Practice note 2/3: Equivalent reinstatement - Rule (5) Section 5 Land Compensation Act 1961
The Valuation Office Agency`s technical manual covering all aspects of compulsory purchase and compensation.
3.1 Historical background
The Land Clauses Acts do not prescribe any specific rules to be followed in assessing compensation for land compulsorily acquired, but the courts have established certain principles, including the important one that the value of the land acquired is to be assessed under the Acts at its value to the owner. In certain early cases where the income derived or probably to be derived from the property would not constitute a fair basis, the value to the owner was assessed under the Acts having regard to the principle of equivalent reinstatement, ie ‘a sum is assessed as will enable him (the owner) to replace the premises or lands taken by premises or lands which would be to him of the same value’.
The principle of equivalent reinstatement under the Land Clauses Acts was substantially preserved by Rule (5) section 2 Acquisition of Land (Assessment of Compensation) Act 1919 (AL(AC)A 1919) as an exception to the general rule (Rule (2) AL(AC)A 1919) which introduced ‘open market value’ as the measure of the value of the land acquired.
3.2 The Rule
Rule (5) has been re‑enacted in section 5 Land Compensation Act 1961 and states:
‘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 reasonable cost of equivalent reinstatement’.
The rule therefore stipulates three conditions precedent upon which the Tribunal must be satisfied, namely that:
(i) the land is devoted to a purpose for which there is no general market or demand
(ii) but for the acquisition, the land would continue to be devoted to such a purpose, and
(iii) reinstatement in some other place is bona fide intended
Furthermore, notwithstanding that the Tribunal is satisfied that the conditions precedent are fulfilled, an award of compensation on the basis of the reasonable cost of equivalent reinstatement is not mandatory but is at the discretion of the Tribunal.
It will be recognised that the conditions precedent are concerned with ‘purpose’. The physical ‘shape’ of a property is not the conclusive test to be applied and there is danger in attempting to lay down any general rule regarding the application of Rule (5) to particular types of property. Churches have been treated as falling within Rule (5) not because a church is generally a building of such a design that there is no general demand or market for it, but because there is no general demand or market for land or buildings devoted to the purpose of religious worship.
‘Purpose’ is not defined in LCA 1961 and difficulties can arise over the question of whether it is to be given a wide or narrow meaning. Unfortunately, there has been little discussion in the courts on the scope of the word ‘purpose’ and the decisions of the Tribunal have not been consistent.
In Trustees of Zoar Independent Church v Rochester Corporation (1972) 25 P&CR 198, Buckley LJ said that he thought that the purpose to which Zoar was devoted was to be discovered in a Trust Deed and further stated when considering the intention of reinstatement that the terms of the deed did not in his opinion import that the purpose for which the land was used at the date of the notional notice to treat was confined to worship at Zoar or by a congregation restricted to, consisting of or including persons accustomed to worship at Zoar. Russell L J said that in his view the site of the Zoar Chapel was devoted to the provision of facilities for joint worship by people in the area of Strood in accordance with the beliefs and practices of independent Protestant dissenters.
In the case of the Trustees of the Manchester Homeopathic Clinic v Manchester Corporation (1971) 22 P&CR 241 the Tribunal rejected the contention by the claimant that the premises should be considered to be devoted to the purposes of a homeopathic clinic or at widest, to those of a charitable clinic and held that the purposes of the premises were that of a clinic for medical consultation diagnosis and treatment generally, even though some minor alterations might have to be made to make the premises suitable for use by a small group of doctors. The Tribunal also accepted that to approach the question in terms of town planning use classes would be wrong. In another case, Vaughan v Cardiganshire Water Board (1963) 14 P&CR 193, where the property acquired included a bungalow, fishing pools and land, a claim for compensation on the Rule (5) basis was made in respect of the bungalow on the ground that it was devoted to the purpose of management of the estate. The Tribunal, in rejecting the claim, agreed with the contention of the Board that the ‘purpose’ must be a general and not a localised purpose.
On the other hand the Tribunal, in Trustees of the Nonentities Society v Kidderminster Borough Council (1971) 22 P&CR 224, did not accept the view that the premises were devoted simply to the purpose of a theatre and concluded that it ‘was devoted to a charitable non-profit making purpose which is described …. (in the Trust Deeds) …. to found a theatre for the development of the drama and dramatic art to encourage an interest in the drama through the production of educational plays.’
‘Purpose’ is essentially a matter to be decided in the light of a proper interpretation of the facts and circumstances at the date of the notice to treat, bearing in mind that the de facto use at that time is not the conclusive test. For example, in Aston Charities Trust Ltd v Stepney BC  2 QB 642 where owing to war circumstances, the premises had ceased at the date of notice to treat to be used as a church except for two rooms and were let to organ builders, the Court of Appeal upheld the decision of the Tribunal that, notwithstanding the de facto use, the premises were devoted to the purposes of a church.
In a sense the ‘purpose’ of every property is unique and unless ‘purpose’ is construed as meaning a general and not a particular purpose, the market value principle of Rule (2) would be seriously undermined. Valuers should therefore within the circumstances of the case including, where appropriate, any Trust Deed, Memorandum of Association etc avoid adopting too narrow a view of the meaning of ‘purpose’. It is suggested that the valuer should ask what the objective bystander would consider to be the essential function of the premises to be acquired. Accordingly a home for destitute Catholic children, a medical clinic specialising in venereal disease, and a theatre bent on producing proselytising and educational plays should be considered respectively as a children’s home, a medical clinic and a theatre. If a general demand or market for such purposes exists then the owners will receive compensation in terms of market value which will reflect the special suitability of the premises for the purpose and should not need the special protection afforded by the Rule (5) basis to obtain just compensation. There will always be cases where difficult questions of degree will arise, and in any case where the valuer considers it advisable to give the claimants the benefit of any doubt over ‘purpose’ in order to do justice to the claimant, the PS Professional Guidance Team should be consulted.
Rule (5) says: ‘Where land is …. devoted to a purpose’ and is silent regarding the need to link ‘devotion’ or ‘the intention to reinstate’ to any interest in the land. The point is illustrated in the Kidderminster Theatre case where the Tribunal stated in considering the question of intention ‘To my mind the emphasis is on the purpose to which the land has been devoted and its continuance rather than on ownership by any particular person’. However, the valuer should proceed on the basis that Rule (5) should be considered from the point of view of the particular interest that is the subject of the compensation claim in question.
For example, assume ‘A’ owns the freehold of a building and leases it at a rent for 99 years to ‘B’, who devotes it to a Rule (5) purpose; there is no connection between the parties other than lessor and lessee and both interests are being acquired. In these circumstances Rule (5) would apply to ‘B’s’ interest but not that of ‘A’. Nor does it make any difference in principle (although it might affect the quantum of compensation) if the lease were for a shorter term than 99 years, but if the term unexpired at the valuation date was very short and unlikely to be extended or renewed, it would be a matter for consideration by the Tribunal when considering the exercise of its discretion.
If the assumed facts are revised a little further and it is assumed that ‘A’ does not lease the premises but merely hires them out for value to ‘B’ (ie grants a licence) it would certainly make a difference to ‘B’ because he does not have a compensatable interest, but it would make no difference to ‘A’.
Cases will arise, however, where there will be a connection between the freeholder and occupier in addition to that of landlord and tenant. An example of such a case is Harpurhey Conservative and Unionist Club and Manchester Corporation (1971) 31 P&CR 300, where the freehold interest was owned by Harpurhey Constitutional Club Ltd (‘the Company’) and the premises were occupied by Harpurhey Conservative and Unionist Club (‘the Club’) on a yearly tenancy. It would appear from the Memorandum of Association of the Company that it was established for the purpose, among others, of purchasing the premises and of the issued capital of 3,416 £1 shares, 3,219 were held by trustees of the club and the remainder by individual members of the club.
In such cases it would be open to the claimant to show that there is sufficient community of interests so that if agreement can be reached with all the parties, it would be proper to concede that both parties have devoted the land to a purpose and if the other conditions precedent are satisfied, to assess compensation on the basis of Rule (5). However, these cases will present difficulties including that of assessment. The expectation is that the party that has or intends to incur the cost of reinstatement should receive the compensation based on reasonable costs and by agreement with the parties this would normally be the freeholder. Consequently the occupier, if he has a compensatable interest, would receive compensation for disturbance in the usual way, but not for the value of his interest under Rule (2). The need for care to avoid duplication of compensation is obvious and if in any case the valuer considers that the total compensation payable to the respective interests exceeds the compensation that would have been payable under Rule (5), if the freeholder had been in occupation, or agreement cannot be reached with all the parties, the case should be referred to the PS Professional Guidance Team.
If in any case the property is ‘devoted’, or the intention to reinstate is held, by some person other than the claimant that does not fall to be dealt with in accordance with the previous two paragraphs, the case should be referred to the PS Professional Guidance Team.
In the Harpurhey case it was stated that there was no precedent for an application of Rule (5) to premises let on a tenancy from year to year, and it has been suggested that Rule (5) cannot apply to a yearly interest, notwithstanding section 37 LCA 1973, because under section 20 CPA 1965 the interest is not acquired but destroyed and section 5 LCA 1961 applies ‘in respect of any compulsory acquisition.’
However, these words are probably insufficient to prevent the application of Rule (2) in assessing the value of the unexpired term. Generally most cases where Rule (5) compensation is claimed and the occupier has a yearly tenancy have been settled either on the basis that there is a ‘community of interests’ between the occupier and the freeholder, or without conceding Rule (5) on the ground that the cost of obtaining another tenancy would not exceed the value of the unexpired term under Rule (2) coupled with argument that the Tribunal would not exercise its discretion to award Rule (5) compensation in such cases. Any case that cannot be settled along these lines should be referred to the PS Professional Guidance Team.
3.5 Relevant dates
Notwithstanding that in giving judgment in the Zoar case Buckley LJ said that the date of the notice to treat was the material date at which to consider the application of the rules governing the assessment of compensation, the valuer should proceed on the basis that although the questions whether land is devoted, and would continue to be so devoted, should be tested by reference to the situation at the date of notice to treat, the intention to reinstate and the Tribunal’s exercise of discretion remains open at least until the compensation is agreed or determined.
In considering devotion and the continuation of devotion at the date of the notice to treat it is permissible to judge the intention of the claimant by having regard to the claimant’s conduct or action before and after that date. Clearly more weight would be attached to the claimant’s conduct before the impending compulsory purchase was known about than to conduct once the claimant became aware of the possibilities of Rule (5) when the claimant’s action might be merely a tactical move in an attempt to strengthen the case for Rule (5) (see Trustees of Central Methodist Church, Todmorden v Todmorden Corporation (1959) 11 P&CR 32).
Following the decision of the House of Lords in West Midland Baptist (Trust) Association v Birmingham Corporation (1969) 20 P&CR 1052 the cost of equivalent reinstatement is to be assessed 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 following extracts from judgements of the courts and decisions of the Tribunal may assist in understanding the word ‘devoted’ in the context of Rule (5):
Zoar Independent Church Trustees v Rochester Corporation (1975) 29 P&CR 145 - Buckley LJ thought that ‘the word devoted was employed to cover cases in which at the date of the notice to treat the land was temporarily out of use as when a building was under repair, or was in use temporarily or occasionally or in part for some purpose or purposes other than the primary or principal purpose for which it was used or intended to be used; for example, a parish hall primarily intended for community purposes which was from time to time used in whole or in part for private receptions or meetings ….’. The word did not in his opinion signify that the land must be committed to that use for any particular length of time, definite or indefinite.
In Aston Charities Trust Ltd v Stepney Borough Council (1952) 3 P&CR 82 the Tribunal stated that the word ‘devoted’ implies some measure of dedication or consideration or putting to some particular use to the exclusion or subordination of any other use. In its relationship to the use of premises the word clearly connotes something more than a temporary use and imports some measure of intention implicit in the manner in which the premises have been, are, and may in the future be used. Premises whether or not specially constructed which are used for a special purpose as defined in Rule (5) are devoted to that purpose while in permanent occupation by persons or organisations who carry on their special function therein and the element of devotion remains even when for some good reason the premises are temporarily used for some other purpose which does not qualify under Rule (5).
On appeal Somervell L J stated that he considered the Tribunal to be right and added ‘I think that the words ‘devoted to a purpose’ introduced a conception of intention and are indicating a different test from that of the de facto use at the date of notice to treat.’
In Vaughan v Cardiganshire Water Board (1963) 14 P&CR 193 the Tribunal said ‘The first thing to be decided is the meaning to be given to the word ‘devoted’ …. reference to the Shorter Oxford English Dictionary gives the definition: ‘To give up, addict, apply zealously or exclusively’ as well as the more formal ‘To appropriate by or as if by a vow, to set apart or dedicate solemnly or formally’ and it is, we think, clear that it is used in the statute to mean that land is given up wholly or exclusively to a particular purpose.’
In Trustees of Central Methodist Church, Todmorden v Todmorden Corporation (1959) 11 P&CR 32 the Tribunal concluded ‘Rule (5) imports some element of intention and in order to qualify under the Rule the actual use on the material date must be one to which the Trustees could be said to have deliberately and voluntarily devoted the premises.’
The foregoing extracts neither permit an authoritative comprehensive interpretation of the word ‘devoted’ in the context of Rule (5), although it can be said that it is not synonymous with the word ‘used’, nor have the premises to be ‘purpose-built’ to be devoted. The word should be taken as indicating some quality in the commitment (which may be less than formal dedication or consecration) of the claimant which is in and above the normal meaning of ‘occupied’ or ‘used’. There should be a concept of intention that is not in a negative sense that there is no present intention to move elsewhere but a positive commitment of retaining the premises for the special purpose; that it should be wholly or exclusively used for a purpose subject to de minimis would also seem to be settled. Similarly, devotion may not have been abandoned if for good reason the premises are used temporarily for a purpose that does not qualify, or if the building is damaged or destroyed.
3.7 ‘Continue to be devoted’
In addition to the compulsory acquisition which the Rule requires to be disregarded in considering whether land would continue to be devoted, the scheme underlying the acquisition and any reasonable action or conduct by the claimant as a direct consequence of the scheme should also be disregarded.
Buckley LJ stated in the Zoar case that ‘the question to be asked was not whether the land would have continued to be so used for as long as could be foreseen, or indefinitely, or for any particular length of time but simply whether it would have continued to be so used.’ The word ‘devoted’ had in his opinion no bearing on this aspect. On the other hand, the probable duration of the continuance of the use might well affect the exercise of the discretion under the Rule.
Russell LJ said the requirement of continuity of devotion was not directed to perpetuity. He regarded it as sufficiently complied with if it appeared that at the time of notice to treat it was then intended by the owners of the site to continue to devote it to the relevant purpose with no future time limit.
As stated above, although the question of continuation of devotion is related to the date of notice to treat, the action or conduct of the claimant before or after that date is not to be disregarded. If, for instance, the claimant abandoned the purpose for a reason not connected with the acquisition or the scheme after the date of the notice to treat but before the valuation date, it would appear that it would not be open to the claimant, successfully to contend that the premises would have continued to be devoted to the purpose.
The claimant’s obtaining or seeking planning permission for a different use would not be conclusive evidence that the premises would not continue to be devoted. However, in the Todmorden case, where the claimants had negotiated for the sale of the premises, the Tribunal held that this, coupled with past conduct, indicated that there was no real intention of continuation notwithstanding the formal recording of a resolution by the Trustees indicating the contrary, which the Tribunal considered was the outcome of tactical necessity.
If the property were subject to a planning permission for a limited period, the unexpired period and the prospects of obtaining another planning permission disregarding the scheme, are matters to be considered in relation to the question of continuation. However, that is not to say that the limited planning permission precludes the application of Rule (5) - it is a matter of degree.
In the Incorporated Society of the Crusade of Rescue and Homes for Destitute Catholic Children vFeltham UDC (1960) 11 P&CR 158 a compulsory purchase initiated by the claimant by the service of a purchase notice, the Tribunal said ‘I do not think there is any inconsistency in the proposition that premises which may have become incapable of reasonable beneficial use are still capable of some use even if it is not reasonably beneficial’, and it was held that there was sufficient evidence to enable the Tribunal to be satisfied that the premises would have continued to be devoted if the claimants had failed to get the purchase order. The acquisition in the Zoar case was also the result of the service of a purchase notice. However, there may be cases where having regard to all the facts set up by the claimant in making his case for a purchase notice, no reasonable evidence could be given to a subsequent assertion that the claimant would have continued to use the premises for the special purpose if the claimant had not got the purchase order.
3.8 ‘General demand or market’
Counsel for the acquiring authority in the Homeopathic case posed a possible test of whether a purchaser could be found for the particular premises for the purposes of a clinic. The Tribunal appears to some extent to have adopted this test. Similarly, in Sparks v Leeds CC  2 EGLR 163, the Tribunal said ‘I fail to see the relevance of the activity of other clubs in the demand or market for the subject premises because there was no evidence …. to show that any of them could or would have been in the market for ….the club premises if they had been available.’ However, it is a moot point as to whether the Rule requires it to be established whether or not there is a general demand or market for premises for the purpose.
To show a general demand or market for theatres in the Kidderminster Theatre case, evidence of nearly 50 transactions in 37 theatres up and down the country over a period of 10 years was produced together with 26 instances of new theatres built or created by conversion. The Tribunal said that because there is a general demand for theatres in London, big holiday resorts and some provincial cities, that does not prove a general demand or market for theatres elsewhere. It was impressed that many transactions were rescue operations by the local authority. The Tribunal regarded the local authority demand as not being a general demand, and was influenced by the number of theatres throughout the country that have closed since the second world war.
In the Homeopathic Clinic case, the acquiring authority endeavoured to show a general demand or market for clinics by producing evidence of sales and leases of existing properties and parts of new health centres to group medical practices, the letting of office accommodation for specialised clinics, such as acupuncture and hair care, and of disposal of property to specialists and dentists. The Tribunal rejected the transactions by specialists and specialised clinics as being too different both in use and type of premises. It regarded transactions between local authorities and group medical practices of little help and argued that Rule (2) is clearly concerned with sales as opposed to lettings and that the words ‘general demand or market’ in the consideration of Rule (5) must be read in the same light and the Tribunal therefore considered evidence of lettings to be of comparatively little weight.
In neither case did the Tribunal wholly reject the evidence of transactions in sites for development for the ‘purpose’.
In the Sparks case, among the agreed documents was a list of some 53 political clubs and 76 social clubs, out of a total number registered in the Leeds area of 319. There had been 34 planning applications for extensions or alterations in 1974/5, and 23 increases of rating assessments by interim proposals in the period 1973‑6 so that there was considerable activity that might indicate a demand for such premises. It will be recognised that the acquiring authority had attempted to distinguish between general ‘demand’ and ‘market’.
The Court of Appeal case Wilkinson and Others v Middlesborough BC  1 EGLR 23 concerned whether Rule (5) was applicable to a veterinary surgery owned by the partner veterinary surgeons. There was no evidence of sales of veterinary surgeries. However, the Court of Appeal found that there may be a general demand for such premises and practices nevertheless. The demand is evinced by the sale of interests in partnerships to new partners. The matter was therefore referred back to the Lands Tribunal to determine compensation on a Rule (2) basis.
An authoritative decision on the interpretation of ‘general demand or market’ was the House of Lords decision in Harrison and Hetherington Ltd v Cumbria County Council  2 EGLR 37. The case concerned the acquisition of a livestock market at Botchergate in Carlisle. The acquiring authority produced evidence of 18 sales of livestock markets between 1957 and 1980. Cumbria CC argued that although livestock markets were seldom offered for sale there was nevertheless a latent demand for such premises which constituted a general demand.
The House of Lords, by a unanimous decision, allowed the appeal by the claimants. Lord Fraser of Tullybelton, who delivered the leading speech, said
‘It is clear that there is no market in land which is devoted, or is to be devoted, to the purpose of a livestock market. That is the inevitable inference from the very small number of transactions in land devoted to that purpose. The issue is whether there is a ‘general demand’ for land devoted or to be devoted to that purpose, and especially whether a latent demand constitutes a general demand.
I have reached the opinion that a latent demand, in the sense in which that expression is used by the Member in his interim decision, is not a general demand in the sense of Rule (5). In the first place such a latent demand is a demand which does not presently exist; it is one which, in the words of the interim decision ‘does not become apparent unless and until …. land devoted or intended to be devoted to the purpose of a livestock market is offered for sale.’
‘…. It appears that where one mart is well established in a town no competitor is likely to set up business there. The consequence is that the demand for marts, or for virgin land to be used for marts, is intermittent and rarely emerges. Such a demand does not in my view constitute a general demand.’
‘…. I am of opinion that the Member and the Court of Appeal erred in holding that Rule (5) was not applicable. In my view compensation may be assessed under Rule (5) if the Lands Tribunal, in their discretion, think fit.’ These cases illustrate that evidence of an appreciable demand or market (not just a latent demand or market) for premises for that purpose in the general locality of the property being acquired would be a significant factor in assessing the validity of claims for compensation under Rule (5). If such demand could not be shown for premises used for non-profit making purposes such as non-proprietary clubs, Rule (5) may be appropriate. This would not apply to proprietary clubs or commercial properties of a type for which there may be little evidence of demand, and all such cases should be submitted to the PS Professional Guidance Team before the valuer makes a recommendation to the acquiring authority for the payment of compensation on the basis of equivalent reinstatement.
3.9 ‘Intention to reinstate’
The question of the bona fide intention of the claimant to reinstate remains open until compensation is agreed or determined. As the relevant valuation date is the date on which the commencement of reinstatement should be regarded to have become or to be expected to become reasonably practicable, the expectation is that in most cases the action or conduct of the claimant will afford evidence, eg securing an alternative site, the preparation of plans etc, to enable a view to be taken as to whether or not there were a bona fide intention to reinstate.
In Festiniog Railway Co v Central Electricity Generating Board (1962) 13 P&CR 248, Harman LJ stated ‘the word ‘intention’ where it occurs in a statute of this kind seems to me to be confined to something which the intended can perform of his own volition.’ This dictum is contrary to Russell L J in the Zoar case where he states ‘the bona fides of (the Trustees’) intention is not in question, and the fact that the realisation of this intention is dependent on the receipt of compensation assessed under Rule (5) …. does not ….deprive the intention of any necessary quality ….’. Until further clarification by the courts valuers should proceed on the understanding that reinstatement may be bona fide intended whether or not conditional on recovery of compensation under Rule (5).
Inherent in the word ‘reinstatement’ in the context of Rule (5) is the concept of continuity and what has to be reinstated is some substantial aspect of the purpose to which the land to be acquired is devoted so as to identify the old with the new. Whether or not there is sufficient identity between the new and the old is a question of degree, but for example, if the property being acquired is a church, it is expected that the new church should cater for substantially the same district, community or congregation as that served by the old church.
The Tribunal in the Kidderminster Theatre case stated ‘To my mind the emphasis is on the purpose to which the land has been devoted and its continuance rather than the ownership by any particular person’. However, where the intention to reinstate is not that of the claimant and the case is not settled in accordance with the provisions of Paragraph 3.4 concerning ‘community of interests’, it should be referred to the PS Professional Guidance Team.
3.10 ‘Reasonable cost of equivalent reinstatement’
‘Equivalent reinstatement’ should be taken to mean the reinstatement in premises equally effective for the purpose that the premises to be acquired were or would have been serving at the valuation date disregarding the effect of the scheme underlying the acquisition. Although the premises to be acquired are a guide to the premises that should be considered appropriate for the purpose, ‘equivalent reinstatement’ does not mean the provision of premises alike in all details of construction, embellishment, condition or otherwise. In particular, if the purchase and adaptation of existing premises would provide accommodation fully effective and appropriate to the purpose, the cost of purchase and adaptation might properly represent the reasonable cost of reinstatement. It will be recognised however that where a claimant realises the possibility under Rule (5) of obtaining compensation sufficient to erect new premises, there will be little incentive for him to seek out and accept existing premises.
The ‘cost of equivalent reinstatement’ should not be taken to require compensation to be assessed on the cost of providing a building with accommodation larger than that available in the old building (unless the excess accommodation stems from matters outside the control of the claimant and cannot be avoided by him if reinstatement is to take place) or of such larger proportions than would be required to meet the claimant’s reasonable needs so far as they can be foreseen. Thus, if an old church with seating capacity of 500 were replaced by a new church with seating capacity of 200 because by the most optimistic estimate that was all that was needed, the compensation should be based on cost of providing a church capable of seating 200.
It is to be expected that advances in architectural design could reduce the cubic content by eliminating unnecessary height and waste space in passages, and the same might be expected of out-of-date embellishments unless the building has a function that extends beyond its utilitarian purpose, eg a cathedral. Similarly, reasonable cost would be related to modern materials and methods of construction if this would be cheaper, provided the new premises would be appropriate and equally effective.
If it is necessary, for example, in order to comply with requirements of the planning authority, to erect a more permanent type of structure than that being acquired, it might seem only reasonable to expect the claimant to pay so much of the cost as is applicable to the superior nature of the accommodation afforded, and it is known that on occasions acquiring authorities have obtained some allowance by agreement. However, although often used as a negotiating factor, it is considered that an allowance for improved structure following compliance with a requirement that the claimant cannot avoid if the purpose is to be reinstated or on the footing of ‘new for old’, on strictly legal principles could not be sustained and would be rejected by the Tribunal. In this connection, it might be noted that in the West Midland Baptist case, although submissions on this point were not examined, Sachs L J said ‘it is however clear that if material deductions were to be made because of the age of the original buildings, the whole object of Rule (5) would be defeated …. and the extinction of the charity would in many cases be ensured by a rule which was obviously intended to enable them to survive.’ If the building is near the end of its life, it may not be a question of making an allowance but rather whether the property would continue to be devoted to the purpose and of the exercise of discretion by the Tribunal.
Where the claimant is required to provide an additional facility at the new premises which was not available at the old, eg a planning requirement of a car park, the reasonable cost of providing such a facility should be included in the reasonable cost of reinstatement, provided that the cost cannot be avoided by the claimant if reinstatement is to take place.
However, it is known that claimants, when they become aware of the proposed acquisition, in order to save money, purposely refrain from carrying out repairs to the property that are essential to enable the property to continue to be devoted to the purpose.
If the claimant received compensation based on cost of a new building he would have both the new building and the saving on the cost of repairs on the old, and as he is only entitled to compensation for what he has lost, the Tribunal in the Trustees of the RC Diocese of Hexham and Newcastle v Sunderland CBC (1964) 186 EG 369 made an allowance for such repairs and a similar deduction in the Zoar case was approved by the Court of Appeal. It might be considered that the observations of Sellers LJ in the West Midland Baptist case, suggest that such a deduction is not restricted to repairs necessary to enable the premises to continue to be devoted, but may be related to any savings in repairs since the date of notice to treat. However, any case referred to the Tribunal in which it is proposed to make a deduction for savings made by not carrying out repairs which do not amount to repairs necessary to enable the premises to continue to be devoted to the purpose, should be submitted to the PS Professional Guidance Team.
3.11 Discretion of the Tribunal
The question whether or not the Tribunal had a discretion to award compensation on the basis of cost of equivalent reinstatement, notwithstanding that the conditions precedent were fulfilled, and when the principle of reinstatement should be applied, were considered in detail in Festiniog Railway Co v Central Electricity Generating Board (1962) 13 P&CR 248. The Tribunal decided it had a discretion and in the circumstances of the case that Rule (5) should not be applied. The Court of Appeal upheld the Tribunal’s decision.
Although in the Festiniog Railway case the Tribunal considered the railway should be regarded as a business venture, the exercise of the discretion is not restricted to cases where the premises are occupied for commercial or business purposes. Other factors that might influence the Tribunal in the exercise of the discretion include the nature and extent of the claimant’s interest, the period for which the premises would be available to continue to be devoted, and the state and structural condition of the property.
In the Festiniog Railway case, Pearson LJ said ‘…. the governing consideration for deciding to apply or not to apply the reinstatement basis of assessment must be to consider whether it would produce a measure of compensation which would be just as between the claimants …. and the respondents ….’.
The relevant criterion in deciding the question of the exercise of the Tribunal’s discretion would seem to be whether Rule (5) produces a just measure of compensation as compared with what the position would be under Rule (2). Thus, if it can be shown that whereas the assessment of compensation under Rule (5) would place the claimant in a very much better position, assessment under Rule (2) would not place the claimant in a substantially worse position than before the acquisition, there is a chance that the Tribunal could be persuaded to exercise its discretion against applying Rule (5).
3.12 Dwellings specially adapted for disabled persons
For the application of Rule (5) to dwellings specially adapted for occupation by a disabled person under section 45 LCA 1973 see Section 10 Part 1 of the Land Compensation Manual.
3.13 Interest on compensation
In Halstead v Manchester City Council  PLSCS 280 the Court of Appeal held that interest on compensation was payable from the date of entry until the payment of compensation in Rule (5) cases similarly to Rule (2) cases. By Section 11(1) of the Compulsory Purchase Act 1965 ‘any compensation agreed or awarded for the land . . . shall carry interest . . . from the time of entry until compensation is paid’.
The Court also held that, in respect of the claim for interest, time did not start to run for limitation purposes until the amount of compensation is awarded or agreed and thus no cause of action accrued in favour of the claimant until the compensation was agreed in 1985. Consequently the acquiring authority could not contend that by virtue of section 9(1) of the Limitation Act 1980 the claimant’s claim was statute barred.
In particular cases compensation may be awarded for disturbance and/or loss of profits.
In Eronpark Ltd v Secretary of State for Transport  2 EGLR 165 the claimant owned a property used as a residential specialist nursing home for the physically disabled and operated on a commercial basis. The Lands Tribunal decided that the claimant was entitled to additional compensation for disturbance and loss of profits. In the subsequent substantive case Eronpark Limited v Secretary of State for the Environment, Transport and the Regions (No 2)  3 EGLR 133 the Tribunal awarded compensation of £488,569 for loss of profits plus interest and costs.
3.15 Acquisition and reinstatement of only part of an undertaking
In Festiniog Railway Co v Central Electricity Generating Board (1962) 13 P&CR 248 only part of the claimant’s railway was acquired for the authority’s scheme. The case proceeded on the basis that the part could be reinstated in order to enable the purpose to which the land was devoted to continue. In the event, the Tribunal used its discretion not to award compensation on the basis of Rule (5) on the basis that the compensation would have been out of all proportion to the railway society’s assets, not on the basis that only part of the undertaking was proposed to reinstated.
The significance of the word ‘purpose’ in the context of Rule (5) must be recognised and it is misleading to consider Rule (5) as applying to different types or classes of properties. It is just as wrong to say that Rule (5) applies to churches as to state that premises occupied for business purposes are excluded.
Each case must be considered on its own merits. The questions arising on the application of Rule (5) are in the main matters of degree and can only be answered after a full investigation and proper interpretation of the facts and circumstances of the case.
The Scott Committee (1918) prefaced its recommendation about the reinstatement basis with the words ‘Where the particular user or adaptation of the property which makes it unmarketable serves a public purpose it is plain that market value would not afford to the owner ‘just compensation’. It can be fairly stated that partly due to the original drafting of Rule (5) and partly to the interpretations placed on the Rule by the courts and the Tribunal, Rule (5) has been applied to some cases in circumstances not envisaged by the Committee. These notes make it plain that difficulties could arise on the application of Rule (5) and valuers should not hesitate to consult the PS Professional Guidance Team not with the object of denying proper compensation to the claimant but in an endeavour to avoid an interpretation being placed on Rule (5), or the facts and circumstances of the case, that would unduly extend the application of Rule (5) and thus undermine the general basis of compensation of open market value.