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

Part 2: Negotiations

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

Role of the valuer

16.36 General

In negotiations the role of the valuer is that of an impartial expert seeking to reach provisional agreement on terms that are fair and proper between the parties and within the statutory compensation code or any other appropriate statutory provisions. It is no part of the duty of the valuer to buy as cheaply as possible. Valuation is not an exact science and the benefit of any genuine doubts should be given to the claimant.

16.37 Settlements to be provisional only

The valuer is not authorised to make offers of compensation where compensation is payable, or to offer terms in connection with disposals, which if accepted, might become binding on the acquiring, compensation or vendor authority. The valuer may indicate that they are ‘prepared to recommend’ certain terms for approval but that any agreement is provisional and subject to the approval of the appropriate authority or any Government Department concerned. Thus when communicating a value, an amount of compensation or other proposed terms of settlement to a claimant or other party, phrases such as ‘I am prepared to offer you the sum of…..’ should not be used. It is better to state ‘I am prepared to recommend my client pay you the sum of ………….’ or some similar phrase.

The valuer must make it clear in the opening letter and during the negotiations that any terms provisionally agreed are subject to approval.

It must also be stated in the opening letter that instructions to open negotiations do not necessarily denote a decision by the client to acquire or sell, accept a claim as being valid or to accept liability.

16.38 Negotiations ‘subject to contract’ and/or ‘without prejudice’

The phrase ‘subject to contract’ is sometimes used in conjunction with the phrase ‘without prejudice’ but they have separate meanings.

‘Subject to contract’ is used to ensure that no binding contractual relationship is entered into during negotiations. It is used in negotiations (either written or verbal) to maintain the ‘invitation to treat’ status.

All negotiations and letters setting out the provisionally agreed terms of settlement will be ‘subject to contract’ and where reduced to writing, marked accordingly, except in Scotland (see below). Valuers should use the phrase when proposing terms of settlement even when the valuer’s role has already been explained in an opening letter.

Proposing terms of settlement ‘subject to contract’ does not prevent parties to the negotiations referring to the detail of those negotiations, including terms proposed, in any subsequent litigation.

The use of the phrase ‘without prejudice’ indicates that the communication (written or verbal) is privileged and is not admissible as evidence against the party making it. Communications should not generally be headed ‘without prejudice’ unless the valuer is proposing terms of settlement to which the valuer would not wish to adhere in the event of a subsequent reference to Tribunal.

The use of ‘without prejudice’ on a document renders it privileged from disclosure to the court or other parties to a dispute. Any statement in the document has thus been made ‘without prejudice’ to the position of the person making it.

The consequences of such a qualification would be that:

  • any correspondence or negotiations between the parties would not be allowed to be disclosed should the matter proceed to litigation
  • once a course of negotiations were started ‘without prejudice’ that status would apply to the entire subsequent course of negotiations unless the status were specifically ended by one party (or both)
  • a unilaterally effected change in the status of correspondence or negotiations would apply only from that date forward – it would not ‘open’ the correspondence sent or received before that date

The incorrect use of ‘without prejudice’ might have unforeseen results:

  • a course of correspondence marked ‘without prejudice’ could not be produced at Tribunal to demonstrate how reasonable the valuer’s negotiating stance or conduct in the case had been (which might be relevant to the assessment of costs);
  • a notification marked ‘without prejudice’ to a claimant that limitation of action was to be invoked would be ineffective;
  • a claim marked ‘without prejudice’ submitted in reply to a Notice to Treat would be ineffective and the claimant would be deemed to have submitted no claim (which would have implications for costs and procedure in the case).

Proposed terms should be so worded as to leave no doubt as to what is included and it should be made clear that any terms proposed, or settlements provisionally reached, were subject to the approval of the appropriate authority. A full record of all terms proposed should be retained in the valuer’s file.

In Scotland, the phrase ‘subject to contract’ is not normally used and the following phrase should be used in the body of the letter:

‘This letter is not to form the basis of any legal contract. It merely expresses outline terms on which [the client] may be prepared to contract after consideration of my report’.

16.39 Vendor’s professional expenses

It is well-established in case-law that reasonable fees necessarily and properly incurred by a claimant in obtaining professional help to prepare and sustain his claim for compensation are recoverable as part of the compensation (as ‘any other matter’ under section 5 Rule (6) of the Land Compensation Act 1961).

Where it is clear, having regard to the statutory provisions, that such expenses reasonably and properly incurred should be allowed, the valuer should at the outset in the case of an acquisition by agreement inform the claimant that ‘if a purchase were effected’ the valuer ‘would be prepared to recommend the payment by the acquiring authority, as part of the terms of settlement, of such amount in respect of professional advice as is proper and reasonable in the circumstances of the case’. Where the acquisition follows the service of Notice to Treat, or the case relates to the assessment of compensation where no interest is being acquired, the words ‘if a purchase were effected’ should be omitted.

16.40 Charities, engagement of surveyor

Special provisions apply where an authority is acquiring land from a charity. Where a charity disposes of an interest in land not exceeding a term of seven years, the charity must obtain and consider the advice on the proposed disposition of a person who is reasonably believed by the trustees to have the requisite ability and practical experience to provide them with competent advice on the proposed disposition, and decide that they are satisfied, having considered that person’s advice, that the terms on which the disposition is proposed to be made are the best that can reasonably be obtained for the charity (section 120 of the Charities Act 2011).

In such cases the charity must obtain a report from a ‘qualified surveyor’ (section 119 of the Charities Act 2011). For these purposes, a ‘qualified surveyor’ is a member of the RICS. The surveyor must also be reasonably believed by the trustees of the charity to have ability in, and experience of, the valuation of land of the particular kind and in the particular area in question.

The report must include a range of information laid down in the Charities (Qualified Surveyors’ Reports) Regulations 1992 (SI 1992/2980). UKGN 7 ‘Valuations for charities’ in the Red Book (Valuation - Professional Standards 2014 UK Edition) provides advice as to the content of such reports.

Thus if the valuer were negotiating on behalf of an acquiring authority for the acquisition, by agreement or compulsorily, of an interest in land owned by a charity and the charity’s trustees have not engaged a surveyor to advise them or to negotiate on their behalf, the valuer should invite them to do so.

If the trustees were reluctant to follow the valuer’s invitation, they should be advised to enquire whether the Charity Commissioners would require them to obtain the report of a qualified surveyor before giving consent to the transaction or whether a certificate given by the acquiring authority’s valuer that the price is a fair one from the point of view of the vendor trustees would suffice for that purpose.

16.41 Valuer’s letter is not Notice to Treat

When the valuer is opening negotiations in a case where there is a confirmed CPO but before service of Notice to Treat, the valuer should conclude the initiating letter with the following sentence:

‘Finally, I must make it clear that this letter is not intended to be a Notice to Treat under section 5 of the Compulsory Purchase Act 1965’.

Where Notice to Treat has not been served the valuer should avoid the use of the word ‘compensation’. ‘Consideration’ or ‘purchase money’ is more appropriate.

Conduct of Negotiations

16.42 Prevention of delay

The valuer should take all steps to prevent unnecessary delay and ensure that the claimant or the retained agent is aware either by discussion or correspondence that, for the valuer’s part, any necessary enquiries, inspections or investigations are being actively pursued and that the negotiations are proceeding as quickly as possible. A full record of all discussions, enquiries by telephone and correspondence should be maintained so that if, subsequently, an allegation of delay by the valuer is made, it could be refuted.

16.43 Prolonged negotiations

The acquiring authority should be made aware at all times that the valuer is actively engaged in complying with any requests to negotiate. As soon as it becomes apparent that the negotiations for the acquisition of an interest in land are likely to be prolonged the authority should be informed so that it may consider what steps to obtain possession are appropriate in the circumstances. In cases where the acquiring authority is a local authority (LA) and no CPO has been made, the valuer should request the LA to advise whether it is its intention to apply for confirmation of a CPO. The valuer should at the same time indicate, if an estimate of the cost of acquiring the precise area proposed to be included in the order has not already been given, that the valuer will be prepared, on receipt of details of the land to be included, to provide an estimate. Such estimate should be given without delay. If for any reason, delay beyond a period of 20 working days from the receipt of the request is likely to occur, the position should be explained to the acquiring authority.

In cases where delay has occurred the valuer should make every effort to speed up the negotiations. In particular, if the valuer is satisfied that the information necessary to a proper consideration of the case is available and has given the claimant the opportunity of making representations, the valuer should, where appropriate, propose final ‘subject to contract’ terms of settlement and inform the claimant that if they were not accepted within such reasonable period as stated, the valuer would be obliged to inform the acquiring authority that the negotiations were abortive. The valuer should keep in touch with the authority and should request to be advised if the authority proceeds by way of an agreement with the parties to refer the question of disputed compensation to the Upper Tribunal.

16.44 Insufficient data to propose terms of settlement

Where compulsory powers have been exercised and the claimant refuses to furnish information necessary for the making of a proper assessment of compensation, the valuer should advise the acquiring authority and invite it to draw the claimant’s attention to the provisions as to costs under section 4 LCA 1961.

16.45 Claimant not professionally represented

The valuer should not refuse to discuss the valuation with claimants who are not professionally advised. Sufficient explanation must be offered to enable the claimant to recognise the basis of, and justification for, the valuer’s assessment.

Where a claimant is not professionally advised and part only of the claimant’s land is being acquired, the valuer should ensure that the claimant is made aware that there is no entitlement to a subsequent claim under Pt 1 LCA 1973.

Also it is not unknown for claimants who are professionally advised to approach the valuer for information about the assessment. What information should be disclosed or discussed in such an event must depend upon the circumstances, but the valuer, whilst preserving a negotiating position, must exercise care so as to avoid a direct refusal to discuss. The valuer should, where appropriate, inform the claimant’s professional advisor of any direct approach by the claimant.

In discussions with the claimant and other lay members of the public, care must be exercised in the use of overly technical words or phrases so as to avoid criticism. For example, ‘comparable’ has been taken to mean ‘exactly similar’ and ‘adjoining’ property to refer only to the house next door. Similarly, statements that have described cases as ‘settled’ or ‘agreed’, solely on the strength of a statement by a professional advisor that terms will be recommended to the client, have led to accusations of bad faith.

16.46 Acquiring authority has not negotiated successfully

It is the practice of certain Government Departments and local authorities to conduct negotiations themselves after first having obtained from the valuer an estimate of the cost of acquisition. If, after unsuccessful negotiations by the acquiring authority, the valuer is asked to undertake further negotiations, the valuer should, before doing so, be satisfied that the original negotiators are aware of any increased maximum that the valuer is prepared to authorise, having regard to further and better information that becomes available. If, ultimately, the valuer complies with the request to take up the negotiations, a settlement in excess of the original estimate should not normally be effected without prior reference to the authority.

16.47 Land owned by member or officer of the acquiring authority

Where land is being acquired for public purposes and the owner is a member or officer (other than a minor one) of the acquiring authority, the utmost caution should be exercised to ensure that the transaction is free from any possible criticism and to avoid any embarrassment to the parties concerned. Where the valuer is negotiating, this aspect of the matter should be explained to the authority and to the claimant, or retained agent, and it should be stated that the view of the VOA is that it is in the interest of all parties concerned that the compensation should be determined by a third party (eg independent expert) if it transpires that there is a material difference between them as to the sum properly payable. As a last resort the matter could be referred by agreement to the Upper Tribunal (Lands Chamber), particularly where the amount of compensation was large or there was a matter of principle at stake.

It is particularly important in these cases that the valuer should not propose terms of settlement at too early a stage only to find that it has to be increased substantially. The claimant or retained agent should be given the opportunity of stating their case and making such representations as they think appropriate and the valuer may informally discuss values and principles to ensure that as far as possible, all the relevant facts are available. Once satisfied that all the relevant facts are in the valuer’s possession and only then, should ‘subject to contract’ terms of settlement be proposed of the compensation that the valuer would be prepared to defend before the Upper Tribunal and, failing acceptance, the negotiations should be reported abortive.

If compulsory powers have not been obtained the valuer may enquire, in the event of a dispute, whether the owner would be prepared to refer the case to a third party (eg independent expert) for determination and the authority should be informed of the owner’s reaction.

16.48 Timing of negotiations

The overriding considerations regarding the proposal of terms of settlement are firstly to let the claimant know as quickly as possible the amount of compensation likely to be received and, secondly, to propose terms that are not thereafter likely to be subject to amendment by other than a small percentage. This will normally involve first collecting the facts and holding discussions, but not taking undue time for the purpose. The unacceptable extremes are (a) taking so long to collect information that the claimant can justifiably complain of being unfairly kept waiting to know how much will be received and (b) proposing terms of settlement in writing quickly without having fully studied the case and investigated evidence etc and then later having to increase the terms materially.

During a period of rapid change in the market values the timing of proposed terms and the need to revise the terms during negotiations where the compensation is not related to a fixed date, will present particular difficulties. In such circumstances the claimant should not be left to take decisions under any serious misapprehension.

16.49 Permissible margin

The proposal of initial terms that are substantially less than the valuer’s valuation may result in a charge that the valuer is no longer impartial but is acting as the agent of the acquiring authority, seeking to buy as cheaply as possible. Although the objective should be to propose terms that are unlikely to be the subject of amendment by other than a small amount, the valuer is not precluded from taking a cautious approach to the terms to be proposed, particularly where it is suspected that further information has yet to be provided by the claimant.

16.50 ‘Nominal’ compensation

The only cases in which it is appropriate to propose a ‘nominal payment of compensation’ are those in which either the interest to be acquired is a liability or it would be unsaleable if offered in the market in accordance with the statutory provisions or assumptions. Where the valuer’s valuation results in a very low figure, the word ‘nominal’ should not be used and the proposed terms should be defended by reference to a valuation on the statutory basis.

16.51 Omission of item of claim or under-valuation

Occasionally, claims will be received where, due to the omission of an important item or the adoption of a misconceived basis of valuation, or under-valuation, the error is substantially beyond the normal margin of valuation opinion. Although there may be no statutory duty there remains the general principle that claimants should neither be denied their proper entitlements nor should the valuer be guilty of any negligence despite the absence of any statutory duty.

Therefore, when the valuer is in possession of all the facts, particularly those that might suggest that the claimant has under-valued the property, consultations should take place with the instructing authority and if, as may be expected, they approve, the valuer should give appropriate guidance to the claimant.

If, exceptionally, the authority wishes to effect a settlement at the amount claimed, notwithstanding the valuer’s advice that it is substantially below the proper figure, they should be informed that the valuer is not authorised to take any further part in the negotiations.

16.52 Apportionment of rent

If part of the land comprised in a lease for a term of years unexpired is required by the acquiring authority, the rent payable in respect of the land comprised in the lease should be apportioned between the land so required and the residue of the land (section 19 CPA 1965).

The apportionment should be agreed before the compensation is settled and in the event of a dispute the Upper Tribunal has power to determine the question (section 1 LCA 1961). The apportionment of the rent passing should be made in the same proportion as the value of the part taken, as part of the whole, bears to the value of the whole taking the values as at the date of apportionment (ie in cases of compulsory purchase, the date of entry) and not the values as they may have been on the grant of the lease (Salts v Battersby [1910] 2 KB 155).

16.53 Set-off for betterment

The effect of any set off for betterment is to reduce the amount of compensation otherwise payable and may extinguish it altogether. Whether or not the claimant is professionally advised the valuer should try to ensure that the claimant is fully aware of the reasons for the reduction.

16.54 Exchanges of land

Where in a case involving, or amounting to, an exchange of land the valuer discerns that obvious unfairness would arise because of disparity in the basis of valuation for the land being acquired (the statutory basis) and the land being disposed of (market value), before any discussion with either of the parties take place the valuer should refer the matter to the PS Professional Guidance Team.

The submission should give full particulars of the proposal illustrated by a plan, if possible, and should include the valuer’s estimate of the value of each parcel of land on the basis of the current market value. The valuer should also give the estimated cost on the statutory basis for the acquisition of the land being taken over by the authority.

Claimant’s conditions

16.55 General

The valuer should not provisionally agree any conditions including restrictive covenants that the claimant might wish to impose without first consulting the acquiring authority. The acceptance of conditions by the acquiring authority would normally postulate a saving in monetary compensation.

16.56 Accommodation works

In a compulsory acquisition the claimant is strictly only entitled to monetary compensation. The claimant has no power to demand the execution of accommodation works by the acquiring authority, nor can the authority insist on the execution of works by it on the claimant’s retained land.

Where the purchase is proceeding by agreement, notwithstanding a Notice to Treat has been served, the acquiring authority normally stipulates before negotiations commence the accommodation works it is prepared to execute as part of the terms of settlement.

The valuer should not provisionally agree to revise, add to or otherwise amend the schedule of accommodation works proposed by the authority, or to accept works requested by the claimant where none have been proposed by the authority, without the previous concurrence of the authority.

The execution of works postulates a saving in monetary compensation and it is the responsibility of the valuer to be satisfied before provisional settlement is reached that the cost of the accommodation works to the authority, together with the monetary compensation payable, does not exceed the compensation that would have been payable if no accommodation works were to have been executed by the authority.

Settlements of compensation should be arranged, if possible, so that no future or contingent liability is imposed on the acquiring authority and the maintenance of accommodation works, including fences or the liability for future works of any kind should be dealt with by the agreement, where appropriate, of a lump sum payment. Where, however, a settlement by agreement can only be reached by the acceptance by the authority of such a liability, the valuer must obtain the prior consent of the authority before provisional agreement is reached.

16.57 Assessment to be all embracing

The general principle is that compensation should be assessed on the basis of being ‘in full and final settlement under all heads of claim’ (but see Paragraph 16.65 below)

16.58 Items left in abeyance

If exceptionally it is considered desirable to issue a report in respect of the value of the relevant interest and other items of claim that have been agreed but to leave in abeyance any other item, eg an item that falls under the broad heading of ‘disturbance’, the valuer may do so:

  • a) providing the valuer is satisfied that:
  • (i) the claimant needs the compensation already agreed in order to be relocated
  • (ii) an advance payment is not available, or if available, is insufficient for the claimant’s purpose
  • (iii) the fees and costs will not be increased thereby; and
  • (iv) the acquiring authority concurs and, in cases where Notice to Treat has not been served, will make adequate provisions either in the contract or elsewhere for the settlement of a dispute in respect of any outstanding item; or
  • (v) where it is the intention to defer taking possession, it is the wish of the acquiring authority and the claimant to proceed with the acquisition of the claimant’s interest, leaving the question of disturbance compensation to be assessed when entry is effected, but subject to condition (iv) above in those cases where Notice to Treat has not been served

The valuer’s report to the acquiring authority should state the facts where any item of claim is left outstanding.

16.59 Abortive negotiations where entry has been taken

The following procedure should be implemented in acquisition cases where entry has been taken, as soon as it becomes apparent that further negotiations by the valuer would be fruitless and no indication has been given that the claimant proposes to refer the case to the Upper Tribunal.

The valuer should:

  • (i) inform the acquiring authority that compensation cannot be agreed and that negotiations have proved abortive
  • (ii) ask whether the authority proposes to refer the dispute to the Upper Tribunal; and
  • (iii) provided a quantified claim has been received, or the valuer has been supplied with adequate information during negotiations to make an assessment, recommend that the authority make an unconditional offer.

In all cases where the above procedure has been followed, and either the acquiring authority indicates that it does not propose to refer the case to the Upper Tribunal or does not reach a decision within one month, the valuer should be satisfied that the case file contains sufficient details of inspection, valuation, comparables etc for the preparation of an expert witness report to be prepared in the future, should the need arise.

Additional compensation (but see section 16.66 below)

16.60 Permission for additional development granted after acquisition

Circumstances sometimes arise where land compulsorily purchased is not eventually used for the original scheme, or where a part of the land is ‘left over’ after implementation of the scheme and planning permission is then obtained for a more valuable use than any which were taken into account in assessing the original compensation.

Section 66 PCA together with Schedule 14 revives, with certain modifications, Part IV Land Compensation Act 1961. The effect is that additional compensation may be payable where, within ten years of completion of the acquisition, the value of the land increases as a result of the granting of planning permission for additional, or some alternative, development. The compensation will be based on the difference if any between the compensation sum originally paid and the amount which would have been payable if the later planning permission had been in force on the date of service of Notice to Treat (or the date of the contract in the case of an acquisition by agreement). Interest on any additional compensation is payable from the date of the relevant planning decision.

16.61 Exceptions

The above provisions do not, however, apply where:

  • a) the land has been acquired by an Urban Development Corporation, a New Town Development Corporation, or a highway authority in connection with an urban development or new town area; or
  • b) the purchase of the land was completed prior to the date upon which this section of the Act came into effect (25 May 1991); or
  • c) a listed building has been deliberately allowed to fall into disrepair

16.62 Procedure for claiming additional compensation

The revised section 24 LCA 1961 allows for a person entitled to receive further compensation, should it become available, to leave an address with the acquiring authority. The acquiring authority is then required to give that person notice in the prescribed form (SI 1992 No 271) of a relevant planning decision granting permission for development.

A claim for compensation must be made within six months of the date on which notice is given in the case where an address has been left, or if no address has been left, within six months of the date of the decision itself.

16.63 Subsequent claims

Future problems may be caused by the interpretation of what constitutes the original compensation claim and agreement.

Valuers should, where possible, allocate and agree the basis of compensation where development or hope value is being considered. This will enable the valuer to defeat subsequent claims under the above legislation where the possibility of double compensation may occur.

16.64 Agreement to the full and final settlement of claims

Where the valuer, when acting for an authority possessing compulsory purchase powers in relation to acquisitions and in planning blight cases, reports the terms of settlement on the basis of a ‘full and final settlement under all heads of claim’, it would be appropriate in cases where it could be anticipated that Part IV LCA 1961 might come into play in the future to add the following rider:

‘but this does not affect the compensation to which the vendor may become entitled pursuant to the provisions of Part IV of the Land Compensation Act 1961’.

16.65 Subsequent disposals after compulsory purchase

The obligation to pay additional compensation rests on the original acquiring authority, even if that authority has disposed of the land and does not carry out the additional development.

If an acquiring authority disposes of land within 10 years of its acquisition, then it should consider whether there is any possibility that a claim for additional compensation could arise.

Valuers should draw this situation to the attention of the acquiring authority in relation to subsequent disposals.

Where necessary, the disposing authority should include an indemnity in the contract to ensure that any subsequent claim could be recouped from the purchaser.

16.66 Repeal of Part IV Land Compensation Act 1961

Part IV (sections 23 to 29) of the LCA 1961 have been repealed by section 33 of the Neighbourhood Planning Act 2017 as from 22 September 2017. Thus Paragraphs 16.60 to 16.65 above apply only to claims made under those provisions prior to that date. There would be no right to make such a claim on or after 22 September 2017.

16.67-69 Reserved