Land Compensation Manual Section 16: Estimates, Negotiations, Reports and Advance Payments

Part 1: Estimates

The Valuation Office Agency`s technical manual covering all aspects of compulsory purchase and compensation.

Scope of Part I

16.1 General

This Part is concerned with the making of estimates of the cost of compulsorily acquiring land and other estimates of the value of land, or of the compensation payable if statutory powers were to be exercised, which may be required for the consideration of proposals by government departments, local and other public authorities.

16.2 Manual Instructions

Reference should also be made to other Sections of the Land Compensation Manual for any special instructions, basis of valuation or procedures to be applied.

16.3 Estimates

For estimates of compensation in connection with advance payments see Part 4 of this Section.

16.4 Avoidance of delay

Where the estimate is required in connection with the making of a Compulsory Purchase Order the valuer should be aware of the date by which it is proposed by the authority to submit the CPO for confirmation. It is important that valuers should comply with the acquiring authority’s timetable whenever possible, but if for any reasons it becomes apparent to the valuer that the report will be delayed, the authority should be informed.

Estimates for CPO - what to include

16.5 General

Estimates of the cost of compulsorily acquiring land should normally embrace the compensation payable in respect of all interests in the property to be acquired, including tenant’s compensation. A sum for contingencies should be included where several interests are involved.

16.6 Insufficient data to make accurate estimate

If it is not practicable in the absence of definite claims to make an accurate estimate the valuer should make the best estimate possible on the information then available and record in the report to the authority that the estimate may be subject to variation when claims are received and fuller details of the interests affected are known.

Exceptionally, any head of claim that cannot be estimated even approximately for lack of sufficient data may be excluded and a note of warning as to the relative importance of such compensation should be embodied in the report. Cautions in this respect will particularly be needed where it is known that subsequent negotiations will not be conducted by the valuer who prepared the estimate (see Paragraph 16.13 below).

An estimate of compensation for trade disturbance that rests upon the proof of actual trading accounts should be qualified as follows:

‘This estimate is based on the limited information at present available and may be susceptible to material variation on production of further and better particulars’.

16.7 Disturbance payments - section 37 Land Compensation Act 1973

Where practicable and appropriate the estimate should include a sum for statutory disturbance payments under section 37 Land Compensation Act 1973. If the valuer has insufficient information on which to make an approximate estimate of disturbance payments, a note to that effect should be included in the report with a reference to the relative importance of such compensation.

16.8 Claims from properties where no land is acquired

The estimate should include an amount for likely claims under Part 1 LCA 1973 and section 10 Compulsory Purchase Act 1965 (McCarthy Rules). Claims under section 10 Compulsory Purchase Act 1965 are difficult to establish and the likely compensation under section 10 Compulsory Purchase Act 1965 should be stated separately. The valuer should comment in the report that such claims have not been established.

16.9 Home Loss Payments

Acquiring authorities need to be able to estimate the liability to make Home Loss Payments. When sufficient information is available valuers should therefore detail in their reports the interest of the occupier and the market value of the occupier’s interest in each dwelling to be acquired when the interest is that of a qualifying owner occupier (ie having a greater interest than that of a tenancy with three years of a lease unexpired).

Occupiers of dwellings that are holding under leases with three years or less unexpired, or occupiers legally occupying under a lesser right (eg statutory tenants under the Rent Acts or under a contract of employment etc) are entitled to the minimum Home Loss Payment. It is sufficient for valuers to state in their reports the number of such occupiers who are to be displaced from their dwellings.

If valuers consider that the scheme will not involve any Home Loss Payments this should also be stated in their reports.

Reference should be made to Section 13 of this Manual for details of the amounts of Home Loss Payments currently payable.

16.10 Basic and Occupier’s Loss Payments

Acquiring authorities similarly need to be able to estimate the liability to make Basic and Occupier’s Loss Payments. These are payable to claimants who have an interest in land acquired compulsorily whose interest is a ‘qualifying interest’ ie the freehold or an interest as tenant. The payment is calculated by reference to the value of the claimant’s interest (although there are alternative bases of calculation available in relation to Occupier’s Loss Payments).

When sufficient information is available valuers should therefore detail in their reports the interest of the owner and the value of the owner’s/occupier’s interest in each property to be acquired.

The ‘value of the interest’ should exclude any part of the property in respect of which a Home Loss Payment would be payable.

16.11 Restrictions

If the acquiring authority informs the valuer that it proposes to submit to any restrictions on the land to be taken as might be calculated to reduce or extinguish the injury to the owner’s remaining lands, such restrictions should be taken into account in the estimate, and this should be made clear in the report.

16.12 Contingencies

The addition of a percentage to cover contingencies is appropriate to an estimate for a scheme involving a number of separate properties or interests but not to an estimate of the cost of acquiring a single property. The danger is that if a sum for contingencies is added in the case of a single property, a figure that includes a margin for compromise may be used by the authority as a starting point for negotiations.

16.13 Cases that will not subsequently be negotiated by the valuer

In cases where the acquiring authority is undertaking negotiations without the assistance of the valuer, it is recognised that if the maximum figure that could be justified is given as the estimate, it is liable to be adopted by the authority as a starting point for negotiations. The appropriate figure to be given should therefore be the amount fairly payable.

Estimates for CPO - what to exclude

16.14 General

Sufficient information for the preparation of estimates relating to:

  • Discretionary disturbance payments – section 37(5) LCA 1973
  • Rehousing expenses – section 43 LCA 1973
  • Legal and other costs
  • VAT if any to be levied on compensation

is unlikely to be available and a sum to cover such matters should not normally be included in an estimate of the cost of compulsorily acquiring land but if an authority for which the valuer normally negotiates asks for an estimate in respect of any of the matters listed the valuer should give such assistance as is reasonably possible in the particular circumstances and make an appropriate statement in the report.

16.15 Accommodation works

Where the acquiring authority proposes to construct accommodation works, the valuer should specify that the cost of such works is excluded from the estimate.

If the authority has undertaken to carry out extensive works of reinstatement and the valuer is called upon to advise as to the compensation available, the cost of such works and any addition of monetary compensation should not exceed the loss the owner would sustain if no work were undertaken (ie compensation for injurious affection otherwise payable). Where the cost of reinstatement works substantially exceeds the compensation that would otherwise be payable, attention should be drawn to this in the report.

Reports

16.16 General

The report should leave no room for doubt about what is, or is not, included in the estimate.

16.17 Where Rule (5) may apply (equivalent reinstatement)

Where the CPO includes property to which Rule (5) of section 5 LCA 1961 might in the valuer’s opinion be expected to apply, this fact should be stated in the report, giving the address of the property.

If in consequence of the reference in the report the authority seeks further information, the valuer should endeavour to ensure that subsequent discussion or communications are accorded strict confidentiality.

16.18 Minerals

Where the valuer has been requested to furnish an estimate to accompany an application for confirmation of a CPO that incorporates section 3 and Schedule 2 Acquisition of Land Act 1981 (the Mining Code), the report should include advice as to whether or not minerals (if any) other than coal should be included in or excluded from the notice to treat served on the surface owner. For land in mineralised areas see Section 11 of this Manual. In areas where so far as it is known ‘minerals’ do not exist, this advice should none the less be given. On the basis that the authority should not exclude from the purchase anything forming part of the land that can be acquired without increasing the cost, it is normal practice, where the conditions exist, to recommend that minerals, if any other than coal, should be included in the Notice to Treat served on the surface owner. If, however, in such conditions, the surface is held subject to a reservation of minerals, it is not the normal practice to serve a separate Notice to Treat in order to secure the ownership of severed minerals.

16.19 Validity clause

All reports of estimates should include a validity clause. The period of validity should be that appropriate in all the circumstances, but the period should not normally exceed six months. A period shorter than three months, where the estimate is required to accompany an application for confirmation of a CPO or to obtain the consent of a Secretary of State or Minister, has generally been regarded as impractical and would greatly increase the need for reference back. However, in a time of rapidly changing values, consideration should be given to the extent to which the period of validity should be further qualified by a warning regarding the volatility of the market.

16.20 Suggestions of possible saving of compensation

The valuer is permitted to draw the attention of the authority to possible alterations in a scheme that may be calculated to effect a substantial saving in the cost of acquiring property. Such observations should be the subject of a covering statement to accompany the report upon the original request of the authority, which should in no case be delayed pending investigation of alternative proposals suggested by owners or by the valuer.

16.21 Review of estimates

The question of whether the valuer should issue a revised estimate to an authority during the validity period of the report is left to the valuer’s discretion which will be influenced by such considerations as the magnitude of the revision, whether the valuer negotiates and the possible reaction of the authority to the valuer’s action or inaction.

Upon receiving notification of confirmation of a CPO, the valuer should consider whether the CPO estimate (or any other estimate that has been supplied in respect of any properties included in the CPO) requires revision. Where a material variation is necessary the acquiring authority should be asked whether it would wish to receive a revised estimate before the purchase proceeds.

An authority has the power under section 31 LCA 1961 to withdraw a Notice to Treat within six weeks of receipt of a claim. When a copy of a claim lodged in response to a Notice to Treat is received the valuer should review any estimate that has been given and if there is a substantial increase in the valuation the valuer should inform the acquiring authority in sufficient time to enable a decision to be taken as to whether to take steps to withdraw the Notice to Treat within the time limit.

Purchase of land at auction

16.22 General

Where an authority requests valuation advice in connection with the prospective purchase of land at auction it is not desirable to furnish a formal report in the first instance. In all such cases the valuer’s formal report should be issued after the event.

There are circumstances affecting some types of property that are not conducive to the making of a precise assessment of value and in these cases particularly, every effort should be made, consistent with the valuer’s function, to ensure that the authority’s intentions are not frustrated as a result of taking the valuer’s advice. The valuer should co-operative closely with the authority. In some circumstances the only satisfactory course, after giving informal advice, will be to attend the auction with the authority’s representative and advise during the sale. In others, the valuer may be able to give informally a firm maximum figure within the limits of which the authority may assume the valuer will be prepared to advise that the price paid ‘under the hammer’ is a proper one for loan sanction and/or grant purposes, or to advise in more general terms. The need for confidentiality regarding the advice given in all these cases is obvious.

16.23 Basis of value

The valuer is not authorised to recommend a figure in excess of that payable on a compulsory acquisition of the property. The informal valuation should normally exclude compensation for severance, injurious affection, disturbance etc as the offering of the property for sale by auction suggests that the vendor is prepared voluntarily to suffer consequential damage in order to realise market value. Where, however, there are exceptional circumstances such that the price expected to be realised at auction exceeds the valuer’s estimate of the value of the land on the statutory basis the valuer may make such additions as are proper in respect of severance and injurious affection, provided that the resultant figure does not exceed the sum the valuer expects the land to realise at auction. Care should be taken to avoid duplication, eg where conditions of sale stipulate that an amount will be payable for growing crops and the like, in addition to the price paid at auction.

16.24 Land owned by Government Departments

If cases arise where an authority represents that it should be allowed to purchase prior to the auction it should be advised to approach the Government Department concerned without delay.

16.25-35 Reserved