Land Compensation Manual Section 7: Interests for a year, from year to year, or for less than a year

Interests for a year or from year to year

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

Notices to Treat

7.1 Notices to Treat

The interest of a tenant for a short term (that is a tenant with no greater interest than a tenancy for a year, or from year to year or with an unexpired period of tenancy for less than a year) is not purchased by the acquiring authority and such a tenant is not entitled to a Notice to Treat. Where, however, a tenant for a short term is required to give up possession before the expiration of the term or interest, the tenant is entitled to compensation under section 20 Compulsory Purchase act 1965 (CPA 1965).

The continuation of the tenancy and the qualified right of the tenant to a renewal thereof under Pt II Landlord and Tenant Act 1954 (LTA 1954), or rights under the Agricultural Holdings Act 1986 (AHA 1986) are to be disregarded in determining whether or not the interest of the tenant is for a ‘short term’.

Although in practice acquiring authorities, as a matter of precaution, usually serve Notices to Treat on all persons whom they consider to have a possible interest in the land, the service of a notice to treat on the holder of a ‘short tenancy’ will have no effect on the basis of, or procedure for assessing, the compensation because section 20 is effectively mandatory (Newham LBC v Benjamin [1968] 1 All ER 1195).

Where a Notice to Treat is served on a tenant at a time when there was more than a year of the tenancy to run, but entry is made by the acquiring authority when there is less than a year to run the tenant is only entitled to compensation as for a tenant for a short term if, before the tenancy has been reduced to less than a year, neither party has taken proceedings to settle the compensation in pursuance of the Notice to Treat. If in any such case the claimant contends that the deliverance of a claim for compensation in pursuance of the Notice to Treat should be regarded as ‘taking proceedings’ and the valuer considers that it makes a material difference to the compensation payable, whether it is assessed in the usual way for the acquisition of an interest (see section 2 of this Manual) or as for a tenancy for a short term, full details of the case should be submitted to the PS Professional Guidance team.

Methods of obtaining possession

7.2 General

Subject to the provisions in the ‘Special Act’ (the act authorizing the acquisition) the acquiring authority may dispossess the tenant by one of the methods outlined in below.

7.3 Notice to quit

The acquiring authority after purchasing the lessor’s interest may then serve an effective Notice to Quit to terminate the tenancy in accordance with the terms of the tenancy and any general statutory provisions relating to the tenancy or by awaiting the expiration of the tenancy.

7.4 Section 20(4) CPA 1965

Under section 20(4) CPA 1965 a tenant for a short term must deliver up possession on payment or tender of the amount of compensation agreed in accordance with section 20 CPA 1965 or determined by the Upper Tribunal (Lands Chamber). There are obvious difficulties in complying with this provision and it is unlikely to be adopted by an acquiring authority in practice.

7.5 Notice of Entry section 11(1) CPA 1965

If entry has not been made by consent, the acquiring authority, after serving Notice to Treat on the parties entitled thereto, may serve a Notice of Entry under section 11(1) CPA 1965 on the owner, lessee and occupier giving not less than fourteen days’ notice of its intention to enter upon and take possession of the land. On expiry of such period the authority may enter forthwith.

7.6 Paragraph 4 Schedule 6 New Towns Act 1981

In relation to New Towns, an authority may proceed by the service of a Notice similar to a Notice of Entry under section 11(1) CPA 1965 in accordance with the provisions of Paragraph 4 Schedule 6 New Towns Act 1981 (provisions applicable to acquisition under that Act).

7.7 General vesting declaration

The powers of entry under section 11 CPA 1965 do not apply where the acquiring authority is proceeding by way of a General Vesting Declaration under the Compulsory Purchase (Vesting Declarations) Act 1981. In such cases the land included in the declaration vests in the acquiring authority subject to any tenancy not exceeding a tenancy for a year or from year to year or a long tenancy with a period to run not exceeding that specified in the declaration. The acquiring authority has no right of entry unless the tenancy comes to an end, or until the authority has served a Notice to Treat in respect of the tenancy, followed by a Notice served on the occupier stating its intention after a period of not less than 14 days of entering upon and taking possession of the land and that period has expired.

Basis of compensation

7.8 Entitlement to compensation

Section 20 of the Compulsory Purchase Act 1965 (CPA 1965) provides that where a person has no greater interest in land than as tenant for a year or from year to year, and is required to give up possession before his interest in the land expires, ‘he shall be entitled to compensation for the value of his unexpired term or interest in the land and for any just allowance which ought to be made by an incoming tenant, and for any loss or injury he may sustain’. Section 121 of the Lands Clauses Consolidation Act 1845 contains an equivalent provision which is still occasionally referred to.

The entitlement of the tenant to compensation will depend upon the method of dispossession adopted by the authority. Section 20 is purely procedural in that the tenant retains his interest in the land until dispossessed. However, the acquiring authority does not need to treat for the acquisition of the interest. It could either wait for the tenancy to expire and then take possession in which case no compensation would be payable or alternatively it could serve Notice of Entry, take possession before the expiry of the tenant’s interest and pay compensation under section 20 CPA 1965.

However, following Union Railways (North) Ltd v Kent County Council [2009] 2 EGLR 1, it would not be open to the acquiring authority to acquire the reversion to a tenancy with more than one year unexpired (that is, that does not fall within section 20 CPA 1965) and wait for the tenancy to expire. In the Union Railways case the Court of Appeal determined that when an authority requires to purchase land under section 5 CPA 1965 it must act reasonably and serve notice to treat on the owners of all interests in that land.

7.9 When the tenant vacates other than upon entry by the acquiring authority

When the tenant vacates following the termination of the tenancy by effluxion of time, or by surrender or forfeiture on the part of the tenant or by an effective Notice to Quit served by either the landlord or tenant, the compensation (if any) payable to the tenant will arise out of the relationship of landlord and tenant (and not that of acquiring authority and claimant) and will depend upon the terms of the tenancy agreement itself and on the general statutory provisions applicable to the tenancy for example LTA 1954, AHA 1986.

Section 20 CPA 1965 will not apply except where an agricultural tenant elects under section 59 LCA 1973 to be compensated under section 20 CPA 1965 instead of under the agricultural compensation code.

7.10 Residential tenancies

Where possession of residential accommodation cannot be recovered without a Court Order it is unlikely that authorities would seek to obtain possession by way of Notice to Quit. However, where a Notice to Quit is effective and the dispossessed tenant has no statutory entitlement to compensation under section 20 CPA 1965 (as in the case of a statutory tenant under the Rent Act 1977), a Home Loss Payment and/or a disturbance payment may be made under Pt III LCA 1973 (as amended).

An assured shorthold tenancy or assured tenancy comprises an interest in land and thus such a tenant under a periodic tenancy (or a fixed-term tenancy with not more than one year unexpired) would be entitled to seek compensation under section 20 CPA 1965. However, the duties relating to rehousing placed upon local housing authorities in cases of compulsory purchase by section 39 LCA 1973 would significantly reduce the compensation payable under section 20 CPA 1965.

7.11 Business tenancies

Compensation may be payable to the tenant under section 37 LTA 1954 (as amended) that is, a payment equal to the product of the appropriate multiplier and the rateable value, or if during the 14 years preceding the termination of the tenancy, the premises have been occupied for the purpose of a business carried on by the occupier, equal to the product of the appropriate multiplier and twice the rateable value. The ‘appropriate multiplier’ means such a multiplier as the Secretary of State may prescribe by statutory instrument and is currently one as specified in the Landlord and Tenant Act 1954 (Appropriate Multiplier) Order 1990) (SI 1990 No 363).

In addition there may be some entitlement to compensation in accordance with the provisions of LTA 1927 as amended by LTA 1954 in respect of certain improvements made by the tenant or by the tenant’s predecessors.

Section 39(2) L&TA 1954 provides that if the amount of the compensation that would have been payable under section 37 of that Act (compensation where renewal of tenancy precluded on certain grounds) exceeds the amount of the compensation payable under section 121 of the Lands Clauses Consolidation Act 1845 or section 20 of the Compulsory Purchase Act, the compensation shall be increased by the amount of the excess.

7.12 Agricultural tenancies

In the rare case where an authority, having acquired the landlord’s interest in agricultural land for a purpose for which it has no compulsory powers of purchase, has served effective Notice to Quit, the outgoing tenant will be compensated under the provisions of AHA 1986 including where appropriate a payment of the ‘additional sum’ under section 60. In the majority of cases, however, the authority will have become landlord by exercising compulsory powers of acquisition or by purchasing by agreement with compulsory powers in the background and if the tenancy is terminated by Notice to Quit the tenant has the option under section 59 LCA 1973 of claiming compensation under section 20 CPA 1965 instead of under the agricultural code. These matters are dealt with in detail in section 8 of this Manual.

Assessment of compensation

7.13 Section 20 CPA 1965

If a tenant for a short term is required to give up possession of land subject to compulsory purchase either by agreement with the acquiring authority or following the service of a Notice of Entry, before the expiration of the term or interest, the tenant is entitled to compensation under section 20 CPA 1965 for the value of the unexpired term or interest in the land, for any just allowance which ought to be made by an incoming tenant, and for any loss or injury sustained. Where part only of the land in the tenancy is required the tenant shall also be entitled to compensation for the damage done by severing the land held or otherwise injuriously affecting it.

7.14 Injurious affection

Section 20(2) CPA 1965 (as amended by the Planning and Compensation Act 1991) states ‘If a part only of such land is required, he shall also be entitled to compensation for the damage done to him by severing land held by him or otherwise injuriously affecting it’.

Thus with regard to compensation for severance and injurious affection, compensation under this head is not confined solely to depreciation in the value of the claimants’ interest in the tenancy affected and consideration can be given under the above heading to other land of the claimant in different tenancies and other freehold and leasehold land held by the claimant.

It is suggested (although the point is not without doubt) that the ‘other land’ of the claimant referred to above would need to be ‘held with’ the land from which he is dispossessed under section 20 CPA 1965.

7.15 Claimant with no interest in the land

It follows that an occupier with no interest in the land, for example a statutory tenant under the Rent Act 1977, does not qualify for compensation under section 20 CPA 1965, although such a person may receive a disturbance payment under section 37 LCA 1973 and may be entitled to a Home Loss Payment under section 29 LCA 1973.

7.16 Minimum compensation for business tenancy

It should be noted that section 39 LTA 1954 (as amended) provides that the tenant’s compensation under section 20 CPA 1965 in respect of a tenancy to which Pt II LTA 1954 applies shall not be less than the tenant would have received under section 37 LTA 1954 if the tenancy had been terminated on the date the authority obtained possession.

7.17 Purchase by agreement with compulsory powers in the background

In cases where the authority is purchasing land by agreement under provisions which authorise compulsory acquisition for example where negotiations are preceding at the initiative of the authority in advance of the making or confirmation of a CPO and the tenant agrees to give up possession before the expiration of the term or interest, compensation should be assessed as in Paragraph 7.13 above.

7.18 Valuation date

As compensation becomes payable only after the tenant has been required to give up possession, the valuation date will be the date possession is taken.

7.19 Value of unexpired term or interest

The interest is to be valued in accordance with the current statutory code ie market value under Rule (2) section 5 LCA 1961 and subject to the further provisions of LCA 1961 as set out and explained in Section 2 of this Manual so far as may be applicable to the limited nature of the particular claimant’s interest.

7.20 Residential tenancies

The payment of a premium for the assignment of a protected tenancy is prohibited under section 120 Rent Act 1977 (RA 1977).

However the general prohibition of the payment of a premium would not prevent the assignor receiving, where appropriate payment in accordance with section 120 and Schedule 18 Rent Act 1977, compensation:

(i) for expenditure incurred in carrying out structural alterations to the dwelling-house or the provision or improvement of certain fixtures;

(ii) for goodwill where part of the dwelling-house is used as a shop or for business or professional purposes; or

(iii) where a premium was lawfully paid at the commencement of the tenancy.

7.21 Business tenancies

It has long been accepted that Pointe Gourde serves to qualify the value of the interest to be acquired but does not apply to the ascertainment of what that interest comprises (Minister of Transport v Pettit (1968) 20 P&CR 344 subsequently approved by the House of Lords in Rugby Joint Water Board v Foottit (1972) 24 P&CR 256). Pointe Gourde cannot therefore serve to enlarge or enhance the interest that the claimant holds in the property.

However, this rule is subject to any statutory provision to the contrary and section 47 LCA 1973 repealed section 39(1) LTA 1954 with the result that the continuation of the tenancy and the qualified right of the tenant to a renewal thereof under Pt II LTA 1954 should be taken into account. This does not mean that it is to be assumed that the tenant would inevitably obtain a new tenancy but rather that in considering the prospects of renewal it is to be assumed that no purchase of any interest in the land has taken place or is proposed by any authority with compulsory powers.

Any application for a new tenancy would still have to be regarded as open to the possibility of opposition from the landlord on any of the grounds in section 30 LTA 1954, bearing in mind the landlord’s obligation to pay compensation under section 37 LTA 1954 in certain circumstances.

In Myers v South Lakeland DC [2004] RVR 279 the Lands Tribunal determined that due to the likelihood of future redevelopment of the area the prospects of lease renewal in the ‘no scheme world’ were too uncertain to make any difference to the amount of compensation.

7.22 Business tenancies ‘contracted out’ of the L&T Act 1954

It was held in Bishopsgate Space Management Ltd v London Underground Ltd [2004] 2 EGLR 175 that a tenancy to which section 20 CPA 1965 applies must be deemed as a matter of law to terminate on the earliest date upon which a notice to quit, given on the date of entry, would have had effect. Thus if a fixed term tenancy had a break clause, the interest of the tenant should be assessed as if the break clause would have been exercised. Any prospect of the tenancy’s continuing in the ‘no scheme world’ is to be disregarded.

This rule of law would be subject to having regard to the prospect of renewal of the tenancy under the L&TA 1954 by virtue of section 47 LCA 1973 if the tenancy had not been ‘contracted out’ of the 1954 Act (see paragraph 7.20 above).

In ‘Bishopsgate’ the Tribunal accepted that there was (for ‘contracted out’ business tenants) some anomaly between the position under section 20 CPA 1965 and section 37 LCA 1973 (disturbance payments for occupiers having no interest in the land) in that under section 37 a claimant with no compensatable interest (for example a licensee) might be treated more favourably than one with a short tenancy because section 37 provides that ‘regard shall be had to the period for which the land occupied by him may reasonably have been expected to be available’ (that is, ignoring the scheme).

Only fixed term tenancies can be ‘contracted out’ of the security of tenure provisions of the L&T Act 1954. If a tenant ‘holds over’ after the expiry of a ‘contracted out’ fixed-term tenancy and the landlord willingly continues to accept rent from the tenant, the tenancy could become a periodic tenancy and lose its ‘contracted out’ status. The tenant would thus regain the protection of the security of tenure provisions of the 1954 Act which could obviously change the quantum of compensation due to the tenant upon dispossession under section 20 CPA 1965.

It should be noted that for acquisitions subject to a Compulsory Purchase Order authorised on or after 22 September 2017 the ruling in Bishopsgate Space Management Ltd (above) has been overturned. The position has now changed in that section 35 of the Neighbourhood Planning Act 2017 has re-written section 47 LCA 1973 to provide that where an acquiring authority acquires the interest of a business tenant or takes possession of land subject to a business tenancy, regard must be had to:

(a) the likelihood of the continuation or renewal of the tenancy,

(b) in the case of a tenancy to which Part 2 of the Landlord and Tenant Act 1954 (security of tenure for business tenants) applies, the right of the tenant to apply for the grant of a new tenancy,

(c) the total period for which the tenancy may reasonably have been expected to continue, including after any renewal, and

(d) the terms and conditions on which a tenancy may reasonably have been expected to be renewed or continued.

This is dealt with in more detail in Section 4 of this Manual (Compensation for disturbance).

7.23 Agricultural tenancies

Reference should be made to Section 8 of this Manual for detailed instructions in this type of case. In particular, it should be noted that under section 48(4) LCA 1973 the tenant’s security of tenure under Agricultural Holdings Act 1986 is to be taken into account, although regard must be had to valid resumption clauses that would be effective apart from the authority’s scheme, provided that the tenant receives no less than might have been received as compensation under the agricultural code.

7.24 Allowances by an incoming tenant

This head of claim may cover such items as tenant’s fixtures and fittings, improvements, unexhausted manurial values and tenant right matters. Care should, however, be taken to avoid duplication of compensation for example by paying for the value of improvements to an incoming tenant that have been reflected in the value of the tenant’s interest, or paying for unexhausted manures without reduction in their residual values to take account of any notional crop assumed in arriving at the loss of profits.

7.25 ‘Any other loss or injury’

These words are wide enough to cover items in the nature of ‘disturbance’ (see Section 4 of this Manual) for which compensation will be payable so far as consistent with the limited tenure of the claimant. The admission of claims under this head is not necessarily restricted to items of financial loss or expense actually incurred and compensation for ‘inconvenience and upset’ (for example claimant’s own time) may be payable in appropriate circumstances (per Lord Denning MR in Pettitt v MOT (1968) 20 P&CR 344 where compensation had been awarded by the Lands Tribunal for the claimant’s own extra time and effort in working the farm during the period of construction of the works). Here again, however, care should be taken to avoid duplication for example the extra time and effort expended by the claimant might be expected to result in the saving of some loss of profits that might otherwise occur.

Other heads of claim that might be appropriate could be the costs of seeking alternative premises, modification of alternative premises, removal costs, double overheads, claimant’s own time and such.

In assessing compensation both the value of the interest and the compensation for disturbance must be assessed having regard to the period remaining on the tenant’s lease. This is because the compensation for land taken and disturbance, whilst in practice assessed individually, are in law one indivisible whole (Hughes v Doncaster MBC [1991] 1 EGLR 31) and must be treated accordingly. The claim ‘must be consistent with itself’.

Position in Scotland

7.26 No security of tenure for business tenancies

In Scotland there is no equivalent statutory security of tenure for business tenants although if a tenant remains at the end of the tenancy and continues to pay rent, the tenancy continues under the common law concept of ‘tacit relocation’ until the landlord takes steps to terminate it. A tenancy continuing in this manner would comprise a ‘short tenancy’ for compulsory purchase.

It should be noted that in Scotland, paragraph 38 of Schedule 15 to the Town & County Planning (Scotland) Act 1997 already provides that short tenancies (year to year or less) subject to a General Vesting Declaration should be treated in the same way that ‘Bishopsgate’ has now provided for in England, that is, it should be presumed that the landlord will exercise any option to terminate the tenancy at the date of vesting or later available to him (and conversely that the tenant would exercise any option to renew the tenancy).

7.27 Equivalent provisions in English/Welsh and Scottish legislation:

English/Welsh provision Scottish Equivalent
   
Section 20 Compulsory Purchase Act 1965 Section 114 Lands Clauses Consolidation (Scotland) Act 1845
Section 121 Lands Clauses Consolidation Act 1845 Section 114 Lands Clauses Consolidation (Scotland) Act 1845
Section 37 Land Compensation Act 1973 Section 34 Land Compensation (Scotland) Act 1973
Section 47 Land Compensation Act 1973 No equivalent
Part II Landlord and Tenant Act 1954 No equivalent

Discretionary disturbance payments

7.28 Power to make a discretionary disturbance payment

An authority’s power to make a discretionary disturbance payment under section 37(5) LCA 1973 (see Section 4 of this Manual) is not available where a claimant has a statutory right to a disturbance payment under section 37(1) LCA 1973 or to compensation for disturbance under any other enactment, and therefore cannot in any circumstances be used to ‘top up’ compensation payable either under section 20 CPA 1965 or on Notice to Quit.