Spotlight on Compulsory Purchase Compensation

The compulsory purchase regime is a useful tool for bringing forward large-scale regeneration projects, but previous and current governments have highlighted the need to reform and simplify this regime to get Britain building. Recent compensation cases handed down by the courts emphasise how complex the regime is.

Supreme Court authority

In Secretary of State for Transport v Curzon Park Ltd and others [2023] UKSC 30; [2023] EGLR 36, four neighbouring sites were acquired by the Secretary of State. The local planning authority (“LPA”) granted each owner a certificate of appropriate alternative development (“CAAD”) for the development of its site, which included student accommodation. In doing so, the LPA, in contrast to the Secretary of State's view, considered each application in isolation.

This case reached the Supreme Court, which determined five key points:

1. In determining a CAAD application, the decision-maker must consider whether, at the valuation date, planning permission could reasonably have been expected to be granted, based on the cancellation assumptions and the circumstances known to the market at the valuation date. The latter means that CAAD applications/decisions which may have been made in relation to other land before the valuation date can be considered.
2. When constructing the "no scheme world", you cannot consider whether planning permission might have been granted for any land between the launch date and the valuation date.
3. CAAD applications and decisions are not the equivalent of planning applications and permissions, nor are they material planning considerations.
4. In determining a CAAD application, the LPA may treat the material submitted as a source of evidence, but only if it is relevant to an assessment of the circumstances known to the market at the valuation date.
5. When determining a CAAD application, an LPA may be required to assess whether, in the circumstances known to the market at the valuation date, it could reasonably have been expected that other sites would be brought forward for development. In assessing this, CAAD applications made in respect of other land may be relevant in showing how the market would expect landowners to seek to develop their land - although the degree of relevancy is a matter of planning judgement for the LPA.

This case highlights the complexity of assessing development value in compensation claims and the lengthy negotiations which can take place. The facts of this case are specific so, outside of significant schemes like HS2, it remains to be seen how often these issues will crop up.

The devil is in the detail 

Bashir v Newham London Borough Council [2024] UKUT 146 (LC); [2024] PLSCS 107 provides a helpful re-statement of the legal principles which apply to CAAD applications. CAAD applications do not require the same degree of detail as a full planning application, with the level of design being more akin to the pre-application stage. However, the claimant needs to provide sufficient detail (which may include drawings and illustrative material on matters such as access, massing and height) to demonstrate that the proposed scheme would receive planning permission.

This is especially important where design standards impose constraints on the scale of development. It is in a claimant's interests to give as specific a description as possible in a CAAD application to ensure that any CAAD granted is helpful in the valuation exercise.

When the Upper Tribunal (Lands Chamber) is determining a CAAD appeal, it must consider the matter afresh and in accordance with ordinary planning principles, and determine what a reasonable LPA, correctly addressing both law and policy, could have been expected to decide at the valuation date.

Injurious affection

In Castlefield Property Ltd v National Highways Ltd [2023] UKUT 217 (LC); [2023] PLSCS 168, National Highways acquired the sole access to a pub. Replacement access was provided over third-party land, but National Highways left Castlefield to unsuccessfully negotiate an easement for the right of way with the third party. Only once Castlefield made a tribunal reference, nearly nine years later, did National Highways undertake to acquire the land and grant an easement.

There are four key takeaways from this case:

1. A "before" and "after" approach should be taken when assessing the level of compensation for injurious affection, ie on the valuation date you: (a) calculate the value of the retained land before it was severed, disregarding the acquiring authority's scheme, and (b) deduct from this the value of the retained land after it was severed, taking into account the effect of the scheme and the severance from the acquired land.
2. There has been debate about the extent to which post-valuation date events can be considered when assessing injurious affection. The tribunal indicated that the parties can only have regard to matters that were known or anticipated at the valuation date, or which would have been known or anticipated by a reasonably prudent and properly advised purchaser. Therefore, here, a reduction in market value could be taken into account for the uncertainty over the new access rights because there was no easement in place on the valuation date, but not that it took nearly nine years to get that certainty.
3. The tribunal reiterated its preference for experts to produce residual valuations for development sites, and the importance of providing detailed comparables and evidence to support the judgments made by the valuation experts.
4. The tribunal questioned the appropriateness of using compensation surveyors (although this presumably applies to any expert) as expert witnesses at a tribunal, rather than, for example, relying on valuation experts, as it is difficult for them to remain objective and impartial if they have acted for their client on the claim over several years.

Loss of profits

In Warren James (Jewellers) Ltd v Watford Borough Council [2023] UKUT 153 (LC), the claimant relocated to a new unit following the acquisition of its original unit and sought compensation for permanent loss of profits due to increased overheads.

The tribunal explained that there is a presumption that the purchase price paid for new premises is something for which a claimant has received value for money and, as such, cannot be recovered from the acquiring authority. However, this is rebuttable, and compensation can be awarded for increased operating costs where the claimant has no alternative but to incur those costs and no benefit was derived from those costs which would have made incurring them worthwhile.

Here, the tribunal held that, for various reasons (including that there were no equivalent alternative units; the claimant was paying market rent; and the new unit was in a better location but the layout was worse), the claimant had not received value for money and suffered a permanent loss of profits.

This case is a useful reminder for business owners that it is very difficult to recover permanent loss of profits.

Valuation evidence

In Lloyds Banking Group PLC v Burnley Borough Council [2024] UKUT 020 (LC); [2024] PLSCS 21, the acquiring authority compulsorily acquired a residential property that was in disrepair. As the value of the property was less than the amount of the mortgage, the compensation had to be agreed between the landowner, the mortgagee and the authority. Communications with the landowner failed, so the bank made a reference to the tribunal.

The tribunal preferred the bank's expert's valuation approach, which was based on comparable sales of houses in similarly poor condition, compared to the authority's expert's, which assessed comparable sales of fully refurbished houses and then deducted the cost of the refurbishment works. The latter approach did not reflect the nuances of the buy-to-let market.

Disturbance from public works

In Fisk v Suffolk County Council [2023] UKUT 214 (LC), the claimant made a claim under Part 1 of the Land Compensation Act 1973 following the bringing into use of a new road to the rear of his garden, on the basis that lighting and noise disturbance reduced the value of his house.

A Part 1 claim grants a right to compensation to a landowner where the value of their land has decreased due to physical factors (eg noise, vibration, and lighting) caused by the use of public works. Compensation is calculated by comparing, at the valuation date, the market value of the property subject to the physical factors (the "switched on" value) with the market value of the property without those physical factors (the "switched off" value). The tribunal held that in a residential property market it is not possible to analyse evidence for small differences with accuracy; it is only possible to estimate the amount of discount a purchaser might expect to negotiate.

This case is a reminder that developers should consider the risk of Part 1 claims when preparing development appraisals. Liability for Part 1 claims sits with the authority, but they usually pass this on to developers, and as claims cannot be made until one year and one day after the public works come into use, the risk of these claims occurring can easily be forgotten.

A previous version of this article was published in Estates Gazette.