Property Indices

1
Compulsory Purchase Compensation
2
CPO powers

• Public bodies with statutory powers
• Local authorities
• Highways Agency
• Utility companies
• Transport infrastructure providers
• Main sources of CPO powers
• Act of Parliament
• Order under Transport and Works Act 1992

3
Possession

• By agreement
• Price in accordance with Compensation Code
  (equal to compensation payable had land been
  compulsorily acquired, i.e. land value plus
  compensation)
• Following a Notice to Treat and Notice of Entry
• NTT served lt 3 yrs of CPO
• Respond with notice of claim
• May not receive compensation for new works or
  interests created after NTT date
• By a General Vesting Declaration
• Similar to NTT but conveys title to acquiring
  authority (AA) as well as giving right to enter
  and take possession
• By procedures for acquiring short tenancies (lt
  annual fixed or periodic)
• AA acquires superior interest and served NTQ (no
  compensation under CP legislation)
• Notice of Entry (compensation payable for any
  unexpired term)
• In response to a blight notice
• May bring forward acquisition if blighted
• NB. Blight may be due to other planning and
  development proposals as well as CPOs

4
Principles

• Who is entitled to compensation?
• Anyone with an interest in land, i.e.
• Freeholders
• Leaseholders
• Mortgagees
• No compensation for Easements and Restrictive
  Covenants, unless altered or extinguished
• Heads of claim
• Compensation for land taken (compulsorily
  acquired)
• Compensation for severance and injurious
  affection
• Where some land is taken
• Where no land is taken
• Disturbance compensation

5
The legal background

• Section 5 Land Compensation Act 1961 (as
  amended)
• SIX RULES FOR ASSESSING COMPENSATION
• No allowance shall be made on account of the
  acquisition being compulsory
• but, there are loss payments
• Basic loss payment (lower of 7.5 value of
  interest or 75k)
• Occupiers loss payment (complex rules)
• The value of the landif sold in the open market
  by a willing seller might be expected to realise
• Seller assumed to be willing
• Basically same as MV
• Can be difficult to get to MV if CPO has been
  around for a while BLIGHT
• MV includes
• Development and Hope Value (more later)
• Marriage Value and Ransom Strips, see Stokes v
  Cambridge Corporation (1961)

6
The legal background

• The special suitability or adaptability of the
  land for any purpose shall not be taken into
  account if that purpose is a purpose to which it
  could be applied only in pursuance of statutory
  powers, or for which there is no market apart
  from the requirements of an authority possessing
  compulsory purchase powers
• MV does not include enhanced value attributable
  solely to the particular use proposed to be made
  of the land under a scheme of which compulsory
  acquisition of the subject land is an integral
  part
• This element of value is not part of MV because
  it is not an element the owner could have
  realised in the open market
• No increase in value is to be taken into account
  if it is contrary to law
• For example, illegal user in breach of planning
  consent
• Where land is, and but for the compulsory
  acquisition would continue to be, devoted to a
  purpose of such nature that there is no general
  demand or market for land for that purpose, the
  compensation may if the Land Tribunal is
  satisfied that reinstatement in some other place
  is bone fide intended, be assessed on the basis
  of the reasonable cost of equivalent
  reinstatement.
• The provision of Rule 2 shall not affect the
  assessment of compensation for disturbance or any
  other matter not directly based on the value of
  land.

7
Valuation Guidance

• Must depart from Red Book definition of MV and
  follow statutory regs
• Land Compensation Act 1961
• Compulsory Purchase Act 1965
• Land Compensation Act 1973
• as amended by the
• Planning and Compensation Act 1991
• Planning and Compulsory Purchase Act 2004
• and case law!

8
The no scheme world

• Land Compensation Act 1961 (as amended)
• s.6 the Statutory Rule for disregarding the
  scheme
• No account is to be taken of any increase or
  decrease in Market Value due only to the
  acquiring bodys scheme
• The scheme is tightly defined in the Act, e.g.
• area covered by CPO
• New Town
• Examples of problems with s.6
• Where there is more than one CPO
• Where there is a developing and evolving New Town
• Point Gourde Principle
• Compensation cannot include an increase in value
  which is entirely due to the scheme underlying
  the acquisition
• s.9 Blight
• No account to be taken of the depreciation in
  value due to the threat of compulsory acquisition

9
Compensation for land taken

• Based on principle of equivalence
• Effects of CPO on value of property are ignored
• Value land on OMV basis without increase or
  decrease attributable to development which
  underlies the CPO
• Valuation date is earliest of
• date AA enters and takes possession (NTT
  procedure) or date title vested in AA (GVD
  procedure)
• Date values agreed
• Date of Lands Tribunal decision

10
Value of land taken

• If there is a market for the land, then MV
• Must disregard fact that acquisition is
  compulsory (i.e. willing seller)
• MV higher of
• EUV
• Development value (which may include marriage
  value or ransom value provided they would have
  existed in the no scheme world)
• Assessing the planning position (s14-17, Land
  Compensation Act 1961 (as amended)) the
  following may be assumed
• Existing planning permission
• Permitted development not yet implemented
• pp for acquiring authorities proposal (but ignore
  special suitability and wider scheme)
• pp in accordance with an allocation in a Local
  Plan
• Certificate of Appropriate Alternative
  Development (hypothetical planning permission)

11
Value of land taken

• If there is no market, then cost of equivalent
  reinstatement
• Difficult to justify if the interest is a short
  lease
• Uncommon in relation to business premises
• Four general tests
• Land must be used for a purposes that would
  continue
• No market
• Bona fide intention to reinstate
• If reinstatement cost is disproportionate then
  may not be allowed
• Whether market or not, if additional development
  permitted within 10 years of acquisition, owner
  is entitled to uplift

12
Ransom strips
Housing
Development Land
Road
Owner of yellow land gets of development value
of green land, in Stokes v Cambridge (1961) it
was 1/3
13
Severance and injurious affection

• Severance retained land loses values because it
  has been severed from the acquired land
• Injurious affection retained land loses value
  due to proposed construction on and use of
  acquired land for the scheme
• The latter is payable where
• part of an owners land is acquired, or
• no land is taken

14
Severance and injurious affectionpart land taken

• You own a business unit of 1,000 m2 which was
  split into two 500m2 bays. One is CPOd for
  railway development and compensation is paid
  based on MV of property acquired.
• If it is demonstrated that there is greater
  demand for 1,000m2 units than 500m2 ones and that
  the retained unit depreciated in value as a
  result of not being held with the part acquired,
  compensation would include an amount in respect
  of severance.
• If the retained land depreciated as a result of
  being adjacent to the railway line, compensation
  would reflect this injurious affection too.

15
Value where part of an ownersland is taken

• Statutory basis
• Value of land taken
• severance and injurious affection (which must
  be consistent with basis of claim for land taken)
  to retained land
• - set-off for betterment of retained land (cant
  be gt total compensation amount, i.e. least amount
  of compensation payable is nil)
• disturbance (if land is acquired at value that
  assumes EUV) see later
• So compensation is for
• Loss of Land (already discussed) and
• Reduction in value of the retained land (due to
  severance and injurious affection)

16
Value where part of an ownersland is taken

• How to Calculate
• Combine assessment of claim for land taken,
  severance, injurious affection and betterment
  together using a BEFORE AFTER valuation
  approach
• Agree value of whole property in a no scheme
  world
• e.g. MV before scheme 250,000
• Value remaining part in scheme world
• E.g. MV after scheme 200,000
• Difference (if any) is compensation
• i.e. 50,000
• NB. If the MV of land taken was 30,000, loss in
  value of retained land (due to severance and
  injurious affection) is 20,000

17
Injurious affectionwhen no land is taken

• Two options
• Execution of works and/or
• Use of works

18
Injurious affectionwhen no land is taken

• Execution of works
• s.10 Compulsory Purchase Act 1965
• Four rules must be satisfied (McCarthy Rules),
  injury done must
• be authorised by statutory power
• arise from that which would, if done without the
  statutory authority, have been actionable at law,
  for example, as a nuisance
• arise from a physical interference with some
  right, public or private, which attaches to the
  land
• arise solely from the execution of the works and
  not as a result of their subsequent use
• Valuation date date of loss
• Basis of compensation diminution in value of
  interest

19
Injurious affectionwhen no land is taken

• Use of works
• Part I Land Compensation Act 1973 (Part I claims)
• Enables an owner of a qualifying interest to
  claim compensation where no land is taken but a
  property is depreciated in value by the use of
  public works due to physical factors only
• Public Works (highway, airport, etc.)
• Physical Factors (noise, vibration, smell, fumes,
  smoke, artificial lighting, etc. not loss of view
  or privacy!)
• First date of claim 12 months after the use of
  the public works first commenced
• Last day of claim 6 years from the first claim
  day
• Valuation date same as the date you can first
  make a claim (see above)
• Basis of value Diminution in Value of Interest,
  based on Existing Use Value only
• Qualifying interest FH or LH business premises
  with at least 3 years unexpired and RV lt 29,200
  (2005 List)

20
Disturbance Compensation

• Rule 6
• Only if compensation is based on EUV
• You cant have your cake and eat it!
• The occupier can claim either
• Costs of Relocating the Business or
• Cost of Total Extinguishment
• in most cases the occupier will only be granted
  relocation costs.
• BUT a sole trader aged 60 or over in a property
  with RV lt 29,200 (2005 List) has a statutory
  right (s.46 LCA 1973) to opt for total
  extinguishment
• Certain interests in land may also be entitles to
  a loss payment in addition to other
  compensation due
• Investors have limited rights to compensation
  introduced by the PCA 1991 for the costs of
  re-investment in another UK property for up to
  one year from the date of entry.

21
Disturbance Compensation

• Typical relocation costs that can be claimed for
• Removal
• Legal, surveyors and architects fees and Stamp
  Duty relating to acquisition of new premises
• Special adaptations to replacement premises
• Loss of profits during move
• Diminution of goodwill following move (reflected
  in gross profits)
• Depreciation in value of stock
• Notification of new address to customers and new
  stocks of stationery due to change of address
• Typical extinguishment costs
• Value of business goodwill
• Loss on forced sale of stock, vehicles and PM
• Redundancy costs
• Admin costs of winding up the business

22
Acquiring short tenancies

• No requirement to serve a NTT but compensation
  arrangements similar to other interests
• Land taken compensation payable in respect of MV
  of LH interest and should reflect any renewal
  rights
• Severance and injurious affection right to
  compensation for diminution in value of retained
  land, even if retained land is held under a
  separate lease, provided it is adjoining or
  adjacent
• Disturbance only losses relating to period
  between date of entry and expiry of term are
  recoverable
• If tenant has security of tenure under LTA54,
  disturbance compensation can be claimed under CPO
  legislation or LTA54

23
Occupiers with no compensateableinterest in land

• Limited rights to compensation for occupation
  agreements that are less formal than a lease,
  such as tenancies at will, tenancies on
  sufferance and licences
• Compensation is for relocation costs and any loss
  of goodwill
• Regard is had to amount of time the land occupied
  would have been likely to have remained available
  for the purposes of the business and to the
  availability of other suitable land
• If tenant is holding over under LTA54 security of
  tenure provisions, disturbance compensation under
  the LTA54 provisions can be chosen if gt CPO
  disturbance payment

24

• Mr B is the owner-occupier of a bakery that is
  subject to a CPO and he has come to you for
  advice. He has lived in the upper part and run
  the bakery on the ground floor for the last five
  years. The rent is currently 70,000 p.a. for
  the whole property on an IRI lease with 10 years
  unexpired. The MR is 100,000 p.a. (60,000 p.a.
  for the shop part). The RV of the shop is
  40,000.
• Net profit from the bakery for last three years
  was 160,000, 170,000 180,000. Costs include
  rent, mortgage interest (10,000), repairs
  (5,000), rates (20,000) all relating to the
  whole building. Remuneration for Mr B (who works
  full-time) and Mrs B (who works half-time) has
  not been deducted. Mr B is 62 and does not wish
  to buy another business.

25

• Land taken (Rule 2, S5 LCA61)

Market Rent (IRI) () 100,000
Plus landlords expenses
External repairs () 5,000
Insurance () 5,000
Market Rent (FRI) () 110,000
Less rent paid () -70,000
Profit rent () 40,000
YP 10 years _at_ 8 6.7101
Valuation () 268,404
26

• Disturbance (Rule 6, S5 LCA61)
• Claim for total extinguishment under S46 LCA73
• Take ave of last 3 years earnings as best
  evidence of profitability

Net profit () 170,000
Mortgage interest () 10,000
Repairs for upper part, say () 1,000
Less (hypothetical) part-time assistant () -40,000
Less profit rent in respect of shop part, say () -30,000
Less interest on capital
fittings () 15,000
stock () 5,000
cash () 3,000
Total capital 23,000
Amortised at 8 x 0.08
-1,840
Adjusted net profit () 109,160
27
Adjusted net profit () 109,160
Capitalised in perpetuity at a target rate return of 20 5
Value of goodwill () 545,800

Additional items a
Sale of fittings to acquiring authority () 10,000
Notification to suppliers () 1,000
Loss on stationery () 1,000
Disconnection of services () 500
Removal costs () 3,000
Finding new living accommodation () 4,000
Home loss () 5,000

Disturbance compensation (based on total extinguishment) () Disturbance compensation (based on total extinguishment) () Disturbance compensation (based on total extinguishment) () 570,300
a Business is a bakery so there is no forced
sale of stock