UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2012] UKUT 107 (LC)
UTLC Case Number: ACQ/144/2006

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

COMPENSATION – compulsory purchase – shops with residential upper parts – whether losses from assumed redevelopment of part of property as a hotel sustainable as a rule 6 claim with rule 2 value assumed to be zero – alternative value assuming residential redevelopment – whether uplift in value to reflect lack of affordable housing provision – condition of order land at valuation date in no scheme world –  loss of rent – holding costs – value for existing retail use of remaining part of property – pre-reference costs – held losses from assumed hotel use cannot be claimed only under rule 6 – no uplift in residential values – loss of rent and holding costs disallowed – compensation determined at £634,751  
	IN THE MATTER OF A NOTICE OF REFERENCE
BETWEEN	
ACROFAME PROPERTIES LIMITED                          Claimant
	and
	THE LONDON DEVELOPMENT AGENCY	    Acquiring
		    Authority 

  Re:  8-12 New Road 
and 4 Chequers Corner
Dagenham, 
Essex, 
RM9 6LA

	Before: A J Trott FRICS

Sitting at: 43-45 Bedford Square, London WC1B 3AS

on 3-6 January 2012

© CROWN COPYRIGHT 2012

Richard Harwood, instructed by Charles Russell, for the claimant
James Pereira, instructed by Squire Sanders Hammonds, for the acquiring authority

The following cases are referred to in this decision:
Express Homes Limited v London Development Agency [2010] RVR 112 
Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111
Spirerose v Transport for London [2009] 1 WLR 1797
Ryde International plc v London Regional Transport [2004] RVR 60 (CA) 
Horn v Sunderland [1941] 2 KB 26 
Hughes v Doncaster [1991] 1 AC 382
McEwing (D) & Sons Ltd v Renfrew County Council (1959) 11 P&CR 306
Pattle v Secretary of State for Transport [2009] RVR 328
Urban Edge Group Limited v London Underground Limited [2009] RVR 361
Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565 Waters v Welsh Development Agency [2004] 1 WLR 1304.  
Thomas Newall Limited (no.2) v Lancaster City Council [2011] UKUT 437 (LC)  
Ryde International plc v London Regional Transport [2001] RVR 59 (LT)
Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson and Others [2002] EWCA Civ 879
Esure Services Ltd v Quarcoo [2009] EWCA Civ 595 

	DECISION
Introduction
1.	This is a reference to determine the compensation payable to the claimant, Acrofame Properties Limited, following the compulsory purchase of 8-12 New Road and 4 Chequers Corner, Dagenham, Essex, RM9 6LA (the reference land).  The acquiring authority is the London Development Agency.
2.	The claimant owned the freehold interest in the reference land which was acquired under the London Development Agency (Chequers Corner, Dagenham) Compulsory Purchase Order 2003 (the Order).  The purpose of the Order was to further the economic development and regeneration of the area, and in particular Dagenham, by securing development at Chequers Corner.  The Order was confirmed by the Secretary of State for Trade and Industry on 22 July 2005.  The acquiring authority made a general vesting declaration on 12 December 2005 and took possession of the reference land on 17 January 2006, which is the valuation date.
3.	The reference land may be divided conveniently into two areas:  Firstly, 4 Chequers Corner and, secondly, 8-12 New Road.  These areas are considered separately in this decision.
4.	Mr Richard Harwood of counsel appeared for the claimant and called Mr Surendra Patel as a witness of fact; Mr Robert Chess BSc FRICS, a director of Christie & Co, as an expert hotel valuer; Mr Peter Trevor Foster FRICS IRRV, a director of Porter Glenny, as an expert residential valuer; and Mr James Winbourne BSc MRICS, principal of Winbourne Martin French, as an expert compensation witness.  Ms Eleanor Azzopardi also submitted a witness statement of fact but was not called to give evidence.
5.	Mr James Pereira of counsel appeared for the acquiring authority and called Mr Nicholas Boyd BSc FRICS, a partner in Edward Symmons LLP, as an expert hotel valuer; and Mr Colin Michael David Cottage BSc MRICS IRRV, a partner in Glenny LLP, as an expert valuer and compensation witness.
6.	The parties made written submissions following the close of the hearing the last of which was received on 10 February 2012. 
7.	I made unaccompanied site inspections of the relevant residential and retail comparables following the hearing.
Facts
8.	The parties produced two statements of agreed facts.  The first was agreed between Mr Cottage, Mr Winbourne and Mr Foster (the valuation experts’ agreement), the second was between Mr Boyd and Mr Chess (the hotel experts’ agreement).  From these and from the evidence I find the following facts.
9.	The reference land is located to the south side of New Road, Dagenham (now the A1306 but previously the A13), at its junction with Chequers Lane and close to Merrielands Retail Park to the west.  The southern end of Dagenham’s main retail area in the Heathway is approximately 1km to the north.  Dagenham Heathway underground station is 1.15km to the north and Dagenham Dock station on the C2C National Rail Network is 550m to the south. 
10.	4 Chequers Corner comprised a mid-terrace three-storey building, originally constructed in the 1890s. There was retail space at ground level (with planning permission having been granted for the sale of hot food in May 1989) and residential accommodation above.  The claimant purchased 4 Chequers Corner in May 1989 and reconfigured the upper floors in 1990 to provide a self-contained flat on each of the first (Flat 4a) and second (Flat 4b) floors.  The experts agreed that the combined freehold value of the two flats was £130,000.  They also agreed compensation in respect of the loss or rent from the flats following their vacation prior to the valuation date.  The agreed sums were £1,755.18 for Flat 4a and £2,867.84 for Flat 4b.
11.	It was agreed that works of repair and refurbishment were needed to put the ground floor retail accommodation at No.4 into a lettable condition.  The cost of those works was not agreed.  The experts agreed that the retail unit at No. 4 should be valued on an investment basis and that its rental value, which was not agreed, should be capitalised at a yield of 7%.
12.	8-12 New Road comprised a terrace of three adjoining buildings believed to have been constructed in the late 1930s.  Nos.8 and 12 were two storeys high and No.10 was three storeys high.  Part of No.8 had been used as offices in the period leading up to the valuation date and 10-12 New Road had been used historically as a café and bed and breakfast accommodation.  
13.	In October 1991 planning permission was granted on appeal for the erection of a three-storey rear extension in connection with the conversion of No.8-12 into a hotel.  This planning permission was renewed in January 1997.
14.	The parties’ hotel experts agreed that No.8-12 would have received planning permission in the no scheme world for a 33 bedroom hotel with ancillary facilities.  It was further agreed that the hotel was more akin to a hostel style of accommodation or a privately run bed and breakfast hotel than to a corporate brandable budget hotel.  The proposed hotel would be likely to be used by trades people and/or by local authorities to accommodate homeless persons or asylum seekers.
15.	The hotel experts agreed the following matters about the state of the hotel market leading up to the valuation date:
(1)	At the macro level the UK hotel market was reasonably strong and was improving;
(2)	Certain parts of East London had not traditionally been perceived as suitable locations for hotel development;
(3)	In early 2006 the market for hotel opportunities in Dagenham would not have extended to corporate hotel chains; and
(4)	The homeless persons market was in decline by the valuation date following government policy changes that had been introduced in 2002/3.  Prior to this time the homeless persons market had been stronger.
16.	The hotel experts agreed that the gross development value of the (completed) hotel scheme was £1.675m as at the valuation date.  There were no direct comparable transactions of the sale of sites for hotel development and the experts agreed that assessing site value in this location was highly subjective.  The facts relating to a number of transactions were agreed, but not their degree of relevance as comparables.  The experts did not agree about the level of turnover that would be generated by a fully operational hotel on the reference land as at the valuation date but they agreed that the operating profit would be a margin of 60% of turnover.
17.	The parties also agreed that No.8-12 would be suitable for residential redevelopment and confirmed their agreement in a letter dated 14 January 2011.  This stated:
“(1)	That a solely residential redevelopment of 30 habitable rooms could be achieved on the site of 8-12 New Road, whether redeveloped in isolation or as part of any larger form of development together with the adjoining site of 14-18 New Road.
(2)	There would be no requirement for the provision of affordable housing for a redevelopment of 30 habitable rooms if redeveloping the site of 8-12 New Road on its own. 
(3)	A redevelopment of 30 habitable rooms on the site of 8-12 New Road as part of a redevelopment of the larger site of 8-18 New Road under a single scheme would be subject to a requirement that there be a provision of 35% affordable housing (by unit).
(4)	A redevelopment of 30 habitable rooms on the site of 8-12 New Road as a separate scheme to any development of the adjacent site of 14-18 New Road would not be subject to a requirement that there be a provision of 35% affordable housing (by unit).
(5)	With the exception of an affordable housing requirement under paragraph 3 above, there would be no other matters included under a section 106 agreement that would impact upon valuation.
(6)	There would be no conditions attached to any permissions such as would impact upon valuation.”
18.	The valuers agreed that the most appropriate way to value No.8-12 as a residential site was to use comparable transaction evidence on a “per habitable room” basis, weighted and adjusted (if necessary).  The valuation agreement stated that the greatest rule 2 value of No.8-12 was reflected in its potential to be developed to provide a 30 habitable room residential scheme.
19.	The parties agreed schedules of retail rental evidence and residential capital land values but remained in dispute about the relevance of the comparables and the weight to be attached to them.  
20.	Access to the rear of 8-12 New Road was provided by a purpose-built service road that required repair at the valuation date.  Vehicular access to any new development at No.8-12 would need to be provided from the rear service road.  
21.	The first floor flat (Flat 8a) at 8-12 New Road was let on an assured shorthold tenancy to the London Borough of Redbridge until it was vacated in October 2005.  The valuers agreed that the lot of rent from this flat until the valuation date was £1,436.05.  (The valuers agreed that this amount would not be compensatable if the claimant’s primary case was accepted by the Tribunal.)
Outstanding issues
22.	The outstanding issues between the parties are summarised below.
(a)  4 Chequers Corner
(i)  The freehold value of the ground floor retail unit.  As the yield has been agreed the difference between the parties concerns the open market rental value of the property, whether that rental value should reflect a premium for an A3 use, and the cost of repairs.
(ii)  The compensation in respect of the loss of rental income from 1999 to 2006.
(b)  8-12 New Road: hotel (the claimant’s primary case)
(iii)  The acquiring authority disputes the claimant’s primary case, both in law and on the facts, that in the no scheme world it would have constructed and opened a hotel by 2002.  In particular it disputes: 
(a)  that the open market value of the freehold interest should be taken as zero under section 5 rule (2) of the Land Compensation Act 1961; and 
(b)  that the profits the claimant would have made from the hotel, both up to the valuation date and beyond, are claimable under section 5 rule (6) of the 1961 Act.  
(iv)  The hotel experts disagree about the profitability of the hotel.
 (c)  8-12 New Road: residential (the claimant’s secondary case) 
(v)  The claimant’s alternative case is that the rule (2) open market value of the freehold interest should be calculated by reference to a residential redevelopment.  The valuation experts do not agree about the residential development value and, in particular, dispute the relevance of the comparables adduced; the effect (if any) on value of the absence of any obligation to construct affordable housing; and the significance of improvements to the rear access road.
(vi)  Whether “holding costs” as claimed under rule (6) are compensatable between 1999 and 2006.
(d) Pre-reference costs
(vii)  There is a dispute about whether the claimant is entitled to recover two sets of surveyor’s pre-reference costs; one from Messrs McDowalls and the other from Messrs Winbourne Martin French. 
Statutory provisions
23.	The acquisition of the reference land was implemented under the Compulsory Purchase (Vesting Declarations) Act 1981.  Section 10(1) of that Act states:
“Where any of the land specified in a general vesting declaration has become vested in an acquiring authority by virtue of Part III of this Act, the acquiring authority shall be liable to pay the like compensation, and the like interest on the compensation agreed or awarded, as they would have been required to pay if they had taken possession of the land under section 11(1) of the Compulsory Purchase Act 1965.”
24.	Section 7 of the Compulsory Purchase Act 1965 states:
“In assessing the compensation to be paid by the acquiring authority under this Act regard shall be had not only to the value of the land to be purchased by the acquiring authority, but also to the damage, if any, to be sustained by the owner of the land by reason of the severing of the land purchased from the other land of the owner, or otherwise injuriously affecting that other land by the exercise of the powers conferred by this or the special Act.”
25.	Section 5 of the Land Compensation Act 1961 states:
“Compensation in respect of any compulsory acquisition shall be assessed in accordance with the following rules: 
…
(2)  The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise:
…
(6) The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.”  
26.	The valuation experts’ agreement said the following about the application of  these statutory provisions:
“9.1  The open market value of both properties is to be assessed in accordance with Rule 2, Section 5 of the Land Compensation Act 1961.
9.2  Any disturbance claims or claims for holding costs for either property are to be assessed in accordance with Rule 6 of the Land Compensation Act 1961.”
Issue (a): 4 Chequers Corner – evidence and submissions
(i) Open market value
27.	Mr Patel explained the background to the letting of the retail unit at 4 Chequers Corner.  It was let on FRI terms in May 1990 to a partnership of four individuals for use as an Indian restaurant/takeaway.  The lease term was for 12 years at an initial rent of £7,000 pa.  A premium of £5,000 was paid.  The rent was increased to £8,000 pa upon review in 1994.  The partnership ran into financial difficulties and, said Mr Patel, in November 1995 he granted a new lease to Mr Nazmul Hussain at a reduced rent of £6,000 pa. Mr Hussain did not remain long at No.4 and left without notice having paid two or three quarters’ rent before defaulting on a rental payment and disappearing.  Mr Patel then let the shop to Mr Deepak Purohit on a ten year FRI lease from 28 August 1997.  The use was an A3 Restaurant at an initial rent of £7,500 pa with five yearly rent reviews.  Mr Purohit did not trade from the premises.  He left shortly after signing the lease and having paid a deposit.  Mr Patel was unsure whether Mr Purohit had specifically cited the CPO as the reason for leaving. 
28.	Mr Patel said that he did not take active steps to let No.4 after Mr Purohit left in 1997.  He explained that he owned some empty shops across the road in Goresbrook Parade and that he had focussed on letting these first.  These included an A3 unit which Mr Patel considered had a better chance of being let than No.4 which he said “wasn’t working” and was “not much in demand” due to fly tipping, vandalism and theft.  
29.	Mr Foster valued the shop unit at No.4 in the sum of £150,000.  This was calculated by capitalising the rental value of £11,530 pa (£20 per sq ft in terms of zone A for the shop and £5 per sq ft for ancillary areas) at the agreed yield of 7% and subtracting refurbishment costs of £15,000.  Mr Foster relied upon four comparables in the Barking area which showed zone A rates of between £26.32 (later amended to £16.02) and £31 per sq ft.  He took £20 per sq ft as the zone A rate to value No.4 having made what he described in his expert report as:
	“A generous allowance of 20% on the lowest A3/A5 evidence obtained to reflect an argument relating to position.”
The £20 per sq ft zone A rate included a premium of “no more than 10%” for the A3 use, giving a “base value” of £18 per sq ft.  In cross examination Mr Foster acknowledged that the existence of a premium for an A3/A5 use would depend upon whether there was local competition.  In this respect Mr Foster estimated that there were ten to twelve A3/A5 units in local parades at the valuation date which could have provided such competition.
30.	Mr Foster did not accept Mr Cottage’s view that Chequers Corner was comparable with the worst retail parades in the borough.  He said that Chequers Corner was a well-known and prominent shopping parade located on a busy arterial road and with a large catchment area.  It was more comparable to secondary retail parades in Barking and Dagenham which Mr Cottage said were worth up to £20 per sq ft per annum.  Mr Cottage’s comparables were generally local authority owned shops on council estates with no passing trade.  In cross examination Mr Foster accepted that Mr Cottage’s comparables supported Mr Cottage’s valuation on the assumptions that Chequers Corner was a tertiary parade and that the condition of the surrounding area had to be taken as it actually was at the valuation date.  But this acceptance was subject to an uplift of 10% in respect of the A3 use. 
31.	Mr Winbourne said that he had adopted Mr Foster’s valuation of No.4.  He disagreed with Mr Cottage’s valuation which he said reflected rental values that were so low that they could only reflect serious scheme blight.     
32.	Mr Patel said that the cost of repairing the property (“making it good and usable”, but excluding the cost of fitting out the kitchen) would be £5,000.  He explained that this amount was not a “professional cost” such as those estimated by Mr Cottage and Mr Foster but was the cost at which he, as a builder, could do the works.  In correspondence with Mr Winbourne in 2008 Mr Patel had said that an outside contractor would charge £6,000 “to bring the shop up to good letting standard”.  Mr Patel’s figure was 15% less than this but he said that he could undertake the work 25 to 30% less than the experts’ figures.  He acknowledged that he had not actually costed the works that were required to put No.4 into repair.
33.	Mr Foster adopted a figure of £15,000 for the cost of repairs at No.4 but gave no explanation of how he had arrived at this amount.  (Indeed in paragraph 7.2.1 of his expert report Mr Foster referred to the cost of repairs of £15,000 as relating to “the two flats above” and not to the ground floor shop.)  Mr Norman Winbourne, in an expert report dated 26 July 2008 (which was adduced in evidence and which was subsequently adopted by Mr James Winbourne) stated at paragraph 4.3 that:
“Immediate repair costs would be less expensive for Acrofame and £15,000 has been allowed.”
However Mr James Winbourne said that he departed from Mr Foster’s evidence on some points and, in particular, he said that it was not necessarily right to deduct £15,000 for repairs on a unit that could not have been occupied because of the scheme.
34.	Mr Harwood argued that Mr Patel’s cost estimate of £5,000 for repairs to the shop at the valuation date was the most reliable since Mr Patel both owned the property and was a builder.  Mr Cottage’s cost estimate of £20,000 (which was a figure that he had arrived at before seeking professional advice on the matter) reflected the vacancy of the unit in the scheme world.  By the valuation date its condition had deteriorated; in the no scheme world the shop would have been let out and would have been kept in a reasonable state of repair.  Mr Cottage had only visited the premises once (in 2003) and had not taken photographs or proper notes.  The acquiring authority had not taken photographs either before or at the valuation date.  By the time such photographs were taken, four months after the vesting date, the property had been broken into and the acquiring authority had damaged the fabric of the building by breaking open walls to look for asbestos. 
35.	In his closing submissions Mr Harwood said that the value of the ground floor unit should be taken as £159,714 which was Mr Foster’s valuation in a repaired condition (£164,714) less Mr Patel’s estimate of £5,000 for repairs.  
36.	For the acquiring authority Mr Cottage said that the full rental value of the retail unit at No.4, allowing for an A3 use, was £7.50 per sq ft in terms of zone A and £2.50 per sq ft for ancillary space, giving a total shop rental value of £4,540 pa.  He said that this rent would only be achievable following “fairly extensive refurbishment and redecoration works” costing some £20,000.  When reminded that in its reply to the claimant’s statement of case the acquiring authority had said that rental values in this parade were considered to be in the region of £8 per sq ft in terms of zone A, Mr Cottage said that he “wouldn’t die in a ditch” about whether it was £7.50 or £8 per sq ft but that it was certainly not as high as Mr Foster’s figure of £20 per sq ft.  Mr Cottage said that Chequers Corner ranked as one of the worst parades in the borough and that rents for the poorest tertiary locations ranged from £7 to £9 per sq ft.
37.	Mr Cottage supported his opinion by reference to a schedule of rental comparables the details of which, but not their relevance, had been agreed between the valuation experts.  The ten comparables upon which he relied showed rents ranging from £6.73 to £9.80 per sq ft in terms of zone A.  He dismissed the other comparables in the schedule, which were relied upon by Mr Foster, as being irrelevant because they were drawn from the best secondary retail parades in Barking and Dagenham.  Mr Cottage did not believe there was evidence to support Mr Foster’s view that A3 uses commanded a premium. If there was a limited supply of, and a strong demand for, such premises then there might be a premium but that was not the case at Chequers Corner where there was a low demand for retail units combined with a large vacancy rate leading to a good supply of shops.  Furthermore planning permission for A3 uses was obtainable in this location.  There was therefore no justification for the 10% uplift suggested by Mr Foster.  He illustrated this by reference to two of the comparables in the agreed schedule, Nos.46 and 48 Longbridge Road, Barking.  The former was let in September 2004 at £27 per sq ft for an A2 use.  The latter was let for an A3 use and the rent was reviewed in April 2007 to £25.88 per sq ft.  Mr Cottage said that rents had increased in the area in the intervening period.  So rents were lower for A3 than A2 uses in identical adjoining properties. 
38.	Mr Cottage accepted that all of his comparables were council owned.  However he rejected the suggestion that the council did not press hard for strong commercial deals when letting such properties or reviewing their rent.  He said the London Borough of Barking and Dagenham were “ruthless at getting rent from tenants” and were obliged by statute to obtain the best value, albeit they balanced the needs for occupancy against that of maximising the rent.  He said that it would be wrong to omit the comparables simply because the council was the landlord since to do so would be to ignore the relevant locational factors.  He denied the proposition that his comparables were, unlike Chequers Corner, remote from passing trade.  Not all of them were located on housing estates and they had comparable catchment areas to the reference property.  They were “different but comparable”.
39.	Mr Cottage did not consider that the previous lettings of No.4 during the 1990s provided useful evidence of sustainable rental levels and he did not place weight upon them.
40.	The acquiring authority’s reply to the statement of case said that their expert witness (Mr Cottage) considered that a minimum expenditure of £15,000 would have been required to put the retail unit at No.4 into a lettable state of repair.  Mr Cottage explained that this was his minimum estimate based upon his experience of small building works.  But he had also relied upon the advice of his colleague, Mr Hammond, who had undertaken a detailed photographic schedule of condition in May 2006 and which confirmed the figure of £20,000 that Mr Cottage relied upon in his expert report, although he acknowledged that there was no breakdown of how he had arrived at this figure.  Mr Cottage said that the condition of the ground floor was similar in 2006 to when he had inspected it in 2003 and Mr Patel had accepted in evidence that its condition at the date of Mr Hammond’s survey was similar to that at the valuation date.  Mr Cottage had offered to compromise between his figure (£20,000) and that of Mr Foster (£15,000) at £17,500 but this had been declined by the claimant.
41.	Mr Cottage valued the freehold interest of the retail unit at No.4 in the sum of £44,857.
(ii)  Loss of rent under rule (6)         
42.	Mr Patel said that he did not take active steps to let the shop at No.4 following Mr Purohit’s departure in August 1997.  He preferred instead to market another A3 unit that he owned across the road (see paragraph 28 above).  His testimony was unclear about whether Mr Purohit’s departure was connected with rumours about compulsory purchase.  When asked whether Mr Purohit had mentioned the prospect of a CPO Mr Patel said “Not him. Other people did.”  Mr Patel was then asked why he had not quizzed Mr Purohit about such rumours and he replied “He just didn’t want to take the shop.  You can’t make him take it.”
43.	In Mr Winbourne’s opinion nobody would have opened an A3/A5 use in this location from 1999 onwards given the existence of the scheme.  Shops could trade even if they were physically in poor condition but a compulsory purchase scheme deterred everybody.  There was clearly serious scheme blight scheme blight once the CPO became known. Fly tipping and vandalism were the expected outcome of such blight. 
44.	In cross-examination Mr Foster said that he believed that the claimant would have been able to let the shop at No.4 for £7,500 pa had he marketed the property after Mr Purohit left in 1997.  
45.	Mr Harwood submitted that in the absence of the scheme the retail unit at No.4 would have been occupied for an A3/A5 use.  Mr Purohit had not taken up his lease in 1997 because of concerns about redevelopment and compulsory purchase.  Mr Patel had prioritised the letting of his other A3 unit across the road which was better located prior to the detrunking of the A13.  It was inconceivable that Acrofame, a successful developer, would have left No.4 vacant for several years if it had had any alternative.  But the prospect of compulsory purchase deterred any sensible retailer or restaurateur.  The only plausible explanation for the ground floor unit at No.4 remaining vacant for such a long time was the shadow of the CPO.  In the absence of the scheme Acrofame would have received a rental income from that unit.  The disturbance claim was based upon Mr Winbourne’s calculation of a lost rent of £7,500 pa for 7 years, totalling £52,500, less £2,500 “to allow for management costs”, giving a claim figure of £50,000.
46.	Mr Cottage said in his expert report that the retail unit at No.4 had been vacant for a number of years before the CPO was confirmed and that unless Acrofame had spent money on refurbishing the property it would not have been possible to let it.  He noted that when he first inspected the order lands in January 1999 some 35% of the ground floor accommodation in the parade (by number of units) was vacant.  Even in the no scheme world the low rental value (which he estimated at £4,540 pa) and the prospect of a lengthy void period meant that it was difficult to justify the refurbishment of the shop on a speculative basis.  Adopting a void period of one year he calculated that the value of the lost rent for six years (2000 to 2006) when capitalised at 7% would be marginally greater (£20,225) than the cost of refurbishment (£20,000). 
47.	Mr Pereira submitted that there was no causative link between the vacancy of No.4, the loss of rent and the scheme.  Mr Patel had admitted that he had not tried to market the property because he gave priority to letting another shop nearby.  Mr Foster said that he would have been able to let the shop unit at No.4 following Mr Purohit’s departure had he attempted to do so.  The claimant had failed completely to mitigate its loss and therefore this head of claim must fail. 
Issue (a): 4 Chequers Corner - conclusions
(i)  Open market value
48.	I accept Mr Cottage’s opinion that Chequers Corner was a tertiary parade of shops.  The site is located to the south of a busy dual carriageway and is isolated from the residential areas which lie exclusively to the north.  These areas are better served by the shops in Goresbrook Road.  There is little reason for shoppers to cross what remains a hostile traffic environment even though it has been improved after the detrunking of the A13 and the provision of at grade crossings.  Passing trade from Fords has diminished considerably from its peak and car borne shoppers are likely to visit the nearby Merrielands Retail Park and ASDA rather than shop at Chequers Corner.  It is a poor retail environment and one which was suffering through vacancies, vandalism and neglect before the shadow of the scheme came into existence.
49.	I am not satisfied that the claimant has established the existence of a 10% premium in this location for A3 use.  Mr Foster produced no evidence to support his assertion and he acknowledged that his opinion would depend upon the level of local competition.  Such competition was significant.  I agree with Mr Cottage that there was neither a strong demand for nor a restricted supply of shop units that could have been used for A3 purposes in this location.  I accept Mr Cottage’s view, based upon planning Policy S6, that planning permission for A3 use was likely to be obtainable.
50.	Mr Foster relies upon comparables from retail units in good secondary positions in central Barking that are considerably better than the subject property.  In my opinion they are not valid comparables and reflect a much higher value (circa £25 per sq ft) than the shops at Chequers Corner.  I gain no assistance from Mr Foster’s arbitrary downward adjustment of 20% to give £20 per sq ft (including a 10% premium for A3 use). 
51.	For his part Mr Cottage relies upon comparables from units which are in tertiary locations.  He was criticised for only selecting comparables that were owned by the local authority and which were located within residential estates rather than on a main road similar to the situation at Chequers Corner.  Furthermore most of the comparables that he adopts are either rent reviews or lease renewals rather than open market lettings.
52.	The comparables relied upon by Mr Cottage are generally not on main road frontages.  They are in more isolated positions serving residential estates without significant (or any) passing trade.  Chequers Corner is a more prominent location.  The comparables are all in a single local authority’s ownership which means that they reflect that authority’s particular policy with respect to property management.  But in my opinion Mr Cottage’s comparables are better than Mr Foster’s.  Taking into account the relevant evidence and my inspection of the comparables I consider that the rental value of No.4 would have been at the top end of the range of value shown by those comparables at the valuation date.  I adopt a figure of £9.50 per sq ft in terms of zone A and £3 per sq ft for the ancillary space.  These figures reflect the value of No.4 and the surrounding order land in its actual condition at the valuation date for the reasons that I give below at paragraphs 131 to 140.  They also exclude any premium for A3 use.
53.	Using the schedule of agreed areas the open market rental value at the valuation date is therefore £5,693, which I round to £5,700 pa.
54.	The claimant argues that regard should be had to the rents previously achieved when letting No.4.  But those rents, which ranged from £6,000 to £8,000 pa, had proven to be short lived and unsustainable.  I do not consider them to be a fair reflection of the value at the valuation date.  I was also referred to the decision of this Tribunal, Mr P R Francis FRICS, in Express Homes Limited v London Development Agency [2010] RVR 112.  That decision concerned a small (half size) retail unit at 9 Chequers Corner that was compulsorily acquired under the same scheme and at the same valuation date as that in the present reference.  The Tribunal accepted Mr Cottage’s estimate of £10 per sq ft as being the appropriate rental value.  My valuation is based upon the evidence produced in this reference and upon my site inspections of the relevant comparables.  Mr Cottage was not asked in cross-examination to comment upon his valuation in Express Homes.  I consider that my figure of £9.50 per sq ft in terms of Zone A is compatible with the figure adopted, on its own facts, in that case.  I also note that the Tribunal recorded Mr Cottage’s evidence in Express Homes as being that:
 “the poorest [retail parades] commanded no more than £7 - £9 ITZA at around the vesting date”.        
55.	 The evidence about the cost of the repairs that were required at No.4 is inconsistent.  Mr Patel said in cross-examination that he could undertake the works for 25-30% less than other builders.  But applying that to the figure of £15,000 relied upon by Messrs Winbourne and Foster gives a much higher figure than the £5,000 to which Mr Patel spoke.  Mr Norman Winbourne said in his expert report (adopted by Mr James Winbourne) that the figure of £15,000 already reflected the ability of Acrofame to repair the building more cheaply.  
56.	Neither Mr Patel nor the claimant’s experts had itemised or costed the necessary repairs.
57.	Mr Cottage’s figure of £20,000 (which he offered to compromise at £17,500) was based upon the condition of the property several months after the valuation date and after the acquiring authority had damaged some parts of the building in checking for asbestos.  (However Mr Cottage had visited the property in May 2003 at which time he had noted damp penetrating from the ceiling.)  Mr Hammond’s photographic schedule of condition was not itemised or costed.  
58.	In my opinion, and doing the best I can with the limited and contradictory evidence on this issue, I consider that the sum of £17,500 is a reasonable allowance for the necessary works of repair to put the shop unit at No.4 into a lettable condition.
59.	I therefore determine the compensation payable for the open market value of the freehold interest in the ground floor retail unit at 4 Chequers Corner at £64,000, being the rental value of £5,700 pa capitalised at 7% less repair costs of £17,500 (rounded). 
(ii)  Loss of rent under rule (6)
60.	It is not clear what motivated Mr Purohit to vacate No.4 suddenly in August 1997.  In my opinion the claimant has not established that his departure was due to the threat of compulsory purchase.  This was the third time in recent years that there had been a change of tenant and as Mr Patel recognised “This one [No.4] wasn’t working”.  There were a significant number of other vacant units in the area and there were problems of vandalism, fly-tipping and theft which could not be attributed solely to the possibility of a CPO.  Mr Patel did not actively try to re-let the property when it became vacant, preferring instead to concentrate his efforts on another A3 unit that he owned nearby.  I do not consider that the vacancy of No.4, and therefore the consequent loss of rent, was caused by the threat of compulsory purchase.  Mr Patel’s decision not to market No.4 preceded the establishment of such a threat.  It was a commercial decision based upon his experience of the local market and his acceptance that No.4 was not in demand.  Whether or not the unit could have been re-let at that time, as suggested by Mr Foster, was untested.  By failing to market No.4, even before the threat of a CPO was established, Mr Patel did not mitigate his losses; he made no attempt to attract new tenants at any time from August 1997 onwards and he cannot now claim for losses that he did nothing to prevent or reduce.  As Lord Nicholls said in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 at 138G: 
“He [the claimant] cannot simply let his business run down, and then seek to recover compensation for his losses.”
I therefore make no award for this head of claim.

Issue (b):  8-12 New Road (hotel) – submissions on the claimant’s primary case 
61.	Mr Harwood submitted that Acrofame was entitled to be compensated fairly and fully for its losses, including those arising from the threat of compulsory purchase.  The basis of such compensation was the value to the owner and not the value to the acquiring authority, see Spirerose v Transport for London [2009] 1 WLR 1797.  The claimant’s proposal to construct a hotel on the site of 8-12 New Road had been frustrated by the scheme and Mr Harwood said that there were four differences between the scheme and no scheme worlds:
(i)  a profit would have been made in the four years between 2002 (when the hotel would have been completed) and 2006 (the valuation date);
(ii)  at the valuation date there would have been a hotel on the site with an agreed gross development value of £1.675m;
(iii)  the hotel would have continued to make profits into the future; and
(iv)  costs would have been incurred in developing the hotel. 
62.	If the hotel had been in existence at the valuation date then compensation would have comprised the open market value under rule (2) of £1.675m (item (ii)) and disturbance under rule (6) based upon the loss of profits due to the scheme (items (i) and (iii)).  The historic building costs (item (iv)) would have been irrelevant.  But since the hotel was not in existence at the valuation date (because of the scheme) compensation had to be calculated differently.  Mr Harwood said that the best way of calculating fair compensation was to add the loss of profits before acquisition to the capital value of the completed hotel at the valuation date (such value reflecting future profits) and then deduct the development costs as at the time work on the hotel would have commenced (1999) and not as at the valuation date.  This gave effect to the principle that compensation should be the value to the owner.
63.	Compensation assessed on this basis fell entirely under section 5 rule (6) of the 1961 Act for three reasons:
(i)  under rule (2) the open market value of the (assumed to be completed) hotel as at the valuation date did not take account of development costs;
(ii)  the open market value under rule (2) fell to be determined by reference to the condition of the land as it existed on the valuation date; and
(iii)  valuing the reference land under rule (2) on the basis that it was a vacant site suitable for hotel development as at the valuation date bore no relation to the actual losses that had been caused. 
64.	The claimant accepted for the purposes of this Tribunal that a valuation under rule (2) must reflect the actual condition of the land as it existed on the valuation date.  At that date there was no hotel.  So the value of a hotel that would have been built in the no scheme world could not be included in the value of land for the purposes of rule (2).  The loss of such a hotel could only be claimed under rule (6) which stated that:
“The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.” 
 “value of land” in this context was a reference back to rule (2) and therefore the compensation for the loss of the hotel was not directly based on the value of land. 
65.	Mr Harwood submitted, given this background, that the value of 8-12 New Road under rule (2) was zero.  He explained this argument in his written reply to Mr Pereira’s closing submissions:
“8.  …rule 2 can be of no application to a compensation claim based on the condition of the land being different on the valuation date.  That claim must proceed under rule 6.  The value under rule 2 must be zero as otherwise compensation would be assessed simultaneously on two incompatible assumptions:
(i)  That the hotel conversion had taken place in 2002 and there was an operating hotel on the site (all under rule 6);
(ii) That the unconverted site had a value (in this case, development value for housing) assessed under rule 2.
9.  A functioning hotel with annual profits of £227,000 and a value of £1.675 million would not be demolished to sell the site for £600,000 for a housing development. Compensation would not therefore be assessed on the basis that it would be treated as an unconverted site.  Consequently there is no value under rule 2 in such circumstances.”
66.	 In his opening submissions Mr Harwood confirmed that the claimant was not pursuing an alternative approach of valuing 8-12 New Road under rule (2) as a development site with planning permission for a 33 bedroom hotel as at the valuation date.  The only alternative to the claimant’s primary case was to value the property under rule (2) as a residential redevelopment site. 
67.	Mr Pereira said that the claimant’s primary case was incompatible with rule (2).  The claimant could not pretend that the market value at the valuation date was zero.  Rule (2) required the assessment at the valuation date of the amount which the land if sold in the open market by a willing seller might be expected to realise.  There was binding Court of Appeal authority for the proposition that the land fell to be valued in its actual condition at that date, see Ryde International plc v London Regional Transport [2004] RVR 60 (CA) per Carnwath LJ (as he then was) at 63[18] to [20].  There was no dispute that 8-12 New Road had a positive value at the valuation date, whether as a residential development site, a hotel development site or indeed if, as the claimant argued, one assumed there was actually a hotel on the site.
68.	The claimant’s primary case, based on rule (6), was inconsistent with rule (2) and thus breached the fundamental principle of compensation that there should be consistency between the two rules; see Horn v Sunderland [1941] 2 KB 26 at 50 and the reasoning in Hughes v Doncaster [1991] 1 AC 382 at 391E-393B.  The rule (6) claim assumed that a hotel was built and operating at the valuation date.  But it was not possible to carry that assumption through to the rule (2) value because the application of that rule required the actual condition of the land to be taken into account.  
69.	The claimant’s primary case comprised two parts; firstly, the pre-acquisition loss of profits from the hotel that the claimant said would have been built and operating by 2002 and, secondly, the “loss of putative hotel” being the difference between the gross development value at the valuation date and the cost of construction (in 2002 prices).  The second element of the claim was plainly a matter that was “directly based upon the value of land” and was therefore inadmissible as part of a rule (6) claim.  It was derived from a residual valuation which assumed a sale of the reference land for hotel development at the valuation date.  Both Mr Chess and Mr Winbourne had acknowledged this to be the case in cross-examination.
70.	The first part of the claimant’s primary claim, the pre-acquisition loss of profits, ignored the fact that the claimant would have spent, on its figures, £775,000 to build the hotel.  So by the valuation date it would only have made net profits of £125,000, assuming (but not accepting) the claimant’s figure for profits of £227,000 pa.  The claimant allowed for the costs of construction by deducting them from the gross development value at the valuation date.  Mr Pereira said that this was wrong because in principle profit should be calculated by looking at the return on an investment and therefore the costs should be offset against income and not capital.  The claim that pre-acquisition losses amounted to £900,000 ignored the capital investment necessary to achieve the profit alleged to have been lost.  Since there had been no such capital investment there could have been no income; this was a facet of the principle of equivalence.
71.	Mr Pereira concluded that the maximum value of the claimant’s primary case, on its evidence (which was not accepted), must be £125,000 because:
(a)  that was the maximum profit it could have made by the valuation date had it completed a hotel in 2002;
(b)  the “loss of hotel” claim under rule (6) was misconceived;
(c)  the claimant had not advanced any rule (2) claim of any value under its primary case; and
(d)  no other valuation basis other than the claimant’s two stated bases had been advanced by the claimant and it was not open to the Tribunal to adopt a valuation approach that had not been fairly canvassed at the hearing.
72.	In his reply to the acquiring authority’s closing submissions Mr Harwood described Mr Pereira’s conclusions about the claimant’s primary case as being nonsensical and muddled.  He said that Mr Pereira’s argument that the maximum amount of compensation was £125,000 assumed that the claimant did not have the land (let alone a hotel) on the valuation date and that the product of the investment was a zero capital value with no ability to generate future income from that date.  The primary case was not that the site was “sold for development” as a hotel on the valuation date but that it was at that time a hotel.  As a functioning business the value reflected the future profitability of the hotel enterprise. The pre-acquisition blight had caused the claimant to do something different to that which he would have done in the no scheme world.  As a consequence there was a loss of the profit from that foregone activity.  The claimant was entitled to recover such a loss provided it satisfied the Shun Fung conditions of causation, remoteness and reasonable behaviour.  Putting such compensation into rule (6) was consistent with the rule (2) approach.  Rule (2) compensation had to be zero to avoid any inconsistency with rule (6).
73.	The claimant’s primary case was based upon significant capital expenditure that had to be taken into account by setting it off against the total sum represented by the profits generated up to 2006, the capital asset that existed at the valuation date and future profits.  The acquiring authority assumed that the capital expenditure merely generated profit for the four years leading up to the valuation date and that thereafter the claimant was left with nothing.  But the value of the hotel (£1.675m) had to be added to the acquiring authority’s figure of £125,000. 
Issue (b):  8-12 New Road (hotel) – conclusions on the claimant’s primary case
74.	The claimant accepts, for the purposes of this Tribunal, that a valuation under rule (2) must reflect the actual condition of the land as it existed on the valuation date.  It cannot rely upon a valuation under that rule which assumes that a hotel had been built at that time when in fact no such hotel existed.  The claimant seeks to overcome this difficulty by arguing that instead of compensation being assessed by reference to rule (2) and rule (6) it can properly and fairly be assessed only by reference to rule (6) alone.    
75.	The claimant’s rule (6) claim is in two parts; firstly, a claim for the loss of pre-acquisition profits from the hotel and, secondly, a claim for the “loss of putative hotel”.  The second part of the claim consists, in part, of the value of the (assumed) completed hotel at the valuation date.  Mr Harwood says in his closing submissions that:
“The value of the hotel would have reflected the profits which could have been generated from it, so there is a relationship between the hotel valuation and future loss.”
76.	Compensation is payable under rule (6) only to the extent that the loss in respect of which the claim is made is not directly based on the value of land.  Loss of profits that would have been realised from developing the land are not in principle compensatable under rule (6) because the prospect of such profits is what gives the land its value for development and a claim for such loss would therefore be directly based on the value of land.  This is a well established principle and was confirmed in Ryde International where Carnwath LJ cited at 64[26] the decision of the Court of Sessions in McEwing (D) & Sons Ltd v Renfrew County Council (1959) 11 P&CR 306: 
“The McEwing case was a decision of the Court of Sessions on facts that were not dissimilar to the present case.  The reasoning of Lord Clyde is entirely consistent with the views expressed above.  Lord Clyde found support in a passage in Cripps on Compulsory Acquisition of Land, 10th edn, para 4-236, which stated:
‘Loss of profits on development of a building site is not a subject of compensation.  The profitability of the land has already been reflected in the market value of the land.’
That passage was supported by reference to two English Divisional Court cases, Collins v Feltham Urban District Council [1937] 4 All ER 189, and George Wimpey & Co v Middlesex County Council [1938] 3 All ER 781.  Unfortunately, the reported decisions in those two cases take the form simply of answers to questions raised by the stated cases, without any more detailed reasoning.  However, they show that the law as I have attempted to explain it is consistent with what has been understood for very many years.”
The reference land is to be valued at the valuation date.  It is not disputed by the experts that the reference land would have had a positive open market value under rule (2) at the valuation date for either hotel or residential redevelopment.  The relevant statutory provisions (see paragraphs 23 to 25 above) require the acquiring authority to have regard to such value.  The claimant’s claim for the loss of profit that it would have made after the valuation date from developing the land as a hotel is directly based upon the value of land and is thus excluded from a rule (6) claim.     
77.	The claimant could have argued its case differently on this point as I stated at the start of the hearing when trying to clarify the claimant’s pleadings.  It could have argued that it had intended to develop a hotel but was unable to do so because of the anticipation of compulsory acquisition and the threat which such acquisition presented.  Therefore it would be entitled to claim (subject to proof about causation, remoteness, reasonableness and amount: see Pattle v Secretary of State for Transport [2009] RVR 328 at 337 [47]) for the profits that it had lost by not being able to redevelop earlier (2002 on the claimant’s evidence).  The rule (2) valuation would then be for the open market value of a hotel development as at the valuation date in 2006.  That valuation would reflect future profits.  This approach would not have led to a conflict between rule (2) and rule (6) and would not have required the assumption that the hotel was actually in existence on the valuation date.  In my opinion the difficulties faced by the claimant arise because it insisted on arguing that what would have happened in the no scheme world must be assumed to have happened as a fact at the valuation date in the scheme world.      
78.	In his skeleton argument Mr Pereira said that the claimant’s heads of claim in respect of the rule (2) value of land taken at 8-12 New Road had been advanced on three bases: (i) that upon this land stood an operational hotel; (ii) that the land benefitted from residential planning permission for 30 habitable rooms; or, (iii) that the land had the benefit of planning permission for hotel use.  Mr Chess for the claimant stated in his expert report dated 2 July 2008 that his instructions from Charles Russell Solicitors were, inter alia, to provide an opinion of:
“(i)  Market value of the site of 8/12 New Road, Dagenham as at 17 January 2006”
His conclusion in respect of that value was:
“(i) The site with [hotel] planning consent as at 17 January 2006: £330,000 (three hundred and thirty thousand pounds)”
In my opinion those instructions were for Mr Chess to undertake a valuation on basis (iii) above which he duly provided.
79.	On 15 April 2011 Mr Chess lodged a further expert report.  He stated at paragraph 2.1:
“I am instructed by James G Winbourne of Winbourne Martin French, on behalf of the claimant, to provide an opinion of the following:
(i) Market value of the site of 8/12 New Road, Dagenham as at 17 January 2006.
(ii) When the hotel would have been likely to have been completed and ready to trade without CPO intervention.
(iii) What level of trading profitability could have been envisaged annually in [or] around 2001/2002.”
The first of these issues had already been addressed in Mr Chess’ original report and he repeated the figure (on basis (iii)) of £330,000.  The other two issues were new and had been raised by Mr James Winbourne.  In what he described as a “consolidating report” dated 18 April 2011 Mr Winbourne explained when discussing the rule (6) claim for 8-12 New Road that:
“…we have requested Robert Chess FRICS of Christies to reassess his valuations for disturbance purposes (in the light of the Pattle case) on an assumption that with proper investment in the NSW a budget hotel would have been completed and up-and-running.  I expected that to well exceed any “floor” value [based on existing use].  Furthermore, Mr Patel’s disturbance calculations would be as value-to-owner and not need to take into account any ‘outside’ contractor’s profit nor developer’s profit…”
80.	Mr Winbourne’s consolidating report is opaque and lacks a coherent structure but I am satisfied on the evidence that it is the genesis of the claimant’s approach which it then adopted as basis (i) above.  By the time of the hearing the claimant was pursuing basis (i) as its primary case and basis (ii) as its secondary case.  It did not pursue basis (iii), which was the basis upon which Mr Chess had originally been instructed and which I consider to be the appropriate way of proceeding under rule (2) if a rule (6) claim is to be made for loss of hotel profits in the shadow period leading up to acquisition.  Mr Harwood confirmed the claimant’s position in terms on the morning of day one of the hearing during a lengthy discussion with the Tribunal.  He said:
“One issue which doesn’t arise is the question of what the residual value of the site for hotel redevelopment in 2006 would have been assuming that there wasn’t then a hotel on the site.  What the site would have been worth sold for a hotel development as referred to as basis (iii) in my learned friend’s skeleton.” 
Mr Harwood later explained that the claimant had rejected basis (iii) because it did not give a value of the site in 2006 with a hotel already on it.  Mr Pereira said that the claimant had confirmed to him on the day before the hearing that it was not relying on basis (iii).
81.	At the opening of the hearing, having heard Mr Harwood explain the claimant’s case in some detail, Mr Pereira said the following when addressing the Tribunal:
“I appreciate you need to understand what is being said.  But this isn’t a claimant acting in person, this is a claimant who is professionally advised and has been professionally advised throughout and if the claimant’s position is that basis (iii) is withdrawn - and that was communicated to me yesterday - and despite your queries of it this morning, that’s the position that’s being taken…then we must proceed on that basis and I will conduct the acquiring authority’s case on that basis.  Whatever debate about the law and the difficulties that may arise that perhaps is a matter for closing, subject to understanding enough of the way the claimant is putting its case for us to proceed.  What I don’t want to happen, and with respect what can’t happen, is for there to be any doubt about the way in which the claimant is now proceeding and it’s not, with respect, for the Tribunal to keep open lines of enquiry and then reach a valuation at the end of it.  It’s for the claimant to put its case.”
82.	In his closing submissions Mr Pereira returned to this point:
“No other permutations of possible assumptions or valuation approaches have been advanced by the claimant other than those spoken to in the claimant’s opening submissions and closing submissions, and the Tribunal is not, with respect, able to adopt an approach to valuation that has not been fairly canvassed at the hearing.”
83.	I accept Mr Pereira’s submissions on this issue.  The claimant could have pleaded its case differently with respect to losses from a hotel development and have done so in a way which, in my opinion, would have avoided conflict between rules (2) and (6).  It failed to do so and indeed it rejected that approach in terms, despite the fact that its hotel expert had originally been instructed to value on basis (iii).  Under these circumstances the Tribunal cannot advance such an alternative approach of its own volition and without full examination of the evidence that such an approach requires.  In my opinion the claimant’s primary case is wrong in law and the value of 8-12 New Road must therefore be assessed by reference to the claimant’s secondary approach, namely as a residential redevelopment site (basis (ii)).  
84.	Having determined that the claimant’s primary case is wrong in law it is not necessary for me to consider in detail the acquiring authority’s further argument that it was also wrong on the facts.  However in the event that my decision on the legal issue is incorrect I summarise below my conclusions on the evidence concerning the claimant’s proposed hotel development.
Issue (b):  8-12 New Road (hotel) – the evidence on the claimant’s primary case
85.	The claimant’s case was that the hotel development had been started before 1999; that work on it stopped as a result of the scheme; that its value in 2006 was an agreed figure of £1.675m; that it would have cost £1.1m to convert the existing building into a hotel as at 2006; that the equivalent cost in 2002 (using BCIS indexation) would have been £775,000 for which funding (claimant’s own resources and borrowing) would have been available; and that the “2006 onwards element of the hotel claim” was therefore £900,000.  The loss of profits for the four year period 2002 to 2006 was taken as £900,000, based upon the annual operating profit of £227,400 calculated by Mr Chess and rounded down.  The total claim under the claimant’s primary case was therefore £1.8m. 
86.	The acquiring authority’s case was that the claimant had failed to prove that the CPO had caused any loss; that it had not implemented the hotel planning permission prior to its expiry; that the claimant would not have completed the hotel but for the CPO because (i) it lacked a track record in this type and size of development, (ii) had not shown that it was likely to secure bank funding or that it could resource the development from its own funds, (iii) had not shown that £775,000 was a reasonable cost estimate and (iv) it may have entered into a joint venture with, or sold the site to, the neighbouring landowner, Mrs Azzopardi; that the claimant would not necessarily have run the hotel to the standard of a reasonably efficient operator; that the cost of constructing the hotel as at 2006 was £1.175m; and that the operating profit of a completed hotel as at 2006 was £199,290 pa.  The acquiring authority concluded that the claimant’s primary case should fail on the facts.
Issue (b):  8-12 New Road (hotel) – conclusions on the primary case evidence 
87.	The issue to be determined is whether the hotel development would have been completed and operational by 2002 under the 1997 planning permission in the no scheme world and, if so, what its trading profits would have been between 2002 and 2006.  
88.	Both Mr Patel and Mr Winbourne gave evidence that the works had started.  Mr Patel said that he had started stripping down the building (including removal of six chimneys, lights, electrical fittings, timber, plaster and partitioning) in or around 1999.  The property had been taken back to bare walls to enable the conversion into a hotel to proceed.  New partitions had been constructed.  He submitted a number of photographs which he said were taken in 1999 and showed the works in progress.  Mr Winbourne said that he had visited 8-12 New Road when he was dealing with Mrs Azzopardi’s adjoining site in 1999.  He saw that works were taking place to the property.  Mr Patel told him that it was being converted to a hotel.  Mr Winbourne said that there was going to be a CPO and that there would be no criticism of Mr Patel if he were to stop the works.
89.	The acquiring authority identified a number of inconsistencies in Mr Patel’s evidence and when asked to point to any document outside his witness statement that showed that the claimant had implemented the hotel planning permission Mr Patel said that there was no such document and that the whole of his file was missing.  In the light of these inconsistencies and Mr Patel’s replies during cross-examination the acquiring authority says that the hotel planning permission was not implemented and that Mr Patel was not being truthful when he said that it was. 
90.	I am satisfied that Mr Patel was not being deliberately untruthful when giving his evidence.  In reaching this conclusion I make allowance for the fact that English is not Mr Patel’s first language and that the nature of his business is such that he retains a significant personal involvement and acts with a minimum of formality; a “one man show” as he said when giving evidence.  Under these circumstances it is not surprising that his recall and explanation of the fine detail of events was confused at times.  Nevertheless the burden of proof rests with the claimant to show that it has suffered the losses for which it seeks compensation.    
91.	   On balance, and despite the inconsistencies in his evidence that were identified by the acquiring authority, I am satisfied that Mr Patel started the hotel works in 1999.  He explained the nature and extent of those works and provided some photographs of them.  Mr Winbourne corroborated Mr Patel’s evidence and said that he had seen these works when he visited 8-12 New Road in 1999.  But the extent of those works was limited and according to Mr Patel cost no more than £20,000 in total.   
92.	Although I conclude that the claimant had started the hotel development in 1999, it is also necessary for the claimant to show, under its primary case, that it had the intention and ability to complete the project and to start trading from it by 2002.  Mr Patel explained that he had a very cautious approach when borrowing to fund his development schemes and would typically invest 40-50% of his own money.  He would use his own money to commence the scheme and then approach the bank after the development was under way.  He had a good working relationship with his bank and although this project was larger than his previous developments it was of a similar nature (a conversion/refurbishment).  Mr Chess said that funding for a scheme of this type would have been readily available in the early 2000s and that borrowing for development projects was often secured against the gross development value of the completed scheme.
93.	I am not satisfied that the claimant would have obtained bank finance to fund the development.  The project was larger than anything previously undertaken by the claimant (Mr Patel accepted that it would cost 4 to 5 times more than previous projects) and it had not previously developed a hotel.  On its own figures the claimant would have needed to borrow at least £350,000 (£387,500 on the revised figures spoken to by Mr Harwood in closing).  There is no evidence that it could have done this other than the assertion that it would not have been a problem given the relationship between the claimant and its bank and the generally benign funding environment at that time.  The claimant produced no evidence of the viability of the scheme at its outset and Mr Chess was not asked to advise on this point.  Mr Boyd’s (unchallenged) view was that the viability of the development would have been marginal and its risk profile too great. 
94.	 Mr Patel said that he had not undertaken a detailed appraisal of the scheme costs because “I did not need to do so”.  He said his construction price would be 25% less than a tender and that he knew “pretty well” what the figure would be, even though this was his first hotel development.  He had not considered it necessary to take external advice about costs.  He had no fear that he would not be able to borrow the necessary amount from the bank and it never occurred to him to approach the bank at the start of the development.  He did not take any formal valuation advice but had telephoned “a couple of agents” who were hotel specialists.  He could not recall who they were.  He acknowledged that the bank would obtain its own valuation advice and that he did not know what they would have said.  He could show no comparison with contractor’s prices and invited the Tribunal to accept his word on this issue.           
95.	The 1999 cost figure of £770,000 (Mr Harwood later took £775,000) was produced at short notice by Mr Chess who apparently had been asked to provide it by his instructing solicitors after the hearing had started.  He arrived at the figure by applying the 2010 BCIS index (and in particular the graph of building cost trends) to his 2006 cost estimate of £1.1m.  In fairness to Mr Chess he acknowledged the limitations of his calculations and said that he was not suggesting that this was reliable evidence nor that he was a costs expert.  I think that he was right to be cautious.  I do not find the indexation exercise to be helpful.  The index that was used was nationwide and not London based, it covered all sectors and not just hotels and was not taken at the correct points.  For instance Mr Chess took 260 as being the 2006 value of the index, but that figure is for quarter 4 and the valuation date is in quarter 1, the value for which is 248.  That adjustment alone would give a revised cost figure of £807,000.  
96.	The claimant has not given any reliable evidence for the viability of the hotel development when the shadow period began and the development started in 1999.  No valuation of the completed development was undertaken at that time either by qualified valuers or by Mr Patel himself.  Mr Chess was not asked to make a retrospective assessment.  The cost evidence is either an assertion (Mr Patel) or acknowledged to be unreliable (Mr Chess).  The claimant has produced no evidence that bank finance would have been available for this type and size of development which fell outside the claimant’s previous experience.  No evidence was given of the ability of the claimant to fund the development, at least in part, from its own resources.  Again the claimant relied upon the assertion of Mr Patel that such internal funds were available.  Under these circumstances I am not satisfied on the evidence that the claimant would have had the necessary funding to complete the proposed hotel development.  That being so it is not necessary for me to consider the dispute about the profitability of the hotel.  The claimant’s primary case fails on the facts. 
Issue (c): 8-12 New Road (residential) – evidence and submissions on the claimant’s secondary case       
97.	The parties agreed that the site would be developed by 30 habitable rooms without any requirement to provide affordable housing.  The valuers agreed a schedule of comparable residential land sales analysed on the basis of capital value per habitable room adjusted by an agreed index to the valuation date.  A revised version of this schedule, including three additional sites, was handed in at the start of the hearing.
98.	In his expert report (prepared before the statement of facts and issues was agreed) Mr Foster assumed that Nos.8-12 could be redeveloped by a 40 habitable room residential scheme.  In valuing this scheme he considered nine comparable residential land sales (all of which were subsequently included in the agreed schedule of comparables).  He considered that:
“Taking a broad approach to the evidence it is submitted that the capital land value of £15,000 per habitable room would be appropriate giving a total value of £600,000 for a scheme of 40 habitable rooms.”  
99.	Mr Foster continued to use a capital value rate of £15,000 per habitable room in his rebuttal report.  In his rebuttal Mr Foster assumed a residential development of 30 habitable rooms above a commercial use on the ground floor.  In cross-examination Mr Foster said that he had been informed by a senior planning officer in a telephone conversation in 2008 that a scheme of 30 habitable rooms would require an affordable housing element.  His rate of £15,000 per habitable room therefore reflected the assumed need for affordable housing to be provided as part of the agreed development of Nos.8-12.
100.	The statement of agreed facts assumed that No.8-12 could have been redeveloped by a residential scheme of 30 habitable rooms without any requirement for affordable housing.  Mr Foster said that there should be an uplift in the rate per habitable room to reflect the absence of an affordable housing condition.  He said that this uplift could vary from 25% to 33%.  He adopted the lower figure which when applied to his rate of £15,000 phr gave a revised figure which he took at £18,500 phr.  Mr Foster said that he had not discussed the question of the amount of uplift with Mr James Winbourne.
101.	Mr Foster said that a residential social landlord (RSL) would have to pay more for a site that had no affordable housing requirement because it then had to compete with the private sector.  He also said that several of the comparable sites were located on contaminated land and that this would have reduced their purchase price.  
102.	In valuing No.8-12 Mr Foster assumed that in the no scheme world the order land would have been redeveloped.  He assumed that efforts would have been made by landowners to improve the area surrounding the reference land.  Mr Foster accepted that he had not valued the surrounding order land in its actual condition on the valuation date. 
103.	Mr Winbourne also gave evidence about residential values.  He said that there was a lack of evidence of similar sized developments.  He relied in particular on sales at Burgess Road, East Ham (16 habitable rooms) and at Old Street, Plaistow (28 habitable rooms).  He acknowledged that both these comparables were located in the London Borough of Newham and that they produced considerably higher values than the other comparables.  But neither site had a requirement for affordable housing and “working back” from these values Mr Winbourne derived a value for No.8-12 of £20,000 phr.  He said that sites without a requirement for affordable housing were more valuable because (i) the developer did not have to produce a non-profit making element, and (ii) there was no requirement to complete the affordable housing before the private sector housing. 
104.	Mr Winbourne accepted that Mr Foster’s evidence was more informed than his own on this issue and acknowledged that Mr Foster was a local surveyor with more knowledge and experience of the market.  In the light of this concession Mr Pereira did not cross-examine Mr Winbourne about the schedule of comparables.
105.	Mr Harwood submitted in closing that the valuation starting point should be greater than £15,000 phr.  He said the average value of five of the comparables (Castle Green, Barking; Mardyke Close, Rainham; Callow House, Rainham; Manser Court, Rainham; and Annabelle Court, Rainham) pointed to a value of between £17,000 to £18,500 phr.  Although Mr Foster adopted a figure of £18,500 phr during the hearing the claimant maintained its claim of £600,000 on its secondary case being 30 habitable rooms capitalised at Mr Winbourne’s figure of £20,000 phr. 
106.	Mr Cottage valued 8-12 New Road in the sum of £375,000, being 30 habitable rooms capitalised at £12,500 phr.  This capital rate was derived from the schedule of agreed comparables but Mr Cottage also supported his figure by reference to a residual valuation.  He emphasised that this was only produced as a check and that it should not override his main evidence which was based on comparables.  Mr Cottage said that the comparable evidence demonstrated that values within Dagenham and south Havering were generally around £15,000 phr for infill residential redevelopment.  He said that this figure would apply with or without an affordable housing requirement because where the market was risky RSLs would bid on equal terms with private developers.  In areas of low value RSLs would pay the market price and nothing more.  He cited three of the agreed comparables where there had been no requirement for affordable housing and which showed values at or around £15,000 phr.  In his opinion there was no discernible difference in value between sites with and without an affordable housing requirement in this location.  There was nothing in the agreed schedule of comparables that supported the claimant’s uplift of 25-33% where there was no such requirement.
107.	Mr Cottage did not find the comparables in the London Borough of Newham that Mr Winbourne relied upon to be of any assistance.  They were in very different areas with very different prices.  He felt that they should be given no weight.  He considered the general tone of value to be £15,000 phr, a figure that Mr Foster had also adopted in his expert reports.
108.	Mr Cottage adjusted the figure of £15,000 downwards for two reasons.  Firstly, at the valuation date the majority of the buildings on the order land were in poor repair with a high number of vacant units.  He said that there was no evidence that in the no scheme world a comprehensive redevelopment would have been undertaken by the private sector.  Any piecemeal redevelopment that took place was likely to have been isolated, of relatively poor quality and prejudicial to comprehensive redevelopment.
109.	The order lands, including the reference land, had fallen into decline well before the CPO was made.  In the no scheme world Mr Cottage said that it was highly unlikely that this decline would have been reversed by the valuation date.  Mr Foster’s assumptions about what would have happened to the order lands in the no scheme world were “totally speculative” and Mr Foster had given no details of any improvements that would have taken place in the area.  There was an “almost limitless” range of assumptions that could be made.
110.	Secondly, the access road to the rear of No.8-12 was unmade, pot-holed and unsuitable to service a new residential development.  The agreement of adjoining landowners would be required in order to undertake improvement works.  The potential risk of abnormal costs associated with the access road would be reflected in the bids of potential purchasers.  Mr Cottage asked his colleague Mr Kieran Frain MRICS to prepare a budget cost of repairs to the access road.  Mr Frain costed the works at £66,000.  Mr Cottage did not contend that a purchaser would have to pay such a figure (which he described as being at the “very top end”) but said that the costing exercise showed that there would have been an element of uncertainty which would have affected the purchase price. 
111.	Mr Pereira submitted that the no scheme world rule required that the condition and use of the land surrounding the reference land had to be considered as it in fact was at the valuation date, with no assumptions being made as to what might or might not have happened in the past, see the Lands Tribunal’s decision in Urban Edge Group Limited v London Underground Limited [2009] RVR 361 at 369 [45] and 370 [48].  The claimant’s position was inconsistent with that decision since it had based its claim upon the condition of the surrounding land as it would have been in but for the CPO and the indications of compulsory purchase in 1999. 
112.	Mr Harwood submitted that Urban Edge dealt with preliminary issues about the planning permissions that could have been expected on the reference land.  One aspect of that was whether planning permission for, and completion of, other development could be assumed elsewhere on the order land prior to the valuation date with an effect on the ability to obtain planning permission on the reference land.  Urban Edge was only concerned with the possibility of obtaining planning permission and not the effect of blight on the remainder of the order lands.  In the present case the acquiring authority had accepted that residential planning permission would have been granted on the reference land and on the surrounding land at 14-18 and 28-32 New Road (owned by Mrs Azzopardi).
113.	The Tribunal had to consider the value of the reference land without the blight caused by the scheme to the order lands and with the benefit of the market conditions from 1999 to 2006.  Mr Harwood submitted that the acquiring authority were “simply wrong” to argue that the value of the reference land could be affected by the intention to compulsorily purchase the remainder of the order lands notwithstanding that the effect on value of an indication to compulsorily purchase the reference land itself falls to be ignored under section 9 of the 1961 Act.  Mr Harwood relied upon Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565 and Waters v Welsh Development Agency [2004] 1 WLR 1304.  He also adopted the arguments on this point submitted by the claimant in Thomas Newall Limited (No.2) v Lancaster City Council [2011] UKUT 437 (LC) at [88] to [115]. 
114.	Mr Pereira argued that Thomas Newall was of no assistance to the claimant because (i) the case did not concern the condition of land surrounding the reference land (which is the point raised by the claimant in the present reference), and (ii) the issue was decided on the facts without the need to express a concluded view on the legal issue.  The President’s decision in Urban Edge dealt with the point.  Moreover generalised blight caused by the scheme on adjoining land was not attributable to the taking of the land and was not recoverable in principle; see Pattle at 338 [53]. 
115.	Notwithstanding the legal arguments on the point Mr Pereira submitted that the issue should be decided on the facts about whether, and if so how, the surrounding land would have changed in the no scheme world on the assumption that it was permissible to consider whether such land would have been in a different condition to that which it was actually in on the valuation date.  The acquiring authority’s case was that if the effects of any indication of compulsory purchase on the surrounding land are ignored from 1999 onwards there was no evidence to establish that on the balance of probabilities that land would have been in a materially different condition to how it actually was in 1999 or at the valuation date.  The difference in legal approach between the parties therefore made no difference to the value of the claim. 
Issue (c):  8-12 New Road (residential) – conclusions on the claimant’s secondary case
116.	    I base my conclusions on this issue on the schedule of fifteen comparables agreed by the three valuation experts.  They all rely upon this document although they attribute different weight to its component transactions.  In addition Mr Cottage produced a residual valuation which he adopts as a check.  The problems of residual valuations and this Tribunal’s reluctance to rely upon them are well known.  I do not find Mr Cottage’s residual valuation to be of assistance and I prefer to rely upon the evidence of comparable land sales.  Mr Winbourne fairly conceded that Mr Foster’s evidence on this issue was better informed than his own.  I therefore place greater weight on the evidence and opinion of Mr Foster about residential land values. 
117.	  Mr Cottage was criticised for the late production of three new comparables which Mr Harwood said was “deeply troubling” and indicative that “the information was being suppressed”.  Mr Cottage acknowledged that possibly he should have produced the sale details of these sites earlier, although he had referred to them in his supplementary report.  Notwithstanding Mr Harwood’s concerns the claimant accepted these comparables into the schedule of agreed facts at the start of the hearing and its experts were willing and able to comment upon them.  There was no application for those experts to be given more time to consider them.  The comparables are relevant to the valuation issue and I do not consider that the claimant has been prejudiced by their inclusion in the evidence.
118.	Mr Winbourne relied upon comparables in East Ham (£31,372 phr) and Plaistow (£25,857 phr) to “spot” his valuation of the reference land at £20,000 phr.  Mr Cottage said that these sites were both in the London borough of Newham where values were significantly higher and where there was an established residential development market.  Mr Foster said that he did not consider these comparables to be relevant.  I do not find Mr Winbourne’s approach to be helpful and I place no weight on these two comparables which are considerably higher than any of the other sites in the agreed schedule.
119.	Three of the comparables were acknowledged by both parties to comprise schemes in which the numbers of habitable rooms were an order of magnitude greater than the agreed residential scheme on the reference land.  These schemes also include a high proportion of housing rather than flats.  I place no weight on these comparables (Heathway, Dagenham; Reede Road, Dagenham; and Hedgemans Road, Dagenham). 
120.	The comparable at 199 New Road, Rainham was sold for its existing industrial use and not for residential redevelopment.  The figure included in the agreed schedule was the highest bid for an alternative residential use.  Mr Cottage accepted that the residential developer had been outbid by £150,000 and that this site had not been developed by flats or houses.  He said that this comparable was “not the best evidence” but that it gave an indication of residential value.  I do not find this to be a useful comparable and I place no weight upon it.
121.	The site at 123/123a Broad Street, Dagenham is a mixed commercial and residential development.  Mr Cottage said that the analysis of the habitable room rate was subject to interpretation and Mr Foster, while not offering any figure of his own, said that Mr Cottage’s analysis, based as it was upon a “residual style” calculation of costs and finance, was unsafe.  Mr Cottage considered that this comparable was “not as strong as some”.  I place no weight on this comparable.
122.	There are therefore eight comparables in the agreed schedule to which I have had regard in reaching my conclusions on this issue.  
123.	I commence my analysis of the comparables by considering two points of principle: (i) whether there is any evidence to support the claimant’s view that there should be an uplift in value where there is no requirement for affordable housing; and (ii) whether the physical state and use of the order land in the vicinity of the reference land are to be taken as they in fact were at the valuation date.  
Uplift in value
124.	Mr Foster said in cross-examination that this uplift is 25% while Mr Winbourne said that it is 33% (although he accepted in cross-examination that it “could be” 25%).  Mr Foster supports his figure by comparing the comparables at Castle Green, Barking (£18,599 phr for a scheme containing 25% affordable housing) and the former Pipers Public House, Gale Street, Dagenham (£15,540 phr for a scheme sold to a RSL for 100% affordable housing).  The (indexed) difference in value, of some £3,000 phr or 20%, is said to be due to the Castle Green site having a significant element of private housing.   But this comparison does not establish that sites in the same locality will command higher values where there is no requirement for affordable housing.  Both these sites had planning permissions for private housing with a requirement that some affordable housing be provided.  At the Pipers site there was a requirement for only 35% affordable housing.  But that site, unlike Castle Green, did not attract sufficient interest from the private sector and it was built as a 100% affordable housing scheme.  
125.	Mr Cottage accepted the general proposition that a site with a requirement for affordable housing is worth less than one without such a requirement.  But he emphasised that this is not always the case, especially in low value areas which lack an established private residential market and where immediate development is a risk.  He placed the reference land into this category and said that it was not attractive to the private sector.
126.	The claimant says that RSLs will have to compete against private developers in the market.  That is not in dispute.  But the evidence suggests that in the vicinity of the reference land RSLs were able to compete successfully in the market and that there was no premium attached to consents without an affordable housing requirement. The former Pipers public house, Annabelle Court, Mardyke Close, Callow House and Manser Court are all sites which were developed as 100% social housing even though this was not a planning requirement.  RSLs in this location were not being outbid by private developers.
127.	The suggestion that such a premium exists was raised by Mr Winbourne with Mr Foster in April 2011.  In an email to Mr Winbourne dated 15 April 2011 Mr Foster said:
“I…confirm my opinion that development sites below the social housing threshold on any planning authority would expect to attract a higher rate per habitable room than sites subject to that requirement.”
I am concerned that Mr Foster, if he considered this to be a relevant point, made no mention of, or allowance for, such an uplift in values in either his expert or rebuttal reports.  This was despite his rebuttal evidence containing a valuation of No.8-12 for a 30 habitable room residential development above a commercial ground floor use.  It appears that Mr Winbourne expected a development of that size to be free from any obligation to provide affordable housing (as indeed was agreed by the valuation experts, including Mr Foster, in the valuers’ statement of agreed facts).  But Mr Foster said that an unnamed senior planning officer had told him in a telephone conversation in 2008 (not subsequently confirmed in writing) that such a development would require affordable housing.  Therefore he had not allowed any uplift to his adopted value of £15,000 phr.  I am surprised that Mr Foster did not refer to this conversation earlier bearing in mind the importance which the claimant attaches to this issue.  
128.	 I find the evidence to be persuasive in favour of Mr Cottage’s opinion on this issue.  Five of the eight comparables were developed with 100% affordable housing, of which four are located in New Road.  One of these, Callow House, had no planning requirement for affordable housing and was of an identical size (30 habitable rooms) to the agreed development on the reference land.  It sold for £14,962 phr (indexed).
129.	In my opinion there is one valid comparison which can be made between two of the comparables in order to see whether an uplift in value might exist where there is no requirement for affordable housing.  The two sites are at 237-241 High Road, Chadwell Heath (£14,985 phr, 30% affordable housing) and 287-295 High Road, Chadwell Heath (£16,514 phr, no affordable housing requirement).  Mr Cottage described No. 237-241 as a “highly relevant comparable”.  The sites were sold within three months of each other and are also in close proximity.  The site without affordable housing commands a value which is 10% higher than the site with a 30% affordable housing requirement.  That is considerably less than the 25-33% for which the claimant argues and shows a value of some £16,500 phr for a scheme without affordable housing compared with the claimant’s figure of between £18,500 to £20,000 phr.  The claimant does not rely upon this comparison and I give it little weight for two reasons; firstly, the site at No.237-241 is four times as large as that at No.287-295 and, secondly, I accept Mr Cottage’s view that these sites are in a superior location to the reference land and were therefore of more interest to the private sector.  A differential in value favouring the site without any affordable housing might be expected as a result.
130.	I conclude that there should be no uplift in value to reflect the agreed assumption that the residential redevelopment of No.8-12 would not require any affordable housing.
Condition of the surrounding land
131.	     This issue is one of fact and law.  In my opinion it can be decided on the facts and it is therefore unnecessary for me to express a concluded view on what is a contentious and difficult legal point.  In my opinion the land surrounding the reference land would have been in materially the same condition as it was in fact at the valuation date even if the effects of the CPO are ignored.  Those effects, it was agreed between the parties, fall to be considered from the time of the first indication in 1999 that the order lands might be subject to a CPO.  In the light of the evidence Mr Foster fairly conceded that the condition of the surrounding area showed the following characteristics before any indication of compulsory purchase in 1999:
(i)	the rationale for the creation of Chequers Corner, namely to serve the large number of industrial workers at Fords and the docks to the south and the heavy volume of traffic passing along the A13, had now largely gone;
(ii)	it was and had been run down for many years;
(iii)	it was in a state of continuing decline;
(iv)	it did not serve the general shopping needs of local residents to the north of New Road;
(v)	it was beset by vandalism, theft, fly-tipping and fly-posting;
(vi)	it was beset by unit vacancies;
(vii)	it was seen as an area that had obvious possibilities for redevelopment;
(viii)	property owners were deliberately allowing their properties to decline and remain vacant;
(ix)	there were no national or well known retailers;
(x)	there was no obvious anchor trader;
(xi)	any redevelopment would need to be comprehensive; and
(xii)	it was not a very attractive place to live.		
132.	      I accept Mr Pereira’s submission that for the claimant to show that the threat of the CPO had considerably worsened the physical state and economic prospects of the order land (as Mr Harwood submitted in closing), it must prove three things on the balance of probabilities:
(i)	what it is that would have stopped and then reversed the negative trend identified in the previous paragraph and accepted by Mr Foster;
(ii)	what it is that would have brought about a material improvement in the order land by the valuation date; and
(iii)	what the condition of the order land would in fact have been with sufficient particularity to support a reliable valuation.
133.	   On the first point the claimant says that the de-trunking of the A13, the property boom that existed at the valuation date and the continued activity of the nearby Ford factory are all factors that would have encouraged the development of the order lands in the no scheme world.  
134.	Even after the de-trunking of the A13, New Road (now the A1306) remains a very busy road and a significant discouragement to pedestrian movement across it.  I accept that the provision of at grade crossings are an improvement to the unpopular subways that were previously in place but, in my opinion, the de-trunking and the improved crossing would not have been sufficient to encourage and accelerate the redevelopment of the order land in the no scheme world.  It remains an isolated site away from the main residential areas to the north of New Road.  There was no reason for residents from the north to cross to the retail units at Chequers Corner when there was an adequate local shopping centre in Goresbrook Road.
135.	Mr Cottage said, and I agree with him, that a property boom does not necessarily benefit every prospective development and bring forward its implementation; the disadvantages of the order lands were structural and long term and the relative attraction of the site was not affected by economic prosperity.  I am not satisfied on the evidence that the claimant has shown the likelihood of comprehensive, or alternatively piecemeal, redevelopment and improvement of those lands taking place because of a general increase in property prices or otherwise.  Mr Harwood submitted that significant parts of the order land were already in the hands of developers such as Mrs Azzopardi and that therefore the order lands were ripe for “parcel by parcel redevelopment and refurbishment in the run up to 2006”.  But Mrs Azzopardi, who was not called by the claimant to give evidence, does not explain in her witness statement how or when development of her landholdings was to have been achieved in the no scheme world.  She is also lukewarm about the prospects of a more comprehensive development, saying:
“I may have been prepared to co-operate with the Claimant in relation to potential joint development or joint design for our properties.”
136.	Vehicle assembly has now stopped at the Ford factory which is located to the south of the order lands.  The factory still produces diesel engines and also has a stamping works.  But the level of employment at the site is considerably less than it was at its peak of production.  The Special Study of Chequers Corner produced by the council in November 1999 following the adoption of the UDP in 1995 says the following about the history of the Chequers Corner site in relation to Fords and other land uses:
“The close proximity to the Fords Motor Plant and other industries in the area ensured high levels of footfall by local workers enabling the shops to prosper.  However, the decline in manufacturing industry, the decreased use of the river for freight transportation and labour saving production techniques employed by Fords, all reduced the number of workers in the area.  Footfall to the shops was also diminished with the increasing use of private cars to get to and from people’s places of work.  In addition shops and services became part of the Ford Complex ensuring workers would not need to venture out of the site during the day.  A steady increase in traffic along New Road [written before the de-trunking of the A13] has also increased separation between Chequers Corner and the adjacent community.  All these factors along with a general decline nationally in local shops has combined to create the current situation of low footfall, struggling shops and high levels of vacancy.”
In my opinion the reduced activity at the Fords factory, which Mr Patel acknowledges in his evidence, is a factor that discouraged rather than encouraged early redevelopment of the order lands in the no scheme world.
137.	  In my opinion the claimant has not given any convincing reason why the negative trend that was established prior to the scheme would have been stopped and reversed in the no scheme world. 
138.	On the second of Mr Pereira’s points, as to the cause of any material improvement to the order lands by the valuation date, the claimant responded only in general terms.  When asked how and by whom such improvement would have been brought about, Mr Foster referred to:
“a mood and atmosphere among owners that there would have been a redevelopment of that corner.”
I can find nothing in Mr Foster’s reports that provides the basis for such a “mood”, although he referred in cross-examination to his knowledge of the area and research of activities between 1999 and 2006.  In my opinion the claimant has not shown any specific reason for a material improvement to the order lands by the valuation date in the no scheme world. 
139.	 Finally, Mr Pereira submits that it is for the claimant to describe clearly how the order lands would have been improved in the absence of the scheme.  The claimant’s evidence on the point is vague.  Thus Mr Foster acknowledged that he had not valued the reference land by reference to the actual condition of the surrounding order land as at the valuation date but instead had assumed that it would have been improved on the basis of  a “broad brush treatment”.  He makes no specific assumptions about the condition or use of any particular property.  I agree with Mr Cottage’s view that Mr Foster’s assumptions about what would have happened in the no scheme world are speculative and subjective and that the claimant has provided no evidence to enable a clear idea to be formed about what development, if any, would have taken place.  There is an “almost limitless range of assumptions” that could be made.  In my opinion the claimant has not shown what the condition of the surrounding order land would have been in the necessary detail to enable a valuation to be undertaken on that basis.
140.	I conclude that the claimant has failed on the facts to show that the threat of the CPO had considerably worsened the physical state and economic prospects of the order lands.  I therefore value the reference land by reference to the actual condition of the surrounding order lands as at the valuation date which in my opinion is not materially different (in valuation terms) from that which would have prevailed in the no scheme world.
The price per habitable room
141.	Although the parties have agreed to use an index to express the value of the comparables adjusted to the valuation date I am concerned about the age of several of the transactions.  Three of them post date the valuation date by more than a year.  Four of them are more than 2 years old of which two are more than 4 years old. The oldest comparable, Callow House, is a sale that took place 4.8 years before the valuation date.  Indexation has increased the sale price by 83%.  Only one of the comparables is close to the valuation date (Annabelle Court).  I do not consider that transactions which rely heavily upon indexation should be given the same weight as more recent comparables and I have therefore adjusted the comparables to reflect this.  The weighted average value for the eight comparables is £16,500 phr and that for the four comparables in New Road is £16,875 phr. These results are marginally less than the unadjusted averages.
142.	 In his closing submissions Mr Harwood refers to five of the comparables (the four sites in New Road and the site at Castle Green).  He concludes that these five sites “point to average values for their circumstances of £17 - 18,500 per habitable room”.  That is not the base figure that was spoken to by Mr Foster, ie the value before a 25% uplift for the absence of a requirement for affordable housing.  He accepted during cross-examination that it was common ground between himself and Mr Cottage that the general tone of residential value at the reference land was £15,000 phr.  But he thought that the three comparables that had been produced just before the hearing by Mr Cottage could inflate the price per habitable room.  The average value of those three comparables as shown in the revised appendix AF6 of the agreed statement of facts is £17,835 phr.  All three of the comparables are close together in New Road a short distance to the east of the reference land.  In my opinion these comparables are relevant and, taken together, support a higher price than the £15,000 phr that the experts had apparently assumed at the time their reports were written in 2008.  The fourth comparable in New Road, at Annabelle Court, which gives the lowest value of the four at £14,151 phr, was included in the original version of the appendix.
143.	    Three of the four New Road comparables had planning conditions dealing with potential land contamination arising from the previous industrial use of the sites.  Callow House also had a noise condition since it adjoined an industrial building to the north.  Mr Foster said that potential contamination problems would have a major impact and constituted a development risk. Purchasers would have reduced the price paid for these sites, although he did not quantify the amount of such a reduction.
144.	For his part Mr Cottage argued that the value of No.8-12 should be reduced to reflect the need to improve the access road to the rear of the property.  Mr Foster dismissed it as “largely a red herring” in comparison with contamination issues or section 106 requirements.  He thought that in the no scheme world other land owners would show “enthusiasm to contribute”.  I think that is wishful thinking.  Mr Cottage accepted that the estimate of £66,000 to repair the road was at the “very top end”, but he thought that the need to undertake the works introduced an element of uncertainty into the development.  I accept that this is a factor that a potential purchaser would take into account when preparing his bid.
145.	A more significant difference between the parties is the discount that Mr Cottage makes to reflect the condition of the order lands on the valuation date.  I have found above that the condition to be assumed for the purposes of the valuation is the condition in which the land was actually in on that date since this was not materially different to the condition the property would have been in in the no scheme world.  Mr Foster said that he had assumed the condition of the order lands to be better than it in fact was at the valuation date.  He accepted that if the surrounding land was worse than he had assumed then the base value of £15,000 phr would be reduced.  However he thought that Mr Cottage’s reduction to £12,500 phr was too great.  In my opinion this point needs to be considered in the context of all the locational and physical factors that affect the value of the reference land.
146.	All of the comparables relied upon by the parties are located to the north of New Road in established residential areas.  The land to the south is predominantly industrial and commercial.  New Road is a busy dual carriageway which acts as a physical barrier to the movement of pedestrians, although the environment is less hostile now that the subways have been replaced by at grade crossings.  The reference land is therefore in an area that is dominated by non residential uses, although it is close to the ASDA superstore and the Merrielands Retail Park which adjoin it to the west.  The shops at Goresbrook Road are also accessible to the north of New Road.  The reference land enjoys good communications which I consider to be better than the comparable sites in New Road which are rather more remote to the east.  But the assumed condition of the surrounding order land is unattractive.  
147.	Taking all of the above factors into account, and allowing no uplift in respect of the lack of an affordable housing requirement, I consider that the residential value of the reference land is 15% less than the average of the comparables.  Discounting the average of all eight comparables gives a figure of £14,025 phr while discounting just the New Road comparables gives a figure of £14,344.  In my opinion the appropriate rate at which to value the reference land is £14,250 phr.
148.	Applying this rate to the agreed development at No.8-12 of 30 habitable rooms gives a capital value of £427,500. 
Issue (c): holding costs - evidence and submissions
149.	This issue was not part of Mr Foster’s instructions and the claimant’s evidence on the point was given solely by Mr James Winbourne.  
150.	The original claim did not refer to this item, nor did the claimant’s statement of case which accompanied the reference to the Tribunal.  In further and better particulars to the statement of case prepared on 7 September 2007 by Mr James Winbourne, reference was made to “holding costs incurred (disturbance item)” but these were not identified. 
151.	  In Mr Norman Winbourne’s expert report dated 26 July 2008 holding costs were calculated for No.8-12 by reference to:
 “seven years’ loss of estimated rental income of (say) £10,000 pa net at Nos.8 to 12 New Road (allowing partial use only, for Acrofame’s office)”. 
This gave a sum of £70,000 to which Mr Winbourne added (simple) interest at 10% for 3.5 years. The total sum in respect of No.8-12 was therefore £94,500.     
152.	Mr James Winbourne’s first expert report was dated 18 April 2011.  In respect of No.8-12 he suggested “two routes” for the calculation of the disturbance claim.  The first of these was described as follows:
“Arguably, one could apply an hypothetical rent to the somewhat dilapidated land and buildings, subject to allowances for carrying out immediate repairs (by Mr Patel himself).  On that basis, one could expect to receive a commercial rent income, in the NSW, which for the three properties I would put at (say) £15,000 pa for 7 years or (say) £100,000.  That might be regarded as a lower quartile or ‘floor’ figure of loss however.  Alternatively, one may consider deprivation of developer’s profit at 20% and I deal with those matters below.”
Mr Winbourne returned to the disturbance calculations in section 9 of his report.  He said that:
“Due to the scheme, Mr Patel lost out on the broad one-third of the value in developer’s profit and also a notional builder’s profit and together that is his true loss; especially as property prices were rising on all properties at the same time and of course in London.”
Apart from this loss of developer’s profit Mr Winbourne calculated disturbance at No.8-12 by assuming the loss of four years’ hotel rent at £227,000 giving a rounded total of £900,000.       
153.	The claimant submitted an amended statement of case, prepared by Mr James Winbourne, on 9 June 2011 in which the disturbance claim of £900,000 was repeated.  The statement continued:
“This profit may have to be adjusted by interest on the capital works and the income to be received between 2002 and the vesting date.”
Such an adjustment was not quantified.
154.	In his skeleton argument Mr Harwood introduced the following argument:
“If there would not have been a hotel use in operation prior to 2006, then Acrofame would be entitled to the holding costs of [the] site over the 7 year shadow period £9,311.25 times 7 being £65,178.75 cf Mr Cottage [4/24/1183/para.12.4.15].  There is no offset for changes in underlying property values, not least because the use of that money on another site would have been subject to those changes.”
Mr Harwood repeated this argument in his closing submissions, although it did not form any part of Mr Winbourne’s evidence.  He explained that £9,311.25 was Mr Cottage’s figure of the claimant’s annual holding costs.  The claimant did not disagree with that figure but considered that it should be multiplied by the seven years of the shadow period from 1999 to 2006.  The evidence on this issue from Mr Norman Winbourne, adopted by Mr James Winbourne, together Mr James Winbourne’s own evidence, is apparently not relied upon.   
155.	Mr Harwood’s reference to Mr Cottage’s evidence was to paragraph 12.4 of his rebuttal report dated 14 July 2011.  This was headed “Claimed loss of profits from a hotel business” and was mainly concerned with the claimant’s primary case.  At paragraph 12.2.14 Mr Cottage said that any loss incurred by the claimant in holding No.8-12 until the valuation date would be limited to the cost of replacing the capital of £143,250 that it had tied up in the site.  This was a reference to the claimant’s combined purchase price for 10-12 New Road (£111,000) and 8 New Road (£32,250).  If the scheme had prevented the claimant from employing that capital elsewhere then the loss could be measured reasonably by considering the cost of borrowing the invested capital over the holding period.  Mr Cottage took the cost of borrowing at 6.5% and applied it to the capital invested for the period over which (so the claimant argued) it would have operated the completed hotel prior to the valuation date, namely the four years 2002 to 2006.  This gave a holding cost of £37,245.  But Mr Cottage argued that by holding the land between 2002 and 2006 the claimant benefitted from planning policy changes that made it possible to secure a higher density of residential development at a time when residential values were improving strongly.  A comparison between residential and hotel land values for No.8-12 at the valuation date revealed that the former were significantly higher than the latter and showed that the value improvement enjoyed by the claimant exceeded any notional holding cost of the capital invested in the site.
156.	Mr Pereira submitted that the claimant’s basis for claiming holding costs was unclear.  He said that Mr Cottage had responded to the point in detail but in any event this element of the claim should fail because (a) there was no proof that the claimant would not have continued to hold the land but for the CPO; (b) by continuing to hold the land the claimant benefitted from factors that increased the value of the site and meant that it had not suffered any net loss; and (c) in order to claim holding costs the claimant must show that it tried to mitigate its loss by putting the land up for sale, which it did not do. 
Issue (c): holding costs - conclusions
157.	The claimant’s final position under this head of claim owes nothing to the evidence of its expert, Mr Winbourne, who says that the holding costs should, as a minimum, be the loss of rent on No.8-12 from 1999 to 2006.  Mr Harwood ignores this evidence in his closing submissions and, surprisingly, relies instead on an example put forward by Mr Cottage as part of his rebuttal of Mr Winbourne’s case.  
158.	There is no claim for holding costs in respect of 4 Chequers Corner and the claim in respect of 8-12 New Road is only made under the claimant’s secondary (residential) case.  Holding costs are not relevant to the claimant’s primary case.  The claimant’s argument on holding costs (as I understand it) may be stated simply: because of the threat of compulsory purchase the claimant could not sell or develop the land for residential use for seven years (1999 to 2006) and consequently its capital was tied up without return.  The notional cost of borrowing (6.5%) when applied to the capital invested produces an opportunity cost of £65,178.75.
159.	In Ryde International plc v London Regional Transport [2001] RVR 59 (LT) the Lands Tribunal, His Honour Judge Rich QC, held as a preliminary issue that the cost of holding a block of flats and five bungalows, calculated as the interest payable on the sum borrowed to buy the site and build the dwellings, was recoverable under section 5 rule 6 of the 1961 Act.  In reaching this conclusion Judge Rich applied the tests of causation and remoteness set down in Shun Fung.  The third test, that of reasonableness, was reserved by the acquiring authority for evidence at the stage of quantification of the claim.  In my opinion these tests should be applied to the present claim.
160.	The first test is that of causation.  Would the losses claimed have been (notionally) incurred but for the scheme underlying the compulsory acquisition?  The claimant’s argument assumes that, in the no scheme world, the property would have been sold or developed for residential purposes.  The claimant adduced no evidence under its secondary case that it intended to sell or redevelop the whole of No.8-12 for residential purposes in the no scheme world either at the commencement of the shadow period in 1999 (being the date from which holding costs are claimed) or at any time before the valuation date.  
161.	Mr Harwood’s adoption of Mr Cottage’s example is taken out of context from the whole of Mr Cottage’s argument.  The acquiring authority say that, even if the CPO caused the claimant to hold No.8-12 longer than it wished (which they deny), by holding it until the valuation date the claimant had benefitted from the (undisputed) rise in residential land values during the shadow period.  The value of 8-12 New Road for a residential development site at the valuation date exceeded its value as a hotel development site at that date whichever expert valuation is chosen.  Mr Harwood denies any benefit and argues that there should be no offset for changes in underlying property values, not least because if the capital used to buy No.8-12 had been spent on another site unaffected by the scheme it too would have been subject to those beneficial changes.  That may be so but in order to enjoy the same increase in values the claimant would have needed to hold such an alternative site until 2006.  In doing so it would have incurred the same holding costs, which, under those circumstances, would not have been caused by the CPO.
162.	In any event Mr Harwood’s adopted figure of holding costs makes no allowance for the rental income that was actually received from No.8-12 during the shadow period.  The valuation experts’ agreement acknowledges that flat 8a was let on an assured shorthold tenancy to the London Borough of Redbridge at a rent of £520 per month (£6,240 pa).  That income, and any other income from elsewhere in No.8-12, should be deducted from the amount of holding costs claimed.   
163.	In my opinion the claimant has not shown a causal link between the threat of acquisition and holding costs in respect of a residential scheme.  The figure that it claims is not supported by its own evidence and, in my opinion, has not been carefully or properly considered.  Having failed the test of causation it is unnecessary to consider the application of the remaining two tests under Shun Fung.  I disallow this head of claim.  
Issue (d):  Pre-reference costs
164.	 The claimant seeks a total of £11,888 under this head of claim.  This comprises the professional fees of two firms of chartered surveyors: (i) McDowalls: £6,772.42 including VAT; and (ii) Winbourne Martin French: £5,116 including VAT.  Winbourne Martin French were instructed because matters had not been resolved after three years of McDowalls’ involvement and the advance payment had not been made within the three month deadline.
165.	The acquiring authority argued that McDowalls were originally instructed by the claimant in July 2003 to advise it and to negotiate compensation.  Mr Douglas Stratford of that firm was responsible for making the claim in February 2006 and for making an application for an advance payment of compensation.  The claimant’s statement of case dated 8 February 2007 was based upon Mr Stratford’s particulars of claim and not the work of Winbourne Martin French who were apparently instructed in August 2006.  McDowall’s pre-reference work had been acted upon by the claimant and had to be regarded as both competent and adequate for the purposes of making the reference.  It was not reasonable for the claimant to instruct a second firm to undertake pre-reference work.  The pre-reference work was barely itemised or explained in the invoice dated 20 December 2011.  The claimant said that Mr Winbourne had been involved in chasing an advance payment, the request for which had been made by Mr Stratford in February 2006.  But there was no mention of this work on its invoice and Mr Cottage said that only a few letters had been sent by Mr Winbourne chasing up the payment.  Mr Cottage said in cross-examination that a total of approximately £12,000 for three years’ work on pre-reference costs was not unreasonable.  But this concession related to the fee charged for the work done and was not a concession that the work that was done was itself reasonable.  The acquiring authority said that only the fees of McDowalls were properly payable and the pre-reference costs should be limited to £6,772.42.
166.	In my opinion the pre-reference costs that are claimed in respect of the work done by Winbourne Martin French relate exclusively (as set out in the exhibited invoice) to time spent receiving instructions, discussing the case with the client and acquainting Mr Winbourne with the facts of the case.  The largest item in the invoice is said to be “studying file of paper”.  It is reasonable for the claimant to decide who it wishes to represent it but it is not reasonable to expect the acquiring authority to pay twice for this preliminary work.  McDowalls had submitted the claim and had negotiated on it with the acquiring authority in the pre-reference phase.  It was McDowalls who had made the advance payment application.  Winbourne Martin French did not, it seems to me, do anything of substantive value before the reference was made that would justify payment of their fees under this head of claim.
167.	In my opinion the invoice submitted by Winbourne Martin French was prepared for the purposes of the hearing.  I note that it is dated 20 December 2011 the day before Mr Harwood submitted his skeleton.  It relates to time that was spent by Mr Winbourne more than five years earlier.  There is no evidence that the fees contained in the invoice have yet been paid.  It refers to “studying witness statement of S. Patel”.  As worded that comment must be wrong since Mr Patel’s witness statement was not produced until 23 April 2008, long after the reference was made.  The invoice also refers to 490 minutes spent in preparing and submitting the reference; any such costs are costs of making the reference and are not pre-reference costs.  The acquiring authority accepts that Mr Winbourne did chase the advance payment in a few letters and although this is not separately itemised in the invoice I consider it is reasonable to make a small allowance for this work.  I therefore allow two hours at the rate of £175 per hour plus VAT which gives a total of £420.
168.	The compensation for pre-reference costs is therefore determined at £7,192.42.  
Determination of compensation
169.	 I determine the compensation payable in the sum of £634,751.49 made up as follows:
4 Chequers Corner
(i)	Open market freehold value of ground floor retail unit:	£64,000
(ii)	Open market freehold value of residential upper floors:	£130,000 (agreed)
(iii)	Loss of rent from ground floor retail unit:	£nil
(iv)	Loss of rent from residential upper floors:	£4,623.02 (agreed)
	Total:	£198,623.02
8-12 New Road
(i)	Primary case (hotel)	£nil
(ii)	Secondary case (residential)
(a)	Open market freehold value:	£427,500
(b)	Holding costs:	£nil
(c)	Loss of rent	£1,436.05 (agreed)
	Total:		£428,936.05
Pre-reference costs	£7,192.42
Total compensation payable:	£634,751.49	
170.	This decision determines the substantive issues in this reference.  A letter on costs accompanies this decision which will take effect when, but not until, the question of costs is determined.

Dated 12 June 2012

A J Trott FRICS

Addendum on Costs
171.	I have now received submissions on costs from both parties.
172.	The acquiring authority made a sealed offer in accordance with section 4 of the Land Compensation Act 1961 on 2 November 2007.  This was received by the claimant (and the Tribunal) on 5 November 2007.  That offer exceeds my determination of compensation in respect of both 4 Chequers Corner and 8-12 New Road, Dagenham.
173.	The claimant submits that, in the light of the sealed offer, the normal order would be for the claimant to receive its costs up to 5 November 2007 and for the acquiring authority to receive its costs thereafter.  However, the claimant submits that there are special reasons to reduce the costs that may be awarded to the acquiring authority.  Firstly, the claimant submits that a preliminary issue relating to the planning permission that would have been granted in the absence of the scheme was resolved in its favour by the agreement of the acquiring authority to the claimants position on the issue in January 2011.  The claimant submits that it “won the preliminary issue” and that the acquiring authority should pay its costs of dealing with the matter.  Secondly, the claimant submits that the acquiring authority’s conduct was unreasonable in a number of respects including making unfounded allegations of dishonesty against Mr Patel, withholding an advance payment of compensation, delaying the reference by refusing to agree the preliminary issue and failing to produce details of the prices for three relevant residential comparables until just before the hearing.  Finally, the claimant was successful in objecting to an interlocutory application made by the acquiring authority on 7 September 2011.  The Tribunal awarded the claimant its costs of dealing with the application on 28 September 2011.  The acquiring authority should not receive any of its costs in connection with that matter.
174.	The claimant opposes the acquiring authority’s submission that the claimant should pay indemnity costs in respect of the pursuit of its primary case based upon a hotel redevelopment at 8-12 New Road.  It submits that the sole basis of the acquiring authority’s application on this point is the fact that the Tribunal disagreed with the claimant’s approach on a matter of law.  There is nothing unusual in the merits of legal submissions being debated with the Tribunal in a hearing and neither the acquiring authority nor the Tribunal contend that there was anything unreasonable in the submissions being advanced.  The Tribunal’s Practice Directions at paragraph 12.4 recognise that indemnity costs will only be awarded exceptionally.  Nothing about the claimant’s approach takes it outside the ordinary and reasonable conduct of litigation.
175.	The acquiring authority submits that as the Tribunal’s award does not exceed the level of its sealed offer section 4(1) of the 1961 Act should be applied such that the claimant should bear its own costs and be liable for the acquiring authority’s costs from 5 November 2007.  The acquiring authority also submits that it should be entitled to recover its costs of responding to the claimant’s hotel case on 8-12 New Road on the indemnity basis.  It argues that this valuation approach was held by the Tribunal to be wrong in law and that it was contrary to the agreement between the parties in January 2011 that the appropriate basis for valuation of this property was by reference to a residential redevelopment.  The claimant subsequently altered its position and sought to proceed on the basis of a hotel valuation.  Costs on the indemnity basis were appropriate where there is some conduct or other circumstances that take the case out of the norm.  The failure of the claimant to advance a case that accorded with the law, and its rejection of the opportunity to do so, amounts to conduct or circumstances that takes the case out of the norm and justifies the award of costs on the indemnity basis.
176.	The acquiring authority disputes the claimant’s assertion that it “won” the preliminary issue on planning.  That issue was never litigated and it was resolved by the acquiring authority by making a without prejudice offer save as to costs on the 12 August 2010 in which, in the interests of saving costs, it agreed elements of the claimant’s evidence even though there were significant parts of it that the acquiring authority’s expert disputed.  The acquiring authority had instigated the agreed settlement and should not be punished in costs for having done so.
177.	The acquiring authority also submits that there are no grounds for reducing the award of its costs.  Matters were put entirely properly to the claimant’s witnesses by a robust testing of the evidence.  The acquiring authority conducted the proceedings in an entirely conventional manner.  It had not delayed those proceedings.  The production of the sale prices of three relevant comparables was fully explained during the hearing and the claimant was given prior notice of their admission and had raised no objection to it. 
178.	The acquiring authority accepts liability for the claimant’s costs arising out of the Tribunal’s order dated 28 September 2011.
179.	The award of compensation was less than the sealed offer and therefore section 4(1)(a) of the 1961 Act applies.  Unless there are special reasons the claimant should bear its own costs and pay the costs of the acquiring authority so far as they were incurred after the offer was made.  In my opinion there are no such special reasons in this case.  The claimant refers to having “won” the preliminary issue but that issue was settled by a negotiated agreement.  The issue was not heard by the Tribunal.  Such agreement followed discussions between the experts that sought to resolve the differences between them and was instigated by the acquiring authority’s without prejudice save as to costs offer made in August 2011, an offer that was made in terms to avoid incurring unnecessary costs.  Having reached such agreement regarding residential redevelopment the claimant then choose to pursue a different approach as its primary case, based upon a presumed hotel redevelopment.  Under these circumstances I see no justification for awarding the claimant its costs on this issue.
180.	The cross-examination of the claimant’s witnesses was reasonable in the context of a thorough and robust testing of the evidence.  There were inconsistencies in Mr Patel’s evidence and it was reasonable for the acquiring authority to investigate the causes of them by vigorous questioning.  I agree with the acquiring authority that the proceedings were conducted in a conventional manner in this respect.  The other matters identified by the claimant in support of its submission that the acquiring authority should not receive all of its costs are not, in my opinion such as should sound in costs.  I therefore find no justification to reduce the acquiring authority’s costs of the reference to be paid by the claimant commencing from 6 November 2007.
181.	The remaining point of dispute is whether the acquiring authority should receive indemnity costs in respect of the claimant’s pursuit of its primary (hotel) case.  Indemnity costs will only be awarded in exceptional circumstances.  In Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson and Others [2002] EWCA Civ 879 Lord Woolf said at [32] that the critical requirement before an indemnity order can be made is that:
	“there must be some conduct or some circumstance which takes the case out of the norm.”
In Esure Services Ltd v Quarcoo [2009] EWCA Civ 595 Waller LJ said at [25] that:
	“In my view the word “norm” was not intended to reflect whether what occurred was something that happened often so that in one sense it might be seen as “normal” but was intended to reflect something outside the ordinary and reasonable conduct of proceedings.”
182.	I do not consider that the claimant’s pursuit of its primary (hotel) case with an alternative secondary (residential) case was something which was outside the ordinary and reasonable conduct of proceedings.  Although the pleadings changed throughout the reference and were not always clearly presented or explained, that is not sufficient, in my opinion, to take the case out of the norm. 
 
183.	I make the following order as to costs:
(i)	The acquiring authority shall pay the claimant’s costs of the reference up to and including 5 November 2007;
(ii)	The acquiring authority shall pay the claimant’s costs and bear its own costs arising out of the Tribunal’s order dated 28 September 2011;
(iii)	The claimant shall pay the acquiring authority’s costs of the reference from 6 November 2007 (excluding item (ii) above);
(iv)	Such costs if not agreed to be the subject of a detailed assessment by the Registrar on the standard basis.

Dated 10 July 2012

A J Trott FRICS