Land Compensation Manual Section 2: Compensation for land taken

Practice Note 2/1: Notices to Treat and the Relevant Valuation Date

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

Many of the matters mentioned in this Practice Note have been touched upon in other parts of the Manual in more or less detail. This Practice Note should be read in conjunction with the relevant Section of this Manual.

Notices to Treat

1.1 General

A Notice to Treat, as its name implies, is an invitation to negotiate given by an authority that has armed itself with compulsory powers to the owner of an interest in land that the authority wishes to acquire. Although an essential step in the exercise of compulsory powers, the mere service of the notice has been described as a neutral proceeding in that the owner may be prepared to proceed as a willing vendor and not insist on the authority’s taking the land by compulsion.

1.2 Effect of Notice

The notice determines the statutory basis of compensation applicable and the interest to be acquired.

  1. As regards the basis of compensation, where there is a reference in the statute that links the operation of the compensation code to the date of a notice to treat that provision will be conclusive. Where the provisions of an Act become effective after the notice to treat but before the relevant valuation date, effect should in general be given to the provisions so far as they affect the open market value of the interest.
  2. No interest created after the date of the notice to treat will qualify for compensation and in this connection a renewal or extension of a lease is to be regarded as the creation of a new interest. Further, section 4 of the Acquisition of Land Act 1981 (ALA 1981) states that the creation of any interest shall not be taken into account if the creation of the interest was not reasonably necessary and was undertaken with a view to obtaining increased compensation. Any interest that has ceased to exist before the relevant valuation date will not qualify for compensation, but this is not to say that a person holding over after expiry of a lease before the date would not be entitled to claim compensation under section 20 Compulsory Purchase Act 1965 if that person were required to give up possession otherwise than under the terms of the implied periodic tenancy. An occupier remaining in possession following the expiry of a lease before the relevant valuation date will generally be doing so in pursuance of rights under the Landlord and Tenant Act 1954, the Agricultural Holdings Act 1986 or the Rent Acts. The right of a business tenant to apply for a new tenancy under Part II LTA 1954 shall be taken into account in assessing the compensation payable in accordance with section 47 LCA 1973. A tenant holding over under the AH Act 1986 is entitled to continue in occupation as a tenant from year to year until such time as a valid notice to quit takes effect (see Sections 7 and 8 of this Manual). However section 48 LCA 1973 states that in assessing compensation there shall be disregarded any notice to quit already served which would not have been effective if the land required did not include a reference to its being required by an acquiring authority.

The Rent Acts merely operate to give the occupier the right to occupy the premises without conferring any legal estate or interest in land.

1.3 Withdrawal of Notice to Treat

There are only limited occasions when an authority would be entitled to withdraw notice to treat, otherwise than by agreement with the claimant.

Under section 31 LCA 1961 a notice to treat may only be withdrawn

  • within six weeks after the receipt of the notice of claim from the claimant (even where entry has already been taken) (R v Northumbrian Water Ltd ex parte Able UK Ltd [1996] 2 EGLR 15) or
  • where no notice of claim has been served on the acquiring authority, within six weeks after the claim has finally been determined by the Upper Tribunal (so long as entry has not yet been taken by the acquiring authority).

A claim shall not be deemed to be finally determined so long as the time for requiring the Upper Tribunal to state a case with respect thereto, or for appealing from any decision on the points raised by a case so stated, has not expired.

1.4 Expiry of Notice to Treat by effluxion of time

Section 5(2A) et seq CPA 1965 provides that a notice to treat shall cease to have effect at the end of the period of three years beginning on the date on which it was served unless:

  1. the compensation has been agreed or awarded or has been paid or paid into court
  2. a general vesting declaration has been executed under section 4 of the Compulsory Purchase (Vesting Declarations) Act 1981
  3. the acquiring authority has entered on and taken possession of the land specified in the notice, or
  4. the question of compensation has been referred to the Upper Tribunal

The three year period may be extended (and re-extended if necessary) by agreement between the parties unless any of the events referred to above has occurred.

1.5 Compensation payable on withdrawal or expiry of Notice to Treat

On either the withdrawal or expiry of a notice to treat the claimant shall be entitled to compensation for ‘any loss or expenses’ occasioned to the claimant by the giving of the notice and its ceasing to have effect or its withdrawal. The compensation shall, in default of agreement, be determined by the Upper Tribunal.

The compensation thus payable is not limited to the professional fees or administrative expenses of the claimant but would include any losses consequent upon the service and withdrawal/expiry of the notice to treat and could include compensation for loss of profits etc. However, any claim for consequential losses made under these provisions would be subject to the usual rules for disturbance compensation eg they should be a direct and reasonable consequence of the notice to treat, not too remote and the claimant would be under a duty to have mitigated any losses (Williams v Blaenau Gwent CBC (No 2) [1999] 2 EGLR 195). The compensation would also encompass any loss or damage caused to the value of the land by the actions of the acquiring authority if the notice to treat were withdrawn after entry had been taken (R v Northumbrian Water Ltd ex parte Able UK Ltd [1996] 2 EGLR 15).

Relevant valuation date (see also Paragraph 2.3 of Section 2)

1.6 Rule (2) cases

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
  • the date when the assessment is made (ie is agreed or is assessed by the Upper Tribunal)
Vesting declaration The earlier of:
  • the vesting date
  • the date when the assessment is made (ie is agreed or is assessed by the Upper 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.

In cases where general vesting powers have been used the relevant date is the date of vesting, but if by its actions or lack of them the acquiring authority failed to exercise the rights of ownership that it had acquired and the former owner continued to exercise them there could be difficulties and any such case should be submitted for advice to the PS Professional Guidance Team.

The date possession is taken should as a general rule be taken to mean the date the authority takes physical possession, or exercises some right that could be interpreted as having taken possession. Where only partial physical entry is taken on a claimant’s land entry is deemed to have been taken in respect of the whole of the land contained in the notice of entry (section 5A LCA 1961). However, there is nothing to prevent an acquiring authority from serving a number of notices of entry each relating to a different part of the claimant’s land and thereby taking entry in stages with consequently different valuation dates. If such an occupier vacates before notice of entry is served or before the date specified in such a notice no exception to the general rule should be made except where the tenant is rehoused by the local housing authority. In this case in accordance with section 50(2) LCA 1973 the acquiring authority shall be deemed to have taken possession on the date it is given up by the tenant.

The date when compensation is agreed should be taken to be the date when the valuer is in a position to report negotiations as completed although where an item of claim, eg for disturbance, has been left open by agreement until it can be quantified this would not necessarily affect the situation. Until the parties are bound by contract the terms have not, strictly, been ‘agreed’ but the valuer should not take the initiative in reopening cases that have been reported provisionally agreed.

The date when the compensation is assessed by the Tribunal should be taken to mean the date on which the Tribunal hears the evidence of value. This means that documents submitted following a reference could require amendment at any time before the hearing is closed. Every effort should be made to comply with any invitation from the Upper Tribunal to review valuations already submitted. If documents have to be withdrawn and others substituted the Upper Tribunal’s time‑table should be observed. Where it is thought necessary for the assistance of the Tribunal to introduce evidence received subsequently, that course should be adopted. Since compensation under section 20 CPA 1965 arises only after the occupier has been required to give up possession this alternative date does not apply to such cases.

1.7 Rule (5) cases

The cost of equivalent reinstatement is to be arrived at by reference to the date on which the commencement of reinstatement should be regarded to have become or to be expected to become reasonably practicable. The determination of that date is to be decided on the facts of each case. The qualification for compensation on the basis of equivalent reinstatement needs careful consideration. The disadvantages of an authority’s being irrevocably committed to the payment of compensation on the Rule 5 basis long in advance of the availability of an alternative property or site are obvious, but there is nothing to preclude Rule 5 claimants from pressing for a settlement of compensation before these matters have been disposed of if they choose to do so on the basis of a ‘forecast’ estimate of cost, provided they can show bona fide intention to reinstate.

1.8 Housing Act 1985

The provisions of the Housing Act 1985 (HA 1985) enable an authority in certain cases to establish the compensation date as though actual possession has been taken although in fact it has not.

For example, under section 583 HA 1985 a local housing authority may compulsorily acquire a house that is to be used for housing purposes and may, after serving notice of entry under section 11 CPA 1965, proceed by serving notice on an occupier of the house authorizing him to continue in occupation upon terms specified in the notice or on such other terms as may be agreed. The authority may then deal with the owner of any interest in the house as if it had taken possession under section 11 CPA 1965.

Assessing compensation

1.9 Nature of the interest to be valued

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 (see para 1.2(b) above). Thus a leasehold interest should be valued on the basis of the unexpired term at the relevant valuation date and any extension or renewal granted since notice to treat should be disregarded. A tenant holding over after expiry will be compensated in the light of any rights of renewal of the tenancy.

Where an occupying tenant has vacated property and the tenant’s interest has ceased to exist between the date of notice to treat and the relevant valuation date, regard should be had to this in valuing the former landlord’s interest unless it can be shown that possession was obtained as a consequence of the implementation of the scheme.

In Banham v London Borough of Hackney (1971) 22 P&CR 922 the Tribunal stated ‘…..interests as well as values must be taken as at the date of valuation or entry unless the owner has done something which so altered the interests as to increase the burden of compensation on the acquiring authority’. In that case the owner of a tenanted dwelling had gained vacant possession from the tenant after the date of service of notice to treat. However, on the facts the Tribunal did not think that he had increased the burden of compensation on the acquiring authority on the basis that the increase in compensation payable for the interest was equal to the amount that a purchaser would have allowed for getting the tenant out.

In Pyrah (Doddington) Ltd v Northamptonshire CC [1982] 2 EGLR 195 the freehold and tenancy were held by separate companies but with the same controlling shareholder. The interests were not altered before the date of entry but the claimant companies argued that, whilst any notice to quit served by the landlord could have been successfully challenged by the tenant (it was an agricultural tenancy) the landlord could have agreed with the tenant that the latter would not serve a counter notice. The claimants argued that the Tribunal should ‘lift the corporate veil’ in respect of both the landlord and tenant companies. However, the Tribunal refused to do this and stated that each claimant company would have acted in its own best interest.

The Tribunal later accepted the reasoning in ‘Banham’ in Welford v Transport for London [2010] UKUT 99 (LC). The case of ‘Pyrah’ can clearly be distinguished in that the interests had not been altered by the date of entry and the principle on which the case was decided was whether or not to ‘lift the corporate veil’.

Section 4(2) of the Acquisition of Land Act 1981 states ‘The Upper Tribunal shall not take into account any interest in land …………………………… if the Upper Tribunal is satisfied that the creation of the interest ………………………………was not reasonably necessary and was undertaken with a view to obtaining compensation or increased compensation’. Whether the Deed of Variation is an ‘interest in land’ and whether it was made with a view to obtaining increased compensation may be moot points, so this statutory provision might not take you much further.

Section 4(2) ALA 1981 does not alter the principle set out in ‘Banham’ but expands it. ‘Banham’ is still good law. The position is thus:

  • the legal interest to be acquired will be the interest as it exists on the date of entry;
  • the compensation will not reflect any increase in value arising from the actions of the claimant that take place after the date of service of the notice to treat if it falls foul of the rule in ‘Banham’ or the statutory provision of section 4(2) ALA 1981.

There are two statutory provisions concerning the assessment of compensation where certain events have occurred prior to the date of entry:

  1. where a tenant of residential property has been rehoused by the local housing authority prior to entry. In this case the property should be valued as if subject to tenancy (see 1.2(b) above)
  2. where the tenant has quit an agricultural holding or any part of it by reason of a notice to quit that is to be disregarded. It shall be assumed that the tenant has not quit (in accordance with section 48(2) LCA 1973)

Any case in which possession has been obtained, or steps to that end have been taken, by the landlord in pursuance of a notice to quit prompted by the acquiring authority’s proposals (and not covered by the statutory exceptions mentioned above) should be submitted to the PS Professional Guidance Team except where the lease provided specifically for the termination of the tenancy or resumption in the event that has actually occurred, or where a similar situation might have been expected to occur apart from the scheme. Examples of the situations envisaged are where the lease is subject to termination when the land is required for the public purpose for which it is actually being taken or where as in many tenancy agreements relating to licensed premises the occupier becomes a tenant at will if notice to treat is served or where there is a right of resumption if planning permission for development has been obtained and the acquiring authority acquires the land for development that might have been expected to be carried out apart from the authority’s scheme.

1.10 Method of Valuation

In the Lands Tribunal case Abbey Homesteads Group Ltd v Secretary of State for Transport [1982] 2 EGLR 198 a strip of land across an arable farm was acquired for a trunk road which also caused some severance and injurious affection. In arriving at the value of the land taken the member valued it in isolation as a thin strip at a lower value than when looked at as part of the whole. He considered that a ‘before and after’ approach was wrong in law and that the value of land taken and injury to retained land should be valued separately. However, in a series of subsequent cases including Budgen v Secretary of State for Wales [1985] 2 EGLR 203, ADP & E Farmers v Department of Transport [1988] 1 EGLR 209, St John’s College Oxford v Thames Water Authority [1990] 1 EGLR 229 and Cameron v Nature Conservancy Council [1992] 1 EGLR 227, the member has preferred a ‘before and after’ approach.

The ‘before and after’ approach to assessing compensation may therefore generally be adopted as a means of valuation in compensation cases, although it will be necessary to apportion the compensation for land taken and severance and injurious affection especially where net injurious affection is reflected in the valuation of retained land (see Practice Note 3/1).

1.11 The physical condition to be assumed

The condition of the land should be taken to be the state at the relevant valuation date and the claimant should not be left under any misapprehension about the implication of this. However, section 4 ALA 1981 states that no account shall be taken of any building erected, work done or improvement or alteration made if the works were not reasonably necessary and were undertaken with a view to obtaining increased compensation.

Vandalism is of course caused by ‘vandals’ and is not strictly a direct consequence of the scheme. Where, however, vandalism has occurred that would not have occurred in the absence of the acquiring authority’s scheme, or that is attributable to the manner in which the authority’s scheme has been implemented, compensation may be payable and an apportionment may be necessary as in Gateley v Central Lancashire New Town Development Corporation [1984] 1 EGLR 195. However, see Blackadder v Grampian Regional Council [1992] 2 EGLR 207 where it was held that the vandalism was due to the premature vacation of the property by the claimant and that the acquiring authority should therefore not bear the loss.

1.12 Disturbance

Reference should be made to Practice Note 4/1.

1.13 Injurious affection and severance

Compensation under these heads should be related to the interests as they exist at the relevant valuation date but for this purpose if the owner disposes of an interest in the severed land after the service of notice to treat or during the negotiations, the valuer may entertain a claim under these heads if the valuer were satisfied that no claim would be made by the successor in title to the land that has been disposed of. The physical state of the land should be taken to be the state at the valuation date except where the land has been altered in character, eg by development commenced after the notice to treat or the opening of negotiations and it would produce an unreasonable result to adhere to the general rule. If there were difficulty with any such case the facts should be reported to the PS Professional Guidance Team.

1.14 Betterment

In cases under the Land Compensation Act 1961, having regard to section 7(1), the general rule should be that the interests to be valued should be those held in the same capacity as the relevant land at the date of notice to treat and the physical condition should be taken to be as at the valuation date. If this were disputed or an unreasonable result would ensue, the facts should be reported to the PS Professional Guidance Team. The same principles should be applied to cases of set‑off for betterment under section 261 Highway Act 1980 but in the absence of any reference to the date of the notice to treat in these provisions this might be more difficult to defend.

Betterment falls to be assessed as at the date of entry (Esso Petroleum Ltd v Secretary of State for Transport (2008) ACQ/143/2006).

For compensation assessed in relation to a compulsory purchase of land authorised on or after 22 September 2017, the new section 6B LCA 1961 governs the assessment of betterment (except for acquisitions in relation to highways which would remain governed by section 261 Highways Act 1980).

1.15 Falls in value prior to entry

A decrease or increase in value due to circumstances unconnected with the acquiring authority’s scheme (eg due to general market conditions) that occurs prior to the valuation date should be reflected in the compensation. See Thomas’s Executors v Merthyr Tydfil CBC [2003] RVR 246.