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Case No: B2/1999/1113/CCRTF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION DIVISION)
ON APPEAL FROM BRADFORD COUNTY COURT
(HHJ ALTMAN)
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 20th October 2000
B e f o r e :
LORD JUSTICE PETER GIBSON
LORD JUSTICE MUMMERY
and
LORD JUSTICE LATHAM
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GREENBANK
|
Respondent
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|
-
and -
|
|
|
PICKLES
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Appellant
|
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2HD
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Mr Martin Rodger (instructed by Messrs Oglethorpe Sturton &
Gillibrand of Lancaster for the Respondent)
Mr Anthony De Freitas (instructed by Messrs Walker Foster of Skipton
for the Appellant)
Judgment
As Approved by the Court
Crown Coyright
LORD JUSTICE LATHAM:
1. This appeal is the culmination of protracted litigation between the
appellant, who was the defendant in the action, and the respondent, who claimed
that he and the appellant had entered into a partnership agreement to farm land
in Yorkshire of which he, the respondent was the freehold owner. The appellant
denied that there was any true partnership; he asserted that the arrangement
entered into between the two of them was to enable him the appellant, to farm
the land for his own benefit as an agricultural tenant. The action was
commenced as long ago as October 1990. The matter came before HHJ Altman, who
heard evidence from the parties and their witnesses, and concluded that there
was a partnership. The parties then came to terms which resulted in a Consent
Order dated the 28th July 1993. This provided as follows:
"It is declared: that
1. The partnership consisting of the plaintiff and the defendant who are
tenants of the holding known as Far Gearstones Farm, Ribblehead, North
Yorkshire under a tenancy granted by the plaintiff to the partnership in 1980
on the terms of the draft lease (Document 14A) as continued by the Agricultural
Holdings Act 1986 save that the rent from January 1990 is the sum of
£3,800 per annum increased in accordance with percentage increase in the
Retail Price Index between January 1st 1986 and January 1st 1990 and thereafter
to be at the same rate until varied in accordance with the Agricultural
Holdings Act 1986.
2. That the partnership between the plaintiff and the defendant is to be
dissolved as at the 28th July 1993.
By consent it is ordered that:
(i) that the plaintiff and the defendant do assign the said tenancy to the
defendant in consideration of payment to the plaintiff by the defendant of 10%
of the value of such tenancy as at today's date. Such value to be determined
by the court if not agreed by the parties and the defendant to pay in addition
to the plaintiff interest at (Midland Bank) base rate plus 1% from today's date
until the date of payment.
(ii) That an account be taken of the partnership assets and dealings (other
than the value of the said tenancy) as at the date hereof and that the
defendant be permitted to purchase the plaintiff's share of such assets of the
partnership on the basis of the value attributed to such assets in such
accounts as taken.
(iii) That there be no order as to costs of the action.
(iv) That either party be at liberty to apply generally."
2. The parties were not able to agree the value of the tenancy. The matter
came back before the court on the 19th October 1998. HHJ Altman heard evidence
from the two valuation experts called by the parties, Mr Baily on behalf of the
respondent and Mr Foster on behalf of the appellant. Mr Baily valued the
tenancy at about £120,000; Mr Foster valued it at £23,500. After
considering their reports and their evidence, the judge preferred, in general,
the evidence of Mr Baily. He found that the value of the tenancy was
£100,000. The appellant was therefore ordered to pay £10,000 plus
interest. It is against this order that he appeals to this court
3. The tenancy was an agricultural tenancy for a term of 10 years at an
original rent of £3,000 per annum. It was subject to a covenant which
precluded assignment without the consent of the respondent. As an agricultural
holding the tenancy was therefore protected pursuant to the provisions of the
Agricultural Holdings Acts as enacted from time to time. In particular,
because the tenancy was entered into prior to the 12th July 1984, it was
possible for there to be two occasions for succession to the tenancy to occur
provided certain conditions were met. As far as rent was concerned, these
provisions entitled the parties to review the rent every three years in
accordance with the provisions of s. 12 of and Schedule 2 to the Agricultural
Holdings Act 1986. It was common ground between the parties that the
application of these provisions, as a result of which the rent at the relevant
date was £4,720 per annum, was a rent which was less than the market rent.
4. The two valuation experts, despite their widely divergent views on the value
of the tenancy, were roughly in agreement as to the value of the freehold with
vacant possession. Mr Baily valued it at £240,000; Mr Foster valued it at
£227,000. They differed fundamentally, however, about the basis upon
which the tenancy should be valued.
5. Mr Foster, on behalf of the appellant, provided two reports one dated the
24th June 1996, and the second the 6th October 1998. He took what he described
as "the existing use" basis of valuation as the appropriate basis. He
described that as the price which the tenant would have had to pay to replace
the opportunities for earning from the farm. He considered that this was
appropriate in the circumstances of the case, and that he was following the
principles set out by this court in the case of Walton's Executors -v-
Commissioners of Inland Revenue [1996] 1 EGLR 159 to which I will return.
Putting it shortly, his valuation was based upon the difference between the
rent payable under the lease, subject to adjustment by way of arbitration, and
the market value rent. To this he applied multipliers, producing a figure of
some £13,600. To this he added the tenant's entitlement to statutory
compensation which he valued at £9,650, and, in his last report, a figure
of £250 to take account of the fact that the tenancy carried with it
greater succession rights that would be possible if a new farm had to be
found.
6. Mr Baily also produced two reports, dated the 1st June 1997 and the 6th
October 1998. In his first report he stated that in his opinion the
Walton's case had no relevance. He took into account the fact that on
the 16th April 1996, the respondent had made an offer of £90,000 to the
appellant for the surrender of the tenancy. The appellant had refused this
offer on the basis that the whole purpose of his defence to the claim had been
to enable him to continue farming. It should be noted that the bona fides of
this offer was obviously doubted by the appellant, although the respondent was
not required to give any evidence about the matter at the hearing. Mr Baily's
conclusion was stated in short form as follows:
"The value to the tenant should be measured by his opportunity to farm there on
a protected basis and to earn an income from the farm, in effect for three
generations. The tenant has turned down an offer of £90,000 for
possession and clearly the farm is worth much more than that to him, or he
would have taken the offer. I consider that 25 years purchased at the rental
of £4,720 to produce a capital equivalent of £118,000 is
appropriate.
For the landlord the tenancy represents the difference between ability to sell
the farm with vacant possession and subject to the tenancy. I would expect the
vacant possession value to be £240,000 and the tenanted value to be
£120,000 to produce a value to the landlord of obtaining vacant possession
of £120,000.
We therefore value the tenancy at a figure between £118,000 and
£120,000 or £119,000."
7. In his second report, he repeats his valuation of the freehold with vacant
possession at £240,000. He then considered the viability of the farm, and
concluded that the appellant, who was in his view a man of ability, had been
able to make good use of the farm, and would be entitled, in addition to his
ordinary income, to substantial annual Environmentally Sensitive Area Scheme
payments, which would be greater than the rent itself. He concluded:
"Indeed I do not find it surprising that the tenant rejects an offer of
£90,000 made by the landlord to vacate the tenancy. This to me
establishes a base line for the value of the tenancy as at 28th July 1993 and I
consider that had the tenant chosen to negotiate the surrender of the tenancy,
he could have upped that offer by between one quarter and one third taking the
value of the tenancy to between £115,000 and £120,000.
Conclusion
I am of the opinion that the value of the above tenancy as at the 28th July
1993 was £118,000."
8. In their evidence, both experts adhered to the valuations that they had
provided in their reports. As far as Mr Foster was concerned, his evidence was
not challenged in detail. It was accepted that, if his basis of valuation was
right, his calculations were correct. The only dispute apart from the issue of
principle as to the basis of valuation related to the value he ascribed to the
chance of succession. It was suggested to him that £250 was a
ridiculously small sum to award for the value of continued possession. He
explained it on the basis of the appellant's life expectancy, and the
application of actuarial tables to the value of the profit rent so far in the
future. It was suggested by Mr Baily, but only by way of assertion, that this
benefit was in itself worth between £25,000 and £50,000. He did not
produce any supporting evidence. Mr Foster in his evidence valued the freehold
with vacant possession, as I have said, at £227,000. He considered that
the value of the freehold subject to the tenancy was £118,000 namely the
current rental multiplied by 25, which was the figure arrived at by Mr Baily in
his first report as representing the value of the tenancy to the appellant.
9. In evidence, Mr Baily stated for the first time that he had adopted the
approach of the valuation expert called by the Revenue in Walton's case
(supra). He had taken the value of the tenancy to the tenants in that case as
being one half of the difference between the value of the land with vacant
possession and it's value subject to the tenancy, the vacant possession
premium. It is to be noted that the valuer whose basis of valuation he was
purporting to follow had calculated the value to the landlord subject to
tenancy by applying a multiplier of 25 to the rental as Mr Baily had done in
his first report for the purposes of assessing its value to the tenant. It was
pointed out to him in cross-examination that whereas in Walton's case
the valuer had taken one half of the vacant possession premium as the
appropriate value, he had effectively taken 100% of the vacant possession
premium, using the same basis of calculation as in that case. To counter this
Mr Baily introduced for the first time the concept of "investor's value". This
was, he said, £70,000 which was the sum he would advise an investor (i.e.
a person other than the landlord or the tenant) to pay for the freehold subject
to the tenancy. This figure was arrived at by multiplying the rent by 15 as
opposed to 25. This produced a vacant possession premium of £170,000. He
would expect, he said, a landlord to be prepared to pay between a third and a
half of the premium, which, when added to the investor's value, produced
figures of between £126,000 and £155,000. He did not explain why he
considered that the landlord would be willing to pay for the investor's value
as well as the proportion of the vacant possession premium, but used these
figures to justify his overall conclusion that £120,000 was an appropriate
valuation of the tenancy. He made it clear that it was only one basis upon
which he had come to his value of £120,000. Another was the fact that the
offer of £90,000 had both been made and turned down. And finally, he
expressed the view that £120,000 was about right, on the basis of his
experience.
10. Although the judge considered that both experts within their own arguments
were consistent and impressive and very experienced, he came to the conclusion
that he preferred Mr Baily. That was because, as he put it:
"Mr Baily seems to me to have taken account of the realities on the ground,
which is what Walton's case suggests ....."
11. In essence, he concluded that a combination of the fact that both the
landlord and the tenant had a clear interest in realising the value of the
tenancy which was not the case, as he saw it in the Walton case, and the
fact that there were in his view real prospects of succession, Mr Baily's
valuation was more appropriate. In coming to his conclusion as to the sum to
be awarded, however, he took Mr Baily's value of £119,000 from the first
report, and then deducted the value which he attributed to the ECAS scheme
grant, namely £19,000, as this was, in the judge's view, not a matter
which would have affected the value of the tenancy in 1993, because the
payments were not then certain, and did not commence until 1996. It was by
this method that he arrived at the valuation of £100,000.
12. The appellant submits that the judge's conclusion was perverse. Mr de
Freitas on his behalf submits that the evidence of Mr Baily was fundamentally
flawed. He points out that the valuation contained in the first report
essentially asserted that the landlord would be prepared to pay a figure which
amounted to the whole of the vacant possession premium if the value of the
freehold subject to the tenancy was calculated by taking the rent and
multiplying by 25, which, he submits would accord with proper valuation
practice and the apparent basis of valuation put forward by Mr Baily in
evidence. He submits that in the second report, Mr Baily effectively relied on
an offer of £90,000 as the base figure from which to value the tenancy,
which was a self serving figure produced by the respondent himself, without any
indication that he was in any position to produce such a sum, and when there
was no indication in 1993, that is at the relevant time for valuation, that he
was interested in purchasing the tenancy. Yet further he submits that the
evidence from Mr Baily must be viewed with considerable scepticism in view of
the evidence that he gave at the trial, which introduced the novel concept of
the investor's value and depended, in order to produce figures justifying a
valuation of £120,000, on the assumption that the landlord would be
prepared to pay a proportion of the vacant possession premium plus the
investor's value, whereas in other answers, he appeared to be saying that the
landlord could be expected to pay simply one third to one half of the vacant
possession premium in order to secure the tenancy. Finally, he submits that
the judge and Mr Baily misunderstood the decision of this court in
Walton, whereas Mr Foster's evidence was entirely in accordance with
it.
13. Mr Rodger on behalf of the respondent submits that the judge was fully
entitled, having heard the evidence of both Mr Baily and Mr Foster, to prefer
Mr Baily. He submitted that Mr Baily was seeking simply to provide as much
material as he considered he could in order to support his professional view
that the value of the tenancy was £120,000. It is submitted that none of
the specific bases used by Mr Baily to come to his final conclusion should be
examined under a microscope. What mattered was his professional view, which
was a matter of judgment and not analysis. Mr Rodger submits that, properly
understood, Walton's case makes it clear that any tribunal valuing a
tenancy in this or any other situation is not only entitled to, but must, take
into account the particular landlord and tenant in question, and come to a view
as to the extent to which they have special interests which can properly be
taken into account in the valuation of the tenancy.
14. Walton's case was a revenue case. It nonetheless has some
similarities to the present. The question was the value to be attributed to
the deceased's share in an agricultural partnership between him and his son
John, which was the tenancy of a hill farm in Northumbria in which the freehold
was held by the deceased, his son John and a second son. Putting it simply,
the revenue contended that the value of the deceased's share as a partner was
£70,000 being his half share of the tenancy value, which the valuer
assessed at half the vacant possession premium of £100,000, plus tenant's
rights of £40,000. The vacant possession premium had been calculated by
applying a multiplier of 25 to the annual rental figure. The matter went to
the Lands Tribunal at which the son John gave evidence which was accepted by
the Tribunal that farming was his and his family's life, and that there would
have been no question of the tenancy being alienated wholly or in part in any
way from him. The Lands Tribunal concluded that the sole value of the tenancy
to the partnership was the extent to which its terms enhanced the value of the
partnership because the partners were able to exploit the assets of the
partnership without paying the full market rent for the value of the farm. The
value of the partnership was therefore assessed on the basis of what was
described as the "profit rent" available to the partners by reason of the terms
and incidents of the tenancy. The Court of Appeal upheld this decision. Peter
Gibson LJ said at page 162 M
"It is not necessary for the operation of a statutory hypothesis of a sale in
the open market of an interest in a tenancy that the landlord should be treated
as a hypothetical person and it is a question of fact established by the
evidence before the tribunal of fact whether the attributes of the actual
landlord would be taken into account in the market."
15. The ultimate exercise is wholly artificial. The consent order assumes a
sale. And it assumes a sale in an open market in which the whole world is
assumed to be free to bid. As Peter Gibson LJ said at page 162 A:
"However improbable that there would ever be a sale of the property in the real
world, for example because of restrictions attached to the property,
nevertheless the sale must be treated as capable of being completed, the
purchaser then holding the property subject to the same restrictions ..... it
also means that the vendor, if he offered the best price reasonably obtainable
in the market, cannot be assumed to say that he will not sell because the price
is too low as inadequately reflecting some feature of the property, nor can the
purchaser be assumed to say that he will not buy because that price is too
high."
16. It seems to me that in the present case, although we are not dealing with
statute but the terms of the consent order the same principles should apply.
It follows that the judge was entitled to take a view as to the realities of
the situation in coming to a conclusion as to the landlord's intention in
relation to the tenancy. By that I mean he was entitled to conclude if the
facts justified it that the tenancy should be valued on the basis that the
landlord, that is the respondent, was interested in purchasing it. Equally,
the judge was entitled to take into account, if the facts justified it, the
intentions of the tenant. Both tenant and landlord can be taken as prospective
purchasers provided the facts support such a conclusion. But even if they do,
it would have to be remembered that the tenant was bidding, not for something
that he already had, but something that he wanted to have and had the means to
purchase. It follows that in this case the fact that the appellant may have
refused £90,000 in 1996 was irrelevant to this calculation. It was not
the sum that the tenant would have been prepared to accept to give up the
tenancy which represented its value, but the sum he would have been prepared to
pay to purchase it. There may in some cases be a correlation between these two
figures, but they are not necessarily the same. It follows that, if the
evidence were to justify it, a valuer or tribunal considering the valuation,
could conclude that the tenant was no longer intending to continue farming, and
that the landlord was seeking to purchase the surrender of the tenancy. In
such a circumstance, and if both could establish that they were in a position
to purchase, a division of the vacant possession premium could be an
appropriate approach to the value at which each might be prepared to purchase
the tenancy and accordingly a proper basis for valuing the tenancy. This was
the view of the Lands Tribunal in Walton's case, as recorded by Peter
Gibson LJ at page 161 D:
"The Lands Tribunal found from the evidence that the value of a whole tenancy
depended on the circumstances of the parties at the material date, landlords
only seeking and paying for the surrender of tenancies when they wished to
release the VPP at an early date and tenants only contemplating surrender when
their prime objective was not to continue farming; only if aspirations came
together might the 50/50 division of the VPP be a realistic interpretation of
market behaviour, but they were not the circumstances of valuation in the
instant case."
17. In my judgment, the judge fell into error in failing to recognise that the
basis of valuation depended upon a proper assessment of the evidence as to the
position in 1993, that is the date at which the valuation was to be made. At
that time, as the judge himself recognised, and as was clear from all the
evidence, the appellant was intending to continue to farm the land. There was
no question of his seeking to surrender the tenancy. Equally, at that time,
there was no evidence to suggest that the respondent had either the desire or
the ability to seek to purchase a surrender of the tenancy. The only evidence
was that in 1996 he had made an offer, which has all the hallmarks of a
tactical offer, for the surrender of the tenancy. There was no material before
the judge to show that that offer could have been made good. Mr Baily asserted
that, with a vacant possession value of £240,000 as collateral, there
would be no difficulty in obtaining the appropriate advance from a bank. But
there was no evidence as to the extent of the respondent's outstanding
borrowing at the time, or the extent to which his interest in the land was
already encumbered. The fact of the offer in 1996 was therefore wholly
insufficient evidence from which to be able to infer that at the relevant date
in 1993 he had an interest in purchasing the tenancy and the ability to
purchase it which could be used to justify the conclusion that he was a special
purchaser for the purposes of the valuation exercise.
18. In ordinary circumstances, this is a case which would be remitted to the
County Court for a further hearing. But because of the protracted nature of
the litigation, and the relatively small sums involved at the end of the day,
both parties have encouraged this court not to take that course, but to
substitute, if minded to allow the appeal, such sum as may appear appropriate.
In the absence of sufficient evidence to justify the conclusion that the tenant
and the landlord had sufficient interest in releasing the vacant possession
premium, it seems to me that the proper approach to be adopted is that which
was adopted by the Lands Tribunal, and approved by this court, in
Walton's case, namely the approach taken by Mr Foster. In those
circumstances, and as Mr Foster's valuation save as to the value of the right
to succession was not essentially challenged, his figure, namely £23,500
should be substituted for the £100,000 found by the judge. As far as the
value of the succession is concerned, I do not consider that there is
sufficient material to justify concluding that Mr Foster was in error in
attributing to it such an apparantly low value, bearing in mind the extended
period of time before which the benefits of those rights would accrue to the
appellant and his family, and the absence of any reasoning, cogent or
otherwise, to support any other figure.
19. Accordingly I consider that this appeal should be allowed, and that the sum
to be paid by the appellant to the respondent pursuant to the consent order is
£2,350, plus the appropriate interest.
Mummery L.J.
20. I agree with Latham L.J. that this appeal should be allowed and that the
sum to be paid by Mr. Pickles to Mr. Greenbank is £2,350 plus interest.
21. I agree with Peter Gibson L.J.'s analysis of the correct approach to the
valuation of the agricultural tenancy of Far Gearstones Farm under the terms of
the Consent Order. I also agree with his trenchant criticisms of the expert
evidence of Mr. Baily. The judge ought to have preferred the expert evidence
of Mr. Foster.
Peter Gibson L.J.
22. I also agree that this appeal must be allowed. As we are differing from
the Judge I shall express my reasons in my own words.
23. On the Judge's order of 28 July 1993 the tenancy to be assigned, that is to
say the tenancy held by Mr. Greenbank and Mr. Pickles as partners, fell to be
valued. But, unusually, nothing was said as to the basis of the valuation.
However, it is common ground that the conventional open market valuation was
thereby intended. On well-settled principles that requires the assumption that
a hypothetical sale of the tenancy, with all of its incidents, will have
occurred on the valuation date, the sale being by a hypothetical willing vendor
to a hypothetical willing purchaser, and that even though in the real world no
such sale would or could occur, because the tenancy is non-assignable, the sale
must nevertheless be deemed to have occurred, the purchaser thereupon becoming
bound by the restrictions of the tenancy, including that against assignment.
24. As the hypothetical sale is in the open market, everyone in the world is
assumed to be able to bid to acquire the tenancy. But because of the nature of
the unassignable tenancy, the number of likely interested purchasers is likely
to be limited. There will be those who want the tenancy in order to live in
the house and to farm the farm and who will pay a price measured by the value
of such ordinary user of the farm, having regard to the rent to be paid and the
other obligations of the tenant. That in essence was the existing use value
asserted by Mr. Foster, Mr. Pickles' expert. There could also be special
purchasers willing to pay a special price for special reasons.
25. Given that a farm with vacant possession is always more valuable than a
farm subject to an agricultural tenancy providing security of tenure to the
tenant paying a rent which may be below the open market rent, the landlord may
be prepared to pay a sum greater than the existing value so as to be able to
sell the farm with vacant possession. Such sum might represent part of the
vacant possession premium ("the VPP", being the difference between the value of
the farm with vacant possession and the value of the farm subject to the
tenancy).
26. The tenant may be prepared to pay more than the existing use value if he
farmed the farm before and is anxious to continue to be the tenant. But as the
tenancy is non-assignable it can provide no security for a borrowing of the
purchase price and unless the actual tenant has the means to pay more, the
tenant will not normally be a special purchaser.
27. Whether there is an actual special purchaser to be taken into account in
the valuation will depend on the evidence, which one would expect to show that
the special purchaser at the time of the valuation both wanted to acquire the
tenancy and had the ability to pay a price above the existing use value. In
this context it is important to bear in mind that the open market value is not
the highest price to which a special purchaser would be prepared to go. This
can be demonstrated by imagining the archetypal open market, an auction at
which all interested parties are present to make their bids. Those parties are
the ordinary purchaser prepared to pay the current market use value, who, let
us say, would be prepared to go up to £20,000, the actual tenant who was
prepared to pay up to, say, £25,000 and the actual landlord who wanted the
merger of the tenancy in the freehold so as to be able to sell with vacant
possession and who was prepared to pay up to half the VPP of, say,
£120,000, viz. £60,000. The ordinary purchaser would drop out of the
bidding at £20,000, the tenant at £25,000 and the landlord would
obtain the property at the bid above that figure, which would not be anything
like £60,000. Mr. Rodger for Mr. Greenbank submitted that the tenant
would not be prepared to sell for less than "the true value" of the tenancy.
But the only relevant value is the open market value. Because a sale is
assumed to occur, it is not open to the hypothetical vendor to refuse to sell
on the basis that he considers the true value to be higher.
28. The Judge was faced with valuations from two well-qualified valuers, Mr.
Baily, for Mr. Greenbank, and Mr. Foster. He described them both as having
"brought to bear both a logical analysis and experience on the ground" to their
approach to this case, and as being "within their own arguments and their own
logic .... consistent and impressive"; he referred to Mr. Baily's arguments as
"logically consistent". Mr. Rodger submitted that the Judge was entitled to
prefer the approach of Mr. Baily to Mr. Foster and that this court should not
interfere with what was a finding of fact. Mr. de Freitas for Mr. Pickles
submitted that Mr. Baily's analysis was illogical and not logically consistent.
If that is right and it can be seen that Mr. Baily erred in his valuation, I
see no reason why this court should not interfere with the Judge's
conclusion.
29. Mr. Baily's first valuation was on the basis that there were only two
persons who need be considered as bidders in the open market, for each of whom
the tenancy had "a real value". He then proceeded to consider what that value
was to each, and he treated the value to each as the open market value. Thus
he was treating them as special purchasers, each willing to bid a sum equal to
the value to him. That is a novel basis of valuation which can lead to
difficulties, as can be seen from Mr. Baily's own description of how he arrived
at the values to the tenant and landlord respectively.
30. Mr. Baily said that because the tenant, Mr. Pickles, had turned down an
offer of £90,000, the farm was worth much more than that to him. Thus he
was measuring the value, not by reference to what the tenant would pay (which
is what is relevant for a sale of the tenancy on the open market), but by
reference to what the actual tenant refused to accept for the surrender of the
tenancy. A sitting tenant who cannot be compelled to surrender his tenancy may
well be unwilling to undergo the disruption of giving up his tenancy without a
considerable payment to him. But that has nothing to do with what he would be
willing and able to pay in order to acquire the tenancy. Even more egregious
an error is then made by Mr. Baily when he went on to say that he considered
that 25 years' purchase at the rental of £4,720 to produce a capital
equivalent of £118,000 was appropriate for the value to the tenant. How
the rent payable by the tenant to the landlord, when capitalised, could have
any bearing on the value of the tenancy to the tenant passes comprehension. It
is, of course, the classic way of valuing the freehold subject to the tenancy,
i.e. the landlord's property. Nor does it have any bearing on what the tenant
would be prepared to pay for the tenancy in an open market sale. Indeed there
was no evidence at all of what the actual tenant would have been prepared to
pay and could pay at the date of the valuation, other than the fact that Mr.
Pickles by the order consented to pay 10% of the value of the tenancy at that
date. Even if the refusal of the £90,000 offer were somehow relevant,
that was an offer made in the different circumstances of 1996, by which time
the Agricultural Tenancies Act 1995 had come into force.
31. Mr. Baily then turned to the value to the landlord. He gave the value of
the farm with vacant possession as £240,000 and the value of the farm
subject to the tenancy as £120,000, and said that the value to the
landlord of obtaining vacant possession was £120,000. Thus he was
assuming that the landlord would be prepared to pay the whole of the VPP to
acquire the tenancy. For the reasons already given, even if there was evidence
that this was the highest that Mr. Greenbank was willing and able to pay, in
the hypothetical open market it cannot be taken that the landlord would pay
more than he needed to pay to acquire the tenancy by outbidding other bidders.
Further, in the circumstances, somewhat different from a hypothetical sale in
the open market by a hypothetical tenant and a hypothetical landlord, of a
surrender by an actual tenant to an actual landlord, Mr. Baily's own evidence
was that the tenant would receive a sum of from one third to one half of the
VPP. Why the landlord in the hypothetical sale would be prepared to pay at
least double the highest proportion of the VPP payable in those circumstances
is not explained by Mr. Baily. In any event there was no direct evidence that
Mr. Greenbank was willing or able to pay anything like that sum in July 1993.
Surprisingly he gave no evidence. The fact of the consent order for the
assignment to Mr. Pickles of the tenancy and the terms of that assignment and
the absence of any offer in 1993 to buy out Mr. Pickles hardly suggest that Mr.
Greenbank wanted or had the financial ability at that time to make a
substantial capital payment to acquire the tenancy. Mr. Baily gave some
generalised evidence about banks being willing to lend to landlords to acquire
agricultural tenancies so as to enable the landlord to sell the freehold with
vacant possession. But there was no evidence from any bank or other lender
that it would have lent to Mr. Greenbank in July 1993, and Mr. Baily in
cross-examination acknowledged that he did not know Mr. Greenbank's financial
position in 1993, and was not aware of the mortgages which Mr. Greenbank then
had nor the extent of them. The offer in 1996 to pay Mr. Pickles £90,000
in the context of the continuing litigation must be viewed with some suspicion.
In any event it does not show that in July 1993 Mr. Greenbank would have been
prepared and had the ability to pay that sum for the tenancy.
32. Mr. Baily in his first valuation split the difference between the value to
the tenant (£118,000) and the value to the landlord (£120,000) to
arrive at £119,000 as his valuation of the tenancy. For the reasons which
I have given the logical basis of that valuation cannot be sustained.
33. Mr. Baily in his second valuation referred again to the value of the
tenancy to the landlord and the tenant. He referred to Environmentally
Sensitive Area payments as demonstrating the value of the tenancy to the
tenant. He regarded the 1996 offer of £90,000 as establishing a baseline
for the value of the tenancy and he considered that had the tenant chosen to
negotiate the surrender of the tenancy he could have caused the offer to be
increased by between one quarter and one third, taking the value of the tenancy
to between £115,000 and £120,000, and he valued the tenancy at
£1,000 less than in the first valuation. For the reasons already given, I
cannot accept this methodology for arriving at the open market value in the
hypothetical sale on 28 July 1993.
34. In giving oral evidence in chief Mr. Baily said that he had adopted the
approach of Mr. Stanton, the Revenue's valuer in the case of Walton's
Executors v C.I.R. [1996] 1 EGLR 159. I pause to observe that this is a
little surprising given that Mr. Stanton's approach in that case was accepted
neither by the Lands Tribunal nor by this court. Mr. Stanton's approach was
that an agricultural tenancy was to be valued by having regard to the VPP which
he divided 50/50 between landlord and tenant to arrive at the valuation. That
was rejected by the Lands Tribunal and by this court on the basis that as the
actual landlords gave evidence, which was accepted, that they were not
interested in acquiring the tenancy, they were not special purchasers. It was
held that a valuation based on a profit rent, not the VPP, was appropriate. In
fact it is hard to see that Mr. Baily did adopt Mr. Stanton's approach. He
even said that there was a misunderstanding in Walton of what a VPP is, though
his explanation of it ("the difference between the tenanted value that an
investor would pay and the vacant possession price") does not differ from the
understanding in the Walton case if what the investor would pay is the
open market price. If it is not, it is hard to see why what the investor would
pay is the open market price. If it is not, it is hard to see why what the
investor would pay is relevant. However, in cross-examination, contrary to his
first report in which "the tenanted value" of the property was given as
£120,000, he came up for the first time with the figure of £70,000,
giving a higher VPP of £170,000. No explanation of this change the
tenanted value of £120,000 was proffered by Mr. Baily. It appears to be
the product of 15 years' purchase of the rent, contrasting with Mr. Stanton's
approach in Walton of about 25 years' purchase. The Judge himself said
that Mr. Foster might well have been right in saying that 25 years' purchase
was appropriate. Mr. Baily said that to arrive at the value of the tenancy one
takes the tenanted value of £70,000 and adds to that about one third of
the VPP. That produces a total of some £126,000 which he appears to have
rounded down to £120,000. How the value of the freehold subject to the
tenancy can be an element of the market value of the tenancy I do not
understand, nor did Mr. Rodger attempt to defend it. This was certainly not
part of Mr. Stanton's approach in Walton.
35. Mr. Baily then said that he would expect Mr. Pickles would pay a premium of
£50,000 or one third of the VPP to buy the farm and would outbid by that
sum the ordinary purchaser bidding £70,000 for the freehold. Once again
Mr. Baily confuses freehold values and tenancy values, and I do not accept his
notion of how the hypothetical sale on the open market operates.
36. Finally, in answer to the Judge Mr. Baily said that £120,000 seemed
about right, and that assertion, although not supported by any convincing
reasoning, appears to have found favour with the Judge.
37. I have to say that Mr. de Freitas' criticisms of Mr. Baily seem to me
abundantly justified. I am at a loss to understand how the Judge when faced
with evidence showing so confused, illogical and inconsistent an approach could
think that Mr. Baily's valuation was to be preferred to that of Mr. Foster.
38. In the circumstances this court would normally remit the case back to the
County Court for a rehearing. However, because of the modest sums involved, we
have been asked by the parties to arrive at a valuation based on the material
put before us.
39. In agreement with Latham L.J. I do not think that there is evidence which
would justify our holding that there were special purchasers in the market at
the relevant time. I agree therefore that we should accept Mr. Foster's
valuation and substitute the figure of £2,350 as the figure to be paid by
Mr. Pickles to Mr. Greenbank.
Order: Appeal allowed with costs. Figure of £2, 350 to be substituted
as the figure repaid by Mr Pickles to Mr Greenbank. Claimant to pay the
Defendant's costs of the determination of the value of the tenancy from the
date of the payment in, namely 27th September 1996, to be assessed
if not agreed; and repayment of £1, 099.24 (the amount of overpayment plus
interest to date).
(Order does not form part of approved judgment.)
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