[2023] UKUT 251 (LC)

Mr Broadbent gave evidence on behalf of the applicant. He qualified as chartered surveyor in 2013 and has been a director of Chartex, a Derbyshire based, general practice surveying and valuation company, since 2008. He has experience of both commercial and residential valuations, on freehold and leasehold properties as well as historic, SIPP and probate valuations.

Mr Adams-Cairns gave evidence on behalf of the respondent. He is a director of Savills UK Limited, head of Savills Litigation Support Department and past head of both Residential Valuations and the Savills Valuation Group.

Prior to the hearing they had discussed their respective valuations and reached a consensus that the value of Lamp Cottage, lay between £810,000 and £840,000.

Mr Broadbent’s report was concise but contained his views on the selection of comparables and an explanation of how he had arrived at his opinion of value in relation to Lamp Cottage. He originally put the value in the range £865,000 to £890,000. He provided details of five comparables, all situated within five miles of Lamp Cottage. He had analysed the transactions and arrived at a range from £3,411 to £6,512 per m² on a gross internal basis. This sample contained a bungalow which had the highest analysis by a considerable margin. Mr Broadbent’s original conclusion was that the value for Lamp Cottage laid between £3,500 to £3,600 per m². He had not inspected any of the properties.

In arriving at his opinion of value Mr Adams-Cairns had been assisted by three comparables; a detached house in a suburban position in Ashbourne, a detached house in a village three miles north west of Matlock and a period farmhouse in four acres of land just to the west of Belper. He too had not inspected any of them. His original conclusion was that the value of Lamp Cottage lay in the range £750,000 to £800,000 and he had settled on the mid-point of £775,000. At the hearing he explained that he had changed his mind about the value simply as a means to take account of a revision in the floor area, his original valuation having been based on a smaller, incorrect figure.

Although they had reached agreement about the approximate value of Lamp Cottage the expert’s views on the effect of modifying the covenant were divergent.

Mr Broadbent briefly explained that in his experience relatively minor issues
with noise, flooding, radon, mining or pollution have little effect on value. Valuation in reality, he said, is not that sensitive. At the hearing he described his approach to valuation as holistic and remarked that some factors that it might be expected to affect value, do not.

His view was that the shared private driveway was more likely to have an adverse effect on value, given the future maintenance liability, than any minor changes in occupancy at Lea Hurst. He also thought that Lamp Cottage and Lea Hurst were sufficiently far apart for any ‘minor noises’ not to cause any disruption and that in terms of traffic Lea Hurst would generate significant traffic movements if it was fully occupied. He considered that the current proposals were ‘much less than this’. He thought that the foot path that passed close to Lamp Cottage was more likely to have a detrimental effect that anything emanating from the neighbouring land.

He additionally said that a requirement for planning permission would offer some protection to the occupants of Lamp Cottage since it would usually be a requirement unless the proposed use was incidental to the main activity. In his view use of 30% of Lea Hurst for paying guests would be incidental, especially as the occupancy rate of these areas would generally be below the 100% occupancy of the areas that the family lives in. Mr Broadbent did not adduce any planning evidence to support this supposition or any calculations to verify that the areas involved actually amounted to 30% of the floor space. He did not say how he had treated areas that were shared between guests and the Kay family.

He concluded that the use of Lea Hurst for bed and breakfast would cause no disruption to Lamp Cottage because the additional use would be minimal, and the access would not be past Lamp Cottage. Furthermore, there would be no significant disturbance from the proposed activity and therefore no negative impact on the value of Lamp Cottage.

Mr Adams-Cairns approached the question of the effect of modifying the covenant by undertaking two valuations. The first, at £775,000, represented the market value of the freehold interest with vacant possession on the basis of a special assumption that the covenants were in place and had not been breached.

Mr Adams-Cairns then embarked on a further valuation, the basis of which was that the covenants at Lea Hurst has been modified to permit bed and breakfast use but also taking account of future uncertainty from possible additional commercial use and development.

This latter valuation was based on the assumption that the guests to Lea Hurst would only use the new driveway, a maximum of 5 bedrooms or 10 guests would be allowed, noisy or disruptive behaviour would not be tolerated, and no parties would be permitted. He went on to say that a prudent purchaser would be reassured by the restrictions but the nature of Lea Hurst meant that there were some additional considerations. These included the potential for further development including, but not limited to, a larger paying guest enterprise, a boutique hotel, a wedding venue and a luxury conferencing site. He noted that the scale of the building and that the number of rooms was more appropriate to a commercial use than a normal home. Finally, the high cost of owning and maintaining the house could mean that in the absence of paying guests the property could fall into disrepair. He thought that any owner of a house of this nature would seek to maximise the income generating potential and the capital value of the estate but in so doing would almost inevitably breach the covenants.

At the hearing Mr Adams-Cairns said that he had not been involved in selling a large house in Derbyshire since the 1980s but he had nevertheless formed the view that disposing of a house of the nature of Lea Hurst in this part of Derbyshire for a large price was likely to be problematical. He thought that it would be difficult for Mr Kay, if he came to sell, to recoup his financial and emotional expenditure. The corollary of this situation was that exploiting any development potential would be very important to him.

In his view the likely effect on Lamp Cottage of the uncertainty over future developments would be to reduce both the number of potential purchasers prepared to proceed and the amount they would be prepared to offer. Mr Adams-Cairns thought that there would be additional factors that would be in the mind of the prospective purchaser. The first of these was the degree of protection offered by the planning system. He acknowledged that the planning history of Lea Hurst demonstrated that the planning authority had been robust in their refusal of permission to develop the site, including the refusal of consent to convert the house into a museum, the refusal of the glamping pods and the fact that consent was only granted for the new driveway on appeal. However, he observed that the mere act of making a planning application on a neighbouring property can impact on marketability and lead to caution on the part of purchasers.

Traffic movements were the next item on Mr Adams-Cairns’ list of deleterious factors that could affect Lamp Cottage. He acknowledged that it was intended that guests at Lea Hurst would use the new driveway but thought this arrangement would be impractical because the new driveway has three locked gates and is narrow with no passing places.
In fact the gates are electrically operated and controlled from the house. Mr Adams-Cairns assumed that anyone parking at Lea Hurst would favour returning to the
public highway by following the old driveway which is shorter and has no gates. However, there is an electrically operated gate between Lea Hurst and the old driveway which is again controlled by Mr Kay. He also thought that any commercial enterprise would favour a one-way system using the new drive to come into the site and the old driveway to leave. He said that purchasers are inevitably influenced by passing traffic and traffic noise, the drive is very close and fear of the unknown, as in this case, can be greater than the eventual reality. His conclusion was that one-way system would be inconvenient and irritating for the owner of Lamp Cottage and that increased traffic would be passing nearby, and vehicles crossing the cattle grid would have a detrimental impact on value although he did not quantify it.

The final factor that Mr Adams-Cairns considered was disputes between neighbours. He thought that a prudent purchaser would be concerned about the difficulty in ‘policing’ the number of bedrooms utilised, or the additional services offered, future discord and potential legal costs for enforcement action or a further application to modify or discharge the covenant.

Having considered these various factors Mr Adams-Cairns moved on to what he described as ‘valuation considerations’ which appeared to mean the uncertainties and risk associated with a purchase of Lamp Cottage and in particular the impact of future development. His conclusion was that a housing estate on the land next to Lamp Cottage might have an impact of 10 to 15% on its value but conversion of Lea Hurst to a hotel would potentially reduce the value by 7.5% depending on the nature of the hotel. Objecting to an application to modify or discharge the covenant might cost £100,000 in legal and other fees. On the other hand, either scenario might not come to pass. Ultimately, he settled on a figure of £50,000 which resulted on the basis of his original figures, in a value of £725,000. On the revised figures agreed with Mr Broadbent it amounted to 6% of the mid-point value between £810,000 and £840,000. He stated that in his opinion such a discount would be broadly in line with what he would expect from the lower selling prices achieved for houses close to hotels, public houses and incompatible commercial uses. He noted that this was less than the discount which could result from new roads, industrial uses or adjacent new, comparatively low value housing developments, through which access is obtained.

At the hearing Mr Peachey asked Mr Adams-Cairns whether a prospective purchaser of Lamp Cottage who had no knowledge of the issues around the development of the Estate, would make any adjustment to his offer if he were to be faced just with the modification as sought. His answer was that the modification would have no effect. It was clear therefore that Mr Adams-Cairns considered that the only factor that would affect the value of Lamp Cottage was the uncertainty over what Mr Kay would do in terms of developing the Estate.