[2024] UKUT 00301 (LC)

From a helpful statement of agreed facts and my external inspection, I find the following facts.

The appeal property is situated within a prime residential neighbourhood in Belgravia in the London Borough of Westminster. It is within easy walking distance of Victoria mainline railway and underground stations, providing excellent connectivity to central London.

Chester Square is an early-Victorian garden square, comprising predominantly stucco fronted, terraced houses, the majority of which remain as single-family dwellings. The square is bisected by Eccleston Street - a busy one-way, two-lane road, forming part of a main thoroughfare running from Vauxhall Bridge in the south to Knightsbridge in the north. The appeal property is located on the north-west side of the square, close to its junction with Eccleston Street. The section of the square in which the appeal property is situated is a two-way road with residents’ parking on each side.

The appeal property comprises a mid-terraced house built over lower ground floor to fourth floor level. It has been connected to the rear mews property (part of Eaton Mews South) to form a single-family house. It comprises five bedrooms, five bathrooms (three ensuites), a sixth bedroom or gym area with shower room, plus living accommodation and outside space. It is Grade II listed and is within the Belgravia Conservation Area.

The accommodation comprises:

There is an external roof terrace. When the appellant bought the appeal property, this was a smaller terrace accessed from a small external stairway, from a door on the internal stairs between first and second floor. Subsequently, as part of the kitchen being widened, this terrace was also extended and remodelled, to be accessed directly from the first floor reception room.

The appellant acquired the appeal property in August 2011 at £9.5 million. It was then subject to a programme of refurbishment. At first, the respondent was informed by the appellant’s former solicitors that the refurbishment amounted to ‘cosmetic works such as paint, carpet and new cupboards where required’ at a cost of ‘around £50,000’. In fact, the works were more extensive, at a cost of £500,000 inc VAT, and included an extension to the kitchen, with associated expansion of the roof terrace above, a new kitchen, a relocated media room and the replacement and expansion of some air conditioning. The substantive alterations were the subject of planning and listed building applications, which were registered by the local planning authority in January 2012. A further planning permission for the installation of a lift was not implemented.

Mr Nesbit considered the appeal property to be of average condition in relation to the comparable properties. The appellant has told him that the refurbishment works were undertaken ‘some 12 to 13 years ago’ and given the wear and tear, the kitchen, bathroom and audio visual installations, Mr Nesbit thought this was probably accurate although he accepted that there had been some further refurbishment to the terrace, cinema room and potentially some of the bedrooms. He thought that the specification was ‘now nearly 15 years through its lifecycle’. That may be the case, but of course we must consider the property at the valuation date of April 2017. As Mr Alderton pointed out, planning and listed building consents for the work were granted in mid-2012, so it seems unlikely that the work would have been completed until the end of 2012 or early 2013. Accordingly at the valuation date the specification would only have been four or five years old.

Mr Alderton referred to photographs that had been submitted to the local planning authority as part of the listed building and planning applications, and to photographs from his own inspection. He submitted a copy of a schedule agreed with the appellant’s previous expert which showed various parts of the property in 2011 before refurbishment, and its condition in 2023, which the experts agree is broadly the same as that at the valuation date.

I accept Mr Alderton’s evidence that the appeal property was significantly upgraded as part of the works including a notably superior kitchen with what he described as ‘high end integrated appliances, marble worktops etc’. A lower ground floor bedroom was reconfigured to a fully integrated media room, the balcony was extended over the kitchen and access to it was installed directly from the drawing room. Various bedrooms and bathrooms were upgraded including the installation of air conditioning.

It seems to me that the specification of the property was upgraded commensurate with the stated cost of £500,000. While cost does not equal value, I have no doubt that this would have had a positive impact on the value of the appeal property.

Can the August 2011 purchase tell us anything about the value of the appeal property at April 2017? Despite his preference for the Land Registry Index, as outlined below, Mr Nesbit chose to use the Savills Index to indicate that the market had only increased by 0.7% (Savills Index 214.8 in September 2011 and 216.3 in March 2017) which would point to an adjusted purchase price of £9,556,500 at the valuation date. He then accounted for what he termed £500,000 ‘capex’ by depreciating at 50% for obsolescence, adding this to still arrive at a value of ‘sub-£10m’. Implicitly, therefore, Mr Nesbit accepted that the refurbishment works added to the freehold value.

Mr Alderton made three points in response. First, in analysing all the comparable evidence it had been the date of exchange of contracts which has been used. Consistent with that, the date of exchange of contracts for the appellant’s purchase of the appeal property was July 2011. If the Savills June 2011 figure was used – 208.6 – an indexed equivalent purchase price of £9,850,000 would be arrived at, before any addition for the refurbishment. Secondly, Mr Alderton noted that had Mr Nesbit used his preferred Land Registry index, an equivalent value at the valuation date would be £15,860,000. Thirdly, as for capital expenditure, Mr Alderton said that depreciating expenditure was not a market basis for adjusting for specification.

I return to this topic later.