Making way

Compulsory purchase was, until the economic downturn at least, a fundamental part of the property sector. In the last few years, with a few notable exceptions (in particular, delivery of the 2012 Olympics), such schemes have been few and far between. But with an increasingly buoyant economy likely to bring about more development funding, and the major infrastructure project that is the High Speed 2 (HS2) rail link gathering pace, compulsory purchase is coming to the fore once again.

This article focuses on some of the key considerations for compulsory purchase situations – including as regards HS2 – and addresses some of the strategic factors that need to be taken into account.

What is compulsory purchase?

Compulsory purchase of land, while not easy to define, commonly refers to the acquisition of land for the use of public projects. It is not exclusively this use that benefits from the power to compulsorily purchase land, but it is not within the scope of this article to address all of the methods and / or purposes of compulsory purchase. Rather, I consider the most commonly found approach: the assembly of land for regeneration and other similar public projects.

The powers for such projects are generally vested in national and local government, and other public bodies vested with powers for the delivery of such projects – for example, the Homes and Communities Agency and Highways Agency.

In compulsory purchase cases, the body exercising the power (the source of which comes from a variety of places, but most commonly from statute) is known as the acquiring authority (AA).

How does the process start?

Before being able to take possession of land, the AA must first obtain a compulsory purchase order (CPO). The procedure for purchases by local authorities (and this commonly also applies to other AAs) is governed by part II of the Acquisition of Land Act 1981 (as since amended by the Planning and Compulsory Purchase Act 2004). Purchases by a minister are regulated by schedule 1 to the 1981 act.

The CPO itself must accord with the prescribed form currently set out in the Compulsory Purchase of Land (Forms) (Ministers) Regulations 2004.

While it is clear that the compulsory purchase of lands will be fundamental to the success of the HS2 project, what is less clear is, first, how that will impact on the budget constraints of the project, and second, the extent of the traditional compulsory purchase compensation cases that we are used to seeing for major projects

It is confirmation of the CPO that is fundamental. Once confirmed by virtue of section 4 of the Compulsory Purchase Act 1965 (CPA 1965), the powers authorised by the CPO must be exercised within three years of its becoming operative. There are opportunities to object to the confirmation of a CPO – these must be considered carefully at an early stage if they are to be given full effect.

In enforcing the terms of the CPO, there are two main options open to the AA – notice to treat or general vesting declaration.

Notice to treat

The starting point for an AA, subject to what is said below, is to serve a notice to treat on the persons upon whom such notice must be served, pursuant to section 5 of the CPA 1965.

• The service of such a notice has the following key consequences.
• It fixes the mechanism for the 
proceeding to submit a notice of claim (see below).
• The interests in the land are fixed, but the owner of the land impacted by the notice to treat is still free to sell their interest to anyone.
• The AA has the right to take possession once it has served a notice of entry, pursuant to section 11 of the CPA 1965.
• The amount of compensation payable may be referred to the Upper Tribunal (Lands Chamber) (referred to below as ‘the tribunal’), pursuant to section 6 of the CPA 1965.
• The owner of a right to compensation may assign such rights to another party.

Unless there is some default on the part of the AA that can become the subject of judicial review, the notice to treat cannot be challenged.

It should be appreciated, though, that the service of a notice to treat does not, of itself, transfer ownership of the land or other interest to the AA. This can only be done by the parties entering into a conveyance once the terms of acquisition are agreed or ordered by the tribunal.

This can take some time, although an AA needs to remain alive to the fact that the notice of treat will have no effect after three years from the date on which it was served, unless one of a limited number of criteria applies, or the period is extended by agreement. Those criteria are as follows.

• The compensation payable has been agreed or awarded, or has been paid or paid into court.
• A general vesting declaration (see below) has been executed.
• The AA has entered onto and taken possession of the land specified in the notice.
• The question of compensation has been referred to the tribunal.

General vesting declaration

The general vesting declaration (GVD) procedure can be used 
to expedite the notice to treat process, which can be lengthy, particularly where there are a large number of compensatable interests involved.

GVDs are governed by the Compulsory Purchase (Vesting Declarations) Act 1981, which simplifies the notice to treat process by replacing that notice and subsequent conveyance with one declaration that, on a specified date, has the effect of automatically vesting the title in the land with the AA.

There are, however, risks attached to this approach: the decision to use the GVD procedure is open to judicial review (see R v Camarthen District Council, ex parte Blewin Trust [1990] 1 EGLR 29).

In order to obtain and rely upon a GVD (subject to any challenges, and which must be in the form prescribed by the Compulsory Purchase of Land Regulations 1994), the AA must take the following steps.

First, it must service a notice of intention to make a GVD, and publish it in a local newspaper. Such notice must be served on any owner, lessee or occupier (with the exception of tenants for a month or any period less than a month) before the service of any notice to treat.

Second, it must execute the GVD at least two months (or less, if every occupier of the land consents in writing) after the first publication of the notice of intention.

Third, it must then serve a notice, as soon as reasonably possible thereafter, on:

• every occupier (other than a person with a tenancy for a month or any period less than a month, or with a long tenancy that is about to expire); and
• any other person who responded to the notice of intention.

The notice itself must state the effect of the GVD and specify the affected land.

The GVD will then take effect on the date specified in this notice – which will be at least 28 days after execution of the GVD – and will have the effect of automatically vesting the title to the interest in the land in the AA, along with the right to enter such land and take possession of it.

Following this process will also entitle the affected parties (assuming they would be entitled, if a notice to treat had been served) to seek compensation pursuant to the CPA 1965 and the Land Compensation Act 1961 (LCA 1961) – and, if necessary, to seek such compensation, to be determined by the tribunal.

Following the service of a notice to treat or notice of the making of a GVD, any person or company whose premises are to be compulsorily acquired should submit a formal notice of claim to the AA, setting out (as far as is possible at this stage) details of the compensation claimed. Time limits apply to the submission of such a notice.

Compensation is usually payable under the following principal heads of claim.

The value of the land acquired

The six basic rules of valuation are set out in section 5 of the LCA 1961. The starting point is that the value of any land taken shall be the amount that the land, if sold in the open market by a willing seller, might be expected to realise. No allowance is to be made on account of the acquisition being compulsory.

Severance and injurious affection

Compensation can be claimed under this head if only part of a claimant’s land is being compulsorily acquired, and the loss of that part or the execution of the proposed works by the AA depreciates the value of the land retained. There are also circumstances in which a claim for injurious affection is made where no land has actually been taken.

Disturbance

Typically, disturbance claims can include losses arising from:

• total or partial loss of business goodwill;
• temporary and permanent loss of profits;
• relocation costs and expenses (including reasonable costs incurred to adapt new premises to enable the business to relocate);
• removal expenses; and
• conveyancing legal costs.

When considering any claim for disturbance compensation, the loss claimed must be caused by the compulsory acquisition, and must not be too remote. A claimant must also act reasonably in seeking to mitigate their losses. The claimant is not entitled to compensation for any loss they could reasonably have avoided.

Basic and occupier’s loss payments

These are statutory payments calculated at the lower of 7.5% of a value of the interest or £75,000, and the lower of 2.5% of the value of the interest acquired or £25,000, respectively. If the compensation claim cannot be settled by agreement, then a reference can be submitted to the tribunal to decide the compensation payable. The general rule is that an AA will be liable to pay a claimant’s reasonable professional costs incurred in preparing and progressing a claim.

A formal request for an advance payment of compensation should be made as soon as possible. An AA then has a statutory duty to pay 90% of the compensation it assesses as being payable, not later than three months after the date on which a request for an advance payment is made, or three months from the date on which possession of the land is taken (whichever is the later).

Key principles of compulsory purchase compensation

Underpinning this claim structure are a number of key principles that are vital to the assessment of a potential claim. These principles are to be found in an assimilation of common law, which has later been enshrined in the governing legislation that we have today.

Principle of equivalence

This is derived from the decision in Livingstone v Raywards Coal Co (1880) 5 App Cas 25. As Lord Blackburn said in that case: “In settling a sum of money to be given for reparation of damages, you should as nearly as possible get at that sum of money which will put the party who has been injured, in the same position as he would have been in if he had not sustained the wrong for which he is now gaining his compensation or reparation.”

When considering any claim for disturbance compensation, the loss claimed must be caused by the compulsory acquisition, and must not be too remote

Section 63 of the Lands Causes (Consolidation) Act 1845 (now re-enacted as section 7 of the CPA 1965) then provided that: “In estimating the purchase money or compensation to be paid … regard shall be had … to the value of the land to be purchased or taken.”

In practice, the test applied for financial equivalence mirrors the common law position and, following the decision in Horn v Sunderland [1941] 2 KB 26, the importance of the principle of equivalence to compulsory purchase cannot be underestimated.

No taking of land without compensation

The general and fundamental principle that parliament does not authorise the taking of land without compensation can be found in decisions including Central Control Board v Cannon Brewery Co Ltd [1919] AC 744 and Belfast Corpn v O D Cars Ltd [1960] AC 490. There are, however, exceptions.

• First, the courts will give effect to the intention of parliament not to pay compensation, if this is expressed in clear and unequivocal terms.
• Second, where a power granted by parliament amounts to a regulation and not an acquisition, the compensation presumption does not apply.

The assessment of value

The compensation payable for land taken is set out in section 5(2) of the LCA 1961, namely: “The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise.”

Otherwise, the courts and tribunals have adopted the overarching principle that compensation is on a ‘value to owner’ basis. Where applicable, this applied to all elements of a single claim to compensation – the value of the land itself and all other losses sustained by the claimant. Although the land element is now governed by subsection (2), Hughes v Doncaster MBC [1991] 1 AC 382 confirmed that a compensation claim is one claim for all losses suffered by a claimant.

Pointe Gourde principle

This principle was derived from Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 656 (PC), and establishes that any increase in value entirely due to the compulsory purchase scheme shall be disregarded. This counters, in part at least, the betterment argument commonly argued by the AA in opposing compensation claims.

More recently, Waters v Welsh Development Agency [2004] UKHL 19 revisited the principle and confirmed that it essentially fills in the gaps between the statutory rules, and emerged from the distinction between the value to the owner and the value to the purchaser.

HS2: what happens next?

As we stand on the precipice of one of the largest and most complicated domestic infrastructure projects for a generation, it is vital to consider the interplay between HS2 and compulsory purchase compensation.

While it is clear that the compulsory purchase of lands will be fundamental to the success of the HS2 project, what is less clear is, first, how that will impact on the budget constraints of the project, and second, the extent of the traditional compulsory purchase compensation cases that we are used to seeing for major projects.

It is clear that the compulsory purchase compensation framework will apply to HS2 as much as it applies to any other public project. However, unless blight claims are brought now in respect of properties within what is known as the safeguarded area (an area generally within 60 metres of the proposed line), then the traditional forms of compensation will not kick in until the line has been operational for a year – likely to be well into the next decade.

There are, however, discretionary schemes that apply to HS2 that have the effect of altering the compensatory landscape, as well as bringing forward the right to pursue different types of claim. Advisers will need to familiarise themselves with those schemes – and bear in mind that some schemes are still being consulted on and not yet fully established.

Compulsory purchase is a complex area and one which needs to be treated very carefully. If there is any doubt as to application of the rules in practice, then clients would be well advised to use the services of a specialist compulsory purchase team.With the economy seemingly on the rise, and the government pushing forward ?with its plans for HS2, compulsory purchase schemes are back in the ?spotlight. Richard Flenley guides us through the process