[2024] UKUT 00301 (LC)

This is a long leasehold property on the opposite side of the square to the appeal property. It sold twice, in April 2015 for £10,500,000, and again in August 2017 for £20,671,295.

Both experts discussed these sales at length, but in reality the sales are of limited assistance.

In his first report Mr Nesbit relied on the two sales as being the best example of how an upgrade in specification can ‘move the needle on value considerably, analysing the sales of ‘the same house with the same sq ft’ as adding £1,422 per sq ft after allowing for indexation. This, he said, was ‘key empirical evidence on Chester Square as adjusting for time and knowing the floor plates remained consistent one can be confident that other factors are organically isolated meaning that there is a quantification to the specification parameter applied in my analysis’. He used £1,422 per sq ft for benchmarking, assuming that figure from poor to high specification, and applying 50% to adopt £750 per sq ft as low to average and average to high adjustments elsewhere in the evidence.

Mr Nesbit’s confidence was misplaced. As Mr Alderton said in his second report, when the property sold in April 2015, the main house fronting Chester Square and the rear mews house on Ebury Mews were not linked. The Lonres floor plans for that sale show a floor area of 6,894 sq ft. After refurbishment, and indeed therefore extension, the floor area had increased to 7,100 sq ft, but of more importance the two blocks were linked to allow internal access front to back.

Accordingly, Mr Nesbit’s analysis was defective. Of more concern, despite having Mr Alderton’s second report when drafting his two later reports, Mr Nesbit made no comment on this error, and how it might affect his analysis and valuation.

I place no weight on the first sale of no.70, which was sold unmodernised as a development opportunity of two unlinked buildings. The second sale is also of limited assistance. This was more than the sale of a freehold house with vacant possession; it was as Mr Alderton described, a ‘turnkey’ opportunity. The later sales particulars say that ‘the property’s furniture is bespoke and British-built, with art work curated in-house from selected galleries and artists comprising paintings, photography and sculpture including specially commissioned pieces..’. Neither expert has attempted to isolate those elements from the true freehold value of the building, and their effect on value is unknown. I place no weight on this comparable.

This is on the same north-west side of the square as the appeal property but on the south side of Eccleston Street. Mr Alderton has the gross internal area at 4,941 sq ft, Mr Nesbit 4,947 sq ft. To the very limited extent that it matters, I think Mr Alderton is correct, as his figure is the same as quoted on the sales particulars. There is no garage. There is no lift. It sold in October 2013 for £12,500,000, and after refurbishment again in August 2014 at £15,300,000. The 2014 sale, being closer to the valuation date and when the property had been refurbished is of more use than the earlier sale.

Assuming an index at the valuation date of 215.4, the August 2014 sale (assumed index of 245.9) would equate to £13,398,387.

Indexation for time was the only adjustment which Mr Alderton considered necessary. Mr Nesbit made two adjustments – 7% for the potential outside space which he thought No 20 could accommodate, and £400 per square foot for its better specification.

As regards outside space, Mr Nesbit referred to a lightwell which he considered could potentially provide further space to the ground, raised ground and first floors, and which afforded natural light to the existing space. There are several objections to that being a sensible approach. First, as regards natural light, the lightwell is simply providing light to a media room and sixth bedroom on the lower ground floor, to the kitchen and a study on the upper ground floor, and to the drawing room on the first floor. In my judgment all it is doing is putting those rooms into a state similar to that of the comparable evidence, or at best marginally lighter, in circumstances where rates per sq ft are being compared like for like. Had some space (apart from perhaps the media room where one might imagine darkness would be welcome) had no natural light, a discount might be argued for, but I am not persuaded that the lightwell at no.20 is adding much.

But there is a more fundamental point which is this. From the floor plans provided, I estimate that three floors which could be expanded into the lightwell would amount to around 15 sqm, or say 160 sq ft. Mr Nesbit’s allowance of 7% would equate to over £1 million, or something in the order of £6,700 per sq ft – for space that has yet to be built, before any build costs and in circumstances where he values built space at a tone of around £2,400 per sq ft. Put in that way, to me Mr Nesbit’s addition proves nonsensical.

Mr Nesbit also referred to the rear balcony/terrace. From the plans provided it appears that this was accessed from the main staircase – in the same way as the subject property before this was changed as noted above. If anything, the external space of no. 20 is inferior to that at the appeal property. I make no adjustment for external space.

As for condition, having reviewed the photographs of both, I am not persuaded that any adjustment is warranted when comparing no.20, once refurbished, with the appeal property.

Accordingly, the adjusted sale price of £13,398,387 would equate to £2,712 per sq ft at the valuation date.

This is next-door-but-one to the right of the appeal property. It sold in October 2014 at £15,000,000. Mr Alderton had a gross internal area of 4,674 sq ft. Mr Nesbit did not provide much evidence or comment on the property, which was puzzling since it was two doors’ away. In his schedule he had the floor area at 4,391 sq ft plus a garage of 181 sq ft, totalling 4,572 sq ft. This excludes a vault area (which as I have explained above is included in gross internal area) which has an area of 102 sq ft. Together, they would equate to Mr Alderton’s area.

Mr Alderton’s application of the Savills index resulted in an equivalent value of £13,253,676 at the valuation date. I calculate £13,263,309 (assumed index in October 2014 of 243.6, and at April 2017, 215.4). He made no other adjustments.

Aside from valuing the garage differently, as I have previously outlined, Mr Nesbit made two further adjustments. First, an adjustment of 3%, amounting to £450,000, for ‘Square Position’. In my judgment, no such adjustment is warranted given the close proximity to the appeal property. Secondly, he made an adjustment to reflect No 10 having a superior specification, of £400 per sq ft, amounting to £1.756 million. This was unsupported by any particular narrative, but was probably informed by his analysis of no.70, above.

The sales particulars refer to a ‘fully air conditioned home…having been developed by Finchatton as a private client project about 6 years ago’. Shortly after the property was sold, planning and listed building consent was granted for what was described in the June 2015 Heritage Statement in support of the application as encompassing ‘structural alterations to reinstate stability to the floor structures, remedial works to the roof structure, installation of a new internal lighting system, and small scale changes to the already permitted third and fourth floor alterations.’ The statement went on to explain that the structural alterations were required in part as a result of ‘existing inadequate structural interventions’; the existing main and mansard roof are in a poor state of repair; and that repairs and refurbishment was required to stucco, timber windows and rainwater goods.

The photographs in the sales particulars appear on the face of it to show a high specification, but clearly all was not well with the property. I do not consider Mr Nesbit’s adjustment for quality is justified. It might be argued that No 10 was in worse condition than the appeal property, but taking account of the above I make no adjustment for specification.

It seems to me that this is one of the most relevant comparables, in terms of propinquity and physical similarity to the appeal property. The time-adjusted value of £13,263,309 at the valuation date would equate to £2,838 per sq ft.

This immediately adjoins the appeal property to the left and is an end-of-terrace building with return frontage to Eccleston Street. Both experts base their figures on a gross internal area of 5,597 sq ft.

The property sold in July 2016 for £15,000,000.

While having a Chester Square address, the main entrance to the property is on Eccleston Street. It is externally more ornate, probably designed to ‘bookend’ the southern end of the terrace. The photographs in the sales particulars show a relatively plain internal specification with a dated kitchen. The property had a lift, which the experts agree should be reflected by a 3.75% adjustment.

Mr Nesbit considered the property’s end of terrace position to be advantageous, giving a ‘significant quantum of additional natural light to depth’, and being unopposed by a neighbour to one side. His quantum adjustment was in part informed by a conventional retail valuation where an addition of 5-10% is commonly added for ‘return frontage’. He allowed 7.5%. Mr Alderton considered the dual aspect which the property enjoyed was balanced by the front door being on the, by common ground, busier Eccleston Street. Some windows were bricked up, limiting the extra natural light which the property enjoyed when compared to the appeal property.

I am mindful that Eccleston Street is busier, and that there might be something to be said by being within the terrace and slightly away from the traffic. Later in his first report Mr Nesbit referred to the appellant having run tape around the inside of window frames ‘to prevent the effect of noise’. Clearly this would be of more concern if much of the property faces Eccleston Street. However, I agree with Mr Nesbit that the advantages of having an end of terrace property, with more natural light and having one neighbour, should be reflected in an allowance.

As for condition, Mr Alderton reflected the more basic condition of no.13 compared with the appeal property by allowing £150 per sq ft, or £839,550. Mr Nesbit made no allowance, his schedule saying that the specification was ‘similar’, but with little comment in his report. The photographs show a property in reasonable condition, but empty and in effect a blank page. The kitchen looked again looked to be in reasonable condition, but plain and probably dated.

From the evidence it seems that most buyers refurbish to their own taste and style, and in my judgment there is a danger of making a level of adjustment which in reality would not be reflected in the market. I allow £500,000 for specification.

No 13 was one of Mr Nesbit’s three ‘key comparables’; indeed, he considered no.13 to be the ‘standout evidence’. In his schedule he noted it as ‘significant evidence given location’. (and yet as I indicate above, he was more circumspect when it came to no.10, three doors away).

As for open space, Mr Nesbit said that no.13 had ‘two terraces and three patio areas’ and had the extra balcony to Eccleston Street. The main rear outdoor space is not dissimilar to that of the appeal property. The other ‘terrace’ is a balcony area above the front door, and which is accessed via a landing on the stairwell. It is of limited utility and seems to simply have some potted topiary on it. Two of the areas which Mr Nesbit describes as ‘patios’ are below pavement level in what are the lightwells to the lower ground floor, over which there are security bars. They may have some limited value, but I do not accept that a hypothetical buyer would pay notably more than had they not been there. As above, they simply allow the lower ground floor rooms to have natural light, and this has already been factored into a main space rate being applied to the whole gross internal area. The third ‘patio’ area is potentially of more use, accessed from the kitchen and a breakfast room, but again simply lets light into those rooms. Mr Nesbit’s 8% adjustment, amounting to £1.2 million, is again excessive. For both end of terrace and limited better open space, but reflecting more road noise, I allow 5%.

This is the first comparable where I have both percentage and spot rate adjustments to make. But in what order should they be made? Originally, Mr Alderton made his indexation adjustment before applying other allowances for condition etc. Later in the exchanges of evidence, he agreed with Mr Nesbit that indexation should be applied last.

In The Earl Cadogan v Faizapour and Stephenson [2010] UKUT 3 (LC) [at 32] the Tribunal (George Bartlett QC, President, and Mr A J Trott FRICS) explained that where adjustments are commutative (all based on percentages or multiples) it matters not the order in which the adjustments are made because the end result will be the same (Footnote: ¹). But where some adjustments are percentages, and some are fixed or spot figures, the Tribunal’s preference was to adjust for non-physical factors (time and relativity) before adjusting for physical factors. There was no dispute about the order in which adjustments to reflect those physical factors should be made, and the Tribunal accepted adjustments for condition, location and lateral layout (the properties concerned had been laterally combined), in that order whilst noting that had the adjustment for condition been made last, the end result would have been different.

So, the adjustment for time, using the indices, is made first. Assuming an index of 227 in July 2016 (June was 229, and September 223), at the valuation date the sale price of £15,000,000 would be adjusted to £14,231,278. The question of whether to adjust for the lift (-3.75%) and location/outdoor space (-5%), before or after condition (+£500,000) is largely academic. £14,231,278 x 96.25% (for the lift) x 95% (location) = £13,012,724, plus £500,000 = £13,512,724, or £2,414 per sq ft. Or, £14,231,278 + £500,000 = £14,731,278 x 96.25% x 95% = £13,442,291, or £2,401 per sq ft. Consistent with Cadogan, I take condition before lift and location/outdoor space, and therefore analyse the sale to produce £2,400 per sq ft.

This is an inner-terraced house, located diagonally across the square from the subject property, and to the south of Eccleston Street. Neither expert made an adjustment for location. It sold in July 2017, some months after the valuation date, at £14,500,000.

Mr Alderton’s gross internal area is 6,069 sq ft, Mr Nesbit’s is 5,529 sq ft plus a garage of 436 sq ft, totalling 5,965 sq ft. Neither expert explains the source of their figures, and the very brief sales particulars supplied do not help. I have taken an average of 6,017 sq ft. Whilst on any view this is notably larger than the appeal property’s 4,277 sq ft, neither expert made any form of quantum allowance. The property had accommodation over six floors, with a garage and roof terrace. There was no lift.

It was common ground that the property was sold in an unmodernised state. The internal photographs show a fairly tired specification. Mr Alderton reflected this by allowing £300 per sq ft, amounting to £1.82 million, Mr Nesbit £500 per sq ft, or £2.76 million. Consistent with my comments at paragraph 85 above, and in the light of Mr Nesbit’s £500 per sq ft being informed by his analysis of no.70, I have taken the lower figure.

Mr Alderton makes no further adjustment. Mr Nesbit again adjusted for private outside space by reducing the sale price of no.62 by 7%. But there was little if any narrative in support of that calculation, and it was not clear which areas he suggested were superior or capable of adding value. I make no adjustment.

My devaluation is as follows. £14,500,000 at July 2017 (index 212.9) is adjusted to £14,670,294 at the valuation date (index 215.4) plus say £1.8m for condition = £16,470,294. This would equate to £2,737 per sq ft.

This is in the same terrace as the appeal property, but further to the north-east. It does not face the square, instead being opposite the side elevation of no.80. The upper elevations are brick faced. It has a gross internal area of 4,215 sq ft over four floors.

The date of exchange of contracts (which has been used throughout for the purposes of indexation) is not known, but completion of the sale was on 5 April 2017, within a week of the subject valuation date. The sale price was £11,500,000.

Mr Alderton made no adjustment for time, but reflected the inferior location by adjusting the price by 2.5%, analysing at £2,797 per sq ft.

Here, we have what on any view is a very useful comparable transaction, the sale completing within days of the valuation date. Mr Nesbit makes no reference to it in any of his reports, nor does it feature in his schedule of evidence. That is simply baffling.

While the date of exchange of contracts is unknown, it seems likely that it would have been a month or two before completion (the evidence varies from the same month to three months). I have assumed exchange of contracts in February 2017 (Index 216.9), which after 2.5% for location equates to £11,704,171, or £2,777 per sq ft.

This is diagonally across the square from the appeal property. It sold in November 2017, for £12,800,000, unmodernised ‘as a development project’, having a gross internal area of 4,824 sq ft. Mr Alderton, after adjusting for time, and allowing £300 for refurbishment, analysed the sale at £3,017 per sq ft. Mr Nesbit made little comment.

I am not satisfied that this sale, seven months after the valuation date and requiring substantial valuation adjustment, can safely be relied upon as an indicator of value for the appeal property, and I place no weight upon it.

Adjusting for time, for condition and for other factors can only provide a guide to the valuation of the appeal property. The more adjustment that is required, the more susceptible the analysis is to error. Taking the evidence chronologically, we have the following:

In my judgment 13 Chester Square, while adjoining the appeal property, is less useful as a comparable transaction, because of the number of adjustments that were required to be made to it. The better comparables are no 10 – two doors away and physically very similar to the appeal property, but requiring indexation over a period of two and a half years making it susceptible to inaccuracy, and no 87 – transacting around the valuation date and requiring only adjustment for location. No 62, selling some months after the valuation date, gives some comfort that the analysis of 87 is reliable.

In regard to what is really at stake between the parties, whether the appeal property’s value is above or below £10,000,000, all of the transactions above when applied to it would produce a value in excess of that level (the lowest, £2,400 per sq ft, producing just over £10,250,000).

I also place some weight on the appellant’s purchase of the appeal property in August 2011 at £9,500,000, following which £500,000 was spent on refurbishment. Assuming a June 2011 exchange of contracts, the Savills index was 208.6. This would equate to £9,809,683 at the valuation date before any reflection for improvements. Indexing over such a long period is unsatisfactory, but this would also point to a value in excess of £10 million at the valuation date.

A value of the appeal property at 1 April 2017 based on the sale of 62 Chester Square at £2,737 per sq ft, and 87 Chester Square at £2,777 per sq ft applied to the gross internal area of 4,277 sq ft would produce a value range of £11,707,404 to £11,877,299.

In Mr Alderton’s opinion the value of the appeal property at the valuation date was £11,750,000. In my judgment he was correct.

I therefore determine the market value of the appeal property at 1 April 2017 for the purposes of s.98(8) of the Finance Act 2013 was:

I have outlined above some of the many instances when Mr Nesbit criticised Mr Alderton’s conduct, questioning his professionalism and motives in selecting evidence. For the reasons I give above, these were without justification and were entirely unnecessary. Seldom is this tactic helpful to the decision maker, especially in the setting of an expert Tribunal.

It also misunderstands the role of the expert witness. As the RICS Practice Statement, Surveyors acting as Expert Witnesses 4^th edition (amended February 2023) says (at 17.8.c):

“Expert witnesses would not generally be expected to… include comments that are in the nature of advocacy submissions about an opposing expert’s evidence. You may find yourself at greater risk of slipping into ‘advocacy mode’ at the rebuttal stage of presentation of evidence, when the focus of your evidence shifts from explanation of your own opinion to a more critical role in dealing with the expert witness report of your counterpart.”

In my judgment, throughout his later reports Mr Nesbit succumbed to the risk foreseen by the Practice Statement, and the credibility of his own evidence was the weaker for it.