Case No: B2/1999/1113/CCRTF

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION DIVISION)
ON APPEAL FROM BRADFORD COUNTY COURT
(HHJ ALTMAN)

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 20th October 2000

B e f o r e :

LORD JUSTICE PETER GIBSON
LORD JUSTICE MUMMERY
and 
LORD JUSTICE LATHAM
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	GREENBANK		Respondent	
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	PICKLES	Appellant	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2HD
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Official Shorthand Writers to the Court)
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Mr Martin Rodger (instructed by  Messrs Oglethorpe Sturton & Gillibrand of Lancaster for the Respondent)
Mr Anthony De Freitas (instructed by  Messrs Walker Foster of Skipton for the Appellant)

Judgment
As Approved by the Court

Crown Coyright

Lord Justice Latham:

1.	This appeal is the culmination of protracted litigation between the appellant, who was the defendant in the action, and the respondent, who claimed that he and the appellant had entered into a partnership agreement to farm land in Yorkshire of which he, the respondent was the freehold owner.  The appellant denied that there was any true partnership; he asserted that the arrangement entered into between the two of them was to enable him the appellant, to farm the land for his own benefit as an agricultural tenant.  The action was commenced as long ago as October 1990.  The matter came before HHJ Altman, who heard evidence from the parties and their witnesses, and concluded that there was a partnership.  The parties then came to terms which resulted in a Consent Order dated the 28th July 1993.  This provided as follows:
"It is declared: that 
1.	The partnership consisting of the plaintiff and the defendant who are tenants of the holding known as Far Gearstones Farm, Ribblehead, North Yorkshire under a tenancy granted by the plaintiff to the partnership in 1980 on the terms of the draft lease (Document 14A) as continued by the Agricultural Holdings Act 1986 save that the rent from January 1990 is the sum of £3,800 per annum increased in accordance with percentage increase in the Retail Price Index between January 1st 1986 and January 1st 1990 and thereafter to be at the same rate until varied in accordance with the Agricultural Holdings Act 1986.
2.	That the partnership between the plaintiff and the defendant is to be dissolved as at the 28th July 1993.

By consent it is ordered that: 
(i) 	that the plaintiff and the defendant do assign the said tenancy to the defendant in consideration of payment to the plaintiff by the defendant of 10% of the value of such tenancy as at today’s date.  Such value to be determined by the court if not agreed by the parties and the defendant to pay in addition to the plaintiff interest at (Midland Bank) base rate plus 1% from today’s date until the date of payment.
(ii)	That an account be taken of the partnership assets and dealings (other than the value of the said tenancy) as at the date hereof and that the defendant be permitted to purchase the plaintiff’s share of such assets of the partnership on the basis of the value attributed to such assets in such accounts as taken.
(iii)	That there be no order as to costs of the action.
(iv)	That either party be at liberty to apply generally."
2.	The parties were not able to agree the value of  the tenancy.  The matter came back before the court on the 19th October 1998.  HHJ Altman heard evidence from the two valuation experts called by the parties, Mr Baily on behalf of the respondent and Mr Foster on behalf of the appellant.  Mr Baily valued the tenancy at about £120,000; Mr Foster valued it at £23,500.  After considering their reports and their evidence, the judge preferred, in general, the evidence of Mr Baily.  He found that the value of the tenancy was £100,000.  The appellant was therefore ordered to pay £10,000 plus interest.  It is against this order that he appeals to this court
3.	The tenancy was an agricultural tenancy for a term of 10 years at an original rent of £3,000 per annum.  It was subject to a covenant which precluded assignment without the consent of the respondent.  As an agricultural holding the tenancy was therefore protected pursuant to the provisions of the Agricultural Holdings Acts as enacted from time to time.  In particular, because the tenancy was entered into prior to the 12th July 1984, it was possible for there to be two occasions for succession to the tenancy to occur provided certain conditions were met.  As far as rent was concerned, these provisions entitled the parties to review the rent every three years in accordance with the provisions of s. 12 of and Schedule 2 to the Agricultural Holdings Act 1986.  It was common ground between the parties that the application of these provisions, as a result of which the rent at the relevant date was £4,720 per annum, was a rent which was less than the market rent.  
4.	The two valuation experts, despite their widely divergent views on the value of the tenancy, were roughly in agreement as to the value of the freehold with vacant possession.  Mr Baily valued it at £240,000; Mr Foster valued it at £227,000.  They differed fundamentally, however, about the basis upon which the tenancy should be valued. 
5.	Mr Foster, on behalf of the appellant, provided two reports one dated the 24th June 1996, and the second the 6th October 1998.  He took what he described as “the existing use” basis of valuation as the appropriate basis.  He described that as the price which the tenant would have had to pay to replace the opportunities for earning from the farm.  He considered that this was appropriate in the circumstances of the case, and that he was following the principles set out by this court in the case of Walton’s Executors -v- Commissioners of Inland Revenue [1996] 1 EGLR 159 to which I will return.  Putting it shortly, his valuation was based upon the difference between the rent payable under the lease, subject to adjustment by way of arbitration, and the market value rent.  To this he applied multipliers, producing a figure of some £13,600.  To this he added the tenant’s entitlement to statutory compensation which he valued at £9,650, and, in his last report, a figure of £250 to take account of the fact that the tenancy carried with it greater succession rights that would be possible if a new farm had to be found.
6.	Mr Baily also produced two reports, dated the 1st June 1997 and the 6th October 1998.  In his first report he stated that in his opinion the Walton’s case had no relevance.  He took into account the fact that on the 16th April 1996, the respondent had made an offer of £90,000 to the appellant for the surrender of the tenancy.  The appellant had refused this offer on the basis that the whole purpose of his defence to the claim had been to enable him to continue farming.  It should be noted that the bona fides of this offer was obviously doubted by the appellant, although the respondent was not required to give any evidence about the matter at the hearing.  Mr Baily’s conclusion was stated in short form as follows:
"The value to the tenant should be measured by his opportunity to farm there on a protected basis and to earn an income from the farm, in effect for three generations.  The tenant has turned down an offer of £90,000 for possession and clearly the farm is worth much more than that to him, or he would have taken the offer.  I consider that 25 years purchased at the rental of £4,720 to produce a capital equivalent of £118,000 is appropriate.
For the landlord the tenancy represents the difference between ability to sell the farm with vacant possession and subject to the tenancy.  I would expect the vacant possession value to be £240,000 and the tenanted value to be £120,000 to produce a value to the landlord of obtaining vacant possession of £120,000.
We therefore value the tenancy at a figure between £118,000 and £120,000 or £119,000."
7.	In his second report, he repeats his valuation of the freehold with vacant possession at £240,000.  He then considered the viability of the farm, and concluded that the appellant, who was in his view a man of ability, had been able to make good use of the farm, and would be entitled, in addition to his ordinary income, to substantial annual Environmentally Sensitive Area Scheme payments, which would be greater than the rent itself.  He concluded:
"Indeed I do not find it surprising that the tenant rejects an offer of £90,000 made by the landlord to vacate the tenancy.  This to me establishes a base line for the value of the tenancy as at 28th July 1993 and I consider that had the tenant chosen to negotiate the surrender of the tenancy, he could have upped that offer by between one quarter and one third taking the value of the tenancy to between £115,000 and £120,000.
Conclusion
I am of the opinion that the value of the above tenancy as at the 28th July 1993 was £118,000."
8.	In their evidence, both experts adhered to the valuations that they had provided in their reports.  As far as Mr Foster was concerned, his evidence was not challenged in detail.  It was accepted that, if his basis of valuation was right, his calculations were correct.  The only dispute apart from the issue of principle as to the basis of valuation related to the value he ascribed to the chance of succession.  It was suggested to him that £250 was a ridiculously small sum to award for the value of continued possession.  He explained it on the basis of the appellant’s life expectancy, and the application of actuarial tables to the value of the profit rent so far in the future.  It was suggested by Mr Baily, but only by way of assertion, that this benefit was in itself worth between £25,000 and £50,000.  He did not produce any supporting evidence.  Mr Foster in his evidence valued the freehold with vacant possession, as I have said, at £227,000.  He considered that the value of the freehold subject to the tenancy was £118,000 namely the current rental multiplied by 25, which was the figure arrived at by Mr Baily in his first report as  representing the value of the tenancy to the appellant.
9.	In evidence, Mr Baily stated for the first time that he had adopted the approach of the valuation expert called by the Revenue in Walton’s case (supra).  He had taken the value of the tenancy to the tenants in that case as being one half of the difference between the value of the land with vacant possession and it’s value subject to the tenancy, the vacant possession premium.  It is to be noted that the valuer whose basis of valuation he was purporting to follow had calculated the value to the landlord subject to tenancy by applying a multiplier of 25 to the rental as Mr Baily had done in his first report for the purposes of assessing its value to the tenant.  It was pointed out to him in cross-examination that whereas in Walton’s case the valuer had taken one half of the vacant possession premium as the appropriate value, he had effectively taken 100% of the vacant possession premium, using the same basis of calculation as in that case.  To counter this Mr Baily introduced for the first time the concept of “investor’s value”.  This was, he said, £70,000 which was the sum he would advise an investor (i.e. a person other than the landlord or the tenant) to pay for the freehold subject to the tenancy.  This figure was arrived at by multiplying the rent by 15 as opposed to 25.  This produced a vacant possession premium of £170,000.  He would expect, he said, a landlord to be prepared to pay between a third and a half of the premium, which, when added to the investor’s value, produced figures of between £126,000 and £155,000.  He did not explain why he considered that the landlord would be willing to pay for the investor’s value as well as the proportion of the vacant possession premium, but used these figures to justify his overall conclusion that £120,000 was an appropriate valuation of the tenancy.  He made it clear that it was only one basis upon which he had come to his value of £120,000.  Another was the fact that the offer of £90,000 had both been made and turned down.  And finally, he expressed the view that £120,000 was about right, on the basis of his experience.
10.	Although the judge considered that both experts within their own arguments were consistent and impressive and very experienced, he came to the conclusion that he preferred Mr Baily.  That was because, as he put it:
"Mr Baily seems to me to have taken account of the realities on the ground, which is what Walton’s case suggests ....."
11.	In essence, he concluded that a combination of the fact that both the landlord and the tenant had a clear interest in realising the value of the tenancy which was not the case, as he saw it in the Walton case, and the fact that there were in his view real prospects of succession, Mr Baily’s valuation was more appropriate.  In coming to his conclusion as to the sum to be awarded, however, he took Mr Baily’s value of £119,000 from the first report, and then deducted the value which he attributed to the ECAS scheme grant, namely £19,000, as this was, in the judge’s view, not a matter which would have affected the value of the tenancy in 1993, because the payments were not then certain, and did not commence until 1996.  It was by this method that he arrived at the valuation of £100,000.
12.	The appellant submits that the judge’s conclusion was perverse.  Mr de Freitas on his behalf submits that the evidence of Mr Baily was fundamentally flawed.  He points out that the valuation contained in the first report essentially asserted that the landlord would be prepared to pay a figure which amounted to the whole of the vacant possession premium if the value of the freehold subject to the tenancy was calculated by taking the rent and multiplying by 25, which, he submits would accord with proper valuation practice and the apparent basis of valuation put forward by Mr Baily in evidence.  He submits that in the second report, Mr Baily effectively relied on an offer of £90,000 as the base figure from which to value the tenancy, which was a self serving figure produced by the respondent himself, without any indication that he was in any position to produce such a sum, and when there was no indication in 1993, that is at the relevant time for valuation, that he was interested in purchasing the tenancy.  Yet further he submits that the evidence from Mr Baily must be viewed with considerable scepticism in view of the evidence that he gave at the trial, which introduced the novel concept of the investor’s value and depended, in order to produce figures justifying a valuation of £120,000, on the assumption that the landlord would be prepared to pay a proportion of the vacant possession premium plus the investor’s value, whereas in other answers, he appeared to be saying that the landlord could be expected to pay simply one third to one half of the vacant possession premium in order to secure the tenancy.  Finally, he submits that the judge and Mr Baily misunderstood the decision of this court in Walton, whereas Mr Foster’s evidence was entirely in accordance with it.
13.	Mr Rodger on behalf of the respondent submits that the judge was fully entitled, having heard the evidence of both Mr Baily and Mr Foster, to prefer Mr Baily.  He submitted that Mr Baily was seeking simply to provide as much material as he considered he could in order to support his professional view that the value of the tenancy was £120,000.  It is submitted that none of the specific bases used by Mr Baily to come to his final conclusion should be examined under a microscope.  What mattered was his professional view, which was a matter of judgment and not analysis.  Mr Rodger submits that, properly understood, Walton’s case makes it clear that any tribunal valuing a tenancy in this or any other situation is not only entitled to, but must, take into account the particular landlord and tenant in question, and come to a view as to the extent to which they have special interests which can properly be taken into account in the valuation of the tenancy.
14.	Walton’s case was a revenue case.  It nonetheless has some similarities to the present.  The question was the value to be attributed to the deceased’s share in an agricultural partnership between him and his son John, which was the tenancy of a hill farm in Northumbria in which the freehold was held by the deceased, his son John and a second son.  Putting it simply, the revenue contended that the value of the deceased’s share as a partner was £70,000 being his half share of the tenancy value, which the valuer assessed at half the vacant possession premium of £100,000, plus tenant’s rights of £40,000.  The vacant possession premium had been calculated by applying a multiplier of 25 to the annual rental figure.  The matter went to the Lands Tribunal at which the son John gave evidence which was accepted by the Tribunal that farming was his and his family’s life, and that there would have been no question of the tenancy being alienated wholly or in part in any way from him.  The Lands Tribunal concluded that the sole value of the tenancy to the partnership was the extent to which its terms enhanced the value of the partnership because the partners were able to exploit the assets of the partnership without paying the full market rent for the value of the farm.  The value of the partnership was therefore assessed on the basis of what was described as the “profit rent” available to the partners by reason of the terms and incidents of the tenancy.  The Court of Appeal upheld this decision.  Peter Gibson LJ said at page 162 M
"It is not necessary for the operation of a statutory hypothesis of a sale in the open market of an interest in a tenancy that the landlord should be treated as a hypothetical person and it is a question of fact established by the evidence before the tribunal of fact whether the attributes of the actual landlord would be taken into account in the market."
15.	 The ultimate exercise is wholly artificial.  The consent order assumes a sale.  And it assumes a sale in an open market in which the whole world is assumed to be free to bid.  As Peter Gibson LJ said at page 162 A:
"However improbable that there would ever be a sale of the property in the real world, for example because of restrictions attached to the property, nevertheless the sale must be treated as capable of being completed, the purchaser then holding the property subject to the same restrictions ..... it also means that the vendor, if he offered the best price reasonably obtainable in the market, cannot be assumed to say that he will not sell because the price is too low as inadequately reflecting some feature of the property, nor can the purchaser be assumed to say that he will not buy because that price is too high."
16.	It seems to me that in the present case, although we are not dealing with statute but the terms of the consent order the same principles should apply.  It follows that the judge was entitled to take a view as to the realities of the situation in coming to a conclusion as to the landlord’s intention in relation to the tenancy.  By that I mean he was entitled to conclude if the facts justified it that the tenancy should be valued on the basis that the landlord, that is the respondent, was interested in purchasing it.  Equally, the judge was entitled to take into account, if the facts justified it, the intentions of the tenant.  Both tenant and landlord can be taken as prospective purchasers provided the facts support such a conclusion.  But even if they do, it would have to be remembered that the tenant was bidding, not for something that he already had, but something that he wanted to have and had the means to purchase.  It follows that in this case the fact that the appellant may have refused £90,000 in 1996 was irrelevant to this calculation.  It was not the sum that the tenant would have been prepared to accept to give up the tenancy which represented its value, but the sum he would have been prepared to pay to purchase it.  There may in some cases be a correlation between these two figures, but they are not necessarily the same.  It follows that, if the evidence were to justify it, a valuer or tribunal considering the valuation, could conclude that the tenant was no longer intending to continue farming, and that the landlord was seeking to purchase the surrender of the tenancy.  In such a circumstance, and if both could establish that they were in a position to purchase, a division of the vacant possession premium could be an appropriate approach to the value at which each might be prepared to purchase the tenancy and accordingly a proper basis for valuing the tenancy.  This was the view of the Lands Tribunal in Walton’s case, as recorded by Peter Gibson LJ at page 161 D: 
"The Lands Tribunal found from the evidence that the value of a whole tenancy depended on the circumstances of the parties at the material date, landlords only seeking and paying for the surrender of tenancies when they wished to release the VPP at an early date and tenants only contemplating surrender when their prime objective was not to continue farming; only if aspirations came together might the 50/50 division of the VPP be a realistic interpretation of market behaviour, but they were not the circumstances of valuation in the instant case."
17.	In my judgment, the judge fell into error in failing to recognise that the basis of valuation depended upon a proper assessment of the evidence as to the position in 1993, that is the date at which the valuation was to be made.  At that time, as the judge himself recognised, and as was clear from all the evidence, the appellant was intending to continue to farm the land.  There was no question of his seeking to surrender the tenancy.  Equally, at that time, there was no evidence to suggest that the respondent had either the desire or the ability to seek to purchase a surrender of the tenancy.  The only evidence was that in 1996 he had made an offer, which has all the hallmarks of a tactical offer, for the surrender of the tenancy.  There was no material before the judge to show that that offer could have been made good.  Mr Baily asserted that, with a vacant possession value of £240,000 as collateral, there would be no difficulty in obtaining the appropriate advance from a bank.  But there was no evidence as to the extent of the respondent’s outstanding borrowing at the time, or the extent to which his interest in the land was already encumbered.  The fact of the offer in 1996 was therefore wholly insufficient evidence from which to be able to infer that at the relevant date in 1993 he had an interest in purchasing the tenancy and the ability to purchase it which could be used to justify the conclusion that he was a special purchaser for the purposes of the valuation exercise.
18.	In ordinary circumstances, this is a case which would be remitted to the County Court for a further hearing.  But because of the protracted nature of the litigation, and the relatively small sums involved at the end of the day, both parties have encouraged this court not to take that course, but to substitute, if minded to allow the appeal, such sum as may appear appropriate.  In the absence of sufficient evidence to justify the conclusion that the tenant and the landlord had sufficient interest in releasing the vacant possession premium, it seems to me that the proper approach to be adopted is that which was adopted by the Lands Tribunal, and approved by this court, in Walton’s case, namely the approach taken by Mr Foster.  In those circumstances, and as Mr Foster’s valuation save as to the value of the right to succession was not essentially challenged, his figure, namely £23,500 should be substituted for the £100,000 found by the judge.  As far as the value of the succession is concerned, I do not consider that there is sufficient material to justify concluding that Mr Foster was in error in attributing to it such an apparantly low value, bearing in mind the extended period of time before which the benefits of those rights would accrue to the appellant and his family, and the absence of any reasoning, cogent or otherwise, to support any other figure.
19.	Accordingly I consider that this appeal should be allowed, and that the sum to be paid by the appellant to the respondent pursuant to the consent order is £2,350, plus the appropriate interest.

Mummery L.J. 
20.	I agree with Latham L.J. that this appeal should be allowed and that the sum to be paid by Mr. Pickles to Mr. Greenbank is £2,350 plus interest.
21.	I agree with Peter Gibson L.J.’s analysis of the correct approach to the valuation of the agricultural tenancy of Far Gearstones Farm under the terms of the Consent Order.  I also agree with his trenchant criticisms of the expert evidence of Mr. Baily.  The judge ought to have preferred the expert evidence of Mr. Foster.

Peter Gibson L.J. 
22.	I also agree that this appeal must be allowed.  As we are differing from the Judge I shall express my reasons in my own words.

23.	On the Judge’s order of 28 July 1993 the tenancy to be assigned, that is to say the tenancy held by Mr. Greenbank and Mr. Pickles as partners, fell to be valued.  But, unusually, nothing was said as to the basis of the valuation.  However, it is common ground that the conventional open market valuation was thereby intended.  On well-settled principles that requires the assumption that a hypothetical sale of the tenancy, with all of its incidents, will have occurred on the valuation date, the sale being by a hypothetical willing vendor to a hypothetical willing purchaser, and that even though in the real world no such sale would or could occur, because the tenancy is non-assignable, the sale must nevertheless be deemed to have occurred, the purchaser thereupon becoming bound by the restrictions of the tenancy, including that against assignment.

24.	As the hypothetical sale is in the open market, everyone in the world is assumed to be able to bid to acquire the tenancy.  But because of the nature of the unassignable tenancy, the number of likely interested purchasers is likely to be limited.  There will be those who want the tenancy in order to live in the house and to farm the farm and who will pay a price measured by the value of such ordinary user of the farm, having regard to the rent to be paid and the other obligations of the tenant.  That in essence was the existing use value asserted by Mr. Foster, Mr. Pickles’ expert.  There could also be special purchasers willing to pay a special price for special reasons.

25.	Given that a farm with vacant possession is always more valuable than a farm subject to an agricultural tenancy providing security of tenure to the tenant paying a rent which may be below the open market rent, the landlord may be prepared to pay a sum greater than the existing value so as to be able to sell the farm with vacant possession.  Such sum might represent part of the vacant possession premium (“the VPP”, being the difference between the value of the farm with vacant possession and the value of the farm subject to the tenancy).

26.	The tenant may be prepared to pay more than the existing use value if he farmed the farm before and is anxious to continue to be the tenant.  But as the tenancy is non-assignable it can provide no security for a borrowing of the purchase price and unless the actual tenant has the means to pay more, the tenant will not normally be a special purchaser.

27.	Whether there is an actual special purchaser to be taken into account in the valuation will depend on the evidence, which one would expect to show that the special purchaser at the time of the valuation both wanted to acquire the tenancy and had the ability to pay a price above the existing use value.  In this context it is important to bear in mind that the open market value is not the highest price to which a special purchaser would be prepared to go.  This can be demonstrated by imagining the archetypal open market, an auction at which all interested parties are present to make their bids.  Those parties are the ordinary purchaser prepared to pay the current market use value, who, let us say, would be prepared to go up to £20,000, the actual tenant who was prepared to pay up to, say, £25,000 and the actual landlord who wanted the merger of the tenancy in the freehold so as to be able to sell with vacant possession and who was prepared to pay up to half the VPP of, say, £120,000, viz. £60,000.  The ordinary purchaser would drop out of the bidding at £20,000, the tenant at £25,000 and the landlord would obtain the property at the bid above that figure, which would not be anything like £60,000.  Mr. Rodger for Mr. Greenbank submitted that the tenant would not be prepared to sell for less than “the true value” of the tenancy.  But the only relevant value is the open market value.  Because a sale is assumed to occur, it is not open to the hypothetical vendor to refuse to sell on the basis that he considers the true value to be higher.

28.	The Judge was faced with valuations from two well-qualified valuers, Mr. Baily, for Mr. Greenbank, and Mr. Foster.  He described them both as having “brought to bear both a logical analysis and experience on the ground” to their approach to this case, and as being “within their own arguments and their own logic .... consistent and impressive”; he referred to Mr. Baily’s arguments as “logically consistent”.  Mr. Rodger submitted that the Judge was entitled to prefer the approach of Mr. Baily to Mr. Foster and that this court should not interfere with what was a finding of fact.  Mr. de Freitas for Mr. Pickles submitted that Mr. Baily’s analysis was illogical and not logically consistent.  If that is right and it can be seen that Mr. Baily erred in his valuation, I see no reason why this court should not interfere with the Judge’s conclusion.

29.	Mr. Baily’s first valuation was on the basis that there were only two persons who need be considered as bidders in the open market, for each of whom the tenancy had “a real value”.  He then proceeded to consider what that value was to each, and he treated the value to each as the open market value.  Thus he was treating them as special purchasers, each willing to bid a sum equal to the value to him.  That is a novel basis of valuation which can lead to difficulties, as can be seen from Mr. Baily’s own description of how he arrived at the values to the tenant and landlord respectively.

30.	Mr. Baily said that because the tenant, Mr. Pickles, had turned down an offer of £90,000, the farm was worth much more than that to him.  Thus he was measuring the value, not by reference to what the tenant would pay (which is what is relevant for a sale of the tenancy on the open market), but by reference to what the actual tenant refused to accept for the surrender of the tenancy.  A sitting tenant who cannot be compelled to surrender his tenancy may well be unwilling to undergo the disruption of giving up his tenancy without a considerable payment to him.  But that has nothing to do with what he would be willing and able to pay in order to acquire the tenancy.  Even more egregious an error is then made by Mr. Baily when he went on to say that he considered that 25 years’ purchase at the rental of £4,720 to produce a capital equivalent of £118,000 was appropriate for the value to the tenant.  How the rent payable by the tenant to the landlord, when capitalised, could have any bearing on the value of the tenancy to the tenant passes comprehension.  It is, of course, the classic way of valuing the freehold subject to the tenancy, i.e. the landlord’s property.  Nor does it have any bearing on what the tenant would be prepared to pay for the tenancy in an open market sale.  Indeed there was no evidence at all of what the actual tenant would have been prepared to pay and could pay at the date of the valuation, other than the fact that Mr. Pickles by the order consented to pay 10% of the value of the tenancy at that date.  Even if the refusal of the £90,000 offer were somehow relevant, that was an offer made in the different circumstances of 1996, by which time the Agricultural Tenancies Act 1995 had come into force.

31.	Mr. Baily then turned to the value to the landlord.  He gave the value of the farm with vacant possession as £240,000 and the value of the farm subject to the tenancy as £120,000, and said that the value to the landlord of obtaining vacant possession was £120,000.  Thus he was assuming that the landlord would be prepared to pay the whole of the VPP to acquire the tenancy.  For the reasons already given, even if there was evidence that this was the highest that Mr. Greenbank was willing and able to pay, in the hypothetical open market it cannot be taken that the landlord would pay more than he needed to pay to acquire the tenancy by outbidding other bidders.  Further, in the circumstances, somewhat different from a hypothetical sale in the open market by a hypothetical tenant and a hypothetical landlord, of a surrender by an actual tenant to an actual landlord, Mr. Baily’s own evidence was that the tenant would receive a sum of from one third to one half of the VPP.  Why the landlord in the hypothetical sale would be prepared to pay at least double the highest proportion of the VPP payable in those circumstances is not explained by Mr. Baily.  In any event there was no direct evidence that Mr. Greenbank was willing or able to pay anything like that sum in July 1993.  Surprisingly he gave no evidence.  The fact of the consent order for the assignment to Mr. Pickles of the tenancy and the terms of that assignment and the absence of any offer in 1993 to buy out Mr. Pickles hardly suggest that Mr. Greenbank wanted or had the financial ability at that time to make a substantial capital payment to acquire the tenancy.  Mr. Baily gave some generalised evidence about banks being willing to lend to landlords to acquire agricultural tenancies so as to enable the landlord to sell the freehold with vacant possession.  But there was no evidence from any bank or other lender that it would have lent to Mr. Greenbank in July 1993, and Mr. Baily in cross-examination acknowledged that he did not know Mr. Greenbank’s financial position in 1993, and was not aware of the mortgages which Mr. Greenbank then had nor the extent of them.  The offer in 1996 to pay Mr. Pickles £90,000 in the context of the continuing litigation must be viewed with some suspicion.  In any event it does not show that in July 1993 Mr. Greenbank would have been prepared and had the ability to pay that sum for the tenancy.

32.	Mr. Baily in his first valuation split the difference between the value to the tenant (£118,000) and the value to the landlord (£120,000) to arrive at £119,000 as his valuation of the tenancy.  For the reasons which I have given the logical basis of that valuation cannot be sustained.

33.	Mr. Baily in his second valuation referred again to the value of the tenancy to the landlord and the tenant.  He referred to Environmentally Sensitive Area payments as demonstrating the value of the tenancy to the tenant.  He regarded the 1996 offer of £90,000 as establishing a baseline for the value of the tenancy and he considered that had the tenant chosen to negotiate the surrender of the tenancy he could have caused the offer to be increased by between one quarter and one third, taking the value of the tenancy to between £115,000 and £120,000, and he valued the tenancy at £1,000 less than in the first valuation.  For the reasons already given, I cannot accept this methodology for arriving at the open market value in the hypothetical sale on 28 July 1993.

34.	In giving oral evidence in chief Mr. Baily said that he had adopted the approach of Mr. Stanton, the Revenue’s valuer in the case of Walton’s Executors v C.I.R. [1996] 1 EGLR 159.  I pause to observe that this is a little surprising given that Mr. Stanton’s approach in that case was accepted neither by the Lands Tribunal nor by this court.  Mr. Stanton’s approach was that an agricultural tenancy was to be valued by having regard to the VPP which he divided 50/50 between landlord and tenant to arrive at the valuation.  That was rejected by the Lands Tribunal and by this court on the basis that as the actual landlords gave evidence, which was accepted, that they were not interested in acquiring the tenancy, they were not special purchasers.  It was held that a valuation based on a profit rent, not the VPP, was appropriate.  In fact it is hard to see that Mr. Baily did adopt Mr. Stanton’s approach.  He even said that there was a misunderstanding in Walton of what a VPP is, though his explanation of it (“the difference between the tenanted value that an investor would pay and the vacant possession price”) does not differ from the understanding in the Walton case if what the investor would pay is the open market price.  If it is not, it is hard to see why what the investor would pay is the open market price.  If it is not, it is hard to see why what the investor would pay is relevant.  However, in cross-examination, contrary to his first report in which “the tenanted value” of the property was given as £120,000, he came up for the first time with the figure of £70,000, giving a higher VPP of £170,000.  No explanation of this change the tenanted value of £120,000 was proffered by Mr. Baily.  It appears to be the product of 15 years’ purchase of the rent, contrasting with Mr. Stanton’s approach in Walton of about 25 years’ purchase.  The Judge himself said that Mr. Foster might well have been right in saying that 25 years’ purchase was appropriate.  Mr. Baily said that to arrive at the value of the tenancy one takes the tenanted value of £70,000 and adds to that about one third of the VPP.  That produces a total of some £126,000 which he appears to have rounded down to £120,000.  How the value of the freehold subject to the tenancy can be an element of the market value of the tenancy I do not understand, nor did Mr. Rodger attempt to defend it.  This was certainly not part of Mr. Stanton’s approach in Walton.

35.	Mr. Baily then said that he would expect Mr. Pickles would pay a premium of £50,000 or one third of the VPP to buy the farm and would outbid by that sum the ordinary purchaser bidding £70,000 for the freehold.  Once again Mr. Baily confuses freehold values and tenancy values, and I do not accept his notion of how the hypothetical sale on the open market operates.

36.	Finally, in answer to the Judge Mr. Baily said that £120,000 seemed about right, and that assertion, although not supported by any convincing reasoning, appears to have found favour with the Judge.

37.	I have to say that Mr. de Freitas’ criticisms of Mr. Baily seem to me abundantly justified.  I am at a loss to understand how the Judge when faced with evidence showing so confused, illogical and inconsistent an approach could think that Mr. Baily’s valuation was to be preferred to that of Mr. Foster.

38.	In the circumstances this court would normally remit the case back to the County Court for a rehearing.  However, because of the modest sums involved, we have been asked by the parties to arrive at a valuation based on the material put before us.

39.	In agreement with Latham L.J. I do not think that there is evidence which would justify our holding that there were special purchasers in the market at the relevant time.  I agree therefore that we should accept Mr. Foster’s valuation and substitute the figure of £2,350 as the figure to be paid by Mr. Pickles to Mr. Greenbank.

Order:  Appeal allowed with costs.  Figure of £2, 350 to be substituted as the figure repaid by Mr Pickles to Mr Greenbank.  Claimant to pay the Defendant’s costs of the determination of the value of the tenancy from the date of the payment in, namely 27th September 1996, to be assessed if not agreed; and repayment of £1, 099.24 (the amount of overpayment plus interest to date).
(Order does not form part of approved judgment.)