“ The Issues for determination at this hearing 10. The following issues arise for determination at this hearing (1) How should the valuation be approached? (2) In February 2007, would a purchaser have perceived that there was a demand for houses in Cadogan Square? (3) At that time, what would the purchaser have estimated as the likely freehold vacant possession value (“FHVP”) of no.37, for conversion into a house? (4) How should the effect of s.61 and Sch 14 be dealt with? (5) Would the purchaser anticipate at the valuation date that he would or might need to get planning permission and listed building consent in 2007 alternatively in 2023? (On the Appellant’s case, it is the position in 2023 which is relevant; on Cadogan’s case, it is the position in 2007.) If so, how confident would he be that he would be able to get those consents and if he did, how quickly, at what cost and on what terms? (6) Would he be concerned about any of the following: (1) the risk of a change in building regulations; (2) the risk of the conversion costs being higher and/or relatively higher than predicted; (3) the risk of a change to s.61 and/or Sch 14; (4) the risk of the growth rate for houses being lower than that for flats between the valuation date and 2023. (7) Having regard to the above, how would the purchaser have valued the reversion? (8) Subject to determination of the appropriate deferment rate(s), what price is payable under Sch 6, having regard to the LT’s decisions on the above issues?”
“ Freeholder’s share of marriage value 4 (1) The marriage value is the amount referred to in sub-paragraph (2), and the freeholder’s share of the marriage value is 50 per cent of that amount. (2) Subject to sub-paragraph (2A), the marriage value is any increase in the aggregate value of the freehold and every intermediate leasehold interest in the specified premises, when regarded as being (in consequence of their being acquired by the nominee purchaser) interests under the control of the participating tenants, as compared with the aggregate value of those interests when held by the persons from whom they are to be so acquired, being an increase in value – (a) which is attributable to the potential ability of the participating tenants, once those interests have been so acquired, to have new leases granted to them without payment of any premium and without restriction as to length of term, and (b) which, if those interests were being sold to the nominee purchaser on the open market by willing sellers, the nominee purchaser would have to agree to share with the sellers in order to reach agreement as to price. (2A) Where at the relevant date the unexpired term of the lease held by any of those participating members exceeds eighty years, any increase in the value of the freehold or any intermediate leasehold interest in the specified premises which is attributable to his potential ability to have a new lease granted to him as mentioned in sub-paragraph (2)(a) is to be ignored. (3) For the purposes of sub-paragraph (2) the value of the freehold or any intermediate leasehold interest in the specified premises when held by the person from whom it is to be acquired by the nominee purchaser and its value when acquired by the nominee purchaser – (a) shall be determined on the same basis as the value of the interest is determined for the purposes of paragraph 2(1)(a) or (as the case may be) paragraph 6(1)(b)(i); and (b) shall be so determined as at the relevant date. (4) Accordingly, in so determining the value of an interest when acquired by the nominee purchaser – (a) the same assumptions shall be made under paragraph 3(1) (or, as the case may be, under paragraph 3(1) as applied by paragraph 7(1)) as are to be made under that provision in determining the value of the interest when held by the person from whom it is to be acquired by the nominee purchaser; and (b) any merger or other circumstances affecting the interest on its acquisition by the nominee purchaser shall be disregarded. ”
“61. Landlord’s right to terminate new lease on grounds of redevelopment (1) Where a lease of a flat (“the new lease”) has been granted under section 56 but the court is satisfied, on an application made by the landlord – (a) that for the purposes of redevelopment the landlord intends – (i) to demolish or reconstruct, or (ii) to carry out substantial works of construction on, the whole or a substantial part of any premises in which the flat is contained, and (b) that he could not reasonably do so without obtaining possession of the flat, the court shall by order declare that the landlord is entitled as against the tenant to obtain possession of the flat and the tenant is entitled to be paid compensation by the landlord for the loss of the flat. (2) An application for an order under this section may be made – (a) at any time during the period of 12 months ending with the term date of the lease in relation to which the right to acquire a new lease was exercised; and (b) at any time during the period of five years ending with the term date of the new lease. (3) … (4) Where an order is made under this section, the new lease shall determine, and compensation shall become payable, in accordance with Schedule 14 to this Act; and the provisions of that Schedule shall have effect as regards the measure of compensation payable by virtue of any such order and the effects of any such order where there are sub-leases, and as regards other matters relating to orders and applications under this section. (5) … .”
“5 (1) The amount payable to a tenant, by virtue of an order for possession, by way of compensation for loss of his flat shall be the amount which at the valuation date the new lease, if sold on the open market by a willing seller, might be expected to realise on the following assumptions – (a) on the assumption that Chapter I and this Chapter confer no right to acquire any interest in any premises containing the tenant’s flat or to acquire any new lease; (b) on the assumption that the vendor is selling – (i) subject to the rights of any person who will on the termination of the lease be entitled to retain possession as against the landlord, but otherwise with vacant possession, and (ii) subject to any restriction that would be required (in addition to any imposed by the terms of the lease) to limit the uses of the flat to those to which it has been put since the commencement of the lease and to preclude the erection of any new dwelling or any other building not ancillary to the flat as a dwelling; and (c) on the assumption that (subject to paragraphs (a) and (b)) the vendor is selling with and subject to the rights and burdens with and subject to which the flat will be held by the landlord on the termination of the lease.”
“36. If, at the valuation date, house prices per square metre are substantially higher than flat prices per square metre due to the faster rate of house price growth over the last decade, then, if growth rates even out in the long run, there must be a convergence. It is possible that, by 2023, slower house price growth relative to flat price growth will have eliminated the gap by the reversion date, rendering conversion uneconomic. As an example of a possible correction mechanism, house prices may be higher in an area because of lack of supply relative to flats. However, as developers and investors seek to exploit that gap by acquiring flatted buildings and converting them (back) to houses, the supply of houses rises and, ceteris paribus , the price of houses falls. In my view, this is a substantial risk that any potential purchaser of the freehold reversion in 2007 would have to consider in evaluating any benefits of converting the building to a house in 2023.”
“I note that it is intended to convert a property from 6 flats into a single family dwelling. I would advise that policy H17 of the Council’s Unitary Development Plan resists the loss of existing small self-contained flats. Your letter does not specify how many habitable rooms are contained in each flat. This information should be submitted if you would like more detailed advice. I would advise that conversion of a property from 4 flats or more into a single dwelling constitutes a material change of use and would therefore require planning permission. If the existing flats are small, with one or two habitable rooms, then the conversion would be contrary to policy H17.”
“We would always treat 6 flats into 1 as a material change of use requiring planning permission. This would be contrary to our policies and to the London Plan since it would reduce the borough’s housing stock.”
“I would further advise that the loss of five residential units would contravene policies 3A.1 and 3A.2 of the London Plan which seek to increase rather than decrease the housing stock of the Borough and London as a whole. In addition, the proposal would contravene policy H1 of the Unitary Development Plan and also policy H17 which seeks to retain smaller housing units. Hence any proposal to convert the property would be unlikely to receive favourable consideration.”
“… that it was a fact that the different area planning teams within RBKC did have a tendency to interpret planning policies in different ways…”
“On the issue of whether planning consent would be required in the first place, I am aware from discussions with my colleagues in our Planning and Development Department at Gerald Eve, who have direct dealings with RBKC, that the Authority applies a rule of thumb such that the reduction in residential units from four to one would not require planning consent, the reduction from five units to one would require a planning application for which consent may be refused and the reduction from six or more units to one would require an application which would definitely be refused. Applying this approach to the Specified Premises, I very much doubt that the proposal to merge the four flats to create one house would encounter planning difficulties.”
“To resist the loss of existing, small, self-contained flats of one or two habitable rooms”
“To encourage the use of listed buildings for their original purposes”
“… For the most part, [my] work consists of carrying out substantial refurbishment of existing single houses. …the costs of a refurbishment project do vary considerably. There is no general rule or benchmark cost…. I would say that, in my experience, most projects costs in excess of£400.00 per square foot. The costs can be substantially more than that … … all other things being equal, it would cost considerably more to convert a building divided into flats such as either 31 or 37 Cadogan Square into a refurbished single house than if you were starting with a building which was already a single house. There would need to be a considerable amount of demolition and reconfiguration of rooms to a single occupancy layout before any work gets underway.”
“115. LVT decisions on questions of fact or opinion are indirect or secondary evidence and should be given little or no weight in other LVT proceedings and in proceedings in this tribunal, even if they are admissible.”
“37. The Tribunal did not, in what it said in the Romines and Arbib cases, determine that leasehold valuation tribunal decisions on questions of fact and opinion were inadmissible, although it did not reject the possibility that they might be. It is not, we think, the case that Hollington v Hewthorn and Land Securities compel the conclusion that evidence of such decisions is inadmissible. In our judgment leasehold valuation tribunal decisions on relativity are not inadmissible, but the mere percentage figure adopted in a particular case is of no evidential value. The reason for this is that each tribunal decision is dependent on the evidence before it, and thus, in order to determine how much weight should be attached to the figure adopted in a decision, it would be necessary to investigate what evidence the leasehold valuation tribunal had before it and how it had treated it. Such a process of investigation is potentially lengthy, and it is inherently undesirable that leasehold valuation tribunal hearings should resolve themselves into rehearings of earlier determinations. 38. It is certainly understandable that valuers negotiating the settlement of an enfranchisement claim should have regard to leasehold valuation tribunal decisions on relativity, since these might seem to them to be the best guide of the likely outcome if they were unable to reach agreement, even though, as Mr Pridell said, the decisions are disparate and fail to show any established pattern. But the decisions themselves can constitute no useful evidence in subsequent proceedings.”
“It is obviously undesirable and, indeed, it would be impossible, for the sort of financial and valuation evidence that we have heard to be called and considered in every enfranchisement case. It is, in our judgment, unnecessary that it should be, because LVTs and this tribunal are entitled to rely upon their own expertise, guided by this decision.”
“On taking such advice as at the valuation date hypothetical purchasers of the freeholder’s interest could be given a range of advice upon the potential legal problems from the ultra cautious to the over optimistic. Clearly a hypothetical purchaser who received ultra cautious advice and acted upon it would be unlikely to be the person who made the highest bid for the freeholder’s interest and therefore would not be the successful purchaser. We conclude therefore that we should not assess the value of the freeholder’s interest under Schedule 6 paragraph 3 on the basis that the successful hypothetical purchaser would receive ultra cautious advice. However we conclude that we must assume that this successful hypothetical purchaser would receive sound and responsible advice rather than over optimistic advice.”
“In order to arrive at the amount which land might be ‘expected to realise’, all these matters ought to be taken into consideration. ‘Expected’ refers to the expectations of properly qualified persons who have taken pains to inform themselves of all the particulars ascertainable about the property, and its capabilities, the demand for it, and the likely buyers. The price actually realized by a sale is not necessarily the price which it might have been expected to realize, but if the valuer be competent, and has taken proper pains in the matter, there ought to be little difference between the two figures.”
“In all other respects, the theme which runs through the authorities is that one assumes that the hypothetical vendor and purchaser did whatever reasonable people buying and selling such property would be likely to have done in real life. The hypothetical vendor is an anonymous but reasonable vendor, who goes about the sale as a prudent man of business, negotiating seriously without giving the impression of being either over-anxious or unduly reluctant. The hypothetical buyer is slightly less anonymous. He too is assumed to have behaved reasonably, making proper inquiries about the property and not appearing too eager to buy. But he also reflects reality in that he embodies whatever was actually the demand for that property at the relevant time. It cannot be too strongly emphasised that, although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place. The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable. The practical nature of this exercise will usually mean that although in principle no one is excluded from consideration, most of the world will usually play no part in the calculation. The inquiry will often focus upon what a relatively small number of people would be likely to have paid. It may have to arrive at a figure within a range of prices which the evidence shows that various people would have been likely to pay, reflecting, for example, the fact that one person had a particular reason for paying a higher price than others, but taking into account, if appropriate, the possibility that through accident or whim he might not actually have bought. The valuation is thus a retrospective exercise in probabilities, wholly derived from the real world, but rarely committed to the proposition that a sale to a particular purchaser would definitely have happened. It is often said that the hypothetical vendor and purchaser must be assumed to have been ‘willing’, but I doubt whether this adds anything to the assumption that they must have behaved as one would reasonably expect of prudent parties who had in fact agreed a sale on the relevant date. It certainly does not mean that, having calculated the price which the property might reasonably have been expected to fetch in the way I have described, one then asks whether the hypothetical parties would have been pleased or disappointed with the result; for example, by reference to what the property might have been worth at a different time or in different circumstances. Such considerations are irrelevant.”
“The estimated amount for which an asset would exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”
“If the freeholder is getting redevelopment value he cannot also have marriage value; the two are quite inconsistent.”
“If there are sufficient buyers [of houses] who will not wish to carry out such substantial re-arrangements, then their bids will determine the market price, and no discount will be made for the additional costs of substantial re-arrangements of buildings configured as houses. In the case of buildings configured as flats, however, such substantial re-arrangement is inevitable, so a discount will be applied in the market.”
“…most [refurbishment] projects cost in excess of£400.00 per sq ft. The costs can be substantially more than that. I have recently been involved in one property in Knightsbridge where the costs were in excess of£500.00 per sq ft and I am currently involved with a property in Westminster where the costs are in excess of£1,000.00 per sq ft.”