The FTT’s decision
14.The parties were unable to agree the purchase price for the freehold and that issue was referred to the FTT. Before the hearing the parties agreed that the value of the rental income and reversion was £19,000. The only matters remaining in issue were the development value of the building and the value of appurtenant property. The appurtenant property, which the respondent is entitled to acquire along with the freehold of the building itself, comprises the narrow concrete apron separating the building from the pavement on the Molyneux Street frontage and the small rear yard used for the shortage of bins and bicycles. 15.The FTT recorded legal submissions by Mr Madge-Wyld from which it derived the following statements of principle:(1)Where the subject property has been sold shortly before or after the valuation date, the sum paid is the value of the freehold subject to any necessary adjustment (statutory or otherwise).(2)Where there is evidence of a comparable sale in the open market, a residual valuation should not be used (referring to decisions of this Tribunal in Allen v Leicester County Council [2013] UKUT 16 (LC) and Ridgeland Properties Ltd v Bristol City Council [2009] UKUT 102 (LC)).16.The FTT then recorded the evidence of Mr Hayes who considered that there was no development value associated with the property and that the maximum amount that the market would pay for hope value was £10,000. It was clear from the pre-application advice that no rooftop development would be allowed; there was uncertainty about what structure was below ground level and whether any previous basement void had been filled in; it was not clear whether habitable accommodation could be created in the basement nor whether development in the yard area would be feasible.17.The FTT then gave an account of Mr Dhanao’s evidence. He had carried out a residual valuation and spoke to a value of £1.23 million. Mr Dhanao confirmed that he did not think it was necessary to refer to the auction sale price, two months before the valuation date. He had not mentioned it in his report because he did not consider it was a material factor. He thought the guide price at auction of £15,000 “might be wrong” and that the market at the time of the auction in February 2020 might have been “nervous” due to the covid pandemic. He explained his residual valuation and confirmed that it was based on certain assumptions, namely, that rooftop development would be permitted in the future, that there was a basement which had been filled in and could be excavated, that the building would remain structurally sound after the excavation, and that the cost of the excavation would not be excessive.18.Mr Madge-Wyld invited the FTT to conclude that the appellant had overpaid for the property and that the market would not have paid £91,000 at the valuation date. A purchaser would pay no more than £10,000 for the possibility that there may be development value sometime in the future.19.The FTT’s conclusions were comprised in four relatively short paragraphs. As part of the appeal concerns the sufficiency of its reasoning, we will set that part of the decision out in full:“36. The tribunal has not referred in detail to the component parts of Mr Dhanao’s residual valuation because it had determined that such an approach is not a reliable basis upon which to assess the premium. It is a method of last resort. 37. Moreover, the tribunal is not convinced that Mr Dhanao’s method of valuing the proposed flats in the basement and on the roof of the block results in values which could realistically be achieved in the open market. His approach to the valuation was not underpinned by any evidence nor had he considered the price paid by his client to be a relevant factor or indeed why his client had paid such a sum.38. No evidence has been produced to support the likelihood of the proposed development either obtaining planning permission or being economically viable. Little consideration was given to the practicalities of undertaking the basement development where, as here, the ground floor flats are demised and the remaining area is a common part. The tribunal accepts that there is very little prospect of any rooftop development in view of the local authority’s guidance.39. The tribunal finds that a purchaser would consider this a very speculative development opportunity adding no more than the £10,000 offered by the applicants. The value of the rear yard at £1,000 was not contested.”As a result, the FTT determined that the premium payable on collective enfranchisement was £30,000. It is apparent that that figure represented the agreed sum of £19,000 for the value of the reversion to the leases, plus £10,000 hope value and £1,000 for the value of the appurtenances.