OPINION

BAM Properties Ltd and HBG Haymarket 3 Ltd v City of Edinburgh Council

1. This is an application for determination of disputed compensation in respect of “Plot 518” and certain contiguous land, 22 Haymarket Yards, Edinburgh. In terms of our interlocutor of 3 February 2015, which was made as a matter of agreement at a preliminary hearing, we held a preliminary evidential hearing:-

“To establish the appropriate comparator developments (a) in the scheme world, and (b) in the no scheme world (in which, for the avoidance of doubt, and except insofar as necessary for the foregoing assessment, the issue of quantification of the claim is reserved).”

2. The expression “comparator development” was adopted by parties in the above context and is similarly used in this opinion. As Plot 518 was part of a development site we were asked to choose between certain development proposals – one actual and others hypothetical – so that assumptions could be established for the purpose of valuation. Land could then be valued as an assessment of residual value by means of a customary development appraisal in which the appropriate assumptions would be used. This would enable a comparison of land values in the scheme world and in the no scheme world. It appeared to parties at the time of the earlier hearing that a determination of the contentious matter of comparator developments would be likely to lead to a settlement. Parties had also indicated that it would not be necessary to distinguish between the taken land and the retained or injuriously affected land. In the light of parties’ submissions, however, it appears quite possible that such a distinction will be required in any final stage of the case, since the respondents now submit that the final valuation exercise will have to be carried out separately for each piece of land.

3. At the hearing in June 2015, the applicants were represented by Mr Findlay, Advocate and the respondents were represented by Mr Clark, QC. The claimants led evidence from John Burke FRICS who at the material time was joint managing director of the applicants; Michael Smart RICS who at the material time was development director of the applicants; David Cameron-Walker (referred to here as Mr Cameron), architect at the material time with Hugh Martin & Partners; David Llewellyn, architect, of 3D Reid, Architects and Philip Pritchett, Chartered Town Planner of Pritchett Planning Consultancy. The respondents led evidence from Andrew Sikes MRTPI, Team Manager, Major Developments West of the respondents; Hazel Sears MRTPI and Regional Director of Halliday Fraser Munro; and Dr Mark Robertson, Head of Consulting at Ryden LLP. The Tribunal has informally visited the site.

Authorities

Abbey Homesteads Group Ltd v Secretary of State for Transport (1982) 263 EG 983
City of Aberdeen DC v Sim 1983 SLT 250
Director of Buildings and Lands v Shun Fung Iron Works Ltd [1995] 2 AC 111
Duke of Buccleuch v Metropolitan Board of Works (1872) 5 LR HL 418
Harvey v Crawley Development Corporation [1957] 1 QB 485
Horn v Sunderland Corpn [1941] 2 KB 26 at
Hoveringham Gravels Ltd v Chiltern District council (1977) 35 P & C R 295
Ikarian Reefer [1993] FSR 563
ITS v City of Edinburgh Council 7/8/2009 – LTS/COMP/2008/05
Lindon Print Ltd v West Midlands County Council [1987] 2 EGLR 200
Myers v Milton Keynes Development corporation [1974] 1 WLR 696
Persimmon Homes (Midlands) Ltd v Secretary of State for Transport [2009] UKUT 126 (LC); [2010] RVR 11
Porter v Secretary of State for Transport [1996] 3 All ER 693
Ramac Holdings Ltd v Kent CC Upper Tribunal (Lands Chamber) [2014] JPL 897
Steel v Scottish Ministers 2015 SLT ( Lands Tr) 81
Transport for London (formerly London Underground Limited v Spirerose Ltd (In Administration) [2009] UKHL 44

Textbooks referred to

Barnes, Law of Compulsory Acquisition and Compensation; 4.60; 9.39 et seq
Rowan Robinson; Compulsory Purchase and Compensation, The Law in Scotland, 3rd edition paragraph 6-04

Statutory material

Land Clauses Consolidation (Scotland) Act 1845
Land Compensation (Scotland) Act 1963

Relevant provisions

Section 12 of the 1963 Act provides as follows:-

“12. Compensation in respect of any compulsory acquisition shall be assessed in accordance with the following Rules:

… (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:”

Section 16 provides:

“16. No account shall be taken of any depreciation of the value of the relevant interest which is attributable to the fact that (whether by way of allocation or other particulars contained in the current development plan, or by any other means) an indication has been given that the relevant land is, or is likely, to be acquired by an authority possessing compulsory purchase powers.”

The 1845 Act provides:-

“61. In estimating the purchase money or compensation to be paid … regard shall be had not only to the extent (if any) to which the value of the land over which the right is to be acquired is depreciated by the acquisition of the right, but also to the damage (if any) to be sustained by the owner of the land by reason of its severance from other land of his, or injuriously affecting that other land by the exercise of the powers conferred by this Act or the Special Act.”

Background

4. Plot 518 is a strip of ground approximately 10 metres wide, extending to 0.075 ha. It lies between the railway line at Haymarket, Edinburgh and what is now an office development to the north. It is in an area known as Haymarket Yards. The plot was acquired by the respondents under statutory powers for the Edinburgh tram project. A general vesting declaration was made on 27 March 2007, in terms of which the land vested in the respondents on 24 April 2007. There is no dispute that the later date is the valuation date for present purposes.

The CAAD

5. It was initially disputed whether planning permission in respect of Plot 518 would have been granted in the no scheme world for anything other than a purpose to facilitate the tram project. The applicants applied for a Certificate of Appropriate Alternative Development (“CAAD”) on 15 November 2010 under section 25 of the 1963 Act. The respondents as planning authority issued a negative CAAD. On appeal under section 26, following a hearing and report by a Reporter, a positive CAAD was issued by the Scottish Ministers on 16 January 2012. This certified that regarding Plot 518 planning permission would have been granted for office development and associated car parking of the type approved in planning permission (Ref A/03187/98FF) granted by the respondents on 17 January 1999. Parties agreed that the relevant date for the CAAD was 1 July 2005, and that subject to a possible change in policy regarding developer contributions for the tram project, that planning policies were unchanged between that date and April 2007.

Planning History

6. Haymarket Yards have been identified in the respondents’ policies as a major development opportunity (“MDO”) for many years. It is described as a gateway location and lies just to the west of Haymarket Railway Station. The policies at the material time provided for a high quality development and, at the location in question, supported office development. In 1995 outline planning permission was obtained over a large area for three office buildings with floorspace totalling 13,000 sq m/140,000 sq ft. The respondents had sought to limit the number of parking spaces for the whole development to 26, whereas the developers had sought 138 spaces. Eventually a compromise was reached for an overall provision of 75 spaces. In 1999 planning permission was granted in respect of application 03187/98FF. This was a consent for two of the three large office buildings, one of which was to become known as Interpoint and the applicants’ development. The permission showed, we understood, the Interpoint building having net floorspace of the order of 37,500 sq ft. This permission has been interpreted by both parties as allowing the Interpoint building 33 parking spaces. A 10 metre strip adjacent to the railway line was reserved for what was then known as the Light Rapid Transport (“LRT”) Scheme. The strip had been reserved in various planning policies of the respondents, as can be seen from the committee report in the 2006 planning application discussed below, and the history of the reservation of the route in the chapter on developer contributions in the respondents’ Development Quality Handbook. It would have been apparent that the route was likely to be acquired by an authority possessing compulsory purchase powers. The strip adjacent to Interpoint was to become Plot 518.

The Site

7. The Interpoint site extends to approximately 0.54 ha. Various planning documents show the site as including the strip. We do not attempt to fix the respective areas here. However, the site can be described as “tight” from a developer’s perspective both today and in 2006. To the north there is a steep escarpment. To the east there is Elgin House, an HMRC office building which is built close to the boundary. To the south is the reservation strip, now the tram line, and beyond that the existing railway line. To the west is the ICAS office building which had just been completed prior to the applicants’ development, and shares the same cul-de-sac access running from the east. This access in effect bounds the site to the south and west. To the northwest, on higher ground is a site with longstanding planning permission for a block of flats, now under construction. There is little spare ground following the applicants’ development.

The Applicants

8. The applicants are established property developers with a head office in Holland. They have an associated construction company. They acquired the Interpoint site, including the strip which was to become Plot 518, in about April 2006. They had been assessing and negotiating for the site in previous months. They and their architect Mr Cameron thought they could improve the existing 1999 consent inasmuch as it covered their site. Following discussions with planning officials they applied for on 31 May 2006 and, in October 2006 secured, a new consent, termed “Modification of Existing Consent A/03187/98” for a larger office building. This increased the floorspace by 973 sq m from 4342 sq m specified in the 1999 permission to 5315 sq m. In imperial measure (as still extensively used in the property industry and given in evidence) this was an increase from approximately 37,500 sq ft NIA (net internal area) to 46,826 sq ft NIA. The number of parking spaces was retained at 33, although Mr Cameron had sought to negotiate a higher figure. Both the 1999 and 2006 permissions avoided development upon the strip.

9. The applicants had purchased the land intending to develop it as a speculative office development. They proceeded to do so. The design of the building was one which could be adapted easily between multiple tenants or a single occupier. Construction commenced in about autumn 2006, and was completed in December 2007. Development did not, of course, take place on Plot 518, although the plot was used for purposes ancillary to the construction under license from the respondents for the period of the construction. It would appear that the applicants were already on site at the time of the acquisition by the respondents in April 2007. We understood it to have been envisaged that work on the tram line at Haymarket would commence in the summer of 2008. The applicants sold the development site in August 2007, while it was still under construction, but continued to be involved in the marketing and letting of the building. The office was let to a single user namely Tesco Bank in early 2009, following contact with certain agents in 2008.

The Market

10. There was no dispute that in 2007 demand was strong for good quality office space in Edinburgh. In fact, with hindsight, demand in 2007 was at a record level. The applicants themselves had predicted good demand when they approached the site in 2006, and this was borne out by Dr Robertson’s market study produced by the respondents. The downturn in the economy began in the second quarter of 2008, and economic forecasts only began to turn negative in 2009. With hindsight, the applicants’ sale of their development was well timed.

11. There was much scrutiny at the hearing of the applicants’ decision to seek to increase the permitted floorspace by a factor of only about 20%. It is now agreed for the purposes of this determination that planning permission would have been granted for a larger building in the scheme world, had it been applied for. At this stage we would comment that the applicants’ strategy in 2006 was to seek permission for increased floorspace as far as possible for a high quality building, while seeking to avoid the risk of delay in the processing of the new planning application. They therefore sought to design a larger building which was unlikely in their opinion to raise any new planning issues. It was also apparent that in submitting a new layout the applicants were keen not to lose any of the 33 parking spaces then allotted to their site.

Submissions

12. Both counsel helpfully provided written submissions on fact and law. We summarise these below, but do not attempt to repeat them at length or upon all the material bearing on the facts here.

13. The applicants’ case is that the with-scheme world land valuation should reflect an appraisal based upon the “as built” design under the 2006 consent. This is a four-storey building of approximately 46,826 sq ft NIA (excluding a reception area of 1,096 sq ft net) plus 33 car parking spaces to the rear/north of the building. They argue that the appropriate comparator for the no scheme world should reflect a larger building, the majority of whose parking can now be placed upon Plot 518. This was an option denied on account of the scheme. They argue that the appropriate comparator is “Option 2” namely a four storey building of approximately 66,805 sq ft NIA plus parking spaces. Under this option the majority of the parking spaces are on Plot 518, and the building footprint has expanded northwards where there had been parking places in the “as built” scheme. The respondents concede that a larger building making use of Plot 518 would have likely have been permitted 36–37 spaces. As a fall-back position the applicants suggest the appropriate comparators ought to be a building of 66,478 sq ft NIA plus the conceded 36-37 spaces (“REV 5”), failing which a building 64,418 sq ft net with 36-37 spaces (“REV 4/36-37 spaces”). The main difference between Option 2, REV 5 and REV 4 as shown on indicative plans is the distance between northernmost parts of the building and the north boundary of the site. REV 4 shows a constant 9m gap between the building line and the boundary. REV 5 shows one part of the building at the northeast protruding into the gap. Option 2 shows three parts or a larger area of the building protruding into the gap. The extended area is somewhat closer to certain flats under construction to the north west in Option 2 than the other comparators.

14. The respondents’ position was that the with-scheme world comparator should be a four storey building of 64,418 sq ft NIA plus 15 spaces (“REV 4/ 15 spaces”). This scenario expands the “as built” building footprint northwards, leaving space for 11 or perhaps 13 parking spaces at the northwest of the building, and two disabled spaces to the southeast. This comparator would imply that the applicants’ “as built” scheme (46,826 sq ft NIA) had not maximised the potential amount of floorspace which could be accommodated on site. The respondents’ position for the appropriate comparator for the no scheme world was REV 4 – ie the same building which they contended was appropriate for the with-scheme world – but conceding 36-37 spaces the majority of which made use of Plot 518.

15. It should be noted that the respondents conceded, in terms of their pleadings and a report and evidence by their planning witness Mr Sikes, that in the no scheme world a building of the type shown in REV 4 would have been acceptable in principle to the respondents as planning authority. In addition as already mentioned a commensurate increase in car parking would probably have been allowed to serve the larger floor area, ie from 33 in the “as built” design to a total of 36-37. This was in fact slightly more than the applicants had contended for. Mr Sikes did not accept that planning permission would have been granted for any larger building than the REV4 64,418 sq ft NIA. A building of the size of Option 2 (66,805 sq ft NIA) would have raised planning issues in his opinion. On the other hand in the scheme world he indicated that the REV 4/ 15 spaces option would have been likely to have been granted planning permission, since the design did not raise any new planning issues given the planning history and the fact that the respondents would have welcomed the reduction in parking.

Submissions for the applicants

16. It was accepted that the “as built” development offered less floorspace than the REV 4/15 spaces development, and it was not disputed that the latter would have obtained planning permission had it been applied for. However, the evidence was clear that the applicants had acted reasonably in proceeding with the “as built” scheme and it was not suggested they had acted unreasonably. All the respondents had suggested was that other developers with a different risk appetite might have adopted the larger building with less parking. However, there was no marketing evidence to challenge the applicants’ decision and particularly their concerns as to the reduced parking to serve a larger building. The applicants had to consider many factors in determining how to proceed and the ultimate planning solution was only one factor. The issue as to the no scheme world was very limited and was essentially a choice between REV 4 or the slightly larger Option 2 or REV 5, all with the majority of parking spaces on Plot 518.

17. Counsel referred to the evidence. Both Mr Burke and Mr Smart indicated that in a no scheme world, i.e. had the tram scheme been cancelled forever, then the applicants would have re-appraised matters. Mr Burke had indicated that in the no scheme world he would have seen Option 2 as a good prospect and would have re-examined the situation for added value. The applicants had undertaken developments of the scale of Option 2 at other locations.

18. The applicants’ case was that they were prevented from making use of Plot 518, in essence to provide car parking spaces, and since these spaces would have to go somewhere they were restricted as to the size of building they could build on the remainder of the land. They and any prudent developer would have taken advantage of the extra space provided by Plot 518 to increase the size of the building and so have suffered a loss.

19. As a matter of law any loss sustained by a dispossessed owner which flows from a compulsory acquisition may be regarded as the subject of compensation for disturbance provided that it is the natural and reasonable consequence of the dispossession of the owner provided that the loss is not too remote: Harvey v Crawley Development Corporation at 494 and 496; as applied in City of Aberdeen DC v Sim at 252.

20. Reference was also made to Director of Buildings and Lands v Shun Fung Iron Works Ltd and to passages of Lord Nicholls at pp125-126 and 135-139. Although that was very much a disturbance claim involving relocation of a business it was well established that losses arising from actions taken in the “shadow period” in the run up to acquisition should be taken into account. The essence of the concept of causal connection is given an extended meaning to reflect the common sense of planning ahead.

21. It was accepted that the applicants did not give detailed evidence as to what they would have done in the no scheme world. But it could be assumed that they would have acted as a prudent developer. By the time the land was actually acquired in April 2007 the applicants had been on site for months on the basis of a planning permission which did not propose development on Plot 518. If the valuation required to proceed on a purely hypothetical basis then the concepts explained by Lord Nicholls were equally applicable in taking due account of the applicants’ approach which was to assume that the scheme would go ahead. The applicants had necessarily framed their proposals on this assumption.

22. The “as built” development was properly described as a “balanced result in the context of where we were at the time” by Mr Burke, in terms of the size of building and number of car parking spaces and the desire to achieve an amended planning consent as quickly as possible. Although the design was subjective to the applicants, it was the only evidence as to how the market would approach the site objectively in the scheme world. In other words it was the best evidence of the market approach.

23. The REV 4/ 15 spaces approach of the respondents for the with-scheme world was unrealistic. The development site was constrained by its size and in order to increase the size of the building at some point it would be necessary to lose parking. The applicants’ evidence indicated it was vital to retain all or nearly all the 33 parking spaces. This was the position of Mr Burke, Mr Smart and Mr Cameron. The development was a speculative development which had to be marketed. The marketing recommended by the applicants’ agents Ryden and Drivers Jonas would describe the designated parking as “superb”. Mr Smart indicated that the development was in competition with Edinburgh Park where there was ample parking.

24. At the point when the applicants came to the site in early 2006 there were many uncertainties. The applicants did not wish to exacerbate these by seeking a radically larger building than that permitted in the 2006 consent. Accordingly an application expressly seeking to “modify” the 2006 consent was made. Amongst other things the applicants made space by moving the core of the building “into the shadow of the L shape of the building” which unobtrusively increased the building’s footprint. Amongst other things they created more space by moving plant into the roof. They wished to avoid any third party objection from neighbours who might be affected by the new design had it gone closer to boundaries. They also did not wish to lose any of the 33 parking spaces by giving the council the opportunity to argue for a reduction. This was a concern if the whole planning history had to be revisited. They further wished to avoid the risk that an exigible developer contribution for the tram, being based upon a policy only introduced after the 1999 planning permission, might be reassessed on the whole floorspace as opposed to only the level of increased floorspace after 1999. There was also concern that Plot 518 might be taken by the tram works thus preventing its use as a site compound for the applicants’ works.

25. The applicants had initially considered increasing the floorspace to up to 55,000 sq ft. Mr Cameron indicated that the reason why this was not chosen was because it would mean, amongst other things, stretching the building both northwards and eastwards thus risking objections, particularly from the owners or occupiers of Elgin House to the east. There was also a concern that the larger building would encounter a large existing drain. They had acted reasonably.

26. Moreover, the evidence of Dr Robertson of Ryden for the respondents indicated that the “as built” scheme might have been preferred by the developer with a lower risk appetite to a proposal based upon REV 4. That hardly suggests that the applicants’ approach was anything other than reasonable.

27. Turning to the no scheme world issue, the ambit of the real dispute was limited as to how a prudent developer would have approached the possibility of gaining circa 2000 sq ft additional floorspace. It was accepted that Mr Burke candidly accepted that in a choice between REV 4, 64,418 sq ft and Option 2, 66,805 sq ft in which the former had no outstanding planning issues but the latter did, he would have proceeded with the former rather than go to appeal with the latter even if there were reasonable prospects of success. However it was submitted this was not a real choice.

28. The planning issues with Option 2 put forward by the respondents were that it failed to meet relevant guidelines set out in the respondents’ Development Quality Handbook. These were to the effect that window/window privacy distances required to be 18 metres, by retaining a 9 metre distance from window to site boundary. There were also criteria regarding daylighting and shadowing. Mr Pritchett referred to an earlier report by Ms Sears for the respondents which indicated that Option 2 could, in probability, be fitted on to the site without offending the guidance, simply by moving the building towards the access road to the south. Mr Llewellyn for the applicants had produced an initial study indicating that it would be possible to comply with the guidance or at least produce a building which would have been a permitted exception to the guidance. The Tribunal could be confident that planning permission for a building of 66,805 sq ft and commensurate parking would have received planning permission.

Submissions for respondents

29. The respondents submitted that it was necessary for the applicants to demonstrate that they had suffered a loss which fell to be compensated under the statutory regime. That regime was a statutory code and required to be given effect. Reference was made to Transport for London v Spirerose Ltd (In Administration). The acquired land required to be dealt with under Section 12(2) of the 1963 Act, whereas compensation for injurious affection or severance of the retained land required to be dealt with under different provisions, namely Sections 48 and 61 of the 1845 Act.

30. It was submitted, for the purposes of the later stage in the case, that the compensation for the acquired land and the retained land would require to be assessed separately: Abbey Homesteads Group Ltd v Secretary of State for Transport; Hoveringham Gravels Ltd v Chiltern District Council; Ramac Holdings Ltd v Kent CC; Duke of Buccleuch v Metropolitan Board of Works and Barnes,9.39 et seq.

31. It was submitted that there was a particular issue in assessing the depreciation in value of the retained land because of the acquisition. As discussed in Barnes at 9.39 and 9.54 there would have to be a “before” and “after” assessment. For the “before” approach – ie without the acquisition of the taken land under the scheme - the retained land might or might not have a special value. The applicants as hypothetical purchasers would have a special interest in acquiring or retaining both parcels of land. But here the applicants had not demonstrated that they would have acted differently in the no scheme world such as to apply for planning permission for the whole land. There is nothing to suggest they would, hypothetically, have paid any more than any other purchaser. They could not contend for marriage value.

32. In the light of Transport for London v Spirerose Ltd, as discussed by the Tribunal in Steel v Scottish Ministers there were particular difficulties in assessing value for development potential where at best one could only assess a likelihood of planning permission being granted for a particular development. It would be necessary for the Tribunal to assess the likelihood of particular comparators being given planning permission. In this context the applicant could not succeed in a contention that planning permission would certainly have been granted in the no scheme world for the Option 2 comparator.

33. Reference was also made to Director of Building and Lands v Shun Fung Iron Works Ltd and Horn v Sunderland Corporation for the proposition that a claimant was entitled to fair and adequate compensation for the effects of the acquisition of land, that is for losses fairly attributable to the taking of his land, but not for any greater amount and in respect of the value of the land to him. There required to be a causal connection between the acquisition and the loss for which compensation is claimed. Reference was also made to what is described as a presumption of reality namely that if a fact is proven or admitted and would have affected the price of an actual sale on the open market, then it can only be ignored if the statute so provides: Barnes para 4.60.

34. It was submitted that the appropriate comparator for the scheme world could not be based upon a subjective decision of the applicant as to the size of development to construct. That would subvert basic principles. It would mean that if an applicant in the real world chose to value its project on the basis of a low risk proposal, it could not, as it were, claim the higher value of a higher risk project from the acquiring authority. It was therefore unfair to the acquiring authority that the smaller and “safer” “as built” comparator was being used for the no scheme world as opposed to the larger REV 4/15 spaces comparator.

35. The applicants here had referred to principles made in the consequence of disturbance claims and consequential losses. This approach was not justified by the evidence. Nor was it appropriate to invoke the principle of mitigation of loss since the true concept and issue was the assessment of depreciation in value rather than any issue as to whether consequential losses were reasonably incurred.

36. It was submitted that this was not a case where an applicant had suffered loss caused by notice being given of the scheme prior to the general vesting declaration. The applicant had voluntarily purchased the land in early 2006 in the full knowledge of the proposed scheme, no doubt at a price which reflected that. It then proceeded to seek planning permission for, and construct a development despite its being agreed that a larger development could have been permitted. The applicants here had not demonstrated that they had suffered actual loss caused by depreciation in value of the retained land.

37. Turning to the evidence it was apparent from the applicants’ evidence that the as built floorspace was dictated by a requirement for retaining the 33 car parking spaces or as near as possible. The applicants had not assessed whether any other development would have been appropriate with reduced car parking even although it was now accepted a larger building with reduced parking would have been permitted.

38. Regarding so-called limiting factors explaining the relatively modest increase in floor space provided by the 2006 planning application, these were not of any real substance. The evidence indicated that the prospective tram works would have little or no impact upon the development’s proceeding. The evidence also indicated that uncertainty regarding the extent of the developer contribution for trams had been clarified and that by May 2006 it was understood that the contribution would only fall to be measured by the level of increased floorspace since grant of the 1999 planning permission, not the entire floorspace. Regarding use of the strip itself for the applicants’ own works Mr Cameron had indicated that there had been early discussions with the council regarding the council’s own programme of works for use of Plot 518. This did not suggest a conflict. Plot 518 was in fact able to be used until practical completion of the applicants’ project. Finally, there was no real concern as to the making of a new planning application involving fresh scrutiny of the proposals. Mr Sikes was clear that any increase in office space would make no difference as to how the application was processed. It followed that the applicants or any other developer could have made a proposal in 2006 for a 64,418 sq ft REV 4/ 15 spaces development which would have been unlikely to meet significant difficulty.

39. It was submitted that the scheme world valuation should be based upon REV 4/ 15 spaces. There was clear evidence from Dr Robertson that the market was very strong. This was understood both by the applicants and their advisors. There were other successful high quality Edinburgh office developments at Edinburgh Quay and Lochrin Square which had similar levels of parking. Dr Robertson although caveating his position as not having the expertise of a marketing agent, indicated in his evidence that such a development having only 15 spaces would not be at a material disadvantage. The Haymarket site is at a major transport hub in the city thus reducing the importance of private travel. Indeed the next door office building at Elgin House only has 20 spaces. Accordingly the respondents’ comparator for the scheme world should be preferred.

40. Turning to the no scheme world there was ample evidence that the Option 2 proposal of 66,805 sq ft NIA would not have been permitted. The principal concerns spoken to both by Mr Sikes and Ms Sears arose from the projections to the north/rear of the building and the need to maintain a 9 metre privacy corridor and to preserve daylight and prevent over-shadowing to neighbouring buildings and proposed buildings. These concerns were substantial. Ms Sears’ first report had been caveated on the need for imaginative design solutions involving reduced parking.

41. In particular there was concern regarding a block of flats proposed to the northwest of the site at Devon Place. Mr Llewellyn’s study was criticised since it had not taken into account the relevant consent, namely the consent in place in 2006 rather than the current consent prevailing today. The former showed a building closer to the site boundary than the latter. This showed a substantial building five or six floors high. Neither Mr Llewellyn nor Mr Pritchett had the sort of detailed plans or calculations which would be required to give the matter scrutiny; all that had been produced were preliminary studies. It could not be demonstrated that the building could be moved south as suggested. It is very unlikely, in the light of Mr Burke’s evidence, that the applicants would have proceeded to seek anything larger than REV 4 with full parking since to do so would delay the development on account of an essentially minor dispute with the planners.

Discussion

42. We are being asked to make findings which on the face of it appear to be on a fairly narrow compass. However, as counsels’ submissions demonstrate there are underlying factual and legal issues which are fairly complex. We intend to seek to deal with these insofar as necessary to enable the case to progress to the valuation stage. However we also seek to avoid embarrassing the later stage by commenting upon issues which have not yet sharply arisen.

43. There are causation issues between the parties. We propose to make factual findings as follows. It is apparent that at the time when Plot 518 was taken by the respondents in April 2007, the applicants were already on site constructing their development, being the subject of the 2006 permission. They had acquired the land, and had assessed and worked up their project on the understanding that the reserved strip should be left for the tram project. There was no suggestion that the applicants had thought about using the strip for anything other than accommodating their own works in the short term. There was no suggestion that the applicants had been required to make new plans in the shadow period because the respondents’ scheme had become more likely to go ahead. In short, the applicants did not seek to prove that because the tram scheme had gone ahead, they had been hindered in their project, since their project had always assumed that the tram scheme would go ahead at some stage.

44. Equally we accept that had there not been a tram scheme when the applicants came to the land, or if it had been cancelled forever at that time, the applicants would have acted differently, as would other reasonable property developers. This is a hypothetical scenario, and in this context the reasonable property developer can be seen as the hypothetical purchaser or seller. We accept the evidence of Mr Burke to the effect that if Plot 518 had become available for use then the applicants would have reappraised the site with a view to adding value and would have proceeded accordingly. That reappraisal would likely have involved a project similar in concept to REV 4 or Option 2 (subject to obtaining planning permission, discussed later), where a larger building would be constructed on the retained land, where the ancillary parking could have made use of the now available Plot 518. We infer from the evidence that a hypothetical developer, including the applicants, would have applied for planning permission for a suitable larger project which had reasonable prospects of securing planning permission. Although we do not have detailed valuation evidence before us, we think it is reasonable to infer that the site as a whole now containing more developable land would, in the eyes of a hypothetical developer, be likely to attract a higher value.

45. We now come to the respondents’ argument that the applicants could not contend for “marriage value,” i.e. a value which the market would add to the sum of the individual values of the taken land and retained land respectively. This argument as we understood it was based upon a hypothetical appraisal of the retained land in the no scheme world, in which it was contended there would have had to have been a particular planning consent rather than mere development potential. If, so it was argued, the applicants could not establish what permission they would have obtained, they could not establish any special interest which might make for a higher value.

46. However, if this argument is based upon a correct legal approach, it does not stand scrutiny as far as the taken land is concerned. As our findings demonstrate, it can properly be inferred that there would have been planning permission for a larger development on the whole site in a hypothetical no scheme world. We think it can be inferred this would have been more valuable than the mere sum of two parts.

47. We think the question of marriage value can be properly addressed from the perspective of the assessment of value of the taken land. There was no dispute that in setting a value under section 12(2) of the 1963 Act we are required to ignore the statutory scheme. Section 16 requires us to ignore any depreciation on account of the land having been reserved for the potential acquisition for the trams. Section 23(5) requires us to assume that there would have been planning permission if the land was not proposed to be acquired for the scheme in terms of the CAAD issued under sections 25 and 26. We are conscious that the words of Lord Denning MR in Myers v Milton Keynes Development Corporation (“… the valuer … must let his imagination take flight to the clouds…”) are criticised in the context of expanding the Point Gourde principle; see speech of Lord Neuberger of Abbotsbury in Spirerose at paragraph [55] and passages referred to therein. However, unlike Spirerose, this is not a case of the Pointe Gourde principle being sought to be extended, as it were, to allow speculation of what would have happened in the no scheme world. This is a case where statute does require us to make hypothetical assumptions regarding the taken land as if there was no scheme.

48. So in assessing value of the taken land we must assume there is no depreciation in value on account of the tram scheme. If there had never been any indication that the land would be acquired for the scheme, we are satisfied that the market would have looked at the land differently. We see nothing impermissible, unfair or fanciful about valuing the taken land, in these circumstances, as if the scheme never existed. We must assume there would have been planning permission for office use in terms of the CAAD for the taken land. There was of course actual planning permission for office use for the retained land. We must also assume, as parties have agreed, that planning permission in one form or another would have been available for the combined site for office use. We have found that a reasonable developer would seek to appraise that combined site with a view to adding value and proceed accordingly. We also require to value the taken land from the perspective of a hypothetical willing seller. As a consequence of the owner being hypothetical we are permitted to assess the value with the actual owner as a possible bidder: Rowan Robinson; paragraph 6-04 n.13. As the applicants were also owners of the retained land, it seems to us they would have a special interest in acquiring the taken land. Accordingly we accept that they are able to contend for marriage value in valuing the taken land. At this stage we pass no comment on how marriage value might be assessed or apportioned, other than by reference to the comparators in question.

49. At this stage we would comment upon the respondents’ view of the facts if taken to a logical conclusion. It was contended that the applicants had not shown that they would have acted differently in the no scheme world as compared with how they had acted in the with-scheme world. Although not discussed in argument, this position would suggest that the applicants would still have constructed the 46,826 sq ft “as built” office with 33 spaces, but in the hypothetical world they would not have made use of Plot 518 for parking spaces. In truth the applicants could never have used Plot 518 for parking and still kept the 33 spaces on the retained land because the respondents as planning authority would never have permitted a further 26 or so parking spaces in conjunction with a building of that size. The officials would not have countenanced car parking approaching 60 spaces. It would mean, on the respondents’ analysis, that the applicants in a no scheme world would have allowed development land to remain sterile. In our opinion this scenario does not arise as we conclude that the hypothetical developer including the applicants would have taken steps to maximise the lands’ potential. The obvious option would have been to seek to proceed with a larger building and to make use of all the available parking space. In all fairness to the respondents they recognise this to extent of accepting that planning permission would have been forthcoming for the whole combined area in the no scheme world.

50. We now turn to the retained land and the issue of causation of losses raised by parties. It seems to us, on the facts, that there could be a significant difference as to whether any diminution in value or loss due to severance or injurious affection falls to be considered on the same hypothetical approach as the valuation of the taken land, i.e. as if the scheme never existed, or whether distinct rules of causation apply. It seems to us this is a point of law not specifically focussed upon in submissions and would be safer for us to decide once parties have had the opportunity to reflect upon our findings. We therefore express no opinion on it at this stage.

51. We should be clear about the “comparators” under consideration. Apart from the “as built” scheme, these are hypothetical. They indicate scenarios which might or might not have come into being. For the purposes of this case they should be seen as part of a hypothetical developer’s appraisal in approaching land with planning permission. That appraisal, in conventional methodology, subsumes a residual value for the land – in other words its development value. Thus, in this case, it is anticipated that the appraisal method will be used to establish land value. The “comparators” put forward are merely part of a tool – one might say an input – into the appraisal. Numerous development appraisals with different scenarios have been lodged by parties in this case, although none as yet has been spoken to in evidence.

52. We think we should pass some initial comment upon our understanding of the use of development appraisals, since these are likely to be the object of the findings we are being asked to make here. Any such appraisal may represent a developer’s view of a site’s potential with a particular project in mind. That project is assumed to have planning permission. Different projects will generate different levels of future income, different costs, and involve different degrees of risk and so on. All such matters are estimated and quantified so as to go into the equation within the appraisal. There would need to be an estimate of rental levels, for example, which in turn might be affected by factors such as the quality of the building. A pertinent example might involve a project for a speculative office building with a high level of floorspace. Depending on various factors that building might reasonably be expected to take longer to let than a smaller one, thus requiring longer projected void periods. So the greater income potential could be offset by greater void periods as well as higher building costs. The larger building could, but would not necessarily, achieve a higher residual land value. If a particular project was perceived to involve greater risk, the objective valuer in capitalising future income might apply a higher yield. This would reduce the estimated capital value of the project, thus tending to reduce the residual land value. Different projects objectively valued could produce the same residual value, or at least values within a reasonable range from which a market value can be extrapolated. Alternatively a project could produce a manifestly inferior result in the assessment so that its residual value would not be relevant to establishing market value at all. However, in this case we are being asked to fix upon only one project for each scenario for the purposes of the appraisal.

The scheme world

53. The respondents’ criticism of the “as built” comparator is that it is subjective. Otherwise, no particular criticism was made of the applicants’ conduct in proceeding with it as they did. The respondents’ position was that other developers with different risk appetite might have come up with a different scheme. In our opinion, in terms of assessing market value, the “as built” scheme is nevertheless a reasonable starting point for assessing value in April 2007. The applicants are experienced developers with skilful advisers. They had come to the site in the knowledge of its existing permission with a view to developing it in 2007. They specifically considered the option of increasing the size of the permitted building when they bought the land. They and their architect considered the option of extending the 1999 permission to as much as 55,000 sq ft, but decided that the best option was to extend it to the “as built” 46,826 sq ft. So there is no question of a manifest lost opportunity.

54. Moreover the applicants did not have the benefit of hindsight of knowing that a building of the order of 64,000 sq ft NIA would be permitted by the planning authority without apparent difficulty. We think that the reasons given by the applicants, outlined in the applicants’ submissions above, for selecting the “as built” project were cogent. In particular, a larger building of 55,000 sq ft would have involved stretching the building and, without the benefit of hindsight, risked an objection from owners or operators of Elgin House, itself built close to the boundary. Getting to the market quickly was important. The risk of the larger building involving the cost of dealing with the large drain was also a factor, although apparently a smaller factor. We agree with the respondents that other suggested “limiting factors” discussed in evidence were to become less significant once inquiries had been made and discussions had taken place with officials. However there was no suggestion at the time from any advisor or indeed the planning authority that the “as built” version risked being seen as an underdevelopment. Dr Robertson for the respondents did not criticise the decision to proceed with it. Indeed his evidence can be interpreted as supporting the applicants’ decision to proceed where he says at paragraph 5.7 of his report:

“On balance it is possible to conclude that a prudent developer seeking to differentiate Interpoint from competing developments and maximise occupancy potential at an edge of centre site in an improving location might have preferred the “as built” scheme. This would have been a matter for the risk appetite of the developer and any funders at the material date.”

55. We are being asked to choose between the “as built” comparator building of 46,826 sq ft with 33 parking spaces and the REV 4/ 15 spaces comparator of 64,418 sq ft. We accept that it would have also been possible to obtain planning permission for the latter. That would, we infer, have ultimately become apparent had a detailed discussion or negotiation process taken place with the planning authority. We note Dr Robertson’s evidence to the extent that a view of the market can be stated that there would have been no material disadvantage in the market for the larger building having only 15 car parking spaces. This was the high point of the respondents’ position. However, this view was expressed with some diffidence and caveated by Dr Robertson himself since he was not an expert in the actual marketing of property. His expertise lies in the analysis of market trends, supply and demand.

56. On the other hand we think that the applicants’ concerns were real in that the larger building suggested by the respondents with much reduced parking would have significantly increased risk associated in securing tenants on good terms. Mr Burke described the REV 4/ 15 spaces proposal as a fundamentally different project. Mr Cameron described the potential loss of parking in graphic terms in terms of his future employability. We think that Mr Smart correctly analysed the project in that the likely tenant profile at this location was for those involved in “back room” type operations. This would place the development in competition with Edinburgh Park where there is similar tenant profile and generous car parking. This is a different tenant profile to the professional firms who might inhabit the prestigious offices at Edinburgh Quay, Lochrin Square or Quartermile where parking is more restricted. Mr Cameron indicated other office developments existed at Haymarket where parking was relatively generous such as Citypoint. We do not think that the next door Elgin House being a large office with only 20 spaces serves as an apt comparison in context. We understood this building to have been a PFI project which would therefore have had a government department in mind in the process of its development. In contrast Interpoint was a speculative development which required to be put on the open market, and thus the sales pitch would need to make the most of whatever advantages it had.

57. We infer from the evidence that the respondents’ comparator would have been a riskier proposition. It would need more tenant demand in order to become fully let, it might take longer to become fully let and with less parking it would probably be less attractive to the market in competition with places like Edinburgh Park. Whether it would compare with the “as built” project in terms of residual value we cannot say, since neither party led evidence as to value for either project. The difference between the two is that only the applicants’ project was supported by firm evidence of viability in that its viability was self-evident. Taking the respondents’ position at its highest, we have insufficient evidence which we can rely upon that a project with limited parking was likely to be at least as successful as the “as built” one at this location. Accordingly, absent such evidence, all we are left with tending to objective market value is the comparator of the “as built” development. Accordingly we find this to be the appropriate “comparator” in the scheme world.

The no scheme world

58. The respondents invited us to find that in the no scheme world the appropriate comparator is a development of the REV 4, 64,418 sq ft NIA with 37 car parking spaces. We think this should be 36-37 spaces since Mr Sikes indicated about this number would have been permitted with such a development. This position is effectively consistent with the applicants’ fallback position. It follows that there is, so to speak, a baseline in the no scheme world whereby the appropriate comparator is a development of not less than this scale. We agree that a prudent developer, in the sense of a hypothetical purchaser or seller, would look to this option in the absence of the tram project.

59. The dispute is therefore whether a building with approximately an additional 2,000 sq ft would have received planning permission, on a design broadly similar to that shown in Option 2 or REV 5. We note that REV 5 was not specifically referred to by the applicants in evidence, rather it was used for cross-examination purposes in order to show how floorspace could be increased with little apparent impact upon neighbouring properties.

60. Although four professional witnesses gave detailed views on this matter, we think the matter can be determined in short compass without a detailed narrative of the evidence. We think on the basis of the evidence of Mr Sikes alone it can be fairly concluded that the planning authority would have had issues with any proposed building larger than REV 4. He was clearly unaware of an earlier, now withdrawn concession by the respondents, that a larger building would have been permitted. Our impression from the evidence is that although a developer would have been in a reasonable position to argue that privacy distances and shadowing issues could be resolved or could at least be ameliorated, there was more of a problem regarding daylighting. This is because the office building lies to the south east of the proposed neighbouring block of flats, and the large ICAS building is and was already to the south of those flats. Like Mr Sikes we are unable to conclude there was a simple solution by moving the office building south, since it was not demonstrated that there was room to do so. Faced with this we think a developer would have been required to go to some effort in order to work up a scaled design and associated time and date calculations which could demonstrate that the proposal avoided significant issues of privacy, shadowing and daylighting. Mr Cameron explained this is a laborious process for an architect. It would then have been necessary to get into a process with the planning authority ultimately involving a committee decision or even an appeal. We also think that extending the building further to the northern boundary as Option 2 and REV 5 seek to do, would risk compromising the building’s quality given the presence of the wall and escarpment there. At this point we unreservedly accept Mr Burke’s candid evidence that he would not have delayed an unopposed project of 64,000 sq ft in order to contest a project of 66,000 sq ft with officials. We consider that his position was wholly reasonable and is one which we think ought to apply to the hypothetical developer as prospective purchaser or seller. We think in the real world of negotiations between developers and planners the fact that a developer might have a reasonable but contentious argument to increase floorspace by some marginal amount would have been more likely to have been used as leverage in discussions on other issues.

61. Accordingly we are as satisfied as we can be that the a project similar to the REV 4, 64,418 sq ft NIA “comparator” with between 36 -37 car parking spaces was near to certainty in terms of being afforded planning permission, and forms a proper comparator in this case.

Miscellaneous

62. There are two final points which we note here. In the first place, as we have mentioned, one of Mr Cameron’s reasons for not expanding the “as built” option to 55,000 sq ft was the possibility of the existence of a large drain to the north of the site. As we understood it the need to expand the building’s footprint to the north might have encroached upon this old drain. Mr Cameron explained that this was essentially a cost issue and only one of the factors in the decision. He went on to state, and we accept, that this type of issue would have been more easily covered by the larger profits of a larger development. This means that in fairness the matter may require to be revisited in the costings and contingencies for any no scheme world residual land valuation.

63. Secondly, there was a background dispute whether Ryden LLP, having acted for the applicants in the actual marketing of the project, had a conflict of interest in fielding Dr Robertson for the respondents as an expert witness on the state of the market at the time. This was clearly a matter of some sensitivity to the parties. Dr Robertson had not been involved in the actual transaction at the time. As matters transpired no objection was taken to the admissibility of his evidence although certain documents from the time of the original marketing were put to him. Neither party has withdrawn from their positions on the matter, but nor have parties expressly asked us to comment upon the issue. We are conscious that we did not hear from all parties involved at the time of the original instruction. In the circumstances we do not propose to make comment.

Decision

64. It was agreed that this preliminary decision is a decision for the purposes of Section 11 of the Tribunal and Inquiries Act 1992 and the Lands Tribunal for Scotland Rules 2003.

65. We find that in terms of our interlocutor of 3 February 2015 the appropriate comparator development for the scheme world is the “as built” project of approximately 46,826 sq ft NIA and 33 car parking spaces. We find that the appropriate comparator development for the no scheme world is REV 4, 64,418 sq ft NIA with 36-37 car parking spaces.


Certified a true copy of the statement of reasons for the decision of the Lands Tribunal for Scotland intimated to parties on 30 July 2015

Neil M Tainsh – Clerk to the Tribunal