Practice Note 3/1: Net injurious affection (indirect benefit to retained land resulting from the scheme)
The Valuation Office Agency`s technical manual covering all aspects of compulsory purchase and compensation.
The most common statutory provisions whereby increases in the value of a claimant’s retained land resulting from the scheme (ie betterment) can be offset against the compensation payable are set out in Part 2 of Section 3 to this Manual.
Where a claimant’s retained land is increased in value by the scheme but for some reason that increase does not fall within the statutory provisions, it will not be classed as betterment under the particular Act by which the acquisition is authorised. Therefore that increase cannot be offset directly against the compensation payable.
Such indirect benefit to the claimant’s land has sometimes been referred to as ‘non-statutory betterment’ but legal advice suggests that this term is inappropriate and it should not be used. The term ‘net injurious affection’ has therefore been adopted to refer to this type of benefit arising from the scheme although it could equally be referred to as ‘enhancement in the value of retained land’. Although such increases cannot be recouped by the acquiring authority under the statutory betterment provisions, such benefit might have the effect of reducing or eliminating compensation for severance or injurious affection assessed under Section 7 of the Compulsory Purchase Act 1965, and this is explained in the following paragraphs.
A common example of the type of indirect benefit that might arise from a scheme is where a claimant grants a licence to permit a contractor to tip spoil onto the claimant’s retained land. In Cooke v Secretary of State for the Environment (1973) 27 P&CR 234 the Lands Tribunal held that the amount received by the claimant from the contractor for the right to tip spoil on the retained land was not relevant to the assessment of betterment under the Highways Act because it was not a benefit arising from the purpose for which the land was authorised to be acquired, and was purely incidental to the construction of the road.
Another example would be where the construction of a new road forms a new planning boundary and part of the severed land becomes available for development for reasons unconnected with any improvement in access or local traffic conditions resulting from the construction of the road. Such an increase is not within the definition of statutory betterment.
In assessing compensation for severance or injurious affection under section 7 of the Compulsory Purchase Act 1965, a ‘before and after’ valuation is usually carried out. The ‘before’ valuation will wholly ignore the effects of the scheme, whereas the ‘after’ value will take into account all the effects of the scheme in order to ensure that the claimant is properly compensated. Any benefit to the retained land arising from the scheme would increase its value in the ‘scheme world’ and thus reduce the amount of compensation for severance or injurious affection that might otherwise be payable. The beneficial effects of the scheme may even cause the retained land to be worth more in the ‘scheme world’ than in the ‘no scheme world’. In such a case no compensation would be payable for severance or injurious affection because there would have been no depreciation in the value of the claimant’s retained land as a result of the scheme.
Care must be taken in the quantification of the benefit. What has to be assessed as at the date of valuation is the increase in the value of the retained land attributable to the scheme. Where, for example, the benefit comprises a payment for the right to tip spoil onto the claimant’s retained land, the royalties received from the tipping or the value of the planning permission granted may not directly equate to the quantum of benefit to the retained land for compensation purposes. For example, if there were many sites for tipping available to the contractor in the vicinity of the scheme, the likelihood at the relevant valuation date that the contractor might choose an alternative site would have to be reflected in the hope value attaching to the claimant’s retained land. This could reduce significantly the value of the benefit in the assessment of compensation.
It must be emphasised that such indirect benefit to the retained land would only affect the amount of compensation payable for severance or injurious affection to that retained land. Where the ‘after’ value of the retained land exceeded its ‘before’ value due to the type of indirect benefit referred to above, the excess could not be set off against compensation for land taken or other heads of claim because it would not fall within the statutory betterment provisions.