Monthly Archives: October 2013

Basis of damages against Trespassing Tenant and cannot be Aggravated in favour of Company Landlord

A recent appeal raised two important points of law where a landlord sought damages against its long residential tenant for damages for trespass for breaking through into chimneys and connecting the flat to huge air conditioning units on the roof being parts of the landlord’s premises not included within the tenant’s demise. They are:

(i) the basic damages here are based on what licence fee the victim would have hypothetically have received had it sanctioned the trespass by way of a licence documeent so would an assessment of trespass damages based on this so called “negotiating basis be based on hypothetical negotiations for a licence fee based on a licence period equivalent to the actual duration of the trespass which has occurred or some other more extensive period (in this case the residue of the tenant’s lease); and

(ii) whether the court can (or should) make an award of aggravated damages in favour of a company.

The case was Eaton Mansions (Westminster) Ltd v Stinger Compania De Inversion S.A. [2013] EWCA Civ 1308 (30 October 2013).

On the first point the court ruled that the actual duration of the trespass was to be the basis “It is limited to recovering what Stinger would have paid for the rights which it illegally obtained.

It is said that this point is not covered by authority but it seems to me to follow inevitably from the requirement that the damages awarded should be compensation for the loss suffered in the sense of what the [wrongdoer] has gained from his trespass. That point was clearly recognised by this court in its judgment in Enfield LBC v Outdoor Plus Ltd & Anor [ 2012] EWCA Civ 608 where Henderson J says at [47]:

“The starting point is the admitted trespass which took place for nearly five years, and the function of the hypothetical negotiation is to ascertain the value of the benefit of that trespass to a reasonable person in the position of [the claimant].””

On the issue of aggravated damages the court said it was settled settled law at High Court level that aggravated damages cannot be awarded unless subjective feelings of the claimant had been injured by the defendant’s conduct. This focus on the effect of the defendant’s conduct on the claimant’s feelings would seem to exclude such a claim by a company.

So the appeal failed on both counts.

Costs disproportionate to claim at costs management

In Willis v MRJ Rundell & Associates Ltd & Anor [2013] EWHC 2923 (TCC) (25 September 2013) the defendant was a firm of construction professionals.

The claims concerned building works carried out to the claimant’s property in Notting Hill.

The principal claims were threefold. First, there were claims for the cost of rectifying defects, which were originally pleaded in the sum of about £480,000 together with a claim for alternative accommodation costs. The second was a claim for overpayment of monies to Grovecourt, the contractor, by way of VAT, in the sum of £335,000. The biggest claim of all, for £617,000, was in relation to the alleged overpayment of monies to Grovecourt for the works themselves.

The overpayment claim broke down into three parts. First, there were the additional costs because of what is alleged to be the unsuitable form of contract. Secondly, there were the claims that various elements of the contractor’s claim had not been justified or supported by reference to invoices or similar. Thirdly, there were criticisms of the defendant’s approach to valuation generally which, so it is said, led to significant overpayment.

The total value of the claim originally pleaded was in the order of £1.6 million. But this had now been reduced.

The VAT had largely been repaid by Grovecourt and the proposed remedial works could be carried out in a differenly thereby reducing the cost and the total value of the remedial work claim to around £250,000

In this way the total value of the claim was now put at a maximum of about £1.1 million. Accordingly, by the standards of most litigation in the Technology and Construction Court, the sums claimed were relatively modest.

The original case management conference took place on 14 December 2012. The court set a timetable for the case, with the trial fixed for early October 2013. At that hearing each side produced a costs budget. The claimant’s costs budget was in the sum of £821,000 together with VAT and the defendant’s cost budget was in the sum of £616,000. The court then expressed the view that in the context of a claim worth up to £1.6 million those figures were high and appeared disproportionate.

As noted above, the claim now had a maximum value of £1.1 million. The total amount of the costs in the costs budgets (excluding VAT on the claimant’s costs), was about £1.6 million. In other words, it would cost significantly more to fight this case than the claimant would ever recover.

The costs in the costs budgets were both disproportionate and unreasonable.

The court accepted that a professional negligence claim of this kind can involve costs that other commercial disputes may not. For example, expert evidence would almost always be necessary to demonstrate that a professional fell below the standard required and a professional reputation was at stake.

But even making due allowance for both these factors, the budget costs figures in this case were disproportionate and unreasonable, particularly given the relatively limited nature of the disputes between the parties.

The individual dispute which was worth the most was the overpayment/overvaluation claim. That would involve some quantity surveying evidence.

However experience of such disputes led the court to suspect that this would not necessarily be extensive The involvement of such experts ought to be relatively limited.

The court declined to waste further time and costs convening any further cost management hearings but warned that the successful party faced cost recovery limited to say £450,000.

Adjudicator had jurisdiction and applied natural justice

In CG Group Ltd v Breyer Group Plc [2013] EWHC 2722 (TCC) (05 September 2013, the Claimant, CG Group Ltd (“CG”) wanted to enforce the decision of an adjudicator.

The Defendant, Breyer Group PLC (“Breyer”) was a main contractor engaged to carry out work at Carradale House, 1-88, St Leonards Road London, E14. By a sub-contract made in April 2012, Breyer engaged CG to carry out interior refurbishment works to kitchens and bathrooms in a number of the apartments at this development.

Breyer challenged the enforcement on two related grounds, lack of jurisdiction alleging that the adjudicator decided the elements of CG’s disputed claim on a basis that was not part of the overall dispute and breach of natural justice in that he did not give the parties and in particular Breyer the opportunity to deal with that basis of argument.

CG started work in or about April or May 2012 but by the end of the year there were problems on site and there were disputes about the periodic valuations and payments.

On 23 January 2013, CG submitted to Breyer a “Draft Final Account” which identified a total of £457,366.29 as the value of work.

Breyer did not pay the residual net sum said to have been due out of that.

Breyer argued that the adjudicator decided the case for CG on a basis that had not been argued and that therefore he had no jurisdiction to decide the case as he did; even if he did, it argued that he was materially in breach of the rules of natural justice because at the very least Breyer should have been given the opportunity to address the point and because it would have had compelling arguments that the adjudicator was wrong as a matter of law.

The court said that on the face of the adjudicator’s decision, it would be difficult to see how any challenge on the basis of jurisdiction or indeed of breach of natural justice and rules could be successful. The adjudicator had decided a broadly disputed claim for the net sum resulting from the Draft Final Account based on a combination of Clause 8 of the Sub-Contract Conditions and the statutory Construction Scheme.

Within that dispute were disputed assertions as to whether the Scheme provisions could be applied and as to whether Breyer had given appropriate notices in time. On that basis, the adjudicator had jurisdiction to answer in effect the question which was referred to him, namely: what, if anything, was due for payment to CG in relation to its Draft Final Account. That jurisdiction was not cut down by the scope of the Referral Notice which under its definition of the “Dispute” identified this broad issue.

On the main challenge based on natural justice grounds, Breyer said the adjudicator came up with an approach which neither party had argued, namely a payment due date of 3 January, a final date for payment of 4 February and a Payless Notice date of no later than 28 January 2013. Therefore, since no Payless Notice was served by 28 January 2013, CG was entitled to what it claimed in the Draft Final Account. This was a breach of the rules of natural justice because Breyer was not given an opportunity to respond to that interpretation of clause 8(c).

Whilst it is true that the Referral to Adjudication Notice put forward a specific approach substituting and based on the Construction Scheme arrangements, there were extensive issues raised on the written submissions between the parties which provided in effect a varied canvas of permutations upon which the adjudicator had to decide.

In those circumstances it was not a very big or obviously unfair step for the adjudicator to take for him to conclude that Clause 8(c) (partly set out verbatim in the Referral Adjudication Notice) gave him the necessary pointers to decide the payment due date; the fact that he was right or indeed wrong in this view was not in itself a breach of the rules of natural justice.

Courts who are considering challenges based on breach of the rules of natural justice must consider the constraints under which adjudicators operate when faced with often complex legal arguments.

A court should not have to carry out a minute examination of all the arguments and contentions put forward by the parties in the adjudication to decide whether the adjudicator’s precise interpretation (being one of many open to him or her to find) was or was not specifically highlighted in argument by a party. If the interpretation he makes was covered by the presented arguments, a natural justice breach would rarely be found.

It followed that the challenge to the enforcement of the adjudicator’s decision failed. There was judgment for CG for the amounts claimed.

Timing of Adjudication Referral Critical

Construction adjudication cases are subject to time limits. In KNN Coburn LLP v GD City Holdings Ltd [2013] EWHC 2879 (TCC) (02 October 2013) the Claimant [“KNN”] wished to enforce the decision made on 1 March 2013 of an adjudicator. The Defendant [“GD City”] resisted the application for summary judgment on four grounds which included that the adjudicator’s decision was issued on 1 March 2013. GD City contended that time ran from 31 January 2013 so that the adjudication had to be made on 28 February. KNN contended that time ran not from 31 January but from 1 February 2013 so that the decision was issued in time.

In this case, KNN submitted that the documents accompanying the notice referring the case to adjudication would be critical to the ability of the adjudicator to commence an informed consideration of the dispute, and had been delayed by one day. Specifically, KNN said a copy of the previous adjudicator’s decision was necessary because it established the duration of the extension granted to GD City and the date of Practical Completion, both of which were essential to any consideration of the questions whether KNN was entitled to claim liquidated damages and, if so, for how much.

The court ruled that a referral notice that is not accompanied by copies of relevant extracts from the construction contract and other documents upon which the referring party intends to rely is procedurally defective but is not automatically outside the adjudication scheme. Citing a previous case it was implicit that provision of Referral docouments here identifying the material facts upon which KNN’s claim was based not only vested the adjudicator with jurisdiction but would have been effective to start time running. Though an omission to provide claim information at referral could be so fundamental that it went beyond being a mere procedural irregularity.

Nor could a failure to include the relevant construction contract until a day later, on the facts of this case, amount to such a serious breach of the rules of natural justice as to be a reason why the decision should not be enforced.

The court therefore found that the referral notice was validly received by the adjudicator and by GD City’s solicitors on 31 January 2013.

Moreoever the court found that GD City had by it’s conduct acquiesced in the adjudication being given a day late on 1 March. It was not open to it to wait and then “spring that procedural trap”.

There was also a dispute between the parties as to whether the deduction or withholding of liquidated damages required the giving of a statutory “withholding notice”.

The court ruled that it was necessary. The lack of it meant they could not take into account the putative liquidated damages claim of £20,000 in calculating whether payment is to be made to GD City. If that were not the case the withholding notice machinery of clause 4.12.9 would always be superfluous or redundant.

GD City submitted that the effect of another clause was that it could never be liable to KNN in any circumstances unless it not merely had the right to recover, but had actually recovered the damages concerned from a Consultant or Sub contractor. The clause said:

“Notwithstanding any other term of this Agreement, the Contractor’s liability in respect of any Employer’s Claim shall be limited to the amount actually recovered from any Consultant or Sub Contractor who has carried out work in connection with the Employer’s Claim. For the avoidance of doubt, the Contractor’s liability in respect of each and every Employer’s Claim shall not under any circumstances exceed the amount received (if any) by the Contractor from the relevant Consultant or Sub- Contractor in connection with the relevant Employer’s Claim”

The court ruled GD City could not rely on this defence as it had not attempted to show that any Consultant or Sub Contractor carried out work in connection with the claim for liquidated damages that was being advanced by KNN in the adjudication before the previous adjudicator.

Letter of Intent can be Contract under Construction Act

For there to be a valid construction contract within section 107 of the Housing Grants, Construction and Regeneration Act 1996 (“Construction Act 1996”) there must be agreement on at least four essential items: the parties, the scope of work, the price and timings.

In Glendalough Associated SA v Harris Calnan Construction Co Ltd [2013] EWHC 3142 (TCC) (21 October 2013) Glendalough put the works out to tender in September 2009. Harris Calnan Construction Co Ltd (“HCL”) submitted a tender, which was subsequently revised, and by a letter dated 24 February 2010 Glendalough instructed HCL to proceed with the works pending agreement of a formal contract based the “JCT 2005 Intermediate Form of Contract with Contractor’s Design”.

HCL said that no formal contract was ever entered into and HCL carried out and completed the works under, it now claimed, the terms of the letter of intent. However, the work took longer than anticipated and Glendalough asserted that it was entitled to deduct liquidated damages for the delay. On 1 July 2013 its then solicitors, RPC, issued a Withholding Notice in which it was alleged that HCL was 64 weeks in delay and therefore had a liability for liquidated damages in the sum of £250,000.

HCL disputed this. The following month it referred the dispute to adjudication and an adjudicator was appointed.

However it now said the work had been done not under a construction contract but the three paragraphs of a letter of intent which were designed to be a fall-back position, only relevant at all if (as had occurred) no formal/full contract was ever concluded. In short that it was designed to provide a very basic framework that would only be operated if, contrary to all expectations, a formal/full contract was not agreed. By definition, at the time that it was written, it could not allow for or address future events, such as the particular workscope that might be required or ordered.

It was a simple safety net to regulate the parties’ relationship if no formal/full contract was agreed. The three paragraphs in the letter of 1st November were not themselves designed to be a complete record of the parties’ proposed agreement. They could not be; if they had been, there would have been no need for a formal/full contract at all.

Rejecting these arguments the Court said the case was potentially within the Construction Act 1996 and it’s adjudication provisions on the following grounds:

1 There was clearly no doubt as to the identity of the contracting parties.

2 The scope of the work was described by reference to the drawings and instructions issued by the architect, which were in turn identified in the tender documentation referred to in the letter. It was also clearly the intention of the parties that the procedures to be followed would reflect the contractual machinery of the JCT 2005 contract. This would mean that, for example, any instructions to vary the work would have to be issued in accordance with the requirements of that form of contract, which, amongst other things, would mean that they would be in writing.

3 On the question of the price. It was often inherent in the nature of default provisions such as these that the price had not been agreed. Unless a failure to agree on a price is always to be fatal to the creation of the construction contract, the relevant question was whether or not the parties had agreed upon a satisfactory means of ascertaining the price. For example, simply to agree that the contractor was to be paid a fair price for the work carried out may be too uncertain if no machinery had been agreed upon for establishing how a fair price was to be assessed.

In the present case the letter stated that HCL was to be paid the reasonable cost of the works carried out based on their tender. The Court took this to mean that the cost of the work was to be assessed by reference to the rates and prices set out in HCL’s tender. It was reasonable to assume that the tender would contain rates and prices applicable to the work shown in the architect’s drawings, so that unless the works were varied in any significant respect one would expect there to be a rate or a price for all the different parts of the work. Thus calculation of the reasonable cost of the work would involve measurement of the work carried out and then the application of the tender rates and prices to those measured quantities. This seems to the Court to provide a sufficiently certain method of ascertaining what is a reasonable price.

The decision of Ramsey J in PTB v ROK shows that the absence of agreement on a contract price will not be fatal to the existence of a construction contract provided that there is an agreed written record which identifies rates that are to be applied to the work carried out. The default provision in the letter of intent, when read in the context of the letter as a whole, satisfied this requirement.

4 The final ingredient was that of time. The letter of intent specified the commencement date for the work and a final completion date. The letter of intent required the works to be carried out “in a diligent and timely fashion as provided for herein”. That obligation further supported the contractual effect of the letter.

As these 4 findings were consistent with matter being within the adjudicator’s jurisdiction under the Construction Act 1996 the Court referred the factual decisions back to the Adjudicator.

Nuisance and negligence claim against Council fails

No physical damage usually means no claim for negligence – except in limited cases there is no such claim for purely economic loss.

In CSG (Stratford) Ltd & Ors v London Borough Of Newham & Ors [2013] EWHC 2868 (TCC) (02 October 2013) the Complainant alleged negligence on the part of Newham in failing to remove a pool of water outside its restaurant. The presence of the pool of water was also alleged to have been dangerous and to have constituted a nuisance.

Both of these allegations were ruled without substance. Photographs identified the existence of a pool of water on the concourse outside the restaurant.

However no allegation was made that the area where the water lay was under the ownership or control of Newham.

Even if it was, a claim in negligence would fail because there was no allegation that the water caused any physical damage to the Claimants’ property.

Any claim in negligence must therefore be solely in respect of pure economic loss, in the absence of physical damage, and as such must fail.

The claim in nuisance faced the insuperable hurdle that there was no allegation of an escape from Newham’s land to the Claimants’ land and no other allegation of facts that would support the existence of a cause of action in nuisance.

The Court found the allegation of danger unproven either way.

Affordable and Social Housing Plan was Valid

A recent case demonstrated a robust attitude to the needs of urban regeneration and the economic pressures bearing on residential land development in London.

West Kensington Estate Tenants and Residents Association & Anor v London Borough of Hammersmith and Fulham & Ors [2013] EWHC 2834 (Admin) (09 October 2013) concerned land (“the Opportunity Area”) straddling the borough boundaryand bounded by Warwick Road and the West London railway line to the east, West Cromwell Road (the A4) to the north, North End Road to the west, and Old Brompton Road and Lillie Road to the south.

In this claim for judicial review the claimant challenged the Earl’s Court and West Kensington Opportunity Area Joint Supplementary Planning Document (“the SPD”), which was adopted in March 2012.

The main contentions were these: in ground 1, that the SPD ought to have been prepared as an area action plan under regulation 6 of the Town and Country Planning (Local Development) (England) Regulations 2004 (“the 2004 regulations”); in ground 2, that when LBHF and RBKC adopted the SPD they erred in their approach to the provision of affordable housing and, in particular, in the use they made of a study of economic considerations, the “Estates Regeneration Economic Appraisal” (“the EREA”); in ground 4, that the SPD does not conform with the development plan in its provisions for social housing; and in ground 5, that the SPD ought to have been subject to strategic environmental assessment (“SEA”) complying fully with the regime for SEA, but was not.

On 30 March 2012 one of the local authorities Hammersmith and Fulham (“LBHF”) granted planning permission on an application made by EC Properties Limited for planning permission for a residential development to replace the Seagrave Road car park. On 3 September 2012 LBHF decided to enter into a conditional land sale agreement with EC Properties Limited, in which it was agreed that the housing estates would be included in a comprehensive redevelopment in the Opportunity Area. EC Properties Limited applied to both LBHF and RB Kensington & Chelsea (“RBKC”) for planning permission for the redevelopment of a site of 28 hectares, including the estates. In LBHF’s area 5,845 new “residential units” were proposed, of which 589 were intended to be social rented and 676 of intermediate tenure. In RBKC’s area 930 “residential units” are proposed, of which 64 will be affordable, in intermediate tenure.

Both LBHF and RBKC had resolved to grant planning permission for these proposals. Decision notices had not yet been issued because the parties were negotiating a planning agreement under section 106 of the Town and Country Planning Act 1990 (“the 1990 Act”).

The central question in that ground of the claim was whether the SPD was not a supplementary planning document but an area action plan, unlawfully produced outside the statutory system for the preparation of a development plan document.

Supplementary planning documents and supplementary planning guidance are not components of the development plan. They are always subordinate to the plan. Their purpose is to give additional guidance relevant to the provisions of the plan and consistent with them. Their subservience to the plan was emphasized in paragraph 6.1 of the Government’s PPS 12.

Critical to the Court’s finding for the developer and the authorities was that the SPD was not the document that identified the area with which it was concerned, or any part of it, as an area of “significant change”. That had already been done in the development plan. By the time the SPD came to be adopted, the requirement for urban regeneration in the Earl’s Court and West Kensington Opportunity Area had been firmly set in the development plan – in the London Plan and the two core strategies.

On the second ground that the SPD had to conform with development plan policy for affordable housing in the London Plan and the core strategies,it was clear that none of the options in the EREA would achieve the Plan’s targets for affordable housing. The proportion of affordable housing in Option 1 would be 23%; in Option 2, 25%; in both of the sub-options in Option 3, 10%; and in Option 4, 11%

The policies for affordable housing in the development plan – in particular, Policy H2 of LBHF’s core strategy and Policy CH2 of RBKC’s – sought, in Hammersmith and Fulham, 40% of new housing to be provided as affordable housing, and in the royal borough 50%. However crucially, the policies did not contain absolute requirements for a given amount of affordable housing in any particular scheme or on any particular site. They expressed strategic aims, and they set out relevant factors to enable authorities to judge how much affordable housing should be sought from developers, scheme by scheme and site by site. Thus they promote a consistent approach. But they allowed for the contingencies of individual schemes and individual sites. They expressed an aspiration for the stated proportions of affordable housing, but acknowledged economic reality. Underlying them was the recognition that developers will not be able to provide more affordable housing than is viable, and that to expect them to do so would be counter-productive.

On ground 3 Social Housing was simply another form of affordable housing and subject to similar considerations – including it’s implications for the viability of the Scheme.

On ground 4, the appropriate content of an environmental report, if one had to be prepared, will depend on the place of the plan or programme in question in any hierarchy of plans and programmes to which it belongs. This was, in effect, what article 4(3) of the SEA directive provided. There is no need for assessment to be duplicated at different levels in the hierarchy.

When the SPD was prepared there was neither any legal requirement nor any justification for a duplication of the assessment already undertaken in the SEA for the core strategies.

So the challenge to the decision was defeated on all 4 counts.

Trees are Unpoplar

In Robbins v London Borough of Bexley [2013] EWHC 1233 (Civ) (17 October 2013) Mrs Robbins was the owner of a semi-detached house with a part 2-storey and part single storey extension at the rear at 6 Radnor Avenue, Welling, Kent (“No 6”). To the East and rear of No 6 was Danson Park, owned by the Council. A row of poplar trees (the “poplars”) ran roughly North/South behind the houses in Radnor Avenue, at a perpendicular distance of a little over 30 metres from the rear of the extensions to those properties. The judge found that roots emanating from two of these poplar trees known as “T1” and “T2” were responsible for causing damage to the foundations of No 6, by soil desiccation. In particular, he found that T2 (30.7 metres from No. 6) was the major contributor to the removal of moisture from the clay beneath the foundations of No 6, and that T1 (between 32 and 36 metres from No. 6) also made a material contribution to this extraction of moisture.

The Council’s appeal rested on two main submissions. The first was that the judge was wrong to ask himself what the Council would have done if it had taken steps to prevent damage to Mrs. Robbins’ house by the encroachment of tree roots. Rather, the Council said, he should have asked himself what it should have done.

Since the accepted practice, at least until the summer of 2005, was to reduce the size of the crown by not more than 30% (significantly less than 70% of total volume) every three or four years, the Council submitted that it could not reasonably have been expected to do more than that. It follows that its duty had extended no farther than to take measures which, as it turned out, would not have prevented the damage that was caused to Mrs. Robbins’ house in 2003 or 2006. It said it would be contrary to principle and unfair to hold the Council liable for doing nothing if it could not have been held liable had it taken such steps as were reasonable at the time.

The Court ruled that the question the judge had had to decide was what would have happened if the Council had proceeded with a proper crown reduction programme and that involved deciding with what frequency and to what extent the exercise would in fact have been repeated.

It was no answer to say that the damage would have occurred anyway had the Council pursued the lesser level of pruning then thought to have been adequate.

The Court was impressed by the severity of the pruning that in fact occurred too late in 2006 and felt the same level of pruning would in practice have been applied earlier had a proper programme been applied.

In practice any crown reduction carried out between 1998 and 2006 would have been as extensive as that carried out in 2006 and thus sufficient to prevent damage.

On the evidence before him the judge was entitled to find that the Council would have adopted a four-year cycle and that if the work had been carried out in early 2002 and early 2006 the damage which occurred in the summer of 2003 and 2006 would not have occurred.

Accordingly the Council were liable for the damage.

Second City Voids

The rent review clause of a Head Lease from Birmingham Council (BCC) required determination at the review date of “the rents at which the sum total of the various parts of the demised premises could at that time be reasonably expected to be let.”

This was the case of Martineau Galleries No1 Ltd & Anor v Birmingham City Council [2013] EWHC 3018 (Ch) (20 August 2013) and involved a fairly common developer’s lease under which a developer had sublet the car park and the retail unit but not the offices.

Clause 7(h) continued by providing that the expected lettings were to be assumed to be on the open market by a willing landlord to a willing tenant without taking a fine or premium for a term of twenty-one years having regard to the actual rents then receivable in respect of parts actually let with regard being had to the provisions of section 34 of the Landlord and Tenant Act 1954.

Another clause – 7(j) – dealt with vacant premises.

However, clause 7(h) presupposed that there may be vacant parts within the premises, but which were not to be treated as vacant falling within clause (j). This envisaged unlet parts being partially occupied and used by Martineau Galleries (MG) as intermediate landlord and so not vacant either. The Court ruled that any part of the premises which might, for example, be occupied and used by MG rather than by sub-tenants would be within clause (h) and not within clause (j).

Clause 7(j) provided that if any part of the premises were vacant the rental value was the rent at which such part would at that time be reasonably expected to be let on the open market by a willing landlord to a willing tenant without taking a fine or premium for a term of 14 years here.

The first issue was whether MG was correct to contend that a valuation under 7(h) required no assumption of vacant possession to be made in respect of sublet parts, so that the actual sub-tenancies are taken into account together with the costs or risks, if any, consequential upon owning sublet property. Thus, management costs over the period of a long lease may have a significant depressive effect on the rent. There may also be periods affected by a lack of lettings.

Opposing this BCC contended that an open market vacant possession valuation was required. Regard (but nothing more) was to be had to the actual rents receivable, as clause 7(h) expressly recognised. BCC said the actual rents receivable were merely evidence of open market value, which was still to be assessed on a vacant possession basis. Against that interpretation Clause 7(h) referred to the aggregate of the rents at which the sum total of the various parts of the premises could be let. That suggested looking at each part of the premises separately and not at an overriding lease of the whole.

Furthermore the fact that (h) and (j) dealt with vacant and occupied premises separately again militated against any suggestion that there might be a requirement to look at an overriding lease of the whole.

The Court decided that the valuer would not be required to assume vacant possession; on the contrary, he was required to have regard to the actual rents then receivable and, as there was no assumption of vacant possession he would be entitled also to consider the terms of the sub-leases in ascertaining the appropriate rent for the sublet parts, as far as he thought that exercise relevant. That was not expressly mentioned in clause 7, but it did not need to be, as the process of ascertaining a proper rent for sublet premises may require consideration of all the terms of the sublettings.

It was for the valuer to decide which part of the premises should be valued separately from others in the light of his experience of the market and market conditions at the review date in 2008.

The Court declared that the valuer was free to consider that the vacant parts were being offered for letting together or in such parts, for example, floor by floor, for a term or terms of 14 years, for occupational use, as would have secured the highest bid or bids on the open market.

However the Court would not accede to the Council’s suggestion that the valuer be directed to disregard the depressive effect, on the rent the notional tenant would have been prepared to pay, of unlet accommodation and costs of management.

The valuer was entitled to have regard to such matters but what weight he placed on that was a matter for him. It may be their impact will be more or less depending upon the circumstances.

Compulsory Purchase of Historic Amusement Park Upheld

A recent case has shown the Court’s inclination to deal robustly with technical objections which might frustrate the statutory regeneration objectives of compulsory purchase legislation where the outcome would have been the same even if the flaws had been avoided.

In Margate Town Centre Regeneration Company Ltd & Others v Secretary of State for Communities & Local Government & Others [2013] EWCA Civ 1178 the Court of Appeal upheld a district council’s compulsory purchase of the site of a famous amusement park.

The Dreamland site in Margate had shut in 2002 and the site had been unused since 2006. Thanet District Council served a compulsory purchase order for it in June 2011.

The Margate Town Centre Regeneration Company, who owned it, challenged the CPO.

After an inquiry the Secretary of State approved the purchase in August 2012.

The High Court, also found in favour of the local authority.

Two grounds were put before the Court of Appeal:

1. The scheme adopted by the council to redevelop – in partnership with The Dreamland Trust – was not operationally viable and that the business plan was fundamentally flawed.

2. Regeneration could have been achieved without a CPO.

Dismissing the first ground, Lord Justice Elias said: “Given in particular the strong commitment which the council had shown to implement the scheme, the inspector’s assessment that the business plan was prudent and cautious, and the willingness of third parties to support the scheme by giving substantial sums of money, the inspector’s conclusion that the particular scheme was operationally viable was plainly sustainable.”

On the second ground, the inspector’s report to the Secretary of State did contain a key sentence about the claimants’ negotiating stance on sales of parts of the site but the Court said it was insignificant.

Even if it had been a significant mis-statement of the objectors’ position, and the Secretary of State had been given a corrected version of their position, he would have still approved the scheme.

“The need for regeneration for the economic and social benefit of Margate was overwhelming: there were two schemes in play, only one of which was, in the inspector’s view, satisfactory,”

“The proposed development required the whole site; and the CPO was necessary to secure the relevant land because the appellants were not willing to transfer it voluntarily. The offer to sell the areas 1-4 was insufficient to achieve the council’s objective.”