Compulsory purchase and compensation - recent lands tribunal decisions

Journal of Property Valuation and Investment

ISSN: 0960-2712

Article publication date: 1 May 1998



(1998), "Compulsory purchase and compensation - recent lands tribunal decisions", Journal of Property Valuation and Investment, Vol. 16 No. 2.



Emerald Group Publishing Limited

Copyright © 1998, MCB UP Limited

Compulsory purchase and compensation - recent lands tribunal decisions

Compulsory purchase and compensation ­recent lands tribunal decisions

Keywords Compensation, Compulsory purchase law, Valuation rules

IntroductionLast year I reported on a case in which it was held that the Limitation Act applies to general vesting declarations and that where this procedure is used, valuers should be very aware of the six year time limit for referring disputed claims to the lands tribunal, otherwise the right to compensation could be lost. I noted with some relief, the comments of the tribunal in that case that at least there was no such worry where the older, but still common, Notice to Treat and Notice of Entry procedure was employed. A more recent decision indicates that the tribunal and I were both wrong on this point, and the six year limitation applies in all circumstances. It occurs to me that negotiations are so commonly lengthy in compulsory purchase situations that few of the cases reported in these columns in recent years would have even been considered by the tribunal if acquiring authorities had been aware of this time limit.

The main theme of this year's article is, however, the lengths to which the tribunal will go in order to arrive at a sum of compensation which it considers to be fair to the claimant. I refer to one case in which the interpretation placed on the law seems surprising to say the least, and another in which the tribunal took such exception to the law as it stands, that it simply decided to re-write the relevant section.

I also report a rare but interesting case concerning injurious affection where no land is taken, and include a brief update on ransom value, and the attitude of the lands tribunal to residual valuations.

Delay: statutory limitation periodA series of three decisions in four years has gradually raised the profile of "delay", as a principle of relevance to compulsory purchase valuers. It is now a matter which any practitioner in the field can ignore only at their very greatest peril.

The case of Frederick Albert Cooke v. Birmingham City Council (1994) was, I must admit, referred to in these pages (JPVI, Vol. 13, p. 84) more for the opportunity it afforded to inject some humour into an exceptionally dry subject, than for the importance of the legal issues which it raised. It concerned a compensation claim arising from a 1958 Housing CPO, which was eventually referred to the lands tribunal in 1991, between which dates they had received no contact whatsoever from the claimant. They had been little more enthusiastic themselves, their occasional offer letters and reminders being punctuated by two separate 13-year spells of inactivity. The claimant argued that the delay on the part of the local authority had disentitled it from pursuing the compulsory purchase order, and that he should be free to negotiate a sale price for the land, which had long ago become part of a sheltered housing development, on a ransom value basis. This argument was rejected by the lands tribunal on the grounds that "abandonment" could not be argued after the CPO had been implemented, and that implementation had occurred when the property had been demolished. Subsequent decisions suggest that it was the acquiring authority which had the stronger hand in any argument concerning delay.

General Vesting DeclarationCo-operative Wholesale Society v. Chester-le-Street District Council LT (1996) 73 P&CR 111, which I referred to in last year's notes (JPVI, Vol. 15, p. 91), concerned a dispute over compensation arising from a 1988 General Vesting Declaration, which was referred to the lands tribunal in 1994. The acquiring authority argued that the reference to the tribunal was out of time, and that the claimant no longer had any enforceable right to compensation. They referred to section 10 (3) of the 1981 Compulsory Purchase (Vesting Declarations Act) which states that the Limitation Act 1980 will apply to any reference to the lands tribunal. The tribunal concluded, somewhat to their own surprise, that the Council were correct and that any reference to the tribunal had to be made within six years of the General Vesting date. The implication of this was that the claimant could, at best, rely on the Council to make a discretionary payment of such amount as they may choose. The tribunal managed to avoid the obvious inequity of this enactment by deciding, on the facts of the case, that by continuing negotiations after the expiry of the limitation period, they had effectively waived their right to rely on it. They were, however, clearly concerned about the implications of their decision for future claimants, and were pleased to note with relief that at least:

...where an authority chooses to proceed in pursuance of a Compulsory Purchase Order by the more conventional route of a Notice to Treat, followed by a Notice of Entry, there is no statutory time limit for a reference of disputed compensation to the Lands Tribunal.

They were wrong.

Notice to Treat and Notice of EntryThe High Court in Hillingdon London Borough Council v. ARC Ltd (1997) 9729 EGLR 125-132, considered exactly that situation. It noted the above decision, commenting that "it is widely assumed that no limitation period is applicable until the amount of compensation has been agreed or determined".

The case centred around section 9(1) of the Limitation Act 1980 which states:

An action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued.

The local authority claimed that from the date of physical entry the claimant had a right to compensation which was "a sum recoverable by any enactment". It followed that any action to recover such compensation could not be brought more than six months after that date.

The claimant, however, argued that the cause of action was not complete until compensation was agreed or determined by the lands tribunal, and only then was there "a sum recoverable by any enactment". Since that date had not yet arrived, the limitation period has not even started to run by the date of the hearing.

The court felt that neither interpretation produced a particularly attractive result. Compensation claims often take a long time to resolve. If the local authority was correct, a claimant who has referred his claim to the lands tribunal, and who is diligently pursuing his reference, may find that his claim becomes statute barred while he is waiting for a hearing, unless he serves a writ before the High Court protecting his claim: a dangerous trap for the unwary. However, if the claimant was right, he could delay for ten or 20 years before making any reference to the tribunal. In this case 13 years had already elapsed, and if the claimant was correct, the limitation period had not even started to run. This would be an "anomalous and inconvenient result". While the local authority always had the option of making the referral themselves, to expect them to do so would be like asking a turkey to vote for Christmas, given that they would have to pay the resulting award of compensation.

The court felt that a sensible answer to its dilemma would be if a reference to the lands tribunal, rather than a decision of that tribunal as contended by the claimant, constituted "an action to recover any sum recoverable by virtue of any enactment". Under this interpretation, a claimant would have six years from the date of possession to make his reference to the tribunal, and from that date his right to compensation would be preserved. It considered a considerable volume of legal precedent before concluding that: first, the cause of action accrued from the date of entry, and on that date the limitation period started to run. Second, a reference to the lands tribunal is an "action to recover" compensation, and therefore such a reference would safeguard the rights of the claimant.

The Court was clearly concerned with the uncertainty of the law and Mr Stanley Burton QC ended his decision with:

a plea that the law on this question be clarified as soon as possible. If my decision is not appealed the position should be clarified by legislation. It is obviously highly undesirable that there should be uncertainty as to the law on an important question affecting rights and obligations between public authorities and the private citizen.

Clearly, the question of any limitation period on compensation claims was not considered by any of the protagonists in the Frederick Albert Cooke v. Birmingham City Council case. Given that the possession date was in 1958, the limitation period on the claimant's right to refer the matter to the lands tribunal had expired six times over by the date of the tribunal hearing in 1994!

In the light of the above decisions any surveyor dealing with compensation claims needs to take great care not to allow the six-year limitation period to elapse, and deprive his client of any enforceable right to compensation. His problem is that those dates are not yet clearly defined. The clock appears to start running on the date the acquiring authority takes physical possession of the land, though in the Co-operative Wholesale Society v. Chester-le-Street District Council case, the date of demolition of the property was surprisingly taken, and this may be appropriate where the General Vesting Declaration procedure is used. So far as the end date is concerned, referring the claim to the lands tribunal appears to be sufficient to protect the claim, though the court appears uncertain on this point and the date of agreement of compensation, or determination by the lands tribunal, is an alternative possibility. Either way, these decisions are now well known and there are surveyors out there who are dealing with claims on behalf of acquiring authorities, who are at this minute waiting for limitation periods to elapse so that they may gleefully write pointing out that any right to enforce payment of compensation has been lost. With luck, they may decide to graciously offer a discretionary payment of such sum as they consider appropriate. Be warned!

The land taken: ignoring the scheme, and severanceIn reading through lands tribunal decisions, I rarely come across a result which appears to be unfair to the claimant. However, the law of compulsory purchase and compensation is something of a jigsaw with occasional missing pieces, and I often come across decisions where the law seems to have been somewhat stretched in order to achieve the result which appears to the tribunal to be fair. In English Property plc v. Royal Borough of Kingston upon Thames (1996), it seems to me that the law was stretched beyond breaking point.

The case concerned a small area of land in the town centre which was cleared of buildings in 1962, and formed part of an important development site. Following consideration of proposals over a long period of time, a mixed development of retail, office, car parking, public house, and other town centre uses, known as Bishops Palace House was approved in 1976, and constructed by 1979. However, it was a requirement of the planning permission that the development had to be set back to allow for future road widening, and the subject land comprised part of that sterilised frontage strip.

It was common ground that the land taken was, "at the date of valuation, in its then condition, valueless". However, it was agreed between all the parties that the land should not be valued as it actually was, but as it would have been if the set back had not been required. In other words it was necessary to assume that the development, which had actually taken place 17 years previously, had not yet happened, and value the subject land at its value for inclusion in the development scheme. The justification for this approach was stated to be section 9 of the 1961 Land Compensation Act, which requires that any depreciation in the value of the relevant interest which is attributable to an indication having been given that the relevant land is, or is likely to be, acquired by an authority possessing compulsory purchase powers, should be left out of account. This seems to be a remarkable interpretation of section 9; a hitherto uncontentious provision which ensures that the blighting affect of a proposed CPO is not used to reduce the compensation payable.

Taking section 7 by the scruff of the neckHowever, counsel for the claimant wished to manipulate the law still further. Section 9 is clearly stated to apply only to the land actually acquired. The claimant owned other land which was not acquired but was also within the set back strip and effectively sterilised. Counsel had to accept that as the law stood, in assessing any severance and injurious affection under section 7 of the 1965 Compulsory Purchase Act, which may have been suffered in respect of the retained land, section 9 could not be used. He, therefore invited the lands tribunal to take section 7 "by the scruff of the neck", to include such loss in its award. The tribunal drew the line at this point, commenting dryly that "this is not a mode of statutory construction which we recognise".

Rebus sic stantibusThe whole approach taken by both parties seems to ignore the well established principle of rebus sic stantibus; take the thing as it stands, which requires that the land to be valued should be considered in its actual physical condition as at the valuation date, not in some other, hypothetical, state. Section 9, is a provision which may be useful in assessing the correct sum of compensation, once the land taken has been defined, it is not intended to be used in defining what is the land taken.

There have been many previous cases where, by the valuation date, the land was in some state other than it would have been if the underlying scheme had not existed. Most of the cases have been concerned with vandalism, where an area affected by compulsory purchase has deteriorated as demolition has been taking place, and properties in respect of which possession has not yet been taken, have fallen into a poor state of repair. Even where it was clear that the property was likely to have been in much better condition at the valuation date but for the scheme, the tribunal has traditionally been very reluctant to look at the property in anything other than its actual physical state at the date of valuation. The nearest it has previously come to breaching this rule was in Gateley v. Central Lancs New Town (1984), where it held the local authority 50 per cent responsible for damage to the subject property which took place prior to the valuation date, but even here it took great pains to stress the general principle of rebus sic stantibus.

However, even after taking this step the tribunal found itself in difficulty in arriving at a fair award. Even if the whole area of the Bishops Palace House had been a cleared site at the valuation date, as the tribunal assumed it to be, it would not follow that compensation should be assessed at full development value. The land taken was still too small to be developed in isolation, and although the adjoining land was actually in the same ownership, it is necessary to assume a hypothetical willing seller in a CPO situation. The land would have no development value to the hypothetical seller, though it would have a marriage value for incorporation into the adjoining site. An adjoining landowner would therefore be prepared to pay more than existing use value for the subject land but would not have to pay full development value, as he would be the only bidder for whom the land would have development value.

It is hard to understand why they did not again turn to section 9 to solve this dilemma. If this section allows the land to be looked at in the physical state that it may have been in had there been no scheme, it is no greater step, to use it to look at the land as if it were part of a large development site all in the same ownership, as it undoubtedly would have been had there been no highway scheme. However, it took a different approach.

Having decided that the land was worth £171,400 at full development value, the tribunal took its second major liberty with the compensation code, in order to avoid having to award compensation at a lesser figure. It decided that it was likely that an open market sale of the subject site would have fetched £85,700, i.e. 50 per cent of the marriage value which would be released by merging the two sites. The claimant had therefore lost £85,700, which it could have realised in the real world (it was, remember, actually also the owner of the adjoining land). This sum had been lost because the land taken had been severed from the other land of the claimant by the CPO, and the tribunal awarded that sum in severance in respect of the land taken, producing the following award in total:

Land taken £85,700 Severance £85,700 £171,400

The problem with this approach is that severance is ahead of compensation which is applicable only to losses incurred in respect of land retained, and cannot be applied to the land taken. This point was considered by the tribunal in Abbey Homesteads Group Ltd v. Secretary of State for Transport (1982) 1 JV 41, and in even more detail by the Court of Appeal in Hoveringharn Gravels v. Chiltern DC (1977) 237 EG 811. In the latter case Roskell LJ considered the wording of section 7 of the 1965 Act in detail, commenting:

In construing the words by reason of the severing of the land purchased the latter words "or otherwise injuriously affecting the other land" cannot be ignored. It seems to us clear that the section on its true construction is envisaged as an additional head of compensation for the owner of the land taken by reason of other retained land of his being less valuable to him through that retained land being severed from or otherwise injuriously affected by the compulsory acquisition of the land taken.

For a more detailed consideration of this point see a paper called "Severance and the land taken", which I wrote in 1982 for the first edition of the Journal of Valuation as it was then called; JV, Vol. 1, pp. 9-15.

In defence of the tribunal it must be said that its first great leap, to look at the land as if it were in something other than its actual physical state at the valuation date, was agreed between the parties, rather than decided by the members of the tribunal, though they did appear to embrace the principle with some enthusiasm. The second, to pay severance compensation in respect of the land taken, is a flaw in the compensation code which is painfully overdue for review. However, even after taking all these steps to avoid the legal constraints of compulsory purchase law, the outcome, by any reckoning remains unfair.

The claimant's loss actually occurred at the date planning consent was granted, subject to the requirement to set back the development behind the proposed road line. It is arguable that this was more a restriction on his not inconsiderable planning windfall than a true loss, and also that any loss is a matter for planning compensation at that time, rather than something which should wait for the future highways CPO to be remedied. The fact that compensation for planning refusals and restrictions in this country is limited to a few very exceptional circumstances is a matter of misfortune for many would be developers, not just the claimant. Other land which was included in the setting back strip was also thoroughly blighted, and was not subsequently acquired, presumably because the road proposals had changed, and no compensation was payable in respect of that land. Why should the victim of a planning refusal be uncompensated unless he is fortunate enough to be later the subject of a Compulsory Purchase Order.

Alternatively, if the purpose of compensation is to ensure that any financial loss suffered as a result of a scheme is recovered, then what about the argument on behalf of the claimant that section 7 should be taken by the scruff of the neck to ensure that he is fully compensated. The tribunal decided that other land which the claimant owned in the setting back strip which was not acquired was depreciated by the scheme to the tune of £630,000, but that compensation was not payable. It is heartening for the interested reader, if not for the claimant, to know that there are steps beyond which the tribunal will not go.

Revocation of planning consent: planning assumptionsThe tribunal appears to have had no qualms about taking the law "by the scruff of the neck" in the case of Colley v. Canterbury City Council (1991), where the relevant statutes were absolutely clear, but produced such an absurd result that the tribunal felt obliged to find some way around a literal reading of the planning assumptions. It did so by the simple expedient of re-writing section 164(4) of the Town and Country Planning Act 1971 (now section 107(4) of the Town and Country Planning Act 1990 as amended by Schedule 6 of the 1991 Planning and Compensation Act). Note that this decision was issued in 1996 as it took until then for the question of costs to be resolved.

Planning consent was granted for demolition of a house, and construction of a new house, in 1961. The house was demolished in the same year but rebuilding did not take place and it was generally thought that the permission had lapsed. However, in 1987 the local authority acknowledged that the planning consent for a new house remained valid, and immediately revoked the 1961 consent. The case concerned the amount of compensation payable for the revocation of planning permission assessed in accordance with section 164 of the 1971 Act: the difference between the value of the land with the consent, and its value without. However, section 164(4) states that in assessing any depreciation, it shall be assumed that planning permission would be granted for development of any class specified in Schedule 8 of the Act, and one of those classes is the rebuilding of a house which was in existence in 1948, as was the case with the demolished house. In other words the before value was the value of the site with planning consent for building a new house. The after value was the value of the site without any planning permission but on the totally unrealistic assumption that planning permission would have been granted. The value on both approaches was the same and therefore no compensation was payable!

The tribunal could not deny the logic of the compensating authority's argument. Nor, however, were they prepared to accept that the claimant should be confiscated of an extremely valuable planning compensation without compensation commenting that,

The interpretation of section 164(4) sought by the compensating authority produced a result contrary to sense and reason in that it required an assumption that planning permission would have been granted for the very operations which have been revoked.

The local authority argued that if unfairness resulted, this was not a reason for construing the statute other than in accordance with the words used in the statute.

The tribunal could not accept this degree of unfairness and the member, J.C. Hill T.D. FRICS concluded,

It seems to me that in revocation order cases section 164 will only operate as parliament intended it to operate if the development resulting from the Schedule 8 assumption, although a hypothetical one, is not that which also corresponds with the subject of the associated revocation order. This could be achieved by notionally adding to at the end of subsection (4) of section 164 words such as "unless such planning permission is the subject of revocation order proceedings". Unless such a construction is inferred unfairness and hardship will result in cases such as the present case and it would be open to compensating authorities in similar case to avoid paying compensation by waiting until demolition had taken place before making demolition orders.

The tribunal was then able to award compensation for the depreciation resulting from the revocation of planning consent, based on an after value which excluded any assumption that the former house could be rebuilt.

Injurious affection: section 10, 1965 Compulsory Purchase ActA large proportion of the cases which come before the lands tribunal concern claims under Part I of the 1973 Land Compensation Act, for depreciation in the value of property where no land is taken, but where the property is sufficiently close to suffer from the physical factors arising from the works, such as noise, smoke and fumes. Part I does not cover loss in value due to the construction of the works, and the tribunal often has to first decide on the amount of depreciation suffered, and then apportion that sum between depreciation caused by physical factors, which is compensatable, and that caused by the construction and existence of the road, which is not.

Section 10 of the 1965 Compulsory Purchase Act deals with compensation, where no land is taken, for depreciation cause by the actual construction of public works, and it has often puzzled me why more Part I claims are not complemented by a section 10 claim with a view to recovering that element of loss which is not covered by Part I. The pros and cons of making two claims were demonstrated in the case of Cliff v. The Welsh Office (1996). The claimant had already recovered £600 from a Part I claim, and this decision related to the section 10 claim. The difficulties and complexities of establishing a claim were well illustrated, but the claimant achieved limited success, and therefore this approach may well become more common in future.

The case concerned a semi-detached house which was affected for a period of almost seven years by various stages of road works in connection with the upgrading of the adjacent A55 trunk road at Llanfairfechan, in North Wales. A further £600 was claimed for depreciation caused by construction works and this appears to have been something of a test case for a number of similarly affected properties. Reference was made to a large number of previous decisions including Metropolitan Board of Works v. Macarthy (1874) which set out the following four qualifying rules:

(1) The injurious affection must be the consequence of the lawful exercise of statutory powers, otherwise the remedy is an action in the civil courts.

(2) The injurious affection must arise from that which, if done without statutory powers, will give rise to a cause of action.

(3) The value of the land or interest must be directly affected by physical interference with some legal right, public or private, which the claimant is entitled to make use of in connection with his property.

(4) The damage must arise from the execution of the works and not from their authorised use.

The Welsh Office made particularly strong reference to the case of Andreae v. Selfridge (1937) All ER 255 in connection with rule (2) and the question of whether the works would have been actionable in nuisance, but for the fact that it had statutory authority. In that case it was held that building and construction works are part of ordinary commercial life and are not abnormal in character. Construction works are not a nuisance in the legal sense unless there is a failure to exercise proper care, i.e. negligence. They quoted from Attourney General v. Cole & Son (1900) A 277 1 Ch 205: "Can a man reasonably create a nuisance", and "If he creates a nuisance, then he cannot say he is acting reasonably. The two things are self-contradictory". The gist of the argument was that if the works were carried out negligently, then rule (1) was breached and there was no claim under section 10, because this was not the lawful exercise of statutory powers. The proper remedy was an action in negligence against the contractor. If the work was not carried out negligently, then it was not a nuisance in the legal sense, there would be no cause of action but for statutory powers, and rule 2 was breached. This argument was, however, undermined by the fact that the Welsh Office accepted that vibration had caused physical damage to the property, for which they were prepared to pay compensation, separately from this claim. If the proper execution of the works was sufficient to cause physical damage, it was difficult to sustain the argument that it did not constitute a nuisance. The valuer for the claimant referred to the following quotation from the lands tribunal decision in Flanigan v. Stoke on Trent City Council (1982): "it seems to me that if damage is done to premises by the carrying out of work it matters not for the purpose of section 10 whether that damage arises through negligence or not".

The tribunal held that the effect of the works was sufficient to constitute nuisance, but also that in spite if the duration and severity of the works, they did not constitute an abnormal use of land. The tribunal, however, preferred the logic of the Flanigan case to Andreae, commenting, "I do not think it can be right that where, as appears to be the case here, despite reasonable precautions being taken, physical damage has occurred, that compensation cannot be claimed under section 10".

Having decided on the point of law, it then had to consider the question of quantum, and only the claimant produced valuation evidence.

Given rule (3), it may be arguable that only permanent depreciation on the capital value of the property is compensatable. However, this would restrict compensation to the impact of the completed works, and make no allowance for the physical disturbance of the construction works, or temporary depreciation should the claimant wish to sell during the construction period. The correct approach was not considered in detail in this case but compensation of £400 was awarded, based on the reduction in the rental value of the property for the construction period, albeit that in practice it was owner-occupied.

Ransom value and residual valuationsRansom value and residual valuations, which have become favourite topics before the lands tribunal in recent years, took something of a back seat during the last 12 months. There were, however, one or two interesting cases concerning each of these subjects.

Ransom value cases tend to arise in one of two sets of circumstances. Most of the major decisions on this subject have related to a situation where the acquiring authority has made a compulsory purchase order on a small area of land which has little intrinsic value, but which is a vital key to unlocking development potential elsewhere, usually by providing access to an adjoining development site. Compensation has been awarded at up to 50 per cent of the development gain (Ozanne v. Herts (1991) House of Lords 9238 EG). Perhaps more common, however, is the situation where the local authority has made a CPO on a development site which has no, or a substandard, access and compensation is assessed at the full development value of the main site, less the cost of acquiring access. Such was the case in Reaper Ltd v. Merseyside Waste Disposal Authority (1997) LT, where there were in fact two alternative plots of land which could have been acquired to provide access. To complicate matters still further, one of these plots was actually owned by the claimant, though this had to be ignored as the subject land must be assumed to be held by a hypothetical willing seller.

The local authority argued for a deduction of 33 per cent from full development value to reflect the cost of acquiring a suitable access, bearing mind that with two alternatives to choose from, the claimant was in a stronger negotiating position than the developer in the Ozanne case. The claimant, however, argued that the claimant was in a very strong negotiating position, particularly as one of the access land owners would benefit from the new access, and could use it to serve future development of his own land. Accordingly an allowance of 10 per cent was more realistic. The tribunal preferred the approach of the claimant, but felt that even in the "favourable negotiating circumstances which could reasonably be assumed", 10 per cent underestimated the prospective purchaser's need for access. It considered that "a prospective purchaser would make an allowance of 25 per cent of development value when formulating an offer for the reference land".

On the question of residual valuations, the tribunal's recent trend towards acceptance of this method of valuation, which it has consistently criticised in the past, continued in Norman Woodall v. Stockton-on-Tees BC (1997). The tribunal first repeated its traditional stance that "providing there is adequate comparable evidence, the comparable method of valuation is to be preferred to the residual method". It then considered a large number of comparable transactions which were referred to by the parties, before concluding that only two of these could possibly form the basis of a valuation. The member commented:

both suffer from substantial weaknesses as comparables and in these circumstances I think a residual valuation deserves consideration.

The inherent difficulties of the residual method of valuation are well known and were well illustrated by the range of values produced by the several calculations made by the Council's witness compared with those of the claimant. However some elements of a residual valuation, mainly the costs of development, were substantially agreed and there was evidence from both sides as to the matters in dispute.

The tribunal produced a somewhat simplistic residual valuation, based on those produced by the parties, indicating a value of £69,000. It felt, however, that some of the underlying assumptions were still too optimistic, and having regard to the comparable transactions, arrived at an award of £57,800.