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

Part 4: Advance Payments

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

General

16.101 Duty of valuer

The valuer should ensure that all claimants are aware of the availability of advance payments at appropriate stages throughout the negotiations. When advising claimants the valuer should sound a warning that where the land is subject to an outstanding mortgage this may cause some delay in dealing with a request for an advance payment.

16.102 Section 52 LCA 1973

Section 52 LCA 1973 provides that when an acquiring authority has:

  1. taken possession of any land; or
  2. entered on land for the purpose of exercising a right over it; or
  3. instead of taking possession, served a Notice under the section 583 HA 1985 authorising the existing occupier to continue in occupation where a house is required for housing purposes

it must, upon a request being made by the claimant entitled to compensation for an interest in the land, make an advance payment on account of the compensation payable for the acquisition of that interest, unless the interest is subject to a mortgage the outstanding principal of which exceeds 90% of the amount of compensation agreed, or if not agreed, estimated by the acquiring authority.

Section 52(4A) LCA 1973 provides that if it appears to the acquiring authority at any time that its previous estimate of the total compensation was too low it shall, if requested, make one or more additional advance payments of compensation.

Under section 52A LCA 1973 the initial, and any additional, advance payment is to be accompanied by payment of the outstanding accrued interest on the total estimated compensation (not just on the 90% actually paid). In addition, further payments of interest are subsequently to be made annually where the accrued interest at that time on any unpaid compensation exceeds £1,000.

As to the availability of advance payments before entry is taken see Paragraph 16.118 et seq.

Requests for advance payment

16.103 General

The request for an advance payment, which is required to be made in writing, may be made by the claimant at any time before or after the events listed in Paragraph 16.102. The claimant should give particulars of the claimant’s interest (so far as not already given pursuant to Notice to Treat) and provide such other particulars as the acquiring authority may reasonably require to enable it to estimate the compensation.

16.104 Amount

Subject to an adjustment where the interest is subject to a mortgage (Paragraph 16.105 below) the amount of the advance payment will be 90% of:

  • i) if the compensation has been agreed, the agreed amount; or
  • ii) in any other case, the acquiring authority’s estimate of the compensation payable

16.105 Mortgage

Where the principal outstanding on mortgage does not exceed 90% of the compensation agreed, or if not agreed, estimated by the acquiring authority, the advance payment will be reduced by such sum as the authority considers it will need to secure the release of the mortgagee’s interest. (For solicitor’s costs and surveyors’ fees on discharge of mortgage for advance payment purposes see Section 5 Parts 1 and 2 of this Manual).

16.106 Recovery

There is specific provision in section 52(5) LCA 1973 for the recovery of an advance payment if it transpires that the claimant was not entitled to it; and also to the extent that estimated compensation is found to exceed the sum finally determined as payable.

16.107 Time Limit

An advance payment must be made no later than three months after the date on which the request is made, or the date possession of the land is taken, whichever is the later. This time limit is to be regarded as a maximum and all applications for advance payments must receive prompt attention at all stages.

16.108 Registration and effect on interest

When an advance payment has been made it is registered in the Land Charges Register. No interest under section 11 CPA 1965 or corresponding enactments is payable on the part of the compensation corresponding to the amount of advance as from the time it is made.

16.109 Request made to valuer direct

The question of making an advance payment is one for the acquiring authority. If the claimant makes a direct approach to the valuer regarding the availability of an advance payment there is no objection to the valuer’s giving an explanation of the statutory provisions. However, if the approach can be considered in any way as a request for an advance payment, whether or not it is in writing, the valuer should inform the acquiring authority immediately of the request, notwithstanding that the valuer may consider that the claimant is unable to satisfy the statutory requirements. At the same time the claimant should be advised that the request has been referred to the authority.

When notifying the authority the valuer should add any comments on any matter which it is thought will assist the authority in the consideration of the request and ask whether or not the authority wishes to receive an estimate of compensation.

16.110 Additional information

Questions are likely to arise as to what information should be sought and by whom. These are matters for local arrangement. The authority will need to satisfy itself on matters of title and subsidiary interests, and where a formal claim in answer to Notice to Treat has been lodged that might often be adequate for its purpose. Additionally there are likely to be valuation particulars that are necessary and which should be asked for preferably by the valuer. These would include for example, particulars of rents and copies of trading accounts where business loss is being claimed. It is not always desirable that documents of a confidential nature (such as trading accounts) should be obtained through the authority and a direct approach may be preferable. In appropriate cases it may be preferable to ask for the accounts ‘as agreed with the Inspector of Taxes’.

When the valuer is requested by the authority to supply an estimate of the compensation, consideration should immediately be given as to whether it is possible to do so without further particulars. If not, subject to the arrangements made with the authority the valuer should ask the claimant to provide them and let the authority know if there is difficulty. Where an estimate can be made, but which might be materially greater if further particulars were provided, there is no reason why the valuer should not draw the claimant’s attention to the possible disadvantages of not supplying the information. Failure to produce all such particulars as are reasonably required at this time may well result in an underestimate but there must be no suggestion that a payment will be withheld if what is necessary to make an estimate has been supplied even if it falls short of what is desirable. The report should not be delayed on that account; it can be supplemented afterwards and a further payment recommended.

In order to ensure expeditious treatment of applications the valuer may ask the authorities for information of any request received but which is being held pending the supply of such further particulars that are required. If the claim has been referred to the valuer to negotiate, the claimant should be advised of any additional valuation particulars required to arrive at a proper estimate as and when the valuer is asked to advise on an advance payment and the valuer should ask that such information be sent direct.

The Estimate

16.111 General valuation considerations

The objective is to give as fair an estimate as is reasonably possible in the circumstances, not overlooking that the 10% retention provides a contingency margin. The estimate must be made having regard to known facts and in particular to any factors that will have the effect of reducing the compensation such as betterment or registered charge relating to planning compensation. The valuer should also check carefully whether the office records reveal any material inconsistency with the claim details.

In the circumstances where argument as to legal or valuation basis remains unresolved, or the information available to the valuer is incomplete, caution should be exercised and the making of assumptions so unjustifiably optimistic as to result in an overestimate and to prejudice the subsequent negotiations must be avoided. On the other hand an over cautious approach because, for example, negotiations may not be far advanced, could invoke criticism that the intentions of section 52 LCA 1973 are being frustrated. Lack of information must not cause undue delay in issuing the report.

16.112 Rule 5 (equivalent reinstatement)

Particular caution is obviously necessary when compensation is claimed under Rule (5) section 5 LCA 1961. In such cases the valuer must be satisfied beyond all reasonable doubt as to the bona fides of the claimant’s intentions regarding reinstatement before recommending an advance based on reinstatement costs. The valuer should obtain the acquiring authority’s agreement that compensation on an equivalent reinstatement basis is appropriate before proceeding.

16.113 What to include

For the avoidance of doubt, the estimate should not include anything in respect of a Home Loss Payment or a Basic or Occupier’s Loss Payment as these are not part of the compensation but additional statutory entitlements. Where it is known that a valuer is acting for the claimant, surveyor’s fees which are part of the compensation, should be included but not legal costs payable under section 23 CPA 1965 (costs of conveyance etc).

16.114 Partial entry

Where only partial physical entry has been taken onto a claimant’s land specified in a notice of entry section 5A(5) LCA 1961 provides that the acquiring authority is deemed to have entered on and taken possession of the whole of the land on that date. Therefore in such circumstances the valuer’s estimate of compensation should reflect entry onto the whole of the land comprised in the relevant notice of entry and the report should be noted accordingly.

16.115 Mortgage

The effect of an outstanding mortgage should be disregarded in making the estimated recommendation and the advance payment report clearly noted accordingly.

16.116 Revised estimate of compensation and interest

If the valuer becomes satisfied that a claimant’s entitlement to compensation will exceed the estimate that was provided for the purpose of an advance payment the valuer should in the course of the negotiations inform the claimant that the valuer is prepared to revise the estimate, and if the claimant so wishes the claimant should make a request to the acquiring authority for a further payment.

Section 52 LCA 1973 imposes a duty on the acquiring authority to make a further advance payment when they conclude that the original payment was based on too low an estimate and they must pay the balance of the advance if requested to do so by the claimant. Interest on any advance payment made must be paid on the anniversary of the payment and at twelve-month intervals subsequently until the claim is settled where the amount of interest exceeds £1,000.

Discretionary Advance Payments

16.117 General

Notwithstanding that the claimant is not entitled to a statutory advance payment (eg entry has not been taken) the acquiring authority may at its discretion make an advance payment on account of compensation and authorities are encouraged to treat applications sympathetically.

16.118 Application made direct to the valuer

The question whether or not to make a discretionary advance payment is one for the acquiring authority. If the valuer is approached direct by the claimant as to the possibility of an advance payment the authority should be informed immediately and the claimant advised that the application has been referred to the authority. When notifying the authority the valuer should add comments on any matters that it is thought will assist the authority in the consideration of the application and ask whether or not the authority would wish to receive an estimate of compensation.

16.119 Advice to the authority and general responsibility

Where the valuer is asked to advise an authority on the exercise of its discretion, the valuer may do so but it should be made clear that the responsibility lies with the authority. In particular the valuer is not responsible for advising on the obtaining of adequate discharge to mortgages and other charges that may inhibit the amount to be advanced.

16.120 Expedition

The absence of statutory claim procedure and time limits in discretionary cases does not obviate the need to deal with applications expeditiously.

16.121 Information

The information that the authority will need before making a discretionary payment will be no different from that which it needs in statutory payment cases and the procedure applicable to statutory payments should be adopted with any necessary modification.

16.122 Mortgages

The provisions of section 52 LCA 1973 relating to mortgages do not apply to discretionary cases but the authority will need to ensure that the position is secured when the interest is subject to mortgage.

16.123 Limits

It is probable that the authority will wish to confine discretionary advances to situations where claimants are involved in expenditure due to and in anticipation of being dispossessed by the acquisition, as could be the case for example when a payment is made towards the acquisition of replacement premises or as stage payments on rebuilding became due, or when an owner undertakes accommodation works. An advance for such purposes will be reflected in the compensation in as much as it obviates the need for the claimant to incur interest on borrowed funds. To extend the advance further could amount to an interest free loan since the claimant will have the use of the property and the money at a time when the authority is not liable for interest on the compensation because entry has not been taken. However, no limitation on the authority’s discretion is prescribed beyond the advice to relate the advance to reinstatement costs up to a maximum of 90% of the compensation.

16.124 Amount

The valuer must assume full responsibility for making all enquiries that are relevant to the estimate.

Subject to any specific request by the acquiring authority, the amount of the estimated compensation to be reported will depend upon whether the valuer is in a position to provide a firm estimate:

  • a) if a firm estimate can be furnished the report should be issued accordingly leaving the authority free to deal with mortgagees and, perhaps, further advances, without the need to refer back;

  • b) otherwise, the estimate to be given should be such that 90% of it will be sufficient for meeting the claimant’s immediate needs, including any repayments of mortgage principal stipulated for by mortgagees. If the valuer is not already aware of the mortgagee’s requirements, the valuer should immediately write to the authority asking it to ascertain them. The estimate should not exceed the minimum compensation which the valuer considers payable in the known circumstances and should be in the form ‘not less than £xxx’. The report should be completed as appropriate depending on whether or not the valuer has intended to provide for redemption of mortgage principal. Apart from not prejudicing the negotiations this will help to ensure that the advance is not held up unnecessarily for valuation reasons and will avoid the authority’s paying more than may be desirable.

16.125 Overpayment

The provisions for recovery of overpayment do not extend to recovering discretionary advances and how the authority should proceed in such circumstances is not clear. The need for care is obvious and should the valuer become aware that an estimate given for the purpose of a discretionary payment may exceed the compensation entitlement, the valuer should warn the authority in writing at once.

All Cases

16.126 Accommodation works

Accommodation works are part of the compensation entitlement but unless the claimant has already firmly declined to accept them in lieu of money compensation, all estimates should be arrived at on the assumption that appropriate works will be undertaken by the authority if that is their normal practice. It is obviously necessary when arranging accommodation works at a stage subsequent to an advance being made to be careful that their extent does not result, in effect, in an overpayment.

16.127 Advice when valuer not negotiating

In cases where the valuer is not conducting negotiations yet is asked for advice by an authority, every reasonable effort should be made to give such advice as is practicable based on the information available. However, it should be made clear that if it is not possible to provide a firm figure then the valuer can accept no responsibility for the authority’s decision as to the amount to pay or in any case for any delay in making payment by the date laid down in the LCA 1973 where it is applicable.

16.128 Reports

A special form of report, VO 2016, has been designed for use in all cases where any part of the compensation has had to be estimated.

Where the negotiations are concluded at a time when a request for an advance is before the valuer the terms should be reported as usual on form VO 2021 or other appropriate form, and it must be marked prominently to draw attention thereon to the outstanding application. In discretionary cases the valuer should also indicate the amount of advance necessary to meet the claimant’s immediate needs as referred to in para 16.124.

If office records, so far as they affect title, are at variance with the particulars furnished by the claimant the valuer should suggest that the authority ask for confirmation but information from confidential sources should not be disclosed.

16.129 Legislative changes

Sections 194 to 198 of the Housing and Planning Act 2016 made various changes to the provisions regarding the making of advance payments but these have not yet come into force.

16.130-145 Reserved