Court assesses land compensation using direct comparison method and awards 7% interest on acquisition date.

[*1655] 1972 April 29

IN THE DISTRICT COURT OP LIMASSOL

Gavriella G. Catsounotou,

Claimant,

and

Cyprus Telecommunications Authority,

Acquiring Authority.

(Reference No. 21/70).

Compulsory Acquisition of land - Compensation – Law Applicable - Article 23.4(c) of the Constitution and s. 10(a) of the Compulsory Acquisition of Property Law, 1962 (Law 13 of 1962) - Methods of valuation - Direct comparison approach method - Expert evidence by bothsides - Court not relying absolutely on the evidence of either expert - But made its own assessment by taking the evidence before it as a whole.

Compulsory Acquisition of land - Compensation - Interest.

Compensation - See under "Compulsory Acquisition of Land".

Interest - See under "Compulsory Acquisition of Land".

G. Cacoyannis with E. Constantinides, (Mrs.), for the Claimant.

A. Hadjiloannou with P. Kouzoupis, for the Acquiring authority.

JUDGMENT

The judgment of the Court was delivered by: -

LORIS. AG. P.P.C.: By virtue of the present [*1656] Reference under the Compulsory Acquisition of Property Law, 1562, (Law No. 15/1962), the Acquiring Authority, namely The Cyprus Telecommunications Authority, applies for the determination by the Court of the compensation payable to the above mentioned claimant in respect of letter's property compulsorily acquired.

The property in question is situated at Ayia Napa Quarter of Limassol town and is registered in the name of the claimant by virtue of Reg. No. 39550 dated 3/9/56; its survey reference is Plots 79/2/1 80,

81 of Sheet/plan LIV/58. 6. III.

The extent thereof is one evlek and 2504 sq. ft. (or 6104 sq. ft.). It is a two-storey building, the ground floor comprising

9 shops, 1 W.C. and a house of one hall, 6 rooms, 2 corridors, W.C., cellar, entrance with a staircase and yard and the first floor comprising one hall, 9 rooms, 5 corridors, 2 kitchens, 2 laundries, 2 bathrooms, 2 W.Cs. and 2 terraces.

As it appears from the file of the present reference, the Notice of Acquisition was published in the official Gazette of the Republic on the 13/3/70, and the Order of Acquisition was published on 3/7/70.

The Report on Valuation made by the expert on behalf of the Acquiring Authority together with two relevant maps were filed on the 15/10/71. They were produced at the hearing of the present Reference and they are exhibit 4, (Valuation Report) and exhibit 4A & 4B respectively. [*1657]

The Report on Valuation made by the claimant's expert together with an accompanying map and a list of rents of the property under acquisition were filed on the 23/1 0/71, these documents were marked at the hearing of this Reference as exhibit 1(Valuation), 1A (Map) and 1B (List of rents).

The expert on behalf of the claimant, namely Pandelakis Kyprianides, of Limassol, a retired District Lands Officer in Limassol, with 20 years experience as a valuer, gave oral evidence before us (C.W.1) in support of his valuation. Two more witnesses were called by the claimant; they are:

a) C.W.2, namely Panayiotis Economou of Limassol, the Manager of the Popular Bank of Cyprus, Limassol Branch, who gave evidence in respect of the outgoings and the sale price of a property sold by the said Bank in Limassol - a property referred to as comparable with the property under acquisition - and

b) C.W.3, namely George Catsounotos, the claimant’s husband who was managing the property ruder acquisition; he gave evidence mainly in connection with the rents collected from various tenants of the property under acquisition.

The Acquiring Authority called one witness only: Their expert, namely Georghids E. Kypreos, a retired D.L.O. Officer who acted as valuation officer at Nicosia for six [*1658] years, a Fellow of the Valuers Tnstitirte of London, now running a Valuation Office and Estate Agency at Nicosia. The witness gave evidence viva voce in support of his report (exhibit 4)

It may as well be added here that this Court, during the hearing of the present reference, on the application of counsel on both sides visited the property under acquisition as well as all the properties mentioned as comparable by both values in their reports in the presence of counsel on both sides, both experts, and representatives of both litigants.

Before dealing with the evidence adduced, we consider it convenient at this stage to consider the legal aspect of the case.

Article 23.4 (c) of our Constitution provides that any immovable property may be compulsorily acquired “upon the payment in cash and in advance of a just and equitable condensation to be determined in case of disagreement by a civil Court”.

Section 10(a) of Law 15/l962, made pursuant to the provisions of Article 23 Provides that "the value of the property shall, subject as hereinafter provided, he taken to be the amount which the property if sold in the open market on the date of the publication of the relative notice of acquisition by a willing seller, might be expected to realize"

From the notice of the present Reference and [*1659] particularly from the Statement of Claim filed by the claimant on the 23/10/71, it is clear that there was a disagreement as to the compensation payable by the Acquiring Authority The claimant alleges in far S/C that the market value of her property at the material time was £39,670. The Acquiring Authority submitted in their Notice of Reference that the value thereof is only &25,402; it seems though, from exhibit 4, that the Acquiring Authority has later reduced the amount to £23,050 only.

So we are called upon to decide what is the just and equitable compensation payable; and such compensation has to be assessed according to the market value of the property under acquisition as on the date of the publication of the relative Notice of Acquisition, i.e. the 13/3/70.

In Cripps on Compulsory Acquisition of Land, 11th edition, paragraph 4-178 at page

885 it is stated: "The value to be ascertained is the value to the owner of the land in its actual condition at the date of the notice to treat with all its existing advantages and with all its potentialities (but as possibilities and not as realized in the hands of the purchaser) and subject to restrictions on the use and enjoyment of the land and to the possibility of their removal.".

Further down in paragraph 4-184 under the head ’Known Wants of Any Particular Purchaser', at page 888 it is stated: "The value of the land in such a case is the value to the person so desiring the land, or the value to [*1660] the owner, as the case may he. The value to the owner is what it is worth to him, that is, what he would pay for it in an imaginary market, and he would not pay, nor is he entitled to a value arrived at by the capitalisation of the profits made by him from the use of the land. The value to such other person desiring the land is the value to him limited only to the extent that he must not be treated as acting under compulsion and therefore is the value to him as a possibility and not as realized in his hands' in relation to any particular scheme of his".

In connection with the methods of assessment of the market value, we have traced the following in Cripps on Compulsory Acquisition of Land, 11th edition, paragraph 4-193 at page 899: "The prices paid for comparable property in the neighborhood are the usual evidence as to the market value. Comparable sales are also plainly the best evidence of market value and are to be preferred to a value deduced from rents of comparable properties. The sales, however, must be of comparable properties or of properties such that the sales are capable of comparison by making adjustment for differences; and there would be 210 objection to comparing sales after the date of the notice to treat if they can be related back in the same way that sales well in advance of that date, required to be related forward... ".

In paragraph 4-195 at page 901 "Where there are no sales of comparable properties the value must be found in some other way; the usual method is to take rents of [*1661] comparable properties and deduce the value therefrom, and the same requirements as to comparable sales will apply...."

In the present Reference the expert called by the claimant (C.W.1) employed, to use his own words, the Direct Comparison Approach method from the investment point of view, as there were buildings on the property under acquisition, both shops and houses in a good condition which were leased at the material time to various tenants as per the relevant list which is exhibit 1B before us. The witness referred us to two sales which in his opinion can be considered comparable with the property under acquisition. These comparable properties are mentioned in his revert (exhibit 1) and are coloured yellow and green on exhibit 1A, the relevant man which accompanies his valuation report,

The expert called by the Acquiriig Authority has employed the same method of valuation that is the Investment Method and the Direct Comparison Approach with other properties sold, which in his opinion were comparable with the property under acquisition.

This witness referred us to 8 other properties sold which be considered comparable with the property, subject matter of the present Reference. These comparable properties are set out in his report, exhibit 4, and are marked by letters (a) - (*) (Greek theta) on the relevant maps which accompany his report and are exhibits 4a and 4b before us.

From the evidence of the expert of the claimant before us, it is clear that the property he has coloured [*1662] green on exhibit 1A (which is the same property mar-iced byletter 0 (Greek theta) on exhibit 4B) cannot be compared with the property under acquisition; the main reason is that the former property has old ruinous buildings standingon it and substantially has only site value. On this point, C.W.1, stated verbatim the following in his examinationin chief

"Q. What about its advantages or disadvantages as compared with the property under acquisition?

A……… I consider it as having site value only.

Q. So you do not think that this was sold for investment purposes but for demolishing and building.

A. Yes".

The expert of the Acquiring Authority admitted in cross-examination that but of the 8 comparable properties mentioned by him only two properties can be considered actually comparable; they are the properties marked (a) And on exhibit 4A. These properties we shall refer to, for convenience sake (as they were so

referred to during the hearing of the present Reference) as loannides property, (the one marked (a) ) and Laiki property,

(the one marked (b.) ).

This is what the witness stated in cross-examination

"Q. Then really you based your valuation mainly on two properties, the loannides and the Laiki properties.

A. Yes, for the valuation of the property as an investment. [*1663]

Q. Per the valuation of the property to arrive at its value.

A. As an investment".

We consider it convenient at this stage to summarize certain facts that transpired from the evidence before us in connection with the property under acquisition and the properties of loannides and Laiki which in the opinion of both experts are comparable.

The Property under. Acquisition: The hot ice of Acquisition was published on 13/3/70. The property is of an extent of 6104. Sq .ft. and is situated at Ayia Napa Quarter of Limassol town;; it abutts 3 streets, namely, Marcos Botsaris, Atiienon and Nikiforou Poka, (it may be added here that narcos Botsaris Street is not a blind alley as mentioned by Mr. Lypreos in his report, exhibit 4.It is a through street which is 26 ft. wide along the property under acquisition and further up it narrows down to 13 and

15 ft.; this is abundantly clear from the evidence of C.W.1 , and from, what we have seen for ourselves when we inspected the property under acquisition). The buildings standing on this property - described earlier on in our present judgment - which were in a good condition were leased at the time of the Notice

of Acquisition and they were yielding a monthly rent of £144 or £1726 per year. The rents of all the tenements were subject to

the Rent Control Law.

loannides Property: Sold on 24/6/70 for £25,000…The property is situated at Ayia Napa [*1664] Quarter of Limassol town and abutts two streets, namely Athenon Street and Archbishop Lynrianos Street. It is situated about 100 meters away from the property under acquisition and it was admitted by C.W.1 that its location is slightly better than the property under acquisition. The extent thereof is 4810 sq. ft.; the area, is limited though to 3970 sq. ft. after deduction of the portion affected by the Street Widening Scheme. Tae property comprises 2 large shops on the ground floor and a house and a terrace on the first storey. The aforesaid buildings which were in good condition, similar to the one of the property under acquisition, were leased and they were yielding at the time of the sale a monthly income of £1 01 (i.e. £1212 p. a.), analytically Ioann ides Shop £37 p.m., the house upstairs £20 p.m. and the Co-operative Drapery Shop p.m. The rents of all tenements were subject to the Rent Control Law at the material time.

Laiki Property; Sold in November 1970 for £62,000- The Property is situated opposite loannides property. It abutts three streets, i.e. Athenon, Georghiou Yennadhiou and Municipal Market Street. It comprises 14 shops and three staircases on the ground floor and 5 selfcontained flats with three staircases on the first floor. The aforesaid buildings were rather new having been built about 15 years ago. They were definitely in a better condition than the buildings on the property under acquisition. At the time of the sale the shops were leased at £204 p.m. i.e. £2448 yearly and the flats were leased at £9i p.m. i.e. £1092 yearly. Thus the yearly income of [*1665] Laiki Property was £3540 - The whole area of Laiki Property is 13390 sq. ft.

In Criers on Compulsory Acquisition, 11th edition at page 902 under the head 'methods of Calculation’, the following are stated inter alia :.. "The assessment of the value of land is an art to be

acquired by experience and as it is beyond the scope of this work to deal with the art of valuation, recourse must be had to

various works on that subject ....."

During the hearing of the present Reference we have been referred to such work of valuation, namely Modern Methods of Valuation by

D. M. Lawrence & W. H. Rees 4th edition. At page 5 of the said work under the heading ’Property as an ‘Investment’ we read the following--

"The normal steps in a valuation from an investment point of view are :-

(i) The ascertaining of the net income from the property

- i.e. the actual and/or estimated Rental less any annual outgoings which the Owner will have to meet.

(ii) An estimate of the rate of interest which may reasonably be expected from capital invested in this particular property.

(iii) The fixing of a capital sum such that the estimated net income will show the required percentage yield on the purchase price" [*1666]

Therefore the valuer has to determine first the net rental value, in order to achieve this he must deduct annual outgoings. In the aforesaid work of valuation at ages 94-105, the outgoings are referred to extensively.

They include --

(a) Repairs.

(b) Rates and taxes.

(c) Insurance.

(d) Management.

(e) Voids.

In order to arrive at the rate percent, we take the rents which the property yields, we deduct the outgoings, the net rental value is multiplied by 100 and we divide by the amount of the purchase price of the property thus arriving at the rate per cent. Having in mind the above approach, of valuation we shall now proceed to consider the valuation made by the experts.

C.W.1, the expert called by the claimant in his Valuation Report, exhibit 1, adopted the price of £6.500 mils per sq. ft. on the floor area of the property 'under acquisition, obviously directly comparing the property under acquisition with Ioannides Property sold according to his calculations at £6,544 mils per sq. ft. We really fail to see how such a comparison can be based on the investment method of valuation, he has alleged to have adopted, in giving evidence before us. It is true that in his aforesaid report he mentions the rents of the property under acquisition as well as the [*1667] rents of the two properties he has considered as comparable sales but we could not trace any indication that he has used the rents mentioned therein in connection with any valuation method or mathematical process, in order to arrive at the figure of £39,676- the market value placed by him on the property under acquisition.

It is true that in his evidence viva voce before us, he was speaking within the ambit of the investment Method, but we feel that in fixing the rate per cent at 4.06 he was arbitrary, whilst the figures he has given us in respect of outgoings (i.e. 15 for shops and 20 (for houses) were not based on data as he was neither aware of the actual outgoings of the property under acquisition nor of the outgoings of the properties he has used as comparable; and we do not lose sight of the fact that he was not aware of the sale of the Laiki Property when preparing his valuation report, as he himself admitted.

On the other hand the expert called by the Acquiring Authority was more consistent both in his report (exhibit 4) and his evidence before us with the Investment Method of Valuation he has adopted. We must say though that in respect of certain crucial matters he was quite arbitrary and dogmatic. These matters are mainly:

(a) The way he has calculated the rents of loannides Property, and

(b) The way he was calculating the outgoings.

It must always be bourne in mind that the calculation [*1668] of outgoings has a great bearing on the net rental value and of course in the resulting estimate of the rate percent. We intend to deal with each one of these matters separately.

(a) The rents of Ioannides Property.

It is in evidence that this property was sold on 24/6/70 and that at the time of such sale the two large shops and the upstairs house were yielding an annual income of £1212 as analytically explained earlier on. Mr. Kypreos, the valuer of the Acquiring Authority calculated the rent of the shop of loannides at £60 p.m. as the adjacent shop was leased to the Co-operative Drapery after the aforesaid sale at £60 p.m. He proceeded also to add another £5 p.m. to the rent of the house upstairs5 thus raising its rent to £25 p.m.

How ex post facto that is after the sale it is true that the rent of the Co-operative Drapery Shop was raised from £ 44 to £60 p.m.; but as for the other rents we do not know whether they would have been increased, and in fact that the shop and the house went into the hands of their former tenant does not allow such an arbitrary speculation.

We hold the view that all rents should be calculated as on the day of the sale.

On this topic we could trace the following in the aforesaid work of valuation at p. 21 under the heading determination of Rental Value’. [*1669]

"It has already been pointed out that in estimating the capital value of a property from an investment point of view the valuer must usually first determine its rental value.

The two factors most likely to influence his judgment are:

(i) The rents paid for other similar properties,

(ii) The rent, if any, at which the property is let.

In most cases it will be assumed that the rental value at the time when the valuation, is made - and consequently the net income from the property will continue unchanged in the future..."

(b) Calculation of Outgoings:

The expert of the Acquiring Authority fixed the outgoings at 6% on the rent of the shops and 12 on the rent of houses, relying on the general practice as he explained. It is significant to remember that this witness admitted frankly in cross-examination that he did not inquire either in the case of Ioannides propertynor in the case of the property under acquisition as to what their outgoings were. The same applies for the Laiki Property.

Although we have no evidence before us - except the speculations of both experts - as to the outgoings of Ioannides property and the property under acquisition, in connection with the outgoings of Laiki property we have [*1670] before us positive evidence of the Bank Manager in Limassol, Hr. Economou, C.W.2, whom we have no reason to disbelieve; according to his evidence, the outgoings per year before this Laiki property was sold, were £275 p.a. taxes £70 for insurance and £200 for maintenance, that is in all £545. And we heard C.W.2 saying that there were no voids and the Bank was managing its property without paying management fees.

The valuer for the Acquiring Authority admitted that he did not have in mind this piece of evidence and stated that his calculations on this topic should have been altered. In particular he admitted that the outgoings in the case of Laiki Property were not 6, for the shops and 12% for the houses but approximately they were reaching the figure of 17 % for both.

In the result the Valuation Report of Hr. Kypreos is obviously wrong in this respect, because relying on the figures of 6% and 12% outgoings, he has deducted from the rents of £3540 only £278 whilst in fact he should have deducted £545. Therefore the figures of £3262 net rent and the resulting rate per cent = 5.26% in his Report (exhibit 4) should be substituted as per his admission in cross-examination by £2940 in the case of the net rent and the rate per cent by 4.73% (i.e. 2940x100/62000 =4.73 %).

For all the above reasons we feel that we should not rely absolutely on the evidence of either expert in assessing the compensation payable to the claimant. [*1671] Relying on the authority of Rashid Ali & another v. Vassiliko Cement Works Ltd., (1971) 3 J.S.C. 459 at rage 472 we shall proceed to make our own assessment of the compensation payable to the claimant by taking the evidence before us as a whole.

We shall assess the compensation payable relying on the Investment method and we have decided to compare the property under acquisition with the Laiki Property for the following reasons: -

It is true that the sale price realized for Laiki Property is rather on the low side; the reasons have been explained by the anager of the Bank in Limassol. But it is also quite true that Laiki Property is better located than the property under acquisition and it is a fact that the buildings on the property under acquisition, although in good condition at the material time, were in fact buildings about 60 years old, with some renovations effected about 1 8 years ago, whilst the buildings on Laiki Property were at the time of the sale new buildings about 15 years old.

As we have decided to compare the property under acquisition with the Laiki Property, we shall utilize the rate percent for Laiki Property as we have found it, i.e. 4.73.

It is abundantly clear from the evidence of C.W.3 which we accept, as well as from exhibit 1B, that the gross rent of the property under acquisition per year was £1728 at the material time. In the absence of any other positive evidence as to the percentage of outgoings, we do accept [*1672] 17% for outgoings in the case of the property under acquisition as well. This amount of outgoings represents £254 p.a. for the property under acquisitions therefore the net rent of the property under acquisition at the Material time was £1434. This net rent capitalized at t e rate of 4.73% gives the figure of £30,8l8.

Accordingly we do hereby assess the compensation payable by the Acquiring Authority to the claimant at £30,818. -

We need not consider the allegation of the Acquiring Authority that from the compensation payable to the claimant the sum of £2660 should be deducted (as this amount was paid to the tenants by way of compensation for their removal) as the learned counsel appearing for the Acquiring Authority abandoned this claim when the learned counsel appearing for the other side was about to comment on it in the course of his final address.

The last point to be considered is the question of interest. The claimant in her S/C claims 9% interest on the amount of compensation to be assessed by the Court. The same rate of interest we have been asked to allow as from 13/3/70, the date of Notice of Acquisition, by the learned counsel appearing for the claimant in his final address. Two authorities were cited to that effect and they are: Yannis Anastass_Noti & another v. The Republic of Cyprus (1968 3 J.S.C. 285 and Rashid. AJi and another v. Vassiliko Cement Works Ltd., (1971 3 J.S.C. 459. [*1673]

The former case was an exceptional case with an "unreasonable and unjustified delay of 5 years and 3 months"; further the first appellant in that Reference was paying interest on a mortgage at the rate of 9% and that was within the knowledge of the Acquiring Authority. Even in that case the first appellant was awarded interest at 9% whilst the second appellant would receive interest only at 4%

In the latter case 7% interest was given on the amount awarded as from the day of the publication of the order of acquisition.

Under the circumstances following the decision of Rashid Ali & another v. Vassiliko Cement Works Ltd., (1971) 3 J.S.C. 459, we hereby allow interest at the rate of 7% p.a. on the amount awarded as from the day of the publication of the order of acquisition, i.e. the 3/7/70.

In the result judgment is hereby entered in favour of the claimant and against the Acquiring Authority in the sum of £30,818 with interest at 7% p.a. 011 the said amount from 3/7/70 till final payment with costs to be assessed by the Registrar.

Judgment and order as to

Costs as aforesaid.