Richard Parsons Ltd v Bristol City Council [2007] EWLands ACQ_190

ACQ/190/2006

LANDS TRIBUNAL ACT 1949

COMPENSATION – compulsory purchase – preliminary issue – leaseholder claimant – claim
for disturbance – breaches of repairing covenants – whether liability for breaches to be brought
into account in assessing compensation – whether effect of such liability confined to assessment
of value of leasehold interest – held liability properly to be brought into account and effect could
be reflected in disturbance compensation

IN THE MATTER OF A NOTICE OF REFERENCE

BETWEEN RICHARD PARSONS LTD Claimant

and

BRISTOL CITY COUNCIL Acquiring

Authority

Re: Bridal Shop
25 Broad Weir
Broadmead
Bristol BS1 3AV

Before: The President and N J Rose FRICS

Sitting at Procession House, 110 New Bridge Street, London EC4V 6JL

on 4 September 2007

Jonathan Karas QC, instructed by TLT Solicitors for the claimant
Rupert Warren instructed by Ashurst on behalf of the acquiring authority

The following cases are referred to in this decision:

Horn v Sunderland Corpn [1941] 2 KB 26

Director of Buildings and Land v Shun Fung Ironworks Ltd [1995] 2 AC 111

Re King [1963] 1 Ch 459

DECISION ON A PRELIMINARY ISSUE

1. The claimant in this case was the underlessee of premises known as 25 Broad Weir,
Bristol, that were included as plot 34 in the Bristol City Council (Broadmead Expansion,
Bristol) Compulsory Purchase Order 2003. The CPO was made by the acquiring authority
under the Town and Country Planning Act 1990, and it authorised the acquiring authority
compulsorily to purchase the order land for the purpose of securing and carrying out a
comprehensive scheme of redevelopment. The claimant’s interest vested in the acquiring
authority on 22 September 2005 under a general vesting declaration. The freehold and
headlease are also the subject of acquisition, and we approach the issue, as the parties invited
us to, on the basis that nothing turns on the particular structure of interests.

2. The premises consisted of a shop, which the claimant occupied for the purposes of the
sale and hire of wedding apparel and evening wear pursuant to a franchise agreement under the
name “Pronuptia”. There was a ground floor retail area with two floors of ancillary
accommodation above. The premises have now been demolished in implementation of the
scheme. The compensation claim is for £263,303 including loss of profits up to May 2006 but
excluding any loss of profits after that date, since this has yet been assessed and can be
expected to be added to the claim in due course.

3. The claimant’s lease was for a term of 20 years from 1 April 1986, so that at the date of
vesting, which is also the valuation date, it had approximately 6 months left to run. It was,
however, subject to the provisions of the Landlord and Tenant Act 1954 so that, if the landlord
had not agreed to the grant of a new tenancy, in the absence of the CPO the claimant would
have been able to apply to the court under section 24 for such tenancy to be granted. Clause 3
of the lease contained repairing covenants on the part of the lessee. The precise terms of those
covenants, and of the covenants that are ancillary to or consequential upon them, are not
material for present purposes. It is sufficient to note that the acquiring authority assert that the
premises were in substantial disrepair at the valuation date, so that the claimant was in breach
of covenant, and that the costs of putting them into repair would have been considerable. They
say that the landlord could have opposed the grant of a new tenancy because of the breaches of
covenant and that the liability of the claimant would have remained after the termination of the
tenancy.

4. On 5 February 2007 the acquiring authority’s solicitors wrote to the Registrar to request
that the reference be dealt with under the Tribunal’s special procedure because they considered
that there were a number of complicated issues of law and valuation. One issue, they said, was
the dilapidated condition of the premises at the valuation date, and their client’s position on
this was that the cost that the claimant would have incurred in complying with its repairing
obligations should be taken into account in the assessment of compensation on the basis that
the claimant was relieved of that liability by the compulsory acquisition of its leasehold
interest. The letter later referred to “our client’s argument that the cost of dilapidations should
be deducted from the compensation otherwise payable.” The claimant’s solicitors wrote to the
Tribunal on 9 February 2007 referring to this letter and saying that they agreed to the special

procedure subject to the following being dealt with as a preliminary issue. “Whether as a
matter of law the Acquiring Authority is entitled to off-set a claim for dilapidations against an
entirely separate element of the claim.”

5. In advance of a pre-trial review fixed for 29 March 2007 the parties agreed that the
Tribunal should order the disposal of a preliminary issue in terms rather different from those
suggested by the claimant:

“Whether the Acquiring Authority can set off the value of the Claimant’s dilapidations
liabilities against the claimed compensation figure as a whole.”

The Tribunal (Mr Rose) made an order to this effect.

6. At the hearing before us Mr Rupert Warren for the acquiring authority submitted that,
given the principle of equivalence and the principle that compensation is in essence one sum,
as explained in Horn v Sunderland Corpn [1941] 2 KB 26 and Director of Buildings and Land
v Shun Fung Ironworks Ltd [1995] 2 AC 111, the dilapidations liability which existed at the
valuation date was relevant to compensation for the reference land and should be taken into
account in reducing the amount of the overall claim. If the effect of the liability was to give
the lease a negative value, that negative value should be taken into account in reaching the
overall amount of compensation.

7. Mr Jonathan Karas QC for the claimant advanced what he termed the primary case and
the secondary case on the issue. The primary case was that, having acquired the claimant’s
interest, the acquiring authority had the benefit of a separate claim for breach of covenant
which survived and was quite separate from the acquisition. That being so, the matters in
respect of which a separate claim survived (the breaches of covenant) could not be taken into
account in the purchase price. The secondary, alternative, case was that, if it was correct in
valuing the land to have regard to the claimant’s liability under the covenants, it would be
wrong simply to set off the cost of dilapidations against the compensation otherwise payable.
How the existence of a dilapidations claim might be taken into account was wholly fact
specific. The land was to be valued in the no scheme world, and it could not be assumed that
the claimant would have incurred the costs of repair in the no scheme world.

8. Moreover, said Mr Karas, any claim for dilapidations would be subject to section 18 of
the Landlord and Tenant Act 1927, which provides that damages for breach of covenant to
repair must not exceed the amount (if any) by which the value of the reversion is diminished
owing to the breach of covenant. In view of these matters all that the Tribunal would be able
to say if the primary case was rejected was that the claimant’s repairing obligations might be
relevant to the assessment of compensation but that their precise relevance would depend
entirely on the evidence.

9. We cannot accept Mr Karas’s primary contention. It is the case, as he submitted, that on
acquisition of the claimant’s interest the acquiring authority obtained the benefit of the
covenants in the lease and the entitlement to bring a claim for past breaches of covenant. But

the authority advanced to support this proposition, Re King [1963] 1 Ch 459, also shows why,
on the facts of the present case, the acquiring authority would not be able to achieve damages
for the breaches of the repairing covenants. Re King was, like the present case, one where the
freehold, a head lease and an underlease were acquired under a CPO by London County
Council. The issue was whether the freehold owner (Tagg) retained the right after the transfer
of his interest to the council to recover damages for breach of covenant by the lessee (King).
The Court of Appeal held that he did not, since that right passed to the council on the
assignment of his interest under section 141 of the Law of Property Act 1925. At 484 Lord
Denning MR said this:

“My conclusion is, therefore, that after Tagg assigned this derelict factory to the
London County Council, he had no right to sue King’s executors for the breaches of
the covenant to repair or reinstate. The London County Council alone could sue: but
that right is not one which is worth anything to them, seeing that it is their intention to
pull down the premises. Indeed, they have never suggested that they wish to claim
under it.”

10. The factual position in the present case is the same. The acquiring authority acquired the
premises so that they could demolish them, and they have indeed done this. Under section
18(1) of the 1927 Act damages for breach of repairing covenants are not recoverable “if it is
shown that the premises, in whatever state of repair they might be, would at or shortly after the
termination of the tenancy have been or be pulled down.” There could in these circumstances
have been no possibility, in the scheme world, of any damages being recovered by the
acquiring authority for breaches of the repairing covenants. The valuation of the claimant’s
interest, however, is to be made not in the scheme world but in the no scheme world. If the
effect of the acquisition has been to relieve the claimant of a liability that, in the no scheme
world, it would have had, that would, in our judgment, necessarily fall to be taken into account
in assessing compensation.

11. It is, of course, the case that it is a matter of valuation how the breaches of covenant are
properly to be reflected. They could in our judgment enter into the assessment at two points.
Firstly, any potential liability on the part of an assignee of the lease would reduce the amount
that he would pay in the open market for the leasehold interest in the no scheme world. Any
such reduction would be reflected under rule (2), but only, we think, to the extent that it did not
give the interest a negative value. Secondly, the effect of the acquisition would be to relieve
the claimant of the potential liability that he would have had in the no scheme world for the
breaches of covenant. The value of such relief would need to be brought into account in any
assessment of the loss of profits occasioned by the acquisition. Moreover, it seems to us, if the
leasehold interest had a negative value, the compensation would necessarily have to take this
into account. We accept Mr Warren’s submission that the principle of equivalence and the
principle that compensation is in essence one sum would require this to be done.

12. The principle of equivalence requires that the “statutory compensation cannot, and must
not, exceed the owner’s total loss, for, if it does…it will transgress the principle of equivalence
which is at the root of statutory compensation, the principle that the owner shall be paid neither
less nor more than his loss” (per Scott LJ in Horn v Sunderland Corpn [1941] 2 KB 26 at 49).

In Director of Buildings and Land v Shun Fung Ironworks Ltd [1995] 2 AC 111 at 125C-E
Lord Nicholls of Birkenhead in another well-known passage said that the purpose of the
statutory provisions

“…is to provide fair compensation for a claimant whose land has been compulsorily
taken from him. This is sometimes described as the principle of equivalence. No
allowance is to be made because the resumption or acquisition was compulsory; and
land is to be valued at the price it might be expected to realise if sold by a willing
seller, not an unwilling seller. But subject to these qualifications, a claimant is
entitled to be compensated fully and fairly for his loss. Conversely, and built into the
concept of fair compensation, is the corollary that the claimant is not entitled to
receive more than fair compensation: a person is entitled to compensation for losses
fairly attributable to the taking of his land, but not to any greater amount. It is
ultimately by this touchstone, with its two facets, that all claims for compensation
succeed or fail.”

13. The second principle established in Horn v Sunderland is that the rules contained in
section 5 of the Land Compensation Act 1961 (formerly section 2 of the Acquisition of Land
(Assessment of Compensation) Act 1919) provide for the payment of a single sum as
compensation for the land acquired. At 32 Sir Wilfred Greene MR, having noted that the
principles on which the price or compensation payable for land acquired under the Lands
Clauses Acts had been established by a series of decisions, said this:

“The broad principle was that the price should be fixed on the basis of the value to the
owner and this involved taking into consideration a number of matters which I need
not mention as they are well known. But one element which the jury was entitled to
take into consideration was the damage suffered by the owner from disturbance, for
example, of his business. It is important in considering the present case to remember
that this was not a separate head of compensation such as compensation for injurious
affection, but merely one of the elements going to the build up of the purchase price to
which the owner was fairly entitled in all the circumstances of the case.”

14. At 34 Sir Wilfred Greene quoted the terms of rule (6): “The provisions of rule (2) shall
not affect the assessment of compensation for disturbance or any other matter not directly
based on the value of land.” He then went on:

“Now, r. 6 does not confer a right to claim compensation for disturbance. It merely
leaves unaffected the right which the owner would before the Act of 1919 have had in
a proper case to claim that the compensation to be paid for the land ought to be
increased on the ground that he had been disturbed…The truth of the matter is that, as
in cases under the Lands Clauses Acts alone, so in cases where the Act of 1919
applies, the sum to be ascertained is in essence one sum, namely the proper price or
compensation payable in all the circumstances of the case. If those circumstances are
such as to make it impossible for the owner to claim that he has suffered damage
through disturbance for which he ought to be compensated, then he is not entitled to
have the price or compensation for his land increased by an addition for disturbance
even if he has been disturbed. It is a mistake to construe rr. 2 and 6 as though they

conferred two separate and independent rights, one to receive the market value of the
land, and the other to receive compensation for disturbance, each of which must be
ascertained in isolation.”

15. In the present case, if the acquiring authority are right in their contention that at the
valuation date the lease had a negative value because of breaches of the repairing covenants
and that the effect of the acquisition was to relieve the claimant of the liability for such
breaches that he would have had in the no scheme world, it would be wrong in assessing
compensation to leave those matters out of account. It would not, however, be a matter simply
of deducting the cost of remedying the dilapidations from the amount of compensation that
would otherwise be payable by way of disturbance. The effect on the market value of the
interest would be a matter of valuation; and the effect of relief from the potential liability on
the part of the claimant for the cost of remedying the breaches would not necessarily be
reflected by that cost. For this reason, to determine the preliminary issue in the acquiring
authority’s favour in the terms in which it is expressed would be wrong, and indeed Mr Warren
did not seek to argue for this. The determination we make is that any liability of the claimant
under its lease for breaches of the repairing covenants is properly to be taken into account in
the assessment of compensation, including compensation for disturbance, and that the effect of
such liability is a matter of valuation.

16. We would add that no contentions were addressed to us on the identity of the scheme or
on what would have happened to the subject property in the no scheme world. Those are
matters on which the assessment of compensation could depend. Our determination does not
make any assumptions on those matters.

17. The parties are now invited to make representations on the costs of this preliminary issue,
and a letter about this accompanies this decision, which will become final when the question of
costs has been determined. Directions for the further conduct of the case will then be given.

Dated 13 September 2007

George Bartlett QC, President

N J Rose FRICS

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You are here: BAILII >> Databases >> England and Wales Lands Tribunal >> Richard Parsons Ltd v Bristol City Council [2007] EWLands ACQ_190_2006 (13 September 2007) URL: http://www.bailii.org/ew/cases/EWLands/2007/ACQ_190_2006.html Cite as: [2007] RVR 341, [2007] EWLands ACQ_190_2006

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