Lands Tribunal for Scotland

OPINION

Costa Tofalis and Another
v
City of Glasgow Council

Summary

These are two related applications for compensation for compulsory purchase. The subjects are two flats which were acquired, along with two of the other flats in a tenement building, at a time when major repair works to the building were required, as part of a scheme involving comprehensive repair and alterations with a view to re-sale for residential occupation. Subject to an issue about the effect of outstanding liabilities for previous repair work, the market value of the subjects in repaired state at the vesting date in August 1993 was not in dispute. The applicants sought compensation on the basis of the availability of substantial grants for the repair works. We have, however, concluded in each of the two cases that the amounts which the subjects, if sold in the open market by a willing seller, might be expected to realise do not exceed nominal values, and in each case we have awarded compensation of £1,000 on that basis in accordance with the respondents’ submissions.

The Issues

These were two applications, by Costa Tofalis, in respect of a main door flat at 101 Hill Street, Glasgow, and by Vassoula Tofalis or Hardiman, in respect of flat 1/1, 99 Hill Street, Glasgow, for the determination of questions of disputed compensation, following acquisition by the respondents of the subjects under ‘The 99/101 Hill Street Housing Compulsory Purchase Order, 1990’. The vesting date in each case was 5 August 1993, and the parties were agreed that the values of the subjects on that date were to be assessed in accordance with the rule set out in Section 12(2) of the Land Compensation (Scotland) Act 1963, which is in the following terms:-

“(2) The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise.”

Parties were also agreed, in general, that the subjects required to be valued as if they were unaffected by the compulsory purchase. The subjects and the building in which they were situated were in some disrepair. There was no agreement as to their exact state on the vesting date. Parties were agreed as to their values on that date if in good condition, subject to any effect of alleged outstanding statutory liabilities in respect of previous repairs, at £80,000 and £60,000 in respect of No. 101 and Flat 1/1 respectively. The two issues before the Tribunal were accordingly:-

  1. To what extent, if at all, were the values of the subjects affected by outstanding statutory repairs liabilities? and
  2. To what extent, if at all, would hypothetical offerors discount the values as a result of the states of the properties and uncertainty about the availability of grant assistance for repairs including any uncertainty as to whether a scheme of repair would be implemented?

Procedure

The two applications, although of course requiring to be decided individually, were, by agreement, conjoined and heard together at a hearing on 25 to 27 March 2002. The applicants were each represented by R L Martin, QC, instructed by Messrs Morison Bishop, Solicitors. The respondents were represented by P S Hodge, QC, instructed by the Solicitor to Glasgow City Council.

Both sides lodged substantial documentary productions in addition to leading oral evidence. The parties entered into a Joint Minute of Admissions agreeing certain facts. There was no comparable valuation evidence.

The applicants led one witness, Iain Haxton, FRICS, IRRV, of Messrs Murray & Muir, a valuation surveyor with extensive experience in the Glasgow residential property market, who gave expert valuation evidence. It must be said that the information with which Mr Haxton had been supplied in relation to circumstances at the subjects prior to the promotion of the compulsory purchase orders appears to have been very limited. The Tribunal did not hear from either of the applicants or anyone else involved as, or on behalf of, owners of the subjects or the other properties in the building at 97-101 Hill Street, nor was there any documentary evidence which assisted much in ascertaining the position adopted by the owners (and in particular the non-residential owners) over the period before the making of the order, or indeed the period after it. We were accordingly considerably hampered in endeavouring to understand what the position might have been with regard to repairs, grant applications, etc, if no compulsory purchase scheme had been promoted.

The respondents led six witnesses, viz:-

(i) Russell Logan, an architect, of Opfr and Logan Architects, who is experienced in the repair and re-furbishment of tenement buildings and who was first involved with the building in connection with repairs carried out in about 1986 under an earlier statutory notice, thereafter on the instructions of the respondents, and latterly and after the compulsory purchase as director of a company, Loft House Developments Ltd, which was set up in order to acquire the compulsorily purchased flats and carry through the re-furbishment and alterations which were ultimately carried out as a commercial development in 1996 ;

(ii) John Entwistle, FRICS (Quantity Surveyor), of McKay Entwistle and Ford, who prepared costings for estimated works to the building in 1987 and also for the Loft House project in 1995 ;

(iii) Douglas Monroe, Principal Officer in the respondents’ Private Sector Housing department, who spoke to the administration of bills for statutory repairs under the Section 108 of the Housing (Scotland) Act 1987, and its predecessor Act ;

(iv) Duncan Thomson, a Senior Grants Officer of the respondents, who spoke to the criteria for awarding repair grants ; and

(v) Andrew Todd, a Private Division Project Manager for the respondents, with responsibility for addressing problems of disrepair in tenement properties using statutory powers, who spoke to the 1982 Section 24 Notice, a 1988 Closing Order, the Council’s intentions at the time of promoting the compulsory purchase order, and also the circumstances which had more recently arisen in relation to disrepair at the adjoining building, 103-107 Hill Street ; and

(vi) Brian J Kerr, FRICS, the District Valuer, who had extensive experience in a wide range of properties and who gave expert valuation evidence.

The Tribunal did not make any formal inspection of the locus. The parties agreed that a site inspection would not be helpful due to the extent of change since the 1993 valuation date.

The contentious areas of fact and opinion included issues as to the state of the subjects at the vesting date, and likely repair costs; the incidence of VAT on repair costs; the availability, and level, of grants in respect of repair works to non-owner-occupied houses; whether the respondents would have committed funds for necessary repairs to the subjects if it had not been for the compulsory purchase scheme, either on the basis of supporting a ‘voluntary’ scheme or on the basis of themselves carrying out a statutory repairs scheme; and of course the result which would have been reached in the statutory hypothetical market. It is, however, convenient first to set out our findings on matters which are substantially undisputed.

Undisputed Facts

On the basis of the oral and documentary evidence and the Joint Minute of Admissions, we make the following findings of undisputed fact.

The subjects form part of a substantial Grade A Listed Victorian tenement building in Breadalbane Terrace, part of Hill Street, in the Garnethill area near to, and to the north west of, Glasgow City Centre. The building was constructed in around 1845, and is within the City of Glasgow Central Conservation Area. The building originally comprised six properties, viz. two main door (ground floor) and basement flats (Nos. 97 and 101), two first floor flats, and two top floor and attic flats (all at No. 99, entered from the common stair). The room sizes in all the flats were substantial.

The subjects comprised: the main door and basement flat at No. 101, containing nine apartments, kitchen, bathroom and additional WC apartment, owned by the applicant Costa Tofalis; and Flat 1/1 at No. 99, situated first floor left and containing five apartments, kitchen and bathroom, owned by the applicant Mrs Vassoula Tofalis or Hardiman, the sister of Mr Tofalis. The subjects had been owned by the Tofalis family for some decades, but they had apparently moved away in about 1971. For some years both flats were at least intermittently in ‘multiple occupancy’ occupation, i.e. the rooms were let out individually (sometimes known, and referred to on the Valuation Roll, as ‘service flats’). For an unknown period prior to the vesting date, and at that date (August 1993), the subjects were vacant and displenished.

Of the other four original flats, two others, viz. Flats 2/1 and 2/2 on the top floor, owned by George Chrystomou and Yuk Chun Ng had also been in ‘multiple occupancy’ occupation. They were not owner-occupied. There was no evidence as to whether they remained in any sort of occupation at the vesting date. They too were subject to the compulsory purchase order. Flat 1/2 was, and remained, owner-occupied. The position about No. 97, the other main door and basement flat, was less clear. It was owned by a Mr Malik. As at 1985, the Valuation Roll showed it as divided into a ground flat occupied by Mr Malik, and a service flat in the basement. No. 97 was included in the original compulsory purchase proposal, but was then excluded following representations by a councillor on behalf of Mr Malik, apparently on the basis that it was not in multiple occupation. Exactly what actually happened to No. 97 was not clear, but for the purpose of calculating liabilities for repairs that property was apparently treated as two units, with the result that repairs bills or estimates for the building were regarded as divisible by seven – No. 97 (2), No. 99 (4) and No. 101 (1) – in order to calculate the shares of each flat.

Two statutory repairs notices were served in respect of the building on 25 January and 10 November 1982, under Section 24 of the Housing (Scotland) Act 1969, which was the predecessor provision of Section 108 of the Housing (Scotland) Act 1987 and which empowered the local authority to act when satisfied that a house was ‘in a state of serious disrepair’. Mr Logan, who had earlier been involved in ‘saving’ the building at 109 to 113 Hill Street when it was threatened with demolition, was approached on behalf of owners – he could not recall which – in about 1983 or 1984, to organise common repairs. Common repairs may proceed, and attract grant assistance, on the agreement and instruction of the owners, either without there having been any statutory notice or after service of such a notice (‘voluntary schemes’); alternatively, in the absence of a voluntary scheme, the local authority may exercise its statutory power to carry out necessary repairs itself and then charge the owners (‘statutory schemes’). In the case of statutory schemes, grant assistance might still be available to some or all of the owners who satisfied the criteria for eligibility, in which case the grant would be deducted from the individual owners’ apportioned repair liabilities. Common repairs, comprising mainly repairs to the roof, chimneyhead, stone gutters, stonework, close and spiral stair, were eventually carried out at the building in about 1986 by Lafferty Construction under a statutory scheme, at a cost, excluding VAT, of £105,934.77. Mr Logan acted as architect in the contract between the local authority and Lafferty. There was no other evidence as to the attitudes of, or activity among, the owners towards developing a voluntary scheme during the period between 1982 and 1986.

That, however, did not end the building’s problems. When the parapet gutter was opened, substantial rot was discovered. Generally, such common repair works do not involve the fabric or interiors of the individual flats, but when necessary access was obtained during the course of the 1986 works it became evident that there were substantial further problems. The flats internally were in poor condition, particularly the basements and the floors in other flats. There were problems at the southwest-facing rear elevation of the building, which, being on a hill, was exposed to the elements. Water ingress was affecting joints with rot. In the basements there were substantial rising damp problems. These problems were not obvious at the outset of the project, but became evident as it went on. It was decided not to attempt to tackle them under this contract. However, the effect of the 1986 works was, by eliminating moisture ingress through the fabric of the building, substantially to contain the rot problem and prevent further spread through the upper floors at least.

Lafferty Construction collapsed in insolvency around this time. There was no evidence as to the exact date, or the precise effect on the 1986 works. There was apparently a suggestion, or some form of belief among the owners, that during the 1986 works the interior of the building had been left exposed thus substantially causing the building’s further problems. Mr Logan, however, was of the opinion that the problems discovered during the works were basically of long standing. We accept his opinion on that. The Lafferty collapse may well have contributed to administrative delay in finalising accounts and therefore issuing accounts to owners, which did not occur until 1990.

Mr Logan recommended to the Council that they consider a ‘Phase II’ contract to deal with the new problems. He was then instructed by the Council to provide estimates. At this stage considerable difficulty was experienced in obtaining access to parts of the building, particularly in the basements, and full access was not obtained. On 6 August 1987 Mr Logan’s firm submitted a schedule of work together with estimated costings prepared by Mr Entwistle’s firm, totalling £335,862.37, which figure included contingencies, professional fees and VAT on both the works and the fees. In 1989 the respondents instructed Mr Logan to lodge an application for planning permission and Listed Building consent to sub-divide the building and carry out the repairs. The building had previously been ‘C-listed’ but was by then ‘A-listed’.

On 18 February 1988 a Closing Order under Section 114 of the Housing (Scotland) Act 1987 was made in respect of No. 101 Hill Street. A schedule of the conditions justifying the order listed a number of problems, mainly but not entirely in the basement. There was rising damp, lack of proper ventilation, problems with the fabric of the floors, walls and ceilings, and accumulations of debris and filth. Representations were received from Mr Tofalis’ solicitors to the effect that he was anxious to bring the property up to habitable standard. The Order was accordingly suspended for 6 months during 1988. No steps were, however, taken to improve the property and the Order was therefore brought back into force. It continued and remained in force until after the vesting date. (In fact, as the result of an oversight, it was not formally lifted until August 2001 although the eventual repair and re-furbishments were completed in about 1997).

On 14 April 1989, the Council’s Private Housing Committee approved a recommendation by the Director of Housing to promote a compulsory purchase order. The relevant Director’s Report was dated 31 March 1989. This report comprised three sections. In the ‘Introduction and Current Situation’, the report narrated that “despite considerable previous investment by the Council in the external fabric”, the building had continued to deteriorate and suffered from dry rot and apparently movement of the back wall. Reference was made to the estimated costs of further repair of around £350,000. Only 2 of the 7 flats were owner-occupied and 2 of the service flats were said to have been “abandoned”. The second section, ‘Options’, indicated that the Council could enforce a Phase II statutory repair scheme, but “the problem would be that of recovery and of setting an appropriate level of grant investment for the multi-occupied properties. Alternatively, the Council could acquire the multi-occupied properties with a view to rehabilitation either by the Council or via the local Housing Association.” Scottish Homes and the Charing Cross Housing Association would only be able to promote some kind of rehabilitation for sale. “This latter option seems the more realistic given that enforcement of further repairs would increase already large liabilities which could only be offset by very substantial payments of grant. The return on this extensive investment would be a number of premises which would in all likelihood remain in multiple occupation.” In the brief final section, it was recommended that “Compulsory Purchase be promoted over the multi-occupied and abandoned properties with a view to rehabilitation for sale.”

“The 99/101 Hill Street Housing Compulsory Purchase Order, 1990” was formally made and served on the two applicants together with Mr Chrystomou and Yuk Chung Ng on 23 October 1990, and covered the subjects and Flats 2/1 and 2/2. The accompanying Statement of Reasons issued by the respondents’ Solicitor, after narrating the background, states:-

“Estimates of further expenditure required indicate a sum in excess of £350,000 and my Council is reluctant to spend such a sum on a building where the primary use is or has been multiple occupation and where there has been little if any commitment on the part of such proprietors to invest in their property or to safeguard the investment of public funds. Additionally, the Council feels that the internal arrangements of these flats and their size offer the opportunity after acquisition for a rehabilitation for sale scheme which would provide more identifiable housing units which, it is felt, would be a better return on the investment of public funds”.

The owners of the Flats at 2/1 and 2/2 objected to the proposed order, but the order proceeded following a public local inquiry held in January 1992. The General Vesting Declaration was made on 5 July 1993, and the vesting date, and accordingly the valuation date for our purposes, was 5 August 1993. Although negotiation in connection with the present claims had commenced, there was apparently no examination or assessment of the state of the subjects at the vesting date : no schedule of condition, or photographs, or other direct evidence of the state of the subjects at that date was provided.

Between 1986 and the compulsory purchase proposal in 1989, there was no formal or informal application by the owners for grant or for approval of any voluntary scheme of repairs. One meeting of owners to discuss repairs took place, attended by a Council representative. No minute of the meeting, or further evidence as to who exactly attended or what was discussed, was produced. There was also no evidence of any activity among the owners between 1989 and the vesting date in 1993 towards organising any voluntary repair scheme, although of course during that period the existence of the compulsory purchase proposal would be very much in mind.

Shortly after the vesting date, the original plan for the local housing association to carry out the repairs and sub-division with financial assistance from Scottish Homes had to be abandoned because Scottish Homes had committed themselves to supporting another project in the area and were no longer able to support this scheme. The respondents accordingly approached Mr Logan and asked him to consider taking the project forward effectively as a private commercial development. He agreed to do so and in May 1994 established a company, Loft House Limited, for this purpose.

Loft House acquired the four flats compulsorily purchased, including the subjects, from the respondents at a price of £10,000 and on the basis that the respondents would provide a substantial improvement grant for repairs, refurbishment and sub-division but any surplus profit from the development scheme would be split on a 50/50 basis with the respondents. In about December 1995 Messrs Mackay Entwistle and Ford prepared detailed development proposals on the basis that No. 101 would be sub-divided into two flats, ground and basement, and Flats 2/1 and 2/2 would each also be sub-divided so as to create separate attic, i.e. 3rd floor, flats. Thus the four compulsorily purchased flats would become seven, which would be re-sold by Loft House. Flat 1/2 would remain owner-occupied. No. 99 would also comprise two flats, ground and basement, in the ownership of Mr Malik. The construction cost, involving the necessary repairs to the building and all the flats, and also the re-furbishment and sub-division of the compulsorily purchased flats, was shown as totalling £705,947 (to which figure no VAT was added), and the development cost, primarily professional fees, was shown as £103,640 (to which VAT on £82,000 of fees was added). After income from sales and contributions by the other two owners (£474,987) and grant (£508,750), and after allowing for selling costs, overheads, interest, etc., a profit of £89,057 was estimated. The profit-sharing provision apparently applied to any surplus above that figure.

The Loft House scheme went forward, with the approval of the respondents’ Housing Committee, on this basis. Loft House took entry in March 1996 and proceeded with the works. There was no evidence of the actual construction cost. Loft House received a grant at the level of 75% of eligible repair costs for the whole building. The works carried out by Loft House at Flat 1/2 and No. 97 comprised more basic repairs, and these flats were then returned to their owners.

The individual owners were billed for the 1986 statutory repair works in about October 1990. The common costs, exclusive of VAT, totalled £105,934.77. The share applicable to No. 101, after adding VAT and some small additional individual costs, was £20,999.75 ; and to Flat 1/1, £17,254.18. Under both the 1969 Act and the 1987 Act, statutory liability rests on the person ‘having control’ of the property. Thus, where property is sold without the liability having been discharged, the purchaser becomes liable. In practice, purchasers, having in the normal way of things discovered the existence of such liabilities through the normal statutory enquiries, ensure that any such liability is discharged by sellers, or perhaps adjust the price appropriately. A further procedure, the recording of a ‘Charging Order’, is available to enable the authority entitled to payment to record a security over the property.

Each of the applicants was statutorily liable to the respondents for their respective shares as above until the vesting date. Neither apparently applied for any repair grant. Neither was awarded any repair grant. No Charging Order was made in respect of these liabilities, possibly because of the impending compulsory purchase. No payment towards the liabilities was made, again possibly because of the impending compulsory purchase. On the vesting date, the applicants’ liabilities were discharged as a consequence of the compulsory purchase. In March 1996, the respondents, entirely erroneously, took to corresponding again with each of the applicants on the matter. Apparently, some form of internal accounting exercise was initiated at that time: the purchase price of £10,000 paid by Loft House was allocated towards these liabilities (although they in fact no longer existed); grants were credited (on the basis that the houses had returned to owner-occupation); and letters were sent out to the applicants (who of course no longer ‘had charge’ of the houses) in respect of the resultant, erroneous, balances of £2484.75 (No. 101) and £2519.18 (Flat 1/1).

On 21 September 1989, a formal offer was submitted on behalf of a Mr Charalambous to purchase No. 101 Hill Street for £25,000. This offer included inter alia the following conditions:-

“4. It is an essential condition of this Offer that the subjects of sale … are not adversely affected by any order, notice or proposal under the … Housing (Scotland) Acts … and that there are no outstanding orders, notices or proposals in respect of same.

6. Your clients will be responsible for the cost of all repairs, common or otherwise, carried out or instructed prior to the date of entry including repairs required by Local Authority Notice or Order and evidence of payment will be exhibited prior to settlement. Your clients warrant that there are no outstanding repairs contemplated or proposed of a major or exceptional nature.”

Because of the 1986 works, the 1987 estimate for further works, the 1988 Closing Order, and the 1989 compulsory purchase proposal, this offer could not have been accepted on those terms. No sale proceeded. There was no evidence as to the circumstances in which the offer was made, what (if any) response it elicited, or how the offeror reacted upon being made aware (if he was made aware) of these matters affecting the property. Mr Charalambous owned many tenement properties in Glasgow which were under multiple occupation.

On 9 October 1991, a formal offer was received on behalf of a Mr Bhutta to purchase Flat 1/1 for £30,000, or for alternative higher figures on instalment bases. This offer similarly contained conditions in relation to outstanding liabilities, notices or proposals which could not have been accepted (although in this case there was no Closing Order). Again, there was no further evidence about the circumstances of this offer. Mr Bhutta was also a substantial property investor.

Contentious Evidence

The applicant’s witness, Mr Haxton, said that he inspected the subject properties in June 1992, some fourteen months before the valuation date, at which time both flats were unoccupied and displenished. He noted that apart from some settlement damage to the back elevation, the building appeared to be in fair order, following works in recent years, which included renewal of the roof covering and stone cleaning to the front elevation. Mr Haxton noted that the interior of both subject flats which were vacant showed need of refurbishment and redecoration, but in his opinion were capable of occupation. There was evidence of dampness and rot at basement level, which rendered the flat at No. 101 in poorer condition than the floor above. The Tribunal was not provided with a schedule of condition or photographs of the subjects at the time of entry.

Mr Haxton described Garnethill as an established and popular area. At the vesting date there was strong demand for the ownership of flats of varying sizes in this locality, for the purposes of both owner-occupation and investment. The area was also popular with students.

It was the experience of Murray and Muir that during the period from the mid-1980s to around 1990 a considerable number of tenement buildings throughout the Glasgow area were refurbished comprehensively with the benefit of grant aid assistance from the council, often at levels of up to 90%. In the years following 1990 the number of grant-aided schemes of repair seemed to lessen with the level of assistance being reduced to a maximum level of 75%. Repair grants were made available to investors as well as owner-occupiers. Mr Haxton produced minutes of the Private Housing Committee of Glasgow District Council dated 17 August 1990 and 7 June 1991 showing the authorisation of repair grants to investors at various locations in Glasgow. He also referred to four other examples of tenement buildings in multiple occupation where Glasgow District Council provided grants for repair schemes. Mr Haxton submitted that these various examples demonstrated that grant aid was made available to investors on a regular basis.

Mr Haxton said that in the period leading up to the general vesting declaration, many flats which were in the process of refurbishment or were identified for such purpose sold readily on the open market, provided that a grant had formally been made available, or that there was a high probability or near certainty of it being forthcoming. It was the experience of Murray and Muir that these sales took place at levels of full value less that part of the repair and refurbishment cost not met by grant. Mr Haxton claimed that, generally, no further deduction was made to reflect any uncertainty of the fact that the grant had not been formally approved. Prospective purchasers were prepared to accept a measure of risk. They would also not discount for the prospect of delays – even of several years – in carrying out or completing the works. They would envisage a substantial increase in value by the time the works were completed.

Mr Haxton noted that at a later date the council disposed of the four flats acquired by compulsory purchase to a private sector developer to whom substantial grant aid was awarded. The grant amounted to £508,750, but this figure included grants to two owner-occupiers who were not included in the CPO. This was cited as a clear case of the investment of public funds into a private project, but of course this was within the ambit of the scheme for which compulsory powers had been promoted. It could be concluded that the two owner-occupiers must have been willing to co-operate with the scheme, otherwise their properties would have been included in the CPO. Mr Haxton saw no reason why the other owners should not have been willing to participate in order to safeguard their investments.

Mr Haxton was in little doubt that a comprehensive programme of repair was going to go ahead with the benefit of grant assistance. He based this view on an assumed commitment of the council to safeguard this building with the use of public funds, it being an A listed building in the Central Conservation Area. Furthermore, Mr Haxton had been advised by the council Grants Section in September 1992 that generous grant assistance would be made available to all owner-occupiers in the building and successive purchasers for occupation. Mr Haxton concluded that the availability of grant assistance would have been highly probable if not virtually certain.

Mr Haxton carried out a residual valuation on this basis. His starting point was the value of the two properties in sound order. Figures for these two properties in a repaired and refurbished condition had been agreed with the respondents at £60,000 for No. 99 and £80,000 for No. 101. From this total potential value of £140,000 he deducted 25% of the repair and refurbishment costs attributable to the two properties. A total works cost of £249,619 in respect of the seven housing units was derived from repair costs estimated by Mackay Entwistle and Ford and dated 4 August 1987. In the hypothetical market, the existence and amount of this estimate would be known. Mr Haxton noted that this estimate was not just for rot eradication and structural works, but also for the renewal of roof coverings, flashings, dormers and windows, together with some doors, internal rewiring, re-plumbing, re-plastering, redecorating and renewal of all bathroom fittings and kitchen sink units. The cost of works was increased by £42,435, representing an additional 17% for professional fees. The total works and fees figure of £292,054 was then inflated to the valuation date by using the RICS all-in-one tender price index The resultant updated building cost figure of £297,413 was then apportioned equally over the seven residential units. The repair cost was further reduced by 75% representing the assumed grant aid. On this basis it was assumed that the two hypothetical purchasers would each have needed to contribute £10,622 for the repair and refurbishment of each unit in order to achieve restored units worth £60,000 and £80,000 respectively.

Accordingly Mr Haxton advanced a combined residual valuation of £119,000 (representing £49,378 and £69,378 for Nos. 99 and 101 respectively, before rounding). He had made no deductions for risk, delay or other contingencies and he had made no addition for VAT on building costs and fees. He considered that VAT could be reclaimed from Customs and Excise (or perhaps would not arise at all where the Council carried out the works).

Mr Haxton noted that if the grant aided element of the repair cost assumed within his valuation was omitted the total valuation of the two properties would drop to £55,000. Buildings where grant aid for refurbishment was either not available or was not applied for were still sold but at lower levels of value to reflect higher maintenance costs and possible future renewals. He did not produce any evidence of sales on this basis, but did refer to the two earlier offers that had been received for the subjects, which as it happened totalled £55,000.

The earlier of the two offers, in September 1989, was in respect of No. 110. A purchase price of £25,000 was offered. It was subject to a schedule of conditions. An essential condition was that there were no outstanding orders on the property. Another condition held the sellers responsible for outstanding repairs. During cross-examination Mr Haxton accepted the existence of an outstanding Closing Order and the fact that the offer had not been capable of unqualified acceptance.

The second offer, in October 1999, was in respect of No. 99. The purchase price offered was a single payment of £30,000, or alternatively at the option of the purchaser, staged payments totalling £40,000, or staged payments over a longer period of time totalling £50,000. There was no record of any action having been taken on receipt of that offer.

MrKerr’s valuation of the flats at £1,000 each was criticised as not having been based on open market evidence of the sale of properties in a similar condition, but merely a deduction of the likely cost of repair from the full open market value of the property in sound condition. Mr Haxton said that properties in this condition simply did not change hands at that level of value.

During cross-examination Mr Haxton was asked about the outstanding repairs debts in respect of the two properties which had arisen from the 1986 repairs. He said that he had made no deduction in his valuations for these debts and that he had not been aware of them. In examination-in-chief, he had suggested that these liabilities were not relevant because the purchaser would not be liable for them, but he accepted that if they were correct, and unpaid, they would require to be taken into account because they would have been outstanding in the ‘no-scheme world’.

Mr Haxton was challenged on what the market’s perception would have been on the prospect of grants becoming available. He accepted that a voluntary scheme would have required the co-operation of the various owners, that the availability of grant could not be guaranteed and that the time period for completion would have been uncertain. Although he further accepted that there was no indication whether the owners would have co-operated in supporting the 1987 scheme, he suggested that they would have been “mad” not to. He accepted that the respondents had a discretion whether to give a grant, and that in commercial cases there was a policy of inspection by environmental health officers to decide whether the property was of an adequate standard. He also accepted that grant funds were diminishing in the 1990s, but claimed that they were still available in the early part of that decade. In relation to the examples which he had supplied of 90% grants, he did not know when the applications had been made.

Mr Haxton was referred to the March 1989 report to the council’s Private Housing Committee, recommending the compulsory purchase. He considered that this report was a review of possible alternative courses of action to save the building, each of which would have committed the council to invest in the building, whether through direct action, or the provision of grants, or a combination of the two. The hypothetical purchaser, although aware of the uncertainties in relation to grants as a result of the number of service flats at the building, would weigh up the gains against the risks and would consider that the respondents were committed to saving the building.

As has already been noted, there was no direct evidence of the state of the building, and therefore the likely repair cost, at the valuation date, and the approach of Mr Haxton was to take the 1987 estimate and update it using a tender price index, on the view that the 1987 estimate would be available to prospective purchasers. Mr Logan, the architect, and Mr Entwistle, the quantity surveyor, gave evidence on these matters. Mr Logan described the extent of the works contained in the 1987 estimate. These were extensive and included rot eradication, timber replacement, under-pinning foundations in the basement, re-plastering, re-wiring, re-plumbing and replacement of fittings and decoration to the flats. Mr Logan did not make any detailed comparison with the works described in the 1995 development proposal. He considered that the rot had been arrested during the 1986 works and the building had not deteriorated much more by the time of the 1995/96 works. Although more rot had been found at that time than was anticipated; this was in the nature of such works.

Mr Entwistle was also involved in both stages of the repair works to the building. He had made no attempt to adjust the1987 estimates to August 1993 prices, but was critical of Mr Haxton’s method. He considered that Mr Haxton had seriously under-estimated the 1993 costs by using the RICS all-in-one tender price index as this did not reflect local inflation. He said that local movements in prices had been considerably different from the national position, and that substantial local inflation had occurred in the earlier part of the period between 1987 and 1995.

Dealing with the relationship between the 1987 and 1995 estimates, Mr Entwistle explained that the latter included three elements, being the repair of the building, the improvements to the building including the sub-divisions, and some degree of betterment (for example, re-slating the roof). He also did not provide a detailed comparison, but suggested that the repair element was around 50% of the overall 1995 works estimated at £705,947. He therefore estimated the August 1993 repair costs at approximately £350,000 plus fees and VAT if appropriate, compared to Mr Haxton’s figure of £297,413 including these items. He also pointed out that the 1987 estimates were, as he put it, purely theoretical in that they did not follow detailed investigation, whereas the 1995 estimates followed opening up and exposing the extent of the rot. He confirmed that a lot more rot had been discovered.

VAT was shown in relation to both repair costs and fees in the 1987 estimates, but in the 1995 proposal, only on professional fees. Mr Logan confirmed that on the latter occasion there had been negotiation with Customs and Excise, and he thought that zero-rating had been achieved. He thought that the fact that the building was listed was relevant to this, and also the extent of repairs as compared with conversion. Mr Entwistle, however, explained that Customs and Excise had sought to identify the pure repair elements in the 1995 costs and charge these to VAT. This element was apparently agreed at only some £120,000 to £130,000. VAT would not, however, be payable on improvements.

Mr Thomson, an official directly involved and experienced in this area, described the background to grants for repairs and improvements to tenement buildings. 90% grants had been available for a period of two years only, from 1982 to 1984 (except in Housing Action Areas, where grants of 75% to 90% could be made to owner-occupiers: the subjects were not in such an area). Grants in respect of commercial property first became available, on a discretionary basis, on 1 April 1983. Applications for such property, including ‘multi-occupied’ residential flats, required to go before committee, at least for homologation of decisions. After 1 April 1984, repair grants (outside Housing Action Areas) were down to 50% for commercial and 75% for owner-occupied properties. From the mid-1980s onwards, funds made available by the (then) Scottish Office declined substantially, from £80 million per year to under £8 million. Up to 70% of a year’s allocation could be promised in advance. Something in the nature of a moratorium resulted, and there could be, and were, delays of several years. For a 90% grant, either an application must have been submitted, at least informally, before 1 April 1984, or there must have been a statutory notice before that date. Where statutory repair schemes had been carried out, further repairs would require subsequent notices or applications. In the present case therefore the 1982 statutory notices could not still be relied upon for grant purposes.

Pressed on the examples produced by Mr Haxton of approvals in 1990 and 1991 of 90% grants to commercial owners, Mr Thomson insisted that these must have been applied for before April 1984 (or related to pre-1984 statutory notices).

Mr Thomson referred to two further limitations on possible grant availability. Firstly, since February 1988 the maximum level of grant without the Secretary of State’s consent was a total of £18,000, comprising £10,200 for improvement and £7,800 for repairs. Secondly, when discretionary grants for commercial properties got under way in 1983, a system of checking ‘multi-occupancy’ properties (defined as having three or more unrelated individual occupiers) was instituted. Environmental health officers would check whether the property was in a habitable condition and, if so, whether it was registered under the (then) voluntary scheme run by Environmental Health. This assisted the process of checking particularly, whether Fire Regulations had been complied with. In the event of an unfavourable report, a grant application would be likely to be refused.

Mr Todd, the official with responsibility for addressing problems of disrepair in tenement properties, gave evidence on the respondents’ reasons for not embarking on a second statutory repair scheme and their intentions in relation to financing repairs. When the Council were considering compulsory purchase, he said, it was always their intention to reduce the sizes of the units. In the absence of compulsory purchase, they would not have carried out the necessary repairs under a statutory scheme. The reference to the option of a Phase II statutory scheme in the Report to the Housing Committee, which report would never have been written but for the compulsory purchase proposal, did not support the inference that the respondents were, or would have been, committed to such expenditure in the absence of compulsory purchase. Mr Todd was pressed strongly on this matter in cross-examination, on the basis that a fair reading of that report was that the council were firstly deciding in principle to invest funds in the building, and secondly considering how it was to be done. However, Mr Todd did not agree that the Council had any such commitment except in the context of compulsory purchase. He also pointed out that even in that context initially, at least, the respondents were not committing their own funds but rather endeavouring to have the scheme carried out by a third party. He did, however, upon being pressed, accept the inference that the respondents would be likely to offer grants to the owner-occupiers although he could not comment on the level of grant.

As an example of another possible course of action, Mr Todd referred to the respondents’ position in relation to Nos. 103 to 107 Hill Street, the neighbouring tenement building. This building, part of the same Grade A listed terrace, had recently been subject to a statutory ‘dangerous building’ notice, but the respondents were not providing grant assistance for its repair. The rear of that building had been shored-up to make it stable but nothing further was being done. It would therefore have been an option in the case of Nos. 97 to 101 simply to ensure that the building was stable and take no further action.

Mr Kerr, the District Valuer, giving valuation evidence on behalf of the respondents, indicated that his staff had inspected the building on a number of occasions. The initial inspection had been in September 1990, when the building was found to be in very poor condition. The basement flat was vacant and in a state of dereliction, and the remaining accommodation was in very basic order and suffering from several outbreaks of rot. Mr Kerr did not, however, indicate the results of any other inspections, and did not produce any documentary evidence of any inspection.

Mr Kerr expressed his opinion on the likely market perception as at August 1993, assuming the absence of the compulsory purchase scheme. In his view it would have been highly unlikely that five potential purchasers could have been identified all willing to purchase a flat in the hope of obtaining grant aid from the council. The differing ownership of the seven flats, five of which were owned by absentee landlords, would have been a relevant consideration for any potential purchaser of a flat in 1993. The potential difficulty of tracing absentee landlords would have added to the risk of implementing a voluntary scheme.

Mr Kerr considered that the difficulty at No. 101 was compounded by the Closing Order operating at that time. He doubted that a prospective purchaser could have satisfied the owner-occupation criterion for grant aid until such time as substantial repairs to the property had been carried out.

Mr Kerr recognised that there was a market for service flats in multiple occupation in Glasgow, although such flats tended to be larger properties in poorly maintained buildings. He noted that in this particular case all of the service flats were vacant and were not in a lettable state due to the poor condition of the building and, in the case of No.101, the existence of the Closing 0rder. He considered that it would not have been worthwhile for any prospective purchasers to modernise either or both the flats internally in order to attract short term rental income. This would have been reflected in any offers for the subjects. He considered that the cost of bringing the properties up to a lettable standard, however basic, would not have been recouped by the level of rent expected. He also considered that it would have been unlikely that a prospective owner-occupier would have been able to obtain mortgage finance.

Mr Kerr referred to the two offers which had been received. The offer dated 9 October 1991 for the flat at 99 Hill Street was subject to conditions which he considered incapable of satisfaction due to the condition of the building and the outstanding repair debt. The offer dated 21 September 1989 for No.101 was subject to conditions which would have required the outstanding repair debt to have been settled. He considered that the offer was too far removed in time from the valuation date, by which time the property would have deteriorated further. After reviewing the council’s policies of awarding grants Mr Kerr concluded that the perception of a prospective purchaser, in the absence of the scheme, would have been that the prospect of obtaining a grant was too risky to proceed with a purchase.

After noting that there was no actual estimate of the 1993 cost of any hypothetical refurbishment of the seven original flats, Mr Kerr made his own estimate of costs, including professional fees and VAT, of £75,000 per flat, although he did not explain that figure He concluded that the risk to any prospective purchaser outweighed the prospect of any gain and consequently, as at August 1993, the cost of bringing the subjects up to marketable condition outweighed their value.

Mr Kerr’s resulting valuations, rounded to the nearest pound, are therefore as follows:-

No. 99 – The agreed refurbished flat value of £60,000 less repair costs of £75,000 less the outstanding debt of £17,255, which gives a negative value of £32,255.

No. 101 – The agreed refurbished house value of £80,000 less £75,000 repair costs, less £21,000 outstanding debt, which gives a negative value of £16,000.

In these circumstances Mr Kerr considered that a nominal sum of £1,000 for each flat would be an appropriate sum of compensation.

Applicants’ Submissions

In moving the Tribunal to award compensation in each case on the basis of Mr Haxton’s valuations, Mr Martin started with some quite brief submissions on the law. Firstly, he referred to the duty on the local authority, under Section 6 of the Housing (Scotland) Act 1987, in considering proposals for the provision of housing or taking any action under that Act, to have regard inter alia to the desirability of preserving works of architectural, historic or artistic interest. An informed purchaser would be aware that the Council would act on the basis of that duty. Secondly, he submitted that the intrinsic quality of the building and every intrinsic circumstance must be taken into consideration – Cripps on Compulsory Acquisition of Land, 11th edition, at paragraph 4-185-191. Relevant circumstances therefore included the likelihood of grant assistance. He also accepted that in principle if a building came with liabilities this was relevant. Thirdly, he emphasised, under reference to Fowler v Sheffield Corporation (1960) 11 P. & C. R. 440, particularly at 441-443, that the Tribunal was concerned ‘more with what the market will pay than what a prudent valuer would advise it to pay’.

Mr Martin then considered the ‘no-scheme world’. In considering each individual property unaffected by compulsory purchase, there would be three other flats subject to compulsory purchase and the local authority would have, potentially, a comprehensive proposal for the building. Alternatively, even if the situation were that there was no compulsory purchase at all, the local authority still had compulsory powers which it might use, so the hypothetical purchaser might have an identical scheme in mind. The underlying justification for what the authority was seeking to achieve must be borne in mind and the hypothetical purchaser would be aware of the council’s commitment to the building. It was not necessary to establish the likelihood of any particular form of arrangement. The hypothetical purchaser would accept the risk against the prospect of ultimate profit. The only reasonable inference to be taken from the March 1989 Report to the Housing Committee was that the council, having informed itself of the history and the future costs, had decided to commit itself to saving the building and thereafter, specifically under the heading, ‘Options’, considered how it was going to achieve that. It was sufficient for his purpose that the market would take that view as to the council’s commitment. The commitment was not restricted to supporting owner-occupiers. As to Scottish Office approval, the evidence was no more than that this was required. In the ‘no-scheme world’, the hypothetical purchaser would conclude that re-furbishment of the building with the investment of public funds was a near certainty, and Mr Haxton’s was the only evidence as to the operation of the market in that situation: Mr Kerr’s evidence was to be compared with the calculated approach rejected in Fowler, supra.

Mr Martin turned to the availability and level of grant assistance. The claim was based on a market view of 75% grant availability to an owner-occupier. There was no evidence to suggest that potential purchasers would not be owner-occupiers. The evidence also showed that commercial owners, including ‘multi-occupation’ landlords, could, subject to the exercise of discretion, obtain grant assistance, at a level in the range of 50% to 90%. The assertion that any such assistance would have been limited to 50% must be viewed in the light of the fact that a commercial owner, Loft House, was in actual fact awarded a 75% grant for this property. That, like the other evidence of some 90% grants, showed flexibility.

On the issue of the alleged outstanding liabilities arising out of the 1986 works, Mr Martin submitted that there was insufficient evidence to make any deductions. It was inequitable for an acquiring authority which had already decided to write-off these debts to put them back in. He also referred to the 1996 correspondence with the applicants. There was too much uncertainty, particularly when no Charging Order had been applied. There had been no explanation why steps had not been taken to recover these debts. In particular, when the matter was viewed from the point of view of the market, arithmetical deduction of this sort was not justified on the evidence.

On levels of value, Mr Martin worked, as it were, upwards. Firstly, he said that the actual sale of the four flats in 1996 to Loft House, for a total of £10,000, established the lowest possible level of value. Secondly, he referred to the offers of £25,000 and £30,000 in 1989 and 1991. At the very least, these indicated that there was someone willing to take the properties on. There had been evidence of such a market. Relatively dilapidated properties might be purchased for multi-occupancy. Finally, there was the evidence of Mr Haxton as to the level at which properties sold in the case of near certainty of grant assistance. No-one else had given evidence about the market at the time, Mr Kerr’s evidence being based on certainty that no grant would have been awarded. It was another example of a calculated assessment versus the market. Mr Martin did, however, accept that it would be open to the Tribunal to exercise its own judgment on the market’s assessment of the level of risk demonstrated by the evidence.

On VAT, Mr Martin suggested that Mr Haxton’s position had received some support from subsequent evidence, in particular the evidence that Customs and Excise had accepted that VAT was only due on some £120,000 to £130,000 of the cost of the Loft House works.

Mr Martin referred the Tribunal to the actual figures for the claims on the basis of Mr Haxton’s evidence, i.e. the values arrived at on the basis of discount from the agreed full values by only the amount of the owner’s prospective share of the repair liability. A revised tabulation of the amounts claimed, showing the necessary adjustment if VAT fell to be added, and on the alternative bases of 50% grant and 75% grant, had been provided. Even on Mr Kerr’s approach, if he had not inflated the likely repair costs, and even deducting all of the outstanding liability, in the case of No. 101 a positive value of around £12,500 was still reached.

Finally, Mr Martin moved the Tribunal to find the applicants entitled to professional fees; to interest on the normal basis ; and to expenses, in each case, in the event of the award exceeding £1,000 (the figure consistently formally offered by the respondents); and to sanction the employment of senior counsel.

Respondent’s Submissions

Mr Hodge started by agreeing with Mr Martin on these formal motions (and in his turn moving for expenses, in each case, in the event of the award not exceeding £1,000).

Mr Hodge outlined his main submission that in the circumstances of this case the hypothetical purchaser would not enhance his offer on the basis of attributing value to the chance of receiving grant assistance.

Mr Hodge also referred only quite briefly to the law. After referring to Section 12, Rule 2, he too submitted, under reference to Fowler, supra, that one looks to what the market will pay. He went on to explore in slightly more detail the ‘Pointe Gourde’ (‘No-Scheme’) principle. Any betterment to market value caused by the scheme of the acquiring authority was to be disregarded. He referred to a statement of the principle, and also the opinion that it was a part of the common law deriving as a matter of principle from the nature of compensation for compulsory acquisition, in Melwood Units Proprietary Ltd v Commissioner of Main Roads [1979] A. C. 426, per, Lord Russell of Killowen at 434C-D and 435D-E ; and also to Gray v Glasgow District Council 1980 S. L. T. (Lands Tr.) 7, at 10. He further submitted that regard could not be had to the prospect of development of other flats in the building through compulsory purchase making it more likely that a grant would be paid to a flat excluded from the compulsory purchase because it was acquired by an owner-occupier: 1963 Act, Section 13(1)(a) and Schedule 1, Case 1. Regard could not be had to the prospect of redevelopment of other properties under the scheme. The prospect of a similar scheme should also be ignored. This was fundamental in this case: issue was not so much taken with the evidence as to what the market would do, but with the applicants’ reliance on the compulsory purchase of the other flats to give the hypothetical purchaser a degree of certainty that he would obtain grant assistance. Prospective as well as actual development involving compulsory purchase was to be disregarded.

Mr Hodge submitted that the Council had a discretion to grant or refuse a repairs grant, and an obligation to refuse if not satisfied that the house would provide satisfactory housing accommodation for such period as they considered reasonable: Housing (Scotland) Act 1987, Section 248(1)(b) and (2); Milner v CGDC 1990 S. L. T. 361, 364E,K. He also produced and referred to the Grants by Local Authorities (Percentages and Exchequer Contributions) (Scotland) (No. 2) Order 1982 in support of the evidence as to the limitation of grants after 31 March 1984. He accepted that there could be a would-be buyer for owner-occupation, but in his submission the evidence came nowhere near the high probability or near certainty on which Mr Haxton’s case on such a hypothesis was based.

Mr Hodge turned to the facts, and first listed some important facts which he suggested were established in evidence. He said that the 1986 repairs had been carried out under a statutory scheme, i.e. following the owners’ failure to respond to the Section 24 Notice. No grant had been given to the multi-occupancy owners in respect of these works, suggesting that their flats did not meet the criteria including those imposed by the Environmental Health Department. Not all of the proprietors had paid their shares of that scheme. When further works were identified in 1987, a further statutory notice (then under Section 108) had not been imposed, and between then and 1993 the first step towards a statutory scheme had not been taken – a matter which be observable on the property enquiry certificate. Between 1987 and 1989 there was no evidence of any initiative by the proprietors towards a voluntary scheme, which might not be surprising in view of the extent of multi-occupancy ownership. The April 1989 Committee resolution was to make a compulsory purchase order over multi-occupied and abandoned property with a view to promoting a rehabilitation-for-sale scheme. The related report must be read against the background of that proposal, and the inference that the two owner-occupiers would receive grants must be seen in the context of the rehabilitation scheme using compulsory purchase powers. This rehabilitation scheme involved re-configuration of the units to create more homes for sale. The letter of 13 March 1992 from the respondents’ solicitor was not in the public domain, and clearly related to the Council’s proposals in the context of the compulsory purchase scheme proceeding and the properties being rehabilitated by the Housing Association : it could not be construed as any form of promise, suggestion or representation as to the Council making grant funds available in any other context. The Housing Association only withdrew after the vesting date, and it was only thereafter that the Council committed funds to the rehabilitation of the building as a result of their compulsory acquisition and the withdrawal of the Housing Association which otherwise would have funded it. This later investment, to achieve more owner occupied flats would not have been feasible under a statutory scheme, and was not information available to a hypothetical purchaser at the valuation date.

In relation to the outstanding repairs liability, Mr Hodge invited the Tribunal to hold that as at the valuation date No. 101 had a debt of £20,999.75 unpaid while Flat 1/1 had a debt of £17,254.18 unpaid. The Council could and would enforce the debt on a sale of the property against the purchaser who would then be the person having control (Housing (Scotland) Act 1987, Section 109(1)). It was normal conveyancing practice, accepted by Mr Haxton in cross-examination, for the purchaser to require the seller to pay off the debt or lower the price accordingly. There was no inequity in deduction of these debts in the no-compulsory purchase world they were written off only following compulsory purchase. The 1996 correspondence was purely part of an accounting exercise which yielded no inference whatever in the ‘no-scheme world’.

The Tribunal should also hold that after 1 April 1984 repairs grants were subject to a maximum rate of 50% unless before that date (a) an application had been submitted, (b) a statutory repairs notice had been served or (c) the property was in a Housing Action Area. Mr Hodge did accept that there was no evidence of any upper limit to the level of grant, although Secretary of State approval was required.

Mr Hodge turned to the proper inferences to be drawn from the facts. He did not dispute that where there was high probability or near certainty that a scheme would proceed and grant be forthcoming, as for example where owners putting forward a voluntary scheme were told informally that a grant would be forthcoming, purchasers in the Glasgow market would take account of that in their offers. There was, however, no evidence that such would happen in cases of mere possibility or even balance of probabilities. On a proper appreciation of the facts in this case, there was no such near certainty or high probability because on a dispassionate examination of the evidence available to the hypothetical purchaser there was no commitment by the Council to provide any grant aid for either a voluntary scheme or a statutory scheme.

In relation to a voluntary scheme, said Mr Hodge, the information available was that the proprietors had not taken any active steps, apart from one meeting. As the majority of flats, being service flats, would qualify only for grants up to 50%, there would have been little incentive. The landlords had received no grants for the previous works. Also, the Council would be loath to grant aid properties which reverted to multiple occupancy.

In relation to a statutory scheme, there was no Section 108 Notice and no statement by the Council that they would go forward with such a scheme. Neither the March 1989 Report nor the Statement of Reasons of 23 October 1990 would be available in the ‘no-scheme world’, but even if they were the hypothetical purchaser would see that the Council had no confidence that the proprietors would maintain the property and safeguard the investment of public funds. He would also know that Section 248(2) of the 1987 Act prohibited the Council from giving grant if not satisfied that the property would provide satisfactory housing accommodation for a reasonable period. He would also be aware that there were other Grade A listed properties, such as Nos. 103-107 Hill Street, where the Council had not funded expensive repairs.

On either scenario, it was, said Mr Hodge, “miles away” from near certainty of grant. On balance of probability, grant would not be paid, but even if it was more likely than not, Mr Haxton’s test was not met and his valuation approach failed. Alternatively, any enhancement of the offer would be insignificant. In any event, the hypothetical purchaser would require also to take account of factors including whether the Council had sufficient funds; whether the repair works would proceed; occupation during the works; how long it would take to carry out the repair works; disruption; (in the case of No. 101) the Closing Order; and in both cases the liability which could be enforced in respect of the previous repairs.

Mr Hodge commented on Mr Haxton’s assessment of the repair costs. The 1987 estimate had understated the extent of the works needed; fees would be proportionally larger; and VAT would be due on £120,000 of the repair works. His figure of £297,413 would, in these ways, be increased to £419,000, and in addition the unpaid debt would fall to be deducted.

Mr Hodge went on to submit that without enhancement for the chance of grant aid, the subjects would have only nominal values. Because of the Closing Order, No. 101 could not be occupied. Both flats were burdened with debt and had problems with rot. The conditions attached to the offers of 1989 and 1991 could not be met and the prices offered were therefore not a good guide to value. If the offers were to be relied upon at all, account should be taken in the case of No. 101 of the Closing Order and the outstanding debt, leading to only a nominal value. In the case of Flat 1/1, there was also outstanding debt, the inability to meet the warranty for which the offer stipulated and the instalment purchase basis, leading to only a very modest sum.

Reply by Applicants on points of law

Mr Martin responded briefly on points of law. He referred to one further passage in Gray, supra, at page 10, in relation to the possibility of purchase otherwise than for renovation. He took issue with Mr Hodge’s reliance on Schedule 1, Case 1 in the 1963 Act: ‘development’ was defined as development for which planning permission was required (Section 45; Town and Country Planning (Scotland) Act, Section 26), and there was no indication of such requirement here. He found the reference to the 1982 Grants Order difficult to understand in the light of Mr Thomson’s evidence.

In a brief riposte on the Schedule point, Mr Hodge reminded us that there had been evidence from Mr Logan of a planning application in 1987.

Tribunal’s Consideration

The main issue which we have to consider is the view which the statutory hypothetical purchaser would have taken as to the availability of grant assistance for repairs and the likelihood of any repairs scheme being implemented.

We first have to consider the application of the ‘Pointe Gourde’ principle. That principle requires us to disregard any enhancement in value due to the scheme of the acquiring authority, and in order to apply the principle we must first decide as a matter of fact the extent of the scheme underlying the compulsory purchase.

We are of the clear view that the scheme in this case was a scheme for the purchase of a number of flats which had been in multiple occupation and were within a building in need of extensive repair, with a view to repair, refurbishment and increasing the number of units to make more appropriate residential units, for either letting by a housing association or re-sale to owner-occupiers. We are therefore not to consider the value of the subjects on the basis of that scheme, but rather must consider what their value would have been without the existence of that scheme. We cannot therefore proceed on the basis which Mr Martin first asked us to consider, viz. that each subject was to be valued on the basis that the other three flats were being compulsorily acquired. We also reject Mr Martin’s alternative approach, which was that even if this scheme did not exist, the authority would still have compulsory powers and so the hypothetical purchaser might have the possibility of an identical scheme in mind. There are of course cases in which it can be argued that similar development might have arisen even without compulsory purchase, but we agree with Mr Hodge that it will not do simply to envisage another scheme involving compulsory purchase. We have to consider the position at the valuation date on the assumption that this compulsory purchase scheme had not been proposed slightly more than three years previously and followed through. Accordingly, in the ‘no-scheme world’ at the valuation date in the case of each of the appeal subjects, there were three (or possibly four, if the basement flat at No. 97 is also considered) other flats which had a similar history. We entirely accept, as Mr Hodge did, that it is appropriate in principle to consider the possibility in the ‘no-scheme world’ of the exercise by the respondents of their statutory powers to provide grant assistance and themselves to carry out a statutory repairs scheme.

Having reached these views applying the ‘Pointe Gourde’ principle generally, it is not necessary for us to give further consideration to Mr Hodge’s argument based on Section 13(1) and Schedule 1, Case 1, which does not appear to us to add anything, and in any event was perhaps not fully argued.

As we have recorded, there was conflicting evidence on the state of the building at the valuation date and the likely repair costs which the hypothetical purchaser would have to take into account as well as considering the prospects of grant assistance. Although Mr Haxton inspected the flats in June 1992, it is unfortunate that there was no evidence of any inspection of the building at the vesting date. There was, however, no evidence of any depreciation which is attributable to the prospect, since 1989, of compulsory purchase, so we must assess the evidence, such as it is, of the actual state of the building in August 1993. Only one witness, Mr Kerr, suggested that the condition of the building had deteriorated by that date from its condition at the time of the 1987 cost estimates. There was no basis in evidence for that suggestion, and the balance of evidence was against it. We accept that the 1986 works substantially arrested the rot, although there was, no doubt, more rot to be discovered when the building was fully exposed than had been evident when the 1987 estimates were prepared. The witness who was in our view best placed to assess the likely repairs costs was the quantity surveyor, Mr Entwistle. Although it is only a very approximate figure, we accept his evidence that the repair element was around 50% of the overall 1995/96 works, i.e. approximately £350,000 plus fees and VAT. We also take account of his evidence as to local building cost inflation as more reliable than that of Mr Haxton who applied a general tender price index. We appreciate that the prospective purchaser in 1993 would not have had the benefit of estimates based on full exposure of the rot and would no doubt have been advised that the rot had probably not advanced since the 1995/96 works, but we nevertheless think it improbable that he would have based his discount for the likely repair costs simply on the 1987 costs updated for inflation. We reject Mr Kerr’s cost estimate which is not as well informed on this matter as Mr Entwistle’s evidence. On a matter which cannot be assessed precisely and in any event is only to reflect the view which a prospective, albeit informed, purchaser might take, we think it reasonable to take a very broad view and to estimate the August 1993 figure on the basis that in 1987 the broadly comparable costs were around £250,000 and in 1995 around £350,000. We conclude that a reasonable estimate in August 1993 would have been £325,000 plus fees and VAT.

As to VAT, we have assumed an approximate cost of £21,000 attributable to that part (around £120,000) of the cost of repair to the Listed Building which would have been assessed for VAT. We have also added £65,000 for professional fees and VAT on fees.

In the result, we assess the approximate common repair costs which the informed hypothetical purchaser would have had in mind for the whole building before grant assistance at £411,000. Since both Mr Haxton and Mr Kerr proceeded on the basis that the proportion borne by each of the subjects would be one-seventh, the resultant figure for each of the subjects is approximately £59,000.

Like Mr Hodge, we have no difficulty in accepting Mr Haxton’s evidence as to the market for an owner-occupied tenement flat if, although it was in a building with substantial repair problems, there was a high probability or near certainty of a common repairs scheme with grant assistance proceeding. We can accept that the prospect of delay in such a case might not affect the price, and also that this scenario might possibly include cases in which there might be one reluctant owner and the others might agree to shoulder his 25% (or possibly only 10%) net share of the cost of repairs, although we are a little bit doubtful about the strength of each of these suggestions in a case where the repair costs are of the order which we have found in this case. Further, we accept that the mere fact that a flat was in multiple occupation would not of itself prevent a purchaser for owner-occupation being in the market for that flat.

The respondents, however, argue that in the circumstances of these subjects there was no such high probability or near certainty. It is therefore necessary to consider the actual working of the repair grants system at the relevant time and the actual situation at this building in order to assess the prospects in the ‘no-scheme world’ for a grant-aided common repairs scheme, whether voluntary or statutory.

We basically accept Mr Thomson’s account of the working of the repair grants system. We think he was better placed than Mr Haxton to know the actual position, and where there was an apparent difference between them, in respect that Mr Haxton produced examples of approvals in 1990 and 1991 of 90% grants, we accept, subject to one qualification, that these must either have been applied for before 1 April 1984 or relate to statutory notices effective before that date. The qualification is that there does seem to have been flexibility to the extent that informal notification of a scheme to the grants section does appear sometimes to have been treated as equivalent to formal application. Lengthy delays of that order, and apparently even longer, do seem to have built up during a period when the Scottish Office funding was declining. The significance of this evidence is that a well informed hypothetical purchaser of the subjects in 1993 firstly could not have envisaged a 90% repairs grant, and secondly, while he himself might have qualified as an owner-occupier for a 75% grant, would have had in mind that the maximum grant assistance available to commercial owners of other flats in the building would not be more than 50%. In this regard, we do not consider the assistance which was eventually actually given to Loft House as significant, firstly because it only arose following the compulsory purchase and secondly because it clearly arose in the particular situation in which the respondents found themselves, where they had responsibility for the properties, but the original plan that the housing association would take over and secure financing for the scheme had fallen through.

Although Mr Haxton’s evidence of the operation of the market where grant assistance was in prospect was mainly, we think, based on voluntary repair schemes, Mr Martin did not appear to press the suggestion of a voluntary repair scheme at these subjects in the ‘no-scheme world’. There was, in any event, in our view virtually no evidence on which we could conclude that there was any real prospect, on which a hypothetical purchaser could place any reliance, of such a scheme. On the evidence led before us, it appeared that over many years since the original statutory notices in 1982 there had been virtually no progress at all towards agreement among the owners on any voluntary scheme. An informed prospective purchaser of one of the flats would have been aware of that position, there being nothing to suggest that it would have changed at all between 1989 and 1993. It is also, we think, relevant in connection with any prospect of a voluntary scheme to consider the discretionary nature of grant assistance, at least to commercial owners. Mr Martin did not dispute this, and simply relied on the prospect of discretionary assistance, while for his part Mr Hodge did not seek to persuade us positively that there would definitely not be grant assistance. In the exercise of their discretion the respondents would have had in mind the nature of occupation of several of the flats, and specifically would have had reports from Environmental Health. Further, after February 1988 there was a maximum level of grant. There would be no basis for assuming that any, far less all, of the other three (or four) flats which in the ‘no-scheme world’ would probably still be in multiple occupation would also become available for owner-occupation. In the circumstances, we are clear that we cannot proceed on the basis of reliance by a hypothetical purchaser on the prospect of a grant-aided voluntary common repairs scheme even although that hypothetical purchaser and two of the other owners may have qualified for 75% grants.

Mr Martin’s main argument was that, on the evidence, and also considering their duty under Section 6 of the 1987 Act to have regard to the desirability of preserving works of architectural interest, the respondents were committed to saving this building. They would therefore, in the absence of the compulsory purchase scheme, even if the owners did not develop a voluntary scheme, have undertaken a second, ‘Phase II’, statutory scheme of repairs. Although they would have been entitled to recover the balance, after grants, of the cost (subject to the prospects of actual recovery), they would have committed substantial funding. At all events, the argument ran, the informed hypothetical purchaser would have proceeded on that basis, discounting from the price only his share of the repair cost after receiving a grant at the appropriate level (which, for an owner-occupier, would have been 75%, although we are not sure that the implications of the maximum grant figures were fully addressed). Mr Martin relied heavily for this on the March 1989 Report to the Housing Committee. We think it right to consider what is to be learnt from this report despite its connection with the compulsory purchase scheme, but we find ourselves unable to accept as anything approaching highly probable, or nearly certain, the implication which we were pressed to take from it. While it is true that the report does discuss a ‘Phase II’ statutory scheme as well as compulsory purchase, and does not expressly consider any third option, on all the evidence we are not persuaded that the respondents would have accepted this large financial commitment in the absence of the compulsory purchase scheme, or that the hypothetical purchaser would have proceeded on that prospect. The purpose of the report was to argue the case for the compulsory purchase scheme. That scheme did not, at the time it was proposed, involve financial commitment by the respondents. Indeed, a Phase II statutory scheme was considered an unattractive option largely because of the extent of the financial commitment by others. In any event, the scheme had another particular purpose, which could not have been achieved by supporting another statutory repairs scheme. This was to remove what was perceived to be the obstacle to proper care of the building, i.e. the concentration at it of ‘multiple occupancy’ flats whose owners appeared to have little commitment to expenditure on the building, by sub-dividing the larger flats. There would have been another option, which would have been to do the minimum works, if any, necessary to save the building from demolition, which was what the respondents in fact did, albeit much later, at the neighbouring building.

We do not ignore the council’s statutory duty to ‘have regard’ to the desirability of preservation, but that provision does not create any positive obligation, and in any event ensuring the building remained stable would be a decision taken out of regard for the desirability of preserving it.

In these circumstances we conclude that the hypothetical purchaser would not see grant aid – on either basis - as a matter of high probability or near certainty and accordingly would not bid on the basis simply of discounting only his share of the repair costs. In short, the subjects would not have been in the market about which Mr Haxton told us and on which the applicants’ primary position is based. Our view, on all the evidence, is that grant assistance cannot be ruled out as a possibility but would have seemed unlikely.

We have considered whether a potential owner-occupier would have purchased either flat with the prospect of paying the whole repair cost attributable to that flat in the absence of grant assistance. For Flat 1/1 the agreed refurbished value of £60,000 would have only just covered the estimated repair cost of £59,000. For No. 101 the agreed refurbished value of £80,000 well exceeded £59,000. However, in both cases a valuation for purchase would have incorporated other factors. A suitable allowance would be have been to reflect the real prospect that the various owners would not have co-operated in a voluntary scheme of repair or that the respondents would not have promoted a statutory scheme. Further risks would have been considered by the prospective purchaser including the prospect of repair costs escalating or long delays being encountered. These additional considerations would have depressed values further.

With the unlikely prospect of a grant, we conclude that the hypothetical purchaser, who we are required to assume, would not have paid a substantial sum for either flat. This is even before consideration of the outstanding repairs liabilities.

An additional consideration is the Closing Order on No. 101 (and there is nothing to indicate that that would have been lifted by August 1993), and in the case of Flat 1/1 the hypothetical purchaser would have been aware that one of the other flats was the subject of a Closing Order.

The applicants do, however, have a fall-back position based on a different market, in which the purchaser is not interested in putting the property into good repair but rather in exploiting it for the income to be derived from multiple occupation with as little expenditure on repairs as possible. On the evidence, we accept in general that there was such a market at the time (possibly by contrast with current conditions, there being now much more close regulation of multiple occupancy). We do not, however, feel able to arrive at any specific value on this basis, because we do not feel we have evidence on which we are able to rely as to value.

The applicants invited us to consider, we think, three types of evidence about this. Firstly, Mr Haxton said that properties in this situation simply did not change hands at nominal values. He did seem to mean, and we are prepared to accept, that properties were sold on this basis at substantial prices (rather than that if the value was only nominal they did not in the real world change hands), but he did not either refer to any actual sales or offer any opinion as to the actual levels of value. Secondly, there was the evidence of the two formal offers which undoubtedly were actually made, of £25,000 for No. 101 in 1989 and basically of £30,000 for Flat 1/1 in 1991. We are not troubled by the dates of these, and despite the complete absence of evidence as to the circumstances, we do accept them as having been at arms’ length. However, evidence of unaccepted offers, or figures in negotiations, must in our view be treated with great care. We feel we can place no reliance whatsoever on the amounts of these offers when they quite plainly could not have been accepted without the type of qualifications which would have led to further consideration by the offerors of the whole repairs issue, including the outstanding repairs liabilities. Thirdly, reliance was placed, perhaps as a last resort, on the actual price paid by Loft House, but the circumstances of that transaction seem to us to be so different as to deprive it of any value in this context. If some sort of comparison is made, that transaction suggests values of £2500 per flat on the basis of known 75% grant assistance and a scheme definitely proceeding, but we think the better and safer view is that it is just not comparable at all. In any event, that transaction was against the background of the compulsory purchase.

In these circumstances, while we think it quite likely that a purchaser on this basis would pay at least slightly above purely nominal figures, we do not feel that the applicants have established any such figures. Further, although it may be open to this Tribunal, having heard evidence and submissions on valuation, to reach an opinion on value on a particular basis despite a lack of specific valuation evidence on that basis, we simply do not feel able to arrive at such figures. What we can indicate is that we do not consider that the values which would be arrived at on this basis could exceed the amounts of the outstanding liabilities, i.e. around £21,000 (No. 101) and £17,250 (Flat 1/1) respectively.

We now therefore turn to consideration of the outstanding liabilities arising out of the 1996 statutory scheme. We have made findings on an undisputed basis as to the existence and amounts of these liabilities. We should mention that the applicants did not actually agree them. Rather, as they were fully entitled to do, they put the respondents to proof of them. We are, however, satisfied that these liabilities were established at these amounts in 1990. There was no actual submission to the contrary. In the ‘no-scheme world’, they would clearly still have existed on the valuation date, on which date the applicants would have been the persons liable. On a hypothetical open market sale, they would have passed with the properties, even in the absence of any Charging Order, although in the real world the purchaser would normally insist upon them being discharged by the seller.

Mr Martin, however, contended that these liabilities should have been left out of account. He did not argue that such liabilities were not relevant in principle, and indeed accepted the general position in his opening submissions on the relevance of intrinsic circumstances. Rather, he submitted that in this case there was such uncertainty about these liabilities that the case for simply deducting the full amounts was not sufficiently established, and also that this would be inequitable when the respondents, as the acquiring authority, had already decided to write them off.

There appears to us to be no significance at all in the fact that the liabilities were written off when the compulsory purchase was completed. That would not have happened in the ‘no-scheme world’. Presumably, it would happen in any case in which the acquiring authority was also the housing authority. The admittedly somewhat odd exercise which was carried out in 1996 and which resulted in letters being sent to the applicants referring to considerably reduced figures would also not have happened but for the compulsory purchase. It was, in any event, purely an internal accounting exercise. We do not see any inequity in following through the normal approach in this case. Indeed, not to make this deduction would seem to leave the applicants with the benefit of the 1986 works without having had to pay for them, which would not seem to be fair either to the respondents or to any other proprietor who settles such liabilities. Mr Martin relied also on the absence of a Charging Order. If the suggestion was that a purchaser in the ‘alternative’ market might in effect take a chance on enforcement of such liability, we do not consider that such an approach would be a proper application of the statutory hypothesis.

We conclude that our valuation must take full account of these liabilities. We have already concluded that there is no positive residual value on the basis of hypothetical purchase with a view to the identified common repairs being carried out, even without taking the outstanding liabilities into account. Our view on these liabilities of course strengthens that conclusion. It also leads to our decision that although there was an alternative market for subjects in this situation there is no positive value on that basis either.

We have accordingly decided in each of these cases that the respondents’ position should be accepted and the nominal values for which they contended upheld. In each case, we award compensation of £1,000. The consequences in relation to fees and expenses are not in dispute and are confirmed in the Tribunal’s Order.