Loder Dyer v Cadogan

Landlord and tenant –– Leasehold enfranchisement –– Leasehold Reform Act 1967 –– Lease expiring –– Whether house to be valued with vacant possession –– Development value of mews house and fifth floor –– Prospects of planning permission –– Location and adjustment of comparable –– Weight to be given to offer to purchase In November 1993 the appellant tenant served notice on the respondent landlord, pursuant to the Leasehold Reform Act 1967, to acquire the freehold of a house she occupied under a lease due to expire on 29 September 1995. In February 1997 the Court of Appeal dismissed the tenant’s appeal against a decision of the county court that her claim was invalid as the house was not let at a low rent. Following an amendment to the low-rent provisions of the Act, the tenant served a further notice in April 1997. This notice was served during the three months of the continuation tenancy provided for by para 3 of Schedule 3 to the Act. The leasehold valuation tribunal (LVT) determined the price payable under section 9(1C) as £2,996,500. The tenant appealed, contending for £2.302m, and the landlord cross-appealed, contending for £3.29m. Decision: The enfranchisement price was £3.05m. Although section 9(1A) and (1C) required the house to be valued “subject to the tenancy”, it must be assumed that, in the absence of the 1967 Act, the tenant would have vacated long before the valuation date of 11 April 1997. Accordingly, the house was to be valued with vacant possession. In relation to the prospects of obtaining planning permission for development, the valuation should assume that the necessary consents were likely, but not certain, to be granted for a two-storey mews house at the rear of the house. Of the two imperfect tools for adjusting house prices paid for comparables over time, the PCL South West Index was to be preferred. In valuing the development potential of the mews house, and of a fifth floor, the most reliable guide was the sale of a property with these features a few months later: the price of that property, after adjusting for the rise in property values and deducting the value psf of the floor area of these features, reflected the potential for a mews house and fifth floor. A further deduction of 2.5% for location was appropriate. No weight was given to an offer of £5.3m made in December 2000. The terms of a restrictive covenant were determined. In relation to costs, the landlord had made an offer to settle “without prejudice save as to costs” in May 2000 at the price determined by the LVT, and had succeeded on most of the points in the appeal and cross-appeal. The landlord was awarded his costs. The following cases are referred to in this report. Cadogan Estates Ltd v Hows [1989] 2 EGLR 216; [1989] 48 EG 167; [1991] RVR 132, LT Cadogan Estates Ltd v Shahgholi LRA/26/96 & 57/97 [1999] 1 EGLR 189; [1998] RVR 266, LT Cadogan v McGirk [1996] 4 All ER 643; (1997) 73 P&CR 483; [1996] 2 EGLR 75; [1996] 39 EG 175; 29 HLR 294; [1984] RVR 112 Daejan Properties Ltd v Weeks [1998] 3 EGLR 125; [1998] 36 EG 146 Duke of Westminster v Oddy [1984] 1 EGLR 83; (1984) 270 EG 945; 15 HLR 80, CA Goldstein v Conley [1999] 1 EGLR 95; [1999] 03 EG 137, LT Gray v Commissioners of Inland Revenue, sub nom Lady Fox’s Exors v Commissioners of Inland Revenue [1994] STC 360; [1994] 2 EGLR 185; [1994] 38 EG 56; [1994] RVR 129, CA Hoare (VO) v National Trust; National Trust v Spratling (VO) (1998) 77 P&CR 366; [1999] 1 EGLR 155; [1998] RA 391, CA Kemp v Josephine Trust (1970) 22 P&CR 804 Loder-Dyer v Viscount Chelsea [1997] EGCS 25, CA Mosley v Hickman (1986) 52 P&CR 248; [1986] 1 EGLR 161; (1986) 278 EG 728; (1986) 18 HLR 292; [1986] RVR 102 Polydor Ltd v Harlequin Record Shops Ltd [1980] 1 CMLR 669; [1980] FSR 194, Ch South v Trustees of the Phillimore Kensington Estate LRA/42 & 45/1998 unreported 23 March 2000 Woodruff v Hambro (1991) 62 P&CR 62; [1991] 1 EGLR 107; [1991] 12 EG 63; (1991) 23 HLR 295 James Bonney QC and Jonathan Gavaghan (instructed by Freedman Green) appeared for the appellant; Anthony Radevsky (instructed by Pemberton Greenish) represented the respondent. Giving his decision, MR NORMAN J ROSE FRICS said: 1. This is an appeal by Mrs Doreen Patricia Massie Loder Dyer, the lessee of a house known as 68 Cadogan Place, London SW1X 9RS (the subject property), and a cross-appeal by the freeholder, the Hon Charles Gerald John Earl Cadogan, against a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel (the LVT), determining the price to be paid for the freehold interest under the provisions of section 9(1C) of the Leasehold Reform Act 1967 as amended (the 1967 Act) at £2,996,500m. By order of this tribunal, the appeal and cross-appeal were consolidated. Before me, the lessee, treated here as the appellant, contended for a price of £2.302m and the freeholder, as respondent, contended for £3.29m. 2. Mr James Bonney QC and Mr Jonathan Gavaghan, counsel for the appellant, called two factual witnesses, Mr PF Loder Dyer and Mr EP Mead, and two expert witnesses, Mr C Simon Marr-Johnson FRICS and Mr Graham C Newton ARICS MCIM. Counsel for the respondent, Mr Anthony Radevsky, called two expert witnesses, Mr Keith D Gibbs FRICS and Mr Andrew McGillivray, and one factual witness, Mr Damien JW Greenish. Facts 3. From the evidence, I find the following facts. Cadogan Place is a fashionable residential street, situated just to the east of Sloane Street, between Sloane Square and Knightsbridge. Sloane Street is a main bus route and the Underground is available close by at Knightsbridge and Sloane Square. The subject property was built in about 1840 with brick and stucco front elevations, a slate roof and porticoed entrance. The terrace, including the subject property, is entered in the List of Buildings of Architectural or Historic Interest as Grade II. There is a walled rear garden approximately 38ft 6ins deep by 22 ft ins wide, with a further frontage to a small mews to the rear known as Cadogan Lane. 4. The main terraced accommodation is arranged over six floors, including basement, with a two-storey, full-width rear extension, two150 further single-storey rear rooms and a small five-storey mezzanine section. There are also vaults beneath the front pavement. 5. Before certain tenant’s improvements were carried out, the accommodation was arranged as follows: Fourth floor: three rooms plus store Third floor: three rooms plus bathroom Second floor: two rooms plus bathroom on the half landing First floor: three rooms Ground floor: hall plus two rooms Basement: two rooms, kitchen, pantry, scullery and larder 6. The agreed gross internal floor area was 602.75m2 (6,488 sq ft). 7. Tenant’s improvements carried out to the subject property were extensive. They included: a mezzanine extension at the rear of the third floor; the installation of full central heating and other services to most of the house; enlargement of some windows; alterations to some partitions and doors; and realignment of stairs. At the valuation date, however, it was likely that any purchaser would have wished to carry out a full programme of refurbishment to the entire property. 8. The appellant occupied the subject property under a full repairing and insuring lease, originally granted to her late husband. It was for a term of 45.75 years from 25 December 1949, thus expiring on 29 September 1995. On 5 November 1993 she served a notice to enfranchise, which was opposed by the respondent on the grounds that the property was not let at a low rent. On 17 October 1995 her application for a declaration that she was entitled to acquire the freehold was dismissed by West London County Court, and that decision was upheld by the Court of Appeal on 20 February 1997. In the meantime, however, parliament had amended the 1967 Act’s requirement for a low rent: section 1AA. The appellant then served a fresh notice on the respondent on 11 April 1997, during the three months of the continuation of her tenancy after the Court of Appeal decision*, under para 3(1) of Schedule 3. The respondent again sought to deny the appellant’s right to enfranchise, but the appellant’s notice was upheld by West London County Court on 27 July 1998. The agreed valuation date was 11 April 1997. * Editor’s note: Reported at [1997] EGCS 25 Issues 9. The issues in these appeals are as follows: (1) Whether an adjustment should be made for the subject property to be valued “subject to the tenancy” pursuant to section 9 (1C) of the 1967 Act, and, if so, the extent of such adjustment. (2) The view that would be taken by a potential purchaser of the prospects of obtaining the necessary statutory consents to erect a mews house or garage at the rear. (3) Which comparables should be taken into account. (4) Which index should be used to adjust any such comparables over time. (5) Which method should be used to value any development potential in respect of the addition of a fifth floor or a rear mews house or garage. (6) Whether the floor area of basement vaults should be taken into account when devaluing the comparables and valuing the subject property. (7) Whether an adjustment to the valuation of the subject property for inferior location is appropriate, and, if so, how much. (8) Whether marriage value arises, and, if so, how it should be apportioned. (9) Whether an offer recently made for the subject property is relevant. (10) The exact terms of the transfer. Inspection 10. I inspected the subject property on 24 January 2000, accompanied by representatives of the parties. On the same day, I made unaccompanied external inspections of other properties in the area to which reference had been made. Effect of the requirement to value “subject to the tenancy” 11. It was common ground that the starting point for the valuation was section 9(1A) of the 1967 Act. As amended, this provides that the price payable: shall be the amount which at the relevant time the house and premises, if sold in the open market by a willing seller, might be expected to realise on the following assumptions: –– (a) on the assumption that the vendor was selling for a estate in fee simple, subject to the tenancy, but on the assumption that this Part of this Act conferred no right to acquire the freehold or an extended lease and, where the tenancy has been extended under this Part of this Act, that the tenancy will terminate on the original date; (b) on the assumption that at the end of the tenancy the tenant has the right to remain in possession of the house and premises –– (i) if the tenancy is such a tenancy as is mentioned in subsection (2) of subsection (3) of section 186 of the Local Government and Housing Act 1989, or is a tenancy which is a long tenancy at a low rent for the purposes of Part I of the Landlord and Tenant Act 1954 in respect of which the landlord is not able to serve a notice under section 4 of that Act specifying a date of termination earlier than 15 January 1999, under the provisions of Schedule 10 to the Local Government and Housing Act 1989; and (ii) in any other case under the provisions of Part I of the Landlord and Tenant Act 1954… 12. Mr James Bonney QC submitted that one could not ignore any effect upon the valuation of the tenancy under which, at the valuation date, the appellant had every right to occupy the subject property. This would include any effect attributable to the implications of the existence of such tenancy and occupation upon the purchaser’s prospect of obtaining vacant possession. He said that the 1967 Act did not contain any provision requiring the valuation to be calculated upon the basis of vacant possession. For example, section 9(1) required the valuation to be carried out upon the assumption that a lease extended by 50 years was in existence. That clearly resulted in a valuation that had no relation to the freehold vacant possession value. In the current case, the valuation was to be carried out pursuant to section 9(1C). Mr Bonney accepted that the approach there was different, but, he argued, it would be remarkable if the existence of the tenancy were to be ignored simply because of the lottery of rateable values and where the subject property happened to be situated. In this connection, it was important to bear in mind that the 1967 Act was designed to further the interests of tenants, conferring upon them rights that they did not enjoy at common law. It was the duty of the tribunal to construe the Act fairly, and with a view, if possible, to making it effective to confer upon tenants those advantages that parliament must have intended them to enjoy. 13. Mr Bonney accepted that, at the valuation date, the appellant was not entitled to any protection under Part I of the Landlord and Tenant Act 1954, and that there was no requirement to assume such protection. However, based upon the proposition that the hypothetical sale was subject to the tenancy, the hypothetical purchaser would be concerned about: when the tenancy would end; whether the tenant would leave; whether the tenant had any rights that had not been disclosed; and about the risk of proprietary estoppel. He was not suggesting that any of these matters would result in a real problem; what mattered was the perception of a purchaser and not the subjective intentions of the appellant. A prudent purchaser would consult his solicitor. He would be advised that: one could never be certain that vacant possession would be obtained; there may be other agreements, or an estoppel, upon which the tenant might rely; and if the tenant contested the matter, possession might not be obtained for one or two years, especially if an appeal were involved. 14. For the respondent, Mr Anthony Radevsky submitted that the price to be paid was the vacant possession value of the freehold interest at the151 valuation date. Upon that date, the appellant’s only right to be in the property was by virtue of para 3(1) of Schedule 3 to the 1967 Act, which provided as follows: Where a tenant makes a claim to acquire the freehold or an extended lease of any property, then during the currency of the claim and for three months thereafter the tenancy in that property shall not terminate either by effluxion of time or in pursuance of a notice to quit given by the landlord or by the termination of a superior tenancy; but if the claim is not effective, and but for this sub-paragraph the tenancy would have so terminated before the end of those three months, the tenancy shall so terminate at the end of the three months. Mr Radevsky accepted that, in order to allow time for a possible petition to the House of Lords, the tenancy would not terminate for three months plus 28 days. 15. Para 3(1) deemed the appellant’s lease not to have expired because a claim had been made. The contractual term of the lease had long since expired, on 29 September 1995. In the absence of the 1967 Act, she would have been a trespasser, and the landlord would have had an immediate right to possession. If it had been necessary to take possession proceedings, the landlord would have been entitled to damages for trespass until an order for possession had taken effect. It was wholly incorrect to make a deduction from the value of the landlord’s interest because of the threat of her continuing as a trespasser. 16. Mr Radevsky pointed out that the valuation fell to be carried out in accordance with section 9(1C). This provides that: in a case where the provision (or one of the provisions) by virtue of which the right to acquire the freehold arises is section 1A(1) above, subsection (1A) above shall apply with the omission of the assumption set out in paragraph (b) of that subsection. The appellant’s right to acquire the freehold did arise by virtue of section 1A(1). Accordingly, the valuation provisions of section 9(1A) must be applied with the omission of the assumption in para (b). Therefore, the appellant was deemed not to be entitled to the protection of a statutory tenancy or an assured tenancy. 17. Mr Radevsky’s primary submission was that the subject property should be valued assuming vacant possession was immediately available. The valuation was to be carried out as at April 1997, but the lease had expired in 1995. If the 1967 Act had not existed, the tenant would have vacated long before the valuation date. Alternatively, he submitted that the tenant was still in physical occupation at the valuation date, but had no right to be there, because the only right resulted from having made an invalid claim under the 1967 Act. Consequently, the purchaser would have had an immediate right to possession. If the tenant remained in occupation, the purchaser could immediately institute possession proceedings. These would be concluded within about three months, with the tenant responsible for mesne profits and costs. Mr Radevsky’s final, and least favoured, submission was that the appellant was entitled to a tenancy consisting of the residue of the continuation resulting from the original invalid claim. This would expire on 17 June 1997 –– three months plus 28 days after the Court of Appeal decision, and approximately 10 weeks after the valuation date. 18. In reply, Mr Bonney emphasised that section 9(1A) required the property to be valued “at the relevant time”: that is, on 11 April 1997, upon the assumption that it was sold “subject to the tenancy”. In the real world, the tenancy would not expire until some weeks after the valuation date, by virtue of para 3 of Schedule 3. While there was no risk that the tenant would remain in possession thereafter as a protected tenant, there was a risk that she would not give vacant possession. He said that the time limit for appealing to the House of Lords was one month, not 28 days, so that the tenancy would not expire until 20 June 1997. Even if there were any doubt upon the point, he submitted that that doubt had been dispelled by the decision of West London County Court on 27 July 1998. In dismissing the respondent’s application for a declaration that the appellant’s notice of claim under the 1967 Act was of no effect, since her tenancy had terminated and she remained only as a trespasser, Judge Uziell-Hamilton distinguished a decision of the Court of Appeal in Duke of Westminster v Oddy (1984) 15 HLR; [1984] 1 EGLR 83*. She did so for two reasons, of which the second reads as follows: on the construction of section 1AA, which did not come into effect until 1 April 1987, if the tenancy had been prolonged albeit for the purpose of the first Notice is it wrong to allow the second Notice of Claim? It seems to me that there is force in the Respondent’s argument that where by law the tenancy is extended then it is extended for all purposes, notwithstanding Duke of Westminster v Oddy, to allow for a claim to the freehold to be made which could not have been made before the coming into force of section 1AA. * Editor’s note: Also reported at (1984) 270 EG 945 19. That decision was not appealed. Thus, said Mr Bonney, the issue of whether the appellant’s tenancy had been “extended for all purposes” was res judicata. Mr Bonney added that the statutory hypothesis of a sale in the open market, by a willing seller, at the relevant time, of the property, subject to the existing tenancy, was a mechanism to enable the tribunal to arrive at the price for leasehold enfranchisement purposes. It did not entitle departure from the real world further than the hypothesis compelled, and it was necessary to adhere to reality, subject only to giving the statutory hypothesis full effect. The prescribed assumption left one to treat as real only those consequences and incidents that inevitably flowed from, or accompanied, them. 20. I was referred to South v Trustees of the Phillimore Kensington Estate LRA/42&45/1998 unreported 23 March 2000; Woodruff v Hambro [1991] 1 EGLR 107*; Cadogan v McGirk [1996] 4 All ER 643†; Gray v Commissioners of Inland Revenue [1994] STC 360‡; Goldstein v Conley [1999] 1 EGLR 95§; Polydor Ltd v Harlequin Record Shops Ltd [1980] 1 CMLR 669; Daejan Properties Ltd v Weeks [1998] 36 EG 146¶; Hoare (VO) v National Trust (1998) 77 P&CR 361Æ; Mosley v Hickman (1986) 52 P&CR 248¥ and Cadogan Estates Ltd v Shahgholi [1999] 1 EGLR 189. * Editor’s note: Also reported at [1991] 12 EG 63 † Editor’s note: Also reported at [1996] 2 EGLR 75; [1996] 39 EG 175 ‡ Editor’s note: Also reported at [1994] 2 EGLR 185; [1994] 38 EG 56 § Editor’s note: Also reported at [1999] 03 EG 137 ¶ Editor’s note: Also reported at [1998] 3 EGLR 125 Æ Editor’s note: Also reported at [1999] 1 EGLR 155 ¥ Editor’s note: Also reported at [1986] 1 EGLR 161; (1986) 278 EG 728 21. Mr Bonney accepts that the valuation is to be carried out on the assumption that the 1967 Act conferred no right to acquire the freehold. He does not accept, however, that this means that the valuer must make the further assumption that the appellant’s actual tenancy did not exist. Apart from the express reference to the words “subject to the tenancy” in section 9(1A)(a), he relies upon the proposition that one must adhere to reality subject only to giving the statutory hypothesis its full effect. 22. In Daejan, the president of this tribunal, Judge Marder QC, said: It is unnecessary to set out in full the statutory formula for determining the enfranchisement price, but one element requires further consideration, namely the effect of para 3(1)(b) in the Sixth Schedule to the 1993 Act. This provides that in determining the open market value of the freeholder’s interest (with neither the nominee purchaser nor any participating tenant buying or seeking to buy) the assumption must be made that “this Chapter and Chapter II confer no right to acquire any interest in the specified premises or to acquire any new lease”, except that account may be taken of a section 42 notice to acquire a new lease already served by a non-participating tenant. Mr Denyer-Green is plainly correct in the submission that the effect of this assumption is that the valuation of the freeholder’s interest has to take place in the “no 1993 Act world”, to adapt a phrase well known in the context of compulsory purchase compensation. 23. In my view, the requirement of section 9(1A), that the valuation is to be prepared: 152 on the assumption that this Part of this Act conferred no right to acquire the freehold is not materially different from the paragraph with which Judge Marder was concerned in Daejan. I did not understand Mr Bonney to disagree with that approach. However, in support of his contention that the “no Act world” should adhere, if at all possible, to reality, he referred to two authorities, Polydor and Hoare. 24. Polydor was concerned with the import into the United Kingdom of gramophone records made in Portugal. In the course of his judgment, Sir Robert Megarry V-C said: I readily accept that if an inescapable consequence of making a statutory hypothesis is that some other hypothesis must necessarily be made, then the statute provides authority for making that other hypothesis as well. As Lord Asquith of Bishopstone said in East End Dwellings Co Ltd v Finsbury Borough Council: “If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.” 25. Hoare was an appeal against a decision of this tribunal relating to the rating assessments of two properties. In his judgment, Gibson LJ said: However, subject to the specific statutory provisions, the general principles which have been held to apply to statutory and other hypothetical transactions seem to me consistent with the rating authorities, which Schiemann LJ has reviewed, and are pertinent to the rating hypothesis mutatis mutandis. In particular I would emphasise the necessity to adhere to reality subject only to giving full effect to the statutory hypothesis, so that the hypothetical lessor and lessee act as a prudent lessor and lessee. I would call this the principle of reality, which is, to my mind, of fundamental importance in this case. 26. In my opinion, both these observations point towards the valuation of the subject property being carried out with vacant possession. Polydor suggests that one should imagine as real all the consequences that would inevitably have flowed from the imaginary state of affairs. Mr Bonney did not provide any convincing explanation of how the appellant could still have been in occupation of the subject property more than 18 months after her lease had expired, had Part I of the 1967 Act not conferred a right to acquire the freehold. As for Hoare, I do not consider that the hypothetical lessor of the subject property, acting prudently, would conceivably have permitted the appellant to remain in occupation until the valuation date under the terms of the expired lease, unless he had been forced to do so by the provisions of the 1967 Act. I therefore find that, in the absence of the 1967 Act, the appellant would have vacated the subject property long before the valuation date. Accordingly, the valuation should be prepared on the assumption of vacant possession. 27. I should add that I am satisfied that no issue of res judicata arises from the judgment of Judge Uziell-Hamilton on 27 July 1998. The only matter that was decided then was whether the appellant had a long lease, so as to entitle her to serve a notice claiming the freehold. The judge was not referred to section 9(1A), and made no finding as to the valuation assumptions to be made under that section. 28. Having concluded that the valuation is to be made on the basis of vacant possession, it is not necessary for me to decide whether any marriage value arises, and, if so, how it is to be apportioned. Prospects of obtaining permission to erect a rear mews house or garage 29. Until very late in the proceedings, the parties were in agreement that there was potential to construct a mews house at the rear of the subject property. However, on 1 December 2000, 10 days before the commencement of the hearing, Mr Simon Marr-Johnson prepared a second supplemental report. In it, he referred to conversations he had had with a Mr Davidson, the former owner of 54 Cadogan Place, who had acquired the freehold interest in that property under the 1967 Act and had subsequently sold it on the open market in October 2000. On 20 November 2000 Mr Marr-Johnson wrote to Mr Davidson to summarise their conversations. On planning, he said: You made planning inquiries regarding the land at the rear of the property and were told by the planners that consent for the erection of a double garage was likely, but most unlikely for a mews cottage. 30. Mr Davidson returned that letter on 20 November, confirming his agreement to its contents, subject to deletion of the word “most”. 31. In his second supplementary report, Mr Marr-Johnson explained the change in his approach to the mews house planning position as follows: There is no mews at the rear of 54 in Cadogan Lane. On enquiry it transpired that there is virtually no hope of getting consent other than for just a garage. Mr Davidson gave me and I now attach a copy of the inspector’s report. It rejects the appeal against refusal of planning permission for a house to be built at the rear of 39 Cadogan Place dated 8 December 1993. The Department of the Environmentreference is T/APP/A5600/A/93/22514/P8 and T/APP/K5600/ E/93/810012/P8. The inspector reports inter alia: “A small three-storey dwelling… would appear excessively large in the context of this small area of ground, resulting in the partial loss of use of the few remaining breaks in the almost continuous development of the street to its visual detriment. In addition it would overshadow and appear grossly overbearing to the rear windows of at least 2 lower floors of the main house… the large bay-window at the second level of the main house would only be some 5 metres from the blank, first floor wall of the proposed building…”. Mr Davidson made enquiries at the planning office of the Royal Borough about the chances of success on appeal for a 2-storey house at the rear of 54, and they were put at virtually nil. A garage would be no problem. The situation at the rear of 68 would be slightly worse since the road line in Cadogan Lane bends towards Cadogan Place and the site is overshadowed by 69A on the corner, which is much larger than others in Cadogan Lane. My valuation needs adjustment to allow for a garage but no house as such. 32. I am unable to accept this approach, for two reasons. First, there is a material difference between Mr Davidson’s comment that consent for a mews cottage was “unlikely”, and Mr Marr-Johnson’s conclusion that the chances were “virtually nil”. Mr Marr-Johnson has exaggerated the position. Second, in November 1998, plans indicating a two-storey mews comprising a one-bedroom flat and garage at the rear of the subject property were submitted on an informal basis to the local planning authority by a Mr Le Lay on behalf of the respondent. The area planning officer responded in a letter dated 17 December 1998, which concluded as follows: The crown of any trees appear to be outside the curtilage of the site but this aspect needs to be checked. In terms of the character and appearance of the Hans Town Conservation Area the proposed two-storey property may be viewed as not necessarily out of character and on the basis of the information the submission of a planning application may be worthwhile. However, residential amenity aspects will need to be considered very carefully and should be fully addressed. All comments are for informal guidance only and will not prejudice the outcome of a future planning application. 33. Mr Keith Gibbs contrasted the tone of this letter with the planners’ apparently negative response to Mr Davidson regarding 54 Cadogan Place. He also contrasted it with that relating to a mews house at 62A Cadogan Square. Here, the tenant wrote to the same local planning authority in June 1998, asking whether permission would be likely to be granted for the erection of another floor on the existing two-storey house. In his reply dated 24 June 1998, the planning officer said: It is my considered opinion that a proposal to erect an extra storey would not be acceptable at this property. 34. Despite this strong expression of opposition, planning consent was granted on 8 March 2000 to erect “a mansard roof with front and side dormers” above the first floor of 62A Cadogan Square. I have inspected the exterior of that property, and, in my view, the structure that has been erected may accurately be described as “an extra storey”. Thus, even an informal opinion expressed by a planning officer that a proposal is unacceptable does not mean that it will necessarily be rejected by the local planning authority itself. 35. Following his discussions with Mr Davidson, Mr Marr-Johnson wrote to the local planning authority about its letter to Mr Le Lay of 17 December 1998. He referred to the appeal decision relating to the rear of 39 Cadogan Place, dated 8 December 1993, and to the153 authority’s negative reaction to the possible mews development at the rear of 54 Cadogan Place, and asked whether the authority had any further comments. The area planning officer’s reply of 30 November 2000 reads as follows: Further to your letter received by the Local Planning Authority on 21 November 2000, in the absence of specific plans it is difficult to provide any definitive comment. If an application was received for the rear of the site there are a number of issues that would need to be addressed including the amount of amenity space provided; sense of enclosure; possible loss of sunlight/daylight; the effect of the proposal on the character and appearance of the Hans Town Conservation Area and any effect on trees. Residential amenity would have to be very carefully assessed, as would parking. I note the appeal decision at 39 Cadogan Place dated 8 December 1993 and confirm this would be taken into account if any future application was received. However, each application has to be treated on its merits and in this case I do not consider I can comment further without specific details of a scheme. All comments are for informal guidance only and will not prejudice the outcome of any future application. 36. Mr Gibbs said that, in his experience, planning officers tended to be cautious when responding to initial proposals for development prior to the submission of a planning application. Their responses generally emphasised the potential difficulties, but the correspondence in respect of the subject property was not of that negative character. I agree. I also accept Mr Gibbs’ evidence that there is a real difference between building a new house on land that forms a break in the existing terrace in Cadogan Lane –– as was proposed at the rear of 39 and 54 Cadogan Place –– and erecting an additional house at the end of a terrace, as was contemplated at the rear of the subject property. In my opinion, a potential purchaser of the subject property in April 1997 would have formed the view that planning and listed building consent for the erection of a two-storey mews house at the rear was likely to be forthcoming. Mr Marr-Johnson proceeded upon that assumption, both before the LVT and in his first two reports to this tribunal, and his view was shared by Mr Duncan and Mr Gibbs. I consider that a similar opinion would probably have been expressed if a potential purchaser at the valuation date had consulted a surveyor with experience in the locality. Accordingly, the valuation of the subject property should, in my opinion, be prepared on the basis that the necessary consents for a two-storey mews house were likely, but not certain, to be granted. Mr Marr-Johnson’s valuation included an adjustment to reflect the loss of the added value accruing to a house and mews held in single ownership. In the light of my finding that permission for a mews was likely to be granted, such an adjustment is not appropriate. Relevant comparables and adjustments for their different dates 37. Mr Marr-Johnson considered that the best evidence of the value of the subject property was provided by the sale in August 1997 of 43 and 44 Cadogan Place. Each property comprised a main house, together with a mews house at the rear, known respectively as 36 and 38 Cadogan Lane. They were sold in unmodernised condition, but with many fine period features, and with planning and listed building consents for modernisation. In each case, a new long lease was granted directly by the freeholder, with an obligation by the lessee to carry out a complete refurbishment and conversion of the property to a high standard. Provided these works were carried out properly, the freehold interest could be acquired for a nominal payment. 38. Mr Marr-Johnson analysed the total sale price of £7m to arrive at a price psf and then adjusted that figure to allow for inflation between April and August 1997. For this purpose, he use the FPD Savills Prime Central London Residential Index, PCL Houses. He multiplied the resultant figure of £407.26 psf by the floor area of the subject property, to arrive at a value of £2,701,377. He then made various additional adjustments and produced a valuation of £2.302m (Annex 1). 39. In arriving at his valuation of £3.29m (Annex 2) Mr Andrew McGillivray relied upon four sales in Cadogan Place that took place within 18 months of the relevant date. He adjusted the prices achieved to reflect differences in date by reference to the FPD Savills Prime Central London Residential Index, PCL South West. His analysis of the four sales is reproduced in Annex 3. He applied the average adjusted figure of £452 psf, obtained from the comparables, to the floor area of the subject property. To this figure he added £356,910, being his valuation of the potential to construct an additional fifth floor and a two-storey mews cottage at the rear. 40. As I have indicated, the two valuers disagreed upon which of the indices prepared by FPD Savills was appropriate to adjust the prices paid for the comparables to reflect changing values over time. Mr Marr-Johnson favoured the PCL House Index, and Mr McGillivray preferred the PCL South West Index. The index that is chosen has a significant effect upon the value psf that is derived from each sale. 41. It is clear that neither index is entirely appropriate as a tool for measuring changes in the value of comparable properties over time. The House Index relates to properties situated over a wide geographical area, extending as far as Docklands. It therefore includes buildings whose values may well change at different rates. On the other hand, the South West Index, while based only upon properties in the Mayfair, Belgravia, Knightsbridge and Chelsea areas, also includes properties appealing to a very different market, such as small flats. 42. I have not found it easy to reach a conclusion on the appropriate method of adjusting other transactions to reflect differences in time. I have decided, however, that of the two imperfect tools, the South West Index is to be preferred. In doing so, I have had particular regard to Mr McGillivray’s evidence that he has consistently used that index when valuing properties in the four areas that it covers, reflecting the fact that different areas of London out-performed or under-performed one another at different times. In contrast to Mr Marr-Johnson, who has had no recent experience of selling houses in the area, Mr McGillivray has, since 1972, been responsible for running the house sales department of his firm, Messrs WA Ellis, which specialises in residential property in the Mayfair, Belgravia, Knightsbridge and Chelsea areas of Inner London. Accordingly, his views on this particular issue –– supported by his established practice –– appear to me to carry more weight than those of Mr Marr-Johnson. 43. A corollary of my conclusion that there is no wholly reliable index for adjusting time differences, however, is that the greater the length of time between the date of a particular sale and the relevant valuation date, the greater the potential for error in whichever index is used. Against that background, I consider that two of the four transactions upon which Mr McGillivray based his valuation took place simply too far from the relevant date to provide reliable evidence. The sale of 58 Cadogan Place was approximately 17 months later, and that of no 26 was 14 months later. I am not satisfied that the use of the South West Index –– incorporating, as it does, a wide variety of houses and flats –– enables one to have confidence that the prices paid more than a year after April 1997 can be adjusted with any real degree of accuracy. The reliability of no 26 is further diminished by the fact that, as Mr McGillivray accepted, it was not as good as the subject property and in an inferior position. The sales of Mr McGillivray’s two remaining comparables –– 43/44 and 52 Cadogan Place –– were respectively some four months and seven months after the valuation date. In my view, both were probably sufficiently close to that date to provide useful evidence. No 52, however, suffers from two disadvantages. First, it was subject to a high current ground rent of £9,000 pa, reviewable some three years later to 0.2% of the freehold value, including the value of tenant’s improvements. Mr McGillivray made what he considered to be an appropriate adjustment to reflect this factor, but there is, in my view, no objective evidence to show that his adjustment was accurate. Second, and possibly of more significance, no 52 had been modernised approximately 20 years previously. In the absence of full details of that modernisation, and the extent of the further modernisation that was necessary at the sale date, it is not possible to make a reliable comparison between no 52 and the subject property. 44. I therefore agree with Mr Marr-Johnson that the sale of no 43/44 provides the most reliable starting point for the valuation that I am required to carry out. I should add that, in the course of cross-examination of Mr McGillivray, it was suggested for the first time154 that the price paid for no 43/44 had been enhanced by the presence of a lift shaft. In the light of the totality of the evidence, I am satisfied that there was only one lift shaft serving those two buildings and that it required considerable expenditure to make it suitable for use. I do not consider that the presence of that shaft significantly reduced the total cost of refurbishing the two buildings. Fifth floor and rear mews –– the value of development potential 45. In his first report, dated 10 March 2000, Mr Marr-Johnson valued the site of a small mews house at the rear of the subject property at £250,000. This was based upon 50% of his estimate of the value of the completed house. He said that this ratio had been used many times in negotiations regarding houses in prime locations in central London, under the standing-house approach pursuant to section 9(1) of the 1967 Act. The principle had been established in Kemp v Josephine Trust (1970) 22 P&CR 804. The 50% ratio had been agreed by many valuers, including himself, in negotiations, for example with the Grosvenor Estate in respect of properties north of Pimlico Road (he had agreed 45% south of that road in Bloomfield Terrace) and with the Cadogan Estate. Several such negotiations had been conducted with Mr Gibbs, on behalf of Cadogan, and with Mr Gibbs’ colleague Mr Macpherson, for Grosvenor. Such cases were now very rare, because most qualifying lessees had taken their freeholds long ago. He had, however, recently agreed the freehold purchase of 28 Ixworth Place, London SW3, a less than prime location reflecting a site element of 40% of the improved freehold entirety. He also mentioned that 50% had been adopted by this tribunal in Cadogan Estates Ltd v Hows [1989] 48 EG 167*, where the subject property was also situated in Cadogan Lane. * Editor’s note: Also reported at [1989] 2 EGLR 216 46. Mr Marr-Johnson said that fifth floors had been added to several other houses in Cadogan Place, and he had considered the potential for doing the same at the subject property. He believed that the extra value was limited: most of the houses in the terrace did not have a fifth floor because the building costs were very high, and he regarded the extra site value for this purpose to be nil. He pointed out that lifts were still rare in such houses. They were difficult and expensive to install and were usually smaller and slower than in purpose-built blocks. Moreover, the fifth floor would normally have lower headroom than the other floors, be of lower architectural quality and be subject to extremes of temperature. Even with a lift, it would be appropriate to apply a much lower value psf than for the prime ground and first floors. 47. Mr Marr-Johnson’s first supplemental report was dated 22 September 2000. It stated that he had given further consideration to the value of the rear site and had decided to reduce his valuation to £179,000. The new house would be much smaller than he had first assumed. Based upon the evidence of a newly built mews-style house at 48 Cadogan Lane, it would be worth £376,800. Of this figure, the site element was 50%, or £188,400. He reduced this figure by 5% to £179,000, to reflect the inferior location of the subject property. He pointed out that it was often considered hazardous to calculate site value on a residual basis, owing to the wide possible range of costs of building, legal and agent’s fees, finance and profit. Wherever possible, valuers used direct comparables of actual site sales, backed by experience of any agreements under the standing-house approach. Nevertheless, more detailed costings prepared by quantity surveyors could be useful as a check. He noted Mr Newton’s estimate of £135,125 for the new mews house, before allowing for profit, finance and legal and agent’s fees, and he regarded those calculations as supporting his site value. In his opinion, if suitable allowances were made for the necessary additional matters, the total development costs would comfortably exceed 50% of the developed value in this case. 48. As I have said, Mr McGillivray assessed the value of the potential development of the fifth floor and a rear mews house at £356,910. This was based upon 75% of the value of the completed structures, minus the cost of building them. In his opinion, the fifth floor, when completed, would be worth £271,200, and the mews house, £361,600. Both figures were based upon the average value of £452 psf that he derived from the four transactions summarised in Annex 3. His estimates of building costs were taken from the 1997 edition of the Guide to House Rebuilding Costs prepared by the Royal Institution of Chartered Surveyors. The figures included demolition and fees, and had been adjusted to reflect the location of the property in the Kensington and Chelsea area. His estimates were supported by a letter from Mr RI Wells FRICS, a chartered quantity surveyor. 49. He had reconsidered his valuations since receiving the LVT’s decision. He now believed that an alternative approach could be adopted that would obviate the need to estimate the costs of building a mews and adding a fifth floor. This alternative valuation was based upon two of his four comparables, namely 43/44 and 58 Cadogan Place. When these properties were sold, they lacked fifth floors, but these were subsequently added by the purchasers. The purchasers also demolished the mews houses fronting onto Cadogan Lane and subsequently rebuilt them, having obtained planning consent, after purchase, for an additional floor. It could therefore be said that there was no value attaching to the existing mews houses themselves, but that value did attach to the potential to rebuild modern mews houses on the respective sites. Similarly, value attached to the potential to add fifth floors. This was precisely the case with the subject property, which had the same potential. Therefore, by dividing the sale price by the floor area (net of the fifth floors and mews houses) and indexing to the date of claim, an average rate psf could be calculated. This rate reflected the development potential. Since the subject property and the comparables were very similar, this evidence could be applied to the existing floor area of the subject property to arrive at its value, again including the potential for a fifth floor and mews house. Mr McGillivray made no allowance in this calculation for the cost of demolishing the existing mews houses attached to nos 43/44 and 58, even though this work would not be necessary at the subject property. This approach resulted in a total valuation of £3,561,912. He did not seek to increase his valuation in the light of this alternative calculation. Nevertheless, it afforded comfort to him, and suggested that his valuation was fair. 50. Mr Marr-Johnson’s method of taking a percentage of the completed mews house as representing its site value is, in effect, a truncated residual valuation. However, the development costs suggested by Mr Graham Newton, the appellant’s expert on such matters, are not consistent with Mr Marr-Johnson’s approach. This is because a developer who acquired the site at Mr Marr-Johnson’s valuation, and then built a house at the cost suggested by Mr Newton, would be unable to sell it at a price sufficient to cover all his costs and provide an acceptable profit. It is not clear whether Mr Newton’s figures are wrong, or Mr Marr-Johnson’s, or both. In my opinion, this part of Mr Marr-Johnson’s valuation is not reliable. It is based upon settlements elsewhere that are largely historic, and I do not find it of assistance. 51. Nor do I obtain much help from Mr McGillivray’s primary valuation, since no objective support was provided for his decision to take 75% of the difference between completed value and building cost. 52. In my opinion, the most reliable guide to the development value of the fifth floor and the rear mews is provided by the sale of 43/44 Cadogan Place on Mr McGillivray’s alternative approach. In so far as the purchaser considered that the right to add a fifth floor to those properties was of value, that value was reflected in the total price paid. Similarly, the price also incorporated the value of the potential to erect new mews houses at the rear. I agree with Mr McGillivray that it did not also reflect the value of the existing mews houses themselves, since they were presumably considered ripe for demolition and redevelopment. 53. Thus, if the total price paid for no 43/44 is adjusted for the difference in the respective dates, and that figure is divided by the floor area of the existing buildings, excluding those at the rear, the resultant price of £490 psf is the best evidence of the value of the existing buildings at the subject property plus its development potential. The only difference between the two is that there were mews houses already in existence behind no 43/44. In consequence, the price paid reflected the near155 certainty that consent would be granted to rebuild them. As I have indicated earlier, the planning prospects at the subject property, while good, were not as certain. I would quantify the reduction in the value of the subject property resulting from this relative uncertainty at £50,000. 54. Mr McGillivray’s alternative approach also relied upon the price paid for 58 Cadogan Place. I have discounted that as a comparable for valuing the subject property because of the time difference. The same consideration applies when it is considered as evidence of site value. Treatment of vaults 55. Mr Marr-Johnson included the areas of the vaults when devaluing the price paid for 43/44 Cadogan Place, and valuing the subject property. He said that when properties were measured for the purpose of preparing sale particulars, it was normal to include the entire covered area, including the vaults. He regarded it as common market practice for sale prices to be analysed on this basis. Mr McGillivray, on the other hand, disregarded the area of vaults when analysing comparables and preparing his valuation. He said that the leading companies that prepared floor plans for estate agents excluded the area of vaults unless they were accessible from the house and had been converted to living accommodation. As previously indicated, Mr McGillivray, unlike Mr Marr-Johnson, has had extensive experience of selling houses in the area. I accept his evidence on the appropriate treatment of the vaults. Location 56. Mr Marr-Johnson made a deduction of 5% to reflect the inferior location of the subject property. Situated almost at the end of the terrace, he said it had a less green aspect and was exposed to traffic noise and congestion in the busy southern dog-leg of Cadogan Place. It was therefore in a slightly worse location than others in the same terrace. The road at the rear, Cadogan Lane, bent slightly towards the south at this end, so that the garden was smaller than others in the terrace, restricting the depth of any mews house that might be built there. Mr McGillivray disagreed and did not consider that any such deduction was justified. 57. In the light of the evidence and my inspection, I agree with Mr Marr-Johnson that the subject property has an inferior view over the communal gardens at the front than nos 43/44, which I have found to be the most reliable comparable. I do not consider that traffic noise and congestion are a material disability, but the smaller rear garden at the subject property is a disadvantage. In my opinion, it is appropriate to deduct 2.5% to reflect these factors. Relevance of subsequent offer 58. In his supplemental report dated December 2000, Mr McGillivray said that he understood that the subject property was currently being offered for sale freehold by the appellant at an asking price of £6.1m, that an offer had been made at £5.100m and that this had been refused. He suggested that if the offer were indexed back to the relevant valuation date, it added support to his valuation. 59. Mr Mead is the agent instructed by the appellant to sell the subject property. He is a director of Douglas & Gordon Ltd. He said that he started offering the property discreetly in the middle of October 2000. A Mr Tucker, with whom he had conducted business in the past, inspected the property in November. Mr Tucker indicated that he would be prepared to pay around £5m, but was told that the property was not going on the market properly until early 2001. On 12 December 2000 Mr Tucker wrote to Mr Mead as follows: I confirm that I would be interested in purchasing the above property at £5,300,000. I appreciate your comments that the property will not be marketed until January but confirm that this offer should be read as an initial bid for the same. We would be able to exchange within ten working days and complete at your client’s convenience. The letter was marked “subject to contract”. 60. Mr Marr-Johnson did not consider that this offer was useful or relevant. Offers were not market evidence and were often withdrawn. He understood that the market for large houses in London was still strong and rising. He had heard of some very successful sales in recent months, apparently showing rises in excess of the Savills PCL House Index, and he was “not over-surprised” at the offer of £5.3m. 61. I agree with Mr Marr-Johnson that, in the absence of a reliable index for measuring changes in the value of the subject property between April 1997 and late 2000, offers made recently add very little in the way of useful evidence to sales very much closer to the valuation date. My valuation of the subject property in April 1997, based upon contemporaneous evidence, is £3.050m (Annex 4). If one projects this forward, in accordance with the Savills South West Index, to September 2000 (the latest date for which index figures were available), one arrives at a value of £4.398m. The index is a very hit-and-miss method of estimating changes in the value of the subject property between the valuation date and the date of Mr Tucker’s offers, and those offers have not yet resulted in a transaction. The most that one can say about them is that there is nothing in them to suggest that my valuation is excessive. 62. For completeness, I should add that, when he gave evidence on 11 December 2000, Mr Loder Dyer denied that any offer had been made by Mr Tucker, or that a guide price had been set. On 19 December, however, Mr Mead stated that he had told Mr Loder Dyer about Mr Tucker’s first offer of approximately £5m about a week after it had been made. He also said that, when offering the subject property, he had quoted a guide price that had been suggested by Mr Loder Dyer. I have no hesitation in preferring the evidence of Mr Mead on these matters. Terms of transfer 63. The appellant has two complaints in respect of the transfer ordered by the LVT. First, it failed to delete clause 2(iii) of the proposed transfer, whereby the transferee covenanted: Not to do or suffer to be done on the Property or any part thereof any act or thing that may be or become a nuisance or annoyance to the Transferor or his tenants or the owners or occupiers of any adjoining or neighbouring properties. 64. In her statement of case, the appellant contended that, while such a clause might be suitable in a leasehold transaction, it was not appropriate in a freehold sale under section 10 of the 1967 Act. If that were wrong, the clause should refer only to the respondent or his tenants, and not to other owners or occupiers. 65. Second, the LVT, although requested to do so, had failed to include reciprocal covenants by the respondent and Cadogan Estates Co (which was to be a party to the transfer) in the terms of clause 2, as suitably amended, as regards the adjoining and/or neighbouring properties of which they were freehold owner. Apart from clause 2(iii), clause 2 contains restrictions on alterations and additions, use, and external decoration to the Cadogan Place elevation. 66. I deal, first, with clause 2(iii). The only evidence on this matter was given by Mr Damian Greenish, a solicitor, and, since 1980, a partner in Lee & Pembertons (now Pemberton Greenish). Since admission as a solicitor in 1979, he has dealt with property matters for London estates, including the Cadogan Estate. He explained that para XII of the lease of the subject property provided as follows: not to place or suffer to be placed on any part of the premises any placards or posters or advertisement whatsoever or any blind sign board plate or other contrivance conveying a notification of trade or business or set up on any part of the said premises any steam gas oil electric hot air or other engine or any forge or furnace or do or suffer to be done on the said premises or any part thereof any act or thing that may be or become a nuisance or annoyance to the Company or its tenants in the neighbourhood. This covenant was therefore in like form to that which was proposed for the transfer. The estate believed that causing nuisance and annoyance to neighbours may well damage the value of neighbouring properties. It was of the view that the covenant was appropriate for the protection of the Cadogan Estate as a prime residential area. Mr Greenish produced copies of all transfers under the 1967 Act for properties in Cadogan156 Place during the period 5 August 1999 to 16 March 2000. Each contained a covenant against causing nuisance and annoyance. 67. In cross-examination, he agreed that several covenants in previous transfers had prohibited only acts or omissions “done knowingly”. He said that the respondent did not insist on a particular form of words, and was always prepared to negotiate. In this particular case, there had been no negotiations over the terms of the transfer outside the LVT proceedings. He would certainly be prepared to take instructions if the appellant were proposing that the words “done knowingly” should be included in the transfer. In his closing submissions, Mr Radevsky said that the respondent had no objection to the inclusion of the word “knowingly”. 68. Rights of way and restrictive covenants to be included in a conveyance on enfranchisement are dealt with in the 1967 Act at section 10(3) and 10(4) respectively. Section 10(4) reads as follows: As regards restrictive covenants (that is to say any covenant or agreement restrictive of the user of any land or premises) a conveyance executed to give effect to section 8 above shall include –– (a) such provisions (if any) as the landlord may require to secure that the tenant is bound by, or to indemnify the landlord against breaches of, restrictive covenants which affect the house and premises otherwise than by virtue of the tenancy or any agreement collateral thereto and are enforceable for the benefit of other property; and (b) such provisions (if any) as the landlord or the tenant may require to secure the continuance (with suitable adaptations) of restrictions arising by virtue of the tenancy or any agreement collateral thereto, being either –– (i) restrictions affecting the house and premises which are capable of benefiting other property and (if enforceable only by the landlord) are such as materially to enhance the value of the property; or (ii) restrictions affecting other property which are such as materially to enhance the value of the house and premises; (c) such further provisions (if any) as the landlord may require to restrict the use of the house and premises in any way which will not interfere with the reasonable enjoyment of the house and premises as they have been enjoyed during the tenancy but will materially enhance the value of other property in which the landlord has an interest. 69. Section 10(5) provides that: Neither the landlord nor the tenant shall be entitled under subsection (3) or (4) above to require the inclusion in a conveyance of any provision which is unreasonable in all the circumstances, in view –– (a) of the date at which the tenancy commenced, and changes since that date which affect the suitability at the relevant time of the provisions of the tenancy; and (b) where the tenancy is or was one of a number of tenancies of neighbouring houses, of the interests of those affected in respect of other houses. 70. No evidence was called on behalf of the appellant in respect of her objection to clause 2(iii). This is perhaps not surprising, in view of a comment made by Mr Loder Dyer in a letter he wrote on 18 October 2000 to Mr Mead. He enclosed a copy of the draft transfer, and said: Para 2(iii) remains in dispute with regard to the matter of reciprocal covenants. To date this is the most favourable transfer that has so far been achieved for a house in Cadogan Place. It may yet still be improved upon in the Lands Tribunal. 71. In the absence of any evidence to the contrary, I accept Mr Greenish’s evidence that it would be reasonable to include the proposed covenant in the conveyance, subject to the addition of the word “knowingly” immediately following the word “Not”. 72. As far as the appellant’s request for reciprocal covenants is concerned, Mr Radevsky submitted that the 1967 Act contained no provisions that would permit this tribunal to impose such covenants against the landlord. The only provision entitling the tenant to require a covenant was section 10(4)(b). That required any restriction to be one that secured the continuation of a restriction arising from the lease. There were no reciprocal covenants of the type suggested that fell within that lease. The Act set out what could be contained in the transfer, and the tribunal had no discretion to go beyond its provisions. The appellant had not referred to any previous similar case in which reciprocal covenants had been included, and, so far as Mr Radevsky was aware, there had been no such cases. 73. Mr Bonney submitted that it was unattractive to suggest that the tribunal had no power to impose such covenants, bearing in mind the purpose of the 1967 Act. While sections 10(4) and 10(5) stated what provisions should be included in a conveyance, they did not prohibit the tribunal from exercising its discretion to include other appropriate provisions. Moreover, under section 4(b), it was a suitable adaptation of restrictions arising from the lease to include reciprocal covenants. Indeed, it would be appropriate to modify covenants continued from the lease by including reciprocal covenants, not only in respect of such covenants continued from the lease, but also in respect of any that were not. 74. I agree with Mr Radevsky that the only power vested in this tribunal to impose covenants required by the tenant is contained in section 10(4)(b). Any such covenants must be required to secure the continuance of restrictions arising from the tenancy. While this provision allows previous lease restrictions to be continued “with suitable adaptation”, that expression cannot be extended to include the provision of an entirely new covenant against other property belonging to the landlord. I therefore uphold the respondent’s objection to the inclusion of any such covenant. Alternative decision 75. Finally, I have considered the value of the subject property on the assumption that my decision is wrong in law and that the property should be valued subject to a tenancy expiring on 20 June 1997. Mr Marr-Johnson considered that a buyer would pay at least 10% less for a property with a tenant in occupation than without. He would take a view on the probability of the tenant resisting efforts to obtain vacant possession, and the vendor would be forced to accept a lower price if selling without vacant possession. 76. Mr Gibbs considered that, in a strong and rising market, such as was the case at the valuation date, it was inappropriate to make any deduction for the appellant’s occupation. Mr McGillivray agreed with that view. In answer to a question from me, he said that he would have advised a prospective purchaser to pay the full vacant possession value at the valuation date if he wished to avoid losing the property. He would also have advised a vendor that he should only accept an offer based upon vacant possession. The subject property was an attractive and valuable house in a sought-after location, and there would have been competition from people keen to buy it. 77. I accept the evidence of Mr McGillivray. In doing so, I bear in mind Mr Marr-Johnson’s evidence –– in answer to another question from me –– that he made no deduction from vacant possession value where properties were let on long leases, terminating after 15 January 1999, and where the tenant had a right to an assured tenancy under the Local Government and Housing Act 1989. Under that Act, such a tenant has life-long security of tenure, but, instead of paying a fair rent, must pay a market rent. It is, in my view, wholly inconsistent with this approach for Mr Marr-Johnson to suggest that a prospective purchaser of the subject property would be prepared to offer only 90% of vacant possession value, bearing in mind that the tenant would have no security whatever when the lease terminated some two months later. It follows that my decision would have been the same if the unexpired term of the appellant’s tenancy had to be taken into account. 78. The appeal succeeds to the extent that clause 2(iii) of the transfer will be amended by inserting “knowingly” after “Not”; otherwise it fails. The cross-appeal is allowed. The price payable by the appellant to the respondent for the freehold interest in the subject property under the terms of section 9(1C) of the 1967 Act is £3.05m. 79. What I have said so far concludes my determination of the substantive issues in this case. It will take effect as a decision when the question of costs is decided, and at that point, but not before, the provisions relating to the right of appeal in section 3(4) of the Lands Tribunal Act 1949 and Ord 61 r 1(1) of the Civil Procedure Rules will come into operation. The parties are invited to make submissions as to157 the costs of this appeal and a letter accompanying this decision sets out the procedure for submissions in writing. Addendum 80. I have received submissions on costs. The respondent asks for an order for his costs of the appeal and the cross-appeal against the appellant, who is legally aided, and, if she does not pay, against the Legal Services Commission. He submits that the appeal failed in its entirety, save for the insertion of the word “knowingly” in one of the provisions of the transfer, in respect of which the respondent had no objection. The appellant contended for a price of nearly £700,000 less than the LVT’s figure, but the tribunal determined it slightly higher than the LVT. 81. Moreover, the respondent offered to settle the claim in a letter marked “without prejudice save as to costs” dated 26 May 2000, at the figure determined by the LVT. The appellant’s solicitors neither accepted that offer nor made any sort of counter-offer. The respondent suggests that the offer was not accepted because the appellant wished to delay the final determination as long as possible to take advantage of a rising market and the fact that she was occupying the premises effectively free of charge in the meantime. The respondent wished to settle, and made a reasonable offer to do so, because he was faced with a historic valuation date with no interest payable on the price. The respondent argues that the costs can, and should, be paid out of the substantial profit that the appellant will make from purchasing the freehold at a price that is very substantially below its current market value. There is therefore no need to carry out a lengthy means test before deciding what it is reasonable for the appellant to pay. 82. The appellant submits that there should be no order as to costs except for the taxation of the appellant’s costs in accordance with the Legal Aid Act 1988. The respondent should not receive his costs for three reasons. First, he failed wholly, or in part, upon several issues, including the most important issue as to comparables, which was fundamental to the difference between the parties. Second, the increase awarded over the LVT’s decision was very small in proportion to the sums of money involved, and considerably below the respondent’s figure of £3.29m; the respondent chose to cross-appeal, but the success of that cross-appeal was marginal. Finally, the respondent received a price in excess of the LVT’s figure only upon evidence, namely Mr McGillivray’s “alternative” valuation approach, which was not given before the LVT or included in his notice of appeal or statement of case, and was not even relied upon as primary evidence at the hearing before this tribunal. 83.The appellant suggests that the respondent’s offer dated 26 May 2000 lapsed before her solicitor could obtain her instructions upon it, and that the respondent refused to reinstate the offer. In any event, even if her solicitor had been able to take her instructions at the time the offer was made, she could not reasonably have been expected to accept it, since she was not even aware of Mr McGillivray’s “alternative” valuation approach until the exchange of expert’s reports in September 2000. 84. The appellant also states that there is no evidence to support the respondent’s suspicions regarding the appellant’s wish to delay matters as long as possible, nor the suggestion that the respondent’s offer to settle was due to the historic valuation date and absence of interest on the purchase price. In those circumstances, the appellant submits that the offer should not be taken into account by the tribunal in exercising its discretion on costs. 85. She does, however, ask that account be taken of the respondent’s unsuccessful attempt to prevent the appellant from obtaining a legal aid certificate and to have the certificate discharged. 86. If an order for costs is made against the appellant, then she suggests that it should, in accordance with the normal practice, provide that it will not be enforced without permission from this tribunal. Section 17(1) of the Legal Aid Act 1988 limits the appellant’s liability under the order to what is reasonable, having regard to all the circumstances, including the financial circumstances, of all the parties and their conduct in connection with the dispute. The appellant suggests that the tribunal does not have enough information at this stage to determine the entire financial circumstances of both parties and their respective conduct. 87. In my judgment, the respondent has clearly succeeded –– and the appellant has failed –– in both the appeal and the cross-appeal. A number of issues were raised in the course of the proceedings. Although the respondent did not succeed in all of them, in my view the appellant’s analysis of the result on each issue exaggerates the extent of her success. Of the 10 issues identified in para 9 of the decision, the appellant’s valuation expert gave evidence on nine. His evidence was rejected on all issues except three, namely: which comparables should be taken into account; whether a recent offer was relevant; and whether an adjustment for inferior location was appropriate. The appellant also failed on the remaining issue, which was a point of law relating to the requirement to value “subject to the tenancy”. I do not consider that the appellant’s limited success on certain matters of detail is sufficient to justify the respondent being deprived of his costs. 88. Nor is there any merit in the suggestion that the respondent’s offer should not be taken into account. In a letter dated 2 June 2000, the respondent’s solicitor asked to be advised if the appellant required more time to consider the offer. The appellant’s solicitor chose to disregard that invitation, suggesting, in a letter dated 6 July 2000, that “it has been at all times clear that your offer was withdrawn”. Nor did the appellant make any offer of her own, as she was entitled to do by r 44(1) of the Lands Tribunal Rules 1996, even after she became aware of Mr McGillivray’s alternative valuation approach. Finally, I do not consider that the fact that the respondent made representations to the Legal Aid Board is a matter that should materially influence the exercise of my discretion on costs. 89. Nevertheless, and notwithstanding what I consider to have been the appellant’s unfortunate response to the respondent’s offer to settle, I agree with the appellant that I have insufficient information at this stage to determine the extent of her liability under section 17(1). Accordingly, I order that the respondent shall recover his costs of the appeal and the cross-appeal against the appellant. Such costs are to be agreed or, in default of agreement, assessed on the standard basis by the Registrar of the Lands Tribunal in accordance with the Civil Procedure Rules. The respondent shall be at liberty to apply to the registrar for the determination, in accordance with section 17, of such amount (if any) as it would be reasonable for the appellant to pay by way of costs. The appellant’s costs of the appeal and cross-appeal shall be assessed by the registrar in accordance with the Legal Aid Act 1988. Annex 168 Cadogan Place, SW1X 9RSValuation by Mr CSR Marr-Johnson FRICS             £ Analysis of comparable sale of43 and 44 Cadogan Place for     7,000,000 Total square feet per agents’ brochure   16,580   Add for vaults 520 17,100   Less the 5th floor not yet built 1,200 15,900   Value per square foot in August 1997     440.25 Indexed through Savills PCL Houses by 8.1%     407.26 Multiply by agreed area for 68   6,488   Add area of vaults at 68   1456,633         2,701,377 Add for garage £120,000     Site value at 50% 50%   60,0002,761,377 Adjust for location at 95%   2,623,308 Adjust for occupation at claim date£2,360,977 90%     Adjust for loss of added value Freehold price exclusive of costs 97.5%    2,301,9532,301,953       say 2,302,000         Annex 268 Cadogan Place, SW1X 9RSValuation by Mr A McGillivray         £ £ £ Floor area of 68 Cadogan Place 6488 sq ftMultiplied by £452 psf     2,932,576 Additional 5th floor area 600 sq ftMulitplied by £452 psf 271,200     Less cost of building at £126.6 psf 75,960 195,240   Additional of mews house floor area 800 sq ftMultiplied by £452 psf  361,600     Less cost of building at £101.2 psf 80,960 280,640475,880   Value of potential — 75% Value of 68 Cadogan Place at date of claim     356,9103,289,486Say 3,290,000         Annex 368 Cadogan Place, SW1X 9RSMr McGillivray’s comparables       Address Date ofsale Tenure Accommodation Notes Sale price Floor area Rate per sq Rate per sq ft adjusted to date of claim per Savills Index PC South West 43 and 44 CadoganPlace and 36 and 3Cadogan Lane August 1997 Freehold Was used as ahostel. Manysubdivided rooms Sold inderelictcondition £7m 16,580* £422 £403 52 Cadogan Placeand 54 CadoganLane Nov 1997 Leasehold79 years£9,000 paground rent 7 bed, 6 bath5 receps, largegarage Modernisedapprox 20yrs ago £4m(£4.4m)** 7,341*** £599 £556 58 Cadogan Placeand 66 CadoganLane Sept 1998 Freehold Arranged asseveral flats Unmodernisedand in need ofrepair £3.7m 6,804600=7,404**** £500 £438 26 Cadogan Placeand 6 CadoganLane Feb 1996 Freehold Arranged asflats UnmodernisedNoisy position £2.650m 8,122 £326 £409                 Average £452                   * Floor area on sales particulars including the area of the potential 5th floors (1,200). ** Adjusted to freehold value with further adjustment for the higher ground rent. *** Floor area on sales particulars, which includes existing 5th floor area. **** Floor area on sales particulars, but with an addition of 600 sq ft for a potential 5th floor.   Annex 468 Cadogan Place, SW1X 9RSDetermination by Lands Tribunal        Analysis of sale of 43 and 44 Cadogan Place for     £7,000,000 Average reduction in value August 1977 to April 1977per Savills PCL Houses and South West Indices = 5.97%Therefore, price paid in August 1997 was equivalent inApril 1997 to £7,000,000-£417,900 = £6,582,100       Total sq ft excluding vaultsLess 5th floor not yet builtLess mews houses, 36/38 Cadogan Lane  1,2001,950 16,58015,38013,430   Therefore, adjusted price for nos 43 and 44 = £6,582,100 ÷ 13,430 = £490.10, say £490 psfThis price reflects potential for 5th floor and rear mews houseEquivalent value for 68 Cadogan Place = 6,488 sq ft @£490 =Less for inferior location of no 68 — 2.5% Less for greater risk of planning refusal for mews house at no 68       3,179,12079,4783,099,64250,0003,049,642say 3,050,000