Land Compensation Manual Section 2: Compensation for land taken

Compensation for land taken

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

2.1 General

The following table shows the principal Acts that currently prescribe the compensation code in England and Wales and the respective commencement dates of the statutory provisions in each case:

   
Commencement Date Statutory Code
1 August 1961 Land Compensation Act 1961
1 January 1966 Compulsory Purchase Act 1965
1 April 1974 Local Government Act 1972 (Part VII)
Part I – 23 June 1973 Land Compensation Act 1973
Remainder – 23 May 1973 Land Compensation Act 1973
1 January 1981 Highways Act 1980
30 January 1982 Compulsory Purchase (Vesting Declarations) Act 1981
30 January 1982 Acquisition of Land Act 1981
24 August 1990 Town and Country Planning Act 1990
Various dates in 1991 Planning and Compensation Act 1991
1 January 1993 Transport and Works Act 1992
31 October 2004 Planning and Compulsory Purchase Act 2004
6 April 2012 Localism Act 2011 (revised planning assumptions)
13 July 2016 Housing and Planning Act 2016 (miscellaneous amendments to the compensation code)
Various dates from 2017 Neighbourhood Planning Act 2017 (revised assumptions for ‘no scheme world’ and other amendments)

Current compensation code

2.2 General

Compensation for the compulsory acquisition of an interest in land is to be assessed in accordance with the provisions of the Land Compensation Act 1961 (LCA 1961), Land Compensation Act 1973 (LCA 1973), Compulsory Purchase Act 1965 (CPA 1965), Highways Act 1980 (HA 1980), Town and Country Planning Act 1990 (CPA 1990), Planning and Compensation Act 1991 (PCA 1991), Transport and Works Act 1992 (TWA 1992), Planning and Compulsory Purchase Act 2004 (PCPA 2004), Housing and Planning Act 2016, Neighbourhood Planning Act 2017 and any other Act that applies specifically to the particular acquisition, eg the Housing Acts 1985 to 2008, the Pipe-lines Act 1962, the New Towns Act 1981 etc.

The basis of value for the land taken is, in most cases, ‘open market value’ as set out in section 5(2) LCA 1961. In arriving at this value the relevant statutory rules and provisions must be applied. Some of these are of general application whilst others will fall to be applied as may be appropriate in the circumstances of the particular case.

The basic rules and modifications thereof are set out in the ensuing paragraphs. Further instructions relating to special cases within the compensation code are contained in subsequent sections of this Manual.

2.3 Valuation date

The rules concerning the valuation date for the assessment of compensation, where the compensation is to be assessed in accordance with Rule (2) in section 5 LCA 1961 (open market value), are set out in section 5A LCA 1961. This section provides that the valuation date shall be

   
Notice to treat The earlier of:
  • the date of entry or
  • the date when the assessment is made (that is - is agreed or is assessed by the Lands Tribunal)
Vesting declaration The earlier of:
  • the vesting date or
  • the date when the assessment is made (that is, is agreed or is assessed by the Lands Tribunal)

Where the compensation is to be assessed in accordance with Rule (5) in section 5 LCA 1961 (equivalent reinstatement) the valuation date is still determined by the decision in Birmingham Corporation v West Midland Baptist (Trust) Association (Inc) [1970] AC 874 which laid down that the valuation date should be the date on which the commencement of reinstatement first becomes, or could be expected to become, reasonably practicable.

Nature and extent of interest to be valued

2.4 Effect of Notice to Treat

The notice to treat will determine the interest to be valued and the statutory basis applicable. Where the provisions of an Act or Statutory Instrument have become effective after the date of notice to treat but before the relevant valuation date, regard should in general be given to those provisions so far as they affect the open market value of the interest. Neither an interest created after the date of notice to treat nor an interest that has ceased to exist before the relevant valuation date will qualify for compensation.

Interests subsisting at the date of notice to treat should be valued by reference to the incidents of tenure pertaining at the relevant valuation date, provided that the acquiring authority’s burden is not thereby increased.

Section 4 Acquisition of Land Act 1981 (ALA 1981) states that the Upper Tribunal shall not take into account any enhancement of the value of any interest in land by reason of any building erected, work done or improvement or alterations made on the land to be acquired or retained land if the Lands Tribunal is satisfied that the works of enhancement were not reasonably required or were undertaken with a view to obtaining compensation or increased compensation.

Section 5A(2) LCA 1961 provides that no adjustment is to be made to the valuation in respect of anything that happens after the relevant valuation date. Whilst this provision is not further qualified in the Act, in Bishopsgate Parking (No 2) Limited v The Welsh Ministers [2012] UKUT 22 (LC) the Upper Tribunal (Lands Chamber) determined that the word ‘adjustment’ in section 5A refers to any increase or decrease in value that occurred after the valuation date. Post valuation date evidence could thus be taken into account to establish an objective fact as at the valuation date and the application of the ‘Bwllfa’ principle (the use of hindsight in certain circumstances) is unaffected.

See Practice Note 2/4 for the use of post valuation date evidence.

It has been established that the ‘Pointe Gourde’ principle (see later in this Section) relates not to the ascertainment of the interest to be valued but to the value of that interest when ascertained (dictum of Russell L J in Minister of Transport v Pettitt [1969] EGD 69 followed by the House of Lords in Rugby Joint Water Board v Foottit [1972] EGD 356). There are however three important statutory exceptions to this general statement, as follows:

(a) Under section 47 LCA 1973 where an acquiring authority acquires the interest of a landlord or a tenant that is subject to a tenancy to which Part II of the Landlord and Tenant Act 1954 (L&T Act 1954) applies (business tenancies), the right of the tenant to apply for the grant of a new tenancy shall be taken into account in assessing the compensation payable.

Section 39 L&T Act 1954, which provided for the disregard of that right in assessing compensation for compulsory purchase, ceased to have effect as from 23 May 1973.

(b) Under section 48 LCA 1973 the effect of the ‘Rugby’ decision on compensation payable for the acquisition of a tenanted agricultural holding (or part thereof) subject to the Agricultural Holdings Act 1986 will not apply and any prospect of the tenancy’s being determined by a notice to quit that is incontestable solely on grounds that depend on the acquiring authority’s proposals should be disregarded in assessing compensation in respect of both the landlord’s and the tenant’s interests. This limitation on the quality of the landlord’s interest for valuation purposes applies whether or not the landlord has served notice to quit on the tenant, and if the tenant has vacated in pursuance of such a notice it is to be assumed that the tenant has not done so. Section 48 LCA 1973 does not apply to tenancies where, by virtue of section 4 of the Agricultural Tenancies Act 1995, the Agricultural Holdings Act 1986 does not apply (that is Farm Business Tenancies are generally excluded from the operation of section 48 LCA 1973).

(c) Under section 50(2) LCA 1973 if a tenant of residential accommodation under a tenancy subsisting at the date of notice to treat were rehoused under the provisions of section 39(1)(a) of the Act by the local housing authority the acquiring authority shall be deemed to have taken possession on the date the tenant vacates. In assessing compensation payable to superior interests (eg the landlord) the rehousing or any prospect of it shall be disregarded.

However, should the tenant be rehoused other than by the local housing authority prior to the valuation date, compensation may be payable on a vacant possession basis unless it can be shown that possession was obtained as a consequence of the implementation of the scheme.

Reference should be made to Practice Note 2/1 for further notes on the effect of notice to treat on the interest to be valued.

2.5 Effect of entry onto the land

In Chilton v Telford Development Corporation [1987] 1 EGLR 12 the Court of Appeal held that where entry was taken on part only of the land specified in a Notice of Entry, the authority was deemed to have entered on to the whole of the land specified in the Notice.

This has now been given statutory effect by section 5A LCA 1961, which provides that if the acquiring authority enters on and takes possession of part of the land specified in a Notice of Entry or in respect of which a payment into Court has been made the authority is deemed to have entered on and taken possession of the whole of that land on that date.

Compensation for land taken

2.6 Basic rules

Section 5 LCA 1961 prescribes the following rules for assessing compensation:

  1. No allowance shall be made on account of the acquisition being compulsory.
  2. The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise.
  3. The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from the requirements of any authority possessing compulsory purchase powers.
  4. Where the value of the land is increased by reason of the use thereof or of any premises thereon in a manner which could be restrained by any court, or is contrary to law, or is detrimental to the health of the occupants of the premises or to the public health, the amount of that increase shall not be taken into account.
  5. Where land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that purpose, the compensation may, if the Lands Tribunal is satisfied that reinstatement in some other place is bona fide intended, be assessed on the basis of the reasonable cost of equivalent reinstatement.
  6. The provisions of Rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.

Further rules governing the assessment of compensation

It should be noted that for a compulsory purchase of land that is authorised on or after 22 September 2017 section 32 of the Neighbourhood Planning Act 2017 replaces sections 6, 7, 8 and 9 of the LCA 1961 with revised sections 6A, 6B, 6C, 6D and 6E, and Schedule 1 to the 1961 Act is omitted.

2.7 Modification of basic rules

The 1961 Act contains provisions modifying these six basic rules in certain circumstances. The additional provisions of general application may be summarised as follows:

(a) the effect of the scheme of acquisition is to be disregarded (section 6 and First Schedule – but for a compulsory purchase of land authorised on or after 22 September 2017 these have been replaced with sections 6A, 6D and 6E).

(b) betterment of land retained by the vendor is to be set off against compensation (section 7 and First Schedule – but for a compulsory purchase of land authorised on or after 22 September 2017 these have been replaced with section 6B). See Section 3 Part 2 of this Manual for the provisions in the compensation code relating to betterment.

(c) any depreciation of the value of the land to be acquired, where an indication that the land is, or is likely, to be acquired has been given by reason of the allocation of the land or other particulars contained in the current development plan or by any other means, is to be disregarded (section 9 – but for a compulsory purchase of land authorised on or after 22 September 2017 this has been replaced with sections 6A, 6D and 6E).

There are also modifications of more specialised application eg land of statutory undertakers (section 11) and cases where there is an outstanding right to compensation for a previous planning decision or order (section 12).

Disregard of the effect of ‘the scheme’ on value (for the compulsory purchase of land authorised prior to 22 September 2017)

2.8 General

It is a long established principle that variations both upwards and downwards in the value of the land acquired consequent upon the scheme underlying the acquisition should be excluded. The principle should be applied whether the acquisition takes place compulsorily or by agreement (with compulsory powers in the background).

Where land has suffered depreciation in value by inclusion in a scheme for one purpose but is acquired for another purpose under another scheme it is the effect of the latter scheme only that is to be ignored. Any case in which the operation of this instruction is the only obstacle in the way of a settlement being reached should be referred with full details to the Professional and Policy Guidance team.

2.9 Statutory disregard

The statutory expression of the principle is set out in section 6 of and the First Schedule to LCA 1961. This provides for the disregard of any increase or decrease in the value of the claimant’s land that is caused by the development proposals of the acquiring authority (as set out in Schedule 1). The development proposals to be disregarded are limited to those within the CPO area.

So far as the statutory scheme is concerned section 6 and Part I of the First Schedule (as amended) can be summarised as follows, the ‘land authorised to be acquired’ being the aggregate of the land comprised in the CPO and the ‘relevant land’ being the land to which the notice to treat refers:

     
  Case Development
Case 1 Where the acquisition is for purposes involving development of any of the land authorised to be acquired. Development of any of the land authorised to be acquired, other than the relevant land, being development for any of the purposes for which any part of the first mentioned land (including any part of the relevant land) is to be acquired.
     
Case 2 Where any of the relevant land forms part of an action area or an area of comprehensive development. Development of any land in that area, other than the relevant land, in accordance with the development plan.
     
Case 3 Where on the date of service of the notice to treat any of the relevant land forms part of an area designated as the site of a new town by an order under the New Towns Act 1965. Development of any land in that area, other than the relevant land, in the course of development as a new town, and any ‘public development’ specified under section 51 LCA 1973.
     
Case 3A Where on the date of service of the notice to treat any of the relevant land forms part of an area designated as an extension of the site of a new town by an order under the New Towns Act 1965 becoming operative after the date of the commencement of the New Towns Act 1966. Development of any land included in that area, other than the relevant land, in the course of development as part of a new town and any ‘public development’ specified under section 51 LCA 1973.
     
Case 4 Where any of the relevant land forms part of an area defined in the current development plan as an area of town development. Development of any land in that area, other than the relevant land, in the course of town development within the meaning of the Town Development Act 1952.
     
Case 4A Where any of the relevant land forms part of an area designated as an urban development area by an order under section 134 of the Local Government, Planning and Land Act 1980. Development of any land other than the relevant land, in the course of the development or redevelopment of that area as an urban development area.
     
Case 4B Where any of the relevant land forms part of a housing action trust area established under Part III of the Housing Act 1988. Development of any land other than the relevant land in the course of the development or redevelopment of that area as a housing action trust area.

The effect of the above provisions is that in arriving at the value of the relevant land in the circumstances set out in the first column no account shall be taken of any increase or decrease in its value attributable to the actual or prospective development of such other land as is specified in the second column except to the extent that such development would be likely to take place in the absence of the compulsory purchase order, development area, new town and such.

The Schedule above provides that the statutory disregard should apply to ‘any land other than the relevant land’. This suggests that regard should be had to the effect of the acquiring authority’s proposals on the relevant land itself. However, in Viscount Camrose v Basingstoke Corporation [1966] 3 All ER 161 Lord Denning explained that the Pointe Gourde rule supplemented and enlarged the statutory ‘no scheme’ rule. The Pointe Gourde rule is wider than the statutory rule as set out above (see paragraph 2.10 below).

2.10 Common law disregard

This is called the Pointe Gourde rule from the dictum of Lord MacDermott in Pointe Gourde Quarrying and Transport Co Ltd v Subintendent of Crown Lands [1947] AC 565 where he stated that “It is well settled that compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition”.

In certain circumstances ‘the scheme’ may be identifiable as embracing a larger area than that prescribed by section 6 and the First Schedule. This is illustrated in the case of Wilson v Liverpool City Council [1971] EGD 144. The Pointe Gourde rule can thus have a wider application than the statutory provisions of section 6 and the First Schedule.

In Myers v Milton Keynes Development Corporation [1974] 2 All ER 1096 Lord Denning said that in order to establish the ‘no scheme’ world the valuer “…must let his imagination take flight to the clouds…” and “…must conjure up a land of make-believe…”. However, some schemes take many years to come to fruition and the demands made on a valuer’s imagination, in establishing the ‘no scheme world’ and what might have happened had the scheme never existed, became excessively onerous.

Subsequently, in Waters v Welsh Development Agency [2004] 2 EGLR 103 Lord Nicholls laid down six conditions that should apply to the application of the Pointe Gourde rule, as follows:

  1. The Pointe Gourde principle should not be pressed too far and should be applied in a manner that achieves a fair and reasonable result.
  2. A result is not fair and reasonable where it requires a valuation exercise that is unreal or virtually impossible.
  3. A valuation result should be viewed with caution when it would lead to a gross disparity between the amount of compensation payable and the market values of comparable adjoining properties that are not being acquired.
  4. When applied as a supplement to section 6 LCA 1961, which will usually be the position, the Pointe Gourde principle should be applied by analogy with the provisions of the statutory code. Thus, in the Case 1 type of case (disregard only of development within the CPO), the area of the scheme should be interpreted narrowly so as to embrace the property acquired under the CPO and property that would probably have been so acquired had it not been bought by agreement. In other cases, such as Case 2 (disregard of development within an area of comprehensive development), parliament has spread the ‘disregard’ net more widely. Then it may be appropriate to give the scheme a wider scope.
  5. Normally, the scope of the intended works and their purpose will appear from the formal resolutions or documents of the acquiring authority.
  6. When in doubt, a scheme should be identified in narrower rather than broader terms.

Thus the common law (Pointe Gourde) principle and the statutory provisions of section 6 LCA 1961 co-exist side by side and both may be applied. Both the statutory rule and the Pointe Gourde rule require the valuer to assume that the scheme had never existed.

Reference should be made to Practice Note 2/5 for an exposition of the common law and statute law (prior to the coming into force of section 32 of the Neighbourhood Planning Act 2017 on 22 September 2017) together with a summary of the principal cases in which the meaning of ‘the scheme’ and the inter relationship between the common law principle and the statutory provisions have been considered and expounded by the Lands Tribunal and the Courts.

The comprehensive re-writing of the ‘no scheme rule’ made by section 32 of the Neighbourhood Planning Act 2017 (commencement date 22 September 2017) is likely to have rendered the ‘common law’ provisions referred to above of limited effect from that date.

Disregard of the effect of ‘the scheme’ on value (for the compulsory purchase of land authorised on or after 22 September 2017)

2.11 No scheme principle

Section 6A LCA 1961 provides that the no-scheme principle is to be applied when assessing the value of land in order to work out how much compensation should be paid by the acquiring authority for the compulsory acquisition of the land. The no-scheme principle is the principle that:

  • any increase in the value of land caused by the scheme for which the authority acquires the land, or by the prospect of that scheme, is to be disregarded
  • any decrease in the value of land caused by that scheme or the prospect of that scheme is to be disregarded

In applying the no-scheme principle the following rules in particular are to be observed:

Rule 1: It is to be assumed that the scheme was cancelled on the relevant valuation date.

Rule 2: It is to be assumed that no action has been taken (including acquisition of any land, and any development or works) by the acquiring authority wholly or mainly for the purposes of the scheme.

Rule 3: It is to be assumed that there is no prospect of the same scheme, or any other project to meet the same or substantially the same need, being carried out in the exercise of a statutory function or by the exercise of compulsory purchase powers.

Rule 4: It is to be assumed that no other projects would have been carried out in the exercise of a statutory function or by the exercise of compulsory purchase powers if the scheme had been cancelled on the relevant valuation date.

Rule 5: If there were a reduction in the value of land as a result of

(a) the prospect of the scheme (including before the scheme or the compulsory acquisition in question was authorised) or

(b) the blighting of the land as a result of the scheme

that reduction is to be disregarded.

2.12 Meaning of ‘scheme’

Section 6D LCA 1961 provides that for the purposes of sections 6A, 6B and 6C, the ‘scheme’ in relation to a compulsory acquisition means the scheme of development underlying the acquisition subject to the following rules.

Where the acquiring authority is authorised to acquire land in connection with the development of an area designated as:

  • an urban development area by an order under section 134 of the Local Government, Planning and Land Act 1980,
  • a new town by an order under section 1 of the New Towns Act 1981
  • a Mayoral development area by a designation under section 197 of the Localism Act 2011

the scheme is the development of any land for the purposes for which the area is or was designated. Where land is acquired for regeneration or redevelopment which is facilitated or made possible by a relevant transport project, the scheme includes the relevant transport project (subject to section 6E LCA 1961).

A ‘relevant transport project’ means a transport project carried out in the exercise of a statutory function or by the exercise of compulsory purchase powers (regardless of whether it is carried out before, after or at the same time as the regeneration or redevelopment).

Where different parts of the works comprised in such a transport project are first opened for use on different dates, each part is to be treated as a separate relevant transport project.

If there is a dispute as to what is to be taken to be the scheme (the ‘underlying scheme’) then, for the purposes of this section, the underlying scheme is to be identified by the Upper Tribunal as a question of fact, subject as follows:

(a) the underlying scheme is to be taken to be the scheme provided for by the Act, or other instrument, which authorises the compulsory acquisition unless it is shown (by either party) that the underlying scheme is a scheme larger than, but incorporating, the scheme provided for by that instrument, and

(b) except by agreement or in special circumstances, the Upper Tribunal may permit the acquiring authority to advance evidence of such a larger scheme only if that larger scheme is one identified in the following read together:

(i) the instrument which authorises the compulsory acquisition, and

(ii) any documents made available with it.

In the application of no-scheme Rule 3 (see Paragraph 2.11 above) in relation to the acquisition of land for or in connection with the construction of a highway (the ‘scheme highway’) the reference in that rule to ‘any other project’ includes a reference to any other highway that would meet the same or substantially the same need as the scheme highway would have been constructed to meet.

2.13 Further provisions in relation to relevant transport projects

Section 6E LCA 1961 has effect where land is acquired for regeneration or redevelopment which is facilitated or made possible by a relevant transport project.

The scheme referred to includes the relevant transport project only if:

(a) regeneration or redevelopment was part of the published justification for the relevant transport project,

(b) the works comprised in the relevant transport project are first opened for use after the period of five years beginning with the day on which section 32 of the Neighbourhood Planning Act 2017 came into force,

(c) the instrument authorising the compulsory acquisition of the land which is acquired for regeneration or redevelopment was made or prepared in draft on or after the day on which that section came into force,

(d) the compulsory acquisition of that land is authorised before the end of the period of five years beginning with the day on which the works comprised in the relevant transport project are first opened for use, and

(e) the land is in the vicinity of land comprised in the relevant transport project.

In assessing compensation payable to a person in respect of the compulsory acquisition of that land, the scheme is to be treated as if it did not include the relevant transport project if the person acquired the land after plans for the relevant transport project were announced but before 8 September 2016.

Where the works comprised in the relevant transport project are first opened for use after the period of five years beginning with the day on which section 32 of the Neighbourhood Planning Act 2017 came into force, and the claimant makes a claim for compensation during that period, and before the works are first opened for use, compensation is to be assessed on the basis that the works will first be opened for use after that period. If the acquiring authority confirms that, in the authority’s opinion, the works will first be opened during that period, compensation is to be assessed on the basis that the works will first be opened for use during that period.

If the basis on which compensation was assessed in those circumstances proves to be incorrect

(a) the claimant’s entitlement to any compensation which the claimant has already been awarded is not affected,

(b) the acquiring authority must give the claimant a notice informing the claimant that the basis on which the compensation was assessed was incorrect,

(c) the claimant may make a further claim for compensation in respect of the compulsory acquisition, and

(d) for the purposes of the Limitation Act 1980, the further claim for compensation accrues on the day the claimant receives the notice.

Effect of prospective acquisition (for the compulsory purchase of land authorised prior to 22 September 2017)

2.14 Effect of prospective acquisition to be ignored (section 9 LCA 1961)

No account should be taken of any depreciation in the value of the interest being acquired that is attributable to (whether by allocation or any other particulars contained in the current development plan or by any other means) an indication that has been given of the likelihood of the land being acquired by an authority possessing compulsory purchase powers.

The Lands Tribunal and the Court of Appeal have tended to place a liberal interpretation on the wording of section 9. For example, in Trocette Property Co Ltd v GLC (1974) 28 P&CR 408 Megaw L J said “the phrase ‘attributable to’ is, I think, deliberately used in the section in order to ensure greater scope for flexibility in its application than would have been achieved by other phrases, such as ‘caused by’”. In Hackney LBC v Macfarlane (1970) 21 P&CR 342 Sachs L J said that “‘indication’ really means very little more or less than the word ‘sign’ - a sign of intention”.

Each case must be considered on the facts and valuers should be careful to distinguish between depreciation attributable to an indication that the subject land is, or is likely to be, acquired (where section 9 would apply), and depreciation attributable to other factors eg the possibility of statutory action other than acquisition.

In Richards and Richards v Somerset County Council [2001] RVR 204 the Lands Tribunal determined that for section 9 to apply:

‘First, for a statement or action to be an indication within section 9 it must be a sign of the intention on the part of the authority possessing compulsory purchase powers that it is, or is likely, to acquire the land. An intention may be evidenced by an action or sequence of actions …

Second, the statement or action said to be an indication must be given by an authority possessing compulsory purchase powers … It cannot be given by the claimant, his advisers or a third party…

Third, the indication must be available not only to the owner of the land but also to hypothetical potential purchasers of the land at the date of valuation…. The indication must be made public or be otherwise ascertainable by potential purchasers. An indication given privately or which is not likely to come to the notice of such purchasers cannot be an indication within section 9 of the 1961 Act.

Fourth, the provisions of the 1961 Act should be interpreted liberally’.

Legal advice has been obtained on the application of the Court of Appeal decision in Jelson Ltd v Blaby District Council [1977] 2 EGLR 14 (see Practice Note 2/5) to cases where it is clear that development has taken place in a different way as a reasonable response to the scheme or indication, from the way in which it would have done in the absence of the scheme or indication and as a consequence the relevant land has been depreciated in value. The following advice relates only to this type of circumstance.

In such cases in order to disregard any depreciatory effect of the scheme or indication, the valuer should value the relevant interest with the relevant land rebus sic stantibus at the valuation date, but in the setting and surroundings in which it would have been if there had been no scheme or indication. In looking at the setting and surroundings in the absence of the scheme or indication it is permissible to disregard the existence of: * scheme development (this will be development of the land within the scheme as identified under section 6 LCA 1961 and the common law Pointe Gourde principle) * development on non-scheme land that would not have been likely to have been carried out in the absence of the scheme or indication * development on non-scheme land that was carried out in the manner it was as a reasonable response to the scheme or indication of compulsory acquisition and that would not have been likely to have been carried out in that way if there had been no scheme or indication

and to substitute that development which in the absence of the scheme or indication could reasonably be expected to have taken place by the valuation date on land other than the relevant land.

The valuation of the relevant land in this substituted setting and surroundings should include any value it might have had at the valuation date for development having regard to any existing planning permission in respect of the relevant land at the date of notice to treat and to any planning permission assumed under sections 14 16 LCA 1961. It should also include to the extent that the market would do so, the value attributable to the prospect of obtaining planning permission in the future for development of the relevant land in the setting and surroundings in the absence of the scheme or indication.

Legal advice received also supports the view that if the valuer is to ignore development that would not have been carried out but for the scheme or indication, it would be logical also to ignore changes in ownerships that would not have occurred but for the scheme or indication and to assume instead ownerships to be as they would have been in the circumstances of the assumed substituted development.

These assumptions as to development and ownerships do not apply to the relevant land, which should be valued as it stands at the valuation date, with the relevant interest as it subsists at the date of the notice to treat.

Difficulties may arise in connection with planning assumptions and hope value (particularly where a section 17 Certificate has been issued).

If the compensation on the above basis will be substantially greater than it would otherwise have been the valuer should consult the acquiring authority before proceeding and if it indicates that it does not accept the valuer’s interpretation the matter should be referred to the PS Professional Guidance team.

In Abbey Homesteads (Developments) Ltd v Northamptonshire CC (1992) 64 P&CR 377 the claimant was granted planning permission for residential development on a site subject to a planning condition that part of the site would be reserved for a school. The site reserved for school use was compulsorily acquired by the Council seven years later. The Court of Appeal determined that the land was to be valued subject to the restrictive covenant and that neither section 9 nor the Pointe Gourde rule could apply to disregard the planning condition.

Effect of prospective acquisition (for the compulsory purchase of land authorised on or after 22 September 2017)

2.15 Effect of prospective acquisition to be ignored

As from 22 September 2017 section 9 LCA 1961 has been replaced by, and subsumed within, sections 6A, 6D and 6E LCA 1961 (by virtue of section 32 Neighbourhood Planning Act 2017). Sections 6A, 6D and 6E are set out in Paragraphs 2.11 to 2.13 above.

Planning assumptions for compulsory purchase

2.16 General

Section 232 of the Localism Act 2011 (LA 2011) replaced sections 14 to 18 of the Land Compensation Act 1961 (LCA 1961) with revised sections 14, 15, 17 and 18. Sections 16 and 21 have been deleted. The new sections effectively codify existing case law relating to planning assumptions for compulsory purchase and the extent of ‘the scheme’ to be adopted in assessing those assumptions.

The new provisions are generally applicable to acquisitions under CPOs that were made or confirmed on or after 6 April 2012. Full details of the provisions applicable to acquisitions under CPOs that were made or confirmed prior to 6 April 2012 can be found in Practice Note 2/2 of this Manual.

2.17 Existing planning permission (section 14(2)(a) LCA 1961)

Account may be taken of any existing planning permission in force, on the relevant land or other land, at the relevant valuation date (for example date of entry and such) may be taken into account, whether granted unconditionally, subject to conditions, on an ordinary application, an outline application or by virtue of a development order.

2.18 Prospect of Planning Permission (section 14(2)(b) LCA 1961)

Account may be taken of the prospect of planning permission’s being granted, on the relevant land or other land, on or after the relevant valuation date, subject to the assumptions set out in section 14(5), for development other than development for which planning permission is in force and appropriate alternative development, in the circumstances known to the market at the relevant date. The section 14(5) assumptions are dealt with in Paragraph 2.20 below.

However, any such prospect of planning permission would be subject to a deduction for ‘hope value’ since the planning permission cannot be assumed to be in force. The hope value, if any, arising from the prospect of obtaining planning permission in the future is to be taken into account to the extent that the market would do so.

In TfL v Spirerose Limited [2009] UKHL 44 the House of Lords determined, overturning the decision of the Lands Tribunal and the Court of Appeal, that, where the Lands Tribunal found on the balance of probability that in the ‘no scheme world’ planning permission would have been granted by the valuation date, the land should be valued in the normal way by discounting for uncertainties. Thus the grant of planning permission is not to be assumed to have been granted by the valuation date merely because it has been shown that it probably would have been granted. The prospect of obtaining such permission must be reflected in the value of the land with all the risks and possibilities that would have applied in the absence of the compulsory acquisition.

2.19 Appropriate Alternative Development – (sections 14(3) to 14(8) LCA 1961)

It may be assumed that planning permission is in force, on the relevant land alone or on the relevant land together with other land, at the relevant valuation date (or that it is certain at the relevant date that planning permission will be granted at any later date specified in the section 17 certificate) for any development that is Appropriate Alternative Development.

Appropriate Alternative Development comprises development, on the relevant land alone or on the relevant land together with other land, other than development for which planning permission is in force at the relevant valuation date. It must be assessed on the assumptions set out in subsection 14(5) but otherwise in the circumstances known to the market at the relevant valuation date on the assumption that planning permission for the development could at that date reasonably have been expected to be granted on an application decided on that date, or at a time after that date.

Section 17 certificates are dealt with in Paragraph 2.22 below.

2.20 Assumptions to be made in assessing prospective planning permission or Appropriate Alternative Development

In assessing prospective planning permission (section 14(2)(b) LCA 1961 or Appropriate Alternative Development (sections 14(3) to 14(8) LCA 1961) the assumptions set out in section 14(5) LCA 1961 must be applied. These are:

  • that the scheme of development underlying the acquisition had been cancelled on the launch date (the date of first publication of the CPO or other order authorizing the acquisition)
  • that no action has been taken (including acquisition of any land, and any development or works) by the acquiring authority wholly or mainly for the purposes of the scheme
  • that there is no prospect of the same scheme, or any other project to meet the same or substantially the same need, being carried out in the exercise of a statutory function or by the exercise of compulsory purchase powers
  • if the scheme was for use of the relevant land for or in connection with a highway, that no highway will be constructed (or altered or improved) to meet the same or substantially the same need as the scheme highway would have been constructed to meet

Where there is a dispute as to the identification or extent of the ‘underlying scheme’ authorized by the CPO or Act, the underlying scheme is to be identified by the Upper Tribunal as a question of fact. Either party may show that the underlying scheme is larger than, but incorporates the scheme provided for by the CPO etc. The Upper Tribunal may permit the acquiring authority to advance evidence of such a larger scheme only if it is identified in the CPO etc and any documents published with it.

2.21 Planning permission to be assumed for the acquiring authority’s proposals (section 15 LCA 1961)

Please note that as from 22 September 2017 section 15 LCA 1961 is omitted from the Act by virtue of section 32 Neighbourhood Planning Act 2017.

Where the claimant’s land is to be acquired for purposes which involve the development of the land by the acquiring authority and planning permission is not in force at the relevant valuation date it is to be assumed that planning permission is in force at the relevant valuation date for the development of the relevant land or that part of it in accordance with the proposals of the acquiring authority.

If an actual planning permission has been obtained but does not ‘run with the land’ (eg a permission personal to the acquiring authority) it should be disregarded in accordance with section 15(2). In such a case the appropriate planning assumption would be a deemed grant of planning permission for the acquiring authority’s proposals in accordance with section 15(1).

The assumed planning permission may not be of any value to the claimant. In Roberts v South Gloucestershire DC [2003] RVR 43 the acquiring authority’s proposals were for the construction of a road which involved a cutting through sandstone. The claimant wished to claim compensation for the value of the minerals extracted during the road construction. The Lands Tribunal held that the assumed planning permission was to construct the road and the extraction of minerals necessary for the cutting was an integral part of the development. There was no separate permission to extract minerals that could have been implemented without completing the road. The deemed planning permission was therefore of no value to the claimant. A similar decision was reached in the subsequent case of Colneway Ltd v Environment Agency [2004] RVR 37.

2.22 Certificates of Appropriate Alternative Development (section 17 LCA 1961)

Provision is made under sections 14 and 15 LCA 1961 for account to be taken of any actual planning permission in force, any prospective planning permission (in the ‘no scheme world’), and the proposals of the acquiring authority. However, the difficulty still remains of arriving at the open market value that the land would have were it not being acquired since a planning application for a use not in accordance with the acquiring authority’s proposals would probably be refused, and any assumptions with regard to prospective planning permission would be subject to a deduction for ‘hope value’ to reflect that planning permission had not actually been granted. The purpose of the section 17 procedure is to obtain a clear and definite decision from the local planning authority concerning the forms of development, if any, that would be permitted (either then or later) were the relevant land not to be acquired by any authority possessing compulsory purchase powers. A certificate can relate to the relevant land or the relevant land together with other land.

Thus where an interest in land is proposed to be acquired by an authority possession compulsory purchase powers, either the claimant or the acquiring authority may apply to the local planning authority for a certificate stating either:

  • that in the local planning authority’s opinion there is development that is Appropriate Alternative Development in relation to the acquisition
  • that in the local planning authority’s opinion there is no development that is Appropriate Alternative Development in relation to the acquisition

Where a notice to treat has been served and a reference made to the Upper Tribunal to determine the amount of compensation, no application for a section 17 certificate may be made except with the consent of the other party in writing or the permission of the Upper Tribunal.

2.23 Contents of a certificate

An application for a certificate must state either:

(a) that in the applicant’s opinion, there is development that is Appropriate Alternative Development in relation to the acquisition concerned; or

(b) that in the applicant’s opinion, there is no development that is Appropriate Alternative Development in relation to the acquisition concerned.

The application must also give a description of the development that is, in the applicant’s opinion, Appropriate Alternative development and the reasons for holding that opinion. The application must also be accompanied by a statement specifying the date on which a copy of the application has been or will be served on the other party.

A certificate issued under section 17 must identify every description of development (whether specified in the application or not) that in the local planning authority’s opinion is Appropriate Alternative Development and must give a general indication of any conditions to which planning permission for the development could reasonably have been expected to be subject, of when the permission could reasonably have been expected to be granted (if a date later than the relevant valuation date), and of any pre-condition or obligation that could reasonably have been expected to be met.

2.24 Costs of obtaining the certificate (section 17(10) LCA 1961)

Section 17(10) provides that in assessing the compensation payable to any person in respect of any compulsory acquisition, there must be taken into account any expenses reasonably incurred by the person in connection with the issue of a certificate under this section (including expenses incurred in connection with an appeal under section 18 where any of the issues on the appeal are determined in the person’s favour).

With regard to section 17 this means that, so long as a certificate were issued, the claimant’s reasonable costs of applying for the certificate would be reimbursed by the acquiring authority, even where the certificate specified that in the planning authority’s opinion, there is no development that is Appropriate Alternative Development in relation to the acquisition concerned.

With regard to section 18 this means that, so long as the claimant were successful on any issue at the appeal, all his section 18 costs would be reimbursed by the acquiring authority.

However, section 17 and section 18 costs comprise part of the compensation payable to the claimant and would be subject to the usual criteria for payment in that they should be reasonable in relation to quantum, relevance and proportionality. The claimant must be able to show that he has reasonably tried to mitigate the costs that are the subject of his compensation claim. For example, if a claimant had employed senior planners and lawyers in making a relatively simple section 17 application, the acquiring authority might seek to curtail the reimbursement of costs on the grounds that less expensive professional advisers could have undertaken the task adequately. However, each case would have to be judged on its merits. The grant of a certificate (even a certificate stating that there was no Appropriate Alternative Development) would assist the acquiring authority in assessing the correct amount of compensation due under the statutory compensation code.

2.25 Adverse section 17 certificate - hope value

If a ‘negative’ certificate were given (section 17(3)(a)(ii)) it should be regarded as a stronger indication of the improbability of a permission being forthcoming, either now or later, than a refusal of planning permission following an application for a specific form of development. This is because a planning refusal is a decision on planning policy operating at the time of the decision whereas a negative section 17 certificate implies that not only does the planning authority consider that permission would not have been granted at the time of the relevant date but also that it would not be granted at any future time.

In these circumstances it is to be expected that positive factual evidence would be required of purchasers in the open market being prepared to pay prices reflecting a discernible element of ‘hope value’ in the face of a planning refusal and with no expectation of future planning permission before such an element of value could be admitted in assessing compensation where a ‘negative’ certificate exists.

2.26 ‘Relevant date’

The relevant date for the determination of a section 17 certificate is the relevant valuation date (ie date of entry etc). The certificate must be determined having regard to the circumstances known to the market at that date.

2.27 Duration of certificate

The Lands Tribunal held in Stevens v Bath and North East Somerset DC [2004] RVR 189 that a Certificate of Appropriate Alternative Development was valid only for the CPO in respect of which it was issued. It would not be binding in relation to future CPOs.

2.28 Appeals against Certificates of Appropriate Alternative Development (section 18 LCA 1961)

Where a section 17 certificate has been issued, the person for the time being entitled to that interest or the acquiring authority may appeal to the Upper Tribunal against that certificate. The Upper Tribunal must consider the matters to which the certificate relates as if the application had been made to the Tribunal in the first place. The Tribunal must then:

(a) confirm the certificate, or

(b) vary it, or

(c) cancel it and issue a different certificate in its place.

Where an application for a section 17 certificate has been made and a certificate has not been issued at the expiry of the time prescribed by a development order for the issue of the certificate (or at the expiry of any extended time period agreed between the parties) it is to be assumed that the local planning authority has issued a certificate to the effect that there is no development that is appropriate alternative development.

The reimbursement of costs relating to the issue of a section 18 certificate is dealt with in Paragraph 2.24 above. 2.29 Agreement of Appropriate Alternative Development The reference to, and definition of, Appropriate Alternative Development in section 14(4) (rather than section 17) suggests that it may be possible for the parties to the compulsory acquisition to agree what comprises Appropriate Alternative Development without reference to the local planning authority. This would obviate the incurring of the costs of making a formal submission to the local planning authority.

Limitation of action

2.30 General

Section 9(1) of the Limitation Act 1980 (LA 1980) 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’. It used to be thought that limitation of action did not apply to compulsory purchase claims. However, in Hillingdon LBC v ARC Ltd (CA) [1998] 3 EGLR 18 the claimant had made a reference to the Lands Tribunal but the Tribunal had declined jurisdiction to determine the issue of whether the claim was barred as a result of section 9(1) of the Limitation Act 1980. The acquiring authority then sought a declaration in the High Court that the action was time barred. The High Court duly gave that declaration and the claimants appealed to the Court of Appeal.

The Court of Appeal determined that:

i. a cause of action may accrue even though the sum of damages has yet to be determined;

ii. in cases of compulsory purchase the cause of action accrued on the date of entry;

iii. a reference to the Lands Tribunal was not merely a procedural step to quantify the compensation but was also an action to recover a sum of money.

However, in Co-operative Wholesale Society v Chester le Street DC (CA) [1998] 3 EGLR 11 the Court of Appeal held that the provisions of the Limitation Act 1980 could be overridden by agreement, waiver, estoppel or unconscionable conduct on the part of one of the parties to the dispute.

2.31 Notice to Treat/General Vesting Declaration

It should be noted that in the Hillingdon case referred to above, the acquisition had proceeded via Notice to Treat and Notice of Entry had been served under section 11 CPA 1965. Thus the date of valuation and the date that the limitation of action period starts are the same. Where a claimant’s land was taken in stages by means of the service of successive Notices of Entry, a separate valuation and limitation date would arise for the land comprised in each notice.

However, in acquisitions made under the General Vesting Declaration procedure the date of valuation and the date that the limitation of action period starts are different. The valuation date is determined by section 5A(4) LCA 1961 as the earlier of (a) the vesting date and (b) the date when the assessment is made. The limitation period in such cases is determined by section 10(3) of the Compulsory Purchase (Vesting Declarations) Act 1981 as ‘six years from the date at which the person claiming compensation………..first knew, or could reasonably be expected to have known, of the vesting of the interest…..’.

In Harringay Meat Traders Limited v Greater London Authority [2014] UKUT 302 (LC) the Upper Tribunal determined that under the GVD procedure the date that the acquiring authority takes possession is not relevant to the issue of limitation and that a separate limitation date will arise for each vesting date, where the claimant’s land is taken in stages.

2.32 Limitation of action defence defeated by estoppel

The defence of limitation of action to a compensation claim can be defeated by ‘estoppel by convention’ – where a common assumption that limitation of action would not be invoked is communicated between the parties – or ‘promissory estoppel’ – where one party communicates an undertaking to the other that it will not rely on limitation of action. Such a promise would remain in force until formally withdrawn.

In Khan v Tyne & Wear PTE [2015] UKUT 43 (LC) the acquiring authority had entered on the claimant’s land in July 2000 but the claimant did not make a reference to the Tribunal until July 2013. The negotiations had continued fitfully partly due to the claimant’s continual changing of professional advisers. The acquiring authority made a second advance payment; subsequently offered a further sum in full settlement; and urged the claimant to find professional representation - all after the limitation period had expired. The acquiring authority did not inform the claimant of the expiry of the limitation period until August 2011 when the claimant’s solicitor threatened to refer the case to the Upper Tribunal.

The Tribunal held that there had been no estoppel by convention. That would require a common assumption to be communicated between the parties. There also had been no representation by the acquiring authority that it would not rely on the defence of limitation so there was no promissory estoppel and the actions by the authority after the expiry of the limitation period had not amounted to a waiver of their rights. The Tribunal also stated that neither a willingness to negotiate after the expiry of the limitation period, nor a willingness to pay compensation up to the level that the acquiring authority considers to be fair, could be taken to comprise a representation that the authority would not rely on a defence of limitation.

In Saunders v Caerphilly CBC [2015] UKHC 1632 (Ch) the date of entry was in 1991. Negotiations had continued over the years but final settlement was held up by the requirement for the provision of drainage to the farm buildings, which had been severed by the scheme. Welsh Water refused to allow the effluent to be discharged into the main drains. In 2008 the acquiring authority wrote a letter to the claimant stating that the matter could be referred to the Tribunal if agreement could not be reached. This was held to be sufficient to defeat a defence of limitation by the authority. Negotiations had continued and the authority had not informed the claimant that the statement in the 2008 letter was withdrawn.

If an authority changed its mind regarding an undertaking not to invoke a limitation defence, or to bring a communicated understanding between the parties to an end, it would need to give the claimant a reasonable period in which to reconsider their position and if they chose, to make a reference to the Upper Tribunal.