HS2 and Compensation. 3. The basic structure of compensation for HS2 is as follows:

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1 HS2 and Compensation Introduction 1. This paper will consider the compensation provisions for HS2 by reference to what has already been published, to comparable hybrid schemes, Channel Tunnel Rail Link ( CTRL ) and Crossrail, and to similar private schemes, Stansted, Heathrow and Central Railways. 2. It is interesting to note that a recent survey conducted by Knight Frank found that almost half the property owners who will be affected by HS2 still do not know whether they will be eligible for compensation 1. Overview 3. The basic structure of compensation for HS2 is as follows: i) prior to the route being safeguarded the Exceptional Hardship Scheme will apply ( EHS ); ii) iii) iv) once the route is safeguarded statutory blight provisions will apply, it has also been indicated that a non statutory compensation scheme will operate in addition to statutory blight; Once the hybrid bill is passed compulsory purchase provisions ( the National Compensation Code ) will apply possibly with some modifications as with CTRL and Crossrail; In cases where no land was acquired a claim may be made for injurious affection under s.10 Compulsory Purchase Act 1965 or after the project has been operational for 12 months a claim may be made for compensation for the use of public works under Part I Land Compensation Act results published in March 2011

2 Exceptional Hardship Scheme ( EHS ) 4. On 26 th July 2010 the Secretary of State for Transport announced the introduction of the EHS which would be open to applications from 20 th August The EHS is a voluntary purchase scheme for properties which may be affected by the proposed route of HS2. Before the route is safeguarded property owners who have an urgent need to sell but have been unable to do so except at a substantially reduced price as a direct result of the proposed route and who meet the eligibility criteria may apply to the EHS for the Government to purchase their properties at its unaffected open market value. Qualifying criteria 5. In order to qualify for the EHS five conditions must be satisfied 2 : i) The applicant must have a qualifying interest in the property. A qualifying interest includes: a) Owner occupiers (freehold or long leasehold) of private residential properties who - are living in the property at the date the application is received and have owned it and lived in it as their main residence for at least six months prior to the application - where the property is empty have lived there for at least 6 months and the property has not been empty for more than 12 months - if, they are long leaseholders, have a tenancy for a term certain of which no less than 3 years remain at the date of an application to the EHS ; b) Owner occupiers of business premises with a rateable value not exceeding 34,800 who 2 Further information and a copy of the application form may be found at

3 - own a freehold or leasehold interest in the property, have owned the property for 6 months prior to the application and have operated a business of which they are proprietor or principal shareholder throughout this period - if the property is empty must have fulfilled the above criteria for at least 6 months and the property has not been empty for more than 12 months; c) owner occupiers of agricultural units where - the unit includes a dwelling house in which the applicant is living and has been so for at least 6 months prior to the application being received - if the property is empty the above conditions must be satisfied for a period of 6 months and the property must not have been empty for more than 12 months; d) mortgagees with a right to sell who can give immediate vacant possession; e) personal representatives of a deceased person who had a qualifying interest at the time of death ii) the property must be directly on the line of the proposed route 3 or in such close proximity to the proposed route that it would be likely to be substantially adversely affected by the construction or operation of the new line, if it were to go ahead along that route - the EHS does not apply to tunnelled sections 4 but does apply to properties in close proximity to tunnel entrances and exits as well as those in the vicinity of one of the green tunnels 3 maps of the proposed route may be found at 4 for more information on tunnelled sections see

4 - applications received within three months of the publication of the proposed route on 20 th December 2010 will be considered in relation to both the original Route 3 (published March 2010) and the proposed route and will only need to be on or in close proximity to one of these routes iii) The applicant must have made all reasonable efforts to sell their property and not have received an offer within 15% of its unaffected open market property value - for example; the asking price should reflect professional advice as to the value, be realistic and competitive for the market it is in and reflect an urgent need to sell - the guidance suggests that the property should have been actively marketed with at least one recognised estate agent for a minimum of three months iv) the applicant must have brought the property before they could reasonably be expected to have been aware of the high speed rail proposals, in other words they must have no prior knowledge - if the property was bought before 11 March 2010 this criterion will be satisfied - for property bought after 11 March 2010 the applicant will need to provide satisfactory evidence demonstrating that they had no prior knowledge - properties brought after 11 March 2010 and before 20 th December 2010 in proximity to route 3 but not the proposed route will also satisfy this criterion; v) the applicant must have a pressing need to sell their property such that they would suffer exceptional hardship if they had to wait until the route was finalised and new compensation arrangements came into force (expected to be late 2011). The guidance provides the following examples

5 - domestic- there is an urgent need to move to a larger or different house due to changed family circumstances - employment- a need to relocate - Financial- an external financial pressure that necessitates a sale, for example divorce, to release capital for a business, to avoid re-possession - Medical- where the applicant or a dependent in the property has developed a medical condition which necessitates selling - the winding up of the estate of a deceased person. Procedure 6. The completed application form along with supporting evidence should be submitted to the EHS Panel Secretary 5. The EHS Secretariat will acknowledge and review the application and completed applications will be submitted to the EHS Panel. Each Panel has a quorum of two independent members and one senior HS2 representative The EHS Panel will make a recommendation to refuse or accept the application which will then be sent to the Secretary of State. It is the Government s intention to respond to all applications within 3 months of receipt. 8. The Secretary of State will decide whether or not, in light of the Panel s recommendation, to accept the application and the EHS Secretariat will notify the applicant of this decision. If the application is unsuccessful reasons will be provided. 5 EHS Panel Secretary, High Speed Two Limited, 55 Victoria Street, London, SW1H 0EU 6 details of the Panel members may be found at Members-66193

6 9. If the application is successful the property will be valued at its unaffected realistic open market value 7 by two independent valuers from a pool of valuers familiar with the area, one chosen by the applicant and one by HS2. If the two valuations are within 10% of each other the Secretary of State will offer to purchase the property at the average of the two. If the valuations are more than 10% apart an additional valuation will be obtained and the price will be the average of the two closest valuations. 10. A formal offer to purchase a property will only be open for the life of the EHS or for two months if the offer is made within the last two months of the scheme. 11. Applicants whose applications were rejected by the Interim EHS Panel in 2010 may reapply and the final panel will be aware that it is a re-submissions and will see the Secretary of State s decision and reasoning in relation to the earlier unsuccessful application. Likewise applicants may re-apply to the EHS Panel following a material change in circumstances or upon provision of fresh evidence, although the panel would expect an appropriate period of time (usually three months) between the applications. Statutory Blight 12. Once the route has been safeguarded statutory blight provisions will apply. An owner of land may serve a blight notice 8 if he comes within s.150(1) Town and County Planning Act ( TCPA ) The conditions for serving a blight notice are i) where the whole or part of a hereditament 9 or agricultural unit 10 is comprised in blighted land and a person claims that; ii) he has a qualifying interest in that hereditament or unit; 7 this would not include additional costs such as seller s agents and legal fees or removal costs as these would be incurred in any event. 8 s.159(5) TCPA defined in s.171(1) TCPA 1990 as a relevant hereditament within the meaning of the Local Government Finance Act 1988 s64(4)(a)-(c) defined in s.171(1) TCPA 1990 as land which is occupied as a unit for agricultural purposes, including any dwelling house or other building occupied by the same person for the purpose of farming the land.

7 iii) iv) he has made reasonable endeavours to sell that interest or the land falls with paragraphs 21 or 22 of schedule 13 and the powers of compulsory purchase remain exercisable; and because the hereditament or unit was in blighted land he has been unable to sell that interest except at a price substantially lower than that for which it might reasonably be expected to sell if no part was within blighted land. 13. A qualifying interest is an interest in the whole or part of 11 i) a hereditament the annual value of which does not exceed such amount as may be prescribed 12 where the interest is that of an owner-occupier; ii) iii) a hereditament where the interest is that of a resident owner- occupier of the hereditament; or a agricultural unit where the interest is that of an owner-occupier 14. An owner-occupier must have occupied the hereditament or part of it in right of an owner s interest for the whole of the six month period ending with the date of service of the blight notice 13. If the hereditament or part of it has been unoccupied for not more than 12 months the owner-occupier is the person who occupied the hereditament or part of it for the whole six month period immediately before the unoccupied period An owner s interest is defined 15 as either a freehold interest or a tenancy for a term of years certain of which not less than three years remain unexpired at the date of service of 11 s.149(2) TCPA as of 1 st April 2010 the prescribed amount is 34,800 in England (SI 2010/ 498) 13 s.168(1)(a) TCPA s.168(1)(b) TCPA s.168(4) TCPA 1990

8 a blight notice. Blighted land is land that falls within any paragraph of schedule 13 TCPA Once a blight notice becomes effective the relevant authority is deemed to be authorised to compulsorily acquire the interest and to have served a notice to treat in respect of it 17. Compensation is then assessed in accordance with the normal rules subject to ss TCPA Discretionary non statutory schemes 17. Many owners of property do not fall within the statutory blight provisions which do not themselves deal with generalised blight; that is blight prior to final route announcement. It is for this reason that both the CTRL and Crossrail had non statutory compensation schemes. The discretionary scheme for HS2 is currently out to consultation and is not expected to be finalised until late This paper will consider the discretionary schemes under two hybrid bills, the CTRL and Crossrail and those used in the private sector, most noticeably by BAA. Crossrail Hardship Scheme 18. The discretionary scheme for Crossrail is found in Crossrail Information Paper C8 Purchase of Property in Cases of Hardship, and will run until one year after the coming into effect of the railway. A similar scheme was also used in relation to the Channel Tunnel Rail Link. The Crossrail hardship scheme is broadly similar to the EHS and has six qualifying conditions: i) The applicant must have a qualifying interest in a property for the purposes of the TCPA ; ii) The property must not be required for the Crossrail scheme 19 ; 16 s.149(1) TCPA s.145(2) TCPA See paragraphs above

9 iii) The enjoyment of the property must be seriously affected by the construction, or prospect of construction, of Crossrail; - It is most likely that any serious effect upon the enjoyment of property will be caused by noise, vibration, dust, artificial lighting, obstruction to a right of way or access - The effect on enjoyment must be sustained over a period of not less than three months and must not be transitory or trivial in character - The hardship policy will not apply if a claim for compensation under s.10 Compulsory Purchase Act 1965( compensation for injurious affection)would provide adequate redress iv) There must be a compelling reason for the applicant to sell which may be; - A need to move to different or larger premises - Financial pressures that require the sale of the property - The applicant or a dependant living with the applicant has developed a medical condition which necessitates selling and is not related to the proposed scheme - Where the serious effect itself is a compelling reason to move 20 The applicant or a dependant living with the applicant has a medical condition which is likely to be severely aggravated by physical factors caused by the construction works or If the carrying out of the construction works does or is predicted by the Promoter to affect the enjoyment of the property for a 19 Subject to an exception for subsoil acquisition only 20 Under this head an offer will not be made to buy the property earlier than nine months in advance of the start of construction works in the vicinity of the property

10 continuous period of not less than three months such that continued occupation is not reasonably practicable v) The applicant must have made reasonable endeavours to sell his/her interest but have been unable to do so except at a price 15% lower than that for which it might reasonably have been expected to sell in the absence of the Crossrail scheme; and vi) The applicant did not purchase his/her interest when he/she knew or ought to have known about the Crossrail scheme - The hardship policy will not usually apply to property purchased after the 1990 safeguarding directions or, in relation to property unaffected by those directions after 28 October The procedure under the Crossrail Hardship Scheme is largely identical to that under the EHS save that an offer will be open to an applicant for one month and will be subject to completion within six weeks. Where the serious effect is itself a compelling reason to move the applicant may also receive disturbance compensation, a home loss or basic loss payment and an occupiers loss payment as well as reasonable surveyors and legal fees. In all other cases payment will only be made for the market value of the applicant s qualifying interest. 20. In addition the Secretary of State may exceptionally consider providing assistance for hardship cases which do not fall within the criteria of the Crossrail Hardship Scheme. Central Railway s Property Protection Scheme 21. In contrast to the above schemes is the Property Protection Scheme ( PPS ) operated by Central Railway. Central Railway s request for a hybrid bill was finally turned down in March 2002 and the PPS is currently suspended pending revision of the route. 22. The PPS operated by providing property owners with an option agreement to sell their property to Central Railway at an agreed price which could be exercised once construction work had begun in the vicinity of the owner s property, in effect this

11 operated as an insurance scheme. The price of the option was the unaffected open market value of the property and was index linked upwards only to Halifax PLC s Existing Houses index, Central Railways also agreed to increase the price to reflect improvements which have added value to the property. 23. In addition the option was automatically transferable with the property and lasted for 21 years. The PPS did not prevent owners from pursuing other rights to compensation however; if they received other compensation then the PPS would cease to apply. Furthermore, the homeowner also received an allowance to help with moving costs and an additional sum for the stamp duty on the alternative property purchased. 24. The PPS applied generally to lineside properties and excluded those where the railway would be in tunnel. BAA Stansted and BBA Heathrow Home Owner Support Schemes 25. Following the Government white paper on The Future of Air Transport 2003 BAA Stansted, in the context of their plans for a second runway 21 launched the Home Owner Support Scheme ( HOSS ) in January HOSS operated by providing applicants with qualifying interests 22 in properties within the defined area which were constructed on or before 16 December 2003 to apply for an option agreement. The option was fully transferable and valid for 15 years from January 2005 or until the runway came into operation, whichever was sooner. The option was exercisable upon BAA Stansted announcing its intention to construct the new runway (subject to planning permission) and until the date at which the new runway comes into operation. 27. The price of the option agreement was the value of the property at June 2002 and then index linked to the Land Registry published data of house price movements in the county 21 BAA s planning application has since been withdrawn 22 Which is the same as for the EHS

12 of Essex but BAA Stansted also guaranteed to purchase the property at a price no lower than that in June HOSS also encompassed a scheme for those owners who wished to sell their properties before the option became exercisable but had been unable to do so except for 15% or more below the index linked amount, the Assisted Relocation scheme. To qualify for the Assisted Relocation scheme the applicant must have made every reasonable effort to sell their property. However, and in contrast to both the EHS and the Crossrail Hardship Scheme, there was no requirement of exceptional hardship. 29. The property must have been purchased before 16 th December and the length of time for which a property must have been marketed is determined by its option price For those owners who did not qualify for Assisted Relocation because they were able to sell their property within 15% of the index linked price BAA operated an Early Moving Contribution scheme. Under this scheme owners would have been paid 1% of the sale price and the equivalent of stamp duty on the house being sold up to a maximum of 5% of the sale. 31. A virtually identical scheme was introduced in July 2005 in connection with BAA Heathrow s plans for a third runway. Compulsory Purchase 32. Once the HS2 hybrid bill is passed, which is unlikely to be before 2015, compulsory purchase legislation will become relevant. It seems likely, as with Crossrail and the 23 The date of the Government White Paper. Properties purchased after 13 th December 2003 will still be eligible for HOSS although the option price will take into account any incentives provided by the builder/developer. 24 Properties under 250,000 must have been market for 6 consecutive months properties between 250,000 and 750, 00 must have been marketed for 9 consecutive months and properties in excess of 750,000 must have been marketed for 12 consecutive months.

13 CTRL, that the National Compensation Code 25 will, subject to some modifications, apply to HS2. Crossrail Act The compulsory purchase provisions in Crossrail Act 2008 largely mirror those in the Channel Tunnel Rail Link Act , for the purposes of this talk only the Crossrail Act will be considered in detail. 34. Paragraph 2 Schedule 6 Crossrail Act 2008 provides that Part 1 of the Compulsory Purchase Act 1965 is to apply, as it applies to a compulsory purchase order to which Schedule 1 Acquisition of Land Act 1981 applies, and as if the Act were a compulsory purchase order under the 1981 Act However s4 of the Compulsory Purchase Act does not apply and s11 (1) has effect subject to the amendments in paragraphs 3(3) and 4 Schedule 6 Crossrail Act The effect of this is that : i) in a case where the notice to treat relates only to the acquisition of sub soil or under-surface of land or an easement or other rights the notice period is extended from 14 days to one month; ii) in any other case the notice period of 14 days is extended to three months. 36. Paragraphs 4 and 5 Schedule 6 Crossrail Act 2008 provides that the Compulsory Purchase (Vesting Declarations) Act 1981 is to apply with modifications as if the Act were a compulsory purchase order. 25 which consists primarily of the Land Compensation Act 1961, the Compulsory Purchase Act 1965, the Land Compensation Act 1973 and relevant case law. 26 The key sections are 4-8, 19 and 20 and schedules 4 and 5 27 paragraph 1 Schedule 6 Crossrail Act provides that the Land Clauses Consolidation Act 1845 shall not apply to the acquisition of land under s.6(1) 28 time for exercise of powers of compulsory purchase

14 37. Further, the compulsory purchase powers for Crossrail can be implemented, either through a notice to treat and notice of entry or by executing a general vesting declaration, for a period of five years after the powers were granted 29 as opposed to three years for a normal CPO. The Department for Transport and Transport for London may also seek an order to extend this period for a further five years The Crossrail Act also permits temporary possession of land for a period which can extend up to one year after the relevant work is completed. So, for example, if a worksite is needed for the construction of a particular section of the works, entry could be taken when the worksite is first needed, and possession maintained for up to a year after the section of works of completed. During that period, any rights of way across the land are suspended 31. It is also worth noting that in the Crossrail Bill, there were relatively few areas where these temporary powers applied. For major worksites, where it was envisaged that the land would be required for a number of years, permanent powers were taken. Furthermore, subject to certain conditions, private rights of way across acquired land will be extinguished The rules for assessing compensation following acquisition of land or rights for Crossrail are the same as for a normal CPO. In outline the person from whom land is acquired is entitled to payment based upon the open market value of the land acquired, that value being determined as at the relevant valuation date 33. The two principal valuation assumptions in assessing the open market value are, firstly that the land is for sale in a no scheme world and secondly, an assumption that there is a willing seller and a willing purchaser 34. In addition the development potential of the land is taken into account section 6(6) Crossrail Act section 6(7) Crossrail Act section 5 and schedule 5 Crossrail Act section 8 Crossrail Act sections 5(rule2) and 5A of the Land Compensation Act sections 5-9 Land Compensation Act 1961

15 40. The valuation date is the earlier of the date of entry or the date on which compensation is determined by the Lands Tribunal. Compensation for injurious affection where no land is taken: Compulsory Purchase Act 1965 section In cases where no land has been compulsorily acquired but the value of the Claimant s land has been depreciated by works authorised by statute he may claim compensation for injurious affection under s.10 Compulsory Purchase Act ( CPA ) In outline s.10 CPA 1965 applies where the Claimant would have a tortious action for damages but for the defence of statutory immunity. Compensation may be claimed for any land or interest in land which has been injuriously affected by the execution of works authorised by statute where the Claimant is not otherwise entitled to compensation. Section 10 may be excluded by the authorising Act 37 although given that neither the Channel Tunnel Rail Link 1996 nor the Crossrail Act 2008 excluded this right to compensation it seems unlikely that the HS2 Bill will do so. 42. Section 10(2) CPA 1965 expressly provides that section 10 is to be construed as affording the same right as section 68 LCCA 1845 has been construed as affording. The basic rules for assessing compensation are known as the McCarthy Rules 38 which are as follows 35 sections Land Compensation Act This section applies where land has been acquired by compulsory purchase under the Acquisition of Land Act 1981Part 11 or Schedule 1 or has been acquired by agreement under the shadow of these powers. Similar rights are also available under s.68 of the Land Clauses Consolidation Act ( LCCA ) 1845 although given that both the Crossrail Act 2008 and the Channel Tunnel Rail Link Act 1996 both provide that the LCCA 1845 shall not apply to acquisition within limits shown in the deposited plans it seems likely that a similar approach will be adopted in the HS2 Bill. 37 Ferrar v London Sewars Commissioners (1869) LR 4 Exch McCarthy relates to Metropolitan Water Board v McCarthy (1874) LR 7 HL 243 although they in fact derive from a number of decided cases. For a modern restatement of the law see the judgment of Lord Wilberforce in Argyle Motors (Birkenhead Ltd) v Birkenhead Corporation [1975] AC 99 and also the judgment of Lord Hoffmann in Wildtree Hotels Ltd v Harrow London Borough Council [2001] 2 AC 1

16 i) The loss must result from an act made lawful by statute: s.10 does not apply if the authority has acted negligently or outside its statutory powers, in those instances the Claimant s appropriate remedy is a claim in damages and not one for compensation. ii) iii) iv) The loss must be such that in the absence of statutory powers it would have given rise to a cause of action. The loss must arise from physical interference with the land or with a right enjoyed with it, and must result in depreciation of the value of the Claimant s land. The loss must arise from the execution of the authorised works and not from their use. 43. Compensation is assessed by reference to rules on damages in tort. In other words compensation should, as far as possible, put the Claimant in the position in which he would have been had the tort not occurred. Compensation for depreciation caused by the use of public works: Land Compensation Act ( LCA ) Part I of the LCA provides a right to claim compensation where the value of a property is depreciated by the use of public works; defined as any highway, aerodrome, any works on land provided or used in the exercise of statutory powers. 40 Compensation is not payable under LCA 1973 if compensation has been paid for injurious affection in connection with the acquisition of land Part II LCA 1973 contains provisions relating to mitigation of injurious effects of public works. 40 Section 1(3) LCA Bannocks v Secretary of State for Transport [1995] 2 EGLR 157

17 45. The right to claim compensation is where the depreciation in the value of the property has been caused by physical factors defined as 42 noise, vibration, smell, fumes, smoke and artificial lighting and the discharge on to the land of any solid or liquid substance. Compensation is only available where there is an immunity against actions in nuisance To make a claim for compensation the claimant must have a qualifying interest 44 in a dwelling or land before the relevant date, which, in relation to HS2 would be the date on which it was first used following completion No claim may be made before the first claim day 46 which is defined in section 3(2) as the day following the expiration of twelve months after the relevant date and claims may be made for a period of 6 years from the first claim day Compensation is assessed by reference to prices on the first claim day and in accordance with the provisions in s.4 LCA The only permitted planning assumption 48 is that the land would have planning permission for the purposes in Part 1 Schedule 3 TCPA Section 6 LCA 1973 makes it clear that any compensation payable may be reduced by betterment, and section 7 provides that no claim maybe unless the amount of compensation exceeds 50. Section 8 provides further restrictions on compensation and 42 Section 1(2) LCA Section 1(6) LCA The definition of which is substantial the same as for the EHS, for more detail see section 2 LCA Section 1(9)(b) LCA Although see the exception in s.3(3) for owners wishing to dispose of their interest during the twelve months preceding the first claim day 47 Section 19(2A) LCA 1973 and section 9 Limitation Act Section 5 LCA 1973

18 section 9 provides for compensation where existing public works are subject to alterations or change of use. If compensation is payable the responsible authority will also be required to pay any reasonable valuation or legal expenses incurred by the Claimant for the purposes of the preparation and prosecution of the claim It should also be noted that if a responsible authority successfully resists a claim for compensation on the basis that there is no immunity from nuisance they cannot subsequently raise a purported immunity in nuisance proceedings 50. Conclusion 50. It seems likely that a discretionary scheme will be introduced in addition to statutory blight and that it will be modelled on the Crossrail Hardship Scheme as opposed to the PPS or the HOSS. It might be questioned whether it will in substance be any different to the EHS. Patrick Clarkson Q.C Katie Helmore LANDMARK CHAMBERS 15 th March Section 3(5) LCA Section 17 LCA 1973

19 This seminar paper is made available for educational purposes only. The views expressed in it are those of the author. The contents of this paper do not constitute legal advice and should not be relied on as such advice. The author and Landmark Chambers accept no responsibility for the continuing accuracy of the contents.