MORTGAGE EXPRESS (Mortgagee); MR BENJAMIN KATZ; MRS GITTY KATZ; MR YAACOV OLSBERG; MRS RACHEL OLSBERG v BURNLEY BOROUGH COUNCIL (Mortgagors) [2021] UKUT 52 (LC)

UPPER TRIBUNAL
LANDS CHAMBER
[2021] UKUT 52 (LC)Case No ACQ/47/2020
Between
MORTGAGE EXPRESS (Mortgagee); MR BENJAMIN KATZ; MRS GITTY KATZ; MR YAACOV OLSBERG; MRS RACHEL OLSBERGApplicantBURNLEY BOROUGH COUNCIL (Mortgagors)Respondent
Before
A J Trott FRICSDate 23 March 2021Property: 8 Crowther Street,, Burnley,, Lancashire,, BB11 3ND, A J Trott FRICSCatchwords: COMPENSATION – compulsory purchase – property acquired subject to a mortgage – value less than outstanding mortgage debt – property in poor repair – absence of expert evidence – compensation determined at £37,625 – interest – section 15 Compulsory Purchase Act 1965
[1]The long leasehold interest in 8 Crowther Street, Burnley BB11 3ND was purchased in November 2007 for £54,150 by Mr Yaacov Olsberg, Mrs Rachel Olsberg, Mr Benjamin Katz and Mrs Gitty Katz. The purchase was financed with the help of a mortgage from Mortgage Express which was registered as a first charge against the property on 6 March 2008.[2]On 20 March 2014 Burnley Borough Council (“the Council”) confirmed an order entitled “The Burnley (Land and Buildings in Burnley Wood, Burnley) Compulsory Purchase Order 2014”. The order included 8 Crowther Street and the Council executed a general vesting declaration in respect of that property on 27 May 2014. The property was vested in the Council on 30 June 2014 which is the valuation date.[3]On 11 March 2020 Mortgage Express, as mortgagee, referred the determination of the open market value of the leasehold interest in the subject property to the Tribunal. It did so on the basis that section 15 of the Compulsory Purchase Act 1965 applied since no agreement on the open market value of 8 Crowther Street had been reached between the mortgagee, mortgagors and the Council as the acquiring authority. Section 15 provides:
“15 – Mortgage debt exceeding value of mortgaged land. (1) If the value of any such mortgaged land is less than the principal, interest and costs secured on the land, the value of the land, or the compensation to be paid by the acquiring authority in respect of the land, shall be settled by agreement between the mortgagee and the person entitled to the equity of redemption on the one part, and the acquiring authority on the other part, or, if they fail to agree, shall be determined by the Upper Tribunal. (2) The amount so agreed or awarded shall be paid by the acquiring authority to the mortgagee in satisfaction or part satisfaction of his mortgage debt. …”
Facts[4]8 Crowther Street was a stone-built three-bedroom mid-terrace house on the east side of the street close to its junction with Parliament Street. The schedule to the compulsory purchase order records the area of the land and dwellinghouse as 89.9m2. The Council inspected the property in April 2012, when it was pursuing the possibility of a sale by agreement in advance of compulsory purchase powers, and recorded its condition as being “in need of extensive renovation and modernisation”. However, it was noted that the premises “are in reasonable structural condition”. The property was recorded as being vacant at the time of inspection. 4[5]The Council had been seeking to purchase the property for some time before this and on 16 March 2009 made a without prejudice offer of £53,000 plus, assuming the owners qualified, a basic loss payment of 7.5%, i.e. £3,975, and proper legal costs. This offer was not accepted and was withdrawn on 24 March 2009.[6]On 19 April 2012 Mr Irfan Arif, the Council surveyor who had inspected the property, wrote to Mr Benjamin Katz with a subject to contract offer of £35,000 in full and final settlement of all heads of claim, including a basic loss payment. He referred to the property’s “current poor condition and general state of disrepair.” Mr Arif also recorded that the last offer that had been made by the Council was on 28 April 2009 in the sum of £45,000.[7]The property was held on a 999 year lease from 1 November 1876 and therefore had approximately 861 years unexpired on the vesting date. The ground rent is stated in the Land Registry Title as £22.13s.2d. There is no reference to any rent review provision.[8]The reference was heard under the Tribunal’s written representations procedure. The case for the mortgagee[9]The mortgagee, Mortgage Express, says that it has tried unsuccessfully to engage with the mortgagors about the valuation of the property. It accepts the Council’s 2012 valuation of £35,000 and notes that an email dated 4 November 2019 from the Council to the mortgagee stated that “the purchase price was agreed with the owner Jacob Olsberg in 2012 ahead of the compulsory purchase.”[10]The mortgagee seeks a declaration from the Tribunal that the amount of compensation is £35,000 and that this should be paid to the mortgagee in part satisfaction of the mortgage debt which it says was £56,679 as at 3 October 2019. In addition it seeks the payment of interest on the compensation on the following basis:(i) from the date the Council took possession to the date of the payment of the compensation, pursuant to section 10(1) of the Compulsory Purchase (Vesting Declarations) Act 1981 and section 11(1) of the Compulsory Purchase Act 1965; and(ii) at the rate of 11.5% per annum, pursuant to section 32 of the Land Compensation Act 1961 and the Acquisition of Land (Rate of Interest after Entry) Regulations 1991; or, alternatively,(iii) at the rate of 8% per annum, pursuant to Rule 51A of the Upper Tribunal (Lands Chamber) Rules 2010. The case for the mortgagors[11]The mortgagors are litigants in person and submitted written representations on 24 August 2020. 5[12]They deny having rejected the Council’s offer of £53,000 plus a basic loss payment which was made on 16 March 2009. They told the Council they were going to instruct a surveyor to make sure they were doing the right thing, but the Council took this as a refusal of their offer and withdrew it a few days later.[13]The mortgagors say they tried unsuccessfully to negotiate with the Council between 2009 and 2012 and had offered them access to the property to carry out an inspection. The reduced offer of £35,000 made in April 2012 was said by the Council to be due to the property’s poor state of repair, but the mortgagors say they were unable to let the property due to the compulsory purchase order and consequently the house fell into disrepair.[14]The mortgagors say their position has consistently been that the Council should settle their mortgage in full, as its original offer in March 2009 would have done. As a result of no agreement having been reached and the mortgage not having been discharged, the mortgagors had paid in excess of £15,000 for “a non-existent property”.[15]The mortgagors ask that the Council reinstates its original offer of £53,000 plus a basic loss payment. They note that a two or three bedroom house in Crowther Street, now redeveloped following the compulsory purchase order, is currently worth some £125,000 - £145,000 and said “perhaps we should use the most recent values as an indicator.” The case for the Council[16]The Council describe the background to the acquisition and the history of the bids made. They forwarded a claim form to the mortgagors on 17 June 2014 and on 3 February 2015 wrote to them seeking approval to the proposed compensation payment of £35,000. They received no reply despite reminders. That figure remains the Council’s valuation as at the date of vesting.[17]The Council say neither the repayment of the outstanding mortgage nor the current value of the new dwellings developed as part of the scheme is relevant to the assessment of the open market value of the property at the valuation date. Discussion[18]None of the parties has produced any expert evidence about the open market value of the property as at 30 June 2014. The only evidence about value is the Council’s valuation dated 15 October 2012 (but with a valuation date of 16 April 2012) undertaken by Mr Irfan Arif and approved by the Council’s Head of Finance and Property Management on 23 October 2012. This is 20 months before the valuation date in the current reference.[19]Mr Arif only relied on one comparable, the sale of 27 Parliament Street to the Council for £32,000 in August 2012. This was one of the houses that would have been acquired as part of the 2014 scheme and was presumably bought in anticipation of the Council obtaining compulsory purchase powers. It was a two-bedroom terrace property located in the road 6 immediately to the north of Crowther Street. There is no information about the condition of the property. The sale does not appear to have been an open market transaction.[20]There is no commentary about how, if at all, market values changed in the period from the sale of the comparable property in August 2012 to the valuation date, nor about the relative condition of the two properties. All that is known for sure is that(i) the comparable property had one bedroom less than the subject; and(ii) was purchased by the Council under threat of compulsory purchase powers.[21]I agree with the Council that the current price of houses on the redevelopment on Crowther Street is not relevant and nor is the outstanding amount of the mortgage.[22]In my judgment the value of the comparable used by the Council is likely to be lower than the open market value of 8 Crowther Street because it was a smaller house and the price may have been influenced by the Delaforce effect. This effect was identified in Delaforce v Evans (1971) 22 P&CR 770, where the Tribunal, J Stuart Daniel QC, said at 778:
“In ordinary cases of compulsory acquisition it is sometimes contended that previous settlements by the acquiring authority tend to throw up too low a value because the claimants could not or were unwilling to face the expense and delay of going to the Tribunal. In some cases, particularly where true market transactions were also available, this contention has been shown to be correct… It is true also that in the ordinary case of compensation the suggestion is that fear of proceedings produces settlements at too low rather than too high a price.”
[23]In the absence of evidence I do not make any adjustment for changing market prices or any change in the condition of the subject property between the sale of 27 Parliament Street in August 2012 and the valuation date of 30 June 2014. The mortgagors blamed the condition of the property on their inability to let it due to the compulsory purchase order, but that order was not confirmed until long after the Council valuer had inspected the property in April 2012 and, in any event, a property acquired under compulsory purchase powers is valued in the condition it is in at the valuation date.[24]Although the evidence I have been provided with is inadequate, the figure of £35,000 suggested by the Council and agreed by the mortgagee is consistent with the only suggested comparable. It is higher than the Council’s offer made in April 2012 which was intended to reflect both the value of the property and the claimants’ entitlement to a basic loss payment. It has not been contradicted by any evidence supplied by the claimants. Determination[25]In my judgment the open market value of 8 Crowther Street at 30 June 2014 was £35,000. In addition there is no dispute that a basic loss payment of 7.5% is due. This amounts to £2,625. The total compensation is therefore determined at £37,625 plus legal fees. Under section 15 of the Compulsory Purchase Act 1965 the amount so awarded shall be paid by the Council to the mortgagee in part satisfaction of the mortgage debt. 7[26]Where, as here, the general vesting declaration procedure is used, interest is payable from the date of vesting (30 June 2014) until the payment of compensation (section 10 of the Compulsory Purchase (Vesting Declarations) Act 1981 and section 11(1) of the Compulsory Purchase Act 1965). The rate of interest is prescribed by regulations made under section 32 of the Land Compensation Act 1961. Those regulations are currently the Acquisition of Land (Rate of Interest after Entry) Regulations 1995, as amended by the Acquisition of Land (Rate of Interest after Entry) (Amendment) Regulations 2016. The rate of interest on any compensation is 0.5% per annum below the “standard rate”, i.e. base rate. Under the amendment regulations the rate of interest cannot be less than 0% per annum.[27]From 30 June 2014 until and including 1 August 2018 the base rate did not exceed 0.5% per annum and therefore the interest payable was nil. From 2 August 2018 until and including 10 March 2020 the base rate was 0.75% per annum (after which it has remained at or below 0.5%). Therefore, statutory interest is payable during that period on the compensation awarded at 0.25% per annum (0.75% - 0.5%).[28]The mortgagee’s reference to rule 51A draws attention to the Tribunal’s power to order that interest be paid on sums which it has found to be payable, including costs, as if the Tribunal proceedings were proceedings in a court. But the statutory provisions identified in the rule confer a discretion as to the awarding of interest and as to the appropriate rate (in particular section 35A of the Senior Courts Act 1981 and section 74 of the County Courts Act 1984). Where a statute already provides for the payment and rate of interest, as in this case, there is no need to resort to rule 51A, nor would it be a proper exercise of the Tribunal’s discretion to use the rule to award a greater sum than has specifically been prescribed. Dated 23 March 2021 A J Trott FRICS