Case No. UKUT-0269-(LC)

Losses pursuant to the total extinguishment of the business carried on by Mermer Ltd at 4 Station StreetThird claimant Losses pursuant to the total extinguishment of the business undertaken by Mr Orhan Behic at 4A Station StreetThe Claim 15.The claim that accompanied the first claimant’s statement of case dated 28 October 2015 was set out thus: Heads of claim Amount claimed Freehold interest £225,000.00(Plus statutory basic loss payment) Total extinguishment of business Loss of profit £20,000.00Loss on forced sale of equipment:Value to owner £40,000.00Less net proceeds from sale £ 1,210.00 £38,790.00Loss on forced sale of stock (Value to owner) £ 5,000.00 Redundancy payments Mustafa Behic £3,024.00Notice £1,728.00Holiday pay £ 806.40 Orhan Behic £ 576.00Notice £ 576.00Holiday pay £ 806.00 £ 7,516.40 [First] Claimant’s time £ 5,000.00 Total claimed £301,306.40 Plus, basic loss claimed at £12,000. 16.Mr Mustafa Behic, who has been unrepresented since July 2013, said in his statement of case that he laid the blame fairly and squarely on the Council for the fact that this matter had not been satisfactorily concluded by negotiation. It had always been the claimants’ intention to relocate within Blyth, but SW’s initial offer in June 2009 of £115,000 was insufficient to allow this to happen and far less than the property was worth, let alone if it was to include the loss of profits and compensation for other factors connected with the enforced relocation. Mr Behic referred, as an example, to 28-30 Bowes Street, Blyth which had sold for £175,000. It was a terraced building on a plot of equal size to No. 4 Station Street alone. Further, the reference land had added value in that No.4 Station Street had the benefit of an A5 hot food takeaway licence and the premises were immediately adjacent to a public car park. 17.Following the claimants’ change of experts in October 2010, Mr Behic said that he had advised Mr Andrew Toes of RMS that it was their intention to relocate, and a search commenced for suitable alternative premises. A property on Regent Street which was on the market for £285,000 was considered (believed by Ms McLoughlin to be a corner property known as 30 Regent Street/2 Simpson Street), but the Council said it would constitute betterment as it was closer to the town centre, even though it did not have the yard or buildings to the rear that 4 and 4A Station Street had. Another property in King Street (probably, according to Ms Mcloughlin, 7-8 King Street) on the market at £400,000 was dismissed for similar reasons. As to a plot of land that was partly owned by the Council and partly by a Mr Bell and located on the corner of Regent Street and King Street, Mr Behic stated that despite the site being smaller than that which the reference land occupied, he had been prepared to be co-operative and “willing to lose out to move matters forward”, SW had advised him that the Council wanted £100,000 towards the cost of acquiring the land and building a shop. This was not acceptable. Other available properties were considered (although not specifically detailed in the statement) but, Mr Behic stated, “At every turn, SW had an excuse and no interest in relocating my business.” 18.Mr Behic stated that after possession was taken of the reference land, he and Mr Toes had a meeting with SW, at which they were told the intention was to extinguish the businesses, but they reiterated the relocation intention. Soon afterwards, at another meeting, a figure based upon total extinguishment was offered and the claimants were urged to accept an advance payment of £131,692.50 (under s.52A of the Land Compensation Act 1973 – being 90% 0f the Council’s estimate of the level of compensation due) and the third claimant was advised to accept £6,600. At subsequent meetings and in correspondence, efforts were made to persuade him to accept the advance payment, together with a cheque from Sutherlands Auctioneers for the proceeds of the sale of the fixtures, fittings and equipment that had been left on the premises. All of these offers were refused on the grounds that they were too low and insufficient to enable them to relocate and re-start their businesses.19.An allegedly final open offer (with limited time for acceptance) to cover all heads of claim which was made by the Council on 20 May 2013 was discussed at a meeting on 30 May at which the claimants’ accountant, Mr Martin Atkinson, was also present. At that meeting the Council also provided details that had been sought relating to the compensation said to have been paid for other premises affected by the compulsory purchase. Mr Behic said that that offer was also rejected. 20.The statement of case then went on to say: “In 2012 my representatives along with the Council’s representative decided to totally extinguish the business. We provided the Council with a professional value as well as comparables, buildings that were sold on the open market in 2010 were used as a comparison…”and“Again in 2012, we provided values of the equipment that we were given by two separate parties…both companies specifically deal with the equipment I was using in my business. Yet all the values and evidence provided have been ignored.” The evidence First claimant Freehold value 21. Ms McLoughlin is a Chartered Surveyor and a partner in the Compulsory Purchase and Valuation Services Division of Sanderson Weatherall, Newcastle upon Tyne which she joined in 2008. Previously she had spent 7 years with Newcastle City Council in the Property Services Regeneration Team. She has 21 years property experience in the north of England, specialising in urban regeneration and compulsory purchase matters. Her firm was appointed by ONE NE in 2008 to acquire all the land (by agreement if possible) required for the proposed new Morrison’s foodstore. In her main expert witness report she set out a detailed chronology of events as they related to the acquisitions in general, and the reference land in particular. 22. As to the value of the freehold interest in 4 Station Street she assessed four comparable sales within the general vicinity of the reference land, but outside the scheme. These were 7 Bowes Street which ran parallel with Station Street, two roads away to the south and slightly closer to the town centre. It was a double fronted shop that had been trading in bridal wear, with storage above. Although it had been offered for sale in 2010 at an asking price of £190,000, it eventually sold in 2013 for £75,000 which represented a zone A rate of £116 per sq ft (psf). It was Ms McLoughlin’s view that the analysed zone A rates were the appropriate comparator. 34a-36 Bowes Street which comprised two retail units with storage above sold for £120,000 in September 2009. That equated to a zone A rate of £139. 6 Croft Road, to the south of the town centre and considered to be somewhat isolated from it, sold in April 2011 for £85,000 which produced an analysis in terms of zone A (ITZA) of £191 psf. This was, Ms McLoughlin said, a high figure which in her opinion was created by having had a large discount rate applied to the first-floor accommodation. 3 Croft Road was a small unit which had been considered by the selling agent to be suitable for an A5 hot food takeaway use, but in reality, planning consent was refused due to concerns about cooking smells and lack of external space for waste storage. The sale price of £12,000 in September 2014, which equated to £29 ITZA reflected, Ms McLoughlin thought, the planning problems and the fact that it needed extensive fit out works.23. Regarding the comparable that the claimant referred to in his statement of case (28-30 Bowes Street), Ms McLoughlin said that it was sold to what could be described as a “special purchaser” in that the premises, which were in any event vastly superior to those on the reference land and were only one street away from the newly refurbished Market Street in the town centre, was to be operated as a pharmacy. The premises were located close to number of medical practices and in applying to NHS England for the required licence, a demand had to be identified. The obtaining of such a licence is valuable and will in her view considerably increase the value of the property. The selling price of £175,000 and the resultant analysis of £295 psf ITZA reflected this. 24. Ms McLoughlin then responded to the other properties referred to in the first claimant’s statement of case. 30 Regent Street and 2 Simpson Street were superior to the claimants’ premises in both location and condition. In any event, the agent who had been offering the property for sale advised that it did not, in fact, sell. 7-8 King Street were larger and more modern premises and were in a busier, more bustling location. They also contained residential accommodation. According to the Land Registry, neither of the premises have been sold within the last 10 years.25. As to the land on the corner of King Street and Regent Street that was part in Council ownership and part privately owned, Ms McLoughlin explained that RMS approached SW on the claimants’ behalf. Enquiries revealed that the site may have been acceptable in planning terms for A5 use. Details of the private owner were provided and the Council agreed to meet the claimants’ professional fees to undertake a feasibility study as to the potential financial viability of their proposed development. The claimants enquired whether there would be any grant funding available to assist with the development (which there was not) and then asked if the Council would build the proposed units. Again, they were advised that that would not be possible. It was important, Ms McLoughlin said, to appreciate that the claimants were entitled to compensation under rules (2) and (6) of section 5 of the LCA 1961. To construct premises for one dispossessed owner and not another would be unfair and unreasonable. The claimants were not entitled to compensation for equivalent reinstatement under rule (5).26. Ms McLoughlin then set out comparable evidence relating to the acquisitions of other properties within the ambit of the CPO scheme. All the owners were professionally represented and the compensation was agreed either before or at the valuation date. The acquisitions included 21-33 Regent Street and 2 Station Street, a total of seven units acquired for £230,000 in January 2010. They were let as individual lock-up units on short term bases at rents ranging from £3,000 to £5,000 pa with tenants responsible just for internal repair. These rents were not based upon area, and therefore the income could not effectively be converted to a reliable ITZA figure. 37-39 Regent Street was occupied as a veterinary surgery that included a flat and was acquired for £180,000 on the valuation date of 31 January 2012. It was in very good condition and was in a more prominent position than the reference land. Due to the nature of the use and the specific fit-out for that purpose, Ms McLoughlin said she did not adopt the zoning method. She analysed it as having a rental value of £12,500 pa based upon £11 psf for the ground floor and £6 psf for the first, and capitalised it at 10% to give £125,000. The flat, which was exceptionally well appointed was valued at £55,000 to create the total acquisition price of £180,000.27. The evidence of freehold sales both within and without the scheme area ranged between £116 and £179 psf ITZA (ignoring those such as 3 Croft Road which, for the reasons she gave, were not representative) and in her view an appropriate figure for 4 Station Street would be £160 psf ITZA which on its ITZA area of 630 sq ft produced £100,800 (rounded to £100,000). However, due to the general paucity of evidence of freehold sales Ms McLoughlin also analysed open market rental evidence in the area, outside of the scheme. This produced a range of values of between £10 and £17 psf. In the light of the fact that she thought there might be some marriage value between 4 and 4A Station Street, because many takeaway food operators have now signed up to smartphone apps for online ordering and delivery. The rear part could therefore be useful as storage of small delivery vehicles or scooters. She therefore adopted a zone A figure at the upper end of the range - £16 psf which produced a rental value of £10,000 pa.28. Turning to 4A Station Street, whilst the third claimant used the premises for retail sales, Ms McLoughlin said they were also suitable for storage, warehousing or a small repair business such as lawnmowers and garden machinery. She thought it unlikely that this unit would be sold separately but due to the different nature of the use, she considered different comparable evidence to arrive at her valuation of that part. She also considered the fact that the third claimant was paying a rent of £4,160 pa (about £4 psf) but noted that it was not an arms-length transaction. It was her opinion that the freehold value of 4A Station Street was £50 psf equating to £50,000. This was supported by her opinion of rental value of the two units together at £15,000 (which means an open market rental value of 4A at £5,000 if let separately), capitalised at 10% giving the same figure. Adding the two units together the overall value became £150,000. Finally, Ms McLoughlin considered turnover related rents and the general level of rents paid by other hot food takeaways, and these again supported her opinions. Therefore, she said, the first claimant’s figure of £225,000 for the freehold was considerably overstated. Conclusion 29. I am entirely satisfied that Ms McLoughlin has carried out a thorough and well researched appraisal. She has also dealt with the, in parts, confusing and conflicting opinions and statements made by the first claimant in a logical and persuasive manner. With no formal evidence having been produced by the claimants either in terms of witness statements or expert witness reports, or any rebuttal of Ms McLoughlin’s valuation evidence, I accept it and determine the compensation payable to the first claimant under this head at £150,000.30. Mr Mustafa Behic also pursued a disturbance claim for £5,000 said to be a sum to reimburse him for the time he spent in relation to the pursuance of compensation arising from the acquisition of his land in this case. The only reference to it before the Tribunal was the figure included in the itemised Heads of Claim set out at paragraph 15 above.31. The Council acknowledges that time spent by claimants pursuing a claim for compensation is a valid head of claim, and that the Tribunal has some flexibility to adopt a “robust approach”, akin to that adopted by the courts in the assessment of general damages (see W Clibbett v Avon CC [1976] 1 EGLR 171). However, the Council says that it needs to be supported by evidence that the diversion away from the day to day running of the business has caused or contributed to loss of, or reduction in, profit (see Lancaster City Council v Thomas Newall Ltd [2013] EWCA Civ 802 at paras 6-33). In this case, it is argued, this element the claim is wholly unparticularised and unsupported by evidence, and the Tribunal cannot therefore lawfully make an award of compensation. 32. The affected businesses are small enterprises and in addition to being the owner of the land acquired the first claimant has stated that he works in the business of the second claimant. Indeed, he produced some evidence to prove that fact (by copy letters from his accountant) although I accept that there were no documents provided to prove the employment or to support the precise figures the accountant had calculated. There is also undisputed evidence that the first and third claimants, and the first claimant’s wife as sole director of the second claimant, attended several meetings with the Council and its representatives, and they must also have spent considerable time with their own advisers while they were instructed. The claimants will also have taken time to inspect potential relocation premises or sites. The suggestion that there is no evidence of time having been spent is therefore not one which I accept, although quantifying that time with any precision is a different matter. 33. The next question is whether the time which has been spent has been the cause of loss to any of the claimants. The claim by the first claimant can readily be dealt with. The Court of Appeal in Lancaster City Council v Thomas Newall Ltd (at paragraph 18) considered it “obvious” that an individual who was diverted from his own business to deal with the acquisition of his land thereby suffered a loss. At paragraph 26 Rimer LJ found no difficulty with such a case: “I can well see that if an individual faced with a compulsory acquisition reasonably devotes his own time to dealing with it, he ought in principle to be compensated for his time. He can fairly say that the expenditure of such time represents a loss to him.” The fact that the first claimant’s involvement may have been both on his own behalf (as owner of the land taken) and on behalf of the other claimants (who suffered disturbance) does not seem to me to matter. 34. In circumstances where a small family business, with limited staff, is subject to the compulsory purchase of its premises, with all the associated distractions from the day to day involvement of the proprietors that will inevitably be caused, it is also, I think, reasonable to infer that time spent on matters relating to the claim would otherwise have been of value to the company, and that the diversion of the proprietors will therefore have caused it loss. Such loss will, I would suggest, in most cases involving small enterprises or one-man bands, be extremely difficult if not impossible to specifically quantify. 35. Adopting the robust approach that I can, I consider that in this instance the first claimant (effectively speaking for all the claimants) should be entitled to a modest award which I determine in the sum of £2,000. 36. I would add a comment on the importance, at the commencement of the CPO process, of acquiring authorities advising potential claimants to keep detailed records of time spent in participating in the process and pursuing claims. Where the prospective claimant is a company, it should be advised to maintain records of any additional payments made in respect of such time and any specific loss to the company which is otherwise said to arise. Such advice, given early in the process is extremely important as it will, of course, always be difficult to re-construct the necessary information later-on, or at the end of the acquisition process. Unrepresented claimants may be entirely reliant upon the acquiring authority for such advice. There is currently no formal obligation on acquiring authorities to impart such essential advice although of course many do so, recognising the public interest in the payment of fair compensation. 37. The importance of such advice and the need for it to be provided at an early stage by acquiring authorities is recognised by professionals in this field. The Tribunal welcomes proposals by the Compulsory Purchase Association to produce a pre-reference “protocol” relating to claims for compensation following compulsory purchase. This aims to set out agreed standards of good practice, including early engagement and the provision of advice on the significance of careful record keeping. It is hoped that the protocol will influence the behaviour of acquiring authorities and prospective claimants and thereby facilitate the early and efficient agreement of compensation. 38. Turning now to the claim for a basic loss payment pursuant to section 33A(1) and (2) of the Land Compensation Act 1973 at 7.5% of the open market value of the freehold interest in the reference land, this is a sum to which the first claimant is entitled. It is therefore determined at £11,250. Second claimant Business extinguishment 39. The first claimant claimed, on behalf of his wife’s Company, Mermer Ltd (for whom he said he also worked) £20,000 for alleged loss of profits, £38,790 being loss of value to owner from the forced sale of equipment and £5,000 for loss on forced sale of stock. Mermer Ltd was, as I have explained above, added as the second claimant following the making of the initial notice of reference, as that had been purely in the name of Mr Mustafa Behic. 40. Ms McLoughlin produced her assessment of the compensation payable under this head of claim in accordance with section 5, rule (6) of the 1961 Act. In assessing the value of goodwill, she said that there are three distinct methodologies to be considered: the direct market comparison approach, the income approach and the cost approach. She had been provided with Marmaris’ trading accounts for the four financial years ending 6 June 2008 to 2011 which showed that in three of the years a loss had been made, and in only one, 2010, was there a small profit of £3,898 after tax. The accounts did, however, show that there was an established and stable turnover and it was evident that the business had been operating for a number of years. It was thus, in her view, appropriate to use the cost approach whereby a prospective purchaser of the business would anticipate that despite its recent unprofitability, it was reasonably well located, had the infrastructure to operate as a takeaway and, as she had said in connection for the claim for the value of the freehold, some potential to incorporate the rear premises at 4A into the operation. 41. There was, therefore, an opportunity to make a profit, and the purchaser would be prepared to pay “key” money based upon potential rather than current profits. Having considered the accounts, the trading history and cash flow together with the benefits of fit-out (less obsolescence) she valued the goodwill in the sum of £15,000. 42. In considering the claim for loss on the forced sale of plant and equipment, the only evidence that had been produced by the first claimant was a copy of an undated Schedule provided to Mr Mustafa Behic’s former advisors, RMS, valuing the fixtures and equipment at “£36,226 less 20% for second hand value”. Ms McLoughlin said she had several issues with this document. Adding up the prices for all the items, the correct total was £35,816. Whether VAT was included was not stated. It was also not clear if the figures given equated to estimated replacement cost or the cost when new (and many of the items were up to 20 years old). One of the items – 73 sheets of stainless wall plates, against which a figure of £5,475 was placed, has already been reflected in her assessment of the value of the goodwill.43. As she was not an expert in the valuation of plant and machinery, Ms McLoughlin said she engaged the assistance of two of her colleagues from SW’s Machinery and Business Assets Team, who inspected and photographed all the equipment whilst it was in situ. Primarily using the Depreciated Replacement Cost (DRC) approach, and having regard to the age and condition of each asset together with new prices, trade guides and internet guides to used prices and auction results, the value to owner was assessed at £15,000 from which the net figure achieved on sale of £1,210 was deducted giving a final figure of £13,790. 44. As to the claim for loss relating to stock, there was no information from the claimants regarding what that stock consisted of or about its alleged forced sale. Ms McLoughlin pointed out that the claimants had three months’ notice of the possession date, and thus had sufficient time to run down the stock to be run down and for losses to be mitigated. Following the repossession, they had also been allowed access to remove some frozen goods as they had been trading right up to that date (6 February 2012).45. Regarding alleged redundancy payments for the first and third claimants, the figures sought in the sum of £3,024 and £576 respectively were provided to RMS by the second claimant’s accountant, Mr David Atkinson FCCA, in January 2013 who said in his letter containing the figures that it was “against the wishes of the company who are desperate not to reconcile themselves to a cessation position.” The first claimant was said to have been permanently employed since 6 August 1997 (14 years) and the calculation, in accordance with established principles was: 144 x 1.5 = 216x14. The third claimant was first employed on 6 April 2007 (4 years) and the calculation was thus 144 x 4. There was a further letter from the accountant in March 2013 setting out the notice and holiday pay figures for each alleged employee. Ms McLoughlin said it was accepted that, subject to proof, redundancy payments are valid heads of claim and are to be assessed in accordance with the relevant statutory formula. However, no proof has that either the first or third claimants were employed by the Company and receiving wages has been provided, such as wage slips, documentation from HMRC or proof of National Insurance Contributions. Conclusion 46. Ms McLoughlin’s approach to the value of the business seems to me to be entirely appropriate and in accordance with established valuation principles, and I accept her conclusion. There was absolutely nothing from the claimants to support the alleged loss of profit or to dispute the Council’s contentions. There was only a somewhat questionable Schedule regarding the alleged loss of value, and I am satisfied that the exercise undertaken by Ms Mcloughlin, assisted by suitably experienced colleagues, has provided an appropriate level of compensation under this head. Her suggested figure is accepted.47. I agree that there is no evidence to support a claim for loss of stock, and likewise in the absence of proof that Mr Mustafa Behic or Mr Orhan Behic were employed by Mermer Ltd means I am unable to find for the claimants under these heads.48. Finally, in connection with the second claimant, Ms Mcloughlin quite rightly and very fairly, in my view, pointed out that even though no claim was made under this head, under s.33C(2) and s.10 of the LCA 1973, the second claimant is entitled to an occupier’s loss payment based upon the gross floor area of 4 Station Street multiplied by £25 per square metre or £2,500 whichever is the greater. This was calculated at £3,055 and I determine that this should be paid. Third claimant 49. No claim relating to his business trading as “Bits & Bobs & The Phone Shop” was received in relation to Mr Orhan Behic. However, Ms McLoughlin, in her supplemental report, set out her opinions of the various heads of claim under which compensation could be payable in principle and which, had a claim been made, she would have recommended that compensation should be paid.50. The third claimant held 4A Station Street under the terms of a lease from the first claimant for a term of 5 years from 25 March 2008 at an annual rental of £4,160 pa. This was not an arms-length transaction and, as at the valuation date, there was only just over 1 year remaining. In Ms McLoughlin’s view, therefore, the leasehold interest was only of nominal value. However, on the same basis as calculated for the second claimant in respect of the Company’s interest in 4 Station Street, Ms McLoughlin said that the third claimant was entitled to an occupier’s loss payment of £2,500.51. There had been no claim for loss of stock which had been left behind following possession and whilst it was inspected and catalogued by her colleagues, and that which was considered saleable was believed to have been sold at auction with the rest having been disposed of by the demolition contractors, Ms McLoughlin said she had no details of the figures achieved. With no claim and no evidence, it was her view that no compensation for what had in any event appeared to be of only nominal value was payable. 52. Finally, regarding loss on extinguishment of the business, again no claim had been forthcoming despite the third claimant having been advised as to the statutory position on many occasions. However, in the light of the fact that the business was seen from the accounts to have been profitable, Ms McLoughlin said it was resolved that the Mr Orhan Behic should be offered compensation of one year’s profit - £3,478. Conclusion 53. It seems to me from the above that the Council has been very fair in calculating that the third claimant should receive compensation in the total sum of £5,978 despite no claim having been made. I accept Ms McLoughlin’s calculations.