Blandrent Investment Developments Ltd v British Gas Corporation

Compensation–Assessment of amount payable for restriction of development of a strip of land belonging to appellants under a deed of grant of easements to British Gas Corporation by appellants’ predecessors, the British Railways Board–Whether, although deed of grant referred only to land which included the restricted strip, compensation should take account of the claimants’ ownership of adjoining land–Held (Viscount Dilhorne dissenting) that in valuing the land mentioned in the deed its value to the appellants as owners of the adjoining land could be taken into account although they were the only purchaser able to realise its full potentiality–Rule (3) in section 5 of Land Compensation Act 1961 not applicable as it could not be said on the evidence that there was no market apart from the special needs of the particular purchaser–Appeal allowed from majority decision of Court of Appeal–Lands Tribunal’s decision restored This was an appeal from the decision of the Court of Appeal (reported at (1978) 248 EG 131, [1978] 2 EGLR 10) on the amount of compensation payable to the appellants by the respondents, British Gas Corporation, under a deed of grant dated May 1973 under which the appellants’ predecessors in title, the British Railways Board, granted to the corporation easements to lay gas mains and pipes through a strip of land forming part of that which was conveyed to the appellants. The deed contained a provision for compensation in the event of development being prevented by a restrictive covenant in the deed. The Court of Appeal (Stephenson LJ dissenting) had allowed an appeal by the corporation from the order of the Lands Tribunal (W H Rees FRICS) and had decided that the corporation was not bound to make any payment of compensation to the claimants. Gerald Moriarty QC and Guy Roots (instructed by Belmont & Co) appeared on behalf of the appellants; John Drinkwater QC, Gerard Ryan and Charles George (instructed by B C Brooks) represented the respondents. LORD WILBERFORCE said that he agreed with the speech to be delivered by Lord Scarman and he would allow the appeal and restore the decision of the Lands Tribunal. In a speech in favour of dismissing the appeal, VISCOUNT DILHORNE said: The British Railways Board were the owners of a wedge-shaped piece of land of about 1,100 ft in length, 135 ft in width at its eastern end and 75 ft wide at its western end, 2.6 acres in extent, lying along the southern side of the railway at Rainham in Essex (hereafter called ‘the red land’). Along the southern side of the red land were 20 acres of open space (hereafter called ‘the blue land’). In 1962 and 1964 the British Railways Board allowed two gas mains to be laid in the red land along its southern side. On January 11 1973 the appellants bought the blue land. On March 21 1973 the respondents agreed a draft deed to be executed by them and the British Railways Board and on April 4 the board agreed to sell and the appellants agreed to buy from them the red land for £27,500. The deed was executed on May 17 1973. The British Railways Board was the grantor, an expression which included its successors in title and assigns. The deed recited that the board was seised in unencumbered fee simple of the red land. By clause 1, in consideration for the payment of £224, the board granted the respondents easements to lay gas mains and pipes through a strip of land 20 ft in width running along the south side of the red land. The board, among other things, undertook not without the consent of the respondents to put any structure on this strip of land or on any part of the red land within 10 ft of the strip. As I have said, the gas mains and pipes were laid years before the easements were granted. On June 7 1973 the board conveyed the red land to the appellants and on November 20 1973 outline planning permission was given for the erection of three warehouse units with individual access and ancillary offices, in accordance with plans submitted, on the blue and on the red lands. As the erection of the part of these buildings to be placed on the red land was prevented by the covenant entered into by the board, the appellants as the board’s successors in title and as holders of an equitable title to the red land when the deed was executed, claimed to be entitled to compensation under clause 6 of the deed. Clause 6 (1) of the deed states a number of conditions which have to be satisfied for compensation to be payable. It begins as follows: (i)  If at any time (a)  Permission is granted under Part III of the Town and Country Planning Act 1962 or any statutory modification or re-enactment thereof for the time being in force (otherwise than by a development order) for development which consists of or includes building or mining operations which the Grantor is prevented by the covenants of clause 3 hereof from carrying out or it is shown that for the said works such permission might reasonably have been expected to be granted and . . . The planning permission granted on November 20 1973 was granted under the Town and Country Planning Acts 1971-72. It was granted for development which included building operations which the grantor was prevented by the covenant to which I have referred from carrying out. Nevertheless it was strenuously contended by the respondents that as this planning permission applied to development on the red land and on the blue land, it was not planning permission which came within this provision. Only a planning permission which related solely to the red land, it was said, could do so. In my opinion the terms of clause 6 do not, nor do any other provisions of the deed, support such a narrow construction of this part of the clause. Despite the ingenious arguments advanced by Mr Drinkwater, I am unable to conclude that planning permission19 for development on the red and on the blue land is not planning permission for development of the red land because permission is also given to develop the blue land. Clause 6 (1) then goes on: (b)  The said development whether in the form for which permission is granted as aforesaid or in any alternative form of equivalent value for which permission might reasonably be expected to be granted cannot reasonably be carried out elsewhere on the said land consistently with the Grantor’s covenants in clause 3 hereof and . . . The purpose of this provision is, I think, clear. There is to be no payment of compensation if the development which consists of or includes building or mining operations can reasonably be carried out on a part of the red land to which the grantor’s covenant not to build does not apply. It was not contended that that part of the development for which outline planning permission was given, namely the erection of warehouses with ancillary offices etc, which was to be on the red land could reasonably have been carried out on red land unaffected by the covenant. Clause 6 (1) goes on: (c)  The principal amount of compensation which would have been payable in respect of a compulsory acquisition by the Corporation of the easements hereby granted in pursuance of a notice to treat served on the date hereof if such permission had previously been granted exceeds the sum set out in clause 1 hereof (£224) (which is calculated without reference to the prospect of any such operations) then subject to the provisions of this clause the Corporation shall pay to the Grantor a sum equal to the excess. This paragraph provides for the quantification of the compensation to be paid to the British Railways Board, its successors in title and assigns if planning permission is given for development of the red land and that development cannot be carried out on account of the covenant given by the board. Should that occur, the board, its successors in title and assigns are to receive from the respondents the amount they would have received had the easements been compulsorily acquired by the respondents pursuant to a notice to treat given on May 17 1973 if the planning permission had then been granted. They are thus under the deed to receive compensation for the loss of development value of the red land brought about by the covenant. The appellants, however, contend that as successors in title to the board and as holders of an equitable interest in the red land on May 17 1973 they are entitled to receive more than that. They are, they contend, entitled to compensation for injurious affection of the blue land by reason of the reduction of the development that could be carried out consistently with the covenant on the red and blue land combined. They say that if there had been compulsory acquisition of the easements on May 17 1973 notice to treat would have had to have been served on them and that then they would have been entitled to compensation for injurious affection of the blue land. The deed does not provide that in the event of planning permission being granted in respect of the red land, compensation is to be payable to all who would have been entitled to compensation if the easements had been compulsorily acquired. As I have said, clause 6(1)(c) merely provides for the quantification of the compensation to be paid to the board, its successors in title and assigns if planning permission for building or mining operations on the red land was granted after the execution of the deed. It cannot, in my view, have been within the contemplation of the parties to the deed that the burden it imposed on the respondents to pay compensation if such planning permission was later given and could not be made use of in consequence of the covenant should be enhanced if the holder of an equitable interest in the red land or the successors in title to the board were also the owners of the blue land. The Lands Tribunal assessed the compensation payable by the respondents on three alternative bases, the first of which was: That the red and blue lands can be considered as if in one ownership and compensation for the restriction of development referred to in the deed can take into account joint development of the red and blue lands. As in my opinion the deed did not provide for that, I do not think that this is the correct basis. The deed only provided for the payment of compensation to the board, its successors in title and assigns for inability to develop the red land should planning permission for building or mining operations on that land be obtained. I cannot accept the contention that under the deed the appellants are entitled to compensation for injurious affection of the blue land. The second basis of valuation made by the Lands Tribunal was: That although the restriction of development has to have reference solely to the red land, in valuing the red land, its value to the claimants, the adjoining owner, can be taken into account even though they are the only purchaser able to realise the full potentiality of the land. This must be the correct basis for valuation if the first basis stated above is rejected, unless rule (3) of the rules laid down by the Land Compensation Act 1961, section 5, for the assessment of compensation on compulsory acquisition applies. That rule reads as follows: The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers or for which there is no market apart from the special needs of a particular purchaser or the requirements of any authority possessing compulsory purchase powers. In this case one has to consider whether there was any special suitability or adaptability of the red land for a purpose for which there was no market apart from the special needs of the appellants. The suitability of the red land for building development in conjunction with the blue land is clear. That was the purpose for which the appellants wished to use it. That was the purpose for which planning permission was sought and obtained. Planning permission, of course, enhances the value of undeveloped land, but it cannot be inferred from the grant of planning permission for the erection of warehouses and offices on the blue and red land in conjunction that planning permission for building on the red land alone would have been given. The question that has to be resolved is not whether there was on May 17 1973 any market for the red land for building development in conjunction with the blue but whether there was any market for the red land for building development apart from the special needs of the appellants to use it with their blue land. Before the Lands Tribunal the appellants’ expert testified that apart from the appellants: possible purchasers for the red land included British Rail, a person who might wish to use [it] as a car park, a speculator, a purchaser of the red and blue together and a purchaser of the red hoping for access from the blue. The Lands Tribunal accepted his evidence and held that as a result rule (3) did not apply. I do not think that this conclusion follows from the acceptance of his evidence or that it was warranted by it. While, of course, British Rail might on May 17 1973 have been a possible purchaser of the land which they had sold on January 11 1973, the expert did not testify that they would have been in the market for it for building development. It should not be assumed that because outline planning permission for the building of warehouses and offices on both pieces of land has to be treated as in existence on May 17 1973, British Rail would have been purchasers of the red land for the building development on both lands for which permission was given when, as they were not the owners of the blue land, they could not bring about the only development for which planning permission was given. Use of the red land as a car park is not a use for which such permission was given 20 and is unlikely to have involved building development. A speculator may, I suppose, buy any piece of land but whether a speculator would on May 17 have bought the red land for building development when there was no planning permission for the development of that land on its own may be open to doubt. A purchaser might be found for the red and blue land together. He would be the successor in title of the appellants. For the purpose of rule (3) it is not to be assumed that on May 17 he could have bought the blue land and without that the planning permission would have been of little if any value. I regard it as most significant that this expert, who must be aware of the effect of planning permission on values, in the course of his evidence as to possible purchasers never suggested a single purchaser for building development. Indeed his reference to use as a car park may be an indication that he was not thinking of that. That leads me to the conclusion that apart from the special needs of the appellants for the use of the red land in conjunction with the blue for the erection of warehouse and offices, there was no market for the red land for building development on the red land alone. Rule (3) of the rules laid down by the Acquisition of Land (Assessment of Compensation) Act 1919 (which was similar to, though slightly differently worded from, rule (3) laid down by the Land Compensation Act 1961) was considered in Lambe v Secretary of State for War [1955] 2 QB 612. In that case Parker LJ at p 619 summarised its effect as follows: In other words, if one of the potentialities of the land is such that there is only one purchaser of the land with that potentiality, the added amount which he would pay is to be ignored. In Corrie v Central Land Board [1954] 4 P&CR 276 the value of the land in question for tipping purposes was mainly attributable to its potential value to the National Coal Board but, as in the opinion of the Lands Tribunal that land might be bought for tipping by others, it could not, the tribunal held, he said that there was no market for that land for tipping purposes apart from the special needs of the Central Land Board and consequently rule (3) laid down by the 1919 Act did not apply. In Barstow v Rothwell UDC [1971] 22 P&CR 942 the council had acquired compulsorily a narrow strip of land, to add to other land they owned which had insufficient depth unless the narrow strip was added to it, for residential development. The Lands Tribunal held that rule (3) of the 1961 Act did not apply as in their view the evidence showed that, at the date of the notice to treat, the land was potential building land for residential development. It can safely be assumed that the expert who gave evidence for the appellants was aware of these decisions and that the appellants realised that it was important for them to establish that apart from their need for the red land for the building of warehouses and offices on it and the blue land, the red land had a market value for building. That, in my opinion, the evidence of the expert did not do; and, for my part, I am not prepared to supplement the appellants’ case by assuming that the expert when he spoke of possible purchasers of the red land meant possible purchasers of that land as building land. In my view rule (3) applies, with the result that in making the valuation, the special suitability of the red land for use with the blue to meet the special needs of the appellants has to be disregarded. The third basis of valuation was: That the red and blue lands are in different ownerships and the restriction of development has to have reference solely to the red land, furthermore, in valuing the red land the particular value to the owner of the blue land must be ignored. This in my opinion is the right basis. The restriction of development imposed by the covenant had reference solely to the red land and rule (3) requires the particular value of the red land to the appellants to be ignored. On this basis it was the opinion of the appellants’ expert that the appellants were not entitled to any compensation. The respondents, however, offered to pay £5,100 less the £224 and the tribunal held that there was some depreciation and assessed at the figure offered by the respondents less £224. The majority of the Court of Appeal (Geoffrey Lane and Cumming Bruce LJJ) held that this third basis of valuation was the correct one but, as I read their judgments, on that basis they thought that it had been found that the amount the respondents should pay was nil. There was, however, a finding by the tribunal that the amount should be £5,100 less £224, the tribunal thus accepting the sum offered by the respondents as representing the loss suffered. I would consequently dismiss this appeal but vary the order made by the Court of Appeal to the extent of requiring the respondents to pay to the appellants £5,100 less £224. In his speech agreeing that the appeal should be allowed for the reasons given by Lord Scarman, LORD SALMON said: I wish to add a few words only on one point, namely whether at the material date, ie May 17 1973, there was any market in which the red land could be sold for the purpose of building development or whether, in reality, the appellants were then its only potential buyers. To resolve this question the following assumptions have to be made: (1)  that the outline planning permission of November 20 1973 had been granted prior to May 17 1973 for a warehouse and offices to be built on part of the blue land and on part of the red land, and (2)  that on or before May 17 1973 a compulsory acquisition order for the respondents’ easement over the red land had been made and a notice to treat served. The appellants’ expert witness gave evidence before the Lands Tribunal that there would have been a market for the red land had it been offered for sale on May 17 1973. He said that the purchasers whom he had in mind included speculators in land, purchasers of the red and blue land together and purchasers of the red land hoping for access from the blue land. This evidence was not contradicted or commented on by the respondents’ expert witness and was accepted by the Lands Tribunal. It follows, in my view, that since there would have been a market for the red land, it is impossible to hold that under rule (3) in section 5 of the Land Compensation Act 1961 ‘The special suitability or adaptability for the [red] land for any purpose shall not be taken into account [because] that purpose is a purpose . . . for which there is no market apart from the special needs of a particular purchaser [ie the appellants].’ Land with outline planning permission to erect offices and a warehouse upon it is very much more valuable and easier to sell than land without any planning permission. For my part, I find it impossible to imagine that any land speculator or buyer would even consider purchasing the red or the blue land unless he intended to develop it in accordance with the planning permission or to resell it to others who would use it for that purpose. It is, in my view, absurd to suppose that any land speculator or buyer would purchase the red land at the price it would fetch with planning permission and then use it only for the pleasure of watching trains running up and down the railway lines. It is, I think, obvious that the appellants’ expert witness who gave evidence that there would have been no shortage of speculators and buyers for the red land was referring to speculators and buyers who wanted it for building development in accordance with the planning permission: the development to be carried out either by themselves or those to whom they would resell the land. It could have been nothing but otiose for this witness to have said expressly that the speculators or purchasers to whom he was referring would have wanted this land for building development. The fact that he did not state the obvious is, in my opinion, of no consequence. The Lands21 Tribunal, having accepted the evidence of the appellants’ expert witness, were in my view fully justified in holding that rule (3) did not apply. It is perhaps worth observing that the Railway Board were apparently willing to sell the red land for £27,500. Had they offered it for sale to the public at that price, they would, I think, have been inundated by speculators and purchasers anxious to acquire it. The lucky speculator or buyer would have become, like the appellants now are, the Railway Board’s successor and assigns in relation to the grant of May 17 1973 and accordingly entitled to compensation under that grant. That compensation has been assessed by the Lands Tribunal at £44,776 net. It follows that the speculator or buyer would, at the end of the day, have acquired, like the appellants have done, the red land, plus £17,276 in cash, for nothing. Not a very sensible commercial transaction for the Railway Board, but a very profitable one for the lucky speculator or purchaser who might well have acquired the red land which would afford him a number of lucrative options. LORD KEITH OF KINKEL said that for the reasons given by Lord Scarman in the speech about to be delivered he, too, would allow the appeal and restore the determination of the Lands Tribunal. In his speech LORD SCARMAN said: I need not recite the facts. I agree that the deed of grant of May 17 1973 relates only to the red land. For the reasons given by my noble and learned friend, Viscount Dilhorne, it is not possible to construe clause 6 of the deed as conferring upon the grantor (British Rail) or its successor in title to the red land (the appellants) a right to compensation for injurious affection of the blue land. Upon this basis the House has to determine how clause 6 of the deed requires compensation to be assessed in the event (which has happened) that the easements granted by the deed prevent the full potential development value of the red land being realised. A choice has to be made between two of the three agreed bases of valuation set out in the decision of the Lands Tribunal. Valuation I has to be rejected because upon the true construction of the deed it is not possible to have regard to the blue land. Valuation II achieves a net figure of £44,776. It proceeds upon this basis: that, although the restriction of development has to have reference solely to the red land, in valuing the red land its value to the claimants, who are the adjoining owned [ie as owner of the blue land], can be taken into account even though they are the only purchaser able to realise the full potentiality of the land. Valuation III achieves a net figure of £4,876. It proceeds upon this basis: that the red and blue lands are in different ownerships and the restriction of development has to have reference solely to the red land: furthermore in valuing the red land the particular value to the owner of the blue land must be ignored. The Lands Tribunal considered that Valuation II was the correct basis. The Court of Appeal by a majority (Stephenson LJ dissenting) rejected Valuation II and also, notwithstanding the readiness of the respondents to accept it, Valuation III. In this House, however, the issue admittedly lies between Valuation II and Valuation III (once Valuation I has been rejected). Clause 6 of the deed provides that, subject to its provisions and in certain events, the corporation (ie the respondents) shall pay to the grantor compensation to be assessed in accordance with the provisions of subclause (1)(c). The object of the clause is to defer the payment of compensation until the time comes when the easements granted under the deed, and the covenants which protect them, do, in fact, prevent a development of the red land. The clause ensures that in such event the compensation will be that which would have been payable in respect of a compulsory acquisition of the easements had there been at the date of the deed a planning permission for development which the covenants of the deed prevented being carried out. On November 20 1973 the appellants, who were owners of the blue land as well as successors in title to the grantor, British Rail, obtained a grant of planning permission for: three warehouse units with individual access and parking with ancillary offices to each unit in one block. The permission related to ‘Site A,’ Ferry Lane, being a site which included the red as well as the blue land. This development could not, however, be carried out: for it involved building operations on the strip of land over which the respondents had been granted their easements. The development, if carried out, would involve a breach of clause 3(iii) of the deed. The permission therefore enabled the grantor, or its successors in title, to claim, pursuant to clause 6 of the deed, compensation from the respondents. Clause 6(1)(c) provides that the compensation shall be: The principal amount of compensation which would have been payable in respect of a compulsory acquisition by the Corporation of the easements hereby granted in pursuance of a notice to treat served on the date hereof [ie May 17 1973] if such permission had previously been granted. The following assumptions must, therefore, be made: (1)  a planning permission in the terms actually granted but assumed to be on a date prior to the deed, (2)  a notice to treat assumed to have been given on the date of the deed, (3)  an assumed compulsory acquisition of the easements granted by the deed. Compensation for the compulsory acquisition of an interest in land falls to be assessed in accordance with rules which are now to be found in section 5 of the Land Compensation Act 1961. Rule (2) provides that: The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold on the open market by a willing seller might be expected to realise. There being no dispute before your Lordships as to the figures, it is not open to doubt that Valuation II would represent the open market value of the easements granted by the deed, if the interest of the owner of the blue land may be taken into account. On that basis the respondents would have to pay a compensation which would reflect the loss of value resulting from the red land becoming unavailable for a joint development with the blue. However, in such a situation a significant factor would be that there was only one purchaser able to realise the full potential of the red land–namely the owner of the blue land. The question therefore arises whether rule (3) of section 5 of the Act of 1961 requires the special suitability of the red land for the purpose of a joint development with the blue to be ignored. If it does, then Valuation III is correct, and the appellants can recover no more than £4.876. Rule (3) provides that: The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from the special needs of a particular purchaser or the requirements of any authority possessing compulsory purchase powers. The rule would apply to the assumed facts of the present case if the purpose for which the red land is especially suitable, ie a joint development with the blue land, is a purpose for which there is no market apart from the special needs of a particular purchaser. The evidence of the appellants’ expert which Mr Rees of the Lands Tribunal accepted, appears to me to be decisive. The expert considered that apart from the claimants, possible purchasers for the red land included British Rail, a person who might wish to use the22 red land for a car park, a speculator, a purchaser of the red and blue together and a purchaser of the red hoping for access from the blue. He envisaged a market for a number of purposes, including the purpose of a joint development, in which others besides the owner of the blue land would be bidders. Upon this evidence it cannot be said that there was no market apart from the special needs of a particular purchaser. The respondents, however, submit that because the red land is specially suitable for development with blue land, the owner of the blue land has a special need to purchase the red land. But it does not necessarily follow that he has. It is one thing to be so placed that you alone are able to realise the full potential of a piece of land, but quite another to have a special need for the land. Whether or not a particular purchaser has a special need must be a matter of evidence: and, as Stephenson LJ pointed out in the Court of Appeal, there is no evidence that the owner of the blue land needed the red in order to develop the blue. A special need must mean some compelling reason peculiar to the purchaser–like that of the trustees of the nurses home who needed the adjoining property in order to extend the home. This was the situation in Inland Revenue Commissioners v Buchanan [1914] 3 KB 466, a case which preceded, and may have encouraged, the introduction into the law of rule (3) when section 2 of the Acquisition of Land Act 1919 was enacted. There was, of course, evidence in this case that the red land could not be developed in isolation without access over the blue. But there was no evidence that the blue land could not be developed without the red. Access over the blue may have been a need of the owner of the red land: but the rule directs attention to the needs not of the seller but of the purchaser. In Corrie v Central Land Board [1954] 4 P&CR 276 the Lands Tribunal held on the facts of that case that, although the value of the land for tipping was mainly attributable to its potential value to the National Coal Board and although ‘the easiest way to use the site’ was by an access over Coal Board land, there were other possible purchasers. There are points of comparison between Corrie’s case and the present case. First, the value of the red land is mainly attributable to its potential value to the owner of the blue. Secondly, a market does exist for the red land in that there are possible purchasers other than the owner of the blue. Thirdly, there is the access problem, as to which Mr Bailey of the Lands Tribunal said in Corrie’s case (p 279): The ‘no market’ element in the problem is not conditioned by the fact that the particular purchaser has the key to the use, it is dependent upon his ‘needs,’ and having regard to all the circumstances in this case I cannot find that the market is completely circumscribed by the ‘needs’ of the Coal Board. Upon what is ultimately a question of fact, I think this approach to rule (3) to be sound. Two questions of fact have to be answered: (1)  has the land ‘a quality’ (the apt word used in Lambe v Secretary of State for War [1955] 2 QB 612) which makes it specially suitable for the purpose of a particular purchaser? (2)  is that a purpose for which there is no market apart from the special needs of a particular purchaser? Those questions have been answered by the Lands Tribunal as follows: (1)  Yes; for the purpose of a joint development with the blue land, (2)  No; there is evidence of a market, and no evidence as to any special need for the owner of the blue land to purchase the red. For these reasons I would allow the appeal, and restore the decision of the Lands Tribunal. The appeal was allowed and the decision of the Lands Tribunal restored.