Expert Report on Valuation of Land for Logipol SA
Paul Sanderson, an experienced valuation expert, has been asked to prepare an expert report for Logipol SA regarding the valuation of land to be acquired for an extension of Metropolis Airport. His extensive experience includes advising on land acquisitions, negotiating compensation for rail systems, and valuing properties affected by various developments worldwide. The dispute involves the valuation of land owned by Logipol SA, currently used for arable crops, with plans for airport expansion.
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ABBREVIATED EXPERT REPORT PAUL SANDERSON JP LLB (HONS) FRICS FIRRV
PAUL SANDERSON BRIEF CV Started professional life in the UK Valuation Office Agency (VOA) on 1 January 1971 over 50 years professional valuation experience in total From 1979 to 1991 specialised in compulsory purchase and the assessment of compensation In 1991, became the VOA s Director of Professional Services responsible for all statutory valuations carried out by VOA Extensive experience in litigation and provision of expert evidence in complex cases concerning property valuations Left the VOA in 2012 and set up company Sanderson & Sons with a focus on the valuation of specialised properties
RELEVANT EXPERIENCE Advice on land acquisition for the extension of Sydney airport, Australia Negotiating compensation for the development of high speed rail systems in the USA and Canada Valuation of properties affected by the expansion of harbour facilities in Hong Kong, China Preparation of expert reports in relation to properties being acquired for a new airport in Brazil Assessing compensation for properties affected by the development of airport runway extensions in Mexico Policy advice to the UK government on changes to the system of compulsory purchase and the assessment of compensation
VALUATION ISSUE IN DISPUTE I have been asked to prepare an expert report on behalf of my clients Logipol SA in respect of the valuation of land which they own, part of which is to be acquired for an extension of the adjoining Metropolis Airport Plans showing the land to be acquired which forms part of the agreed facts are contained on the following slides The land to be acquired forms part of a larger land holding, the freehold of which is owned by my clients The land is currently used for growing arable crops and farmed by my client s tenant Farmer Giles; his claim for compensation is a separate matter that is not the subject of this dispute
AGREED FACTS The total area of land owned by my clients is 100 hectares The property was acquired by Logipol SA in 2009 from a real estate developer; my clients paid 1 million for the land The area of land being acquired for the expansion of the existing airport is 20 hectares The land owned by Logipol SA has no current zoning or other planning designation for any form of development The value of the subject land for its existing use is 1.2 million The value of the subject land with planning permission for commercial development is 60 million
AGREED FACTS (CONTINUED) There is no evidence of market value for the intended use of the subject land for airport purposes Highway access to the airport is subject to traffic flow constraints at the junction of the highway and airport access road; these constraints are being remedied as part of the new runway proposal The area around the airport has been identified as having impaired air quality both nitrogen oxide and particulate levels which are already in excess of recommended levels The valuation date is 1 June 2022; that is the date when the airport authority took entry onto the subject land
THE BASIS OF COMPENSATION I understand that the legal foundation for the assessment of compensation in the present case is based on an international treaty The legal framework provides that compensation for this type of acquisition is based upon the market value of the relevant interest in land Market value is defined by the European Valuation Standards I have prepared my valuation of the subject land on this basis as shown in detail in Appendix XX In summary, my valuation of the land being acquired, on the required legal basis, i.e. market value as at the relevant valuation date, is 45 million
MARKET VALUE The European Valuation Standards (EVS) (9thEdition 2020) define market value in the following terms (EVS1): The estimated amount for which the property should exchange on the date of valuation between a willing buyer and a willing seller acting independently of each other after proper marketing wherein the parties had each acted knowledgeably, prudently and without being under compulsion. This definition of market value necessarily incorporates the concept of highest and best use to which I refer on my next slide
HIGHEST AND BEST USE The European Valuation Standards set out the following (at para 4.3.4): The concept of 'highest and best use' (HABU) is integral to Market Value and is the use of a property that is physically possible, reasonably probable, legal or likely to become so, and that results in the highest value of the property at the date of valuation. I have provided more detailed consideration of each of these four key principles in Appendix XX of my report In summary, my opinion of value is based on the application of HABU to the particular circumstances of this case
THREE APPROACHES TO VALUE As confirmed by the European Valuation Standards, there are three main approaches to value: (a) the market approach (b) the income approach (c) the cost approach In the case of the subject land, in my opinion, neither the income approach or the cost approach can produce a reliable estimate of the market value of the land at the relevant valuation date
EVS GUIDANCE The EVS sets out the following: In the Market Approach, the valuation is produced by comparing the property with the evidence obtained from market transactions that fulfil the criteria for the relevant basis of value and property type. My approach is to use as a starting point the market value of the land with permission for commercial development This value which has been agreed by both parties is based on prices paid for undeveloped land with similar potential for commercial development as shown in my Schedule of Comparables at Appendix XX and is therefore based on the use of a market approach in accordance with the EVS guidance
MY VALUATION Starting with the full development value of 60 million, I considered how much of that value a (hypothetical) willing buyer would be prepared to pay for the land without current planning permission (or zoning designation), taking into account that we are also to assume a (hypothetical) willing seller as at the relevant valuation date It is important to emphasise that neither party is acting under compulsion Whilst in some cases it may be appropriate to share the difference between the existing use value and the hope value 50-50 between the willing seller and the willing buyer, in the case of the subject land, in my opinion, that approach would be incorrect and unfair to the current landowner
MY VALUATION (CONTINUED) As the independent expert report prepared by Mr Planner (Appendix XX) makes clear, the subject land would have been likely to secure planning permission in the foreseeable future and would, in his opinion have obtained approval for rail-served logistics development which is what my clients had intended for the land That being the case, it is my opinion that the willing buyer would be prepared to pay 75% of the full development value of the subject land as at the relevant valuation date This valuation approach is in line with many other cases I have dealt with in different parts of the world where the circumstances were similar (see Appendix XX)
MY VALUATION (CONTINUED) An alternative way of looking at the position is to take the full development value of the land and deferring it for, say, 3 years that time period being what Mr Planner indicates in his evidence is probably how long it would have taken to obtain planning permission for development of the land in the absence of the compulsory acquisition Taking the future value of the land at 60 million and deferring it for 3 years at 10% produces a value of 45 million which is the same as my valuation based on 75% of the subject land s hope value I should add that the EVS definition of HABU ( legal or likely to become so ) incorporates the concept of hope value which I turn to consider next
HOPE VALUE It is generally accepted that hope value means: The element of value of land over and above the existing use value, i.e. it reflects the prospect of potential development/alternative use. This case clearly involves exactly that proposition and, as already confirmed, my valuation is based on the evidence of potential development of the subject land as outlined in the independent evidence of Mr Planner I acknowledge that hope value is, inevitably, a matter of valuation judgement However, based on all the evidence I have provided of similar situations both in the UK and around the world my professional opinion is that hope value is substantial in the case of the subject land
MR SMITHS VALUATION I have been asked to comment on the valuation of the land put forward by Mr Smith on behalf of the acquiring authority I understand that Mr Smith is prepared to accept that there is a very limited amount of hope value in the land which he considers is represented in his valuation of 2.4 million In my opinion, Mr Smith s valuation does not adequately reflect the market value of the land for commercial development purposes as the evidence clearly shows that, in the absence of the compulsory acquisition, permission for such development would have been obtained without undue difficulty
THE DUTY OF AN EXPERT WITNESS I should add the following: I have provided the required Statement of Truth and appropriate Declaration in the attached Appendices confirming my understanding of the role of an expert witness in these proceedings My primary duty is to assist the Tribunal in determining the open market value of the subject land as at the relevant valuation date as the basis for the payment of fair compensation for the compulsory acquisition of the freehold interest in the land being taken
CONCLUSION I have stated my opinion of the market value of the subject land and the basis on which it has been provided In my opinion, it is only reasonable and fair to ensure that the claimants in this case receive their proper entitlement to compensation for the land that is being taken from them My valuation reflects what in my experience and based on the evidence I have put forward is the price that would be agreed between a willing seller and a willing buyer for the subject land at the relevant valuation date I would be pleased to provide any further information that the Tribunal might find helpful
