Kwik Save Stores Ltd v Stockton On Tees Borough Council [2004] EWLands ACQ_132

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England and Wales Lands Tribunal

You are here: BAILII >> Databases >> England and Wales Lands Tribunal >> Kwik Save Stores Ltd v Stockton On Tees Borough Council [2004] EWLands ACQ_132_2002 (18 May 2004)
URL: http://www.bailii.org/ew/cases/EWLands/2004/ACQ_132_2002.html
Cite as: [2008] RVR 63, [2004] EWLands ACQ_132_2002

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[2004] EWLands ACQ-132_2002 (18 May 2004)

ACQ/132/2002

LANDS TRIBUNAL ACT 1949

COMPENSATION – Compulsory purchase of town centre supermarket premises – valuation method – whether total extinguishment or notional relocation – whether claimant intended to take new premises offered in redevelopment scheme – suitability of alternative sites or premises – value of existing lease – disturbance – compensation on basis of notional relocation £1,017,819

IN THE MATTER of a NOTICE OF REFERENCE

BETWEEN

KWIK SAVE STORES LIMITED

Claimant

and

STOCKTON ON TEES BOROUGH COUNCIL

Acquiring

Authority

Re: Supermarket Premises, 7 Wellington Street,

Stockton on Tees, Cleveland, TS18 1NB

Before P R Francis FRICS

Sitting at the Immigration Appellate Authority, 2nd Floor, Kings Court,

Earl Grey Way, Royal Quays, North Shields, NE29 6AR

on

2-5, 9 and 10 March 2004

The following case is referred to in this decision:

Director of Buildings and Lands v Shun Fung Ironworks Ltd 1995 2 AC 126

Roger Lancaster, instructed by Bullivant Jones, solicitors of Liverpool, for the claimant

Brian Ash QC, instructed by Addleshaw Goddard, solicitors of Leeds, for the acquiring authority

DECISION

Introduction

This is a reference to determine the compensation payable by Stockton on Tees Borough Council ("the acquiring authority" or "the council") to Kwik Save Stores Limited ("the claimant") following the compulsory acquisition of the Kwik Save supermarket at 7 Wellington Street, Stockton on Tees ("the subject premises") under the Stockton on Tees Borough Council (Town Centre, Stockton on Tees) Compulsory Purchase Order 1995 ("the CPO") which was confirmed by the Secretary of State for the Environment on 20 February 1997 following a public inquiry. A General Vesting declaration was made on 21 January 2000; Notice to Treat and Notice of Entry were served on 24 January 2000 and possession of the subject premises was taken on 24 September 2000 which is the agreed valuation date.

The claimant's claim, based upon total extinguishment of its Stockton town centre business, amounted to £3,629,500 on the grounds that, due to the actions of the council and/or its development partner, it was unable to take a lease of the replacement store that was being constructed in the shopping centre scheme for which the CPO was made. Furthermore, none of the alternative sites either offered by the council, or otherwise available, were suitable for the claimant's requirements. If the Tribunal were to find, contrary to the claimant's case, that notional relocation was the correct basis for compensation, the figure claimed was £1,014,167. The compensation contended for by the council was on the notional relocation basis in the sum of £1,006,000. It's case was that the claimant had every opportunity to relocate into the new scheme, and even if it did not, there were two suitable alternative locations within the town centre, to which it could have moved. The council's alternative valuation, were I to find total extinguishment of the business was the appropriate method, was £1,157,000, the principal differences between the experts on this basis being in relation to the level of projected future profits and the multiplier to be used to determine the value of the business.

During the course of the hearing, and due the there being little between them in terms of quantum, the parties agreed that if I find notional relocation to be the appropriate basis for determining compensation, it should be awarded in the sum of £1,007,819. However, the question of any value in the remainder of the claimant's lease remained in dispute; the claimant arguing that it was worth £50,000 and the council saying it was worth £5,000.

Mr Roger Lancaster of counsel appeared for the claimant and called two witnesses of fact: Mr Mark Poulton, Business Director – Property, and Mr Sean Mayes, Property Manager, both now with Somerfield Stores Limited following its merger with Kwik Save Stores Ltd. He also called three expert witnesses: Mr Paul Moran MRICS (valuation), Mr Peter Burke BSc MRICS (premises/relocation prospects) and Mrs Sara Fowler FCA (accountancy). Mr Brian Ash QC called Mr Lionel Danby, Senior Projects Manager at the council and Mr Fergus Low, alternating Chairman and a director of the council's development partner, Wellington Square Development Company Limited ("WSDC") as factual witnesses. As expert witnesses he called Mr Richard Heldreich (valuation) and Mr David Prior FCA (accountancy).

I inspected the former location of the subject property, the Wellington Square development, and the two potential alternative relocation sites on Monday 8 March 2004.

Facts

The parties produced an agreed statement of facts and, during the hearing, a helpful chronology of events. From these, together with the expert and factual evidence and my site inspection I find the following facts. The subject premises comprised part of the ground floor in a 3 storey purpose built (c 1920s) retail unit located in a secondary position on the south side of Wellington Street approximately 50 metres from its junction with Stockton High Street, which was the main town centre shopping area. Wellington Street was, prior to the implementation of the scheme, part of a one-way system that led into Albert Road where there was substantial public car parking available. Formerly a department store in single occupation, the ground and part of the first floor were occupied by the claimant under the terms of a 25 year full repairing and insuring lease which commenced 18 July 1983, there being some 8 years remaining at the valuation date, at an annual rental of £52,225 (reviewed 1998). The demised accommodation comprised:

Ground Floor	Main supermarket	956.8 sq m (10,300 sq ft)
	Storage areas	164.3 sq m (1,769 sq ft)
First Floor	Staff canteen	29.9 sq m (322 sq ft)
	Office/store	26.8 sq m (289 sq ft)
Total area		1177.8 sq m (12,680 sq ft)

In addition there were 28 car parking spaces in a hard surfaced, marked car park directly opposite the premises. The remainder of the building was empty at the valuation date.

It was agreed that, at the valuation date, there were no other significant retail foodstores in the town centre. A Netto supermarket was located at Chandlers Wharf, Stockton on Tees, about half a mile away from the subject premises by road (that having opened in March 1994) and there was an Aldi supermarket in Darlington Lane, Norton, Stockton on Tees (opened in May 1999), that being about 2 miles by road. There were also two other Kwik Save stores in residential neighbourhoods on the outskirts of the town, but it was agreed that these did not constitute serious competition to the subject premises in trading terms.

The trading accounts for the financial years 1994/95 to 1998/99, provided by the claimant, have been accepted by the accounting experts as a true statement of the operating performance of the Stockton town centre store. Details of nine supermarkets sold following the merger of Kwik Save with Somerfield Stores Plc ("Somerfield") in terms of their locations, sales and gross areas, turnover, adjusted net profits and sale prices were agreed between the valuation experts, but their relevance remained in question. Those stores were at Bakewell, Cranbrook, Darlington, Frimley, Frodsham, Glenrothes, Hailsham, Thatcham and Wath upon Dearne. All but the last one had traded as Somerfield and were sold as going concerns. Wath upon Dearne was a Kwik Save store that was acquired by Tesco Stores Plc to facilitate a petrol station extension to its own new store development in that location.

I set out below a chronological summary of those events and correspondence which I consider sufficient to provide a factual background to the case. It is not exhaustive in terms of what was provided by the parties (some 19 ring binders extending to over 5,000 pages including the expert reports, rebuttals and supplemental reports together with copy correspondence and files).

March 1992 Kwik Save received first indication of council's intention to redevelop town centre.

1993 – 1995 Correspondence between agents for Kwik Save and those for the council relating to possibility of Kwik Save relocating into new scheme. Swan Hill Holdings Ltd ("Swan Hill") became council's preferred developer during 1995.

12/13 August 1996 Heads of Terms agreed for Kwik Save's proposed occupation of anchor foodstore in projected development under a 15 year lease at a rental of £103,500 pa, and with a rent free period of 70 weeks.

20 August 1996 Development agreement completed between council, Swan Hill and Higgs and Hill.

20 February 1997 C P O confirmed

15 May 1997 Draft Agreement for Lease and Draft Lease received by Kwik Save's solicitors from Dibb Lupton Alsop ("DLA"), Swan Hill's solicitors.

May '97 to April '99 Correspondence and travelling draft of lease documentation between solicitors including attempts to resolve issues relating to service charge provisions, pedestrian access, and other matters.

March 1998 Merger between Kwik Save Group and Somerfield Group completed.

9 July 1998 Somerfield announce intention to close 120 Kwik Save stores.

14 October 1998 Further development agreement entered into between council and Swan Hill.

15 February 1999 Deed of Variation extending end-date in Development Agreement to 15 March 1999 (with several subsequent extensions granted to 26 May 1999).

16 April 1999 Bullivant Jones (Kwik Save's solicitors) wrote to DLA apologising for long period of silence and seeking clarification of two points that were concerning Kwik Save.

21 April 1999 DLA acknowledged, advising that queries passed to the developer.

11 May 1999 Christopher Ives of Swan Hill wrote to DLA saying:

" As you may be aware, Somerfield/Kwik Save have now confirmed that they wish to trade the proposed store in Stockton as a Somerfield operation.

We met yesterday with Somerfield's property manager, Richard Ellison together with their agent, Peter Burke of Mason Owen (who you will remember were also advising Kwik Save). They have reconfirmed their commitment to this project and from the tone of the meeting I am sure we will have a much easier ride than we have had in the past with the Kwik Save team.

They will continue to use Bullivant Jones as legal advisors however, we have agreed with them that we will not attempt to continue to negotiate the draft documents currently in circulation but will start from a clean sheet. To this end I would be grateful if you could issue draft Agreements for Lease and Lease to Bullivant Jones, the form of draft to be a negotiated version of the S J Berwin lease reflecting the concessions given to the major stores, W H Smiths, Superdrug, Dixons……"

8 June 1999 Development agreement becomes time-expired. Council seeks new development partner (without ruling out Swan Hill).

18 October 1999 Somerfield (Richard Ellison – Property Manager) wrote to Swan Hill stating that at the present time it was difficult to be precise about his company's requirements, and due to further developments within the group "the situation would have to be assessed on its merits".

11 November 1999 Somerfield announce intention to close 350 Kwik Save stores.

16 November 1999 Lambert Smith Hampton ("LSH") wrote to Kwik Save's agents, Mason Owen and Partners ("MOP") advising that Swan Hill and HBG Properties Ltd had been appointed by the council to develop the scheme, and sought confirmation of Kwik Save's intentions.

24 November 1999 Swan Hill wrote to Kwik Save stating that they were keen to finalise terms, and sought a meeting to progress. Chased again 2 December.

2 December 1999 Somerfield (Sean Mayes) wrote to Swan Hill stating that the company was "re-appraising both our own requirements with regard to Stockton, and re-evaluating the terms you have offered. Until this is complete, I suggest it is inappropriate for us to meet". He also sought clarification of the two outstanding points relating to service charges and pedestrian access.

9 December 1999 Swan Hill response to issues with further request that urgent steps be taken to finalise the lease documentation.

15 December 1999 Council (Lionel Danby) wrote to Somerfield (S Mayes) confirming appointment of Wellington Square Development Company Ltd, a joint venture between Swan Hill and HBG, as developer. He also confirmed intention to serve General Vesting Declarations on or before 5 January 2000, that Heads of Terms had been agreed for Kwik Save to take the food store unit and that the council was not aware of any amendments to them and "in terms of the very tight timescale the council is working within, I must secure your confirmation within 28 days of the date of this letter."

15 December 1999 Sanderson Townend and Gilbert ("STG") (Chartered Surveyors acting jointly with LSH for Swan Hill) wrote to Lidl UK GMBH confirming agreement in principle, subject to contract, for Lidl to take the proposed store on a 20 year lease at an annual rental of £130,000 with a 12 week rent free period.

11 January 2000 S Mayes of Somerfield wrote to Lionel Danby at the council advising that Somerfield was currently undergoing a strategic review of its business, and as part of this process were considering the Stockton store. They were thus not currently in a position to commit to the proposed new unit, and it was anticipated the review would not be completed until mid February.

13 January 2000 Mr Danby responded and expressed concern that the commitment sought in his earlier letter had not been given.

20 January 2000 Final development agreement completed with WSDC. Clause 17.2 of that agreement referred to the ongoing negotiations with Kwik Save in the following terms:

"17.2 The Developer:

17.2.1 Has offered to enter into a Pre-Let Agreement with Kwik Save Stores Limited or any subsidiary associated or connected company nominated by Kwik Save Stores limited for the grant of an Occupational Lease of the food store to be constructed as part of the Works on the terms specified in the Kwik Save Offer and which are approved by the Council

17.2.2 shall not withdraw the Kwik Save Offer and shall use all reasonable endeavours to conclude terms for such Pre-Let Agreement and to enter into the same as soon as reasonably practicable

17.2.3 shall use all reasonable endeavours to procure that Kwik Save Stores Limited is able to vacate the Kwik Save Land and take occupation of the new food store for trading purposes by the vesting date specified in the notice served pursuant to the GVD for the Kwik Save Land and shall use all reasonable endeavours to minimise the risk of or the amount of any claim being made against the Council for compensation for extinguishment pursuant to the GVD

17.2.4 shall provide to the Council on request copies of all correspondence between the Developer and/or its advisers and Kwik Save Stores Limited and/or its advisers relating to the terms offered to Kwik Save Stores Limited as tenant for such unit

Provided that if Kwik Save Stores Limited (or any connected company) does not accept the Kwik Save Offer or rejects it on or before the date which is three months from the date hereof or having accepted it fails to enter into a Pre-Let Agreement by the expiry of such three months the Developer shall be at liberty to negotiate a Pre-Let Agreement with another foodstore operator in substitution for Kwik Save Stores Limited"

24 January 2000 Council serve General Vesting Declaration on Somerfield Plc stating that the land will vest in the council within 243 days of the serving of the notices under section 6 (25 September 2000).

27 January 2000 Somerfield wrote to council expressing disappointment at 28 day deadline imposed on 15 December bearing in mind time and resources that had been committed since 1996, and that delays had been outside their control; that for a period of 6 months there was no development agreement in place during which time the future of the scheme was uncertain and it could not be presumed that matters would proceed in accordance with the original proposals. The letter sought the developer's forbearance whilst the company's strategic review was being carried out, but advised that if it did proceed with a third party, there would be no alternative but to close the store and seek compensation based upon total extinguishment of the business.

8 February 2000 Mr Danby wrote to Somerfield (after consultation with the developers) extending the deadline to 18 February.

14 February 2000 Swan Hill confirmed Lidl's interest to Mr Danby and sought his approval, in the light of Kwik Save's record of "prevarication", to enter into a conditional contract with Lidl. Swan Hill also advised their agents, LSH that they would still be happy, and indeed prefer, to deal with Kwik Save, but "it is, however, comforting to have Lidl in the background."

16 February 2000 Mr Danby advised the developer that he had no objection to such an agreement with Lidl, but warned that the council's solicitors, Addleshaw Booth, should see a draft to ensure that council was not put in a position whereby Kwik Save may claim total extinguishment "if they feel they are being cut out."

17 February 2000 STG advise the developer that Lidl has obtained board approval to the prospective transaction.

18 February 2000 Somerfield Plc issue statement confirming the sale of 46 stores, with 41 further units to be sold if acceptable offers received. The statement also said "The process of selling those Kwik Save stores not suitable for conversion to the Somerfield fascia continues and a number of expressions of interest have been received."

25 February 2000 S J Berwin (WSDC's solicitors) advises the developer that it would be obliged, under Rule 6A of the Solicitors Practice Rules 1990 (as amended), to inform Kwik Save's solicitors of any intention to issue contracts to another party.

28 February 2000 Developer advises STG of problems under Solicitors Practice Rules, but suggests detailed heads of terms should be agreed with Lidl as a safety net if Kwik Save does not proceed.

1 March 2000 STG advise developer that Lidl already have draft standard documentation, but are aware of the Kwik Save situation and will not be making any formal applications [eg application for a Justices Licence for the in-store sale of liquor].

29 March 2000 Mr Danby wrote to the developer suggesting they should re-open negotiations with Kwik Save, and reminding them that if they (the developer) should withdraw from negotiations, the council would be compromised in terms of a claim for extinguishment.

4 April 2000 Developer advises S J Berwin that blank copies of the Lease and Agreement for Lease have been forwarded to Lidl, who have raised some queries.

4 April 2000 Internal memo, Swan Hill (F J Low to I Pennington), saying "We should not make any contact with Kwik Save for the time being and I would hold off discussing with Lionel [Danby] if you can possibly avoid it. I do not see that it is incumbent upon us to push Kwik Save. They have all the relevant information and have had so for quite some time."

6 April 2000 S J Berwin wrote to developer expressing surprise that documentation that comprised part of a bible of draft documentation that had been provided to the developer (not for the purpose of submission of documents to Lidl), had indeed been forwarded to Lidl. They advised that they were now obliged to advise Kwik Save's solicitors, and if authority to do that was not forthcoming, then S J Berwin would have to withdraw.

7 April 2000 Developer responded to S J Berwin, saying "I am unable to give you authority to notify Kwik Save of our intentions, and I understand that, as a result of this S J Berwin will be unable to act for us in connection with the supermarket letting until the situation changes – in all probability on 21 April 2000."

18 April 2000 Somerfield Plc announces a new board structure, that it is abandoning plans to dispose of 350 Kwik Save stores, that Kwik Save will remain as a separate fascia, and will be developed alongside Somerfield by a new management team.

19 April 2000 Kwik Save instructed MOP to commence dialogue with the council regarding CPO compensation.

21 April 2000 Expiry of 3 month period of exclusivity in relation to the negotiations with Kwik Save under clause 17.2 of the development agreement.

28 April 2000 S J Berwin [the period of exclusivity having expired] advise Kwik Save's solicitors, Bullivant Jones, that they have been instructed to issue draft documents to an alternative party as Kwik Save has failed to accept the offer.

28 April 2000 Developer wrote to Mr Danby confirming that they have no option but to enter into detailed negotiations with Lidl. They said:

"As you are aware, we were contacted by Kwik Save/Somerfield's agents [MOP] late last week on a "without prejudice" basis. It was clear from the conversation that their clients were not prepared to accept the terms offered and indicated that they wished to enter into negotiations to improve the terms although no indication was given to what these may be. No offer was made.

In the circumstances we believe that we have no option but to enter into detailed negotiations with Lidl and SJ Berwin have been instructed to write to Kwik Save/Somerfield's solicitors advising that they are instructed to issue documentation to another party…..

….As you know we have tried and tried to make progress with Kwik Save/Somerfield but at each turn they have employed delaying tactics. We have no confidence in their willingness to commit to a new lease of a new supermarket and this is exacerbated by your advice that they have lost their liquor licence which, in addition to being an important element of the scheme's retail offer, was a condition precedent in Kwik Save/Somerfield's interest in this scheme at their insistence.

In summary we have tried very hard to agree terms with Kwik Save/Somerfield but given their lack of commitment and the commercial necessity of a good quality supermarket operator to the marketing effort, we do not see that we have any option but to pursue the Lidl offer.

Needless to say, we could not accept the very real risk that we lose the Lidl interest only for Kwik Save/Somerfield to fail to commit after a further period of prolonged prevarication."

3 May 2000 S Mayes of Somerfield advised Bullivant Jones by email that the conversation he had just had with the developer was the first time the company had been advised of the contents of the development agreement, and in particular the provisions of clause 17.2.

8 May 2000 Sean Mayes wrote to Ian Pennington at the developer seeking confirmation of the current position in terms of negotiations.

8 May 2000 Mr Danby of the council wrote to Fergus Low at the developer advising him that Kwik Save had appointed MOP to discuss compensation. He also said that, despite Mr Low's comments in his letter of 28 April, he had been assured by Sean Mayes and MOP that they have no intention of trying to improve the terms previously agreed. Kwik Save/Somerfield were intent upon reaching agreement to take the store and under their new chief executive there was a clear commitment to retain and develop profitable stores, of which Stockton was one. Mr Danby also said:

"I have noted your intent to pursue an agreement with Lidl and view this as a course you are bound to take to ensure the development is able to have a committed food store operator.

I would, however, urge caution with Kwik Save, and ask you to seek their absolute agreement to their withdrawal from their intent to trade in the new location before you sign up to Lidl.

If Kwik Save are thwarted in their recently avowed intent to remain in Stockton, I envisage a lengthy court or tribunal case that could end up costing both WSDC and the council a great deal."

9 May 2000 Bullivant Jones responded to S J Berwin noting that draft documents had been issued to another party, and said:

"Since your letter was received, our client has contacted yours and has been unable to obtain clear confirmation from your clients as the whether your clients are still prepared to deal with our client albeit at the same time as carrying on negotiations with a third party or whether your clients' position is that they have withdrawn from all discussions with our client.

We look forward to receiving your confirmation of the position as soon as possible and confirm that our client has not withdrawn from the proposed transaction.

We note you say our client has failed to progress the documents. The question arises as to what documents our client is supposed to have progressed. It appears from our file that in June 1999 the previous Developer informed our client that revised draft documentation would be produced, but nothing was ever received.

Since June 1999 a new Development Agreement has been entered into by the Local Authority. Neither we nor our client have been provided with a copy of this agreement or been made aware of its terms or their impact on the proposed transaction with our client.

Neither we nor our client have received plans or specifications of what is to be built. In view of this lack of information and the lack of any effort to supply it we do not see how our client could be expected to progress documentation even if it had received any.

There was correspondence around the turn of the year, and, in December 1999 the previous developer finally dealt with major points of principle which had been outstanding since June 1997, when the matters in question appeared to be agreed a meeting (sic) between our client, the previous Developer and their respective Legal Advisers, but the previous Developer had refused to incorporate the agreed points into the draft documentation.

The relocation proposal has been under negotiation for a number of years however, there have been considerable periods of time when the previous Developer was not in a position to progress the matter owing to its agreements with the Local Authority having expired and considerable delays on the part of the previous Developer in progressing documentation and incorporating previously agreed terms. The implication in your letter that the lack of progress has been due to our client's delay is therefore not realistic.

Our client has been surprised to learn that your clients' Development Agreement with the Local Authority provided for a 3 month period from the 21^st January for terms to be agreed with our client. This period does not appear to have been mentioned to our client and indeed your clients or the previous Developer do not appear to have made any effort on their part to progress the transaction during this period.

We look forward to hearing from you with confirmation of your clients' position as soon as possible."

12 May 2000 S J Berwin responded (by fax) with confirmation that their client does not wish to proceed any further with the matter, and sought the return of all documents and papers.

12 May 2000 Bullivant Jones asked S J Berwin if there would be any alternative terms under which their clients' might be prepared to proceed with Kwik Save.

12 May 2000 Fergus Low of the developer wrote to Mr Danby setting out the reasons why the board [of WSDC] had taken the decision not to proceed with Kwik Save/Somerfield, the influencing factors of which were the protracted past negotiations, an apparent lack of commitment on the part of Kwik Save/Somerfield, the indication from MOP of an intention to renegotiate terms, the eagerness of Lidl to conclude the transaction, the continuing negative impact on the marketing of the remaining units in the absence of a committed food store operator and concerns regarding Kwik Save's ongoing business. Mr Low said his colleague, Ian Pennington was adamant that MOP had indicated an intention to renegotiate. He concluded by saying that the board's decision had not been taken lightly and that in the final analysis, to delay agreeing terms with Lidl in the hope of settling terms with Kwik Save ran a very real risk of the company being left without a commitment from either, and that was commercially unacceptable.

15 May 2000 In the light of developments, Paul Moran of MOP instructed his colleague Peter Burke to investigate relocation opportunities as a matter of urgency.

16 May 2000 Sean Mayes wrote to Ian Pennington at the developer to enquire if their were any terms upon which they would be prepared to reopen dialogue.

19 May 2000 Mr Danby wrote to Ian Pennington saying:

"Whilst I am aware that WSDC is keen to treat with Lidl in respect of the new food store, I must express my concern about severance of dialogue with Kwik Save.

The development agreement between [the council] and WSDC calls for WSDC to make all reasonable endeavour to secure the tenancy of Kwik Save for the new food store.

I believe it is therefore incumbent upon WSDC to ensure that the request in Mr Mayes' letter for advice of alternative terms to re-open dialogue is taken very seriously. I believe that whatever terms have been offered to Lidl should also be offered to Kwik Save and if Kwik Save are able to match those terms then a strict deadline for agreement should be set. If Kwik Save are unable to match terms, or decline to proceed within your deadline, then we may consider you have acted reasonably in this matter.

I trust you will pursue this matter urgently."

22 May 2000 Fergus Low wrote to Ian Pennington saying:

"I had a brief telephone conversation with Lionel Danby on Friday.

It is clear that the council understandably wish to mitigate any compensation claim against them. In this connection, it appears that they wish to be seen as "honest broker" in endeavouring to give Kwik Save/Somerfield one last opportunity.

He suggested a contract race which I said would be unacceptable given the risk of Lidl's unwillingness to participate.

A more acceptable alternative may be for Kwik Save/Somerfield to put forward their best offer. This could be via the council with no commitment or encouragement on our part.

It is not ideal, but as long as there is absolutely no commitment on our part it may remove any opportunity for the council to pursue WSDC on the grounds of not having fulfilled its obligations under the Development Agreement.

Balanced against this is [S J Berwin's] view that we have complied with the obligations."

7 June 2000 Somerfield gave board approval authorising the claimant to enter into a pre-let agreement with WSDC

9 June 2000 Sean Mayes submitted a revised offer on behalf of Kwik Save/Somerfield to Ian Pennington at the developer. It was for a 15 year lease at an annual rental of £120,150 per annum with a 4 month rent free period. There would be a premium of £25,000, the first £5,000 to be paid on conclusion of a 14 day exclusivity agreement and would be non-refundable.

19 June 2000 Ian Pennington confirmed that WSDC "no longer wish to consider your offer and are proceeding with an alternative occupier."

19 June 2000 Sean Mayes sent a further revised offer to Fergus Low at the developer for a 20 year lease at £127,000 pa with no rent free period. The premium would be £100,000 with £10,000 (non-refundable) being payable immediately upon completion of a 14 day exclusivity agreement.

21 June 2000 Fergus Low responded saying that as WSDC were now on the point of concluding an agreement with another party the company is unable to deal with any other prospective tenant.

29 June 2000 Addleshaw Booth & Co (the council's solicitors) wrote to S J Berwin putting them on notice (in the light of Mr Danby's concerns) that the council was reserving its position in respect of its rights under the Development Agreement.

30 June 2000 Bullivant Jones wrote to Lionel Danby at the council to advise that, in the circumstances, their clients had instructed MOP to seek compensation based upon the total extinguishment of their business in Stockton.

30 June 2000 S J Berwin responded to Addleshaw Booth saying that their clients would use all reasonable endeavours to assist [the council] in minimising any claim for extinguishment from Kwik Save.

20 July 2000 Lionel Danby wrote to Kwik Save/Somerfield about possible alternative sites.

2 November 2000 Somerfield advised that they were unable to identify any feasible alternative site.

20 October 2002 MOP lodge Notice of Reference with the Lands Tribunal.

ISSUES

The principal issue to be determined by the Tribunal is whether compensation is to be assessed on the basis of total extinguishment of the claimant's Stockton town centre business, as contended for by the claimant. If it is not, it is to be assessed on the basis of a notional relocation, either into the new store that was constructed as part of the redevelopment scheme, or to one of two alternative town centre locations that the council considers were suitable for the purpose. In respect of either basis, there is disagreement as to the value of the remaining term of the claimant's lease on the subject premises, but, as I have said, if I conclude that either the claimant had the opportunity to relocate into the new store, and failed to act upon it, or one or both of the alternative locations were suitable, the principal compensation is agreed.

My conclusions as to the basis upon which compensation is to be calculated will turn principally on the evidence of fact, and the expert evidence of Mr Burke. I deal with this aspect first.

CLAIMANT'S CASE – Extinguishment or notional relocation?

Mr Poulton is Business Director of Property at Somerfield Stores Ltd and, prior to Somerfield Plc's acquisition of the Kwik Save Group of Companies in 1998 was with Kwik Save Stores Ltd from 1987. He said that although he did not have day-to-day conduct of the matter that is the subject of this reference, he was fully conversant with what was happening subsequent to the council's first announcement of the proposals in 1992. He set out in his report, in considerable detail, the history of the matter and the steps that his company had taken to negotiate its intended relocation into the proposed food store unit in the new town centre development.

What took place, he said, indicated beyond doubt that there was no material delay or prevarication as far as Kwik Save or its solicitors were concerned, as had been alleged by the council. Matters had been progressing and the travelling draft of the Agreement for Lease and Lease had been passing back and forth between the respective solicitors up until April 1999. The acknowledgement to Bullivant Jones' queries over two outstanding issues sent on 21 April 1999 was the last the claimant had heard from DLA. Mr Poulton went on to explain that, since the merger with Somerfield (which in his view did not affect the company's commitment to the new unit) a new procedure was introduced for gaining approval for significant capital expenditure. Whilst there was nothing to prevent negotiations taking place, and agreement in principle being reached for new acquisitions or leases, board approval was needed before funding could be committed. In this respect, a CAPEX (Capital Expenditure) committee was introduced, and a detailed business plan and proposal had to be submitted to it before authority for major items of expenditure would be given.

In the knowledge that matters were progressing, a costed proposal for Stockton was prepared for the CAPEX committee that was due to meet on 11 May 1999. However, it was not formally considered as the costings that had been prepared disregarded any compensation that may be payable as a result of the CPO, and Mr Terry Atkinson, deputy chairman of the committee, said that he required estimated compensation figures to be produced. Those figures were obtained from Paul Moran at MOP, and the proposal (the financial viability of which was not affected by the inclusion of the compensation estimates) was to have been put before the 15 June 1999 CAPEX meeting. However, Mr Poulton said that by then the fact that the Development Agreement between the council and Swan Hill had become time-expired had come into the public domain. Although the proposal was robust, and would, in Mr Poulton's view, have been authorised by the meeting, there was no point in it being considered then as, with no development partner in place, the council could not proceed with the scheme. As a matter of policy, projects were not put before the committee until matters were sufficiently far advanced for them to be almost certain of proceeding. Otherwise, he said, if figures changed in the interregnum, new proposals would have to be made.

Mr Poulton said that between June and December 1999, it was clear the council's agents were trying to "keep things warm", and there was some correspondence between Somerfield and Swan Hill. However, as there was no Development Agreement in place, there could be no guarantee that Swan Hill would be involved once the re-tendering process was completed. Whilst the company could not, therefore, progress matters to a conclusion, Richard Ellison of Somerfield wrote to the council (Mr Danby) in September 1999 regarding arrangements for a meeting, and re-confirming the company's continuing interest. At around this time, it was becoming apparent that problems were occurring in respect of Kwik Save's integration into the Somerfield group. An announcement had been made regarding a planned disposal of 350 Kwik Save stores – those which it had been concluded were either not profitable, or were not suitable for conversion to the Somerfield fascia. However, as far as Stockton was concerned, that store was not included on the list of proposed disposals as, at that time, it was intended that the new store would trade as Somerfield. Systems problems created by the merger also resulted in distribution difficulties, with subsequent stock shortages on the shelves. The share price was temporarily affected as was overall business performance. Despite all this, Mr Poulton said that at no time did Swan Hill or the council ever express to them any concerns regarding covenant strength or trading difficulties. If they had done, he said, he would have been able to address the situation.

Nevertheless, discussions continued regarding the proposed new premises, and Swan Hill wrote to Sean Mayes (who had joined the Somerfield earlier in the year and had responsibility for the Stockton store) in November 1999 saying that they were appointed (with HBG) as the developers for the scheme. They said that they were keen to ensure that the terms agreed between the parties should be settled as soon as possible and sought a meeting. Mr Mayes had responded on 2 December advising that the company was re-appraising its requirements and felt that a meeting at that stage would be inappropriate. He also sought answers in respect of two outstanding issues – those answers being given in a letter from Swan Hill a few days later.

Mr Poulton explained that it was at this stage that Mr Danby, Town Centre Redevelopement Co-ordinator of the council, got involved. He confirmed the appointment of WSDC as the council's development partner, advised that GVD's were to be served by 5 January 2000 and also sought to impose a 28 day deadline for Kwik Save/Somerfield to confirm its intention to proceed. That deadline was unrealistic and unachievable due to the fact that the Christmas period intervened, and that was also the company's busiest trading period. It was also, in his view, unreasonable bearing in mind the significant delays that had occurred on the part of the council, and in the light of that, and what he described as earlier threatened deadlines that had not, in fact, been adhered to (by the council or developer) did not take it too seriously. Despite this, further correspondence ensued (between Mr Danby and Sean Mayes), and the deadline was extended to 18 February 2000. No indications were given by the council that there was a contractual reason for the imposition of the deadlines, or any other explanation as to why time was of the essence. Of course, he said, those reasons only became clear much later on when the company found out about clause 17.2 of the Development Agreement and about Lidl's interest. Whilst Mr Danby had indicated that other food retailers were courting the developer, there was no mention of the fact that heads of terms had been agreed with Lidl on 15 December 1999.

In the light of the fact that the company saw no reason to take the imposition of the deadlines seriously, no attempt was made to get CAPEX approval between January and March 2000. However, with a change of chief executive and some of the board members at Somerfield in April 2000, the company policy as to Kwik Save changed, and a decision was taken not to dispose of any more stores, and to trade existing Kwik Saves under their original fascia. This meant, Mr Poulton said, that the proposal for the Stockton store could go back into the approvals process, and he instructed Sean Mayes on about 10 April 2000 to proceed as a matter of urgency. However, on 28 April the company received a letter from S J Berwin which advised them that they were acting for WSDC and, as Kwik Save/Somerfield had failed to progress the documents (via DLA), they had been instructed to issue draft documents to another retailer. This was the first time they had heard from S J Berwin, and the first they knew that DLA were no longer acting.

The email from Sean Mayes, that followed discussions he had had with the developer, was the first Mr Poulton knew about the 3 month exclusivity that the developer had been obliged to allow Kwik Save/Somerfield under clause 17.2, and was also the first indication that WSDC had concerns about covenant strength, the perception of Kwik Save in the market, and the fact that they thought Kwik Save's original offer was "soft". Mr Poulton said that if the company had been aware of clause 17.2, and the deadline that that imposed, they would have taken steps to obtain the necessary board approval and to proceed with all haste. That could have been done (as indeed it subsequently was) without going through the CAPEX committee process.

Therefore, having now been made aware of the urgency of the situation, and in the knowledge that a higher offer had been made by Lidl, Executive Board approval was obtained on 7 June and he and Mr Mayes attended a meeting with Ian Pennington of WSDC on 9 June to put forward a revised offer which they confirmed in writing that day. At around the same time, MOP were instructed to carry out an urgent search for alternative premises, as it was now clear that there was a real risk of the company losing out on the opportunity to relocate into the new store. On 16 June, Mr Pennington told Mr Poulton that the offer was not accepted, and the developer was proceeding with another party. A further increased offer was made (to Fergus Low of WSDC) on 19 June 2000, but this was also rejected.

Commenting on the documentation disclosed by the council and the developer in connection with this reference, Mr Poulton said it was clear that between June 1999 when the original development agreement became time expired, and 21 January 2000 when the new one was concluded, the council was not in a position to progress a new lease, even if the company had confirmed its commitment. It was also evident that by the time Mr Danby first wrote imposing a deadline on 15 December 1999, he was well aware that negotiations with a third party were well advanced. Indeed, the tender document submitted by WSDC in their pitch to become developer stated that they "have secured an acceptable offer from an alternative food store operator as a fall back option in the event that satisfactory terms cannot be agreed with Somerfield", and there was reference in a lettings schedule dated September 1999 to an offer having been received from Lidl. The fact that the developer amended the draft that Mr Danby had prepared of his letter to the company of 15 December, the fact that the company was not told about clause 17.2 of the Development Agreement, and the fact that negotiations in the early part of 2000 were with Mr Danby rather than the developer indicated, Mr Poulton said, that the developer had not used "reasonable endeavours" to conclude terms with the company. It was also relevant, he said, that the building works on the new store that were progressing during this period, were to the specification requested by Lidl.

In Kwik Save/Somerfield's view, it was clear from the disclosed correspondence that notwithstanding the obligations contained within the development agreement, there was no desire on the part of the developer to conclude negotiations with the company. The failure to advise Kwik Save/Somerfield of the contents of the Development Agreement was misleading and it was obvious, Mr Poulton said, that the developers wanted to treat with Lidl – that being why they had been kept in the dark. In his view, it was likely that the council and the developer had colluded to exclude the company from the development.

In cross examination, Mr Poulton accepted that the company sent a "dusty response" to Swan Hill's letter of 18 June 1999 in which it had stated that "you have been extremely patient with Swan Hill", that Swan Hill was prepared to stand by the transaction that had been previously agreed, and sought confirmation that "you remain prepared to proceed on this basis". However, he reiterated that Swan Hill were not, at that time, in a position to proceed as they had not been re-confirmed as the developer. Mr Poulton also accepted that, despite what he said in his evidence, there had been no formal deadlines set prior to that which was referred to by Mr Danby in his letter of 15 December 1999.

As to why the CAPEX approval was not obtained in any event in May or June 1999, Mr Poulton said that as terms had not been finalised, it was inappropriate to take the matter forward to that committee. He said that a proposal was not prepared for the February 2000 CAPEX meeting due to the strategic review that was taking place and, as it turned out, that meeting never occurred. Mr Poulton insisted that, had his company been aware of the deadline set out in clause 17.2 of the Development Agreement, approval would have been obtained. That agreement was not made available to the company, although the earlier (June 1996 and October 1998 (draft)) Development Agreements had been made available. There were, he said, means by which authority could have been obtained from the relevant executives in the absence of the CAPEX process. However, he accepted that, from the evidence of the Executive Summary prepared for in intended CAPEX meeting on 16 June 2000, and the contents of an email from his colleague Eileen Molloy dated 23 May 2000, there were, even at that late stage, concerns over whether approval would or could be obtained. Whether or not CAPEX or board approval had been obtained, Mr Poulton said, the developers had at not referred in correspondence to a pre-let agreement, despite having, it transpired, entered in to those with 24 other prospective occupiers of the scheme. However, he accepted that Swan Hill had written to Mr Mayes on 24 November 1999 trying to set up a meeting to finalise terms, and that Somerfield/Kwik Save had declined. Even if the subject of a pre-let agreement had come up, CAPEX approval would have been needed before it could be entered into.

Mr Poulton accepted that, in commercial terms, it was perfectly prudent for a developer to have a backstop (in terms of another potential occupier) in place in case his company did not proceed.

Mr Mayes joined Somerfield as a property manager in February 1999, and had day-to-day responsibility for the Stockton store from May of that year. Much of his evidence mirrored that of Mr Poulton, particularly in respect of the chronology of events. He said that he had not been involved in the preparation of the reports that were produced for submission to the proposed CAPEX meetings in May and June 1999, but set out in detail how they were structured and what they contained. In his view, the Stockton store's performance, profitability and potential for future contribution to the company clearly demonstrated the importance of retaining a presence in the town centre, and there was no doubt in his mind that if the proposal had gone before CAPEX, it would have been authorised. However he stressed, as Mr Poulton had done, that CAPEX approval was only sought, as a matter of policy, when a deal was virtually in place, and during the period from June 1999 when the earlier Development Agreement became time-expired, and January 2000 when the new one was put in place, no such approval would have been forthcoming as it was not known who the developer was to be. In any event, there were also still important matters outstanding (the service charge details and concerns over pedestrian access) and it was not until December 1999 that satisfactory answers to these were provided by the prospective developers. However, revised documentation that had been sought from DLA was still not forthcoming. That, he said, was surprising as, if the developers were as keen to proceed as indicated in Mr Danby's letter of 15 December 1999, he would have expected them to have been provided.

Bearing in mind the delays that there had been due to the problems with appointing a development partner, Mr Mayes said he did not take the imposition of a 28 day deadline in Mr Danby's letter too seriously. He kept Mr Poulton and Eileen Molloy (his line manager) appraised of developments and advised Mr Danby of what was happening within the company in terms of the strategic review, and the fact that the deadline imposed could not realistically be met anyway, due to the busy Christmas trading period. The fact that Mr Danby (and not the newly appointed development partner, WSDC) extended the deadline to 18 February was also not considered to be a date that had to be complied with. As to the proposed February 2000 CAPEX meeting, Mr Mayes said there was only a limited amount of updating required to the figures that had been previously prepared, and he still felt that approval would have been forthcoming but, due to the re-structuring projects that the company was going through (with which he was not personally involved) that meeting was cancelled and it would not, therefore, have been possible to meet that deadline. As it transpired, Mr Mayes said, Mr Danby, in attempting to impose deadlines, was misrepresenting the position. The terms of clause 17.2 of the Development Agreement gave until 21 April 2000 for matters to be concluded with Somerfield/Kwik Save, and, as Mr Poulton had said, if they had known about it, steps would have been taken to get the required approval.

Mr Mayes said that the fact that nothing was heard from WSDC during the January/February period, nor from Mr Danby between 8 February and the end of March, and the fact they had not been told about clause 17.2 meant that the developer was not abiding by its requirement to use "reasonable endeavours" to secure the agreement.

It was only at the end of March/beginning of April that the company's new strategy became clear and following the appointment of the new chief executive, things could move forward. Mr Mayes said he tried to move things forward, and on 3 May 2000 had a conversation with Ian Pennington of the developer. It was made clear to him that the developer did not want to treat with Somerfield/Kwik save, and it was in that discussion that he was first told about clause 17.2 – the exclusivity period having now, of course, expired. He then went on to summarise the further attempts that were made, with Mr Poulton, to conclude an agreement.

Mr Mayes said that when it became clear they were seriously at risk of losing the opportunity to relocate into the new scheme, Mr Burke of MOP was instructed to urgently seek out and advise upon alternative locations. He had been dealing with the company's portfolio for many years, and was well aware of the requirements. Mr Mayes said that he and Mr Burke made a number of visits to the town, and carried out extensive investigations. Several properties and sites were identified and considered, but none of those could meet the company's basic criteria – existing town centre premises, or a site capable of accommodating a minimum 10,000 sq ft sales area together with storage, loading facilities and a small, dedicated car park. The property also had to be accessible and visible and benefit from adequate pedestrian flow, with access to public transport.

Mr Danby was also asked to provide details of anything of which the council might be aware. Several properties were suggested but, by the time of the hearing of this reference, the council had agreed that many were not suitable. However, there were still two that in their view were. These were the former First Freeze premises, Prince Regent Street, Stockton ("First Freeze") and the former Top Rank cinema and site, High Street, Stockton ("Top Rank").

Mr Mayes said that First Freeze was not large enough to accommodate the company's trading format, being significantly smaller than the existing Wellington Street store, and was poorly configured. Even with two adjoining units, if they had been available (which they were not), it would have been necessary to have sales space on 2 floors, and that was not within the company's policy. However, bearing in mind the urgency of the situation, and the property owner's insistence that "he could make it suitable", Mr Mayes commissioned architects to provide a desk-top feasibility study, and sought trading forecasts based upon proposed size and layout. These confirmed his view that the premises would not have been suitable. It would have been a long, narrow store of only four aisles width, and would have a dead area that customers would avoid. The anticipated trading income was also very much less than the minimum required to make a unit profitable, and in any event the plans and projections had all been prepared on the basis that the adjacent premises would have been available. They were separately let on commercial leases, and the tenants therefore had the protection of Part II the Landlord and Tenant Act 1954.

The major concern with the Top Rank premises was that they had a very narrow High Street frontage. Whilst the site was large enough to accommodate a store of sufficient size, and it was in a suitable location, pedestrian access would be down a narrow alleyway. This was unacceptable in terms of visibility, and would have put them at a disadvantage to other local retailers. Approaches to the tenants of the units on each side of this narrow frontage had produced no response. The council had suggested that the store could be "turned around" so that the pedestrian access was from the existing service road at the rear. With the adjacent Corporation Hall that could be made available for demolition and incorporation within the new unit, Mr Danby had said he thought the scheme could be made to work. However, Mr Mayes said that not only was the suggestion that the main frontage was to the rear unworkable, but there was no parking and delivery access over the narrow service road would be impossible. Vehicles would not be able to turn around on site, and would have to reverse into the loading bay off the lane.

In cross-examination, Mr Mayes accepted that, from when he became involved with the proposals (May 1999) until the end of that year, the situation was that terms were virtually agreed between the parties, and it was only some fine tuning that was left to be concluded. He also acknowledged that the correspondence showed that the council and the (prospective) developer had been proactive during that period in terms of trying to take matters forward and that his letter of 2 December 1999 to Christopher Ives at Swan Hill could have been interpreted as an indication they may no longer require the unit. However, Mr Mayes pointed out that that letter also sought clarification of the two main outstanding matters, but agreed that he had not replied to Swan Hill's subsequent letter dealing with them. Neither had he replied substantively to LSH's letter of 16 November, despite having acknowledged its receipt. He accepted that, although he indicated that the imposition of deadlines was not taken seriously, internal emails showed that they were clearly aware of, and concerned by, the situation.

Mr Mayes accepted that both his letters of 11 and 27 January 2000 indicated that the claimant was not in a position to move forward, and that he had not responded to Mr Danby's letter granting a 6 week extension of time. However, he reiterated that throughout this period he was unaware of the clause in the Development Agreement, knowledge of which would have meant the urgency of the situation would have been apparent. However, he accepted that there was no obligation on the council to make a copy of the Development Agreement available and that the correspondence from Mr Danby was clearly sent with the intention of getting the company to commit to the scheme.

Mr Burke is a chartered surveyor, and head of retail agency at Mason Owen, Commercial Property Consultants of Liverpool, where he is a partner. He has acted for Kwik Save since 1991and has acquired 26 stores for them throughout the East Midlands, Yorkshire and the North East. He has also disposed of surplus space for the company. Although involved in the potential relocation of the Stockton town centre store since 1993, he said he was formally instructed on 15 May 2000 to urgently seek alternative premises, or a suitable site within the town centre, as by then it had become apparent that the developer was no longer prepared to progress the intended relocation to the new unit. Whatever alternative was found had to be deliverable by September 2000 as that was when the existing store would have to close, and it was important to maintain continuity of trade. In terms of identifying a suitable location, Mr Burke said that he had to bear in mind the fact that there would be competition from the new Lidl store opening in the town centre redevelopment scheme.

In addition to the immediate town centre, Mr Burke said he, together with Sean Mayes, considered a number of peripheral locations and carried out an analysis of the food store competition throughout the town and suburbs. This analysis demonstrated that there was adequate food provision outside the town centre, and the one clear opportunity to develop a unit within the town centre was that which was now going to Lidl.

As had been acknowledged by the council, most of the premises or sites identified as possibilities were not suitable, and of the two that the council thought were appropriate, Mr explained the reason why they were not. First freeze was unacceptable for the reasons that Mr Mayes had set out in his evidence. The premises were much too small, even if the two adjoining shops had been available. They were also 150 yards from the High Street and were physically divided from the town centre core by Prince Regent Street which is a 4 lane inner ring road. There was also a poor pedestrian footfall. As to the suggestion, put to him in cross-examination, that there was a perfectly adequate, light controlled pedestrian crossing on Prince Regent Street allowing shoppers from the town centre to access the premises, Mr Burke said that would not be sufficient to attract customers in the required numbers.

The former Top Rank premises at 100/101 High Street were located in a better town centre position than First Freeze, but the premises (the rear part of which has now been demolished to facilitate a proposed leisure development) did not meet Kwik Save's criteria again for all the reasons that Mr Mayes had rehearsed. In response to a question from me, Mr Burke said that due to the configuration of the site, and particularly the narrow High Street frontage and the delivery difficulties, the site would still have been unacceptable even if there was to be no potential competition from the new Lidl store, some 450 yards away.

Closing Submissions

Mr Lancaster said that there could be no question that the company had not taken sufficient steps to mitigate its loss. Both its revised offers made in May and June 2000 had been rejected by the developer, despite the fact that WSDC had not by then entered into a contractual arrangement with Lidl, and the second offer was, indeed, an improvement on the Lidl terms. The claimant offered to complete documentation within 14 days of the terms of those offers being agreed, but they were never given the opportunity. As to the council's arguments that the claimant had every opportunity to commit to the new scheme long before those revised offers were made, Mr Lancaster referred to the chronology of events and pointed out that for a 6 month period between June 1999 and 21 January 2000, there was no potential developer in place, so terms could not, in any event, be concluded.

There could also be no criticism of the claimant for not entering into a pre-let agreement. DLA had not produced the amended agreement for lease and lease during 1999, despite having been instructed to do so. Even if a pre-let agreement had been entered into, it would ultimately have been dependent, and conditional upon, finalisation of the eventual Development Agreement.

The deadlines imposed by Mr Danby had been without authority, as the council was not the developer and there must, Mr Lancaster said, be a serious question as to why, once the new Development Agreement had been completed, contact continued to be between the claimant and the council, rather than the developer. It appeared, he submitted, that the developer had deliberately sought to distance itself from the claimant as it had decided it wanted to treat with Lidl. There was no reason, he said, why the terms of the final Development Agreement should not have been made available to the claimant. If it had been, they would have been aware of the time limit that that imposed, and would have been able to comply with it. The argument that the information was commercially sensitive was unsustainable. Rather than it being the claimant who failed to take matters forward, it was WSDC who did nothing to meet their obligations within the terms of clause 17.2.

Finally, Mr Lancaster said that it was clear none of the alternative premises or sites were suitable and under the circumstances, therefore, the Tribunal should find that the claimant had no alternative but to extinguish its business in Stockton town centre, and to claim compensation on that basis.

ACQUIRING AUTHORITY'S CASE – Notional relocation or extinguishment?

Mr Danby is the Senior Projects Manager with the council, and was lead officer on the Wellington Square redevelopment project from 1997. He said it was his job to ensure the project met its objectives and produced best value for protection of the public purse. He was also concerned to 'get the project back on track' following the problems with the early Development Agreements and to obtain pre-let agreements prior to the final agreement being put into place, to ensure continuing and diligent progress.

He acknowledged that heads of terms were finally agreed with the claimant in August 1996 and that during the next 2 years the council had been pressing the then prospective developer to sign the claimant up to the scheme. It was important for the overall marketing of the development to get the key food store operator in place, and Mr Danby said he was keen that it should be Kwik Save as it was a popular trader with local residents. However, following the merger with Somerfield, and the announced intentions to close a large number of stores, he said he became concerned about whether the claimant really intended to relocate to the new unit. The response to the letter that Swan Hill had written in November 1999, following its being short-listed as the final development partner (with HBG Developments), requesting confirmation of the claimant's commitment to the scheme, indicated their interest was by this time tentative. Further announcements of intended store closures, and concenns about the company's ability to proceed, led to considerable activity by Swan Hill and the council to try to establish the claimants real intentions, but this was to no avail.

Mr Danby said these concerns resulted in his first "deadline" letter of 15 December 1999 in which he said, in part:

"I would very much welcome Somerfield/Kwik Save's continued presence in the town and believe that a foodstore operator would be beneficial to the proposed town centre scheme. I must inform you, however, that unless you are able to confirm that Somerfield will proceed to enter into a pre-letting of the proposed foodstore, we will be forced to assume that you have rejected the proposal of suitable alternative accommodation."

It was only upon the last day of the 28 day deadline period, 11 January 2000, that Mr Mayes responded saying that a decision was unlikely until mid-February. Mr Mayes wrote again on 27 January stating that the delays had been caused by the fact that the council had had to seek a new development partner. He also said that whilst the company's restructuring was preventing individual cases being taken forward, if the new store was let to a third party, the claimant would be seeking compensation for total extinguishment. On 8 February, following discussions with Fergus Low and John Burke of WSDC, Mr Danby said he made one further attempt to secure the claimant's commitment by extending the deadline to 18 February. No response was received and he assumed, therefore, that they no longer wished to be a part of the redevelopment scheme.

Notwithstanding, he said he wrote to WSDC on 29 March 2000 asking them to re-open dialogue with the claimant, and again on 8 May asking them to seek confirmation that the claimant did not intend to trade from the new unit. It was on 16 May that he was advised that the Kwik Save store was to close, and that compensation was to be sought on the basis of total extinguishment. Mr Danby said that the claimant was the council's preferred occupier of the new food store, but it was not unreasonable for WSDC to have a fall back position from an alternative food retailer. He said that he had been asked by Fergus Low in September 1999 what the council's view would be if Swan Hill (who at that stage were bidding to again be the preferred development partner) entered into negotiations with another potential occupier, due to serious concerns about the future viability of Kwik Save. He said that he had reminded Mr Low of the obligations that were contained in clause 17.2 of what was then the draft Development Agreement, but also said that the council did not wish the scheme to be jeopardised by this issue and acknowledged that it would be a comfort to have other options available.

Mr Danby said that on 19 May 2000 he wrote to WSDC urging them to take seriously the claimant's request to re-open dialogue, and to allow them to match Lidl's terms. However, he noted that the claimant's two revised offers were rejected by WSDC. In conclusion, he said that in his view, the claimant had every opportunity to either relocate into the new scheme, or to relocate to one of the two alternative sites that were, in the council's view, suitable.

In cross-examination, Mr Danby accepted that the council and the developer had had to show "the utmost patience" with the claimant during the period when negotiations were taking place. It was a fact, he agreed, that the council and the developer were bound by the 3 month exclusivity period in clause 17.2 of the Development Agreement, and as a result, he accepted that the 28 day deadline in his letter to the claimant of 15 December 1999 did not accord with that. He also agreed that, in respect of his second deadline, it was unreasonable to expect the claimant to sign up in what was effectively only 6 days. He acknowledged the failure of the council's or the developer's solicitors to produce the revised documentation that had been sought by the claimant's solicitors, despite requests to do so, and that the documentation that was sent from DLA to S J Berwin on 23 February 2000 related to the position as it had been over 1 year previously. He said he was unaware that it had not been produced, but in his view the lack of it need not have inhibited the claimant from confirming its commitment. That commitment would, of course, be subject to contract.

Mr Danby said that as the claimant was not a party to the Development Agreement, it would not have been appropriate for them to see a copy, although he did accept that they had been provided with copies of both the earlier ones. The latest agreement was commercially sensitive, he said, and if the claimant had known about the terms of clause 17.2 it could have given them a commercial advantage in the market, and might have meant that they could hold the developer to ransom over terms. He stressed that, whilst it was a fact that until the new Development Agreement was completed on 21 January 2000, the council was not in a position to take things forward, all they were seeking from the claimant was an unequivocal commitment to take the new foodstore unit. However, he accepted that a positive commitment would be contingent upon the Development Agreement being concluded, and upon requisite documentation being finalised. Whilst he had said in his letter of 15 December 1999 that he was not aware of amendments since 1996, he agreed that the documentation would have to have been changed to reflect the latest Development Agreement. Whilst, in terms of that letter, and his later one extending the deadline to 18 February, Mr Danby accepted that he was writing on behalf of the council rather than the developer, with whom the claimant would have treated, he said he was simply trying to get the commitment that was needed.

It was accepted that if the draft pre-let agreement and a copy of the Development Agreement had been provided to the claimant, they would have been aware of the real deadline (21 April 2000), and would have known that, if they did not sign up by then, they would lose out. He said that by 8 May 2000, when he wrote to WSDC urging them to seek confirmation from the claimant, he still thought they were in the frame, and accepted that there was nothing in correspondence that indicated otherwise. However, he said that he had formed the personal view that there could well be a problem, due to the fact that even at this late stage, no formal commitment had been forthcoming.

Mr Danby admitted that the council had concerns about the developer's failure to favourably consider either of the claimant's revised offers made in May and June 2000, hence the need for the council to formally reserve its position in the event that a claim for total extinguishment of the business should be forthcoming. As to his view that either of the two alternative sites could have been suitable for relocation, he admitted that he was not an expert in the requirements of food retailers.

Finally, in response to a question from me, Mr Danby said that the council and Swan Hill had been negotiating with potential occupiers for the other units in the scheme, including Marks and Spencer and Littlewoods, and they had committed and entered into pre-let agreements on the basis of the earlier Development Agreements. No revised pre-let agreements (from the original agreed heads of terms) had been entered into in the 6 month period between the second agreement becoming time-expired, and the final one completed on 21 January 2000.

Mr Low, who has 23 years experience in the property industry, was recruited from Stanhope Plc in June 1998 to the board of Swan Hill Group Plc and was managing director of all its main property holding subsidiaries until November 2001. He was alternating Chairman and a director of WSDC from its inception in July 1999. He said that Swan Hill had been involved with the proposed development for a number of years, having been appointed preferred developer in the early stages. Difficulties with funding had created the need for the council to re-offer the contract in 1999, but the final Development Agreement that commenced on 21 January 2000 was a joint venture between Swan Hill and HBG Developments. His company had, therefore, been continuously involved throughout the period during which a commitment from the claimant was sought.

He said that the occupier of the supermarket unit was crucial to the scheme, not least to attract other tenants. The claimant was an important and integral part of the proposed development, not least to the extent that the rent originally agreed represented a tranche of approximately 5% of the 70% letting threshold that was essential to be put into place before the requisite funding could be obtained. It was therefore commercially imperative to get the claimant to commit formally by way of an agreement for lease. Such commitments had been obtained from other retailers including Debenhams, Dixons, W H Smith, Superdrug, Marks and Spencer and Littlewoods. In all over 30% of the eventual occupiers signed up to pre-let agreements on the basis of re-confirmed commitments, and one new pre-let agreement was signed during the 6 month interregnum before the final Development Agreement went live. Obviously, Mr Low said, all the commitments and pre-let agreements were contingent upon the Development Agreement actually going ahead. As to whether or not the new Development Agreement should have been made available to the claimant, Mr Low was adamant that under no circumstances would WSDC have permitted disclosure either to them, or to any other interested party. He used the analogy of someone trying to buy a house…the prospective purchaser would not be so keen to bid if he knew that a period of exclusivity had been granted to another party. The information was commercially sensitive, and it would not have made any sense in marketing terms for it to have been disclosed.

Mr Low said that upon his arrival at Swan Hill in June 1998, there were already concerns about the lack of progress being made with the claimant. He set out details of the conversations he had with Terry Atkinson, Group Property Director of Somerfield, the correspondence that had passed between the claimant and Swan Hill and their respective solicitors during the period from mid 1998 to April 2000. The claimant's letters of 18 October 1999 (the situation being reassessed on its merits) and 2 December 1999 (currently re-appraising our own requirements) sounded warning bells that there may be problems, and this, together with the reported problems within Kwik Save/Somerfield indicated to Mr Low that the claimant appeared to have little appetite to progress negotiations. It was important to note, he said, that any criticism that came from the claimant relating to revised documentation having not been forwarded to their solicitors by DLA (and the dilatory nature of DLA's service was acknowledged), must be tempered by the fact that the principal terms were the same. The concessions relating to the service charges and the pedestrian link, and other matters specific to the Kwik Save unit that differed from the original documentation were "small beer", and not sufficient to prevent a contingent commitment being made. The majority of the pre-let agreements that had been entered into by other occupiers were based upon revisions to the earlier agreements. If they could do it, why, he asked, could the claimant not? The development scheme that WSDC was proposing was identical to that previously promoted by Swan Hill.

Whilst Swan Hill and the council were concentrating upon concluding an agreement for lease with the claimant, Mr Low said that expressions of interest had been received from other potential takers of the food store unit from the summer of 1999, including Lidl. They made a formal offer in December 1999 and terms were agreed, on a fall-back basis, Lidl being advised that no commitment could be made before 21 April 2000. On 20 April 2000, Mr Low said that his colleague at WSDC, Ian Pennington, heard from MOP to the effect that the claimant wanted to renegotiate terms, including a reduction in rent. In the light of the history of negotiations with the claimant, and the fact that a better offer had been received from Lidl, it was decided to proceed with them. In doing so the board were concerned as to the claimant's tactics, in that it might be trying to buy time in the context of the CPO. By its own admission, he said, the claimant had blown hot and cold on the proposed transaction, and had been unable to make a firm commitment.

Mr Low said that by the time the revised offer was received in May 2000, WSDC felt the claimant had been given long enough. There had been agreed heads of terms since 1996 and draft documents based upon those terms had been circulating for a very long time. At no time during this extended period had the claimant acted, in the view of WSDC, in a manner consistent with a party wishing to, or able to, conclude a transaction. The new attempts to progress matters were considered to be too little, too late. In his view, the developer had used all reasonable endeavours to conclude a deal with Kwik Save/Somerfield, but despite all their efforts, they never confirmed their commitment.

Cross-examined in connection with WSDC's negotiations with Lidl, Mr Low said that the draft documentation that was sent to that company was standard model forms, not the documents that related to the proposed Kwik Save transaction. It would not have been appropriate to send the same model forms to the claimant's solicitors, as their proposed transaction was much further advanced. All that WSDC was doing, Mr Low said, was acting with commercial expediency in setting up a backstop position in case, as was suspected, the claimant did not proceed. Whilst accepting that both of the claimant's revised offers in May and June 2000 were significant improvements on the originally agreed figures (at which they were prepared to, and indeed obliged to proceed under the Development Agreement), Mr Low reiterated that by then the decision had been made to treat with Lidl. The proof of the pudding, he said, was in the eating, and a material consideration in their ultimate decision was concerns over whether the claimant would, in fact, proceed bearing in mind the past history. He finished by saying that if the claimant had given the commitment that had been sought in late 1999 or early 2000, the developer would have 'slapped their hands off'.

Closing Submissions

Mr Ash submitted that the evidence rehearsed at the hearing had made the council's case even clearer in terms of the claimant's failure to mitigate its losses. It would have been well within its knowledge as an experienced and substantial food store operator that failure to act reasonably in connection with the offer of a unit within the new development would be likely to disentitle it to receive compensation for total extinguishment of its Stockton town centre business. Indeed, Mr Moran had advised in May 1999 that he could "envisage considerable difficulty in persuading the acquiring authority to accept a total extinguishment argument when you have been offered an alternative store to your own specification very close by."

It was the council's case that there was nothing to prevent CAPEX approval being obtained by the claimant during 1999, or in January or February 2000. There was sufficient detail in respect of the agreed heads of terms and it was only fine-tuning that was required for matters to be finalised. The claimant's response to correspondence in the latter part of 1999 and early 2000 clearly showed its failure to respond positively, or indeed sometimes at all, to the council's and the prospective developer's repeated urgings to commit. The claimant's continued vacillation was compounded particularly by the fact that it did not even respond substantively to Swan Hill's letter saying that they were prepared to stand by the terms of the original agreement, and sought a progress meeting. Agents for the claimant were informed by Swan Hill's agents that they were continuing to agree lettings during the consultation period for the appointment of a new developer but this did not produce the required response. Having dealt with the two outstanding points of principle raised by Mr Mayes in December 1999, Swan Hill suggested it was imperative that Kwik Save/Somerfield reappraise its requirements without delay, pending the imminent service of GVDs. No reply was received to that letter.

In connection with Mr Danby's letter of 19 December 1999, it was submitted that its unequivocal terms were fully understood by Mr Mayes, as evidenced by the contents of his internal email of 20 December; he was also aware that other interested retailers were courting the developer for the new unit. Despite the first deadline being extended to 18 February 2000, no response was received to Mr Danby's letter to that effect. It should be remembered, Mr Ash said, that the original heads of terms, by which the developer had said it was prepared to stand, had already obtained Kwik Save board approval (before the merger with Somerfield) and in the light of the need for a re-stated commitment, there was no reason why Somerfield's CAPEX committee approval could not be obtained, or approval by the exceptional route that Mr Poulton had described. Indeed, Mr Ash said, Mr Poulton had agreed in cross-examination that, if his company had been aware that failure to commit to the unit by a particular date would have resulted in it going to another occupier, the claimant would have adopted exceptional measures to meet the deadline. The assertion that the deadlines set down by the council were not taken seriously was either not credible bearing in mind the contents of the relevant letters or, alternatively, was a clear indication that the claimant had acted unreasonably. Mr Mayes had, in fact, admitted in cross-examination that the claimant's attitude had been "flippant".

Mr Ash said that the claimant's arguments that for a 6 month period before the final Development Agreement was put into place there was nobody with whom they could treat were unsustainable, given that a significant number of other prospective tenants had been able enter into conditional or contingent agreements. There was no merit in the contention that the claimant should have been made aware of the terms of the Development Agreement; it was not entitled to see a document that was designed to regulate dealings between the council and the developer. The argument that if it had known about the provisions of clause 17.2, the claimant would have met the 21 April deadline could not now be used as an excuse for not having given the required commitment. The fact was that it did not know about that clause, and there was no justifiable reason for not taking seriously the deadlines that it had been given.

Finally, Mr Ash said that whilst it was the council's primary case that the claimant had failed to mitigate its losses by moving into the new town centre unit, there were two alternative sites that had been identified that may have been suitable. However, he accepted that when considering them, the claimant would have had to bear in mind the fact that there would be a new Lidl store with which it would have to compete.

Conclusions

A claim for compensation resulting from the compulsory acquisition of a claimant's land and/or premises has to satisfy three conditions (see the judgment of Nicholls LJ in Director of Buildings and Lands v Shun Fung Ironworks Ltd 1995 2 AC 111 at 126). There must be a causal connection between the acquisition and the loss in question, the losses must not be too remote, and the claimant is expected to have behaved reasonably in terms of mitigating its losses. In this case, the first two conditions are not in question; it is the third element which I have to consider and in this respect, the question I have to answer is: has the acquiring authority established that the claimant behaved unreasonably in failing to accept the offer of alternative premises in the new town centre development?

On the question of behaviour, there is no doubt in my mind that the council and the ultimate developer, WSDC, can be criticised in respect of some of their actions. The fact that Mr Danby became involved as the prospective developer's "quasi-agent" from December 1999, rather than negotiations continuing directly with Swan Hill/WSDC, indicates to me that the developer was clearly trying to distance itself from the claimant. There was also, it appears, some breakdown in communications between the council and WSDC over Lidl's interest and, the failure of DLA to produce the revised documentation despite being requested to do so was reprehensible. Nevertheless, in the light of all the evidence, the correspondence and chronology of events, such criticisms cannot be considered determinative of the issue. On balance, I find the council's case more convincing, and in addition to the matters arising from the evidence that have lead me to my conclusion, to which I shall refer below, there are two aspects which persuade me the claimant was prevaricating (or behaving unreasonably), as a result of which it lost out on the opportunity to relocate to the new unit.

Firstly, it is a fact that 23 other retailers re-confirmed their commitment to the scheme prior to the final Development Agreement being put into place, and one new retailer committed during the June 1999 to January 2000 interregnum. If they could do so, it begs the question, why could the claimant not? Secondly, it is a fact that, whatever the circumstances of their interest being progressed, Lidl managed to obtain its own board approval in February 2000. It was therefore in a position to proceed when the way became clear, under the terms of the proviso to clause 17.2 to the Development Agreement, after 21 April 2000.

The arguments advanced by the claimant that it was not worth putting the proposals to the CAPEX committee in June 1999 because by that stage there was not a developer in place, simply does not, in my judgment, stand up to scrutiny. All that was being sought, it seems to me, was a commitment to the scheme and, as I have said, such commitments were obtained from others. Mr Ellison, Somerfield's senior property manager had, indeed, said at a meeting with Mr Ives of Swan Hill in May 1999 that the company was still committed to the proposal and it was agreed that Swan Hill would arrange for a new set of draft agreements for lease and lease to be sent to Bullivant Jones, the final terms of the original travelling draft remaining outstanding. The fact that the revised documents were never sent was unfortunate, but was not, in my view, critical in preventing the matter moving forward. Mr Low acknowledged DLA's dilatory failure to act upon Swan Hill's instructions, but I accept his comments that the principal terms (including the term and rent), were to be the same as the original agreement and it was only 'fine tuning' that was required. If it was the lack of documentation that was holding up the formal commitment, a truly committed prospective occupier would have made sure, in my judgment, that steps were taken to remove any remaining hurdles.

As it transpired, the June CAPEX meeting was scheduled for only a short time after Mr Ellison's meeting with Mr Ives, and the fact that the documents had not been received by then should not, in my view, have prevented the requisite authority, albeit on a contingent basis, being sought. I am satisfied that Swan Hill, despite at that stage not being finally confirmed as the developer, took all reasonable steps in the following months, both by themselves, and through their agents, to keep matters warm pending the final Development Agreement being put into place. It was, of course, imperative for them to obtain commitments from prospective tenants in order for the required funding for the scheme to be put into place. Without those commitments, the funding would not have been forthcoming, and the development would not have taken place.

It was acknowledged by the claimant's witnesses of fact that problems had begun to occur, certainly by September 1999, in respect of the integration of the Kwik Save fascia into the Somerfield organisation. Mr Ellison's and Mr Mayes' letters to Swan Hill of 18 October and 2 December 1999 respectively clearly indicate, in my view, that even if the documentation had been made available to Bullivant Jones, there were questions over whether or not the claimant would be in a position to proceed. This was borne out by Mr Mayes' subsequent response to Mr Danby's 19 December letter (not sent until 11 January 2000) and his further letter to Mr Danby of 27 January 2000. I accept that the council, Swan Hill and WSDC had every right to be concerned that the claimant would not proceed, and by January 2000 it was becoming critical that the anchor food store should be signed up as soon as possible. After all, the two outstanding issues relating to the service charge and pedestrian access had by then been, as acknowledged by the claimant, resolved to their satisfaction and there was nothing else, it seems to me, standing in the way.

In my view, whether Mr Danby had authority to impose deadlines or not, (and it seems to me he was just doing his job), the situation by December 1999 should have been crystal clear to the claimant. It was admitted in cross-examination that there had been no previous deadlines, despite what Mr Poulton had said in evidence, and I can therefore see no reason why they should not have been taken seriously. But, despite all the subsequent correspondence and discussions, and Mr Poulton's admission that the change of strategy that would have allowed the proposals to receive approval occurred in March 2000, it was not until 7 June 2000 that, ultimately, executive approval to proceed was obtained. By then it was, as Mr Low, rightly in my view said, "too little, too late." The developer's attitude in these latter stages could be described as unfortunate, but bearing in mind this was a commercial situation, and the history of the matter proves the council and developer had been extremely patient to date, was, I think, understandable. I accept that it would not have been appropriate for the Development Agreement to have been made available to the claimant, and am not satisfied with their argument that if it had been, the necessary commitment and subsequent entering into a pre-let agreement would have occurred within the required timescale. As I have said, even when the situation was known, it took until June 2000 for the necessary board approval to be obtained.

As to whether or not the claimant, through its agents, intimated that there was an intention to try to renegotiate the terms of the proposed lease, I am inclined to accept Mr Moran's categorical statement that they did not. Even if they had, that was only one of the concerns rehearsed by the council and would not, in itself, have been sufficient on its own to tip the balance toward treating with Lidl. In any event, it was clear that if the matter was to move forward it was to be on the terms originally negotiated, and the claimant could not realistically have expected to succeed in trying to better the terms. It was at that time, albeit unofficially, aware that there were other parties interested in the unit.

I am satisfied that Mr Danby's letter to the claimant of 19 December 1999 was written in a genuine attempt to obtain the commitment that had by then become crucial, and accept that, at that stage, the council was keen that the occupier should be Kwik Save. He was fully aware of the requirement under clause 17.2, and was keen to encourage the claimant to move things on as a matter of urgency. He was also aware of the potential for a claim for total extinguishment of the business if reasonable endeavours were not used to finalise matters and was careful to ensure that the developer accorded with terms of the Development Agreement. In my judgment, there can be no suggestion that reasonable endeavours were not made prior to the expiry of the 3 month 'exclusivity' period, and I think that both the council and the ultimate developer afforded the claimant every opportunity to commit to the scheme, despite the areas of criticism that I have referred to above. Mr Danby did continue to warn the developer about potential problems of treating with another party after 21 April 2000, but in my view he need have no concerns beyond that date, as by then the developer was free to conclude terms with Lidl, or any other party that had expressed interest.

For the above reasons, I accept the council's arguments, and conclude that the claimant failed to mitigate its losses by not confirming its commitment, and eventually signing up for the new unit that had been offered to them in the town centre redevelopment. As to the two alternative premises or sites, I accept Mr Mayes' and Mr Burke's evidence that neither of them would have been suitable. The former First Freeze premises were virtually on an island site, were off the immediate town centre, too small and poorly configured. In my view they could never have been made suitable, even if completely redeveloped, due to their poor location. The former Top Rank premises and site were much better located, but I accept the claimant's argument that pedestrian access through a narrow alleyway, with the resultant lack of visibility was a severely inhibiting factor. The council's suggestion that the main customer access could be from the rear was, in my judgment, unworkable. In respect of both of the alternatives, I am also mindful of the fact that the new Lidl store would have been in direct competition, and that was an important factor to the claimant in determining whether or not they met the company's criteria.

The parties have agreed that if I find that total extinguishment of the claimant's Stockton town centre business is not the appropriate method by which compensation is to be calculated, and notional relocation is, then compensation is agreed in the sum of £1,007,819. I therefore determine that element of the claim in that sum. It will not, therefore, be necessary for me to consider the accountancy evidence, or that of the expert valuers, other than in connection with the disputed value of the remainder of the claimant's lease, to which I now turn.

Mr Moran is a chartered surveyor, and is the director of Mason Owen responsible for all statutory valuations, including compulsory purchase matters, undertaken by the company. He said that he had initially been instructed in May 1999 to set out the options available to the claimant in terms of a claim for compensation resulting from the compulsory acquisition of their existing store. Setting out both relocation and total extinguishment scenarios in an initial letter of 18 May 1999, he said, in terms of relocation:

"Value of leasehold interest – you occupy the property under the terms of a 25 year full repairing and insuring lease which commenced on 18 July 1983. In 1993, the rent was agreed, as nil increase, at £46,500 per annum. The 1998 review appears not to have been triggered. There would therefore appear to be little in the way of profit rent available to you so the value of your leasehold interest is unlikely to be more than £10,000."

He also said, when considering the total extinguishment aspect:

"It is important to bear in mind that it is the claimant's duty to mitigate their loss under compulsory purchase. Total extinguishment is seen as the last resort in compensation negotiations. I can envisage considerable difficulty in persuading the acquiring authority to accept a total extinguishment argument when you have been offered an alternative store built to your own specifications very close by."

It subsequently transpired that the rent in 1998 had been reviewed to £52,250 per annum. In the claim for compensation that was submitted to the acquiring authority's agents on 14 August 2001, Mr Moran assessed the value of the remainder of the lease at £50,000. In his report he said that although the lease was due to expire in 2008, there was every chance that, in the absence of the redevelopment scheme, the tenant would have the opportunity to renew the lease. He said that considering the premises' excellent town centre location, if they were offered to the market at the valuation date, potential occupiers would have been prepared to "make bids of up to £50,000 key money" despite the fact that there was currently little or no profit rent.

By the time of the hearing, Mr Moran had identified a comparable which, he said, supported that figure. That was the Kwik Save unit at Shawcroft Centre, Ashbourne, Derbyshire where a short leasehold interest had achieved a premium of £40,000. The lease was due to terminate in 2013, and it was sold in March 2003 only 3 months before a rent review was due. The current profit rent, estimated at £6,000 per annum was, therefore, about to be eliminated.

Asked in cross-examination why he had claimed a sum 5 times higher than that which he had initially indicated to his client, Mr Moran said that was an initial figure "off the top of my head". He had since inspected the store and had obtained details of the comparable. He did not accept Mr Heldreich's argument that as the lease on the Ashbourne premises had longer to run (10 years) and it was a modern, purpose built unit in a shopping centre, it should be given no weight.

Mr Heldreich is a chartered surveyor, and a partner in Donaldsons of London where he leads a specialist team dealing with compensation matters. In his report he said that Mr Moran had produced no evidence to support his contention that the lease had a value of £50,000. In his view, the premises were not particularly well located, were unoccupied apart from the claimant's areas, and were in poor order. It was, he said, unlikely that the lease would be renewed on expiry and therefore there was little chance of anything other than a nominal sum being paid for the remaining term. In his opinion, there was a small profit rent at the valuation date of £2,750 per annum, which he capitalised to give a figure of £5,000.

In cross-examination, Mr Heldreich said he did not consider the Ashbourne property to be comparable for the reasons given above.

As to whether or not the lease would have been renewed in the absence of the redevelopment scheme, it seems to me that the freeholder of this town centre building, which apart from Kwik Save was empty, would almost certainly have been extremely keen to retain a covenant of this quality. In my judgment, there would have been little likelihood of attracting a new occupier to justify redeveloping that site on its own. The owner would therefore wish to preserve his investment, and his existing tenant. It seems to me that, if the lease had been marketed at the valuation date, in a no-scheme world, the claimant would have experienced difficulty in achieving anything other than a nominal premium for its remaining interest, even with there being every likelihood that renewal terms could be negotiated. It was agreed at the hearing that prior to the inception of the scheme, the town centre was somewhat run down, and incapable of attracting significant tenants. I accept the criticism's of the Ashbourne comparable, but bearing in mind I consider that the lease of the subject premises would be renewed and Mr Heldreich though it would not, I must attribute some value to that.

I therefore determine the value of the existing leasehold interest in the subject premises, at the valuation date, at £10,000. This is to be added to the compensation referred to above, and the total compensation to be paid by Stockton on Tees Borough Council to the claimant, Kwik Save Stores Limited, shall, therefore, be £1,017, 819.

A letter on costs accompanies this decision, which will take effect when, but not until, the question of costs is decided.

Dated: 18 May 2004

(Signed) P R Francis FRICS

Addendum on costs

I have received submissions on costs from the parties. The claimant acknowledges that a sealed offer, pursuant to Rule 44 of the Lands Tribunal Rules 1996, was made by the acquiring authority on 12 December 2003 at a sum which exceeded the amount determined by a considerable margin.

It accepts that there is no reason why an award should not be made in accordance with section 4 of the Land Compensation Act 1961 and the Lands Tribunal Practice Direction 19(3).

The council submits that there are no special reasons in this case which would justify a departure from section 4 or the Practice Direction.

The claimant did say that, if I were minded to exercise some discretion, the criticisms of the Council's conduct in para 66 would assist me in doing so.

However, I recall that those criticisms applied equally to the claimant's conduct (see final sentence of para 66) and in my view there are no circumstances prevailing here that would justify such discretion being applied.

I therefore determine that the claimant shall pay the costs of the proceedings, including those of the council incurred after 12 December 2003, but will be entitled to recover its own costs prior to the date of the offer. Such costs if not agreed to be the subject of a detailed assessment by the Registrar.

Dated: 7 June 2004

(Signed) P R Francis FRICS

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You are here: BAILII >> Databases >> England and Wales Lands Tribunal >> Kwik Save Stores Ltd v Stockton On Tees Borough Council [2004] EWLands ACQ_132_2002 (18 May 2004) URL: http://www.bailii.org/ew/cases/EWLands/2004/ACQ_132_2002.html Cite as: [2008] RVR 63, [2004] EWLands ACQ_132_2002