Libra Homes Ltd v First Secretary of State [2006] EWHC 3541 (Admin)

Case No CO/2097/2006[2006] EWHC 3541 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
Venue Royal Courts of JusticeDate Thursday, 30th November 2006
Strand
London WC2
B E F O R E:
MR JUSTICE SULLIVAN
Between
LIBRA HOMES LIMITEDClaimant-v-
Between
FIRST SECRETARY OF STATEDefendantBOURNEMOUTH BOROUGH COUNCILDefendant
Computer-Aided Transcript of the Stenograph Notes ofWordWave International LimitedA Merrill Communications Company190 Fleet Street London EC4A 2AGTel No: 020 7404 1400 Fax No: 020 7831 8838(Official Shorthand Writers to the Court)
MR J PUGH-SMITH appeared for CLAIMANTMR T MORSHEAD appeared for DEFENDANT
J U D G M E N TJUSTICE SULLIVAN:Introduction:
[1]This is a challenge under Section 288 of the Town And Country Planning Act 1990 to decisions by an inspector appointed by the first defendant dismissing the Claimant's appeal against a refusal of planning permission and a related refusal of conservation area consent in respect of a proposed development at the Saint George Hotel, West Cliff Gardens in Bournemouth.[2]The proposed development involved the demolition of the hotel building and its replacement with a three and a half story block of 11 self-contained flats with basement car parking. The Inspector's decisions are contained in a decision letter dated the 27 January 2006, and followed an enquiry which was held on the 2 and 3 August, and the 12 to the 14 December 2005. The Inspector made two site visits, the first on the 3 August and the second on the 14 December 2005.[3]The challenge to the decision in respect of the refusal of conservation area consent stands or falls with the decision in respect of the appeal against the refusal of planning permission. The decision letter[4]The Inspector identified two main issues in the appeals:
"(i) The implications of the loss of tourist accommodation for the tourist role and function of the area having regard to the viability of the hotel. "(ii) The effect of the proposed residential development on the character and appearance of the Poole Hill and West Cliff conservation area."
[5]The grounds of challenge are concerned solely with issue one.[6]The Inspector identified the relevant planning policy documents in paragraph 2 of the decision letter:
"The development plan comprises regional planning guidance with the south west (RPG/10), the Bournemouth, Dorset and Poole Structure Plan (BDPSP) and the Bournemouth District-wide Local Plan (DLP)."
[7]The policies of particular relevance to the claimant's grounds of challenge are summarised in paragraphs 3 and 5 of the decision letter as follows:
"... the appeal site is situated within the BLP town centre tourism area (TCTA) where under policy 7.2 the loss of or change of use from tourist accommodation is resisted unless the proposed use would maintain or enhance the tourism role of the area. "
In the TCTA and in tourism core areas (TCAs), BLP policy 7.4 requires regard to be had to maintaining the function of the area in relation to the tourism industry and to the character and appearance of the area." "The Council has prepared supplementary planning guidance (SPG) on tourism. They clarify and explain the BLP policies in relation to the loss of tourist accommodation within the TCTAs and TCAs. This describes the pre-eminent role of tourism to the economy of Bournemouth, explains the designation and the role of the different core tourism areas and sets out a viability test designed to establish the potential of a tourist accommodation business to be run as a viable operation. It explains that the value of hotels should be measured by their trading potential based upon various factors such as number of rooms, quantity of facilities, occupancy and location, and requires applicants to demonstrate that tourist accommodation business has no prospect of continuing in the premises. Where the business is currently not operating, the guidance requires applicants to demonstrate that an average competent operator could not make a reasonable return from the property. The draft SPG was subject to extensive public consultation before being formally adopted in March 2004, and in the accordance with advice at paragraph 3.16 of Planning Policy Guidance (PPG) 12: Development Plans, is a material consideration of substantial weight in these appeals."[8]Under the heading "Reasons", the Inspector described by way of background the location and condition of the appeal property. He said, in paragraphs 6 and 7:
"... it was last used as a hotel by the previous owners in April 2003, and later that year was sold to the present owner and appellant. It has since been occupied by squatters for extended periods, and various measures have been taken to secure the premises and deter illegal occupation. "
The previous owners submitted two planning applications to extend the building and convert it to ten self-contained flats. They were refused permission in 2001 and 2003, one of the reasons being that the loss of tourist accommodation was contrary to policy. The Council indicates that there is no objection to the principle of residential development on the site, other than that it would result in the loss of hotel accommodation ..."[9]The Inspector then turned to the issue, "Loss Of Tourist Accommodation", and set out the reasoning behind the Council policy and the effects of tourism on the role of the town centre tourism area. In respect of these matters, he concluded in paragraph 15 that:
"The loss of the St George Hotel would materially detract from the tourism role and function of this area contrary to BLP policies 7.2 and 7.4."
[10]That conclusion is not challenged by the claimant. It follows that there was a statutory presumption that the appeals would be dismissed on the ground of non compliance with the development plan, unless material considerations indicated otherwise. The material consideration, which was said by the claimant to outweigh the policy objection, was the presumption that resumption of a hotel use in the property would not satisfy the viability test in the SPG. As the Inspector said in paragraph 17 of the decision letter:
"The Tourism SPG recognises that exceptions to the BLP policies may have to be made where it is demonstrated that premises are not economically viable in their current use and are not capable of being made viable as tourist accommodation. At the inquiry there was a detailed examination of the financial suitability of the St George as a hotel based largely on analyses of viability using the framework set out in the SPG. The Appellant argued that the hotel has not been profitable for many years and that the costs of restoring the building to a satisfactory condition are substantially greater than its value as a hotel business. Not surprisingly, the Council took a different view."
[11]Again, it is accepted that that accurately summarises the issue between the parties.[12]The viability test in the SPG is in these terms:
"Viability test, 6.1. In order to give adequate consideration to a proposal that involves the loss of tourism accommodation, the Local Planning Authority will seek evidence from the applicant to demonstrate that the premises are firstly not economically viable in their current use, and secondly are in incapable of being made viable as tourist accommodation. The potential of the establishment to be run as a viable operation would be a key test. The current trading performance is no guide to potential. This information of the viability test will be sought by the LPA in order that proper consideration can be given to the proposal. Therefore it should preferably be submitted as part of the planning application in order to reduce delays in considering the application. "6.2: The value of hotels should be measured by their trading potential based upon number of rooms, amount of trading floor space quality of facilities and taking into account location, yield and occupancy. There is a huge difference in value between the residential and tourism markets. If owners believe they can achieve residential development, they are unlikely to sell for a price, which would enable the business to continue as a viable going concern. "6.3: Applicants should demonstrate to the satisfaction of the LPA that a tourist accommodation business has no prospect of continuing in the premises. Where the business is not currently operating, it would be necessary to show that an average competent operator could not make a reasonable return from the property. Criteria "6.4: The application for changed use concerns the premises rather than the owner, however where the claim that the business is not longer sustainable with evidence from a current or recent Manager the Council must be satisfied that: "• The tourism business has been run in a reasonable and professional manner by the proprietor. "• There has been a serious and sustained effort to run the tourism business and the premises using available business support services. "• The business has been actively market tested with the guide price affecting the going concern value of the accommodation business (or its hotel market value if not currently trading) normally for a minimum of 18 months, and that no reasonable offers have been received during this time. The guide price must reflect the potential earnings of the business and the cost of essential works."
[13]In paragraphs 18 and following, the Inspector applied the SPG guidance. In order to understand the claimant's grounds of challenge it is necessary to set out the manner in which the Inspector applied the SPG guidance in paragraphs 18 to 36 of the decision letter in full. Rather than setting out those paragraphs in the body of the judgement, they are annexed as Annex A hereto. The Claimant's grounds[14]Mr Pugh-Smith, on behalf of the Claimant, submitted that the decisions should be quoshed on two grounds: the "policy" ground, and the "cost of reinstatement" ground. I will deal with these grounds in turn. The policy ground[15]It is submitted that there were no reasonable grounds upon which the Inspector could have found that the test of "the average competent operator", as used in the SPG, should apply to the "way of life" or owner/manager market. This reflects a similar submission which was made by Mr Pugh-Smith to the Inspector in his closing submissions. He said:
"Accordingly, as the relevant test within the SPG is, "
The average competent operator", and the term is not defined, the Inspector is entitled to and should disregard the entrepreneur, the lifestyle operator and the boutique hotelier. In so far as the existence of lifestyle operators constitutes a material consideration, given the absence of advancement of a specific case of any particular individual, very limited weight should be attached to this "tier" of prospective hotelier, likewise to the other categories. "Furthermore, consideration still has to be given to the commercial capabilities of that individual given the identified need in the SPG to obtain a reasonable return."[16]Perhaps unsurprisingly, the Local Planning Authority's closing submissions were to precisely the opposite effect. It was said on behalf of the Local Planning Authority:
"6.4 [of the SPG] lists the criteria including the need to market the property, which we know has not been done. It also refers to costings and stresses and the need for them to be the lowest of three competitive quotes covering the estimates. In this case, the Appellants have chosen not to follow the guidance but have provided other information. In terms of viability, they have carried out a standard "commercial" assessment and simply reject any other basis of assessment such as that which is recognised to be common in Bournemouth namely the owner/operator, or lifestyle for smaller hotels. "
The commercial assessment carried out by Mr Stapleton (a witness called on behalf of the claimant) concludes that the hotel has not been viable since 1991 and is incapable of being viable now when assessed on his basis. Those experienced in Bournemouth would suggest that another way is available. It is a method of operation known to Mr Schofield and Mr Smith [witnesses called on behalf of the Local Planning Authority], and it is one operated by Mr Audrain [another witness called on the behalf of the Local Planning Authority]. "In addition, Goadsby & Harding in their 2004 letter suggest that such a method of operation is precisely the way that they would see this hotel being operated. As such, the individual cannot be ignored. The individual will finance works and carry them out in a different way to the "wholly commercial" operator, and the failure to recognise that is a major flaw in Mr Stapleton's approach. It can be demonstrated by his acceptance that if Goadsby & Harding are correct then many hotels in Bournemouth are operating in the way that Mr Stapleton would find to be unviable and incapable of ever being viable, despite the fact they have operated successfully for many years, and will continue to do so and provide the operator with a home and gainful employment. The operator can employ measures necessary to carry out works and will seek to spread the load rather than bear it all at once. He will do so in a way that some will acknowledge, perhaps another way of referring to an average but still competent operator chooses to be successful. In any event, this proves the need to return to the market. The only way that we can resolve the problem in a situation where both sides believe they are right is to adopt an approach similar to the Normandie inspector [a reference to an inspector's decision in another appeal where the inspector said that where there were contrasting assumptions about the likely ability and willingness of individual investors to operate a hotel, exposure to the market was necessary to test the matter]."[17]Against this background, the short answer to this ground of challenge is that the Inspector plainly accepted the submissions made on behalf of the Local Planning Authority, as he was entitled to do unless there was some legal impediment, because as a matter of interpretation, the reference to an average competent operator could not include a way of life or owner/manager operator. Despite the valiant attempts of Mr Pugh-Smith to persuade me that this was the position, I am wholly unpersuaded that as a matter of law such operators had to be excluded from the description "average competent operator" in the guidance.[18]As Mr Morshead pointed out in his skeleton argument on behalf of the first defendant, the supplementary planning guidance is not national policy guidance, it is directed to a particular local problem in Bournemouth. Paragraph 5.21 of the SPG describes the Local Planning Authority's aspirations outside the town centre and within other TCA's in the town. "Having made the town an attractive destination, the Council wishes to ensure it has an adequate range of accommodation types available to suit the needs of all its visitors. Not everyone seeks plush town centre accommodation. Many people favour small, family run establishments in quieter locations ..."[19]It was the Local Planning Authority's case that such operators were part of the market for hotels in Bournemouth. If that case was accepted, as it clearly was by the Inspector -- see paragraphs 35 and 36 of his decision letter -- it would have been quixotic, because wholly contrary to the underlying purpose of the SPG to prevent loss of tourism accommodation to residential accommodation in Bournemouth, to exclude them from the description of "average competent operator". The claimants may well disagree with the Inspector's view of who may or may not be included within the description of average competent operator, but I can see no error of law in his approach in paragraph 36 of the decision letter.[20]Mr Pugh-Smith placed much emphasis on the Local Planning Authority's acceptance during the course of its evidence of the proposition that in deciding who was an average competent operator, the question had to be considered on an objective basis. However, it is clear that in making that contention, the Local Planning Authority and its witnesses were doing no more than inviting the Inspector to ignore the "particular quirks" of a particular individual operator. Thus, the Council, in its final submissions, said:
"That approach [the Council's approach to the SPG] has always been on the basis of an objective approach removing the particular quirks of the current owner and has been one that follows the SPG."
[21]That echoes the evidence of Mr Smith, the Local Planning Authority's head of tourism, who said in his proof of evidence:
"At all times and by analysis, I am careful not to let the individual pressures of a particular applicant colour the objective assessment of how the property would be operated in the hands of an average competent operator. I am aware that the planning system is not to be used to correct the historic financial problems of the owner, nor should it be used to try and perpetuate out of date uses."
[22]If "way of life" owners/managers, were part of the market for hotels in the particular circumstances of Bournemouth, then objectively, there would be no reason whatsoever to discount them when considering what might or might not be done by an average competent operator in Bournemouth. It follows that there is no substance in this ground of challenge.[23]For the sake of completeness, I should mention that Mr Pugh-Smith criticised the final sentence of paragraph 36 in the decision letter, because the Inspector did not make it clear which RICS guidance he was referring to. That criticism is wholly academic since the proposition advanced by the Inspector, that is to say that a valuer's methodology should reflect that adopted by prospective purchasers in the market, is not contentious. Reinstatement Cost[24]I turn to the second ground of challenge, the cost of reinstatement. Although numerous detailed criticisms of the Inspector's decision were made, they boiled down to the submission that it was incumbent upon the Inspector to put his own figure on the cost of reinstating/replacing the mechanical and electrical installations in the property, and to incorporate that figure into his calculations in paragraphs 29 and following of the decision letter.[25]It was submitted that in failing to give his own figure, or a range for that item, the Inspector had either failed to have regard to a material consideration, and/or failed to give adequate reasons for his decision.[26]I do not accept that submission. I have included the bulk of the Inspector's decision letter as Annex A to this judgement, because it is a very lengthy and detailed examination of the manner in which the SPG should be applied. In terms of detailed reasoning, this is a letter which contains a huge amount of very detailed material. There is no criticism of the various steps which the Inspector took in order to reach his final conclusion on this issue, starting with the parties' views as to what would be the full market value of the premises if they were to be repaired and brought back into use as a hotel.[27]Although the claimant contended that this was a theoretical exercise, there was, in fact, relatively little difference between the parties at this stage of the exercise -- see paragraph 20 of the decision letter. The full market value, according to the claimant, was £810,000; and the full market value, according to the Local Planning Authority was £880,000 as a going concern.[28]Having considered that issue, the Inspector then went on to consider the cost of repair and refurbishment. While an issue was raised as to the extent to which the Inspector understood the figures to be based on the condition of the property in December 2005 as opposed to their condition at the commencement of the enquiry in August 2005, it is plain from paragraph 21 that the Inspector had adopted the most recent figures put forward on behalf of both the claimant and the Local Planning Authority. The claimant had started off with an initial cost of over £1.4 million, and as the Inspector observed, that had been reduced in stages at the enquiry down to £839,000, the latter being the minimum thought by the claimant to be necessary to reopen the building.[29]The Inspector said:
"The Council adopted a more selective approach, only doing essential work and accepting that further repairs might be required in future years. Based on the Appellant's cost schedule, the Authority believed that about £389,000 would be sufficient to reopen the hotel."
[30]In a footnote, the Inspector pointed out an arithmetical error in the Council's calculations. The true gross cost, on the Council's basis of calculation, was around £350,000, but the Inspector rounded up the stated figure of £388,517 to £389,000.[31]Mr Pugh-Smith pointed out that the two figures, £839,000 and £389,000, were not calculated upon the same basis in that the former included substantial sums for the replacement of mechanical and electrical services. Those two items totalled, in round terms, £259,000. In addition, there was an item of £11,000 for the stairs which had been removed in an attempt to render the property uninhabitable by squatters.[32]Reading the decision letter as a whole, the Inspector was in no doubt that there had been substantial deterioration in the condition of the property. He noted in paragraph 3:
"It is clear that a complete internal refit would be necessary to replace the damage down by squatters. By the time of my December visit, this even included all the flooring, and the staircase which had been removed to try to make the building uninhabitable."
[33]Equally, it is clear from paragraph 23 that the Inspector realised that the Council's figures did not include any allowance for the mechanical and electrical installations. As he said:
"The cost estimates were based on the condition at the start of the enquiry however, and overall I felt that the Council's figures had greater realism. The main exception is the lack of any allowance for mechanical and electrical installations. Whilst I believe that the Appellant's figure of £259,000 for complete replacement is excessive, some work to these systems is likely to be necessary. "
I also recognise that some additional work may be required to satisfy current legislation, such as the Disability And Discrimination Act. By adopting a careful and targeted approach, I do not believe this would be prohibitive."[34]Issue was taken as to whether the cost estimates were based on the condition at the start of the enquiry, but that criticism goes nowhere, because as I have indicated, it is accepted that the figures used by the Inspector in paragraph 21 of the decision letter were the parties' final figures as presented in December, and equally, it is plain that the Inspector was under no misapprehension: he realised that the Council's figures excluded the mechanical and electrical repairs.[35]In paragraph 24, the Inspector referred to costs which were put forward by Mr Audrain who was co-owner and operator of a number of nearby hotels including the Mansfield Hotel on West Cliff Gardens. Although Mr Pugh-Smith submitted that the Inspector should not have had regard to that evidence, because Mr Audrain was not an ordinary average competent operator, if one reads paragraph 24, it is plain that the Inspector accepted that because he had a business partner who was a builder Mr Audrain was:
"An exception to that of the average competent operator."
[36]All the Inspector was doing in paragraph 24 of the decision letter was comparing Mr Audrain's "pre-squatter" costs of £125,000 to £150,000 with the Council's costs of £389,000, but those costs were "pre-squatter" costs in the sense that they did not make any allowance for mechanical and electrical installations which had been removed as part of the works to make the premises uninhabitable by squatters.[37]Used in that limited way, there can be no conceivable objection to the Inspector's comparison of the costs given by Mr Audrain with those put forward by the Council, and his observation that:
"The fact that Mr Audrey's initial investment would be less than half that proposed by the Council does add weight to my perception that the Authority's estimates rather than the Appellants are likely to be closer to the mark."
[38]The Inspector then drew the threads together. He considered the issue of market testing and concluded that the marketing exercise conducted in 2002:
"Can no longer be relied upon as a current assessment of interest."
[39]There is no challenge to that conclusion, so this was a case where, despite the advice in the SPG that there should be market testing, there was no reliable market testing. Having dealt with that issue, the Inspector went on to consider current valuation and viability, saying that the final matter to be considered was the, "Current valuation of the hotel". The Inspector noted in paragraph 28 that the Appellant relied on the estate agent asking price in 2002, which was £595,000, whereas the Council produced a June 2005 market valuation of £350,000:
"Which makes allowance for the uncertainties surrounding the costs of refurbishment and repair. Mr Audrain put the figure higher at £450,000, which reflected his particular methods of operation and his skill in keeping costs to a minimum. Given the deterioration that has taken place since the property was sold by the previous owners, coupled with the need to rebuild the business, a significant reduction in value seems appropriate."
[40]The Inspector then went on to say, drawing all these threads together, in paragraph 29:
"All these current valuations are based essentially on subtracting the costs of refurbishment from the full value of the hotel as a going concern and in a reasonable state of repair. As indicated earlier, the Appellant estimates the full market value to be £810,000, whereas the Council suggests £880,000. If the Appellant's current valuation is used, there is clearly insufficient margin (£250,000) to fund even the Council's estimate of necessary works, let alone the Appellant's lowest estimate (which exceeds the full market value). "
On this basis, reinstatement as a hotel is not viable. However if the Council's current valuation is used, there is an allowance of £460,000 for refurbishment before the Appellant's full market values is reached, and £530,000 reach the Council's full market value. Even the lower of these figures is almost 20 per cent above the Council's cost estimate, allowing a reasonable margin for items not accounted for and for overruns."[41]The 20 per cent margin is around £141,000. Mr Pugh-Smith submits that if the Inspector had taken into account the Claimant's estimated cost of renewing the mechanical and electrical services, £259,000, that would have demonstrated that the proposition was unviable. Alternatively he submits that the Inspector was required to reach his own view as to what the figure was in order to decide the issue of viability.[42]Firstly, I do not accept that the Inspector was required to accept the Appellant's figure of £259,000. The Inspector made it plain in paragraph 23 that he thought that that figure was excessive. Equally, he made it plain that he accepted that some work was necessary under that head. In essence, the Inspector was saying, albeit as politely and possible, that throughout the valuation exercise the Claimant had been overegging the cost figures, and that on the cost side, the Council's estimates were to be preferred. That was a conclusion which he was entitled to reach.[43]Was it necessary for the Inspector to decide upon a figure, or a range of figures, for the mechanical and electrical repairs which he accepted were necessary but which the Council had not costed? The answer to that question is no, for the reasons explained in paragraphs 31 and 33 and 34 of the decision letter. Having indicated in paragraph 30 that the Council's estimate of refurbishment was nearer the mark, and on that basis he believed there was a reasonable prospect that the property would prove attractive to an operator who would restore it as a going concern, the Inspector said this in paragraph 31:
"The above approach to estimating the current valuation which was acknowledged by the Appellant to be an accepted practice means that only exposure to the market would establish the true current value. If the cost of refurbishment is perceived by prospective purchasers to be higher than the parties' estimate, perhaps as a result of current condition of the property, or the need for a more thorough approach to satisfy lending institutions, then their assessment of current market value would be commensurately lower. This introduces a further margin of error into the equation. "
I accept that there comes a point above a zero valuation where it is simply not economic to undertake the refurbishment. Nevertheless with the Council's full cost of refurbishment being less than half the lower estimate of full market value, I think it unlikely that this position has been reached."[44]In my judgement, the Inspector was entitled to adopt that position. He did not have to put a particular figure on the cost of mechanical and electrical works (less than the £259,000 alleged by the Claimant, which the Inspector thought to be excessive), because in so far as the figure was closer to the Claimant's estimate, that would have the effect of depressing the current market value at which the premises would be put on the market for hotel use.[45]The Inspector made his position clear in paragraphs 33 and 34:
"The major dispute is over the costs of refurbishment and repair. Whilst the evidence is limited and its reliability is therefore questionable, from what I saw and heard, I believe that the Council's estimates are closer to the mark. There is sufficient leeway between the cost of refurbishment and the full market value of the hotel as a going concern for me to conclude there is a reasonable prospect of it being restored to its former use and the business being profitable. This does depend on the property being valued at a price which properly reflects its current condition and the cost of refurbishment. The evidence suggests that this would be substantially below the asking price let alone the selling price when sold to the Appellant in early 2003. "34: Exposure to the market in its current condition is the only way to test this proposition. I consider that the results of the previous exercise are so out of date that they cannot be relied upon today, particularly given the changes to the property as a result of occupation by squatters. "
Furthermore, even if my preference for the Council's cost estimate turns out to be misplaced, that fact could only be established by current market testing. For all these reasons, the application of the SPG has failed to demonstrate that the premises are incapable of being made viable. Consequently, I conclude that these material considerations are not sufficient to outweigh the conflict with the development plan."[46]Mr Pugh-Smith's analysis holds good only if the Local Planning Authority's current market value is retained as a constant, but as the Inspector pointed out, the current market value is not a constant, it is heavily dependent on the cost of repairs. As they go up, so the current market value goes down.[47]As the Inspector recognised in paragraph 31, there does come a point above a zero valuation where it is simply not economic to undertake the refurbishment, but on the material before him, the Inspector was entitled to conclude that it was unlikely that that position had been reached, bearing in mind in particular his view that the Claimant's cost for the mechanical and electrical installations of £259,000 was excessive.[48]Given the SPG's emphasis on the need for proper marketing and the Inspector's view that the SPG had not been complied with in that respect because the 2002 marketing could not be relied upon, it was for the Claimant to make out the case that returning the property to hotel use would not be economically viable. All the Inspector was saying at the end of a very lengthy analysis of all the figures was that the Claimant had failed to demonstrate that the premises were incapable of being made viable because of question marks over the reliability of the cost figures given for refurbishment and repair.[49]The Inspector's conclusion in that respect is not unsurprising. This was, after all, precisely the kind of case which the supplementary policy guidance was aimed at. A hotel that had been run down by its previous owners, who in the Local Planning Authority's view had not been running the hotel in the most advantageous manner, was put on the market, and while there appear to have been some bids for hotel use, they were significantly outbid by an offer from someone who wished to use the property for residential purposes. Thereafter, there was no marketing exercise and valuations were put forward which, the Inspector concluded, greatly overstated the cost of refurbishment.[50]In these circumstances, the Inspector was entitled to remain unpersuaded, and it was not an essential part of his reasoning that he should attach a particular figure to the cost of mechanical and electrical repairs. As I have said, the higher that figure, the more it would depress one of the other variables, namely the current market value.[51]For these reasons, this ground of challenge must also be rejected, and it follows that the application must be dismissed.[52]MR MORSHEAD: My Lord, I am grateful. I invite your Lordship to dismiss the application (inaudible) for costs. Schedules have been served. I do not know whether copy have been made.

JUSTICE SULLIVAN: I think I did get a schedule.

[54]MR MORSHEAD: I must correct one point on it. The fee for work done on documents by the (inaudible) is shown as 46.6 hours. The number I am about to substitute is still high, but it is a bit lower. What has happened is that somebody has added onto the base figure 11 hours instead of 11 units. The correct figure should be 35.6 hours which would take the total time spent to 5,696 and an overall total of 11,137 hours.

JUSTICE SULLIVAN: Yes.

[56]MR MORSHEAD: And that is the figure which I invite your Lordship to assess costs on.

JUSTICE SULLIVAN: Do you have any submissions about the principle or the detail, Mr Pugh-Smith?

[58]MR PUGH-SMITH: Your Honour, I have surprisingly no submissions about the principle; that must follow. Detail, most certainly, my Lord. There are two figures that --

JUSTICE SULLIVAN: I have not, by the way, got your figures.

[60]MR PUGH-SMITH: My Lord, I am so sorry.

JUSTICE SULLIVAN: I always like to have those.

[62]MR PUGH-SMITH: My Lord, they are quite illuminating, because even allowing for all the work that we did, we do not manage to rack up the number of hours that treasury solicitor managed, bearing in mind that after that very, very long wait, we get the two page witness statement, albeit very late in the proceedings.[63]My Lord, in short, there are two points we draw to your attention. The first is attendances on client 7 hours, and then the staggering 35.6 -- I am grateful we have now dropped it by 11 units -- before work done on documents. My Lord, it is completely inconceivable how that amount of time could have been justified bearing in mind we prepared the bundles, we copied the bundles. The only thing that had been done by the treasury solicitor was to actually read the bundles sufficiently to spend some time attending on the Inspector with an even shorter witness statement, which one presumes was drafted by the Inspector hopefully in the terms in which it has been signed.[64]So my Lord, for those reasons, it is my submission that the figure there is excessive, bearing in mind by way of comparison that in terms of time that we spent, it was only some 29 hours and that was really the work undertaken by Mr Montgomery.

JUSTICE SULLIVAN: Yes.

[66]MR PUGH-SMITH: So my Lord, applying, as it were, the rough justice principles of summary assessments, I would invite you to adopt a greater degree of realism to the Treasury Solicitor's bill in this instance.

JUSTICE SULLIVAN: Thank you very much.

[68]MR PUGH-SMITH: Do you wish for me to make any further suggestions?

JUSTICE SULLIVAN:

[69]No, I do not think so. I understand the point. Is there anything you want to say about it? Would it be ever so rough to say £10,000 in round terms? The Treasury Solicitor will think it is terribly rough, and probably Mr Pugh-Smith will think it rough, in which case it is probably about right if they both think it is rough justice.[70]MR MORSHEAD: It seems very harsh, my Lord, but I would not seek to persuade your Lordship today.

JUSTICE SULLIVAN:

[71]Whilst it is less than the Claimant's, normally the difference is greater, bearing in mind various factors including the extent to which a claimant very often has the (inaudible) of the day, it does seem to me that two thirds the Claimant's figure could be pretty much out in the circumstances of this case, where it was necessary for the officer to take instructions from the Inspector and so forth.[72]Any more if it is £10,000? Can you do anything much better than that?[73]MR PUGH-SMITH: My Lord, I am not going to press you for any lower figure than £10,000 in view of the use of the term "rough".

JUSTICE SULLIVAN: Yes.

[75]MR PUGH-SMITH: My Lord, can I just mention two other things. First of all, I did remark and your Lordship also responded to this question of the late service of the witness statement from the Inspector. My Lord, whilst acknowledging the fact that inspectors have to move around the country, no doubt the Treasury Solicitor has to find some place in time. My Lord, the gap, bearing in mind that the evidential, as it were, time limit expires some time round about Easter, to get it a matter of ten days before the hearing having been promised in September does seem a little surprising.[76]I invite your Lordship, bearing in mind you have usefully assisted the hotel industry as well as the Local Council as to the interpretation of this SPG, if you would kindly assist those will us who appear on this side of the room, if you feel able to make any comment about the service of evidence on behalf of the first defendant.

JUSTICE SULLIVAN: Just remind me, when was the claim made? It was in march, was it not?

[78]MR PUGH-SMITH: The claim was made in March, my Lord, and we got the evidence in mid-November.

JUSTICE SULLIVAN:

[79]I am anxious not, as it were, to provoke Mr Morshead into a justification of the particular circumstances of this case, because I simply do not know. All I would say is that in practice, I did not find it necessary to rely on the Inspector's witness statement, but if it had been really necessary to have the Inspector's witness statement -- and really those are the only circumstances in which you should have the Inspector's witness statement at all, otherwise the decision better jolly well speak for itself -- if it is really necessary, then it is obviously particularly unfortunate if the claim was made in March that the Inspector's statement does not come in until November --[80]MR PUGH-SMITH: Yes.

JUSTICE SULLIVAN:

[81]-- not least because if there is a jolly good answer to the Claimant's point in the Inspector's witness statement, in another case I have had, frankly the Secretary Of State said they had the pay the costs, because he did not raise the answer until the very last minute.[82]I do not know if I can go beyond that. I do not know the circumstances. For all I know the Inspector could have been seriously ill or whatever, but it seems to me there would have to be a jolly good reason for not putting in an inspector's witness statement until the very last minute before the case, and obviously a treasury solicitor does that. There is always the risk that the Court will not accept it, or probably more likely, because one is very reluctant not to decide these things on the basis of full evidence, he would adjourn to give the claimant time to think about it, which I have done in another case, and adjourn it at the Secretary Of State's costs.[83]I think that is really all I would say. It is obviously very undesirable, and I do not know what the reason is here, and maybe people could take steps to find out what it was. If it is some administrative hiatus there might be a more general application and steps could be taken address it. I should have thought it is sufficient to say that, is it not?[84]MR PUGH-SMITH: It is, certainly from my perspective.

JUSTICE SULLIVAN:

[85]I do not know if there is anything you would like to add, Mr Morshead. I have tried to deal with it in a way that does not pass comment because I simply do not know the detailed fact. I think it is something those behind you ought to consider very carefully, whether the delay can be justified in this case, and if it cannot be, then take steps administratively to try to ensure that it does not happen again.[86]MR MORSHEAD: I am sure your Lordship's remarks will be --

JUSTICE SULLIVAN:

[87]It is not the only case, I have had at least one other, and I think in the other one I had to adjourn, because in that case, the Inspector's explanation was of critical importance and it is only fair to allow the defendant to consider it. I think we came back again and the defendant actually did not take the hint and proceeded, so they paid the costs from there on, in that case. So this is not an isolated incident, as far as I know. Anyway, there we are.[88]MR PUGH-SMITH: My Lord, thank you so much for giving the judgement this afternoon. It is greatly appreciated. Annex A Inspector's Decision Letter"18. The starting point is the recent trading history of the hotel. Summaries of the accounts for 1991-1992, the period the hotel was operated by the former owners, reveal an overall decline of about one third in gross revenues to about £120,00 pa. In later years the level of EBITDA (earnings before interest, tax, depreciation and amortisation) had stabilised at about £24,000, which after depreciation and interest charges, left the owners with earnings of around £6,000 pa. With the hotel being purchased in 1990 for £725,000, the appellant argues that an EBITDA of just over 3% is way below the return on capital that would be acceptable to commercial hotel operators, who would seek closer to 10% or £72,000 pa. From these figures there is little doubt that, in recent years at least, the hotel has not been a profitable business. The appellant cites the inability of the hotel to attract new markets as a result of a lack of car parking and leisure facilities, a limited number of bedrooms and the small size of certain bedrooms, as the main reasons why the hotel was not, and could not become, viable."19. The appellant believes that this level of trading and profitability is typical of many other small hotels in the same market. Figures of hotel sales around the time that the St George was sold indicate that most achieved a turnover less than half that of the lower quartile of national hotel revenues. This suggests that none were achieving a minimum level of acceptable return on investment. The appellant acknowledges that the purchasers of such businesses are buying a "way-of-life" business, rather than purely a commerical operation, and are therefore prepared to accept lower returns. It is argued, however, that this perpetuates the supply of low quality properties which are increasingly unacceptable to modern customers. In turn this lowers the overall quality of the offer available in Bournemouth, to the detriment of the resort. Consequently, the appellant argues that hotels such as the St George represent 'the outdated forms of accommodation for which there is no longer a demand' referred to in PPG21."20. Where a business is not currently operating, the SPG requires to demonstrate that an average competent operator could not make a reasonable return from the property. Using an industry-standard RICS methodology, the appellant provdies a theoretical forecast of future trading based on a fully refurbished hotel that achieved room occupancy levels consistent with the average for Bournemouth and an average room rate of £30. Whilst doubting whether this was achievable in practice, this would give a revenue of £308,000 pa and an EBITDA of around £80,000, which would convert to a market value of £810,000. The Council carried out a similar exercise, suggesting that an average competent operator would achieve an average room rate of £42.50, total sales of £300,000 pa and an EBITDA (on a like-for-like basis) of £76,000; this would equate to a value of £880,000 as a going concern. These forecasts of future trading are not markedly different, and though I acknowledge the appellant's case that it represents a theoretical scenario, it does suggest that achieving viability might not be beyond the bound of possibility. Application of SPG - (ii) Cost of repair and refurbishment"21. The appellant's view is that, notwithstanding the theoretical viability of such an enterprise, the costs of re-instating the St George to even a 2-star standard are prohibitive. Vastly different estimates were produced at the inquiry by the appellant and the Council, largely as a result of significant differences between them about the extent of work necessary and the way it should be carried out. The appellant's approach is to complete the refurbishment prior to re-opening the hotel, and to take a precautionary line where problems might exist; an initial cost of £1.426m was reduced in stages of the inquiry to £839,000, the latter being the minimum thought to be necessary to re-open the building. The Council adopted a more selective approach, only doing essential work and accepting that further repairs might be required in future years; based on the appellant's cost schedule, the authority believed that about £389,000 would be sufficient to re-open the hotel."22. No detailed condition survey of the building has been carried out, and because both sets of estimates are based on little more than a cursory visual inspection, their reliability is questionnable. Nevertheless, the matters of concern were pointed out to me on my visits, leading me to form the impression that the appellant's figures were likely to represent a substantial over-estimate of the scale of works necessary. I saw a builing which, whilst showing signs of its age, appeared to be in reasonable structural condition. From the outside I could see that some work is necessary to replace damaged brickwork, render and tile hanging, and that some attention is needed to the roof and chimneys, but the extent of visible damage is quite small. Inside there was evidence of damp penetration ina few areas, but again the visible damage is limited and the basic structure appeared sound."23. It is clear that a complete internal refit would be necessary to replace the damage done by squatters; by the time of my December visit this even included all flooring and the staricase, which had been removed to try to make the building uninhabitable. The cost estimates were based on the condition at the start of the inquiry, however, and overall I felt that the Council's figures had greater realism. The main exception is the lack of any allowance for mechancial and electrical installations; whilst I believe that the appellant's figure of £259,000 for complete replacement is excessive, some work to these systems is likely to be necessary. I also recognise that some additional work may be required to satisfy current legislation, such as the Disibility Discrimination Act, but by adopting a carefully targeted approach I do not believe that this would be prohibitive."24. A practical indication that the scale of works envisaged by the Council is not unreasonable came from Mr Audrain, the co-owner and operator of a number of nearby hotels including the Mansfield Hotel on West Cliff Gardens. His business is based on buying and doing up run-down hotels, and he estimated that £125-150,000 would be sufficient to get the hotel open during the main summer season, with further expenditure financed out of income on a rolling programme of improvements and repairs. I accept that this approach, which relies upon a business partner who is a builder, is an exception to that of the "average competent operator", though it appears that there are a few businesses operating in a similar way in the Bournemouth market. But the fact that Mr Audrain's initial investment would be less that half that proposed by the Council does add weight to my perception that the authority's estimates, rather than the appellant's, are likely to be closer to the mark. Application of SPG - (iii) Market testing"25. A further and potentially crucial test advocated in the SPG is market testing at a guide price which adequately reflects the value of the business as a going concern. The previous owners advertised the hotel for sale in 1999 and again in 2002, with it remaining on the market in the intervening years. Throughout this period the asking price was £595,000, which the estate agent believed to be realistic for the size and condition of the property. On the first occasion at least three offers were made at or near the asking price, but none resulted in a transaction primarily, on the estate agent's view, because of the lack of convenient parking close to the hotel. On the second occasion three offers were made at or near the asking proce, but the property was bought by the appellant for £695,000. All the offers made prior to the appellant's interest were thought to be from hoteliers seeking a "way-of-life" business rather than a wholly commercial venture. The appellant, a residentail developer, purchased the property as a speculative acquisition."26. There have been significant changes to the condition of the property in the three years since it was sold, primarily as a consequence of occupation by squatters. There is also some evidence of a revival on the tourist accommodation market in Bournemouth, with three new hotels opening, though the extent to which this might by the closure of older establishments is not known. Furthermore, many established hotels have changed ownership in recent years, including some in the West Cliff area. The appellant suggests that this is because owners are keen ot get out of a declining market, but the fact that there are willing buyers for the properties implies that the Council's claim of an up-turn in the market may be justified."27. The changes to the St George and in the tourism market lend substantial weight to the Council's argument that a marketing exercise conducted in 2002 can no longer be relied upon as a current assessment of interest. The appellant accepted that proper exposure to the market is the best way of establishing such interest, and in the absence of recent marketing, that is simply not known. The Council produced two letters at the inquiry which expressed a current interest in re-opening the hotel, and while they can only be afforded limited weight, they do add to the body of evidence (including the three offers on 2002) which suggests that there may be some potential for re-establishing the business. It would certainly be wrong to conclude that there was no interest on the basis of its sale to a house-builder at a significant premium abouve the hotel valuation. Application of SPG - (iv) Current valuation and viability"28. The final matter to be considered is the current valuation of the hotel, The appellant relied on the estate agent's asking price in 2002 of £595,000, whereas the Council produced a June 2005 market valuation of £350,000, which makes allowance for the uncertainities surrounding the costs of refurbishment and repair. Mr Audrain put the figure higher, at £450,000, which reflected the particular methods of operation and his skill in keeping costs to a minimum. Given the deterioration that has taken place since the property was sold by the previous owners, coupled with the need to re-build the business, a significant reduction in value seems appropriate."29. All these current valuations are based, essentially, on subtracting the costs of refurbishment from the full market value of the hotel as a going concern and in a reasonable state of repair. As indicated earlier, the appellant estimates the full market value to be £810,000, whereas the Council suggests £880,000, If the appellant's currect valuation is used, there is clearly insufficient margin (£215,000) to fund even the Council's estimate of necessary works, let alone the appellant's lowest estimate (which exceeds the full market value). On this basis re-instatement as a hotel is not viable. However, if the Council's current valuation is used, there is an allowance of £460,000 for refurbishment before the appellant's full market value is reached, and £530,000 to reach the Council's full market value. Even the lower of these figures is almost 20% above the Council's cost estimate, allowing a reasonable margin for items not accounted for, and for over-runs."30. I have indicated that I find the Council's estimate of refurbishment to be nearer the mark, and on this basis I believe that there is a reasonable prospect that the property would prove attractive to an operator who would restore it as a going concern. Given the scale of the investment needed, and the fact that significant improvements would be made to the parts of the hotel used and seen by the public, I consider that the refurbishment would enhance both the attractiveness of the hotel and the tourism role of the area, as sought by different policies."31. The above approach to estimating the current valuation, which was acknowledged by the appellant to be an accepted practice, means that only exposure to the market would establish the true current value. If the cost of refurbishment is perceived by prospective purchasers to be higher than the Council's estimate, perhaps as the result of the current condition of the property, or the need for a more thorough approach in some areas to satisfy lending institutions, then the assessment of current market value would be commensurately lower. This introduces a further margin of error into the equation. I accept that there comes a point (above a zero valuation) where it is simply not economic to undertake the refurbishment. Nevertheless, with the Council's forecast of refurbishment being less than half the lower estimate of full market value, I think it unlikely that this position has been reached. Loss of tourism accommodation - conclusion"32. I have found that the permanent loss of the St George Hotel would bring about a perceptible diminution in the character of West Cliff Gardens as part of the TCTA, and would thereby adversely affect the tourism function of the locality. I accept that the hotel had not been trading profitably prior to its closure, but this in itself is not sufficient to prove non-viability, particularly as it appears that the former operators did not have the necessary skills to generate sufficient income to re-invest in the property or to fully expliot the potential of the business. Indeed, both parties were able to demonstate that a viable business was at least theoretically possible, based upon potentially achievable trading figures and cash flows."33. The major dispute is over the costs of refurbishment and repair. Whilst the evidence is limited and its reliabiliy is therefore questionnable, from what I saw and heard I believe that the Council's estimates are closer to the mark. There is sufficient leeway between the cost of refurbishment and the full market value of the hotel as a going concern for me to conclude that there is a reasonable prospect of it being restored to its former use and the business becoming profitable. This does depend on the property being valued at a price which properly reflects its current condition and the costs of refurbishment; the evidence suggestd that this would be substantially below the asking price (let alone the selling price) when sold to the appellant in early 2003."34. Exposure to the market in its current condition is the only way to test this proposition. I consider that the results of the previous exercise are so out-of-date that they cannot be relied upon today, particularly given the changes to the property as a result of occupation by squatters. Furthermore, even if my preference for the Council's cost estimate turns out to be misplaced, that fact could only be established by current market testing. For all these reasons the application of the SPG has failed to demonstrate that the premises are incapable of being made viable. Consequently I conclude that these material considerations are not sufficient to outweigh the conflict with the development plan."35. I apprecaite that my findings are substantially at odds with the appellant's case based on established commercial practices, and therein lies something of a paradox. It may be that an enterprise of the scale and nature of St George would not be viable to the commercial hotel sector, but in practice many hotels in Bournemouth seem to operate on a less-than-commercial basis. Consequently it is not reasonable to discount the "way-of-life" or owner/manager operations when they appear to be typical for premises the size and quality of the St George, and when there is some evidence of interest in the property for this style of business. I appreciate that some of these operations may well be the "outdated forms of tourist accommodation for which there is no longer a demand" which PPG21 suggests should not be perpetuated. However, in my view the St George does not fall into this category because of its superior cliff-top location and the potential that appears to exist for restoring a business that would enhance the area and contribute positively to the tourism function which is so vital to the economy of the town."36. This paradox makes it difficult to interpret the 'average competent operator' aspect of the Council's SPG, particularly in the absense of guidance from the authority. To my mind the evidence suggests that there may be two separate hotel markets operating in Bournemouth - the commercial market and the way-of-life or owner/manager market. While I appreciate that the former operates on a more robust financial footing, the existence of the latter cannot be ignored. Moreover in the circumstances of this case, where the St George appears unsuitable for operation by the commercial sector, it is only proper that the 'average competent operator' assessment is based on the way-of-life market to which the hotel would presumably return. Indeed, the RICS appears to allow for this approach when indicating that valuers should reflect the same methodology as adopted by prospective purchasers in the market."