CHP PROPERTY GROUP LIMITED v WIGAN METROPOLITAN BOROUGH COUNCIL ACQ/23/2006
[1]This is a decision to determine the compensation payable by Wigan Metropolitan Borough Council (the “council” or “acquiring authority”) under the Wigan Borough Council (Station Road/Millgate/Watkin Street, Wigan) Compulsory Purchase Order 2003 (the CPO) to CHP Property Group Limited (the claimant) in respect of the compulsory acquisition of 2 Millgate, Wigan WN1 1YT (the subject property).[2]Roger Lancaster of counsel appeared for the claimant and called Colin Richard Jennings BSc FRICS of Edward Symmons LLP, Surveyors of Manchester, who gave expert valuation evidence. John Barrett of counsel called James Michael Norris Ogborn BA (Hons) Dip LE MRICS of Lambert Smith Hampton, Property Solutions of Manchester, who gave valuation evidence for the acquiring authority.[3]I undertook an accompanied inspection of the location of the former premises and the surrounding area on 20 June 2007. The claim[4]The claimant, which had acquired the subject property as an investment at auction in November 2002 as part of a larger lot that included a shop to the rear (12 Station Road – which does not form part of this claim), contended that the freehold of the premises, subject to a lease to Yorkshire Bank Plc, was worth £1,360,000 at the agreed valuation date of 6 December 2004. In addition, there were a number of items of disturbance for which compensation was payable under Rule (6), however these were agreed prior to the commencement of the hearing. The acquiring authority contended that the freehold was worth £775,000. The principal areas of dispute between the parties related to whether the premises would be considered by the market to be in a prime or secondary location, and hence the anticipated passing rent that would apply at the rent review which was due to occur in September 2005, some 9 months after the valuation date and, having agreed that an investment valuation was the appropriate method, the yield rates to be applied on a term and reversion basis. Facts[5]The parties produced a statement of agreed facts and issues to be determined. From this, the evidence, and my inspection I find the following facts. The subject premises comprised a part two and part three storey building on a corner plot at the junction of Millgate (to which it had its principal but shortest frontage of 8.2m) and Station Road (Return frontage 27.5m). Although constructed of brick under slate roofs in a style to match its early 20th century surroundings, it was believed to have been built in the 1970s. The ground floor had an area of 202 sq m (2,172 sq ft) which equated to 898 sq ft in terms of Zone A (ITZA) and had been 2 fitted out by the tenants as a banking hall with ancillary offices and strong room. The first floor, used as offices and rest room in conjunction with the bank had an area of 128.3 sq m (1,381 sq ft). The second floor was not used, and had no means of access. The junction of Millgate and Station Road was at a crossroads with Standishgate and Market Place, two pedestrianised streets forming part of the town’s principal “retail circuit”. Vehicular access from the one-way system that used Millgate/Station Road was prevented from accessing the paved pedestrian areas by a series of bollards. The main public entrance into the subject premises was directly on the corner of the two frontages, and had an aspect over the pedestrian area where Standishgate and Market Place joined, and towards the entrance of Makinson Arcade.[6]The subject premises were acquired as part of a land assembly programme for what was to become Grand Arcade, a 425,000 sq ft enclosed shopping centre anchored by Debenhams and including an extension to the pre-existing Marks and Spencer store, BHS, Next, JJB Sports, Boots, H & M and other national retailers. 2 Millgate’s former location was at what has now become the main entrance from the town’s principal shopping area, and occupied part of the footprint the new HMV and Waterstones stores. Following the grant of planning permission and Listed Building Consent for the scheme on 13 February 2002, as amended on 5 September 2002, the council entered into a development agreement with Modus Properties (Wigan) Ltd (Modus) on 13 June 2003. The CPO was made on 14 August 2003 and confirmed by the Secretary of State on 8 July 2004; the General Vesting Declaration was dated 5 November 2004, and possession was taken on 6 December 2004 which is the agreed valuation date for the purposes of this reference. The scheme opened in March 2007.[7]The claimant held the freehold title to the whole of the premises which were subject to a lease to Yorkshire Bank plc for a term of 15 years from 29 September 2000 at an initial rental of £43,000 pa, subject to upwards only rent reviews on 29 September 2005 and 29 September 2010. Approximately 10.75 years remained on the lease at the valuation date, and the first rent review was due within 9 months. The user clause within the lease, which was agreed to be in conventional terms and contained no provisions likely to affect its marketability or value as an investment, permitted the property to be used for any purpose within Class A1, A2, A3 or B1 of the Town and Country Planning Use Classes Order 1987. Issues[8]Two key valuation factors remain in dispute between the parties. These are: i The rental value that could be anticipated to apply at the review date of 29 September 2005, and ii The yield rate (or rates if different) to apply to the existing and anticipated rents. The principal area of disagreement between the experts in the determination of both of these issues is the premises’ location, and how prospective lessees and investors in the market would perceive that. 3 Claimant’s case: Evidence[9]Mr Jennings is a partner in Edward Symmons, and since 2000 has been head of their Valuation and Professional Services Division for the north of England. As to the two principal points in dispute, he said that from the comparable evidence he had gathered, the rent of the subject premises, on review, would be likely to be in the region of £69,350 pa (£68 per sq ft (psf) ITZA for the ground floor and £6 psf for the first floor offices), and the appropriate yield to be applied was 4.5% for the period to review, and 4.75% thereafter. His valuation is attached at Appendix 1.[10]In his professional opinion, the market would consider the subject premises to be in a highly visible, prime location within the town’s established retail centre. At the valuation date they lay between Dixons on the Millgate side, and WH Smith which was on the opposite side of Station Road at its junction with Standishgate. They were at a focal point at the top of Standishgate, and other prime retail occupiers within the immediate vicinity included Marks and Spencer (main frontage to Standishgate and a rear access onto Station Road), Mothercare, Burton, Topshop, Clinton Cards and Carphone Warehouse. The premises faced directly onto, and were clearly visible from, the main pedestrian thoroughfare of Standishgate and Market Place, and were opposite the entrance to Makinson Arcade, a narrow shopping mall that leads into Woodcock Square, from which access is also gained to Billing Arcade, Leigh Arcade, Standish Gallery and The Galleries Shopping Centre. All of these factors, together with the location’s allocation in the Wigan UDP adopted in January 1998 (and still relevant at the valuation date) as being within the Principal Shopping Area, clearly demonstrated that the premises were prime. Whilst he accepted that there was a road, open to through traffic, separating the subject premises from the pedestrian area, Mr Jennings said it was lightly used and did not act as anything more than a slight deterrent, but he had allowed a 10% discount from what would otherwise have been the rental value, on the basis of his comparable evidence, to reflect that. He said he strongly refuted the suggestion by the council’s expert that the premises were in a secondary retail pitch and thought it most unlikely that Yorkshire Bank would have considered, when negotiating their lease, anything other than a prime location. The fact that the immediate area also accommodated a large number of banks and building societies, all of whom tend to occupy prime sites, was also an important consideration. According to the FOCUS town report for Wigan, compiled from data provided in November 2004, the 3 streets that ranked top in terms of accommodating the top 20 retailers were Standishgate, Makinson Arcade and the Galleries. Furthermore, he pointed out that the main entrance of the Grand Arcade scheme was right where the subject premises had been situated, and that a developer would only consider a design that had access directly from the main retail core.[11]Mr Jennings produced a schedule of the Wigan rental transactions upon which he had relied, and said that the new letting of 35/37 Market Place to Yorkshire Bank in December 2004, as a replacement for the subject premises, was of prime importance. These were the former Dixons premises on the opposite corner of Millgate and were thus in a location that was as comparable as it was possible to get. They were also to be let for 15 years with 5 year reviews, were to be used for banking purposes, and the negotiation was only 9 months before the valuation date. The agreed rental of £95,000 pa equated to £76.75 psf for the ground floor, with £4 psf being allocated to the first floor storage. He did not accept Mr Ogborn’s 4 suggestion that the circumstances of the bank’s taking of the Market Place premises, in the scheme world, the transaction could not be considered to be open market. It was a fact that the developer had paid Dixons £300,000 as a ‘premium’ to obtain possession, and that Yorkshire Bank had been paid £240,000 to compensate them for the loss of their leasehold interest in the subject premises. But, in normal circumstances he said, the receipt of a premium by the landlord would serve to reduce rather than increase the rent that was payable. In any event, Yorkshire must have been satisfied that the rental commitment they were making was a market rent, and the £240,000 compensation they received was nothing to do with that transaction. Mr Jennings accepted that the new premises would be right opposite the entrance to the new scheme, and that even if it wasn’t before, that pitch would become prime as a result. However, he said, the bank would, in its choice of relocation premises, also be influenced by the location of other banks and building societies and would want to replicate, as closely as possible, its former trading position as it had clearly worked for them in the past. He acknowledged that the bank’s new premises were more visible from the entrance of the Galleries, directly opposite the main entrance of Marks and Spencer, but did not accept that for the sake of no more than 50 feet the rental value of the subject premises could possibly be as low as £45.50 psf ITZA as suggested by Mr Ogborn. His own figure of £68 psf ITZA for the subject reflected that minor difference.[12]It was acknowledged that the new premises had a frontage directly onto the pedestrianised area, and therefore in accordance with what he had said earlier, he deducted 10% from the £76.75 psf agreed for 35/37 Market place, but then added 5% to that to reflect the subject premises significant return frontage. This gave an equivalent rental value for the subject premises of £73 psf ITZA but, following the subsequent settlement of a rent review due in September 2005 on Abbey Bank’s premises at 27-29 Market Place at approximately £63 psf, he concluded that an appropriate figure for the subject premises would be £68 psf. Abbey Bank’s location was accepted to be very similar in terms of rental values, but Mr Jennings said that it did not enjoy the prominence that the subject premises had, hence the subject being worth £5 psf more. However, in cross examination it was pointed out to him that allowance needed to be made for the lack of pedestrianisation at the subject premises, and he acknowledged the fact that the initial rent on the subject premises in 2000 equated to £39.25 psf, whereas the Abbey’s had been £56. This demonstrated a 5 year growth of 2.3% pa against his assessment (from £39.25 to £73) of 11.5% pa over the same period, which indicated on that analysis that the subject premises were in an inferior position.[13]Mr Jennings also referred to the shop units on each side of the entrance into Makinson Arcade, opposite the subject premises. They both had frontages to Market Place and return frontages to the Arcade. 54 Market Place was the subject of a new letting 13 months before the valuation date at £86.86 ITZA, adjusted to £78 to reflect the value of the return frontage. 56 Market Place had its rent reviewed in November 2004 to the same level as 54. A rent review with which he had been involved at 12 Standishgate in 2006, whilst showing no increase in that particular prime location, was settled at £80 psf ITZA. In his view, these comparables supported the level agreed on the Abbey Bank premises, and his own assessment of the subject premises at £68 ITZA.[14]Turning to yield, Mr Jennings said that Yorkshire Bank was a part of National Australia Bank that had a net worth of £660m and published net profits of £195m in September 2004. 5 They were an excellent banking covenant and therefore extremely safe in terms of investment risk. He said that, as his principal comparables, he had considered three banking investments in Wigan that had been sold at auction. 28-32 Market Place was let to Nationwide Building Society with some 99 years unexpired on the lease at a rental that was fixed at 71.8% of the open market rent. It was sold in February 2003 at a net initial yield of 5.61%. In his opinion, Nationwide was in an inferior position to the subject premises. 27-29 Market Place (Abbey Bank) was sold on 5 December 2005 for £1,380,000. This equated to a gross yield of 4.57% and a net initial yield of 4.31% adjusted to 4.81% following the rent review which was settled after it sold. Mr Jennings said these premises, although fronting the pedestrianised area, were inferior to the subject premises in terms of visibility and thus marginally more secondary. 31- 33 Market Place, next door to the Abbey Bank, was let to Woolwich plc. 12 years remained on their lease at a rent of £68,650 pa and the investment was sold on 7 February 2006 at £1,610,000, showing a gross yield of 4.26% and a net initial yield of 4.03%. Although he accepted in cross-examination that both the Abbey and the Woolwich sales were significantly after the valuation date, Mr Jennings said that the figures indicated falling yields over the period. Although the historic yields from the two earlier sales of the subject premises were nowhere near as low, being 7.82% in September 2000 and 7.75% in October 2002, he said the market was very different then and yields had hardened significantly since. Furthermore, he said that by the time of the 2002 sale, planning permission and Listed Building Consent had been obtained for the scheme, and the property was therefore acquired under the shadow of compulsory purchase. The yield could not, therefore, be seen as reflective of a “clean” open market transaction. Having said that, in examination in chief, he did say he thought that from an investor’s perspective, the scheme would have had little effect, as it was the lessee’s covenant in which they were primarily interested. He said the IPD data on rental growth that had been produced by Mr Ogborn was relevant, but true comparable evidence was more helpful. Whilst he accepted that Mr Ogborn’s valuation of the subject premises of 36% more than was paid at the 2002 transaction accorded with the IPD data on value growth for the period, he said there was a question mark over the price paid in 2002 because of the “taint” caused by the impending compulsory acquisition.[15]Mr Jennings also looked at investment sales where Yorkshire Bank was the tenant, although most of them were inferior in terms of location in comparison with the subject premises. The yields achieved ranged from 4.01% to 5.27%, but in none of them did he consider there was the opportunity for rental growth that existed here. Finally, he produced a schedule of banking investments in England sold at auction between October 2004 and February 2005 which showed initial yields of between 4.22 and 5.44%.[16]As to the fact that the net initial yield shown in his valuation was 2.98%, he said this was a quirk in the valuation due to the short period before which there would be a review to a substantially increased rent. In summary, he said that his initial and reversionary yields of 4.5% and 4.75% respectively were in line with what was being achieved for high quality banking covenants in the marketplace, and there was no justification for the risks that Mr Ogborn had suggested. The fact that there was only 10.75 years remaining on the lease would not be a deterrent to purchasers as the risk of the lessee not renewing was minimal – as demonstrated by the fact that they took a new 15 year lease on the next-door premises. Investors, he said, would only adjust the required yield where there were less than 10 years remaining and where covenants were less strong than was the case here. 6 Claimant’s case: Submissions[17]Mr Lancaster submitted that Mr Jennings’ evidence clearly showed the subject premises to have been in a prime town centre location, at a focal point at the confluence of Market Place, Standishgate, Millgate, Station Road and Makinson Arcade. Indeed, the council had accepted that Market Place and Standishgate were part of the main retail circuit, and the premises, being between Dixons and W H Smith, were effectively part of the continuing retail frontage of those two streets. The fact that the frontage of the premises was not directly onto the pedestrian area was not a serious deterrent, as it was severed from it by only a minor traffic route, and, being a bank, it was a destination location, rather than being dependent upon passing trade. Mr Jennings had adjusted the rental value to reflect this minor disadvantage, and taking that into account his figure of £68 psf ITZA was in line with the Abbey Bank review, and Yorkshire Bank’s rent on its new premises. As to yield rates, the transactions showed a strengthening investment market and a hardening of yields around the valuation date. Indeed, the IPD UK Monthly Index showed growth of 46.61% from February 2002 to December 2004. The Yorkshire Bank’s covenant strength was equivalent to that of substantial UK banking plcs and Mr Jennings’ auction evidence clearly showed that the yield rates applied by Mr Ogborn were far too high.[18]It was submitted that the claimant’s purchase of the investment at an apportioned figure of £570,000 in November 2002 was historic, and not relevant to the current exercise as the property was under the shadow of compulsory purchase and, in any event, the evidence showed the market to have improved considerably in the two years up to the valuation date. Acquiring Authority’s case: Evidence[19]Mr Ogborn is a director of Lambert Smith Hampton’s Manchester office, is currently head of its Land Assembly Department and has some 13 years experience of dealing with compulsory purchase and compensation matters. He said that the subject premises were located in a secondary retail pitch within Wigan town centre, outside the core pedestrianised area. The premises were at the junction of two highways that had uninterrupted access to vehicular traffic and, in his view, the position was significantly inferior compared with the principal areas of Standishgate and Market Place. 2 Millgate was somewhat set-back and poorly visible from the main shopping circuit and was surrounded by a mixture of secondary retail and leisure properties, with many of the units fronting Station Road being run down and vacant. Furthermore, Station Road was not considered to be an established retail destination, as neither Marks and Spencer nor W H Smith had opened up their return frontages to it.[20]On the question of rental value, Mr Ogborn said that evidence of rental growth was not his principal method of arriving at the correct rental value, but instead he had relied mainly upon transactional evidence and IPD data. However, he said his analysis was consistent with the evidence that there was of limited rental growth. He referred to 54 and 56 Market Place, and agreed the figures produced by Mr Jennings in regard to them. The review on 54 Market Place (Carphone Warehouse) indicated rental growth of 2.5% per annum. They were, he said, at the entrance of one of the main shopping arcades, and thus in the prime shopping area, as was 12 Standishgate which he accepted was reviewed much later than the valuation date, but 7 was an indicator of levels in the prime areas, and with the review having been agreed at nil increase, again helped to show limited rental growth in the area. In cross-examination he accepted that the fact that the subject premises were directly opposite the entrance of Makinson Arcade and eminently visible from it was an important factor he had left out of his report. Nevertheless, he said, precise pitch was everything, and rental values could differ greatly from one side of a street to the other. He also accepted that Makinson Arcade and Standishgate were in the top 3 shopping streets in the FOCUS report, and that the location of the subject premises was defined as within the principal shopping area in the UDP. However, the UDP definition covered the whole of the town centre and did not distinguish between prime and secondary locations as would affect rental values.[21]The Abbey Bank’s premises at 27-29 Market Place were in what he described as a “good secondary location”, somewhat better than the subject premises being directly onto the pedestrian area of Market Place. They had been let in September 2000 at £55.57 psf ITZA and were reviewed in September 2005 to £62.50 psf [he did not agree Mr Jennings’ analysis at £63 but accepted the difference was not material]. His analysis indicated rental growth of around 11.5% in the 5 years between 2000 and 2005, approximately 2.3% per annum. The Woolwich review at 31-33 Market Place (also good secondary) to £58.50 psf indicated rental growth of about 3% per annum.[22]Mr Ogborn said that having regard to these transactions, the difference between prime (£78-£80 psf) and good secondary rents (£55.57-£58.50 psf) could be seen to be between 25 and 30%. In 2000 Yorkshire Bank had taken the subject premises at about £40 psf ITZA and, in comparison with the Abbey Bank rent of £55.57 at the same time, indicated a reduction for the location of the subject premises of a further 30%. Those reductions were given further weight, he said, by the Valuation Office Agency’s assessment of the rateable value for the subject premises in the 2005 Rating List at £28.80 psf ITZA, whereas the assessment was £65 psf for Abbey Bank, and £75 psf for Carphone Warehouse. On the basis of these differences, Mr Ogborn said an appropriate rate for the subject premises would be £45.50 psf.[23]As to the new letting of the former Dixons premises to Yorkshire Bank at 35-37 Market Place, Mr Ogborn was adamant that this could not be considered as a comparable as it was not a true open market transaction. The bank was not a ‘willing tenant’ due to the forced relocation from the subject premises, the unit had not been formally marketed and the developer had paid Dixons £300,000 to move out. The deal was, he said, eventually struck just one day before the public inquiry into the CPO was due to commence, and he accepted that the terms were actually agreed in 2003, some considerable time before the valuation date. In his view, Yorkshire Bank had been prepared to pay more than the market rent for these premises which were in a significantly better position right at the entrance of the new scheme and they were also awarded £240,000 compensation for the loss of 2 Millgate. It should be noted, Mr Ogborn said, that the previous rent review on Dixons premises in December 1999 was at £51.71 psf ITZA, which was very much in line with Abbey Bank’s rent on the next door but one premises in 2000 at £55.57. He said that he did accept that the bank must have been happy with its old location due to its relocation to almost exactly the same spot.[24]Adopting two separate approaches on the basis of this evidence, he calculated the rental value of the subject premises at the valuation date at £50,000 pa as follows: 8[1]Rental growth Current rent £43,000 pa x 3% pa over 5 years = £49,849 say £50,000[2]Comparable rents Ground floor 898 sq ft x £45.50 = £40,859 First floor 1,345 sq ft x £6.50 = £ 8,743 £49,642 say £50,000 This estimate of value was some 16% more than the 2000 figure, and was thus slightly more than the 3% pa rental growth that the available evidence showed.[25]Regarding appropriate yields to be adopted, Mr Ogborn said that the 2000 sale of the subject premises (and 12 Station Road) equated to a net initial yield of 7.82% and was completed before the CPO was promoted. The later sale, in 2002, reflected a net initial yield of 7.75% on both properties, but splitting the subject premises out the yield became 7.13% on the agreed rent of £43,000 pa with 13 years unexpired. Again, this transaction was completed before the CPO was promoted, although he did accept in cross-examination that by then planning permission had been obtained, and the purchaser would have been aware of the implications of the scheme. He also referred to the Bamboozla public house which immediately adjoined the subject premises in Millgate which was acquired by the council in December 2004 at a net initial yield that equated to 7.28%, and to Croston House, 12 Millgate again sold to the council at a net initial yield of 8%. In cross-examination, he accepted that a public house was a very different type of investment and the difference in covenant strength would be reflected in the yield. Croston House was also not comparable but was, he said, included to demonstrate the type of investments that existed in the immediate vicinity.[26]Mr Ogborn acknowledged that the 3 transactions involving banks and building societies on Market Place as recorded in Mr Jennings’ evidence produced significantly lower yields, but said that not only were they markedly better investments in terms of their locations, and had longer lease terms, but two of them were concluded after the valuation date at a time when yields were falling generally. He said he was adopting an initial yield of 5.25% on the subject premises to the review date which reflected an approximately 2% fall in yields generally over the 2 years since the last transaction in 2002, and a reversionary yield thereafter of 6.25% which recognised the poor re-letting prospects at the premises together with the real risk that the tenant would not renew in 10.75 years. This was an overall equivalent yield of 6.07%. In cross-examination he accepted that the security, in investment terms, of Yorkshire Bank for almost 11 years was equivalent to those that had been referred to at 27-29 and 31-33 Market Place but said that there were a number of vacant and derelict properties in the vicinity that would have an affect upon the yield. He did accept, in his evidence, that the market for banking investments was extremely strong, with net initial yields across the country ranging from 4.0% to 5.5%, but each transaction needed to be considered on its own merits and it was not possible to draw direct comparisons with published criteria due to the lack of detailed information about individual transactions. 9[27]Mr Ogborn said that his overall valuation [Appendix 2] of £775,000 represented an increase on the price paid in 2002 (£570,000) of 35% which reflected the improvement in the investment market over this period, and also accorded with the IPD data. Acquiring Authority’s case: Submissions[28]Mr Barrett submitted that the key issue in dispute related to the appropriate categorisation of the location of the subject property. All of Mr Ogborn’s evidence, he said, clearly showed that, far from being in a prime town centre position, the premises were distinctly secondary – not even good secondary, which is what the Abbey Bank and Woolwich locations were. Millgate and Station Road had a pub adjoining the subject premises on one side and a ‘non-specification’ ladies’ clothes shop on the other. The rest of the retail units on those road frontages were run down, dilapidated and vacant and there were no national retailers there. The premises were not, as Mr Jennings had suggested, ‘highly visible’ from anywhere other than the immediate vicinity, and certainly not from further down Standishgate which was the real town-centre retail hub. The suggestion by him that the premises were located between W H Smith and Dixons was, Mr Barrett said, highly misleading, and it was clear that an appropriate description of the premises was that they were on the outside looking in.[29]Whilst the experts had agreed that the analysis of comparable transactions, in terms of both rental evidence and achieved yields on disposals, was the best methodology, Mr Ogborn had used a number of additional factors to corroborate the evidence, including analysis of rating assessments, the FOCUS and IPD data and rental growth. Looking at all of this evidence in the round, Mr Barrett said that Mr Jennings’ figures £68 psf as a rental value ITZA at the September 2005 rent review, and the proposed net initial yields of 4.25% and 4.75% were way off the mark. Mr Jennings’ analysis of rental values had shown an increase of over 11% pa when there was absolutely no evidence of such significant growth anywhere else. Furthermore, it should be noted that the sales of the Abbey Bank and Woolwich investments were both well after the valuation date by which time market conditions had significantly improved, and these returns would also have reflected the by then virtual certainty that the CPO scheme would proceed. Both of these locations, and that enjoyed by the Nationwide premises were very much better, and onto the main pedestrianised area. It was submitted that the reliance that had been placed upon Yorkshire Bank’s new lease of the former Dixons premises was misguided, for the reasons explained by Mr Ogborn, and the disparity between the earlier rents when these premises and the Abbey Bank premises were first taken, was a far better indicator of the market’s perception of the difference in pitches.[30]With Mr Ogborn’s evidence showing prime rents of between £78-£80 psf for prime and £55.57-£58.50 for good secondary positions (a difference of between 25 and 30%), and the subject premises not even being ‘good secondary’, Mr Barrett said that the proposed rental value of £45.50 psf for 2 Millgate was clearly right. Furthermore, as had been acknowledged by Mr Jennings in cross-examination, Mr Ogborn’s valuation matched precisely the growth demonstrated by the IPD Index at 36%.[31]As to yields, it was submitted that it was appropriate to rely upon evidence of net initial yields and reversionary yields in relation to comparable transactions, as had been adopted in 10 the agreed statement of facts, and reference to equivalent yields only served to cloud the issues. Again, Mr Barrett said, Mr Ogborn’s net initial yield of 5.25% and a reversionary yield of 6.25% should be preferred. Conclusions[32]Looking firstly at location, I agree with Mr Ogborn that the subject premises could not realistically be described as having been in a prime retail position, the main reason for that being the fact that they did not front on to the pedestrian area, and it was necessary to cross a, albeit narrow, street to access them. They were, however, highly visible from the top of Standishgate and the western end of Market Place and especially from the entrance of Makinson Arcade which was acknowledged as being one of the principal retail areas. They were undoubtedly, in my view, a focal point from that limited area particularly as the ground level rose upwards into Station Road and Millgate, and the building, as demonstrated by the photographs provided in evidence, was quite imposing. Nevertheless, that has to be tempered to some extent by the fact that they were, indeed, somewhat set back behind the more accessible frontages of the units on the north sides of Standishgate and Market Place, and were consequently not visible at all from the main entrance to The Galleries (opposite Marks and Spencer’s main entrance), nor from the eastern end of Market Place. That lack of visibility from a wider area though, in my judgment, was less of an impediment than the fact that a street that was open to vehicles had to be crossed to get there.[33]I consider that the location of that particular unit in rental value terms could accurately be described as “good secondary” principally because of its corner position, its visibility and its close proximity to WH Smith, Dixons and the other prime retailers that were in the vicinity. The adjoining and other retail units along Station Road and Millgate are, due to their lesser visibility and increasing distance from the acknowledged principal retail circuit of Standishgate and Market Place, in my view clearly secondary, and any reference to rental values thereon can therefore be afforded little weight. However, the fact that the subject premises are adjoined by units of significantly lesser value will, when it comes to assessing the discount from other good secondary locations, have to be taken into account. Mr Jennings was correct, I believe, to use the Abbey Bank, Woolwich and new Yorkshire Bank premises as his main comparables in considering the location, but it is the amount of discount, and the relevance of and necessary adjustment to the comparable rents that needs to be considered and to which I shall turn. In general terms, it does seem clear to me that the claimant has somewhat exaggerated the premises’ location as a prime retail pitch but, on the other hand, the acquiring authority has painted a somewhat blacker picture than was really necessary.[34]Turning therefore to the rental values predicted to be applicable at the September 2005 review, I find Mr Ogborn’s evidence and the fact that he has produced corroborative evidence to support his views, quite persuasive. Firstly, I accept that the rent agreed by Yorkshire Bank on their new premises at £76.75 psf must have reflected the fact that they are not only directly fronting onto the pedestrian area, but are also right opposite the entrance of the now completed scheme development. Indeed, that level of rent compares with the range of “prime” rents that the evidence revealed. For those reasons, and the fact that Yorkshire Bank was undoubtedly, to some extent, in a ransom situation, I attach little weight to that transaction. The Abbey Bank rent review in September 2005, precisely the date upon which the subject premises would 11 have been reviewed, at between £62.50 and £63 psf ITZA is, on the face of it, a good comparable although it is a fact that the review occurred at a time when the scheme had been confirmed and was clearly going to happen. Although at the far end of the block of 3 units that make up Dixons/Yorkshire Bank, The Woolwich and Abbey Bank they are situated at the narrowest point of the pedestrian area of Market Place, and are still extremely close to the entrance of Grand Arcade. In terms of their general location I do not consider them to be “set back”, as suggested by Mr Jennings and they are plainly in a good secondary location that could in my judgment arguably be said to be “becoming prime” with the advent of the completed scheme.[35]The rent review that occurred on 31-33 Market Place (Woolwich) in August 2003 which was not used by Mr Jennings, but was by Mr Ogborn, should be more likely to be indicative of appropriate levels in a no-scheme world. Although the CPO was made in August 2003, it was not confirmed until July 2004 and I think that, even though planning permission had been obtained and the development agreement had been entered into with Modus, any question over if and when the development would proceed would have been less clear then than 2 years later in 2005. However, the review was settled at £58.50 psf ITZA which, if growth is taken at 3% pa (and I am satisfied on the evidence that it was) this becomes £62.00 at the review date – almost the same as Abbey Bank.[36]With no evidence produced to demonstrate the precise affects of the impending scheme on the rental values of the comparable premises, but with the analyses of those that I consider to be the most comparable more or less agreed between the parties, I conclude that the appropriate level for good secondary premises fronting onto the pedestrian zone at September 2005 was £62 psf. From this, a deduction needs to be made for the disadvantages of the subject premises referred to above. In my judgment, Mr Jennings’ suggestion of 10% understates those disadvantages, and bearing in mind the differences, as pointed out by Mr Ogborn between one side of Market Place (the units at the entrance of Makinson Arcade) and the other of 25-30% I do think a larger reduction should be made. I consider that the discount to reflect the non-pedestrian frontage and the other disadvantages should be 20%. I am also not persuaded that there should then be a 5% addition to reflect the return frontage, as suggested by Mr Jennings. This produces a rental value of £49.60 psf ITZA, or £44,540 pa. To this figure, in my valuation at Appendix 3, will be added the first floor accommodation of 1,381 sq ft at £6.25 psf (the mid-point of the valuers’ respective figures) to give £8,631 and a total of £53,171 pa – say £53,000.[37]Although this represents rather more than the 3% annual growth that I have accepted from the evidence as being generally applicable, it does seem to me that the difference of some 30% between the value of the 2000 lettings of Abbey Bank and the subject premises (£39.25- £56) is exceptionally large and it is of course possible that there may have been other factors that came into play at that time. As to yield, I accept Mr Jennings’ points that the investor’s prime concern would be the covenant, and that in this case Yorkshire Bank could be considered equal to other major banking (and building society) concerns, that the fact there was only 10.75 years remaining on the lease would not be a deterrent, and that a purchaser would be unlikely to materially reduce his bid on an assumption that there may be a risk that the tenant would not renew. There is no question that the market strengthened significantly during the period 2002 to 2005, and particularly in the light of the concessions Mr Ogborn 12 made in cross-examination, I am inclined to the view that the appropriate yields would be somewhat better than he suggested. Bearing in mind the prices being achieved for banking investments generally, and those where Yorkshire Bank was the tenant, I conclude that an initial yield of 4.5%, and a reversionary yield of 5.25% should apply.[38]I therefore determine that the compensation to be paid under rule (2) for the freehold interest in the subject premises, in accordance with the valuation at Appendix 3, is £945,000.[39]In addition, the parties have agreed the heads claim in respect of disturbance as follows: Acquisition costs of replacement investment at 5.75% of the compensation determined £54,452 Loss of income between date of acquisition and payment of compensation £ 2,000 Claimant’s time in finding alternative investment £15,000 Bank arrangement fees £15,000 Survey and valuation fees relating to alternative investment £ 5,000 £91,452[40]The total compensation payable by the acquiring authority to the claimant in respect of the reference land is therefore £1,036,452. This decision determines the substantive issues in the reference and will take effect as a final decision for the purposes of an appeal when the question of costs has been decided. The parties are invited to make written representations on costs, and a letter accompanying this decision sets out the procedure. DATED 26 July 2007 (Signed) P R Francis FRICS 13 ADDENDUM[41]Submissions on costs have been received from the parties. The claimant said that the compensation determined by the Tribunal was in excess of the acquiring authority’s sealed offer dated 9 August 2006, it should have its costs. The acquiring authority agreed.[42]I therefore determine that the council shall pay the claimant’s costs in the reference, such costs, if not agreed, to be subject to a detailed assessment by the Registrar. DATED 4 September 2007 (Signed) P R Francis FRICS 14 ACQ/23/2006 APPENDIX 1 2 Millgate, Wigan WN1 1YT CLAIMANT’S VALUATION Estimated rental value at 29 September 2005 Ground floor ITZA 898 sq ft @ £68.00 psf £61,064 First floor 1,381 sq ft @ £6.00 psf £ 8,286 £69,350 Term Passing rent pa £43,000 Y P for 9 months @4.5% 0.7216 £ 31,030 Reversion Estimated rental value pa £69,350 Y P in perpetuity @ 4.75% Deferred 9 months 20.3325 £1,410,059 LESS Purchaser’s costs at 5.75% (£ 82,263) £ 1,358,226 Say £1,360,000 15 ACQ/23/2006 APPENDIX 2 2 Millgate, Wigan WN1 1YT ACQUIRING AUTHORITY’S VALUATION Estimated rental value at 29 September 2005[1]Rental growth Current rent £43,000 pa x 3% pa over 5 years = £49,849 say £50,000[2]Comparable rents Ground floor 898 sq ft x £45.50 = £40,859 First floor 1,345 sq ft x £6.50 = £ 8,743 £49,642 say £50,000 Valuation Net initial yield 5.25%, reversionary yield 6.25% Gross valuation £818,696 Capital costs £ 0 Net value before fees £818,696 Less Stamp duty @ 4% £31,000 Agents fees @ 1% £ 7,750 Legal fees @ 0.75% £ 5,812 (£44,562) £774,334 Say £775,000 16 ACQ/23/2006 APPENDIX 3 2 Millgate, Wigan WN1 1YT LANDS TRIBUNAL VALUATION Estimated rental value at 29 September 2005 Ground floor ITZA 898 sq ft @ £49.60 psf £44,540 First floor 1,381 sq ft @ £6.25 psf £ 8,631 £53,171 Say £53,000 Term Passing rent pa £43,000 Y P for 9 months @4.5% 0.7216 £ 31,030 Reversion Estimated rental value pa £53,000 Y P in perpetuity @ 5.25% Deferred 9 months 18.335 £ 971,755 LESS Purchaser’s costs at 5.75% (£ 57,660) £ 945,125 Say £ 945,000 17