Page 1 To: Andrew Clark Your Ref: Our Ref: From: Louise Staples & Hannah Burden Date: 14 June 2010 Location: NFU HQ, Stoneleigh Compensation Procedure for Compulsory Purchase How is compensation assessed for land acquired by compulsory purchase? Section 5 Land Compensation Act 1961 The normal basis for agreeing compensation for land compulsorily acquired is market value. There are 6 statutory rules which govern the concept of market value compensation in compulsory purchase situations: Rule 1 No allowance shall be made on account of the acquisition being compulsory Rule 2 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 This means that the price of the land must be determined as if it were out on the open market. This is not a hypothetical market, but the market which the seller could legitimately have sold his property at the relevant date 1. A willing seller is not an anxious seller and the potential unwillingness of the seller to part with his land and the urgent necessity of the acquiring authority to buy it must be disregarded. The value of any existing planning permissions should be taken into account and planning assumptions are also made in respect of the land to determine the market value of the land had no compulsory acquisition taken place. Rule 3 The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from the requirements of any authority possessing compulsory purchase powers. The effect of this rule is that any increase in value that is attributable to special characteristics of the land is removed where: The land has special suitability or adaptability for any purpose; and That purpose is either of the following: A purpose which could not be carried out without statutory powers, or A purpose for which there is no market from the special needs of a body having power to purchase land compulsorily. 1 The relevant date is the date on which possession is taken by the acquiring authority, or the date on which compensation is assessed, whichever is earlier
Page 2 Rule 4 Where the value of the land is increased by reason of the use thereof or of any premises thereon in a manner which could be restrained by any court, or is contrary to law, or is detrimental to the health of the occupants of the premises or to public health, the amount of that increase shall not be taken into account. This would include uses carried on in breach of planning control, building regulations or fire regulations. Rule 5 Where land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that purpose, the compensation may, if the Lands Tribunal is satisfied that reinstatement in some other place is bone fide intended, be assessed on the basis of the reasonable cost of equivalent reinstatement. This rule applies where there may be no market for the use of the land and the open market cannot be determined by reference to sales of similar property and reinstatement could not be achieved by the seller purchasing premises to put to a similar use elsewhere. Rule 5, when it applies allows the seller to be provided with a sum to recover the reasonable cost of reinstating the use elsewhere. Rule 6 The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based upon the value of the land. Can the landowner / tenant require the buyer to carry out accommodation works? The acquiring authority may agree to accommodation works. This can reduce the claim for injurious affection. The most common examples are:- An over bridge, tunnel or underpass to connect severed parcels of land; Access, fencing, gates where part of land taken; Relocation of water supply, other service pipe, drains, sewers and soak-aways. The above is offered to assist a landowner and to mitigate the effects of injurious affection. So to explain the above: A) Over bridges or underpasses provide access to severed land. It is important that under passes should have enough headroom to allow a tractor to pass and for bridges to be wide enough for machinery. The actual main structure of the bridge or tunnel is not an accommodation works as it is constructed on acquired land. Therefore the claimant will need to reserve an easement of way. Also need to make sure that liability for future maintenance passes to the acquiring authority. B) Replacement of fences and replanting of hedges and maintaining these until established. New gates should always be at least 4m wide, galvanised and gateways stoned. The removal of an existing hedge where an odd area can be combined with another field. (planning may be needed for the removal of the hedge). C) Provide water supplies, new troughs and meters were water supplies are severed. Continuance of severed land drains.
Page 3 D) noise, insulation and double glazing. Special ventilation. E) Making good part structure acquired i.e. a building Headings of Compensation Claim: 1. Land Taken 2. Severance 3. Injurious Affection 4. Home Loss 5. Basic / Occupier s Loss 6. Statutory Interest 7. Disturbance 8. Additional Payments 1. What value is attributed to land which is taken? A landowner is entitled to the open market value of the land taken, in line with the 6 rules explained above. 2. What if the value of the retained land decreases in value as a result of the compulsory purchase? Severance Where the land which is compulsorily purchased affects the value of the retained land, or the land is severed into two or more parts. This is known as severance. Injurious Affection This is injury to the value of the farm as a unit, including proximity of a new road to the dwelling, interference with sporting rights, depreciation as loss of land has led to certain fixed equipment being superfluous and there is an increased cost in working the land. It is the loss in value due to the CPO works. Losses for severance and injurious affection are assessed on the basis of the depreciation in the market value of the landowner s retained land. Set Off In a situation where the retained land increases in value, statute 2 provides that the increase in value is set off or deducted from the compensation for the land compulsorily acquired. 2 Sections 7 & 8, Land Compensation Act 1961
Page 4 3. Is compensation available if the landowner / tenant loses his home as a result of the compulsory purchase? An additional home loss payment may be available to landowners / tenants in addition to other compensation received 3. The amount of the payment is 10 % of the market value of the seller s interest in the dwelling, subject to a maximum of 15,000 and a minimum of 1,500. The claim must be lodged within six months of dispossession. 4. Basic loss / occupier s loss Basic loss this is 7.5% of the value of the interest acquired. The maximum payment is 75,000. Occupier s loss this payment is 25,000. 5. Is interest payable? This is payable from the date of entry and is on the unpaid balance of the settled claim. Advance payments of compensation 90% of the acquiring authorities estimate is payable when entry is taken. This is made under section 52 of the Land Compensation Act 1973. 6. Is compensation payable for the disturbance to the agricultural business? Disturbance normally forms a major part of an acquisition and the losses must be a direct result of the acquisition. It can cover loss of business profits caused by the disruption. The disturbance claim would include : Loss of crops and damage to crops; Expenses in moving livestock; Cost of rounding up stock; Extra cleaning of dwellings; Loss on forced sale of stock; Damage to drains; Claimants time in meetings, phone calls; Legal and surveyors fees. Can a Landlord make a claim for compensation? Section 48 of the Land Compensation Act 1973 The landlord s interest to be valued is that which actually existed at the date of the notice to treat. The landlord can also make a claim for injurious affection and severance as above. 3 Sections 29-32 Land Compensation Act 1973
Page 5 Can landowners / tenants claim compensation if no land is acquired? By Part 1 of the Land Compensation Act 1973, compensation can be claimed by those affected by works even if no land is taken. Such losses are judged one year after the works are brought into use. Are landowners / tenants required to meet the costs of their own fees in relation to the compulsory purchase? Section 23 of the Compulsory Purchase Act 1965 provides that the acquiring authority is to meet the landowner s / tenant s conveyancing costs. There is no statutory requirement for the owner s other professional costs to be met by the acquiring authority i.e. surveyor s / land agent s costs, however case law has suggested that these costs may be recoverable as compensation and in practise they are usually recoverable.
Page 6 Example Claim Owner Occupier Example: 1) Land Taken Acquiring authority to pay for the land acquired 4.20ha @ 14,826 ( 6000ac) 62,269 2) Severance An area of land is severed to the west of the rail line. An area of 25 hectares (62 acre). It will take longer to move livestock to certain pastures and longer in travelling time by tractors and machinery to arable fields. Additional estimated time due to severance 150 hours per annum Loss in value to the 25 ha due to severance at 1200ha Total severance 30,000 3) Injurious Affection The farmhouse is affected by noise of the rail track and the view is severely impaired. Current Value of the farmhouse as part of the whole farm is 625,000. Loss 30% 187,500 Cottages semi detached similarly affected Current value 260,000 Loss 30% 78,000 Certain areas will not be suitable to grow vegetables on any longer. 5 Ha with a capital value of 19768 ha Depreciate by 10% 9884 Buildings depreciate in value 400,000 Depreciate by 10% 40,000 1020 m of fencing to be maintained and a hedge to be laid in approx 10 years. Depreciation in the remaining 76.8 ha @ 749 per ha. 57,523 Total Injurious Affection 372,907 Total Claim 465,176 * Please note - the above is an example claim for illustration purposes only. The NFU encourages members to seek independent professional advice in respect of any compensation claim.
Page 7 What form of compensation is available to agricultural tenants? Compulsory Purchase Act 1965 Section 20 1. The tenant is entitled to the value of the unexpired term of the tenant s interest; 2. The payment that would be made to him by an incoming tenant e.g. value of growing crops, tenants pasture and tenants improvements; 3. Disturbance; and 4. Severance where this can be proved and injurious affection to the remainder of the farm. Section 48 of the 1973 Act provides that the above compensation is subject to a deduction of the payment of four times the annual rent paid in respect of the land taken Valuation of the Tenants Unexpired Interest The following factors need to be considered:- The age of the tenant. Is it a young tenant with no desire to vacate or it may be an older tenant near to retiring age? The value of the interest is substantially diminished; The possibility of a member of the tenant s family being able to apply for succession; The importance of a given area of land; Whether there is any possibility of the landlord being able to obtain planning consent for any other use than agriculture. The tenant is compensated for his interest as if it existed in a no scheme world. Approach There are different approaches which have been taken by valuers to assess the value of the tenant s interest: 1 a proportion of the difference between the vacant possession value and the value of the reversion; or 2 a proportion of the difference between the vacant possession value of the freehold interest and its value subject to the life tenancy; or 3 capitalising the profit rent for the remainder of the tenants lifetime.
Page 8 Example Claim Tenant Example: 1) Value of Tenants Unexpired Term A young tenant expected to farm for a further 20 years and a son to succeed afterwards. Major improvements carried out by the tenant. Value of tenants interest is considered normally to be 50% of the difference between the estimated vacant possession value and the investment value. Due to tenants improvements the split would be 60%. VP - 20,000 Invest value - 10,000 the difference 10,000 = 10,000 x 60% 6,000 = 6 hectares @ 6,000 36,000 Less : 4 x 882 (apportioned rent) = 3,528 Total Value of Tenancy Interest 32,472 2) Injurious Affection to Tenancy Fencing Liability has arisen due to 1200m of fencing to be maintained. A) 90 hours maintenance @ 8 720 YP 4% 28.00 20,160 B) Cost of laying hedge in 10 years time 1020m @ 12 12,240 Defer 10 years @ 8% 5,667 C) Redundant Buildings Current Value 80,000 25% redundancy 20,000 Total Injurious Affection 41,667 3) Occupiers loss max 25,000 Loss Payment max 75,000 4) Disturbance, Crop Loss 5) Accommodation works 6) Advance Payment 7) Professional Fees 8) Interest to be paid on the remaining amount of the claim * Please note - the above is an example claim for illustration purposes only. The NFU encourages members to seek independent professional advice in respect of any compensation claim.