Part 1: Disturbance
The Valuation Office Agency`s technical manual covering all aspects of compulsory purchase and compensation.
4.1 General
This section provides an outline of the general principles of law and procedure relating to disturbance.
It also provides guidance on certain aspects of policy where a particular approach is to be adopted in relation to specific heads of claim.
For more detailed advice on how to assess compensation for disturbance see Practice Note 4/1 (heads of claim) and Practice Note 4/2 (Upper Tribunal decisions in disturbance cases) to this Section. Reference should also be made to Section 8 of this Manual in respect of agricultural land.
4.2 Definition
There is no statutory definition of ‘disturbance’ and the right to compensation for disturbance is founded upon case law, which establishes the claimant’s right to receive compensation on the basis of ‘value to owner’. Rule (6) of section 5 Land Compensation Act 1961 does not give a right to disturbance compensation but merely leaves its assessment unaffected by the open market value basis of Rule (2).
Although the Court of Appeal in the case of Harvey v Crawley Development Corporation [1957] 1 QB 485 was not concerned with defining ‘disturbance’ precisely, the case laid down that ‘disturbance’ is any loss sustained by a dispossessed owner (who had occupied the land) provided that:
- it is a natural and reasonable consequence of the compulsory acquisition and
- it is not too remote.
A further rule firmly established by case law is that the claimant must act reasonably in order to try to mitigate his loss.
These principles have been more recently reiterated in a slightly different format in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 1 EGLR 19 by the Privy Council which said that
- there must be a causal connection between the acquisition and the loss in question
- the loss must not be too remote; and
- the loss must not have been incurred unreasonably.
Thus with regard to the first bullet point, the loss may not have been a consequence of the acquisition in a temporal sense in that it occurred prior to the making of the CPO, but if the cause of the loss was a direct result of the proposed compulsory acquisition, it would still be compensatable because it would have been a consequence of the compulsory acquisition in a causal sense. Thus the dispossession or threatened dispossession of the claimant some years prior to the compulsory acquisition could give rise to a claim for disturbance compensation (see Paragraph 4.9 below).
4.3 Entitlement rests on the dispossession of the claimant
The entitlement to the payment of compensation for disturbance depends on the claimant’s dispossession from land owned by the claimant.
There has long been debate about whether disturbance compensation is payable for losses in relation to retained land since the claimant is not disturbed from such land and dispossession is an essential element of the right to disturbance compensation.
In Harvey v Crawley Development Corporation [1957] 1 All ER 504 Romer LJ stated
‘…any loss sustained by a dispossessed owner….which flows from compulsory acquisition may properly be regarded as the subject of compensation for disturbance provided, first, it is not too remote, and, secondly, that it is the natural and reasonable consequence of the dispossession of the owner’.
A recent decision of the Upper Tribunal (Lands Chamber) has clarified the position. In RAMAC Holdings Ltd v Kent County Council [2014] UKUT 109 (LC) the Tribunal reviewed a number of previous decisions and came to the conclusion that general disturbance losses caused by the construction of the scheme, or the threat thereof, were not compensatable as a matter of principle. Only those disturbance losses arising directly as a result of the dispossession of the owner from the land acquired were compensatable.
In some cases it would be necessary for the valuer to distinguish between those consequential losses caused by the dispossession of the owner and those caused generally by the construction of the scheme. This question would usually not arise in cases of total extinguishment because there the claimant’s losses are likely to be caused entirely by the dispossession from the property acquired. However, it might be relevant to cases where only part of the claimant’s property is acquired. In such a case the disturbance losses attributable to the dispossession of the claimant from the part acquired would be compensatable but losses (eg loss of profits) attributable to the general effect of the scheme on the claimant’s occupation of the retained land would not be a subject for compensation because those losses would be a general result of the scheme and suffered both by parties who had had land taken and those who had not.
In the case of trade related properties (eg petrol filling stations) this distinction might not be critical in that the trading potential of the property generally governs its open market value and any trading losses resulting from the scheme might thus be reflected in the compensation for severance and injurious affection (which are not affected by the decision in ‘RAMAC’). However, the position in such a case is not entirely clear.
Other heads of claim (eg compensation for injurious affection) are not affected by the decision in ‘RAMAC’ and should be assessed in the usual way.
4.4 Burden of proof
The burden of proof for any loss claimed lies with the claimant (see Paragraph 4.24 below regarding the production of accounts to prove a business loss). In Rush & Tompkins Ltd v West Kent Main Sewerage Board (1963) 14 P&CR 469 the claimant was denied compensation for disturbance where it was unable to demonstrate its loss (increased working costs caused by the scheme) ‘….by means of records of extra staff engaged or of extra payments to existing staff, no time sheets and no particularised evidence at all….’. The Tribunal stated ‘To substantiate a claim in respect of such items as were described requires either sufficiently particularised factual evidence or opinion evidence which quantifies imponderables by using some yardstick based on expert knowledge and experience’.
However, this principle should not be pressed too far where it is clear that a claimant has suffered a genuine compensatable loss and the valuer could make a reasonably accurate assessment of the loss.
There are occasions where the acquiring authority might be called upon to substantiate its own assertions. For example, an acquiring authority might need to demonstrate the availability of suitable alternative premises where a claimant demanded unwarranted compensation on the basis of total extinguishment rather than relocation of the business.
4.5 ‘Any other matter’
Rule (6) of section 5 Land Compensation Act 1961 refers to ‘the assessment of compensation for disturbance or any other matter not based on the value of land’. In Lee v Minister of Transport (1965) 16 P&CR 62 the Master of the Rolls (referring to the Harvey case) said ‘the Court was not concerned there to define ‘disturbance’ precisely. The truth is that nearly all items of loss (over and above the value of the land) are due to being disturbed. Hence they are generically described as compensation for disturbance. But there may be some admissible items of loss which are not naturally attributable to disturbance …… surveyor’s fees in preparing the claims are some of these. They are not ‘disturbance’’.
The case concerned a claim for the reimbursement of surveyors’ fees in a blight acquisition case. At that time the Town and Country Planning Act 1971 precluded the payment of compensation for disturbance in blight cases. However, the claimant was held to be entitled to reimbursement of his surveyor’s fees because these comprised ‘any other matter’ not ‘disturbance’.
4.6 Disturbance and development value
Compensation for disturbance should be assessed having regard to the fundamental principle underlying the assessment of compensation that the compensation paid shall be neither less nor more than the claimant’s loss. Thus in Mizen v Mitcham UDC [1929] EGD 258 which concerned the acquisition of land used as a market garden, the arbitrator determined the value of the land with vacant possession for immediate redevelopment at £17,280, the value as a market garden at £12,000, and ‘disturbance’ at £4,640 and the question arose whether the claimants were entitled to receive compensation for ‘disturbance’ in addition to the market value of the land with vacant possession. The Divisional Court answered in the negative, since the claimants could not realise the building value of the land in the open market unless they were prepared to abandon the market garden business.
This decision was considered and approved in Horn v Sunderland [1941] 1 All ER 480 with the qualification that the claimant is entitled to compensation for value of the land for its existing use plus disturbance or its open market value for an alternative use, whichever be the higher.
4.7 Disturbance as an element of the purchase price
Although in practice compensation for disturbance is assessed as a separate head of claim it is regarded in law as being no more than one of the elements going to build up the purchase price to be paid for the interest in the land taken (IR Commissioners v Glasgow and SW Railway Co (1887) LR 12 App Cas 315).
In Horn v Sunderland Corporation (1941) the Master of the Rolls stated “…it is important …… to remember that this (disturbance prior to 1919) was not a separate head of compensation such as compensation for injurious affection, but merely one of the elements going to build up the purchase price to which the owner was fairly entitled in all the circumstances of the case.
Rule (6) does not confer a right to claim compensation for disturbance. It merely leaves unaffected the right which the owner would before the Act of 1919 have had in a proper case to claim that the compensation to be paid for the land should be increased on the ground that he had been disturbed” and “It is a mistake to construe Rules (2) and (6) as though they conferred two separate and independent rights, one to receive the market value of the land and the other to receive compensation for disturbance, each of which must be ascertained in isolation”’.
This principle was re-stated in Hughes v Doncaster MBC [1991] 1 EGLR 31.
Thus the compensation for disturbance should not be increased by reason of eg any illegal use of the land (Rule (4)), and the Pointe Gourde principle and the statutory provisions of section 6 and First Schedule LCA 1961 which require the effect of the acquiring authority’s ‘scheme’ on the value of an interest in land to be disregarded apply also to the assessment of compensation for disturbance. Thus any increase or decrease in actual or potential earnings and profits due to the ‘scheme’ must be excluded in arriving at injury to goodwill. Also, any depreciation in the value of the business due to the impending compulsory acquisition must be disregarded (section 9 LCA 1961). It should be noted that the references to section 6 and 9 and Schedule 1 LCA 1961 have been replaced (for acquisitions authorised on or after 22 September 2017) by the new sections 6A, 6B, 6D and 6E LCA 1961.
4.8 Valuation date
Compensation for disturbance is deemed to form part of the price to be paid for the land acquired because, under section 7 of the Compulsory Purchase Act 1965, ‘the value of the land to be purchased by the acquiring authority’ is the only head of compensation under which compensation for disturbance is capable of being accommodated. Thus the valuation date in respect of the compulsory acquisition of an interest in land including compensation for disturbance will usually be the date of entry or the date of agreement, whichever is the earlier.
However, disturbance losses may have been suffered prior to that date (eg loss of profits caused by the threat of the scheme) or may occur after that date (eg cost of adaptation of replacement premises).
4.9 Losses incurred before and after the valuation date
It was held in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 1 EGLR 19 that all losses flowing from the scheme were compensatable, if they qualified under the tests established in Harvey v Crawley. The case laid down that ‘in consequence of the acquisition’ meant ‘because of’ not ‘subsequent to’. In more formal language the losses should be considered in a ‘causative’ not ‘temporal’ sense.
Earlier decisions in so far as they relate to the date from which losses were compensatable, such as Prasad v Wolverhampton BC [1983] 1 EGLR 10, have now been superseded.
Under the principle set out in Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Water Works Company [1903] AC 426 hindsight may be used to confirm matters that were foreseeable at the valuation date, and in this way compensation will be based upon fact rather than conjecture. However, an extraneous event occurring after the valuation date would not necessarily be taken into account if it had not been reasonably foreseeable at that date (Bolton MBC v Waterworth (1981) 259 EG 625). A claimant should not however be denied compensation merely because the loss was not foreseeable at the valuation date.
Losses arising after the valuation date will attract interest at the statutory rate. It could therefore be argued that actual or estimated losses arising significantly later than the relevant valuation date for the assessment of the value of the land taken should be related back to that date by deferring the loss at an appropriate rate of interest. Normally, however, such expenditure or loss is incurred at about the time of dispossession and the actual expenditure or loss forms the basis of settlement.
4.10 Losses for which compensation cannot be awarded
Since any loss must be a consequence of the acquisition it follows that no loss can be reimbursed if the acquisition does not proceed. Thus for example, if a claimant relocated his premises in anticipation of compulsory acquisition and thereby incurred losses, he would receive no compensation if no Notice to Treat were ultimately served on him.
Any cases where an owner or occupier claims for a loss or expense incurred in anticipation of an acquisition where the authority has neither served a Notice to Treat nor proceeded with the acquisition by agreement should be referred to the PS Professional Guidance Team.
Costs incurred in contesting a CPO, whether successfully or not, are inadmissible. This is because such costs would be incurred neither in anticipation of, nor as a consequence of, the exercise of compulsory powers but in contesting them. Guidance in respect of fees awarded in CPO inquiries has been issued by the Department for Communities and Local Government.
4.11 Statutory interest payments
An admissible loss arising prior to the valuation date would be reimbursed in full, but no interest is payable from the date on which an expense or loss is incurred up to the valuation date because disturbance is part of the purchase price of the land taken and no right to interest can arise until the acquiring authority is under an obligation to complete the purchase and interest would then run from the date of entry (section 11 CPA 1965).
4.12 Withdrawal of Notice to Treat
A claimant may, however, claim for any loss or expenses occasioned to him by the giving of a Notice to Treat that is withdrawn or that lapses by effluxion of time under section 31 LCA 1961. A disagreement as to the amount of the compensation can be referred to the Upper Tribunal (Lands Chamber). The compensation attracts statutory interest from the date of expiry of the Notice to Treat.
4.13 General
The displaced occupier has the right “to be put so far as money can do it, in the same position as if his land has not been taken from him; in other words, he gains the right to receive money payment not less than the loss imposed on him in the public interest, but on the other hand no greater” (Horn v Sunderland Corporation [1941] 2 KB 26).
This is referred to as the ‘principle of equivalence’.
4.14 Mitigation of loss
It is a principle of compulsory purchase compensation that claimants must mitigate their loss. Avoidable loss cannot be recovered because losses or expenditure incurred unreasonably cannot be said to be the consequence of the compulsory acquisition.
The duty to mitigate is however not absolute and will depend upon what is reasonable in the circumstances.
The case of Lindon Print Ltd v West Midlands CC [1987] 2 EGLR 200 laid down four principles regarding mitigation:
- a claimant must take all reasonable steps to mitigate his loss and cannot recover compensation for any loss he has suffered due to unreasonable action or inaction
- the onus is on the acquiring authority to prove that the claimant has failed reasonably to mitigate his loss
- a claimant is only required to act reasonably and the standard of reasonableness is not high
- a claimant will not be prejudiced by his financial inability to take steps in mitigation
However, in Bailey v Derby Corporation (1964) 192 EG 817 it was held that the inability of the claimant to re-establish his business elsewhere due to ill health did not entitle him to claim compensation for total extinguishment rather than relocation expenses because his ill health was not a direct result of the acquisition.
It is reasonable to assume that the duty to mitigate would arise at the same time that the claimant’s losses caused by the scheme could be reflected in the compensation ie normally the date of publication of the CPO.
4.15 Compensation ceiling
The principle, established by case law, that compensation for relocation could never exceed that which would have been payable for total extinguishment of a business was revisited in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 1 EGLR 19. The Privy Council stated that it was unable to accept that principle in every case, and that there might be instances where application of the rule could lead to injustice. An example was given of where a businessman had spent large sums of money in setting up a business, which was curtailed before trading could start due to the acquisition of the premises from which it was to conduct business. Since the business had no trading record, compensation for total extinguishment might be significantly less than the money the businessman had invested. In that case it would be equitable to reimburse the claimant the start-up costs of the business on the basis that a reasonable man would be prepared to spend such a sum of his own money to restart the business elsewhere. However, the Privy Council stated that the greater the excess of relocation cost over total extinguishment cost, the more closely should the claim be scrutinised.
Any case where it is proposed to recommend payment of compensation for relocation that exceeds the cost of total extinguishment should be referred to the PS Professional Guidance Team.
4.16 Owners not in occupation
Section 10A of the Land Compensation Act 1961 (inserted by Schedule 15 Paragraph 2 of the Planning and Compensation Act 1991) is headed ‘Expenses in acquiring replacement land’ and states:
Where, in consequence of any compulsory acquisition of land
- the acquiring authority acquire an interest of a person who is not then in occupation on the land; and
- that person incurs incidental charges or expenses in acquiring within the period of 1 year beginning with the date of entry, an interest in other land in the United Kingdom
the charge or expense shall be taken into account in assessing his compensation as they would be taken into account if he were in occupation of the land.
This section applies to compulsory purchase orders made after 25 September 1991 and the considerations given to charges or expenses incurred in securing alternative accommodation for owner occupiers will similarly apply to owners not in occupation.
See Practice Note 4/1 for further commentary on the nature of the expenses that could be claimed under this provision.
4.17 Substitute property purchased by persons other than claimant
Where the person from whom the property was compulsorily acquired is not the person in whose name the substitute property is purchased (eg a spouse or some other member of the family with whom the claimant resides) and a claim is made for reimbursement of the expenses incurred in connection with the purchase of the substitute property, the case should be submitted to the PS Professional Guidance Team for advice.
4.18 Costs of reinvestment
Costs of reinvestment of the purchase money, either in property outside the scope of ‘Harvey expenses’, stocks and shares or any other form of investment, or the expense of residing in an hotel or guest‑house instead of buying another house, are matters of personal choice and are not subjects for compensation. This would be subject to the provisions of section 10A LCA 1961 which deals with reinvestment costs incurred by owners not in occupation (see Paragraph para 4.16 above).
4.19 Short tenancies
Section 20 Compulsory Purchase Act 1965 provides for compensation for ‘any loss’ to tenants whose occupations are founded upon a short tenancy. The authority does not acquire such interests and the occupiers are not, therefore, displaced by compulsory acquisition but simply by the taking of possession of the land by the acquiring authority. Apart from the provisions of section 20 CPA 1965 compensation for disturbance would not otherwise be available to these tenants.
4.20 Assessment of compensation under section 20 CPA 1965
In the case of Bishopsgate Space Management Ltd v London Underground Ltd [2004] 2 EGLR 175 the Lands Tribunal determined that the entitlement to compensation under section 20 of the Compulsory Purchase Act 1965, where the lease or tenancy was contracted out of the of the Landlord and Tenant Act 1954 and thus did not have the benefit if its security of tenure provisions, should be on the basis that the interest was to be valued on the assumption that the tenancy could have been terminated on the earliest date possible under the tenancy. Any prospect in the no-scheme world of the tenancy’s continuing was to be disregarded. Thus it had to be assumed that the landlord would terminate the tenant’s interest at the first available opportunity following Notice to Treat notwithstanding what might have occurred in the absence of the acquiring authority’s scheme.
Where the lease or tenancy was within the Landlord and Tenant Act 1954 (and thus had the benefit of its security of tenure provisions), section 47 LCA 1973 provided that the right of the tenant to apply for a new lease under Part II of L&TA 1954 should be taken into account in assessing the compensation payable by the acquiring authority.
The Tribunal noted the provisions contained in sections 37 and 38 of the 1973 Act for payment of compensation for disturbance where the occupier did not have a compensatable interest in the land acquired. Section 38(2) expressly provided that, in estimating such loss under sections 37 and 38 LCA 1973, regard was to be had to the period for which the land occupied by the claimant might reasonably have been expected to be available for the purpose of his trade or business and to the availability of other land for that purpose.
There thus existed an anomaly in that a claimant with an interest in land who was compensated under section 20 CPA 1965 who would necessarily have an interest in the land from which he was displaced was compensated on a less generous basis (where the lease was contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954) than a claimant who was compensated under sections 37 and 38 LCA 1973 and necessarily had no interest in the land from which he was displaced
The President of the Tribunal in the Bishopsgate Space Management case recognized this anomaly and stated “In the light of the law as we have found it to be, a licensee who can show that he could reasonably have expected to remain in possession for, say, five years would be better off than the tenant with a similar expectation and with six months of his tenancy unexpired at the date of possession. However, section 47 of the 1973 Act substantially removes this anomaly by enabling a tenant to rely upon his rights under the 1954 Act. Nevertheless, in each of the present cases, the provisions of sections 24 to 28 of the 1954 Act have been excluded in relation to the tenancy by order of the county court”.
The position has now changed in that section 35 of the Neighbourhood Planning Act 2017 has re-written section 47 LCA 1973 to provide that where an acquiring authority
- (i) acquires the interest of the landlord in land subject to a tenancy, or
- (ii) acquires the interest of the tenant in, or takes possession of, land subject to a tenancy, and
before the authority acquired the interest or took possession of the land, the tenant under the tenancy was carrying on a trade or business on the land, regard must be had to:
- (a) the likelihood of the continuation or renewal of the tenancy
- (b) in the case of a tenancy to which Part 2 of the Landlord and Tenant Act 1954 (security of tenure for business tenants) applies, the right of the tenant to apply for the grant of a new tenancy
- (c) the total period for which the tenancy may reasonably have been expected to continue, including after any renewal, and
- (d) the terms and conditions on which a tenancy may reasonably have been expected to be renewed or continued
4.21 Persons with no interest in land
Since disturbance is regarded in law as one element of the compensation to be paid for the land taken, occupiers who had no interest in the property from which they were dispossessed (eg licensees) used to have no right to disturbance compensation. However, the Land Compensation Act 1973 introduced a new entitlement to disturbance compensation for such occupiers.
Sections 37 to 38 LCA 1973 provide for disturbance payments to persons who are in lawful possession but nevertheless have no interest in the land from which they are displaced. These provisions apart, such occupiers would not otherwise receive disturbance compensation.
These payments are dealt with in more detail in Practice Note 2 to Section 4 of this Manual.
Further, section 37(5) LCA 1973 enables a discretionary payment to be made to a displaced occupier who does not qualify under section 37 (see Paragraph 4.44 below).
A person displaced from agricultural land is not entitled to a disturbance payment under section 37 LCA 1973. However, discretionary payments may be paid to occupiers of agricultural land under the provisions of section 22 of the Agriculture (Miscellaneous Provisions) Act 1963.
4.22 Claim for loss of goodwill where trading not yet commenced
In general a claim for loss of future profits for a business that had not yet started would not be admissible as being too remote eg Halford v Oxfordshire County Council (1952) 2 P&CR 358 and Evans v Cheshire (1952) 3 P&CR 50.
In the case of Welford v EDF Energy Networks [2007] EWCA Civ 293 the Court of Appeal upheld the principle that profits from a business that had not been commenced anywhere would generally be regarded as being too remote for the purpose of providing fair compensation. That is because where a party has land upon which it is contemplating starting a new business, but the business is not in existence at the time the land is compulsorily acquired, then ordinarily, the market value of the land will reflect the business opportunity that is being contemplated. Compensation measured by the open market value of the land will be treated as fair compensation because it will enable the claimant to buy other land as part of the investment required to start the business it is contemplating.
Nevertheless, the Court of Appeal, whilst calling into question the Tribunal’s finding of fact (which it was not empowered to overturn) that the business was already in existence at the valuation date, upheld the Lands Tribunal’s decision that compensation for future loss of profits was not too remote and should be paid in respect of a business that
- (a) was in existence at the valuation date
- (b) on which time and money had been spent
- (c) but where the use of the premises had not yet started.
Any similar claims received by valuers should be referred to the PS Professional Guidance Team.
4.23 Total extinguishment
An acquiring authority does not acquire the goodwill of a business as it has statutory authority to acquire only land. It simply compensates the claimant for the reduction in the value of the goodwill as a consequence of the acquisition of the claimant’s interest in the land.
4.24 Production of accounts
Claimants are not under a statutory obligation to produce accounts and occasions will arise when they are not produced. The onus is, however, upon claimants to prove their loss and in the case of trade disturbance this cannot be done without the disclosure of certified records or accounts. Without this important evidence the Tribunal is unlikely to support a claim as in W Andrews & Sons Ltd and Others v Hertfordshire CC (1987) REF/157/1985 (unreported).
If accounts for the relevant years could not be obtained direct from the claimant it might be possible to obtain copies from Companies House. Requests should be submitted to the PS Professional Guidance Team.
Where a claim has been referred to the Upper Tribunal, assistance may be gained from the provisions of Paragraph 18 of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 (SI 2010 No 2600), which allows the Tribunal to require the disclosure of documents although this procedure should be instigated only by the acquiring authority’s lawyers.
4.25 Trade disturbance: Claimant aged 60 or over
Section 46 LCA 1973 applies where the claimant is carrying on a trade or business (excluding farming) and, having attained the age of 60 on the date on which possession is given up, the whole of the goodwill has not been sold and it is not proposed to continue the business elsewhere notwithstanding that there are premises available that would be suitable for that purpose.
It only applies where, on that date, the annual value of the hereditament does not exceed the limit prescribed in the Town and Country Planning (Blight Provisions) (England) Order 2017 (SI 2017 No 472), effective from 21 April 2017, of £36,000 (for England excluding Greater London) and £44,200 for Greater London. No corresponding Order has been made for Wales and the annual value limit remains at £34,800 as specified in the Town and Country Planning (Blight Provisions) (Wales) Order 2011 (SI 2011 No 435).
Such smaller businesses are not infrequently carried on under the name of a private limited company and, providing that all the shareholders are aged 60 and over on the date of giving up possession the provisions will apply. The only exception to this age rule is that if there were a younger minority shareholder (ie one owning less than 50% of the shares) the section would still apply if that person were the spouse of a shareholder who had reached the age of 60.
The claimant must give an undertaking not to sell the goodwill of the business and not to engage in a business of substantially the same kind within such time or area as the acquiring authority stipulates. The valuer should ascertain the nature of such requirements in consultation with the authority. There are recovery provisions if the undertakings were broken.
The section does not apply where part only of the land used for the business is being acquired.
In relation to disturbance payments to occupiers having no compensatable interest in the land (section 37 Land Compensation Act 1973), subject to all the requirements having been met, the effect of the section is that such disturbance compensation and payments are to be assessed on the assumption that it is not reasonably practicable for the business to be carried on elsewhere, in so far as it relates to any part of the goodwill that has not been disposed of.
4.26 General
Where the property is owned or occupied by a company and its subsidiary or the property owner and his/her wholly owned company it is necessary to explore the relationship between the owner and the occupier, and particular care should be taken to establish the interest of the occupier.
4.27 Pre 1973
Until the Land Compensation Act 1973 (LCA 1973) came into effect, only a person who had an interest in land that was compulsorily acquired was entitled to compensation for disturbance. Consequently where a property was separately owned and occupied by related companies but the company in occupation had no interest in the land, disturbance compensation may not have been payable unless it was possible to ‘lift the corporate veil’ and treat the companies as one. This was only to be done in exceptional circumstances and the complex nature of the problem resulted in much litigation.
4.28 Post 1973
The position in respect of displacements occurring after 17 October 1972 has been changed by the provisions of the LCA 1973. A person who enjoys lawful possession but is displaced from land in which that person did not have an interest may now be entitled to a disturbance payment under sections 37 and 38 LCA 1973. These payments are also made in respect of trade or business loss under the same provisions. The provisions do not apply to agricultural land but agricultural occupiers may receive discretionary payments (section 22 Agriculture (MP) Act 1963).
In Roberts v Ashford BC (2005) ACQ/100/2004 the Lands Tribunal held that the right to compensation under section 37 LCA 1973 would have the same effect, in terms of quantum, as a claimant would have had under section 5(6) of the Land Compensation Act 1961.
Although these provisions may serve to limit the number of disputes concerning the corporate veil, the 1984 case of Wharvesto Ltd v Cheshire CC [1984] 1 EGLR 191 (see below) demonstrates that such cases can still arise. Whilst it is necessary to consider the particular circumstances of each case, guidance upon when it would be appropriate to ‘pierce the corporate veil’ can be obtained from case law.
4.29 Case Law
In Smith Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116, it was held that although legal entities cannot be blurred, facts may show that a subsidiary company may occupy premises as an agent or tool of the parent company that owned the property and it would be appropriate to assess compensation on the basis of an owner’s interest. In this case six questions were asked and all these questions were answered in favour of the claimants (the parent company) viz:
- Were the persons conducting the business appointed by the parent company?
- Were the profits treated as the profits of the parent company?
- Was the parent company the head and brain of the trading venture?
- Did the parent company govern the venture, decide what would be done and what capital should be embarked on the venture?
- Did the parent company make the profits by its skill and direction?
- Was the parent company in effective and constant control?
The decision was made having regard to the particular circumstances of the case and assistance might be obtained if the question is looked at in terms of who is really occupying the premises and carrying on the business, the parent company or the subsidiary? If exceptionally the occupier is not more than an agent (even though it may be a separate legal entity) and it is necessary to satisfy all six tests set out in Smith Stone & Knight before it could be conceded that the occupier is merely an agent, compensation for disturbance may be payable on the basis of the owner’s interest in the land.
If a mere agency cannot be demonstrated compensation will be payable on the basis of the separate legal interests of the parent and the subsidiary. A brief appraisal of more recent case law is set out below.
In DHN Food Distributors Limited v Tower Hamlets LBC [1976] 2 EGLR 7 there were three entities. The business was owned by the parent company, the property was owned by a wholly owned subsidiary and the vehicles used by the business were owned by another wholly owned subsidiary company. The directors were the same in all three companies. The company that owned the business and occupied the property had no lease but was held to have an irrevocable licence to occupy it. The Court of Appeal held that the ‘corporate veil’ should be lifted and that the three companies were jointly entitled to compensation both for the value of the property and for disturbance.
The House of Lords in Woolfson and Others v Strathclyde Regional Council [1978] 2 EGLR 19 held that it is appropriate to pierce the corporate veil only where special circumstances exist that indicate that the company structure was a mere facade concealing the true facts. In Woolfson it was found that the occupier of the land was not in the position of having to do what the parent company said; that the company structure was not a mere façade; and that the separate legal status of the companies must be observed. One share owned by the claimant’s wife proved sufficient to deprive him of the right to claim as owner occupier despite his owning the other 999 shares. The complete unity of ownership between the parties in the DHN case was not present in Rakusen.
Whereas DHN was the victim of a CPO, in Rakusen Properties Ltd v Leeds CC [1979] 1 EGLR 174 the Lands Tribunal considered that it was material to the case that the trading company instigated the acquisition, which resulted from the service of a purchase notice. The Tribunal determined that the trading losses of the claimant were not the consequence of the deemed Notice to Treat but due to a fire that had occurred prior to the service of the purchase notice. Also, since the acquiring authority had not yet entered on the property, no dispossession had taken place. The Tribunal said, obiter, that whilst it was not necessary for it to determine the ‘corporate veil’ issue, it doubted whether it would have applied the principle. The claimant should have, but did not, ‘put its house in order’ by altering the company ownerships prior to serving the purchase notice and the relationship between the companies in the case was such that the necessary unity of ownership and control was not present.
In Wharvesto Ltd v Cheshire County Council [1984] 1 EGLR 191 the Tribunal held that compensation in respect of the acquisition of a property owned by one company but leased and occupied by a wholly owned subsidiary of that company, both companies having common directors, should be valued on the basis that the landlord and tenant companies were one entity. Compensation for both the property interest and disturbance was awarded accordingly.
In Roberts v Ashford BC (2005) ACQ/100/2004 (a decision by the then President George Bartlett QC) the Tribunal held that the ‘corporate veil’ could be lifted in the case of an individual claimant who owned a property and his solely owned company that occupied it. However, the Tribunal stated that it was not necessary for it to consider ‘lifting the corporate veil’ in that case due to the effect of section 37 LCA 1973.
4.30 Policy
One of the cornerstone concepts of the complex structure constituting modern company law is the notion of separate corporate personality. Companies will arrange their affairs to take advantage of individual corporate immunities and benefits which are often fiscal, but may suffer as a result of their own arrangements when land is compulsorily acquired. To set aside those corporate arrangements may increase the liability of the public purse and corporate unveiling should be regarded as an exceptional process. Each case must be considered on its merits but the principles laid down in the above cases case must be followed.
All cases involving the question of whether the corporate veil should be lifted should be referred to the PS Professional Guidance Team for consideration and advice.
4.31 General
It was held in Commissioners of Inland Revenue v Glasgow and South Western Railway Co (1887) App Cas 315 that compensation for disturbance forms part of the ‘consideration for sale’ of the land taken. The compensation would therefore be treated as a capital receipt in the hands of the claimant for taxation purposes. (See Practice Note 4/1 for claims for reimbursement of tax liability on compensation
4.32 Business disturbance
In Stoke-on-Trent City Council v Wood Mitchell & Co (1978) 248 EG 871 the Court of Appeal decided that because compensation for temporary loss of profits fell to be treated as a trading receipt for tax purposes it followed that the acquiring authority should pay the full sum of compensation to the claimants, and not pay an amount ‘net of tax’ which had been the practice of some acquiring authorities. Accordingly the claimants should be left to account to HMRC for any such sum as may subsequently be shown to be due from them by way of tax.
Following the decision in the Stoke case above, the Inland Revenue (now HMRC) issued a ‘Statement of Practice’ as detailed at Appendix 4/1. It confirmed that in assessing compensation for the acquisition of an interest in land no adjustment should be made to the amount included in respect of temporary loss of profits, loss on trading stock or removal expenses for the incidence of tax. The same practice should be followed in compensation cases where no interest is to be acquired.
Although the Statement did not deal with CGT, the same approach should be adopted for capital receipts.
This approach avoids the risk of double taxation. The claimant will have more time to settle payment of tax with HMRC and better opportunity to appeal or set off gains against losses.
4.33 Apportionment of compensation
Section 245 of the Taxation of Chargeable Gains Act 1992 provides that where land or an interest in or right over land is acquired and the acquisition is, or could have been, made under compulsory powers, then in considering whether the consideration for the acquisition should be apportioned and treated in part as a capital sum, whether as compensation for loss of goodwill or for disturbance or otherwise, or should be apportioned in any other way, the compulsory nature of the acquisition and any statutory provision treating the purchase price or compensation or other consideration as exclusively paid in respect of the land itself, shall be disregarded.
HMRC will thus apportion the compensation received so as to distinguish the ‘income’ and ‘capital’ elements. Compensation for temporary loss of profits is regarded as income and therefore falls to be treated as a trading receipt for tax purposes. Compensation of a capital nature on the other hand will, subject to any relevant exemptions or reliefs, be subject to Capital Gains Tax.
Section 52(4) of the Taxation of Chargeable Gains Act 1992 provides that the method of apportionment adopted shall be such method as appears to the Inspector of Taxes, or on appeal the Commissioners concerned, to be just and reasonable. In practice the component parts of the compensation should be agreed with the claimant, if possible, in order to assist the valuer in the event of a request for advice on the matter from the Inspector of Taxes.
4.34 Value Added Tax
Disturbance costs would normally be reimbursed net of VAT to a VAT registered claimant. Reference should be made to Section 18 of this Manual for guidance on this subject and advice may be obtained from the PS Professional Guidance Team in specific cases.
4.35 Purchase Notices
With a claim for disturbance compensation in a purchase notice case under section 137 et seq TCPA 1990 (where the property has become incapable of reasonably beneficial use in its existing state due to a planning decision) the acquiring authority (where it has accepted the notice or the notice has been confirmed by the Secretary of State) will be deemed to have served a Notice to Treat on the claimant. The payment of disturbance compensation should then be approached in the same way as for any other compulsory acquisition.
4.36 Acquisitions by agreement
Sections 26(2)(a) and 26(2)(b) and 26(2A) LCA 1973 give public authorities the power to acquire by agreement land which is seriously affected by the construction or alteration of any public works, the use of any public works or which will be seriously affected by the construction or alteration or use of any public works. The purpose is to mitigate any adverse effect that the existence or use of any public works has or will have on the surroundings of the works.
In each case the claimant’s interest must be that of a residential owner-occupier or an owner-occupier of a hereditament with an annual value not exceeding the limit prescribed in the Town and Country Planning (Blight Provisions) (England) Order 2017 (SI 2017 No 472), effective from 21 April 2017, of £36,000 (for England excluding Greater London) and £44,200 for Greater London. No corresponding Order has been made for Wales and the annual value limit remains at £34,800 as specified in the Town and Country Planning (Blight Provisions) (Wales) Order 2011 (SI 2011 No 435).
Where the land is seriously affected by the construction or alteration of any public works the acquisition must be begun before the date works are first used. Where the land is seriously affected by the use of any public works the acquisition must be begun before a date one year after the works are first used. These dates correspond to the ‘relevant date’ and the ‘first claim day’ respectively under Part I of the LCA 1973. (After the works have been in use for a year claims may be made under Part I of the 1973 Act for compensation for depreciation in the value of land caused by ‘physical factors’ emanating from the use of the works).
Where the land will be seriously affected by the construction or alteration or use of any public works (section 26(2A) LCA 1973) the land must be statutorily blighted before the acquisition can take place.
These powers are mirrored for Highway Authorities in section 246(2)(a) and 246(2)(b) and 246(2A) of the Highways Act 1980.
Whether disturbance should be offered to the claimant would depend upon the circumstances of the case. If the claimant had a pressing need to sell (eg the need to move to take up a job in another part of the country) the price would neither include disturbance nor surveyor’s nor legal costs and a Home, Basic or Occupier’s Loss Payment would not be offered. This would be on the basis that the cause of the claimant’s displacement was the need to move for reasons unrelated to the scheme. Where for example, the claimant wished to sell because the works seriously aggravated or would seriously aggravate a medical condition, the price to be offered should normally include a sum for disturbance and surveyor’s and legal costs and a Home, Basic or Occupier’s Loss Payment because the ultimate cause of the removal would be the public works.
In a case where the property is not to be demolished and consists of both residential and business accommodation and the valuer considers that the business part is capable of continued use by the vendor for the former purpose without the residential accommodation the acquiring authority concerned should be asked whether or not the premises would be available to rent and the terms upon which they could be offered to the vendor. If the premises were available there would normally be, subject to the terms, no cause for payment of business disturbance for relocation or extinguishment.
In acquisitions by agreement where business disturbance is admissible it should be assessed with regard to section 46 LCA 1973 where the occupier is aged 60 or over and meets the qualifying conditions.
In all cases of acquisition by agreement the valuer should check that the acquiring authority is in agreement with the position to be adopted with regard to the payment of disturbance compensation, surveyor’s and legal costs, Loss Payments etc. The valuer should also advise the claimant (or the claimant’s agent) of the acquiring authority’s position, so that neither the claimant nor his agent is in any doubt about the basis on which the authority is prepared to exercise its discretion to purchase.
4.37 Blight and other cases
a) Disturbance in blight cases
Where a claimant incurs disturbance losses following a compulsory acquisition, compensation for disturbance is payable notwithstanding that the deemed Notice to Treat arose as a result of the service of a blight notice by the claimant.
Exceptionally the claimant’s disturbance claim might be challenged where it could be proved that the reason for the service of the blight notice was unconnected with the scheme. In Campbell Douglas and Co Ltd v Hamilton DC [1983] 2 EGLR 183, the acquiring authority resisted the payment of compensation for disturbance on the grounds that the claimant had planned to relocate notwithstanding the acquiring authority’s proposals. The Lands Tribunal held that an examination of circumstances anterior to the service of the blight notice was appropriate in order to determine the cause of the relocation but determined on the facts of the case that the cause of the service of the blight notice was the authority’s proposals and not a pre-existing intention of the claimant.
The valuer should not pursue detailed enquiries of the claimant as to the motives for the service of the blight notice but should nevertheless take account of any information provided.
b) Disturbance under section 37 LCA 1973
Under section 37 LCA 1973 persons who are
- in lawful possession of land and
- are displaced under statutory powers (other than land used for the purposes of agriculture) but
- who do not have a compensatable interest and would not otherwise receive any compensation for disturbance are entitled to a disturbance payment in certain circumstances.
‘Lawful possession’ is not defined in the Act but in Wrexham Maelor BC v MacDougall [1993] 49 EG 115 the Court of Appeal held that the phrase should be given its ordinary meaning. Thus licensees having possession of the land, but not necessarily exclusive possession, would be entitled to a statutory disturbance payment.
The amount of such a disturbance payment is assessed in accordance with the provisions of section 38 LCA 1973.
The circumstances under which such payments are made, the persons entitled thereto and the assessment of the amounts of such payment are set out in Practice Note 4/2.
It would be for the acquiring authority to determine the eligibility of a claimant to a statutory disturbance payment under section 37 LCA 1973.
4.38 Equivalent reinstatement and disturbance
The assessment of compensation on the basis of the ‘reasonable cost of equivalent reinstatement’ (section 5(5) LCA 1961) would not preclude additionally the payment of compensation for disturbance. In Eronpark Ltd v Secretary of State for Transport [2000] 2 EGLR 165 the Lands Tribunal stated “…that as a matter of law the claimant is entitled to recover such compensation for disturbance and loss of profits as is sustained in consequence of dispossession up to the time when equivalent reinstatement could reasonably have been achieved”. This is because the ‘equivalent reinstatement’ basis is an alternative to the assessment of the value of the land under Rule (2) (open market value) and disturbance compensation should similarly be assessed in addition to the value of the land.
Statutory interest would also be payable from the date of entry to the date that compensation was received, making adjustment where appropriate for advance or stage payments (Halstead v Manchester City Council [1998] 1 All ER 33).
4.39 Consideration of claims
Valuers should be prepared to investigate any item of claim that, although not apparently qualifying may indicate another, possibly valid item and should not hesitate to offer to assist claimants in identifying appropriate items of claim.
4.40 Interest
Compensation for disturbance, including statutory disturbance payments under section 37 LCA 1973, ranks for interest at the statutory rate from the date of displacement until payment.
4.41 Disputes
Any dispute as to the amount of a disturbance payment is to be referred to and determined by the Upper Tribunal (Lands Chamber).
4.42 Specialist advice
Specialist advice is available via the PS Professional Guidance Team concerning valuations of plant and machinery or problems associated with town centre redevelopment.
4.43 Reports
Reports of completed negotiations should be made on the standard report template but with amendments to reflect the statutory basis of value and, in most cases, the absence of any need for the acquiring authority to dispose of the property on the open market. However, in some cases the client will provide their own reporting template for use by the valuer.
4.44 General
Section 37(5) LCA 1973 provides for the making of discretionary payments to cover removal expenses, business and trade losses and also the cost of structural alterations to accommodate disabled persons. It should be noted that the sub‑section makes it clear that an authority’s powers to make discretionary payments are not available when a claimant has a statutory right to a disturbance payment or to disturbance compensation, so that there can be no question of using such powers to ‘top up’ statutory compensation.
It replaces previous discretionary powers eg section 30 LCA 1961, sections 32, 63(1) and 100 Housing Act 1957 and section 130(4) Town and Country Planning Act 1971.
4.45 Circumstances of displacement
The power to make a discretionary payment under section 37(5) LCA 1973 arises when a person is displaced from land in the circumstances set out in sub‑section (1) being those same events that give rise to a statutory disturbance payment.
4.46 Qualifying persons
The displaced occupiers for whom these discretionary powers are designed are those who, having no other statutory entitlement to compensation, also fail to qualify for a disturbance payment on the grounds that they are only permitted to occupy the land in a lower capacity than being in lawful possession of it, such as certain classes of licensee, lodgers and the like.
4.47 Amount of discretionary payment
The payment that may be made is governed by the same provisions as relate to statutory disturbance payments under the section. Although the matter is not free from doubt, section 37(5) may be interpreted to mean that the discretionary powers therein extend not only to the making of a payment but also to the amount of such payment. The valuer should, therefore, seek information from the authority concerned as to whether they propose to pay such amount as would have been payable had the claimant qualified for a disturbance payment as of right. The valuer should subsequently assess and/or negotiate the claim on the basis indicated by the authority. No payment should however exceed the amount that would have been payable as of right if sub‑sections (1) to (3) of section 37 had applied. There being no provision for referring disputes to arbitration, the valuer should explain in any discussion with the claimant or the agent acting that the decision as to the amount of any payment to be made is entirely a matter for the authority.
4.48 Procedure
Valuers should first satisfy themselves that the claim is for a discretionary payment under section 37(5) and then proceed as follows:
- In all Government Department cases valuers should forward to the Department concerned a copy of any claim that they receive, enquiring whether they wish the valuer to negotiate the claim and, if so, on what basis and also whether they would be prepared to pay interest on the amount agreed as from the date of entry at the same rate as for a statutory disturbance payment.
- In other cases, the approval of the appropriate authority must be obtained before any indication is given that a claim will be entertained. This may be either by means of an overall authority for the valuer to assess any claim received in all their schemes or in a particular scheme or in each separate instance, and is a matter for local arrangement. The question of payment of interest in these cases is for the authority to determine.
- The payment of surveyors’ and other fees should be considered in Government Department cases as for a statutory disturbance payment and the prior concurrence of the authority should be obtained in other cases.
- All recommendations concerning discretionary payments should be reported to the authority concerned on the standard report template but with amendments to reflect the statutory basis of value.
4.49 Expenses incurred in the purchase of replacement dwellings
Section 43 of the 1973 Act also provides a discretionary power for the authority concerned to defray any reasonable expenses (except the purchase price) that are incurred by a displaced residential occupier who has either no interest in the property from which they have been displaced, or no greater interest in it than as tenant for a year or from year to year, and who wishes to acquire a dwelling in substitution for that from which he is displaced.
The displacement must be in consequence of the acquisition of the land by an authority possessing compulsory powers or the making of a housing order in respect of a house or building on the land and the replacement house must be ‘acquired’ not more than one year after the displacement occurs. ‘Acquired’ means the making of the contract where appropriate. The claimant must have been in occupation at the relevant time but trespassers are excluded as are persons who have been permitted to reside in property pending its demolition.
Expenses may be defrayed only if the two dwellings are reasonably comparable. It is not considered that to be reasonably comparable a dwelling must necessarily be of the same type, but the general accommodation and overall circumstances should be similar.
It may be assumed that Government Departments will exercise their discretion in appropriate cases, but not when the claimant has first been rehoused by the housing authority and the Department concerned has made a payment to the housing authority in respect of the accommodation provided. Other authorities should be asked whether they wish the valuer to settle any claim that the valuer receives direct.
There is no express provision against duplication, but the powers are discretionary and it should be assumed in all cases that no payment would be made under section 43 for any item that has already been, or falls to be, paid under any other provision. It is intended to allow authorities to overcome the normal disturbance rule in limited circumstances and replacement by a comparable dwelling is the test rather than replacement by a comparable interest.
These payments are outside the scope of statutory compensation under section 20 of the 1965 Act, and any additional sum to be paid under section 43 should be shown separately when reporting a disturbance payment under section 37 of the 1973 Act.
4.50 Expenses of persons moving temporarily during construction works
Valuers may be asked to deal with claims in respect of the expenses of persons moving temporarily during highway construction works because the occupation of their homes is likely to become intolerable by virtue of noise, dust, etc. Similar situations may also result from other public works.
These powers derive from section 28 of the Land Compensation Act 1973.
The authority in such circumstances has discretion to pay the reasonable expenses of the occupiers in providing suitable alternative accommodation for the household, normally in an hotel or similar accommodation, during part or all of the construction period. Such payments must flow from specific agreements between the occupier and the authority prior to the expenses being incurred and are restricted to the amount by which they exceed those that would have been incurred had the dwelling continued to be occupied.
These arrangements do not relieve contractors of their contractual liability to take every precaution to minimise construction nuisance. Failure to comply could result in claims from occupiers of affected dwellings.
Responsible authorities may alternatively install insulation against construction noise or where appropriate purchase ‘seriously affected’ property under sections 26(2)(a), 26(2)(b) and 26(2A) LCA 1973 or sections 246(2)(a), 246(2)(b) and 246(2A) HA 1980 in highways cases.