards. By coincidence, Mr Young also reaches £750,000 for the farmhouse on its own, a figure that takes account of the need for renovation. Both experts rely upon comparables that I need not examine in detail.
[7] Mr Young says that the costs of improvements, which he was willing to assume to be up to £250,000, were something he had in mind when reaching the figure of £750,000. As he sees it, such costs do not have a pound-for-pound impact upon the value of an estate whose main attraction is a secluded setting away from neighbours and main roads, rare in the South East. Mr Young convincingly rejected suggestions that the need for remedial work had not been included in his initial valuation.
Land
[8] It is not useful to examine this value closely since the difference between the experts looking at the land on its own is only £7,000. If it were necessary, I would split the small difference to reach a result.
Priory Park
[9] Similar considerations arise. Mr Calcutt arrived at a value by closer reference to rental return than Mr Young. Mr Calcutt’s figure is higher than Mr Young’s. Mr Young said that he would not quarrel with a valuation midway between the two points if it was necessary to value Priory Park on its own. Nor would I.
Marriage value
[10] The real difference between the parties lies in the question of whether the property is worth more if sold as a whole or in its separate parts. In the real world, units of land held by the deceased and by companies that he and his wife owned will be sold together if this makes financial sense. Mr Young, throughout, has valued the property in its entirety. The reason for this was his view expressed to those instructing him that it would be clearly more valuable as a unit than in parts. He sees it as artificial to value each element of the property individually. The value increases when residential accommodation is placed at the heart of an estate surrounded by agricultural land. The marriage of land and the farmhouse adds a value to both. If the farmhouse and Priory Park are separated, the value of the former is decreased because most purchasers seeking tranquillity would not want to have commercial units close by. If Priory Park is owned by the same owner of the farmhouse, he then has the choice of putting these buildings to his own use or letting them out. Looking at pictures of the access road and the proximity of Priory Park to the house, separate ownership would significantly detract from the value of the farmhouse, the main attraction of which may be its isolation. Mr Young describes the marriage value by reference to the RICS appraisal and valuation standards, which include the realisation of marriage value arising from merger with another property, or interests within the same property, described as part of “hope value”, arising from any expectation that circumstances affecting the property may change in the future. Mr Calcutt does not consider there is marriage value. He says that there is a problem with the very poor condition of the farmhouse. He says that most buyers at that level prefer to pay well for a property in good condition rather than to buy a house that would not be fit for occupation while substantial repairs were carried out. He says that, in addition, having travelled to a relatively quiet and isolated site, a purchaser does not want to have an office complex in multiple occupation presenting a number of problems apart from loss of privacy. He accepts that a purchaser of the farmhouse might like to acquire the land to ensure privacy, but the benefit of doing that would be diminished with the Priory Park development next door. Mr Calcutt starts with individual plots because he was instructed to proceed on this basis for probate purposes, the properties being in separate ownership.
The defendants urge that I should prefer Mr Calcutt’s evidence because:
(a) of his particular expertise in the valuation of country houses for 36 years and his good knowledge of this particular property;
(b) his valuation was contemporaneous with the deceased’s death;
(c) his more realistic approach to the effect of having to do remedial works; and
(d) Mr Young’s failure to address the issue of marriage value specifically in his report, until very late.
[11] The claimant contends that Mr Young’s approach should be preferred because:
(a) unlike Mr Calcutt, he has not produced a probate value or started from a position of being directed to value in distinct units. He, at the outset, took a view about the most likely way to get maximum value; and
(b) as a unit, the estate has a rarity value in the South East, being a farmhouse in secluded location protected by the belt of land.
[12] As I see it, the value of the land will or may be increased by the wish of the owners of the farmhouse to be surrounded by it, subject to their particular inclinations and means. The attraction of the farmhouse is greater if it is surrounded by the land. The value of the farmhouse on its own is unquestionably reduced by separate ownership and the potentially looming presence of commercial tenants in Priory Park. Priory Park itself has a value that, on the evidence, is not much affected by the presence or absence of the other two components. The positive factors increase and the negative ones diminish as the units come together. I do not accept Mr Christopher McCourt’s submission, |page:81| based upon what seems to me a misreading of the RICS guidelines about “hope value”, that it is for the claimant to prove marriage value, not for the defendants to disprove it. But the issue does not turn, as I see it, upon questions on burden of proof. It seems reasonably clear to me that the property is likely to be of greater value as a whole than its individual parts so that it is held, as the deceased held it, as one unit. It seems to me that Mr Calcutt’s approach has understandably and inevitably been influenced by his starting point: the need to treat the assets separately for the purposes of probate valuation. Mr Young also began from a starting point, valuing the properties as a whole, but this arose from his own perception of what would be the most valuable approach, conclude that there is “marriage value”, and that the properties should therefore be valued as a whole.
What should the overall value be?
[13] What should that overall or marriage value be? Mr Young’s figure is £2m, that of Mr Calcutt remains at £1.35m. While I have had regard to all the comparables to set the values in their context, the most relevant is Tye Farm, which sold for £1.6m two months after Mr Quilter’s death. The two other properties considered by Mr Young when he made the first valuation are quite different, at prices of £4.8m to £5.5m. Mr Calcutt knows Tye Farm and the property better than Mr Young. I accept the factors identified by Mr Calcutt that make the property seem less valuable than Tye Farm and bear in mind those identified by Mr Young which make it seem more valuable. Mr Calcutt said that Tye Farm was in stunning condition, contained a state of the art recording studio, had a secondary dwelling and had received considerable investment since being sold in 1995 – Mr Young had less knowledge of the property and had worked from the estate agent particulars for the 1995 sale, not that in 2001. As Mr Young saw it, Tye Farm was less attractive because it had 100 acres less area of land, fewer additional buildings, overhead power lines that were visible, and roads at the north and west boundaries. Mr Young produced three further comparables that had come to his attention since, but these have particular features, as do those relied upon by Mr Calcutt. I do not summarise the aspects of each property because, unlike, for example, the comparables available when fixing a rent for a shop on a high street, the particular features of properties in the same price range vary greatly. Furthermore, whether many of those features are a plus or a minus to a purchaser will depend on his or her requirements and inclination. Mr Calcutt at one point accepted that the values of the two properties were similar. He later returned to his position that the overall value was not more than the sum of its parts, £1.35m. As I see it, the properties are being broadly comparable taking into account their different pluses and minuses. But Blackham Court has the additional advantage of an extra 100 or so acres of land. I therefore propose, looking at all the material I have seen, to value the properties as a whole at £1.7m.
[14] As the properties are in different legal ownership, it then becomes necessary to attribute value to each component. The appropriate way to do that is to use the same proportions as Mr Young to reduce the figures proportionately from the total of £2m.
Six acres
[15] Mr Calcutt’s value of £6,000 is arrived at on the basis of £3,000 per acre. Mr Young’s figures are based upon comparables. The experts accept that there is or may be a wide range of values for such a small parcel of land. It may be of little use to anyone. Alternatively, it may have real value as amenity, garden or pony paddock for which a buyer is willing to pay. Counsel realistically accept that I must take a figure somewhere in the middle of the estimate, and I do this and so arrive at £10,000.
Value of shares: BCL
[16] I have share valuations of BCL and CIL prepared by Mr Martin Wickens, a partner in Watson Associates, chartered accountants, of Hailsham, East Sussex. These are dated 21 January 2003. I also have a statement from Mr Wickens dated 19 May 2003. I have valuations prepared by Mr de Nahlik, who is in sole practice as a chartered accountant in Brixton Deverill, Warminster, together with a further statement containing further views and a response to Mr Wickens dated 21 May 2003, the second day of the hearing. The meeting between experts envisaged by the rules does not appear to have taken place and some of this material has come in very late. As will become apparent, I accept the evidence of Mr Wickens except on one point. Apart from that, I do not accept the evidence of Mr de Nahlik where it disagrees with that of Mr Wickens.
[17] It is agreed that the value of shares in BCL should be calculated on a net asset value basis. It is also agreed that a percentage discount has to be applied to reflect the fact that the shares are held in a private company and any difficulties in realisation. Mr Wickens puts that discount at “15% at most”. Mr de Nahlik gives 15% subject to some other points.
[18] Mr Wickens has advanced an argument that the 15% should be 10% as the value of the freehold increases. This claim was made for the first time on 19 May, and its basis, as developed in examination-in-chief, remains unclear to me, as indeed it did to counsel. So I reject it.
[19] Mr de Nahlik put forward a figure of 15%. But in a statement prepared in draft on 20 May and signed on 21 May (the two days of the hearing), Mr de Nahlik sought to increase the 15% to 30% as a result, he said, of listening to something on the radio on the way to court on Monday, 19 May. He considered that the 15% should be 30% because his study of the Financial Times disclosed that, at the date of death in early 2001, the discount at which publicly quoted companies were trading from their net asset value was 15%. There should therefore be an additional discount of 15%. This was not a factor that either expert witness had ever encountered when preparing valuations of private companies. This late and unsubstantiated proposal is clearly inappropriate. I need not discuss a previous view of Mr de Nahlik that the discount for CIL should be 27.5% as he appears to have withdrawn it. The discount figure will be 15%.
[20] The defendants’ expert, Mr de Nahlik, proposed that there should be a further discount at, as it were, the top of the account when stating the value of the property. This should be to reflect the fact that the deceased only had a part share in the property. The source of this idea was a clear and admitted mistake by Mr Young. At the hearing, it was quickly conceded that the figure for the market value of the property at the top of the account was a matter for the chartered surveyors, not the accountants, and there was no justification for a further discount at that point. The defendants persisted with a claim that this further discount should apply if a “marriage value” be held to apply to the property. This proposition disintegrated for the same reason; that this was a value for the surveyors to set, not the accountants.
Value of CIL
[21] Mr Calcutt, the defendants’ surveyor, valued the Edenbridge property at £377,000 for probate purposes. The defendants’ accountant, Creaseys, when calculating the value, arrived at a figure of £377,000. A year after the deceased’s death, 29/31 High Street was sold for £366,000. Mr Wickens, the claimant’s accountant, put £377,000 as a value in his calculation, based on the other parties’ surveyor’s and accountant’s figures. However, Mr de Nahlik has taken a different view and advised the court that £310,000 would be the right valuation. Mr de Nahlik takes the sale value of £366,000 and makes deductions for costs of sale, and then back-calculates from this by reference to the Halifax residential property index. But it is accepted that this figure for the value of the property should be arrived at by the surveyors, not the accountants. The evidence of all, including Mr de Nahlik in cross-examination, was that the cost of the sale should not be deducted either. Further, the Halifax residential index, despite Mr de Nahlik’s insistence that it still had some value, is not applicable to property consisting of flats, a shop and land. Mr McCourt declined my invitation to tell me what the defendants’ case was. Did they put forward the figure of their valuer, Mr Calcutt, |page:82| presumably the person best qualified to value the property, or that of Mr de Nahlik? Mr de Nahlik, as an accountant, is not the expert to value freehold property. His figure overlooks common sense: his back calculation uses an obviously flawed index. He deducts costs of sale to CIL (but not BCL), then readily accepts that it is an obvious error. He also applies the additional 15% “public company” discount. I recognise that some of the inadequacies in Mr de Nahlik’s second statement may arise from it having been produced at the last moment, but of course the litigation should not have been in this state for that to become necessary. Further, that may be a reason but it is not an excuse.
[22] The same issues as to discount rate arise as with BCL. The value of CIL will therefore reflect a property value of £375,000 and a discount of 15%.
Conclusion
[23] I have set out my conclusions and invite counsel to submit corrections of the usual kind and then prepare and agree a draft order and the necessary calculations to go with it. I am grateful to Mr Michael Curtis and Mr McCourt for their helpful and realistic submissions that, by concentrating on the real issues, have reduced the cost to the parties of this unhappy dispute.
