Leasehold interest in three intercommunicating shop units in Richmond-upon-Thames, two occupied as a Wimpy Bar and the other as a fish restaurant, with long-standing planning permission for ‘takeaway services’ — Evidence by valuers experienced in ‘fast food’ premises of categories of operators in this field and their policies — Claimants’ valuer relies on recent sale by claimants to ‘fast food’ second-category company of leasehold interest in premises (‘no 30’) opposite subject premises which were never offered in market generally and could have realised more if fully exposed to market — DV relies on assignments of leases in general area but concludes that no discernible pattern apparent and dismisses the no 30 transaction as wholly irrelevant — Tribunal disagrees, holding that that transaction must merit great weight being given to it, but accepts that subject premises suffered disadvantages generally and in particular when compared with no 30 — Most likely purchaser a second category fast food operator, who would have weighed its disadvantages very seriously — Award of £75,000 against claim for £130,000 and offer of £25,000
Michael Rich
QC and David A Smith (instructed by Zeffertt Heard & Morley Lawson)
appeared for the claimants; William Hicks (instructed by Coward Chance) for the
acquiring authority.
Giving his
decision, MR REES said: This reference was made by the claimant to determine
the amount of compensation payable on the compulsory acquisition of its
leasehold interest in restaurant premises [at 21, 23 and 25 Hill Street and 4
Heron Court] in Richmond, Surrey. The claim was for £130,000: the respondent
authority offered £25,000. The issue was almost entirely one of valuation.
Counsel for
the claimant called Mr N J Rose BSc FRICS FCIArb [partner of De Groot Collis],
whose valuation was at the sum claimed, and Mr D R Coffer FRICS, who
specialises in the acquisition of what was referred to before me as ‘fast food’
premises and restaurants. Counsel for the respondent called Mr P I Atkins
ARICS, District Valuer, Richmond, whose valuation was at £25,000, Mr E Latham
ARICS DipTP, whose evidence related to town planning matters, in particular to
the redevelopment possibilities of the subject premises, and Mr D W Reavell BSc
ARICS, who, like Mr Coffer, has had experience in the acquisition of ‘fast
food’ premises.
The relevant
order is the London Borough of Richmond-upon-Thames (Richmond Riverside)
Compulsory Purchase Order 1981 made under the Town and Country Planning Act
1971 and the Acquisition of Land Act 1981. The notice stating the effect of the
general vesting declaration was dated September 27 1982. The relevant valuation
date is agreed to be November 22 1982. The purpose of the acquisition was to
enable the area round about (and including) the subject premises to be
comprehensively developed.
From an agreed
statement of facts, I note that the subject premises were situated on the
corner of Hill Street and Heron Court, Richmond, close to Richmond Bridge on
the south bank of the River Thames. They comprised three intercommunicating
shop units with accommodation in the basement and on two floors above. There
was a lock-up garage at the rear. The buildings were erected in about 1850. The
claimant occupied two of the shops as a ‘Wimpy Bar’ and the third as a fish
restaurant. The basement was used for the preparation of food. Part of the
first floor was used by the claimant as offices. Parts of the first and second
floors were flats let to statutory tenants. The remainder of the accommodation
on the upper floors and the garage was vacant. Floor areas and plans were
agreed.
The claimant
held the subject premises under a lease dated February 22 1974 for a term of 21
years from the same date. The lease (a copy of which was before me) contained
provisions for the rent to be reviewed to open market rental value in 1979 and
every fifth year thereafter and a redevelopment clause under which the landlord
could take possession of the subject premises for redevelopment, the lessee
having the right to nominate the unit or units in the new buildings which it
might require for its own occupation. An interim schedule of dilapidations had
been served: the cost of complying with this was agreed to be £25,438 excluding
fees and VAT. At the relevant date there was a period of about 1 1/4 years
before the next rent review: the rental value was agreed to be £21,000 per
annum and the profit rent £7,000 per annum. As will be seen, these details have
far less bearing on the value of the subject lease than is usually the case and
both valuers recognised this in their valuations.
One of the
reasons for this may be the town planning policy adopted for the area: the
following is taken from the agreed statement of facts:
The subject
property has had long-standing planning permission for the use of restaurant
and fish and chip bar with ‘takeaway services’ (prior to the commencement of
the claimant’s lease in 1974).
The Richmond
Town Action Area Plan was adopted by the council on March 9 1982 in accordance
with the provisions of the Town and Country Planning Act 1971 (as amended).
Policy 23 of the written statement states ‘within the whole Action Area
permission will not normally be given for the change to any other use of an
existing ground-floor shop except in the areas shown on the proposal map. In
these areas change of use will only be allowed where the non-retail use, in the
opinion of the council, complements the shopping function and character of the
particular centre and will not adversely affect the amenities of the nearby
residents.
In Hill Street,
Bridge Street, King Street and the eastern side of Hill Rise change of use of
an existing shop to a restaurant or other non retail use would be resisted. An
area for the relaxation of the shopping policy (as stated in Policy 23) are the
parades of shops known as 1-17 Hill Rise and 1-13 Petersham Road.
The subject
premises are in the area referred to in the first sentence of the last
paragraph above.
Hill Street
runs northwards from Bridge Street to George Street. Beyond George Street is
The Quadrant and then Kew Road. Details of nearly 20 transactions of interests
in property in Hill Street, Kew Road and Bridge Street were put before me:
included were plans and photographs.
Where
appropriate, rental values were analysed on the familiar zone A basis. In some
instances, copies of leases were included. The transactions included sales and
lettings in the open market and settlements on compulsory acquisitions.
Mr Rose’s
valuation rests on the sale by the claimant to a firm called Pizza Hut
(UK) Ltd of a leasehold interest in 30 Hill Street opposite the subject
premises (‘no 30’). A copy of the contract, of the lease and of an interim
schedule of dilapidations was before me.
purchaser agreed to comply with the schedule of dilapidations and fixtures,
fittings and goodwill were specifically excluded from the sale. The cost of
complying with the schedule of dilapidations was agreed to be £11,040. The
lease had four months to run before the next review date but did not contain a
redevelopment clause.
Categories of
traders
A number of
categories of traders selling prepared foods was recognised by the experts. In
the top category were to be found such companies as McDonald’s, Wimpy
International and Wendy. The second category included such traders as Pizza
Hut, Pizzaland and Pizza Express (already represented in Richmond). The lowest
category included Chinese and Indian restaurants. Those in the first category
on Mr Coffer’s evidence (and there was little dispute about this) paid very
high premiums to acquire suitable premises in the right positions: they spent
large sums on fitting them out to their requirements and tended to place less
weight on the condition of premises and the lease terms than might other
purchasers. Rarely did such purchasers ask to see the vendors’ accounts,
preferring to rely on their own estimates of the trade which they would expect
to do.
Mr Coffer’s
view was that at the relevant date purchasers in the top and the next category
down would have been in the market for the subject premises. Mr Reavell was
employed by Pizza Hut (UK) Ltd as property manager from 1981 to 1983 during
which time no 30 was purchased from the claimant. Had the subject premises been
available in the market at the time Pizza Hut purchased no 30 (early in 1983)
the subject premises would not have been favourably considered by him because
of their various disadvantages: the side of the road (he considered the
opposite side to be better, but not a lot — ‘much of a muchness’), car parking,
the shape of the building and the terms of the lease, particularly the
redevelopment clause.
Mr Latham’s
evidence covered the planning history of the area, planning policies,
development plan provisions and redevelopment possibilities in the ‘no-scheme
world’ including car-parking requirements: this was particularly relevant to
the effect on the valuations of the redevelopment clause in the lease of the
subject premises.
Mr Rose
applied the £80,000 paid for no 30 to the subject premises by dividing it by
the equivalent area in terms of zone A, using only the restaurant areas,
excluding, for example, the residential accommodation in the subject premises.
That gave what was referred to as a ‘restaurant premium’ of £165,000 from which
he deducted 25% for the effect of the redevelopment clause: he added £5,600,
being the capitalised value of the agreed profit rent of £7,000 per annum, to
give £129,350, say £130,000. No compensation under other heads was claimed.
Mr Atkins
looked at the eight assignments of leases (included in the 20 or so
transactions referred to above) and came to £25,000 for the ‘value of the
leasehold interest including compensation under all heads of claim’. The sale
of no 30 was not included in his documents, but he knew that it was to be
relied on by the claimant: he ‘considered it wholly irrelevant’.
Tribunal’s
findings
The subject
premises have now been demolished, but I viewed the area generally.
Balancing the
evidence of Mr Coffer and Mr Reavell, I come to the conclusion that there would
not have been the keen competition for the subject premises which Mr Coffer
indicated. I accept Mr Reavell’s evidence that the subject premises suffered
disadvantages generally and in particular when compared with no 30. Few, if
any, of those in the first category of ‘fast food operators’ would in my
judgment have been interested in them: the most likely purchaser might at best
have come from the sort of trader to be found in the second category and they
would have weighed the disadvantages referred to by Mr Reavell and Mr Atkins
very seriously when considering what they might bid.
I do not agree
with Mr Atkins that the sale of no 30 is wholly irrelevant. It was never
offered in the market generally: the sale came about as the result of an
approach by an agent to the claimant asking if it would sell. A transaction at
that level might not be repeated, but the lease could have realised more if it
had been fully exposed to the market.
Mr Rose
analysed the price realised for no 30 to find the value of the subject premises
using their respective areas, weighted for value. He said that he had
considered that basis at some length. Mr Atkins had approached comparison on an
area basis but had come to the conclusion that no discernible pattern became
apparent.
I conclude
that Mr Rose’s approach may be the best available here, but it tends to
overemphasise the difference between the respective sizes. Having applied it,
because of the particular circumstances, it is even more necessary here than
usual for the valuer to apply his experience and judgment overall to the result
to see if it looks right.
The
transactions to which Mr Atkins referred to support his valuation were
incomplete and only two assignments were in respect of restaurants. I derive
little assistance from these transactions. His valuation of £25,000 was
notified to the claimant in August 1984 and took ‘account of the transactions
of other premises, details of which are shown in my schedule of comparables,
which, although not indicating a consistent analysis pattern are, however, in
my opinion, the best evidence of market value’. The omissions to which I have
already referred undoubtedly show that £25,000 is too low, but he did not at
any time alter his opinion as to the amount of compensation payable. Having
rejected his opinion that the sale of no 30 was wholly irrelevant, that
transaction must merit great weight being given to it; like the subject
premises, no 30 had planning permission for ‘takeaway services’.
In my
judgment, however, application of the price realised for no 30 to the subject
premises must take account of the disadvantages of the subject premises when
they are compared with no 30: the subject premises were not, in my view, on the
evidence, the perfect pitch and the perfect premises, as Mr Coffer described
them. There would have been difficulties in fitting them out to an occupier’s
requirements as to the layout of the ground floor; the matter of dilapidations
would be taken into account by a purchaser. In addition, the redevelopment
clause, which is beset by uncertainties and complications, on both sides, would
be weighed in the balance.
Decision
Taking all the
factors into account I come to an amount of £75,000 as the amount of compensation
to be paid to which will be added a surveyor’s fee in accordance with Ryde’s
Scale (1984). Legal costs of the conveyance and interest on the compensation
money are the subjects of statutory provisions.
Having opened
the sealed offer of compensation lodged by the acquiring authority, I find that
the amount thereof is less than the amount of my award; accordingly the
acquiring authority will pay to the claimant its costs of this reference, such
costs unless agreed to be taxed by the Registrar of the Lands Tribunal on the
High Court Scale.
