Land Compensation Manual Section 4: Disturbance

Practice note 4/1: Heads of Claim for Disturbance

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

General

1. Introduction

Disturbance is part of the global sum of compensation payable to a claimant dispossessed as a result of compulsory acquisition. Claims, particularly those in respect of commercial premises, are often extensive, complicated and with ingredients of an imprecise nature. Where there is genuine doubt, the benefit should be given to the claimant and valuers should not lose sight of the advantages of an all‑in settlement without prejudice to individual items when the result is manifestly equitable in the circumstances.

This Practice Note endeavours to cover some of the more unusual or difficult heads of claim that might be encountered in disturbance claims. However, valuers should always be prepared to give consideration to novel items of claim so long as they represent a reasonable, natural and direct consequence of the claimant’s dispossession and so long as they are not too remote. Any case where the valuer were uncertain as to the admissibility of a particular head of claim should be referred to the PS Professional Guidance Team.

Claims for reimbursement of tax liability on compensation

2.1 General

Claims may be received from claimants for the reimbursement of Capital Gains Tax (CGT) paid on the compensation on the principle of equivalence in that the compensation net of CGT would not enable them to acquire a similar replacement property.

2.2 Previous position

In Harris v Welsh Development Agency [1999] 3 EGLR 207 the Lands Tribunal held that compensation to reflect the incidence of taxation on the compensation did not fall under the head of ‘disturbance’ and that compensation could be awarded, if at all, only under the second limb of Rule (6). This states that ‘The provisions of Rule (2) shall not affect the assessment of compensation for (disturbance or) any other matter not directly based on the value of land’. However, the Lands Tribunal held that the liability for tax was a matter directly based on the value of land and therefore did not fall under the second limb of Rule (6). There was therefore no provision in the compensation code for the payment of such compensation.

Notwithstanding that, the Tribunal also held that the incidence of taxation on the compensation was not a natural, direct or reasonable consequence of the acquisition but of the claimant’s own position in relation to the property and was too remote to form a subject for compensation.

The effect of the compulsory acquisition was to bring forward a contingent liability that would have been incurred by the claimant at some future indeterminate date, not to impose a fresh liability. It could be argued that the reimbursement of the claimant’s tax liability on the compensation would place him in a better position than he would otherwise have been by relieving him of a future tax liability on income or capital gains. This would thus breach the principle of equivalence.

2.3 Current position

The Upper Tribunal (Lands Chamber) has now handed down a decision that overturns the decision in Harris v Welsh Development Agency [1999] 3 EGLR 207.

The case of Bishopsgate Parking (No 2) Limited v The Welsh Ministers [2012] UKUT 22 (LC) concerned the compulsory acquisition of three multi–storey car parks in Cardiff. There were a number of issues to be determined in the case, one of which concerned the reimbursement of the CGT (claimed at over £15 million) that the claimants would suffer from the acquisition.

The Tribunal (the President and N J Rose FRICS) determined that:

  1. the words ‘any other matter not directly based on the value of land’ within Rule (6) were designed to avoid any potential overlap with the open market value basis of Rule (2) and should not be interpreted as imposing a more restrictive limitation than for disturbance compensation generally;
  2. the imposition of CGT at an earlier date than would otherwise have occurred was a direct consequence of the acquisition and the claim would not fail on that ground. However, the Tribunal thought that in practice it would be impossible for a claimant to claim that he would never have incurred CGT and that any claim would have to be based on postponement rather than elimination of the tax liability;
  3. the claim was not too remote merely because its calculation was subject to uncertainty; for example, a claim for future loss of profits has to be assessed on certain assumptions that might turn out to be incorrect but that does not mean that it is too remote as a subject for compensation;
  4. ‘roll over relief’ was relevant to whether the claimant had attempted to mitigate his loss; if a claimant unreasonably fails to take advantage of such relief he might be deemed to have failed to mitigate his loss and thus lose entitlement to compensation under that head.

The above matters were determined by the Tribunal as a preliminary issue of law. It is therefore possible that CGT suffered by a claimant on a compulsory acquisition could comprise a head of claim depending on the particular circumstances of the case. It is recommended that any claim for reimbursement of CGT or other tax suffered as the result of a compulsory acquisition should be referred to the PS Professional Guidance Team before liability is admitted.

For the same considerations an accountant’s fee in dealing with the claimant’s tax affairs relating to the compulsory purchase might be allowable as a head of claim.

2.4 Roll over relief

General

Roll over relief, whereby a taxpayer avoids the immediate imposition of a tax charge on the disposal of a particular form of asset by reinvesting the proceeds of sale in the same type of asset, can be used by a claimant to minimize the tax liability subsequent upon a compulsory acquisition. Following the Harris and Bishopsgate cases referred to above, a claimant would be expected to take advantage of any such taxation relief that was available in order to comply with his duty to mitigate his loss.

Apart from the specific roll over reliefs available for disposals (whether compulsory or not) for eg business assets or farmland, there is a specific statutory relief for assets disposed of by compulsory purchase. These need not comprise business assets or farmland, and the relief would apply to any type of land that would otherwise be subject to CGT.

Statutory provision

Section 247 of the Taxation of Capital Gains Act 1992 (TCGA 1992) provides that where land is disposed of by any person on or after 6 April 1982, to an authority exercising or having compulsory powers, relief may be claimed where further land, not being excluded land, is acquired. The acquisition could be by agreement so long as there were compulsory powers in the background. The relief could also apply to a freeholder whose freehold interest had been acquired by leaseholders under the Leasehold Reform Acts. The relief is modelled closely on the roll-over relief for replacement of business assets.

The relief may be claimed where there is: 1. a disposal of land (referred to as the “old” land), 2. to an authority exercising or having compulsory powers, 3. by any person (referred to as the “landowner”) including an individual, trustee or company.

The landowner must not have taken any step to make known his willingness to dispose of the old land to the authority or others by advertising or otherwise. The consideration for the disposal of the old land may include “severance” compensation. The landowner must apply the whole or part of the consideration for the disposal of the old land in acquiring other land (referred to as the `new’ land). There is no requirement that the old or the new land is used for any particular purpose such as a trade.

The ‘new’ land may comprise any land including buildings on the land, any interests in or rights over land. New land does not include the cost of buildings, or additions to buildings on land that is already owned. However, there is an exception in that a claimant who reinvests in property that is, or that becomes within six years, his only or main residence cannot benefit from a claim for roll-over relief under Section 247.

Time limits

The new asset must be acquired, or an unconditional contract for the acquisition must be entered into in the period beginning 12 months before or ending three years after the date of disposal of the old asset.

These periods may be extended at the discretion of the Commissioners for Revenue and Customs.

Date of disposal

The date of disposal for the assessment of Capital Gains Tax is the date on which the amount of compensation is agreed or determined by a Tribunal (and the disposal date remains the same even if this amount is varied on appeal).

2.5 Additional tax liability

Although a claimant might not seek reimbursement of the whole of the tax liability on the compensation it is sometimes contended that the claimant has suffered a loss because he has been obliged to pay a greater amount of tax than would have been payable if the acquisition had not taken place at that particular time.

Such claims usually relate to the loss of a taxation relief (eg stock relief) or changes in the basis of tax. Hobbs (Quarries) Ltd v Somerset CC [1975] 1 EGLR 189 and Golightly and Sons Ltd v Durham CC (1981) 260 EG 1045 are examples of the latter.

Any such claim would now require to be examined in the light of the Bishopsgate case (above) and the roll over relief from CGT afforded by HMRC (see above). Valuers should refer any such claim to the PS Professional Guidance Team before conceding liability under that head.

Disturbance compensation for owners not in occupation

3.1 General

Traditionally claimants not in occupation of property acquired under a CPO were not entitled to claim reimbursement of consequential losses on the basis that their occupation had not been ‘disturbed’. Also reimbursement of such costs had previously been denied to claimants not in occupation following Denning LJ’s decision in Harvey v Crawley Development Corporation [1957] 1 QB 485 that they would be too remote a subject for compensation.

However, section 10A Land Compensation Act 1961 (inserted by Schedule 15 Paragraph 2 of the Planning and Compensation Act of 1991) now provides a right to compensation, for owners not in occupation of land, for the incidental charges or expenses in acquiring, within the period of one year beginning with the date of entry, an interest in other land in the United Kingdom.

3.2 Admissibility of Particular Items

In the case of Tabarak Sadiq v Stoke-on-Trent City Council (2008) LCA/316/2008 concerning the assessment of compensation for the acquisition of a residential investment property the President of the Lands Tribunal determined that

  • the mortgage arrangement fee on the purchase of the replacement property
  • the survey fees incurred on the purchase of the replacement property and
  • the legal fees incurred on the purchase of the replacement property

fell within section 10A and were reimbursable but only to the extent that the replacement property (or the mortgage thereon) was comparable in value or amount to the property acquired.

The Tribunal also determined that

  • removal expenses incurred in moving items of furniture
  • the reconnection of various appliances at the replacement property and
  • the provision of gas and electrical certificates for the replacement property

were not admissible expenses, being expenses incidental not to the acquisition of the replacement property but to its fitting out.

In addition the Tribunal held that

  • the early redemption penalty on the mortgage of the property acquired and
  • the loss in situ on the value of the fitted carpets and curtains and
  • the disconnection of various appliances at the property acquired

whilst not falling within section 10A, were a direct and unavoidable consequence of the compulsory acquisition and were not too remote and should be reimbursed under section 5(6) LCA 1961 on the basis of the principle of equivalence.

Compensation for Future Maintenance Liabilities of Accommodation Works

4.1 General

Where accommodation works are provided by an acquiring authority, their future maintenance usually (other than in motorway and railway cases) falls on the claimant from whom land has been acquired. The assessment of compensation to reflect this maintenance liability has been the subject of a number of Lands Tribunal cases over the years.

Claimants sometimes demand payment of commuted sums to compensate for the liability for future maintenance and replacement costs of accommodation works and these can be based on the net present value of the estimated future costs or on the necessary capital sums required to be invested to provide a sinking fund for these costs. Their submitted calculations often sometimes also reflect future inflation in costs and the tax status of the claimant.

4.2 Lands Tribunal Guidance

In Cuthbert v Secretary of State for the Environment [1980] RVR 40, the claimant submitted a ten page calculation to demonstrate that the capitalized future maintenance cost of post and rail fencing (erected as accommodation works) was £418,263 although the claim was for £225,652 being the cost of erecting stone walls to replace the fencing provided by the acquiring authority. The District Valuer made an overall assessment of injurious affection of £25/acre over 500 acres giving £12,500.

The Lands Tribunal derived no assistance from the claimant’s calculations and said, inter alia, that it did not need to assume any particular rate of inflation and that it was not appropriate to use tax adjusted tables when capitalising the estimated cost of future maintenance. It also stated that it thought that a purchaser of the estate would treat the fencing responsibility as a routine outgoing to be met year by year out of estate income. The Tribunal adopted the District Valuer’s approach but increased the amount of injurious affection to £50/acre giving £25,000.

In Wilson v Minister of Transport [1980] 1 EGLR 162 the claimant assessed both the future maintenance liabilities for fencing and the increased cost of running the farm by reference to the increased man hours required over a twenty year period. The District Valuer assessed the compensation by reference to lump sums or percentages of value for various parts of the estate. The Tribunal thought that a purchaser, possibly having made some calculations under the different parts of the claim, would make an overall assessment in deciding by how much he would reduce his bid for the land and would have to consider what other competitive purchasers might bid. The Tribunal awarded £7,000 for injurious affection (but provided no breakdown of this figure) against the claimant’s £21,863 and the District Valuer’s £2,441.

In McLaren’s Discretionary Trustee v Secretary of State for Scotland [1987] RVR 159 the claimant assessed the compensation by calculating the capital sum that would need to be invested in index-linked Government stock to pay for the future maintenance and renewal of various accommodation works including fencing, roads, revetments and gates. The required sum was calculated at £147,242. The District Valuer assessed the total diminution in value due to injurious affection (including future maintenance liabilities) by reference to the prime cost of each item of accommodation works which totalled £33,890.

The Tribunal determined that calculations relating to the costs of future maintenance and renewal of accommodation works could be relevant but since the claim comprised injurious affection and not disturbance it rejected the claim based on an inflation-proofed sinking fund. Inflation had no place in the assessment of compensation for injurious affection. The Tribunal stated that it would in the present case be unfair to assess the compensation for injurious affection by reference to the diminution in value of the estate (which covered 10,000 acres and contained a valuable grouse moor) as a whole since this would be simply guesswork. The Tribunal therefore preferred a method that involved a build-up of various items of injurious affection on a ‘before and after’ valuation. The Tribunal ultimately adopted the District Valuer’s approach and, with some adjustments, arrived at £38,100.

4.3 Commuted sums under section 106 Town and Country Planning Act 1990

Claimants sometimes try to justify the level of commuted sums claimed for the future maintenance and replacement costs of accommodation works by reference to the amounts demanded by local authorities for the future maintenance of community infrastructure provided by developers to satisfy their planning obligations under section 106 Town and Country Planning Act 1990.

The sums set by local authorities represent the sinking funds necessary to provide for the costs of future maintenance at given rates of interest and are not comparable to compensation for compulsory purchase. CPO compensation is assessed under a particular legal framework and the future maintenance costs of accommodation works represent injurious affection to the claimant’s retained land. It would therefore be contrary to the compensation code to adopt sums prescribed for the purposes of planning obligations as the basis for assessing compensation for injurious affection.

4.4 Summary

Compensation for the liability of a claimant for the future maintenance of accommodation works comprises injurious affection and not disturbance.

A simple ‘before and after’ approach to the assessment of such compensation in relation to a large agricultural estate would probably not on its own be sufficient due to the lack of any open market comparable evidence of the ‘after’ value and the Tribunal prefers a method that involves a build-up of various items of injurious affection.

A detailed calculation of the net present value of the estimated future maintenance and renewal costs or of the necessary capital sums required to be invested to provide a sinking fund for these costs is not usually relied upon by the Tribunal. Allowances for inflation in such calculations are not appropriate because the compensation comprises injurious affection, i.e. a loss in the open market value of land, where inflation has no place. Also the use of valuation tables with adjustments for tax is not appropriate in such calculations.

Whilst a purchaser of the claimant’s retained land ‘post scheme’ might have regard to calculations concerning the likely future maintenance and renewal costs of the accommodation works, in the end he would make an overall assessment in deciding by how much he would reduce his bid for the land bearing in mind that there could be competitive bidders in the market who might take a more robust approach to the assessment of the reduction in value of the holding due to the scheme.

Negative Equity and Compulsory Purchase

5.1 General

Problems periodically arise with the acquisition of property that is subject to ‘negative equity’ (ie where the mortgage debt outstanding on the property exceeds its open market value). This means that the claimant is left after the acquisition with a personal debt outstanding to the building society or other mortgagee and is unable to acquire a replacement property because that would require the grant of a mortgage exceeding 100% of the property value. This situation generally arises from the ‘booms and slumps’ of the residential housing market. It has not been regarded as a significant problem and various schemes have been mooted to resolve it; eg the acquiring authority could agree to guarantee the claimant’s excess mortgage on a replacement property.

5.2 The ‘Kerr’ Case

In Kerr v Northern Ireland Housing Executive [2013] RVR 137 (following a significant slump in house prices in Northern Ireland) the claimant sought compensation for the shortfall between the outstanding mortgage and the current value of the property being acquired. The mortgage outstanding at the date of acquisition was £45,000 more than the value of the house.

The Lands Tribunal for Northern Ireland was required to determine:

  • could the claimant’s loss and liability to his mortgagee be claimed as ‘disturbance’ and
  • did the European Convention on Human Rights provide the claimant with a right to compensation?

The Tribunal determined that the claimant’s loss was based directly on the value of the land and could not therefore be compensated as ‘disturbance’. Also the loss to the claimant (the reduction in the value of the property below the amount of the mortgage) had occurred well before the date of acquisition. The fixed valuation date for the assessment of compensation meant that the property must be valued reflecting the lower values obtaining at that date.

The Tribunal also determined that the compensation awarded did not contravene the European Convention on Human Rights. The claimant’s deprivation of the peaceful enjoyment and loss of his property were necessary in the public interest and the compensation awarded was proportional to his loss.

This case confirmed the previous decision of the Lands Tribunal for Northern Ireland in O’Neill v Northern Ireland Housing Executive [2011] RVR 164.

Costs Incurred in Securing Alternative Accommodation

6.1 General

The costs of a dispossessed owner occupier are reimbursable but would be subject to the same criteria as any other disturbance item.

6.2 Costs that may be reimbursed

The following costs incurred in securing the replacement accommodation may be reimbursed provided the valuer is satisfied that they are reasonable in amount, have been reasonably incurred, and to the extent that the replacement accommodation is accepted as a reasonable substitute:

  • legal costs and stamp duty
  • the cost of a structural survey
  • a valuation or negotiation fee
  • travelling expenses.

The decision of what would be reasonable substitute accommodation must be judged in all the circumstances. The property should normally be of a similar value to, with similar accommodation to, and in the general location of, the property acquired. If the claimant chose a replacement property that was significantly more expensive than that acquired, the costs should be reimbursed only up to a level representing the value of the property acquired. Similarly, travelling expenses in relation to a replacement property a long distance from that acquired would be restricted to the expenses that would have been incurred if the claimant had purchased a replacement property in the general location of that acquired.

The valuer must use discretion in judging what is reasonable. For example, a claimant might not be able to find a replacement for a large manor house in the immediate location of the property acquired and might have to look further afield eg in the next county, in order to find a reasonable replacement. In such a case the valuer might decide to reimburse travelling expenses relating to a greater distance than normal. Similarly, a claimant living in an area of urban regeneration might have difficulty in finding a directly comparable property and might have no alternative but to acquire a higher value replacement property in a neighbouring area. In such a case the valuer might decide to recommend reimbursement in full of the mortgage/survey/legal costs etc relating to the higher value replacement property.

However, in Succamore v London Borough of Newham [1978] 1 EGLR 161 the LT accepted that it was not necessary for the claimant to buy a replacement dwelling 31 miles away, but was not persuaded that the costs incurred were not the reasonable consequence of dispossession and allowed the removal expenses.

6.3 Alternative Properties found unacceptable

Claims for the cost of finding and surveying properties rejected by the claimant as unsuitable may be admitted where the valuer is satisfied that the expenses are reasonable in amount and the claimant acted reasonably in considering and rejecting such alternative properties, thereby incurring the expenditure claimed.

6.4 Costs incurred in adapting fixtures, fittings and furnishings

Costs incurred in adapting fixtures, fittings and furnishings for use at the replacement premises can normally be admitted providing they satisfy the usual tests for items of disturbance and the valuer is satisfied that the amount incurred is reasonable. It may happen that it is not possible to adapt items for use in the new property (eg where curtains or carpets cannot be satisfactorily adapted) and claims are often submitted based on the cost of acquiring new replacements.

The presumption is that the cost of the new items represent value for money and the compensation should be limited to the difference between the value to the owner of the old items and the net amount realisable on forced sale.

However, in recent times the Tribunal has taken a more robust approach and awarded the (unadjusted) cost of new carpets, curtains etc where the old ones cannot be adapted. See Practice Note 4/2 for further details.

Claimant’s own time

7.1 General

A claimant may spend time on the following:

  • considering the scheme and its effects upon the claimant’s property and business
  • the preparation, negotiation and settlement of a claim
  • in trade disturbance cases, additional work to maintain the former level of profit

The employment of a professional surveyor or other agent by the claimant would not necessarily negate a claim for ‘claimant’s own time’. The business of the claimant may be highly specialized and the claimant may need to spend considerable time in explaining the workings of the business and the effect of the scheme upon it to the agent.

7.2 General principles

Claims for compensation for claimants’ own time spent in dealing with a compulsory acquisition are often a disputed head of claim. The amounts claimed can be excessive, with no detailed recording of the time spent and the activities undertaken. The Upper Tribunal has significantly reduced the amounts claimed in the absence of cogent evidence.

Any claim for claimants’/directors’ own time must be carefully scrutinised, as with any other item of disturbance compensation. For example:

  1. the time spent must have mitigated the claimant’s loss or have been essential to the prosecution of the claim
  2. there must be documentary evidence (eg time sheets) to demonstrate that the amount of time and the activities undertaken were reasonable
  3. the claim must be consistent with the general principles for disturbance compensation

In Smith v Birmingham CC [1974] R&VR 511 for example, the amount for claimant’s own time was reduced by 50% to reflect the time that the claimant had spent on making improvements to the alternative premises because that time represented ‘value for money’ and was therefore not compensatable.

7.3 Historical review

In D B Thomas & Son Ltd v GLC [1982] RVR 122, a claim for directors’ own time was submitted by the claimant for the time expended in planning and effecting the company’s removal to alternative premises and for preparing the claim for compensation. Much of the time had been spent early in the morning and late at night and at weekends. The acquiring authority argued that this should be reflected in the compensation for temporary loss of profits. Whilst acknowledging that an approach using loss of profits was possible, the Tribunal awarded compensation for directors’ own time on the hourly basis claimed since the claimant would otherwise have had to pay an external contractor to arrange the removal and prepare the claim.

Conversely in Arrowsmith v S o S for Transport (1995) REF/200/1992 (unreported), the Tribunal determined that time spent by the claimant researching the market for alternative premises (by reading trade magazines, etc) was not reimbursable because this had probably taken place in his own time. It allowed the claim in respect of time taken in inspecting alternative premises on the basis that the claimant would have had to take time out from his normal business activities for this. The Tribunal thus reduced the claim for claimant’s own time from £8,810 to £1,000.

In Harris v Welsh Development Agency [2000] 40 RVR 49, the claimant sought £47,500 (950 hours at £50/hour) for his own time in dealing with the acquisition and relocation of his optician’s business. The Tribunal found that the hourly rate and the hours claimed were not supported by the evidence and accepted the acquiring authority’s figure of £8,300. This comprised just under 400 hours at £21/hour, a rate that was derived from an examination of the claimant’s accounts.

In Matthews v Secretary of State for the Environment [2002] 3 EGLR 168, the initial claim was for £82,635 based upon 1,836 hours at £45/hour. However, the Tribunal disregarded any time claimed for which there was no documentary evidence and awarded £15,250 comprising 532 hours at £28.65/hour, a rate again derived from an examination of the claimant’s accounts.

In a more recent case, TEB Travel Ltd v SoS for the Environment, Transport and the Regions [2010] UKUT 30 (LC), the Tribunal adopted a rationale opposite to that which had been used in the Arrowsmith case above. The Tribunal determined that any directors’ time spent during business hours on the removal to alternative premises would already be reflected in the claim for loss of profits but that time spent outside normal working hours should be reimbursed separately.

In Welford v Transport for London [2010] UKUT 99 (LC) the claimant had claimed £10,000 for ‘claimant’s own time’ being 100 hours at £100 per hour. The Tribunal though the hours claimed excessive since a significant proportion had related to visits to the property for security purposes after the claimant had surrendered the lease. However, the Tribunal awarded £2,500 being 50 hours at £50 per hour (the rate agreed by the acquiring authority).

7.4 Current position

In a recent decision Thomas Newall Ltd v Lancaster City Council [2013] EWCA Civ 802 the Court of Appeal (overturning the Upper Tribunal’s decision at first instance) determined that where a limited company was the claimant, even a family company where the interests of the directors were identical to those of the company, claimants’ own time must be assessed by reference to losses incurred by the (corporate) claimant itself.

The company submitted a claim for management time of 327.4 hours at £65/hour. The time had been spent by five directors of the company (all family members) on dealing with the consequences of the acquisition. The Upper Tribunal had accepted in the court below that, whilst there was no direct evidence in the company’s accounts that its profitability had been impaired by the amount of time that the directors had spent on dealing with the acquisition, its profitability would have been higher if the directors had not spent their time in that manner.

The Court of Appeal referred to various decided cases in particular Minister of Transport v Pettitt (1969) 20 P&CR 344 which concerned a claim for claimant’s own time for a one-man farm where the acquisition had very seriously disrupted the working of the farm and the claimant had needed to work extra hours in order to maintain the farm’s profitability.

In the present case, the Court held that there was no evidence linking the time devoted by the company’s directors on acquisition matters to any consequential loss suffered by the company. The Court upheld the acquiring authority’s appeal and declined to refer the case back to the Tribunal because there was no evidence on which the Tribunal could come to a revised decision.

7.5 Conclusion

The decision in the Thomas Newall case above suggests that claims for ‘claimant’s own time’ for individual claimants might be dealt with more sympathetically than those where the claimant is a limited company or other body corporate. However, in either case, it would be necessary for the claimant to prove to the Tribunal that it was necessary to spend the time claimed in order to maintain the profitability of the business. Alternatively, the loss to the business might be reflected in a loss of profits claim in which case a payment for claimant’s own time would represent double counting. Even where a claim for claimant’s own time is accepted the time spent and the nature of the activity must be clearly documented and must satisfy the usual rules for consequential losses in that they must be a direct, reasonable and natural consequence of the acquisition.

Mortgage costs

8.1 General

Mortgage costs may be reimbursed in the following circumstances:

  • where the owner has an outstanding mortgage on the property the subject of the compulsory acquisition and the outstanding amount of this mortgage is transferred to the new property or the owner raises a new mortgage for a similar amount
  • where the owner unavoidably incurs mortgage redemption costs
  • where the owner purchases a more expensive property and raises a mortgage to cover the additional price but the new property is regarded as a reasonable substitute for the old and the valuer is satisfied that the owner does not have funds available that could have been used for the purpose
  • where the more expensive property is not regarded as a reasonable substitute, but the case would have fallen to be dealt with under (a) if a property had been purchased at a similar price to that obtained for the old property, mortgage costs not exceeding what would have been payable under (a) may be reimbursed

In any case not falling within the above, reimbursement of mortgage costs would probably be rejected on the grounds of remoteness.

Where the owner/occupier of a dwelling house has to surrender a mortgage and obtain a new one for the purchase of another house at a higher rate of interest, the extra cost involved is admissible in principle for compensation. The valuer could properly negotiate the compensation in cases where it can be based on an amount equal to the outstanding debt on the house acquired and either the new house is similar in price to the old or, if more expensive, is a reasonable substitute. In quantifying the loss every effort should be made to ascertain the true net loss (eg to estimate for how long the old mortgage would have been available at the lower rate or the time for which a higher rate necessarily had to be paid for the new one). All other cases should be referred to the PS Professional Guidance Team with full details before any offer of compensation were made.

Bridging loss

9.1 Bridging loss

The presumption of value for money extends to interest on capital utilised in the erection of alternative premises. Interest so incurred does not therefore qualify for compensation. Where, however, an owner occupier incurs loss or expenditure by way of interest on invested or borrowed funds used in connection with the purchase, adaptation or preparation of alternative accommodation that is required as a direct consequence of the taking of the land for the scheme, such loss or expenditure may be reimbursed within the limits indicated below.

9.2 Period of reimbursement

The period in respect of which interest should be reimbursed commences as a general rule on the date the capital reasonably needs to be available, for example, in relation to a deposit (on the exchange of contracts) and in relation to the balance of the purchase money (when completion of the purchase takes place). When funds are reasonably used in connection with the preparation of replacement property for occupation, for example in the removal and installation of plant and machinery that will mitigate the losses, the same general rule should be applied with advance payments of compensation being made as the claimant incurs expenses.

The reimbursement of interest should be terminated as from the date and to the extent that:

  1. an advance payment on account of compensation covering the expenditure is made; or
  2. in cases where claimants know that they could, but did not, obtain an advance payment on account of compensation covering the expenditure, the earliest date that such payment could have been received; or
  3. interest on the compensation becomes payable under section 32 LCA 1961 (ie entry)

If the object for which the funds have been used, for example reinstating plant and machinery or providing a new building, has been achieved before the earlier of the events mentioned, the allowance for interest should cease at that time unless it can properly be justified on the grounds that there is a continuing loss of overlapping expense analogous for example to double rent.

Interest should not, as a general rule, be allowed on an amount greater than the value of the property being acquired and/or the capital sum expended on disturbance items that will rank for compensation. Exceptionally, where the alternative property, although more expensive, is accepted as a reasonable substitute, interest charges incurred on an amount up to the cost of the alternative property may be reimbursed.

9.3 Adjustment for tax on bridging loan interest

Tax relief on mortgage interest payments in relation to residential properties finally ceased in April 2000 so there would be no need to make an adjustment in the reimbursement of such interest on a bridging loan.

No adjustment should be made for tax relief in respect of business properties, since although the interest would normally be charged in the accounts of the business as an expense, or claimed as a deduction against the total profits, the Inspector of Taxes will disallow it on the grounds that the interest has not been effectively borne by the taxpayer.

The term ‘business’ should be taken to include any trade, manufacture, profession or vocation.

9.4 Commission

A claim for reimbursement of a commission charge made by a bank for arranging a bridging loan may be admitted provided the valuer is satisfied that the amount is reasonable. The valuer may ask the claimant to obtain written confirmation from the bank manager that notwithstanding the purpose for which the loan is needed the manager would require a commission charge at the level indicated.

9.5 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 instructions.

Costs of reinvestment

10.1 General

Costs of reinvestment of the purchase money, either in property outside the scope of section 10A LCA 1961 (see Paragraph 3.1 above), 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.

Mental Stress and Trauma caused by the acquisition or dispossession

11.1 General

It would appear that no claim could be made under the statutory compensation code for mental stress and trauma.

11.2 Decisions in land compensation claims

Cole v LB Southwark [1979] 2 EGLR 162 concerned a claim for disturbance relating to the acquisition of residential property. The claimant claimed £5,000 for anxiety and distress caused to his wife and himself by the compulsory acquisition and dispossession. The Tribunal rejected the claim without much explanation on the basis that it was not a ‘natural and reasonable consequence of the dispossession’.

In Thomas v Highways Agency (2008) ACQ/1/2007, the Tribunal said it did not have jurisdiction over a claim for £100,000 for ‘stress and inconvenience’.

Although neither decision gives much in the way of clear reasoning, they reveal two of the reasons why compensation cannot be granted by the Tribunal for stress or trauma. The first is that the loss is too remote. The second is that all land compensation is statutory and there is no basis for such matters in the statute. A third reason is one of public policy and a fourth is that such losses are not capable of quantification. These are considered in the following Paragraphs. To a large extent they are interrelated and overlap.

11.3 Remoteness

The concept of remoteness in disturbance case was referred to at some length by Lord Nicholls in Director of Buildings and Lands v Shun Fung ironworks Ltd [1995] 1 EGLR 10:

“The adverse consequences to a claimant whose land is taken may extend outwards and onwards a very long way, but fairness does not require that the acquiring authority shall be responsible ad infinitum. There is a need to distinguish between adverse consequences which trigger a claim for compensation and those which do not. A similar problem exists with claims for damages in other fields. The law describes losses which are irrecoverable for this reason as too remote. In Harvey v. Crawley Development Corporation [1957] 1 Q.B. 485, Denning LJ gave the example of the acquisition of a house which is owner-occupied. The owner could recover the cost of buying another house as his home, but not the cost of buying a replacement house as an investment. The latter would be too remote.

The familiar and perennial difficulty lies in attempting to formulate clear practical guidance on the criteria by which remoteness is to be judged in the infinitely different sets of circumstances which arise. The overriding principle of fairness is comprehensive, but it suffers from the drawback of being imprecise, even vague, in practical terms. The tools used by lawyers are concepts of chains of causation and intervening events and the like. Reasonably foreseeable, not unlikely, probable, natural are among the descriptions which are or have been used in particular contexts. Even the much maligned epithet ‘direct’ may still have its uses as a limiting factor in some situations”.

Whilst the costs of removal or conveyancing costs are the natural and reasonable consequences of the compulsory purchase of a person’s house, mental distress or trauma are not. They are dependent on the personality and susceptibility of the claimant. Since such matters could not trigger a claim for compensation in themselves, they must be considered too remote

11.4 Jurisdiction

Linked to this is the statutory nature of compensation for land acquired by compulsory purchase. It is not permissible for the Tribunal to determine compensation unless it is envisaged by statute. Mental distress can’t be a part of the value of land so any claim must fall within Rule (6). A claim under Rule (6) can only relate to any pecuniary losses incurred as a result of the claimant’s being displaced from the land. So, for example in Harry Lester Ltd v Southwark LBC [1999] 3 EGLR 179, the Tribunal determined that it had no power to make an award, similar to special damages, for inconvenience, distress and aggravation due to the acquiring authority’s failure to proceed within a reasonable time. The Tribunal said:

“I do not know whether there are any special reasons why the council failed to act with greater speed in acquiring the claimant’s leasehold interest, but the history of the acquisition in this reference is a sorry tale of delay. The compulsory purchase order was confirmed in August 1977, notice to treat was served on 24 February 1978, two notices of entry were served in November 1982 and September 1983 respectively but the council did not take possession of the subject property for another six years. The taking of the land was not the end of the delay. It then took 6.25 years for the disputed compensation to be referred to this tribunal and a further 2.75 years before the case could be heard. However, although there was considerable delay between notice to treat and possession, this is not in itself a source of compensation nor can it be used to support a claim for loss due to any blight caused by this delay (see Emslie). The claimant must prove a causal connection between dispossession and loss; mere delay is not per se a sufficient source of compensation. This Tribunal can only award compensation for actual loss and has no power to make an award, similar to special damages, for inconvenience, distress and aggravation due to the council’s failure to proceed within a reasonable time.”

11.5 Public policy

Compulsory purchase, by its nature, is a stressful and uncertain process. If a claim could be made by anyone who was distressed by the prospect or the implementation of compulsory purchase, public projects would be significantly more costly to achieve.

Whilst the purpose and intention of compensation for the compulsory acquisition of land is to put the landowner in the same position financially as if no compulsory acquisition had taken place (under the principle of equivalence as enunciated by Scott LJ in Horn v Sunderland Corporation [1941] 2KB 26), it became apparent that compensation assessed under the existing statutory compensation code did not always achieve this.

Home Loss Payments and Basic and Occupiers Loss Payments were therefore introduced by the Land Compensation Act 1973 (as amended) in order to reflect the personal inconvenience and distress suffered by claimants as a consequence of their being dispossessed.

11.6 Quantification

It is rarely possible for matters such as distress to be quantified in monetary terms.

Mental distress is not by itself sufficient damage to ground an action. In Behrens v Bertram Mills Circus Ltd 1 All ER 583 Devlin J stated “The general principle embedded in the common law is that mental suffering caused by grief, fear, anguish and the like is not assessable.”

In Rothwell v Chemical & Insulating Co Ltd [2007] 4 All ER 1047 the House of Lords held that in the case of pleural plaques resulting from exposure to asbestos not constituting physical injury so as to found a cause of action, the mental anxiety over future disease, even when aggregated with physiological change and risk, could not give rise to a legal claim.

There are exceptions for statutory torts, notably racial and sex discrimination in employment law but not in land compensation.

Trade disturbance

12.1 General

An acquiring authority does not acquire a business as they acquire land, but simply compensates claimants for their business loss as a consequence of the acquisition of their interest in land. The acquisition of an interest may put a claimant entirely out of business, destroy some part of it or cause a temporary disruption of the business. What has to be measured is the claimant’s loss, and within the principle that the claimant should take all reasonable steps to mitigate loss, the loss cannot normally exceed the compensation that would have been payable if the business were completely extinguished.

Exceptionally if a claimant, having proper regard to the duty to mitigate loss, undertakes to move but is overtaken by events that result in compensation greater than the original total loss, then the total loss suffered may well be payable. Where the claimant is aged 60 or over, compensation of the basis of total extinguishment of the business may be payable under the provisions of section 46 LCA 1973.

12.2 Total extinguishment

i) Valuation of goodwill

The compensation payable for total loss of goodwill, being the value to owner, cannot be less than but, on the other hand, may exceed the open market value of the goodwill. In the words of the Lands Tribunal in the case of R G Handley Ltd v Greenwich LBC (1970) 21 P&CR 644:

“….. the Tribunal has explained more than once (for instance in Remnant v LCC (1952) and in Shulman v GLC (1965)) compensation for disturbance is not restricted by Rule (2) (value if sold by a willing vendor in the open market). In respect of goodwill extinguished on compulsory acquisition it may well happen (especially where a business has been established for a number of years and has been running at a recognisable level of profitability) that the value of the business to the dispossessed owner may be measurable by the amount at which the goodwill would have been saleable in the market on the basis of proved profitability but this is a coincidental effect only and the test must always be that of ‘value to the claimant’ not that of ‘value in the market’ ….. having rejected the opinion of evidence of Mr Webber (for the acquiring authority) as to what the market would have paid I turn to consider what the claimant himself as a notional bidder in the market might reasonably have been expected to offer ……

In Reed Employment Ltd v London Transport Executive [1978] 1 EGLR 166 the Lands Tribunal considered that compensation for goodwill should be:

“the value to the claimants of the loss of their ability to derive a future profit from the premises.”

The traditional method of assessing the value of a business being extinguished on compulsory acquisition is to apply a selected years’ purchase to the adjusted net profits (without deduction of tax). Great care must be taken in deciding on the years’ purchase to be adopted. Whilst its previous decisions should not be ignored the Tribunal has explicitly rejected the concept of precedent in value matters and decides each case on the facts and evidence adduced.

Accounts for a sufficient period of years (normally three years will suffice) should be seen to establish a clear picture of the business. The following cases illustrate the need to identify from the accounts supplied the figures which go to establishing the true loss of the claimant. Taking an average does not necessarily produce the right answer:

Rising profits: Zarraga v Newcastle CBC (1968) 19 P&CR 609

Loss making: Shulman (Tailors) Ltd v GLC (1965) 17 P&CR 244

Accounts not portraying true state of affairs: Bostock Chater Ltd v Chelmsford BC (1973) 26 P&CR 321

Disregard of fall in trade due to scheme: Reed v Lowestoft BC [1973] RVR 307

ii) Factors affecting YP

In assessing the market value of the business the following factors are relevant:

  • (a) the type of business involved
  • (b) the length of time it has existed
  • (c) the location of the business
  • (d) the trend and prospects of the business
  • (e) the reliability of the evidence of profitability.

Generally, greater security will serve to increase market value and the YP to be adopted. Conversely, if the business has been operating for a short period, is poorly located or only one year’s accounts are available the appropriate years purchase will be less. In assessing the value of the goodwill to the claimant the YP adopted by the general market will probably have to be increased. Valuers should have regard to the personal circumstances of the claimant including the claimant’s age and health and the degree of difficulty that would be experienced establishing a similar business elsewhere (Afzal v Rochdale MB [1980] 1 EGLR 157).

iii) The robust approach

Since the case of W Clibbett v Avon CC [1975 ] 16 RVR 131 the Lands Tribunal has sometimes adopted a ‘robust approach’ to the assessment of compensation for the loss of goodwill. Setting aside the traditional approach (YP x adjusted net profits) because of insufficient evidence to determine on appropriate YP, Sir Douglas Frank in Clibbett adopted an approach used by the courts in assessing general damages and awarded a sum which, in his judgement, was reasonable in the circumstances.

A robust approach in evidence would not be helpful to the Tribunal and an offer of compensation should be built up in detail. Reliance may be placed upon other agreements made by the valuer, or upon the evidenced market value of the goodwill adjusted to establish the ‘value to the claimant’. In most cases this will be done by making an addition to the YP adopted to determine the market value of the goodwill, the addition depending upon the circumstances of the case. In the case of personal goodwill without market value, it will be necessary to look closely at all the circumstances. Such cases certainly warrant use of the robust approach (Roy v Westminster City Council (1975) 31 P&CR 458 but valuers should refer full details of any difficult case to the PS Professional Guidance Team.

iv) New methods of assessing compensation for trade disturbance

Practice Note 4/3 deals with more recent methods that have been adopted for the assessment of compensation for trade disturbance.

12.3 Small businesses

i) General

Small businesses are sometimes sold in the market on the basis of the capitalisation of gross takings without deduction for the proprietor’s personal services even though if such a deduction were made the business would not show a profit. Thus, if suitable alternative premises were not available, and there were evidence in the market, it would be a realistic starting point by which to assess the compensation for extinguishment of such a business.

ii) Medical practices

Where a doctor has contracted with the National Health Service to provide general medical services section 259 of, and Schedule 21 to, the National Health Service Act 2006 prohibits the sale of the goodwill of the doctor’s practice or any part of it. However, although it is unlawful for medical practitioners to sell their goodwill it does not preclude payment of compensation for loss of goodwill because it is not necessary to assume a notional sale in assessing the loss. In the case of Roy v Westminster City Council (1975) 31 P&CR 458 the Lands Tribunal held that the inability of a doctor to sell goodwill does not necessarily imply that the goodwill is of no value to them.

12.4 Adjustment of accounts

The objective is to establish the real loss of the claimant and accounts which have been drawn up to meet different requirements (eg taxation) rarely meet this objective without adjustment. The process involves stripping out that which is not relevant, adjusting entries that are not reasonable, and introducing omitted items.

Some items usually requiring consideration are:

i) Rent

If the claimant is a freeholder or a tenant sitting at a profit rent an adjustment to the profits is usually required to reflect the true rental value (ie rent passing and profit rent in cases of rented property; estimated rack rental in owner/occupier cases) of the premises to avoid duplication with the Rule (2) figure.

ii) Interest on capital

Capital will be employed in a business eg that tied up in the fixtures, fittings, plant and machinery and stock, together with the liquid capital (cash in hand or cash at bank) necessary to finance the business between purchasing supplies and earning a profit. The proprietor of the business must provide this capital in addition to any invested in the goodwill and a deduction should be made from the net profit for interest on capital employed in this way. Whilst the accounts of the business will normally give a guide these may be misleading and the aim should be to attempt to arrive at a figure which is a realistic assessment of the capital required to run the business.

The rate of interest adopted has varied over the years having regard to the general level of interest rates charged by lenders. The question of the appropriate interest rate to adopt can be looked at in three ways:

  • a) the ‘foregone’ interest that could have been obtained by investing the capital elsewhere with comparable risk;
  • b) the interest that would have to be incurred to borrow the necessary capital; and
  • c) the rate reflected in the assets employed by the business (eg property) having regard to the relative security offered.

The rate of interest to be adopted therefore is a matter of judgment having regard to all these considerations in the circumstances of the particular case and in the light of the current financial climate.

iii) Proprietor’s remuneration/director’s fees

In the case of a company the costs of running the business including director’s fees would normally be included in the accounts and reduce the net profit but in the case of a business run by an individual there is often nothing shown in the accounts for proprietor’s remuneration although the profits may be wholly or mainly due to the work put in by that person. Where appropriate therefore a deduction should be made from the net profit for proprietor’s remuneration. However the Tribunal has in a number of cases when dealing with ‘one‑man’ or very small businesses made no deduction from profit for work done by the owner on behalf of the business. This practice which might now be regarded as having been accepted by the Tribunal derived from decisions in early cases that the market did not in practice make a deduction when valuing such businesses but in later cases greater prominence was given to the ‘value to owner’ principle.

In the case of somewhat larger but still privately owned businesses the treatment of the payments needs investigation. The amounts taken out of the business by directors are variously described as salary, emoluments, fees, etc. The question arising is how much the contribution of the directors to the earnings of the profits is properly represented by the amount shown in the accounts? This might be answered by having regard to the wages that might otherwise have to be paid to a manager and other employees if the director took no part in the business. Cases that touch on this subject are:

Matthews v Bristol Corporation (1954) 4 P&CR 401

Perezic v Bristol Corporation (1955) 5 P&CR 237

Drake & Underwood v LCC (1960) 11 P&CR 427

Neilsen v Camden LBC (1968) 19 P&CR 801

iv) Headquarters’ expenses

The position often arises where the business being acquired is the branch of a multiple business and the accounts merely show the receipts and expenditure attributable to that branch. In such a case an adjustment normally needs to be made to cover the administration expenses, including directors’ fees, incurred at Head Office and attributable to the running of the branch. Cases that touch on this subject are:

Freeman Hardy & Willis v Bradford Corporation (1967) 203 EG 1099

Cliffords (Dover) Ltd v Dover Corporation (1965) 195 EG 821

Reed Employment Ltd v London Transport Executive [1978] 1 EGLR 166

12.5 Inflation and price control

Care must be taken in interpreting accounts to ensure that proper regard is had to inflation, particularly when the rate of inflation is high. Thus for example, if a business is being extinguished it is quite possible that final accounts are not available for, say, the last 12 months’ trading and it may be necessary to adjust the book accounts of the previous year’s profits to strike a fair average in terms of constant price levels at the valuation date. The possibility of future inflation increasing the level of profit is a matter to be taken into account in determining an appropriate years’ purchase, as will the probability of the profit rate keeping pace with inflation. As a general rule one would perhaps expect to apply a higher years’ purchase where the profit rate was likely to keep pace with inflation than where the probability is that the profit level will lag behind inflation.

12.6 Loss on forced sale

When a business is closed down and, possibly to a lesser extent, when it is moved, there may be several items of plant and machinery, stock etc that have to be sold and it may be that the price realised will be less than the value to the owner or going concern value. In these circumstances there is a prima facie claim for compensation.

In deciding the going concern value of any item the aim should be to arrive at the figure that anyone taking over the business as a going concern would pay for the item in situ. Valuers are reminded that the services of a plant and machinery valuer are available from BAMS by completion of the pro forma that can be found on the BAMS intranet homepage.

12.7 Removal of business

The same rules regarding ‘Harvey costs’ apply to the securing of alternative business premises as to the securing of residential accommodation. However, a shopkeeper or small businessman who occupies premises at a low rent may not find it possible to relocate the business other than in premises of different tenure or increased value. Where increased rent or other overheads are payable by the claimant any loss should be measured by having regard to any temporary or permanent loss in profits of the business after removal to the replacement premises. Any case where a claimant claims a difference in price or rent of alternative premises as a direct head of claim should be referred to the PS Professional Guidance Team.

Particular problems that are peculiar to the removal of a business include:

i) Double overheads

In order to maintain a business and thereby mitigate loss it will often be necessary for a claimant to incur, for a temporary period, overheads at both the old and new premises. The sort of expense that might be incurred includes rent, mortgage interest, rates, heating, cleaning, lighting, telephone additional wages etc.

No hard and fast rules can be laid down for dealing with this head of claim but it is suggested that the problem might be looked at in at least two ways, viz:

  • a) the claim for double-overheads should be in respect of the substantially non‑beneficial premises ie for the new premises until their substantial occupation is completed and for the old premises thereafter;
  • b) by looking at the total amount of the expenditure on the various items at both sets of premises and deducting therefrom what might reasonably have been expected to be the amount spent on these items if trading had continued undisturbed in the old premises.

ii) Temporary loss of profits

The removal of a business may result in a temporary loss of profit for reasons other than the expenditure on double-overheads and without, or in addition to, any loss of goodwill. For example, production might be interrupted in the removal period or fall due to the need to train new staff; the claimant may be unable to fulfil contracts in hand or customers may temporarily go elsewhere due to an inability to promise delivery. This type of claim is perhaps the most difficult to quantify and there is little in the way of Tribunal decisions to provide guidance. Where such a claim is submitted, it is for claimants to substantiate their loss, and the valuer should require evidence of a loss of profit. The valuer must also be satisfied that there is no duplication of compensation eg double-overheads that will reduce the net profit of a claimant. Compensation should not be paid under both heads.

iii) Removal to temporary premises

If in order to mitigate loss a claimant takes premises temporarily before finally transferring the business to new permanent premises then providing the compensation ceiling (total extinguishment) is not exceeded the costs involved are normally payable within the context of the general rules relating to disturbance (see Barlow v Hackney MBC (1954) 5 P&CR 129). However, the cost of a temporary move and a contemplated further move should not be allowed where the move to temporary premises is made in the mere hope of finding permanent premises later (Tappy & Tappy v LCC (1954) 5 P&CR 105).

iv) Installation of new trade fittings/machinery etc and structural adaptations

Costs incurred in adapting fixtures, fittings and furnishings at the acquired premises for use at the alternative premises can normally be admitted providing they satisfy the usual criteria relating to disturbance items and the valuer is satisfied that the amount incurred is reasonable.

Sometimes on the removal of a business the claimant installs new fittings in the new premises as opposed to moving and adapting the existing ones. This is often done because the opportunity is taken to modernise and improve the efficiency of the business. The presumption is that the cost of the new items represent value for money and the compensation for the items left at the old property should be limited to the difference between the value to the owner of the old items and the net amount realisable on forced sale.

There can sometimes be a difference between the value to the owner and the value, say, to an incoming tenant but in all cases it is necessary to ascertain the value to the owner having due regard to the cost of replacement, age, condition, obsolescence etc. In commercial premises the claims will thus usually be determined by a comparison between the ‘going concern’ and ‘forced sale’ values. Care should be taken to ensure that there is no duplication of compensation where the fixtures and fittings are reflected in the value of the property being acquired.

Harris v Welsh Development Agency [1999] 3 EGLR 207 concerned the acquisition of freehold premises that housed an optician’s business. The claimant found alternative (leasehold) premises and carried out substantial structural alterations to make them suitable for his business. The Tribunal determined that adaptations and alterations to replacement premises comprised ‘disturbance’ and any claim for reimbursement of such expenditure should be assessed according to the rules of admissibility for disturbance compensation.

The Tribunal set out four rules to be applied:

  1. the claimant must have acted reasonably to mitigate his loss by relocation to the alternative premises. The burden of proof is on the acquiring authority to show that the claimant has not mitigated his loss.
  2. the expenditure claimed must have been the natural, direct and reasonable consequence of the claimant’s dispossession from the land taken and must not be too remote. The burden of proof is on the claimant.
  3. there must be no double compensation, no breach of the principle of equivalence; the loss claimed must not be included under another head of claim. The burden of proof is on the claimant.
  4. the claimant must not have received value for money for his expenditure. The claimant must rebut the presumption in law that he has received value for money.

The Tribunal discussed all of the above points but in particular explained that if the claimant had received open market value (in the compensation received for the property acquired) for any item, he could not receive compensation for replicating that item at the replacement premises. That would comprise ‘double counting’. For example, if the claimant had to build an extension at the replacement premises in order to replicate the accommodation at the property acquired from him, he would not be able to claim compensation for the cost of that extension; he would already have received open market value for the same accommodation in the acquisition of the property acquired from him.

However, if the property acquired from the claimant had extensive internal partitioning that was relevant only to the claimant’s particular business it would not be reflected in the open market value of those premises. The compensation received for the property acquired would not reflect that partitioning. Thus the installation of partitioning in the replacement premises would not be deemed to represent ‘value for money’ because it would not increase the value of the replacement premises. The cost of that partitioning would be reimbursed to the claimant as part of his disturbance compensation.

The rules of assessment for disturbance must be applied to the cost of alterations and adaptations (where compensation is payable in respect of such items). However, a strict application of the above rule could in some cases result in an answer that is inconsistent with the claimant’s overriding obligation to mitigate his loss. Thus in TamplinsBrewery v Brighton Corporation (1970) 22 P&CR 746 it was decided that the bottling works acquired from the claimant were essential to the operation of their brewery and that the installation of a new bottling plant in substitute premises was the best way of mitigating the claimants’ loss. But for the acquisition the old bottling plant would have continued in use for an estimated 10 years before it was replaced. The replacement plant installed resulted in a saving in operational costs.

The Tribunal based its decision on the cost of the new plant and deducted therefrom 20% to allow for its value to the brewery 10 years hence (when the original plant would in any event have needed to be replaced) and deducted 10 YP of the estimated annual savings in operational costs arising out of the installation of the new plant. On appeal to the Court of Appeal no exception in principle was voiced except as to the deduction of 20%. The Court thought that the life of the old plant should be determined more exactly and that the life of the new plant should be determined so that the value thereof remaining after what would have been the life of the old plant could be determined with more exactitude; the scrap value of the old plant was also a matter to be taken into account. The Court held that the future value (10 years ahead) of the new plant to be taken into account was the value to the claimants and not the market value or written down book value.

The case was ultimately settled by consent without the need to refer it back to the Tribunal and therefore no valuation details are available. The decision must thus be treated with caution. The following factors emerge:

  1. the Tribunal arrived at the value of the plant to Tamplins by starting from the cost of the new bottling plant, adjusting for difference in capacity and writing down that cost by a percentage to allow for age and obsolescence in the old plant. Whilst this is perhaps a not unreasonable approach in principle it is for consideration whether the write down of 20% was sufficient in this case. This question of write down is of course peculiar to each case and regard must be had to the life expectancy of both the old and new plant.
  2. the Tribunal accepted that an allowance should be made for the saving in running costs that the brewery would gain from the new plant on the principle that in this situation a balance of losses and gains has to be struck. Its method of adopting 10 YP because 10 years was considered to be the life of the old plant and therefore the period for which the saving would continue might be regarded as suspect.
  3. the proceeds of sale of the old plant should be off set.

12.8 Redundancy Payments

If a claimant could show that redundancy payments were a direct consequence of the taking of the claimant’s land the amount disbursed would be an admissible item of disturbance compensation.

Admissibility of claims and problems likely to arise in practice

13.1 General

The circumstances giving rise to a claim for disturbance compensation are different in each case and no attempt has been made to compile a list of all possible items of claim. It is considered that the claim itself as a whole or part by part must satisfy the following ‘tests’:

  • a) the claimant must own a legal interest in the land taken No interest created after the date of notice to treat will qualify for compensation, neither will any interest qualify which has ceased to exist before the relevant valuation date (but that is not to say that a person holding over after the expiry of a lease would not be entitled to claim compensation under section 20 CPA 1965 in appropriate circumstances);

  • b) the interest in land must be acquired by a body possessing powers of compulsory purchase for the purpose of the acquisition whether actually exercised or in prospect.

  • c) the claimant must be disturbed in his/her occupation of the land as a direct consequence of the acquisition of his/her interest;

  • d) there must be an actual loss not merely a hypothetical one It must not be too remote and it must be a natural and reasonable consequence of the dispossession of the claimant;

Harvey v Crawley Development Corporation [1957] 1 All ER 504

Gilmour v Stepney MBC (1954) 4 P&CR 339

Rosenberg & Son (Tinware) Ltd v Manchester Corporation (1972) 23 P&CR 68

  • e) a claim will not lie in respect of an occupation that is contrary to law In this respect an unlawful use that is no longer potentially subject to planning enforcement due to the effluxion of time is not ‘contrary to law’;

Hughes v Doncaster MBC [1991] 1 EGLR 31

  • f) no claim for disturbance should be admitted in respect of anything done or losses incurred before publication of the notice of the making of the CPO unless there is a clear indication that it was reasonable and reasonably incurred by reason of the acquisition. This is not to say that compensation for disturbance should not be admitted where the purchase is by agreement at the instigation of an authority possessing appropriate powers on the compulsory purchase basis solely on the grounds that a notice has not been served when the loss was incurred;

Smith v Strathclyde Regional Council [1981] 1 EGLR 158

Sim and Sim v Aberdeen City DC [1981] 1 EGLR 176

Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 1 EGLR 19

  • g) the disturbance element of the total compensation must be consistent with the valuation basis adopted for assessing the value of the interest in the land taken;

Horn v Sunderland [1941] 2 KB 26

  • h) the burden of proof lies on the claimant;

Rush & Tompkins Ltd v West Kent Main Sewerage Board (1963) 14 P&CR 469

Stevenson v MOT (1965)

  • i) the upper limit of compensation is the amount that would have been payable if the claimant had taken all reasonable steps to mitigate the effect of the dispossession (but see section 46 LCA 1973 where claimant aged 60 or over);

Bailey v Derby Corporation [1965] RVR 43

Bede Distributors Ltd v Newcastle‑upon‑Tyne Corporation (1973) 26 P&CR 298

Business Economic Notes (BEN)

14.1 General

The above Notes were issued by the HMRC and might be of assistance when dealing with certain disturbance claims. Each set of the Notes deals with a particular business eg BEN1 concerns Travel Agents.

However, these Notes are now significantly out of date and may accessed via the National Archive.

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 instructions.