Land Compensation Manual Section 5: Costs and fees

Part 2: Surveyors' fees

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

General

5.20 Surveyors’ fees

There is no general statutory provision under which acquiring authorities are required to pay the claimant’s surveyor’s fees when acquiring land, unlike section 23 Compulsory Purchase Act 1965 which stipulates that the costs of all conveyances of the land subject to compulsory purchase shall be borne by the acquiring authority.

However, in Minister of Transport v Lee (1965) 17 P&CR 181 Lord Denning stated that whilst surveyors’ fees were not ‘disturbance’ they nevertheless comprised ‘any other matter not based on the value of land’ in Rule (6) of section 5 Land Compensation Act 1961, and should thus be allowed as an item of claim for compulsory purchase.

Paragraph 59 of the DCLG publication ‘Guidance on Compulsory Purchase Process and the Crichel Down Rules’ (2015) which replaced Circular 06/2004 states ‘It is well-established in case-law that reasonable fees necessarily and properly incurred by a claimant in obtaining professional help to prepare and sustain his claim for compensation are recoverable as part of the compensation (as ‘any other matter’ under section 5, rule 6 of the Land Compensation Act 1961)’.

The valuer may therefore recommend reimbursement to the claimant of surveyor’s fees that have been reasonably and necessarily incurred. The claimant’s failure to follow the advice of the surveyor or the following of unsound advice would not normally preclude the reimbursement of fees that have been incurred, although such considerations might in some circumstances affect the quantum thereof.

Ryde’s Scale (1996)

5.21 General

Ryde’s Scale (1996) was prepared by the Valuation Office Agency after taking representations from and after consulting with interested professional bodies, acquiring authorities, practising surveyors and claimants’ representative bodies.

Ryde’s Scale (1996) is reproduced at Appendix 5/1.

5.22 Historical

In 1855 Mr Edward Ryde, who was subsequently President of the Surveyors’ Institution, introduced a scale of surveyors’ fees in respect of property taken under ‘Compulsory Powers’. The scale was based ‘on amount of settlement, whether by verdict, award or otherwise’. It became known as ‘Ryde’s Scale’ and was subsequently adopted by the RICS and published as Scale 5 in their Scale of Professional Charges.

The Monopolies Commission Report of 1977 recommended the abolition of most fee scales for property valuations with the exception of Scale 5, provided negotiations with the Inland Revenue continued.

In 1983 the RICS, DoE, Office of Fair Trading and Department of Trade and Industry agreed that the Valuation Office Agency should prepare the Scale, and a substitute Scale was promulgated, coming into effect on 1 December 1984. That was subsequently replaced by the 1991 Scale which came into effect on 1 December 1991 and the latest edition is known as Ryde’s Scale (1996) with an effective date of 1 July 1996.

5.23 Subsequent abandonment of Ryde’s Scale

In an announcement on 18 July 2002 the Office of the Deputy Prime Minister (ODPM – now DCLG) stated that ‘….there is widespread agreement that the archaic Ryde’s Scale for determining Surveyors’ fees should be abandoned and that Surveyors should be reimbursed in full in line with all other professional advisers. We do not therefore intend to commission any further reviews of the non-statutory Ryde’s Scale, and expect that fees will normally be assessed henceforth on a reasonable basis agreed between the parties’.

However, it would still be acceptable for reimbursement to be made on the basis of Ryde’s Scale (1996) if the compensating authority and the claimant were in agreement as to that basis and on the condition that the authority’s valuer were satisfied that the fee thus calculated represented reasonable reimbursement for the work undertaken by the claimant’s surveyor.

It should be noted that Ryde’s Scale has not been abandoned universally and it would be open to acquiring authorities and claimants’ surveyors to agree to the use of it (possibly with an appropriate adjustment for inflation) if they considered that it would provide appropriate reimbursement to the surveyor.

Assessment of fees post Ryde’s Scale

5.24 Introduction

Difficulties have arisen over the assessment of claimants’ surveyors’ fees in relation to claims for compensation for compulsory purchase since the abandonment of Ryde’s Scale (1996) as a universal measure of reimbursement.

It is desirable to establish a common method of assessment of surveyors’ fees in such cases to free surveyors from spending time on disputes over fee levels and to promote consistency among surveyors acting for acquiring authorities.

This guidance attempts to provide a reasonable basis upon which surveyors’ fees can be assessed and to provide consistency in the application of that basis.

5.25 General principles

Surveyors’ fees should relate to the reasonable cost of undertaking the work and should reflect the time, expertise and effort required to undertake the task and should also be commensurate with the complexity and size of the claim.

The RICS Professional Statement ‘Surveyors advising in respect of compulsory purchase and statutory compensation’ (April 2017) states that the surveyor ‘must demonstrate the basis for fees and disbursements is reasonable in relation to the complexity of the claim’.

The RICS Professional Statement stipulates that:

  1. the work required is the correct measure;
  2. the surveyor must agree the basis of charge with the claimant in writing and present that agreement to the acquiring authority promptly;
  3. the claimant and the acquiring authority should be made aware of any fee being billed;
  4. the surveyor must make clear to the claimant that they will be liable for any fees not reimbursed by the acquiring authority;
  5. surveyors should accurately record the time spent and the nature of the work carried out in relation to a claim.

The relationship between a surveyor and client is private. However, where a third party, particularly a public body ultimately funded by general taxation, is required to reimburse the full fee paid to the surveyor, the claimant should be made aware at the outset of the case of the acquiring authority’s duty to reimburse only fees that are reasonable and of the claimant’s duty to mitigate his costs.

5.26 Employment of more than one surveyor

Where the claimant has dismissed one surveyor and subsequently appointed another, the acquiring authority would not normally be expected to pay in total a greater fee than if only one surveyor had been employed.

This should not be confused with the use of more than one surveyor, either within the same firm or a specialist brought in to the case by the claimant’s surveyor, where specialist knowledge or skills are required. For example, it would be good practice for a senior surveyor to use a less qualified (and less expensive) colleague for those aspects of the claim that warrant it. Similarly the claimant’s surveyor might decide quite properly that a second surveyor with specialist knowledge (where that expertise is not available within his own firm), for example a mineral or plant and machinery surveyor and such, should be employed from an external source. The test of whether such fees should be reimbursed would depend, inter alia, upon whether the employment of a specialist surveyor were reasonable in all the circumstances of the case.

5.27 Time costing to be adopted as normal basis

With the general run of claims in schemes of compulsory acquisition it is likely that a fee based on the reasonable cost of the work undertaken (for example a reasonable hourly rate applied to the hours reasonably taken) would normally compensate the surveyor adequately for his work.

The hourly rate to be adopted should comprise the surveyor’s normal rate. The claimant’s surveyor and the acquiring authority’s surveyor should agree at an early stage the hourly rates to be claimed, the items reflected within those hourly rates, and the different rates for different grades of surveyor likely to be employed on the claims. So that a proper comparison could be made, it is anticipated that the hourly rates would reflect secretarial and other support services and overheads.

It would be necessary for the claimant’s surveyor to demonstrate to the acquiring authority’s surveyor that the hourly rate claimed was commensurate with the rate that the surveyor could command with his usual client base for general valuation and negotiation work. The acquiring authority’s surveyor might already be aware of this rate, or it might appear in the advertising literature of the claimant’s surveyor. Alternatively the claimant’s surveyor might need to demonstrate the validity of the hourly rate by reference to examples of invoices raised in respect of work recently undertaken for private clients.

Claimants’ surveyors should be encouraged to be open about their hourly rates.

It is therefore recommended that surveyors be reimbursed on a time cost basis for work undertaken in relation to compulsory purchase claims where possible.

5.28 Ryde’s Scale (1996) and ad valorem fees

Where a claimant’s surveyor requests to be reimbursed on the basis of an ad valorem scale such as Ryde’s Scale (1996) or a derivation thereof, it would be in order for the acquiring authority’s surveyor to recommend reimbursement in any particular case if satisfied that the fee thus calculated represented the approximate reasonable cost of undertaking the work or was otherwise commensurate with the likely size or complexity of the claim.

If the claimant’s surveyor requested reimbursement on the basis of an ad valorem scale for a series of claims to be undertaken within a scheme, it would be in order for the acquiring authority’s surveyor to agree to that basis of assessment.

In either case the fee basis would be agreed with the proviso that if the fee thus calculated resulted in a fee significantly different from the reasonable cost of undertaking the work, the right to limit the fee to one calculated on an alternative basis would be reserved.

When recommending a fee based on an ad valorem basis to the acquiring authority in a case where negotiations have been completed, the surveyor should not refer to the ad valorem scale as the basis of assessment of the fee but should state the amount of the fee without any qualification.

5.29 Scope of reimbursement

Reimbursement should relate to work undertaken by the surveyor in preparing successful claims for compensation and negotiating their settlement including receiving instructions, inspections, obtaining and collating information necessary to formulate the claim and negotiating a settlement, and advising the claimant as to the basis and amount of compensation. Reimbursement would not include the cost of seeking or canvassing for instructions except to the extent that this forms a reasonable overhead of the surveyor’s business.

The reimbursement of success related fees by acquiring authorities is not considered to be commensurate with the guidance issued by the RICS. Thus a ‘no win no fee’ arrangement with a claimant or a fee basis where the fee increased disproportionately to the amount of compensation agreed or awarded would not be considered a reasonable basis for reimbursement. In Hallows v Welsh Office [1995] 1 EGLR 191 the Lands Tribunal said ‘If an expert witness has a financial interest in the outcome of a dispute, other than his fees (which should be the same whatever the result), this must be seen to affect his objectivity’.

Consequently any arrangements made for the payment of a success related fee that was in excess of the reasonable cost of undertaking the case would be solely a private matter between the claimant and his agent. In such a case the acquiring authority would reimburse the fee only up to the amount that was reasonable within the terms of this Manual.

The RICS Professional Statement cautions that when using any fee basis other than a diary based charge or a fixed fee the surveyor should have due regard to potential conflicts of interest.

5.31 Unsuccessful claims

Invalid claims or unsuccessful claims would attract no fee and the cost of any time spent in respect of such claims would not be subject to reimbursement. However, see paragraph 5.32 below.

5.32 Betterment and ‘nil’ compensation

Where the compensation was agreed at ‘nil’ due to the effect of betterment (that is the betterment equalled or exceeded the amount of the compensation and surveyor’s fee otherwise payable) the acquiring authority’s surveyor might nevertheless decide (by agreement with the acquiring authority) to recommend, on an ex gratia basis, reimbursement of all or part of the claimant’s surveyor’s fees reasonably incurred in dealing with the claim on the basis that the surveyor had assisted in arriving at the appropriate amount of compensation (nil) thus mitigating the acquiring authority’s loss. This might be particularly appropriate where the realisation of that betterment by the claimant was not reasonably practicable in the near future.

Similarly if the compensation were significantly reduced due to betterment, the acquiring authority’s surveyor might decide to recommend reimbursement of all of the claimant’s surveyor’s fees reasonably incurred in dealing with the claim notwithstanding that due to the set off for betterment the fee was no longer commensurate with the (net) amount of compensation agreed.

5.33 Travelling time and costs

If travelling costs, including the time spent travelling, of a surveyor travelling long distances to undertake cases within the scheme were claimed, it would be necessary to demonstrate that reimbursement was appropriate.

Where it had been agreed that the services of a surveyor from outside the area were appropriate the reasonable travelling time and expenses would be reimbursable subject to the proviso that the surveyor would make every effort to minimise those expenses in compliance with the duty to mitigate the claimant’s costs (see paragraph 5.36 below).

5.34 Time recording

The surveyor should maintain a diary record of all time spent on the cases within the scheme. This should record brief details of each activity, its duration and location. For example, it should record general travelling time, the addresses of properties inspected, the length and venue of negotiations and dealings with claimants.

With a time cost basis of reimbursement it is incumbent upon the surveyor to manage his time economically so as to mitigate the acquiring authority’s costs. The diary record should be presented to the acquiring authority’s surveyor in order to substantiate the surveyor’s fees claimed. The acquiring authority’s surveyor would be able to scrutinise the diary record and compare it with the time recorded for his own work in relation to the case. Any comparison would need to make allowance for differences in the work undertaken by the claimant’s and the acquiring authority’s surveyor. For example, the claimants’ surveyor would need to gain approval of the proposed compensation settlement from each client individually, whereas the acquiring authority’s surveyor would not usually need to explain each settlement in detail to the authority.

5.35 Mitigation of costs

The surveyor, as agent of the claimant, should attempt to mitigate the costs of the case in the same way that the claimant is expected to do. For example, the surveyor should:

  1. eliminate unnecessary research and detail - (it would be incumbent upon a claimant’s surveyor to utilise research and comparables established in other cases on the same scheme where reasonable to do so)
  2. prevent the convening of meetings where telephone calls/emails would suffice
  3. ensure that the case is dealt with at an appropriate level (for example a senior partner should not undertake a case, except in exceptional circumstances, where a more junior and less costly member of staff would have sufficient ability and experience)
  4. emphasise that the case belongs to the client (ensure that claimants are informed of their duty to mitigate their costs).

Any efficiency savings resulting from dealing with large numbers of claims should be passed on to the acquiring authority as a form of mitigation of claimants’ costs and should not form a ‘windfall’ for the claimant’s agent. These efficiencies might result from reduced travelling time and reduced negotiating time per claim, from the adoption of schemes of valuation (for example with the use of ‘beacon’ properties) and from common research.

The surveyor should also attempt to maintain proportionality between the amount of compensation claimed or agreed and the fee charged.

5.36 Retained surveyor

Occasionally a surveyor will claim reimbursement of a fee based on a rate per hour in excess of the maximum rate prevailing in a particular area on the basis that he is the claimant’s retained surveyor and he is paid that rate for all work undertaken for that claimant.

If the claim related to a class of property where the particular skill or knowledge of the retained surveyor were required, or where the property comprised a special type of property that required the attention of a surveyor from outside the area of the scheme, or where the surveyor’s intimate knowledge of the client’s business (for example the type of business or confidential trading information) were essential to the pursuit of the claim, it might be appropriate to reimburse the surveyor at a rate outside the range of normal rates charged in the area of the scheme.

However, if the claimant required the services of a retained surveyor for a class of property that could normally be dealt with adequately by a local surveyor charging a significantly lower hourly rate, the surveyor should be reimbursed at a rate not exceeding the maximum hourly rate charged by surveyors located in the area of the scheme. The requirement to use the services of a more reasonably priced adequately qualified surveyor, or to negotiate a reduced rate per hour with his retained surveyor, is consistent with the duty of the claimant to mitigate his loss.

Value Added Tax

5.37 General

It should be noted that Valuation Office Agency staff are not authorised to provide advice on taxation matters. Whilst it would be permissible for valuers to discuss the application of VAT to surveyors’ fees with acquiring or compensating authorities they should not inadvertently be drawn into providing advice. Acquiring authorities should always obtain appropriate professional guidance before making any payment of VAT to the claimant or the claimant’s surveyor.

The acquisition of an interest in land by an acquiring authority represents a ‘supply of goods’ from the claimant to the acquiring authority for VAT purposes. In compulsory purchase cases surveyors’ fees are regarded as part of the consideration for the land taken and form part of the cost of the ‘supply’ of the land to the acquiring authority.

Thus the payment to the claimant by the acquiring authority in respect of surveyors’ fees would take the same status as the land, either exempt, standard rated or zero rated, and any VAT on the total consideration (including the payment in respect of surveyors’ fees) would comprise the claimant’s output tax charged to the acquiring authority in respect of the ‘supply’ of the land.

It would thus be necessary to ascertain the VAT status of:

i) the claimant (fully registered/partially exempt/not registered)

ii) the property (exempt/standard rated/zero rated)

iii) the surveyor(fully registered/partially exempt/not registered)

If the land were standard or zero rated, VAT on the consideration (including the payment in respect of surveyors’ fees) would be payable by the acquiring authority at the appropriate rate (20% or 0% as appropriate) and comprise the claimant’s output tax in respect of the supply of the land to the authority.

When the claimant subsequently paid the fee to the surveyor, any VAT charged thereon would be recoverable by the claimant from HMRC as the claimant’s input tax in respect of the supply of land to the acquiring authority. Therefore no other payment by the acquiring authority in respect of VAT on surveyors’ fees would be required.

If the land were exempt no VAT (output tax) would be payable by the acquiring authority on the total consideration (including the payment in respect of surveyors’ fees). However, depending upon the VAT status of the claimant, any VAT on the fee subsequently paid by the claimant to the surveyor might be reimbursable by the acquiring authority as a loss resulting directly from the compulsory acquisition, if not otherwise recoverable by the claimant as input tax in respect of the supply of land.

5.38 Application of VAT to surveyors’ fees

It is recommended that acquiring authorities pay the claimant’s surveyor’s fee direct to the claimant, not to the surveyor. The latter practice causes confusion with regard to the payment of VAT on the surveyor’s fee.

The following rules of thumb can be applied to the payment of VAT in respect of surveyors’ fees, but the acquiring authority’s surveyor should always be prepared to discuss such matters with the acquiring authority or the claimant’s VAT Inspector.

(i) Property standard rated or zero rated

Recommend payment of VAT on surveyor’s fee at appropriate rate (at 20% or 0% respectively depending upon whether the land were standard or zero rated). This will comprise the claimant’s output tax in respect of the supply of land to the acquiring authority. Any VAT subsequently charged to the claimant by the surveyor would be reclaimed by the former from HMRC as input tax on the transaction.

(ii) Property exempt and surveyor not registered for VAT

Do not recommend payment of VAT on surveyor’s fee since none will be charged by the surveyor.

(iii) Property exempt and claimant not registered for VAT

If surveyor registered for VAT recommend payment of VAT on surveyor’s fee because claimant will not have the opportunity of reclaiming the VAT from HMRC.

(iv) Property exempt and claimant and surveyor registered for VAT

If the claimant is fully registered for VAT do not recommend payment of VAT on surveyor’s fee as this would be recoverable from HMRC by the claimant as input tax incurred in the supply of the land to the acquiring authority under the VAT de minimis rules.

If, exceptionally, the claimant is fully registered for VAT but confirms that the input tax incurred in respect of the compulsory acquisition will cause the de minimis limits to be exceeded (total input tax in respect of exempt supplies should not exceed £7,500 per annum and also 50% of claimant’s total input tax) and thus cause the claimant to become partially exempt, recommend payment of VAT on surveyor’s fee because it represents input tax in relation to an exempt supply of land and is not reclaimable from HMRC. Any such cases should be referred to the PS Professional Guidance team.

If the claimant has a partially exempt VAT status, recommend payment of VAT on surveyor’s fee because it represents input tax in relation to an exempt supply of land and is not reclaimable from HMRC.

Valuers are recommended to have regard to the table in Appendix 5/3 as a quick reference guide to the payment of VAT on surveyors’ fees.

5.39 Use by claimant of staff surveyors

Payment to a claimant to represent the cost of the use of a salaried staff surveyor or other employee in the negotiation of a compensation claim should not attract the addition of VAT.

5.40 No land taken

The payment of compensation for severance and injurious affection is not deemed to be a ‘supply’ for VAT purposes. Therefore in cases where no land is taken, for example claims under Part I Land Compensation Act 1973, the payment of VAT on the surveyor’s fee will depend solely upon whether or not the surveyor is registered for VAT.

5.41 Travelling and out of pocket expenses

This type of expense incurred by an agent (surveyor) when making a supply to a principal (claimant) should not be treated as a disbursement for VAT purposes and should therefore be added to the charge made by the agent to the principal in calculating the VAT payable. If the agent has incurred VAT on those expenses, their cost net of VAT should be added to the agent’s net fee before the addition of VAT (if appropriate).

5.42 Reports

In reporting negotiated settlements to acquiring authorities the valuer should indicate the position with regard to the payment of VAT on surveyors’ fees.

Where VAT is payable, the valuer should show the overall fee payable and provide a breakdown of this figure between the fee payable and the amount of VAT for example £1,200 (Fee £1,000 VAT £200).

In any case where the valuer did not recommend payment of VAT on the surveyor’s fee, the reason for this should be made clear in the report.

5.43 Information

Further information regarding the payment of VAT in relation to property can be found in Section 18 of the Land Compensation Manual.

Valuers can also obtain advice on VAT matters from the PS Professional Guidance team.

Procedure at start of case

5.44 Opening letters

Acquiring authorities’ valuers should include in their opening letters to claimants a sentence on the following lines:

‘The acquiring authority will reimburse your reasonable surveyor’s fees incurred in the preparation and negotiation of your claim. It is recommended that your surveyor agree the basis of his fee with the Valuation Office Agency prior to the commencement of work on the claim.’

Alternatively, when writing direct to claimants’ surveyors a sentence on the following lines should be incorporated:

‘The acquiring authority will reimburse your reasonable costs of assessing and negotiating the claim. It is recommended that you agree the basis of your fee with the Valuation Office Agency prior to the commencement of work on the claim.’