Land Compensation Manual Section 2: Compensation for land taken

Practice Note 2/2: Planning assumptions relevant to CPOs made or confirmed prior to 6 April 2012

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

Planning assumptions – Sections 14 to 16 LCA 1961

2.1 General

In practice land possessing development value rarely comes onto the market until the planning position has been clarified, and it is necessary in assessing market value under Rule (2) to know for what classes of development planning permission is likely to be granted. Sections 14-16 LCA 1961 lay down the planning assumptions that are to be made in ascertaining the value of the land acquired.

Since nothing is said in section 14(1) about the date of notice to treat, planning assumptions should be made as at the valuation date and should be additional to any actual permissions granted between the date of notice to treat and the valuation date.

2.2 Existing planning permissions (section 14(2) and (4) LCA 1961)

Any existing permission in force at the date of notice to treat should be taken into account, whether unconditional or subject to conditions, outline applications, deemed planning permissions or Development Order permissions.

2.3 Hope value

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. Section 14(3) LCA 1961 states that none of the assumptions to planning permission which are to be made under sections 15 and 16 shall be construed as implying that permission would necessarily be refused for any other form of development, but in estimating the chances of obtaining permission for such other development, regard must be had to any contrary opinion expressed in any certificate issued under section 17.

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 would probably 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.

The House of Lords distinguished the cases of Jelson Ltd v Blaby District Council [1977] RVR 130 and Melwood Units Pty Ltd v Commissioner of Main Roads [1979] RVR 99 since in both those cases a finding of fact had been made that permission would have been granted by the valuation date.

2.4 Planning assumptions in connection with highway schemes

Sections 14(5) to (8) LCA 1961 (inserted by section 64 PCA 1991) require that, where land is being acquired for use for, or in connection with, the construction, alteration or improvement of a highway (or is being considered by a highway authority for such use), any determination made for the purpose of assessing compensation or issuing a certificate under section 17 LCA 1961 must be based on the assumption that there will be no alternative highway scheme to meet the same or substantially the same need as the actual scheme for which the land is to be used.

The term ‘highway scheme’ includes an alteration of or improvement to an existing highway.

2.5 For the acquiring authority’s development (section 15(1) and (2) LCA 1961)

The land should be valued on the basis that planning permission for the authority’s development would be granted whether this is assumed at the date of notice to treat or actually granted after that date but before the valuation date.

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 that 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.

2.6 For development included in existing use (section 15(3) LCA 1961)

It should be assumed that, subject to the exceptions involving cases where compensation has already been paid for depreciation of ‘existing use’ rights, planning permission would be granted for any development of a class specified in Paragraph 1 of Schedule 3 to TCPA 1990, subject to the condition set out in Schedule 10 to that Act and for any development of a class specified in Paragraph 2 of Schedule 3 to that Act.

The development referred to above briefly comprises

  • the rebuilding, as often as occasion may require, of any building which was in existence on 1 July 1948, or of any building which was in existence before that date but was destroyed or demolished after 7 January 1937, including the making good of war damage sustained by any such building
  • the rebuilding, as often as occasion may require, of any building erected after 1 July 1948 which was in existence at a material date
  • the carrying out for the maintenance, improvement or other alteration of any building, of works which affect only the interior of the building, or do not materially affect the external appearance of the building, and are works for making good war damage, so long as the cubic content of the original building is not substantially exceeded
  • the use as two or more separate dwelling houses of any building which at a material date was used as a single dwelling house

‘A material date’ means 1 July 1948 or the date by reference to which the Schedule falls to be applied (ie the valuation date).

The condition in Schedule 10 refers to the amount of floor space that the new building may occupy.

Reference should be made to the TCPA 1990 for full details of the above provisions.

The Lands Tribunal held in Dutton and Black v Blaby DC [2006] RVR 203 that the assumed right to rebuild was absolute and that the planning concept of abandonment of use did not arise even though the property might have been demolished many years previously.

The Court of Appeal came to the same conclusion in Greenweb v Wandsworth LBC [2008] EWCA Civ 910 even though the land had been laid out as open space for many years and an actual planning application and a section 17 certificate application had both been appealed and refused.

2.7 Where a certificate of alternative development issued (section 15(5) LCA 1961)

Where a certificate of appropriate alternative development has been issued it should be assumed that planning permission would be granted for development of any class specified therein. The certificate may provide that planning permission could only be granted subject to conditions or at a future time.

The certificate is only in respect of the land taken and does not necessarily imply that similar uses would have been granted on retained land in the absence of the scheme.

2.8 Land comprised in development plans (section 16 LCA 1961)

Section 38 of the PCPA 2004 provides that for the purposes of any area in Greater London the development plan comprises the spatial development strategy and the development plan documents (taken as a whole) that have been adopted or approved in relation to that area.

For the purposes of any other area in England the development plan comprises the regional spatial strategy for the region in which the area is situated and the development plan documents (taken as a whole) that have been adopted or approved in relation to that area.

For the purposes of any area in Wales the development plan is the local development plan adopted or approved in relation to that area.

2.9 Land in an area of comprehensive development or an action area

If the land is within an area defined as an area of comprehensive development or an action area in the form in which the plan is approved at the date of notice to treat, it should be assumed that planning permission would be granted for such development within any of the specified ranges of uses proposed for any part of the area as might reasonably have been expected to be granted if:

(i) there were no proposal by any authority to acquire the land;

(ii) the area had not been defined as an area of comprehensive development or an action area, and

(iii) any development or redevelopment which at the date of notice to treat had taken place in accordance with the plan had not been carried out (sections 16(4) and (5) LCA 1961).

2.10 Land not in an area of comprehensive development or an action area

If the relevant land or any part thereof (not being within an area of comprehensive development or an action area) consists or forms part of:

(i) a site defined in the current development plan as the site of specific development - it shall be assumed that planning permission would be granted for that development (section 16(1) LCA 1961);

(ii) an area shown in the current development plan as an area allocated primarily for a use specified in the plan - it shall be assumed that planning permission would be granted for that development if that development is development for which planning permission might reasonably have been expected to be granted (section 16(2) LCA 1961);

(iii) an area shown in the current development plan as an area allocated primarily for a range of two or more uses - it shall be assumed that planning permission would be granted for such development for that use or a use within that range of uses, if that development is development for which planning permission might reasonably have been expected to be granted (section 16(3) LCA 1961).

In the case of i. or ii. above, a reference to planning permission that might reasonably have been expected to be granted is such planning permission as might reasonably have been expected to be granted if no part of the relevant land were proposed to be acquired by any authority possession compulsory purchase powers.

A ‘primary’ use such as residential may include ancillary uses (eg shops and offices) but the assumed planning permission is not to be taken to include such ancillary uses. However, such element of ‘hope value’ as is due to the possibility of permission being forthcoming for an ancillary use should not be ignored. The best form of primary use development that might reasonably be expected to have been permitted on the land (eg flats, high or low density housing, etc) may be assumed and, of course, different forms of the primary use may apply to different parts of the land.

In Urban Edge Group Ltd v London Underground Ltd [2009] UKUT 103 (LC) and Thomas Newell Limited v Lancaster City Council [2010] UKUT 2 (LC) the Lands Tribunal determined that

  • the relevant date for assessing section 16 planning assumptions was the date of valuation;
  • it must be assumed that the acquiring authority’s scheme was cancelled on that date but only in respect of the claimant’s land not the entire scheme;
  • it might be appropriate to assume the cancellation of the entire scheme where, for example, the claimant’s land was an integral part of the scheme (eg a linear transport scheme);
  • if a planning assumption under section 16 applied it should be assumed that planning permission was granted on the valuation date.

2.11 To be subject to conditions (section 16(6) LCA 1961)

The assumed planning permissions are to be regarded as subject to such conditions (eg in respect of density, plot ratio, daylight, means of access etc) as might reasonably be expected to be imposed, and if, in accordance with any map or statement comprised in the development plan, it is indicated that permission would be granted only at some future time, the assumption should be that planning permission would not be granted before that time.

2.12 Interpretation of ‘which might reasonably have been expected’

Valuers should avoid unnecessary reference to local planning authorities on the question of what planning permission ‘might reasonably have been expected to be granted’. It is expected that, in most cases, the valuer would be able to pursue negotiations on price without reference to the planning authority. If, however, agreement on price could not be reached because of a divergence of views on the planning aspect or if the case were likely to be referred to the Upper Tribunal, the valuer should consult the planning authority in order to ensure that the valuer’s valuation is not based on an assumed planning permission that conflicts with its views.

Where the best potential of the land to be acquired cannot be realised by its separate development and permission might reasonably have been expected for development with other land, if the other land is in the same ownership the valuer should assume that but for the acquisition the holding would have been developed in its entirety. Compensation should be assessed on the basis that the land to be acquired would otherwise have formed part of a larger whole that the claimant could have offered for sale at the relevant date.

Where the adjacent land is in different ownership the prospects of ‘marriage’, or of obtaining access rights or easements, should be accorded such weight as the market would do having regard to all the relevant circumstances, eg the prospects of the adjacent land becoming available with possession, and the probable terms upon which the adjoining owner would be likely to co‑operate.

Certificates of Appropriate Alternative Development (section 17 LCA 1961 as amended)

2.13 General

Provision is made under sections 14 and 16 LCA 1961 for planning permission to be assumed, broadly, for uses that conform to the current development plan proposals. Where, however, there is no development plan, or the land being acquired is allocated for a use for which there is no general demand in the market, or is not allocated for any development, the difficulty still remains of arriving at the market value the land would have if it were not being acquired. 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 cannot be obtained for, or include, the claimant’s retained land. For retained land it will be necessary to make reasonable assumptions, based on what the certificate for the land taken says or after enquiries of the planning authority.

2.14 Procedure relating to section 17

By section 17 LCA 1961 either of the parties directly concerned in the acquisition of an interest in land may obtain from the local planning authority (LPA) a certificate of appropriate alternative development (CAAD). An application for a certificate by one of the parties does not prevent the other party from also making an application.

By section 22(2) LCA 1961 application for a certificate may be made as soon as:

(a) a notice that compulsory acquisition is intended is published or served, or

(b) notice to treat is deemed to have been served following the service of a purchase notice under any enactment, or

(c) offer in writing has been made by or on behalf of the acquiring authority to negotiate for the purchase of the interest.

In relation to (c) above a letter from the acquiring authority or their valuer to the owner inviting negotiations for the purchase by agreement is sufficient to meet the requirement.

If a reference has been made to the Upper Tribunal to determine the amount of compensation payable in respect of the interest to be acquired, an application for a certificate may not be made without either the consent in writing of the other party or the leave of the Tribunal (section 17(2) LCA 1961).

An application to the LPA must be in writing and accompanied by a plan identifying the land concerned and by section 17(3) LCA 1961:

(a) shall state whether or not there are, in the applicant’s opinion, any classes of development which, either immediately or at a future time, would be appropriate for the land in question if it were not proposed to be acquired by any authority possessing compulsory purchase powers and, if so, shall specify the classes of development and the times at which they would be so appropriate;

(b) shall state the applicant’s grounds for holding that opinion; and

(c) shall 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 directly concerned.

The wording at sub paragraph (a) above suggests that acquiring authorities could apply for a ‘negative’ certificate.

The issue of a certificate does not preclude the issue of another certificate to the same applicant or to the other party at a later date.

2.15 Costs of obtaining the certificate (section 17(9A) LCA 1961)

In Hull and Humber Investment Co Ltd v Hull Corporation [1964] EGD 206 it was held that the costs of obtaining a certificate were not recoverable under the compensation code.

However, section 17(9A) now provides that in assessing the compensation payable to any person in respect of any compulsory acquisition, there shall be taken into account any expenses reasonably incurred by him 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 his 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 that permission would have been granted for any development for which the land is to be acquired, but not for any other development (commonly referred to as a ‘negative’ or a ‘nil’ certificate).

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 ‘nil’ certificate) would assist the acquiring authority in assessing the correct amount of compensation due under the statutory compensation code.

2.16 Contents of certificate (section 17(4) LCA 1961)

A certificate is required to state either:

  • that planning permission would have been granted for one or more classes of development specified in the certificate and for any development for which the land is to be acquired, but not for any other development; or
  • that permission would have been granted for any development for which the land is to be acquired, but not for any other development

Where the LPA is of the opinion that the permission would have been granted subject to conditions or at a future time (or both) it shall specify those conditions/future time in the certificate.

If the certificate is in respect of a class of development other than that applied for, or contrary to any written representations made by either of the parties, the local planning authority shall include a statement of the reasons for its decision.

2.17 Effect of development plans

Section 17(7) LCA 1961 provides that in determining what planning permission might reasonably have been expected to be granted the local planning authority shall not rule out any particular class of development solely because it conflicts with the provisions of the current development plan (eg where the application specifies residential development but the land is shown in the plan as the site of a local authority school).

2.18 Adverse section 17 certificate ‑ hope value

If a ‘negative’ certificate were given (section 17(4)b LCA 1961), 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.

Although section 14(3) LCA 1961 provides that nothing in the assumptions as to planning permission in that Act should be construed as excluding the prospect of the granting of permission for some other form of development, it is a requirement in determining whether such a permission could reasonably have been expected to be granted in respect of any land that regard shall be had to any contrary opinion expressed in relation to that land in a section 17 certificate. 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 by the valuer in assessing compensation where a negative certificate exists.

The implications, where positive certificates permit a class of development different from, or not so valuable as, other classes included in the application, are that the local planning authority shows more flexibility in the overall planning policy for the relevant land as opposed to where ‘nil’ certificates are given. While in these circumstances valuers should not readily concede the ‘hope’ of a more favourable permission, if there is sufficient evidence to show that the certificate might well have included other classes of development, whether or not included in the application, the owner should be given the benefit of any doubt in the absence of either an appeal under section 18 or the making of a fresh section 17 application according to the circumstances.

As to certificates subject to conditions including deferment, the valuer is not precluded from having regard to the extent that the market would, to any value there might be in the hope of permission being granted at a date earlier than that mentioned in the certificate or subject to less onerous conditions.

2.19 Material date

The LCA 1961 does not specify a date by reference to which the nature of the certificate is to be determined (ie the material date). However, in Fletcher Estates (Harlescott) Ltd v SoS for the Environment [2000] 1 EGLR 13 it was determined that the CAAD must be assessed having regard to planning policies current at the date that the CPO was published on the assumption that the scheme had been cancelled at that date.

Thus the physical state of the land and the surrounding area are to be taken as they stood at that date as are the planning policies current at that date.

2.20 Duration of certificate

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