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You are here: BAILII >> Databases >> England and Wales Lands Tribunal >> Cohen v Knowsley Metropolitan Borough Council [2004] EWLands ACQ_123_2001 (27 August 2004) URL: http://www.bailii.org/ew/cases/EWLands/2004/ACQ_123_2001.html Cite as: [2004] EWLands ACQ_123_2001

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[2004] EWLands ACQ_123_2001 (27 August 2004)

ACQ/123/2001

LANDS TRIBUNAL ACT 1949

COMPENSATION – compulsory purchase of derelict block of flats – refurbishment costs – market demand – compensation awarded £1

IN THE MATTER of a NOTICE OF REFERENCE

BETWEEN

MEYER MATTES COHEN

Claimant

and

KNOWSLEY METROPOLITAN BOROUGH COUNCIL

Respondent

Re: Camberley House, Frensham Way, Halewood,

Knowsley, Merseyside

Before: P R Francis FRICS

Sitting at: The Council Chamber, Knowsley Metropolitan Borough Council,

Archway Road, Huyton, Knowsley, L36 9YU

on

19 & 20 February and 15 July 2004

The following case is referred to in this decision:

Pointe Gourde Quarrying & Transport Co v Sub-Intendent of Crown Lands [1947] AC565

David Berkley QC, instructed by Linder Myers, solicitors of Manchester, for the claimant

Alan Evans , instructed by Knowsley MBC, Legal Services, for the acquiring authority


 


DECISION

Introduction

1. This is a reference to determine the amount of compensation (if any) payable to Mayer Mattes Cohen ("the claimant") in respect of the compulsory acquisition of Camberley House, Frensham Way, Halewood, Merseyside ("the subject property") by Knowsley Metropolitan Borough Council ("the acquiring authority" or "the council") under the Metropolitan Borough of Knowsley (Frensham Way Area) Compulsory Purchase Order 2000 ("the CPO"). Notice to Treat and Notice of Entry were served on 26 January and 2 February 2000 respectively, and possession was taken on 18 February 2000, that being the agreed valuation date.
2. David Berkley QC appeared for the claimant and called Mr Cohen who gave evidence of fact, and Roger Wolstenholme FRICS FB Eng MaPS of Wolstenholme, Chartered Surveyors of Todmorden, who gave expert valuation evidence. Alan Evans of counsel appeared for the council and called Michael Fagan MRICS who, at the relevant time, was Deputy to the Head of the Estate Management Division of the council, and Peter Gallagher MIH who was District Housing Manager. Peter Kenny BSc (Hons) FRICS, a partner in Honeybourne Kenny, Chartered Surveyors of Birkenhead, and Nigel French BSc FRICS of Thompson and Moulton, Chartered Surveyors of Liverpool, were called to give expert valuation evidence.
3. The claimant's valuation was £290,000 (revised during the course of the hearing to £110,000) and that of the council was nil.

Facts

4. No statement of agreed facts or issues to be determined was forthcoming from the parties, other than an agreed schedule of photographs of the property and the adjacent shopping parade taken on 20 February 2000. From those and the evidence, I find the following facts. Camberley House was a part 3 storey and part 2 storey former residential home for the elderly constructed in the 1960s of brick under flat roofs. It occupied a level site of approximately 0.83 acre in the centre of the Mackets Lane estate, a large post-war municipal housing estate comprising over 1,000 properties. Immediately to the west of the subject property was the Frensham Way District Shopping Centre, another 1960s development comprising 18 shops with maisonettes above in 3 blocks. Whilst in the early 1990s all the shops and maisonettes had been let, due to vandalism and other problems in the vicinity, only 6 shops were trading by the time the public inquiry into the CPO was held in 1999. All the maisonettes were also empty, and the majority of the buildings were bricked or boarded up. To the east were 4 storey blocks of maisonettes and to the south was Ashton Park, one of 3 nine-storey blocks of elderly persons accommodation. All of these buildings substantially overlooked Camberley House. To the south-east was an area of Public Open space which was subsequently partly developed for housing purposes. Immediately adjacent to Camberley House, in the north-east corner, was an electricity sub-station, and beyond that, The Grenadier public house.
5. In about 1994, following its purchase from Liverpool City Council by a private investor, the subject property was converted into 19 one and two bedroom flats for letting and was, for a time, managed by Maritime Housing Association. Following apparent difficulty in achieving the required level of lettings, the owner offered the property for sale as an investment, by public auction, in December 1996. It did not sell, but immediately after the auction, the claimant agreed to purchase it (under the auction contract) for £150,000. Contracts were exchanged within 2 days (despite the requisite finance having yet to be arranged), on 5 December 1996. At that time 10 of the flats were occupied, but the building was in a general state of disrepair with some of the vacant units having been vandalised and boarded up, and it was in need of some refurbishment.
6. Following completion of his purchase on 31 January 1997, the claimant spent approximately £39,000 on refurbishment and repairs and thence achieved, for a short period, 80% occupancy. However, due to his own health problems, exacerbated by his wife's serious illness that had been diagnosed in December 1997, and the resulting failure to properly manage the property or provide a caretaker, it suffered substantial vandalism and once again fell into considerable disrepair. There were several arson attacks and the premises obtained a reputation for drug dealing and abuse. By September 1998 all the remaining tenants had vacated and steps were taken by the council to board it up and make it secure, the claimant having failed to take action to do so.
7. Of the 1,000 properties on the Mackets Lane Estate, 284 of the maisonettes in 15 blocks were being demolished by the council and replaced with social housing, in partnership with the Riverside Housing Association, and funded by the Halewood Single Regeneration Budget. This was partly due to the severe lack of demand for such accommodation, and to generally improve the area by providing properties that people wanted to live in. The council's concerns about the dereliction of both the shopping centre and the subject property prompted the CPO which was made on 3 June 1999. It was for the demolition of the shopping centre and Camberley House, and their replacement with a grassed and landscaped area of public open space. A public inquiry was held on 21 September 1999 at which there were objections from the claimant and Stanley Racing Ltd. In his report, which supported the proposals, the inspector, M M Bingley BSc (Est Man) ARICS said:

"40 …..Apart from 6 of the shop units, the buildings are unoccupied. They are all in dire condition, having been the target of arson and vandalism over the past few years…..

41. There is no doubt in my mind that the condition of the shopping centre and Camberley house are having a severe impact on the amenities of the local residents, not only because of their appearance but also due to the anti-social behaviour associated with them. The remaining shops are an asset to the local residents, and the council has been right in trying to encourage them to stay. However, in overall terms the buildings are severely blighting the estate, and despite the best efforts of all the agencies involved they continue to cause the local residents problems, more or less on a daily basis.

42. The council's proposal to demolish the buildings and lay the area out as open space is part of a programme of wider improvements across the Mackets Lane Estate. The council's evidence about the supply and demand for smaller housing units, which I accept, points to the appropriateness of the planned replacement of some of these units by new social housing. I regard the proposals associated with the Order as an integral part of the gradual improvement of the estate, both physically and socially."

He continued, after commenting upon the shopping centre, specifically in respect of Camberley House:

47. Demolition of the building would clearly remove the cause of the blight and provide an opportunity for its replacement by an area of open space, to the benefit of the local residents. Moreover, the process would contribute towards rectifying the over-supply of this type of accommodation in the area which, as I have said, is part of the council's proposals for improving the physical and social fabric of the estate.

48. For these reasons, I am content that the relevant objection [Mr Cohen's] should not stand in the way of confirmation of the order, which I accept would be in the public interest. I am encouraged towards this view by the fact that the objector has indicated his willingness to transfer ownership of the building in return for what he would regard as a suitable level of compensation."

8. The CPO was confirmed by the Secretary of State on 16 December 1999. Notice of Reference to this Tribunal was dated 25 October 2001.

Issue

9. The sole issue for determination in this reference is the open market value of the freehold interest in the subject property at the date possession was taken, 18 February 2000.

Note

10. It came to light during the course of Mr Fagan's evidence to the hearing, relating to comparable land sales, that the council, who were the freehold owners of the Frensham Way shopping parade, paid the sum of £76,000 for the head lease (from developers Thamesway Developments Ltd ("TDL") who had themselves acquired it in 1996 for £66,000). As a result of this previously undisclosed information the hearing was adjourned, part heard, on 20 February 2004 to allow Mr Fagan and Mr Kenny time to produce, at my request, supplementary reports on that aspect, and for Mr Wolstenholme to comment.

Case for the claimant

11. Mr Cohen explained that whilst his principal occupation was that of an antique dealer, he had a number of investment properties in the Merseyside area, all of which had proved to be profitable. He said that he had seen the catalogue in which the subject property was offered on the day of the auction, but had not inspected the property. Following its failure to sell, and the auctioneer's advice that an offer of £150,000 would be acceptable to the vendor, he went to view it on the same afternoon and spoke to people who knew the area and told him it was to be improved. He said he understood the problems with the shopping centre were to be resolved by the council and formed the view that, despite an obvious need for some refurbishment to Camberley House, it was potentially a good investment at the quoted price. Following acceptance of his offer, a solicitor was instructed who agreed the terms of transfer with the vendor's solicitor over the telephone 2 days later on 5 December 1996. Mr Cohen acknowledged that the valuer employed by his bank had expressed some disquiet over the area in which the property was located, and said that he sought a letter of comfort from Mr Fagan at the council on 19 January 1997. Mr Cohen said that Mr Fagan's reply of 22 January was positive, in that Mackets Lane estate was described as "the most attractive council estate in Halewood" and confirmed that the council were optimistic that a refurbishment programme for the shopping parade could be agreed with the head lessee, and completed by the end of 1998.
12. Bridging finance was subsequently arranged, and the purchase was completed on 31 January 1997. Mr Cohen accepted in cross-examination that he had had a meeting with Mr Fagan and Mr Gallagher, he thought between exchange of contracts and completion of the purchase, and that, as had also been pointed out in Mr Fagan's letter, they were concerned that there was a lack of demand for flats in the area. They had said that they thought it was a rash purchase and tried to dissuade him from "throwing good money after bad." However, Mr Cohen said that he was not convinced, that he still thought it was a good purchase and, in any event, it was too late as he had already exchanged contracts.
13. After spending £39,000 on refurbishment, steps were taken to find tenants for the rest of the flats and adverts were placed in the local paper. After a short while, he said, 17 of the flats were occupied at a contractual rental of £65 per week. He said that high levels of occupancy were maintained throughout 1997 but acknowledged that all the tenants were on housing benefit and he took no steps to obtain from them the difference between the contractual rental and the benefits he actually received – at about £51 per week. He agreed in cross-examination that there was a high turnover of tenants and that he did little by way of investigation or taking up references before he allowed people to occupy, the main concern being whether or not the proposed tenants were eligible for housing benefit. It was acknowledged that some of the tenants were "undesirable", that some were drug addicts and that much damage was done to the property including doors and kitchen units being kicked in and, in some instances, carpets being set fire to.
14. Mr Cohen accepted that he had not actively managed the property himself, and had not appointed either a managing agent or caretaker to look after the premises. It was following his wife being diagnosed with a serious illness in December 1997 and him becoming clinically depressed that, Mr Cohen said, things went from bad to worse. Although he employed someone to do some basic repairs, he accepted that in many instances they had not been done and, as flats became vacant, they were not immediately boarded up and were "trashed" by children. Whilst he said he had been adequately managing the property himself in the early stages, he accepted that after December 1997 he did not re-visit the property until the day of the CPO inquiry in September 1999. He also accepted that as a result of his failure to keep an eye on the premises, the council had had to take their own steps to secure individual flats, and eventually the whole premises and that he still owed them money for that.
15. He said that he had had an insurance claim (for the vandalism) rejected due to the fact that he had not disclosed, on the application form, that some of the flats were boarded up when he bought the building. He said that he had proposed to use the money from the insurance claim to carry out refurbishment. It was, in fact, his avowed intention to do so and he said he had advised Mr Fagan of his intentions when the council offered to "take the property off his hands". Mr Cohen said he was devastated when the council said they would take the property over for nothing, and thus relieve him of his liabilities, after having only recently paid £150,000 for it. Even by the date of the CPO inquiry, he said that he still intended to refurbish the property, and could not understand why the council wanted it for replacement public open space when they already had sufficient. Why, he said, did they allow the existing open space to be developed for housing, so that they were obliged to find some more?
16. Mr Cohen said that he had arranged for an architect to prepare an outline sketch for a housing scheme for the site, and that showed it would have supported 22 units. However, he said he had made no attempts to market the property prior to the CPO either as a site for development or as an investment.
17. Mr Wolstenholme was appointed by the claimant in March 2004 to prepare a valuation of the subject premises at the appropriate date, and to comment upon the acquiring authority's reports. He is a Chartered Building Surveyor who carries out approximately 200 residential surveys and valuations a year, about 15% of which are in Merseyside. Although having knowledge of the vicinity in which the subject property was situated, he has not seen it and relied in preparing his evidence on the photographic schedule (which had been agreed by one of Mr Cohen's former appointee surveyors) and information from the claimant. He said at the commencement of his evidence that he could be persuaded to amend his valuation figure if appropriate evidence was produced.
18. He said that the claimant's records showed that the building was generally well let through 1997 and 1998 at average rents of about £65 per week. The photographs, whilst showing considerable vandalism to have occurred, indicated that the building was in generally sound structural condition, had been well decorated and had fixtures and fittings of reasonable quality. He said he was surprised that, if the council thought the building was as poor as they were making it out to be, they did not serve a Closing Order before they proceeded down the CPO route.
19. Mr Wolstenholme provided three bases of valuation – investment, cleared site for redevelopment and vacant possession sales of the 19 flats, but accepted that the first was the most appropriate and the one upon which he relied. From the information provided by the claimant he estimated a rental income based upon £68 per week per flat (at the valuation date) with 10% voids to produce an annual gross income of £63,270. He then allowed 20% for insurance, management and repairs to give a net income of £50,976 which he then capitalised at 14% (YP 7.14) to give £393,968. From this he deducted £74,200 which he estimated would have been needed to renovate the building to give a net value of £290,000. From the information relating to what it cost the claimant to renovate some of the flats when he bought the property, Mr Wolstenholme said £3,000 per flat for internal refurbishment (all 19 flats) was appropriate with £17,200 for external works and conversion of the old boilerhouse.
20. Accepting during the course of the hearing that his estimated figures may have been optimistic, he revised his valuation to £110,000 on the basis of gross rentals of £40,000, outgoings remaining at 20% (£8,000) giving £32,000 at a multiplier of 7.14 = £224,800. The estimated refurbishment costs were revised to £120,000 leaving a value of £108,480 – say £110,000.
21. On the question of the fact that the council had paid to acquire the "other half" of the CPO land (the shopping parade) at £76,000 yet were offering nothing for Camberley House, Mr Wolstenholme said that taking into account that that figure was said to allow for £130,000 demolition costs and a provision of £250,000 to buy out the tenants, it proved his initial valuation of £290,000 was not unrealistic, but in the overall scheme of things, he said he stood by his revised valuation. The £250,000 allowance to buy out the tenants (which was unusual in an investment situation, because normally one would want to retain the tenants and their rental income) should logically, he said, be added to the sum actually paid to give £326,000. The demolition costs would not arise as a normal investor would not be intending to demolish. As to Mr Kenny's comments on the buy-out allocation, Mr Wolstenholme said bearing in mind the largest tenant, Kwik-Save, agreed to surrender their lease at no cost and other tenants would be queuing up to do likewise and save on dilapidations costs, it would be most unlikely that sum would have been needed. Therefore, he said, the fact that the council had allowed it in its budget meant that it was prepared to pay up to £326,000 for the benefit of obtaining possession of that part of the CPO land.
22. In cross-examination, Mr Wolstenholme accepted that there was no evidence that the claimant had achieved rental income of £65 per week per flat, despite that being the contractual rate. He acknowledged the council's evidence that all of Mr Cohen's income had been from housing benefit payments which commenced at £65 per week for a short time, and then reduced over his period of ownership to give an average income per flat, per week, of £41.76. He said an average of £50 per week would not be inappropriate. He also agreed that whilst 90% occupancy had been achieved after the property had been initially refurbished, that was, from the rent schedules he had seen, only for a very short period. That level subsequently fell and a more realistic figure was 60%. He also accepted that his initial refurbishment costs were probably under estimated, and increased these to £120,000. He did not agree with the suggestion that 20% outgoings, to include repairs, was far too low on a property such as this, and would also not be dissuaded from his view that his YP multiplier was correct. In re-examination, in the light of the evidence, he produced a revised calculation based upon the above figures to give £110,000.
23. As to his second basis of valuation – a cleared site for 22 houses, Mr Wolstenholme accepted that his estimate of £12,000 per plot based upon what he thought Barratt Homes paid for the nearby land was wrong in that Barratts had not paid £15,300 per plot in 2002, but nearer £9,000. Factored back to the valuation date, this gave £7,500 per plot and an overall value of £165,000 (excluding demolition costs). He accepted that he had no other evidence other than that which had been provided in the council's comparables, but he said that he thought they were not arms-length sales. In any event, he said, this second basis was the one that had the least substance.
24. Regarding the third basis – vacant possession sales of the individual flats, for which he had estimated a value of £285,000, Mr Wolstenholme agreed that he had no evidence of vacant possession sale values in the area. He also accepted that his suggested refurbishment costs were too low, but did not agree that there would, due to the nature of the area at the relevant time, be no demand whatsoever in the private market.

Case for the acquiring authority

25. Mr Fagan is a chartered surveyor, and has been employed by Knowsley MBC for some 18 years. Currently head of asset management he was, at the valuation date (and had been since 1993), responsible for the acquisition and sale of residential land and buildings for the council and for all issues relating to the Mackets Lane regeneration project. He co-ordinated the sale to Housing Associations and developers several blocks of land that he had detailed as comparables in his witness report. As a result of his involvement with the project as an employee of the council, and objections from counsel for the claimant that he could not be impartial, I determined that his purported expert witness reports and evidence could be taken only as evidence of fact.
26. He said that, along with the shopping centre, he had been concerned about Camberley House ever since he became involved with the council's attempts to improve and regenerate the area in which they were located. Although the private investor who bought the subject property from Liverpool City Council (who had previously run it as a residential home for the elderly) had initially had some success in achieving lettings, the property fell into a state of considerable disrepair before it was purchased by Mr Cohen. Whilst acknowledging that, following the claimant's purchase of it, the property was refurbished to a reasonable standard, and relatively high occupancy rates had been achieved for the first few months, Mr Fagan said that it very soon fell back into a deplorable state. He accepted that, when he was first approached by the claimant, who was trying to extract from him a letter of comfort (which he did not realise was for the bank), he said the Mackets Lane estate was one of the best in Knowsley, and that there were plans to improve the shopping centre. However, he pointed out that he and Mr Gallagher had also told Mr Cohen of their concerns over lack of demand for flats in the area generally, and had, at their meeting which was held before the purchase was completed, tried to dissuade him from proceeding.
27. Mr Fagan insisted that, at that time, the council had no desire or intention to purchase Camberley House. It was not crucial to the regeneration scheme and was not, as had been suggested by the claimant, needed to replace another area of public open space that was to be sold for development. During 1997 and 1998 the shopping centre continued to deteriorate and became a focus for drug related crime and other public order problems. More of the shops closed, and Kwik Save who operated a supermarket there surrendered their lease. Whilst this was happening, Camberley House was also deteriorating, and the council was becoming concerned that it was not being maintained; there were several arson attacks and considerable vandalism. Despite attempts to get Mr Cohen to do something about the problem, at least by making the building secure, he had proved to be unco-operative and the council had no alternative but to take their own steps to secure it (using the powers vested in it under section 29 of the Local Government (Miscellaneous Provisions) Act 1982) in May 1998 and again in March and May 1999.
28. By mid 1998 complaints were being made by residents in the area, and the council resolved, in order to remove the blight, to make a CPO for both the shopping centre and the subject property for their demolition and replacement with a landscaped public open space. The loss of the shops which, in the council's view, were of an age and layout that, even if refurbished, would never be an attractive and successful commercial operation in that particular location, would be remedied by the construction of a small new parade elsewhere on the estate.
29. Mr Fagan said that he wrote to Mr Cohen on 19 October 1998 (months before the CPO was made) advising him that as the building had declined to such an extent, the council were considering placing a Closing Order on it. He reminded Mr Cohen of the reservations that he and Mr Gallagher had expressed in January 1997, and said they had now proved to be correct. With no prospect of securing new lettings and continuing vandalism it was suggested that the property be transferred to the council (at nil consideration) following which the building would be demolished at the council's expense. The claimant would, therefore, be absolved of any ongoing costs liability. No positive response was received, and Mr Fagan said he wrote again on 19 February 1999 restating to offer, and pointing out the consequences of Mr Cohen's continuing failure to maintain the building. Mr Fagan said that although the claimant said that he intended to carry out refurbishment and re-let the flats, the situation had got so bad that urgent action had to be taken. Frankly, he said, he did not believe that the refurbishment and repairs would ever be carried out, and even if they were, there was no market for such accommodation. The claimant would, therefore, lose even more money than he already had. However, in a final attempt to resolve matters, Mr Fagan said he wrote to Mr Cohen again on 7 July 1999 (after the CPO had been made) saying he would be prepared to recommend removal of the subject property from the CPO if he could satisfy the council that he had a genuine intention of carrying out the refurbishment, and could prove that he had funds available. Mr Cohen had responded saying he had funds and wanted details of what the council were going to do in the vicinity in general, so that his plans could reflect what the council was proposing. No further progress was made.
30. With the plans for substantial redevelopment of the maisonettes and high rise flats with conventional housing on a number of the sites that overlooked the subject property, Mr Fagan said he did not think that developers would be interested in a cleared site in that particular location that could only accommodate 22 units. It was overlooked by a derelict shopping centre (which in the no-scheme world would still be there) and had an unsightly electricity sub-station at its north-eastern corner. Even if they were, the fact that most of the other sites had been sold to housing associations for a nominal £1, with no interest being shown from private developers, indicated demand in the private sector was minimal. Mr Fagan pointed out that, if there had been a realistic chance of selling the CPO land for private housing it would have pursued that avenue. A sale to a developer, even at a nominal amount, would have saved the council £150,000 demolition costs and the costs of landscaping. It was accepted that the provision of a new, landscaped, public open space on the site of Camberley House and the shopping centre would enhance the value of the new developments that had since been undertaken in the vicinity.
31. The fact that the estate has, since the valuation date, been transformed into an area where people now want to live (the improvements having resulted in Barratt Homes Ltd buying a very large site on the estate for the equivalent of about £7,150 per plot) was not relevant in considering the value of the subject property in February 2000. Mr Fagan said that he valued Camberley House at nil at that time, and sought two independent valuations (from Mr Kenny and Mr French) which supported that view. Any value that there may be in the land was more than outweighed by demolition costs which had been estimated at £50,000. This turned out to be realistic as, when it came to the actual demolition of the subject property and the shops, the proportionate cost for Camberley House was £43,000, £7,000 having been saved by not having to excavate the foundations.
32. He produced a number of comparables that, he said, supported his valuation. Two of the blocks of maisonettes (1-25 Sherbourne Avenue and 56-64 Camberley Drive) which were immediately to the east of the subject property and occupied a site of 0.6 acres were sold by the council to Riverside Housing Association for housing development on 4 July 2001 for £1. Mr Kenny had acted for Riverside in that transaction where it was agreed that the demolition costs would at least equal the value of the site. In Mr Fagan's view a plot value of £1,500 to £3,000 was a realistic assessment of value, if the site had already been cleared. Similarly, two sites immediately to the south (straddling Pembrey Way) which comprised maisonettes at 33-51 Sherbourne Avenue and an area vacant land was also sold to Riverside on 26 March 2001 for £1. The same comments, he said, applied as to the first comparable. A 1.28 acre vacant site on the corner of Sherbourne Avenue and Arncliffe Road, just to the south of the subject property was sold to Riverside for £42,000 on 20 March 2000. This figure did not cover the council's demolition costs of £52,000. Mr Fagan said that Riverside were in the position of special purchaser as they had been chosen as the council's partner in providing approximately 156 units of replacement social housing. Because social housing is not economically viable (the development costs outweighing the rental return) grant assistance is required, and this was obtained from the Single Regeneration Budget and from the Housing Corporation. In cross-examination, Mr Fagan insisted that despite its association with Riverside, and the fact that the land that that association had acquired was not otherwise exposed to the market, the council was obliged to obtain market value for any land it sold.
33. Part of the Rex Turner public open space, a site of 4.05 acres, was sold to Riverside on the same date again at £1. Whilst there were no demolition costs to be taken account of, the purchaser was required to build shops on part of the site (as a replacement for the Frensham Way Shopping Centre). Further small plots were sold to housing associations in Antons Road, Halewood between 1997 and 1999 at prices varying between £500 and £1,750 per plot. These sites, which pre-dated the compulsory acquisition of the subject land were in much better locations, Mr Fagan said. 5.44 acres of land at Torrington Drive was acquired by Wimpey Homes in January 2001 for a private residential development for £1. The council had already carried out the requisite demolition. Finally, he said in his supplementary proof provided for the resumed hearing, there was one site that appeared to have been sold at value. 1-5 Lancing Close (near to the subject property) was a block of 6 two storey, one bedroom flats built in the 1960s. It was acquired by Greater Hornby Housing Association for £40,000 on 6 September 2000 (£6,666 per flat). It was required for refurbishment and re-use as flats for people with mental health problems – there being a specific, identified requirement for that use in the area.
34. As to the fact that the shops had been acquired from the head lessee, TDL, for £76,000, Mr Fagan said that a higher price was paid than that which TDL had acquired it for (£66,000 or 2 YP on the then rental income of c £35,000 pa) because the council considered it wrong for them to lose money on a venture that the council had initially encouraged them to enter. Giving details of how it had initially been proposed that TDL and the council would work in partnership to achieve the desired refurbishment, Mr Fagan explained that due to the continuing deterioration, and the lack of progress with the proposed refurbishment (not the developer's fault), it was resolved that demolition was the only viable option. Allowing for the price to be paid to TDL, an allowance of up to £250,000 for buying out the remaining tenants, and £130,000 for demolition and landscaping the site was still much cheaper than proceeding with the refurbishment option. As ultimate freeholder of the site, the council were in a position where it was necessary for them to cut their losses. It was necessary to compensate the head lessee for his investment that, at the date the council acquired it, was producing £23,650pa.
35. Mr Gallagher is a member of the Chartered Institute of Housing and at the valuation date had worked for the council 23 years, being appointed to the post of District Housing Manager in 1979, and Housing Manager for Halewood in 1995. His evidence related solely to the claimant's assertion that there would be a strong demand for flats in Camberley House if it was refurbished. In his view, and from statistics available from his records, there was a serious over-supply of similar accommodation in the Halewood area at the relevant date.
36. During the period 1996 to 1998, demand for one bedroom flats in the area fell to the extent that, despite advertising, no replies were received. Vacant flats in Elsinore House, a multi-storey secure block of 1 and 2 bedroom flats on the Leather Lane estate, some 2 miles from the subject property, could not be let, and the council eventually resolved to re-house all the remaining tenants and to redevelop the site with housing – for which there was a demand. Elsinore House was, Mr Gallagher said, much better than Camberley House as an environment (even if the latter had been renovated) and it would have been impossible to create a sustainable demand sufficient to allow the subject property to be fully let.
37. In answer to the suggestion that he was referring to demand for council flats, whereas Camberley House was in the private sector, Mr Gallagher said there was no other private accommodation available in the area but surely demand for council properties would be even higher due to the Right to Buy provisions. Council tenants could also move from one location to another more easily if they so wished.
38. Mr Kenny is a sole practitioner in the practice of Honeybourne Kenny, Chartered Surveyors of Birkenhead. He is a panel valuer for the Riverside Housing Association and had been involved in their acquisition of a number of sites in the immediate vicinity of the subject property, as identified in Mr Fagan's comparables. He is also a company director and a private investor in residential property in the borough of Knowsley, but not, he said, in Halewood. He had been instructed by Mr Fagan, on behalf of the council, to provide a valuation of the subject property in February 2000. That report concluded, based upon the location and condition of the building, the council's estimated demolition costs of £60,000 and the fact that the council also had a charge (for circa £6,000) over the property that the cost of refurbishment would far outweigh any value that might obtain in its refurbished state. There was little if any demand for letting accommodation in this particular area, it was known for vandalism and drug abuse and even if it had been refurbished, the institutionalised appearance of the building would make it unattractive to the market. In Mr Kenny's opinion, the nature of the property's location meant there would be no demand from developers for prospective redevelopment, nor would there be a demand for the purchase of individual flats in the existing building. His valuation was, therefore, nil.
39. He accepted that he had not considered any particular comparables in arriving at his initial valuation, and had not prepared a residual or any other type of formal valuation. However, he produced an existing use valuation for the resumed hearing, which, he said gave considerable benefit of doubt to the claimant, but still produced a nil value. He had allowed rental income of £50 per week per flat, with 25% voids to give a gross income of £37,050 pa. From this he deducted outgoings (calculated, in detail, on an item by item basis), amounting to £13,837 (37% of income) to give a net income of £23,212. In his view a return of 20% would be required, giving a YP of 5. This created a capital value of £116,000. However, in his opinion, it would cost £200,000 to effect a proper refurbishment of the property. Even if that was an over-estimate, he said, Mr Wolstenholme's figures were grossly under-estimated. In his view, even if the refurbishment costs came in at £150,000, there would still be no value.
40. Commenting on Mr Fagan's supplemental report concerning the council's acquisition of the head lease of the shops, Mr Kenny said that he was surprised that transaction had not been included amongst the original set of comparables. In his view, he said, it is only after consideration of all transactions that occur within the whole of the relevant marketplace that regard can be had as to the specific value of alternative investments. From the details of the price paid by TDL in 1996 (£66,000) and allowing for a then rental income of £36,590, a YP of 3.14 was produced if adequate allowance was made for management, repairs and other outgoings. The sale price to the council at £76,000 with the then reduced rental income of £23,650 gave a YP of 4.2. That proved, he said, that using a YP of 5 in his valuation of the subject property (which was then producing no income) was generous to the claimant.
41. Mr Kenny said there was little in the information that had been made available as to the circumstances surrounding the council's acquisition of the shopping parade from TDL, that would assist with assessing a value for the flats in Camberley House, and thus the property itself. However, he said it was clear that TDL and the council considered the residential element of the shopping centre a liability and thus no value could accrue to those. It was a fact, he said, that at the time of the sale, the shopping centre was still an income producing investment whereas at the valuation date, Camberley House was not, and could not be made into one without first expending substantial sums on the property.
42. Mr French was, at the valuation date, a partner in Thomson and Moulton, Chartered Surveyors of Liverpool. He confirmed that he, like Mr Kenny, had been asked by Mr Fagan to provide a valuation of the subject property in February 2000. His valuation, dated 6 March 2000, was also for nil.

Conclusions

43. The property to be valued, at 18 February 2000, was a vacant, derelict and seriously vandalised block of flats which, the photographs clearly show, was of unattractive appearance. It was located in the middle of a large council estate which, despite being (as described by Mr Fagan) the most attractive council estate in Knowsley, was suffering from lack of demand (for living accommodation) and from severe social problems. The adjacent shopping centre was particularly run down, was partially vacant and boarded/bricked up and had, in addition to Camberley House, become a focus for drug dealing and vandalism. Immediately to the north-east of the land was an ugly electricity sub-station and in general it was overlooked by 4 storey maisonette blocks and 9 storey flat developments. It is against this background, and the statutory provisions and assumptions under the Land Compensation Act 1961 ("the 1961 Act") that I have to draw my conclusions.
44. As to the planning assumptions (sections 14 – 16 of the 1961 Act), on Mr Wolstenholme's second basis of valuation (cleared site for residential development) planning permission would be required. Although neither party addressed how ss 14-16 applied to this case, there appears to have been a tacit agreement that, in valuing the land it is to be assumed that such permission would have been forthcoming. Indeed, there was no suggestion from the council that the site could not support a development of 22 housing units, as promulgated by the claimant. There is, under section 15(1), the assumption that planning permission would be granted for the demolition of the property, and its replacement with public open space. Under section 6 and Schedule 1 (this being a case that falls into case 1 of that Schedule) any increase or decrease in value due to the prospect of the other land in the CPO (the shopping centre) being developed for public open space is to be left out of account.
45. The question of whether or not the statutory provisions need to be qualified by application of the Point Gourde rule in order to achieve fair compensation, and if so, how, has to be considered (Pointe Gourde Quarrying & Transport Co v Sub-Intendent of Crown Lands [1947] AC565). There are two potential "schemes" – on the one hand the clearance and laying out as public open space of the CPO land, and on the other, the ongoing programme of improvements to the Mackets Lane Estate in general. There was no suggestion on the part of either the claimant or the council that the scheme should be defined in the latter, wider, way. Although the Inspector's Report following the public inquiry stated that the [CPO] buildings were "severely blighting the estate" (para 41) and the council accepted that the new public open space would enhance the value of nearby land, it formed no part of the claimant's case that compensation ought to be assessed on the basis that it gave value to the land (either in addition, or as an alternative to, the preferred bases). As a result, Pointe Gourde adds nothing to the statutory disregards.
46. I now turn to the three bases of valuation, and consider first the one principally argued for by the claimant – investment. Looking at Mr Wolstenholme's evidence, I have to agree with Mr Evans' suggestion that both his initial valuation and his substantially revised one produced during the hearing appear fanciful. He has relied upon figures relating to potential revenue provided by the claimant, those being found to be inaccurate and, I have to say, misleading. The tenancy agreements that Mr Cohen used for all his lettings showed a contractual rent of £65 per week, although it was admitted that apart from a very short period in 1997 when housing benefits may have been at that level, those benefits were subsequently reduced over the ensuing months to produce an average over the whole letting period of £41.76 per week. No attempt was ever made to claim the difference between the benefit and the contractual rate, and the claimant accepted that the only income he ever received, during the whole of his ownership, was benefits paid by the council. Mr Wolstenholme, in his revised valuation, used £50 pw rather than the £41 that had actually been achieved, and Mr Kenny, in his residual valuation produced during the hearing used the same figure. I suggest, in the circumstances, Mr Kenny was being generous.
47. As to voids, Mr Wolstenholme initially allowed 10% - a figure which meant 17 of the 19 flats would need to be constantly let and occupied. Such a level of occupancy was only achieved for a matter of weeks after the claimant initially refurbished the property. Bearing in mind Mr Gallagher's evidence (which I have no reason to doubt) and the fact the council was intending to demolish large blocks of similar property which was proving unlettable, I cannot see any merit in Mr Wolstenholme's over-optimistic figures. Similarly as to outgoings, I am inclined to prefer the breakdown provided by Mr Kenny which suggested 37% of income rather than Mr Wolstenholme's 20% - which, in my view, might apply on a top-class, well managed and well let property.
48. According to Mr Kenny's valuation (which I have already said I consider generous) he has used a YP of 5 against Mr Wolstenholme's 7.14. Whilst I consider the YP analysis of the shops transaction to be of little assistance here, I do think that Mr Kenny's figure of 5 is much more realistic, if not, again, generous. Taking a net income of around £23,000 pa gives a resulting capital value of £116,000, from which has to be deducted refurbishment costs. This was a particularly contentious area of evidence with Mr Wolstenholme initially assessing costs at £74,000 (subsequently revised to £120,000) and the council estimating "at least £200,000".
49. I note that Mr Wolstenholme is a building surveyor and has considerable experience in estimating costs whereas neither Mr Fagan or Mr Kenny admit to such expertise. Mr Wolstenholme said that whilst his initial estimate, based upon £3,000 per flat plus minor external expenditure to the outside and conversion of the boiler room may have been understated (from his interpretation of the photographs) his revised figure of £120,000 was a "ball park". It is the refurbishment cost, in my judgment, that makes the difference between nil and a positive value for the property, as a potential for investment. If it had not been allowed to fall into the state that it clearly was at the valuation date, and if it had been properly managed, maintained and let, then a positive value might have been achievable. Whilst I sympathise with the claimant regarding his and his wife's health problems, the fact is that due to his failure to adequately manage the property and to take steps to keep it secure, it became a focus for vandals and drug users. By some time in mid to late 1998 (and the evidence on this was not clear) the property had been completely vacated and the council had to step in to prevent further vandalism occurring. There was thus no rental income nor, without substantial expenditure being incurred, the opportunity for it to resume. I accept Mr Fagan's evidence relating to the steps he took to try and get the claimant to do something with the property, and that by the middle of 1999 the council had no option but to consider including Camberley House with the shopping centre in a proposed CPO.
50. In concluding, as I do, that £120,000 for refurbishment is, indeed, an appropriate minimum ball park figure, this, regrettably for the claimant, produces a negative figure, or nil value. I am reluctantly forced to the conclusion, from the evidence, that the claimant's acquisition of the subject property as a residential letting investment proved to be just the opposite of "a good purchase" as he described it. It is clear from his description of the circumstances surrounding his discovery of Camberley House and his subsequent extremely rapid exchange of contracts (before tying up the requisite finance), that insufficient research was carried out both as to the property itself and the surrounding area. The only evidence that was produced (by Mr Fagan) of a property that may have sold for value under this basis, 1-5 Lancing Close, I find of little assistance. It seems to me that that sale was not for investment purposes as such, but was to facilitate a specific council related purpose – the housing of people with mental health problems. It also took place some months after the valuation date. No rebuttal evidence was produced by Mr Wolstenholme, and Mr Fagan was not re-called for cross-examination at the resumed hearing. I have nothing, therefore, which permits me to attribute any weight to that evidence.
51. Turning to the first alternative basis of valuation, cleared site for residential development, Mr Wolstenholme said that, in his view, a valuation based upon a cleared site for up to 22 houses had the least substance. He had to accept that the valuation based upon the 2002 land sale to Barratt Homes was founded upon incorrect information, and that the area had changed substantially for the better during the intervening period. It is this aspect that leads me to attach little weight to that transaction. All it does is indicate that, as Mackets Lane improved (as did the property market generally), a market for private residential development began to emerge. The sale of a site in Torrington Drive to Wimpey Homes in 2001 for £1 indicates to me that, at that time, private developers may have been placing a very tentative foot in the water.
52. As to Mr Fagan's comparables and the suggestion that the sales to housing associations did not constitute arms length transactions, I must conclude that they were not. If the housing association (Riverside or any other) was in partnership with the council to provide a scheme which the council was obliged to undertake (in this case, replacement social housing), any deal in the sale of council land cannot be seen as having been exposed to the open market. However, not all of the 14 comparables quoted by Mr Fagan were sales to housing associations and I accept his statements, made through his own considerable experience, that in general, at the time, there was no interest from private developers. Indeed, Mr Wolstenholme admitted that he was not aware of any transactions other than those that Mr Fagan referred to, and so I have no evidence from him upon which I can rely. As I said above, the Wimpey sale showed some private interest in 2001, but there is no evidence of such interest in February 2000.
53. This leaves sale of the freehold for refurbishment of the flats to be sold in the open market. In the light of the evidence regarding demand for this type of accommodation, in my view the chances of achieving sales in this vicinity would have been even less that the chances of finding some tenants, and I therefore dismiss that suggestion altogether.
54. It is clear, therefore, that I have concluded that at the valuation date Camberley House, as it stood, had no value in the open market. This is despite the supplementary evidence that I sought relating to the previously undisclosed details of the council's acquisition of the head-leasehold interest in the Frensham Way Shopping Centre. I required that because I felt that I needed to be sure beyond doubt that the council's arguments for a nil value (which is, of course, unusual) for the subject property could be justified. Now that that information has been forthcoming, I am satisfied that the circumstances surrounding that acquisition were sufficiently different to prevent me coming to the conclusion that, if there was value in the shopping centre, a value had to apply to Camberley House. This was a situation where the council had encouraged TDL to invest in the site and, as a result of its own failures, the investment was no longer viable. The site was also partially still let, and was producing income whereas the subject property was completely derelict due, as I have said, to the claimant's failures.
55. Mr Wolstenholme's suggestion that, in valuing the shopping centre, the allocated sum of £250,000 to buy out the tenants should be added to the value, I also find unsustainable. He said that an investor looking to buy the shops would not take the estimated demolition costs into account as they would not apply to the purchase of a commercial investment. The same argument must therefore, in my judgment, apply to the buy- out costs.
56. Finally, I comment briefly on the suggestion by the claimant's counsel that due to Mr Kenny's involvement with Riverside, he cannot be considered to be an impartial expert. Whilst this argument has some merit, I am conscious of the fact that his valuation was principally based upon the residential investment basis, and not as a site for development. I found his comments to be logical and well thought through. He has contemporaneous local knowledge, particularly as to the condition of the subject property and surrounding area at the date of acquisition, whereas Mr Wolstenholme's expertise in this particular market was more limited. I thus have no reason to discount his evidence.
57. I determine that the compensation to be paid for the freehold interest in Camberley House, Frensham Way, Halewood shall be a nominal £1.
58. A letter on costs accompanies this decision, which will take effect when, but not until, the question of costs is determined.

DATED 27 August 2004

(Signed) P R Francis FRICS

ADDENDUM

59. I have received submissions on costs from the parties. The claimant said that the general rule is that the costs of a reference to the Lands Tribunal will normally be borne by the acquiring authority (cf. section 4 of the Land Compensation Act 1961). However, if under the circumstances of this case consideration is being given to the exercise of discretion under section 3(5) of the Lands Tribunal Act 1949, it should be noted that no exceptional grounds for awarding costs in favour of the council have been advanced by it other than the size of the award. It was submitted that it was manifest that the acquiring authority had unnecessarily prolonged and complicated the proceedings to such an extent that, despite the claimant having "lost", a fair solution would be for the authority to pay the claimant's costs. This would represent a fair distribution of the costs burden between the parties, bearing in mind the fact that the costs of the earlier adjourned hearing had been awarded against the claimant.
60. Examples of where the council had misconducted itself included the fact that its case had been presented in a disproportionate and over elaborate manner – as evidenced by the number and complexity of its reports, rebuttals and comments on rebuttals. Some of those reports were purported to be expert witness reports when clearly (as noted by the Tribunal) that of Mr Fagan in particular could not be considered impartial and had to be treated as evidence of fact. The majority of Mr Fagan's comparables were not arms length or open market transactions, and he had failed to provide evidence of the Frensham Way Shopping Centre acquisition – the reason for which he was unable to provide a credible explanation.
61. Furthermore, neither of the council's valuation experts contained methodologies or comparables and it was only towards the end of the hearing that Mr Kenny produced a residual valuation - that method having been the basis on which Mr Wolstenholme principally relied. The council had relied on two purportedly independent valuers, whereas if it had used a single wholly independent expert who had approached the valuation in a conventional manner, providing his own comparables and setting out his reasoning and methodology, a meeting of experts could have been arranged, issues could have been narrowed, and the length of the hearing could probably have been reduced from 3 days to one.
62. Finally, the claimant submitted that having regard to the startling proposition advanced by the council that the property had a nil value, it was not unreasonable for the claimant to have pursued the matter and to have fully tested the proposition at a hearing.
63. The council said that section 3(5) of the Lands Tribunal Act 1949 provides that "the Lands Tribunal may order that the costs of any proceedings before it incurred by any party shall be paid by any other party" and it is thus empowered to award costs against the claimant. It was clear from the determination that the claimant, having initially sought compensation of £290,000 (reduced to £110,000 during the hearing), had totally failed, and the council, having valued the land at nil, had totally succeeded. Under the circumstances, it was submitted that the Tribunal should exercise its discretion and order the claimant to pay the council's costs.
64. In support of this proposition, the council referred to Church Cottage Investments Ltd v Hillingdon LBC (No 2) [1991] RVR 203 where the council had awarded costs to the acquiring authority after nominal compensation of £100 had been awarded to the claimants. The Court of Appeal held that the Tribunal was entitled to have treated the claimants as having wholly failed where compensation had been sought in the sum of £76,000 and that the award of costs in the acquiring authority's favour was within its discretion.
65. On the basis of the figures alone, my decision on costs would appear to be clear. The claim has failed and I found for the council at a nil valuation. The claimant must therefore pay the acquiring authority's costs except to the extent that such costs were not reasonably incurred. In that respect, I do not allow the costs of Mr French as, in my view, his input effectively duplicated that of Mr Kenny and was unnecessary. Also, any additional costs incurred by the council as a result of the need for evidence relating to the Frensham Way Shopping Centre transaction to be adduced should not be the liability of the claimant, as it was the council's failure to include it in the first instance that necessitated the adjournment. Likewise, any costs incurred by the claimant in that respect, such as Mr Wolstenholme's further written submissions on the matter, shall be deducted when his costs liability is calculated.
66. I am not satisfied that there are any other exceptional circumstances which would warrant a departure from this decision. Finally, as previously determined, the claimant shall be responsible for the whole of the council's costs of the adjourned hearing held on 25 February 2002. These costs to be agreed and if not, to be the subject of a detailed assessment by the Registrar.

DATED 5 October 2004

(Signed) P R Francis FRICS