Property Indices - John Wiley & Sons

Property Indices - John Wiley & Sons

Compulsory Purchase & Compensation CPO powers Public bodies with statutory powers Local authorities Highways Agency Utility companies Transport infrastructure providers Main sources of CPO powers Act of Parliament Order under Transport and Works Act 1992 Possession

By agreement Following a Notice to Treat and Notice of Entry Similar to NTT but conveys title to acquiring authority (AA) as well as giving right to enter and take possession By procedures for acquiring short tenancies (<= annual fixed or periodic)

NTT served <= 3 yrs of CPO Respond with notice of claim May not receive compensation for new works or interests created after NTT date By a General Vesting Declaration Price in accordance with Compensation Code (equal to compensation payable had land been compulsorily acquired, i.e. land value plus compensation) AA acquires superior interest and served NTQ (no compensation under CP legislation) Notice of Entry (compensation payable for any unexpired term) In response to a blight notice May bring forward acquisition if blighted

NB. Blight may be due to other planning and development proposals as well as CPOs Principles Who is entitled to compensation? Anyone with an interest in land, i.e. Freeholders Leaseholders Mortgagees No compensation for Easements and Restrictive Covenants, unless altered or extinguished Heads of claim Compensation for land taken (compulsorily acquired) Compensation for severance and injurious affection Where some land is taken Where no land is taken Disturbance compensation The legal background

Section 5 Land Compensation Act 1961 (as amended): SIX RULES FOR ASSESSING COMPENSATION 1. No allowance shall be made on account of the acquisition being compulsory but, there are loss payments 2. Basic loss payment (lower of 7.5% value of interest or 75k) Occupiers loss payment (complex rules) The value of the landif sold in the open market by a willing seller might be expected to realise

Seller assumed to be willing Basically same as MV Can be difficult to get to MV if CPO has been around for a while: BLIGHT MV includes Development and Hope Value (more later) Marriage Value and Ransom Strips, see Stokes v Cambridge Corporation (1961) The legal background 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 an authority possessing compulsory purchase powers

4. 5. 6. MV does not include enhanced value attributable solely to the particular use proposed to be made of the land under a scheme of which compulsory acquisition of the subject land is an integral part This element of value is not part of MV because it is not an element the owner could have realised in the open market No increase in value is to be taken into account if it is contrary to law For example, illegal user in breach of planning consent Where land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such nature that there is no general demand or market for land for that purpose, the compensation may if the Land 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. The provision of Rule 2 shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land. Valuation Guidance Must depart from Red Book definition of MV and follow statutory regs: Land Compensation Act 1961 Compulsory Purchase Act 1965 Land Compensation Act 1973 as amended by the: Planning and Compensation Act 1991 Planning and Compulsory Purchase Act 2004 and case law! The no scheme world Land Compensation Act 1961 (as amended) s.6 the Statutory Rule for disregarding the scheme: No account is to be taken of any increase or decrease in Market Value due only to the acquiring bodys scheme The scheme is tightly defined in the Act, e.g.

area covered by CPO New Town Examples of problems with s.6: Where there is more than one CPO Where there is a developing and evolving New Town Point Gourde Principle Compensation cannot include an increase in value which is entirely due to the scheme underlying the acquisition s.9 Blight No account to be taken of the depreciation in value due to the threat of compulsory acquisition Compensation for land taken Based on principle of equivalence Effects of CPO on value of property are ignored

Value land on OMV basis without increase or decrease attributable to development which underlies the CPO Valuation date is earliest of: date AA enters and takes possession (NTT procedure) or date title vested in AA (GVD procedure) Date values agreed Date of Lands Tribunal decision Value of land taken If there is a market for the land, then MV Must disregard fact that acquisition is compulsory (i.e. willing seller) MV: higher of EUV Development value (which may include marriage value or ransom value

provided they would have existed in the no scheme world) Assessing the planning position (s14-17, Land Compensation Act 1961 (as amended)); the following may be assumed: Existing planning permission Permitted development not yet implemented pp for acquiring authorities proposal (but ignore special suitability and wider scheme) pp in accordance with an allocation in a Local Plan Certificate of Appropriate Alternative Development (hypothetical planning permission) Value of land taken If there is no market, then cost of equivalent reinstatement Difficult to justify if the interest is a short lease Uncommon in relation to business premises Four general tests Land must be used for a purposes that would continue No market Bona fide intention to reinstate If reinstatement cost is disproportionate then may not be allowed

Whether market or not, if additional development permitted within 10 years of acquisition, owner is entitled to uplift Ransom strips Housing Development Land Road Owner of yellow land gets % of development value of green land, in Stokes v Cambridge (1961) it was 1/3 Severance and injurious affection Severance: retained land loses values because it has been severed from the acquired land Injurious affection: retained land loses value due to proposed construction on and use of acquired land for the scheme The latter is payable where: i.part of an owners land is acquired, or ii.no land is taken Severance and injurious affection:

part land taken You own a business unit of 1,000 m2 which was split into two 500m2 bays. One is CPOd for railway development and compensation is paid based on MV of property acquired. If it is demonstrated that there is greater demand for 1,000m2 units than 500m2 ones and that the retained unit depreciated in value as a result of not being held with the part acquired, compensation would include an amount in respect of severance. If the retained land depreciated as a result of being adjacent to the railway line, compensation would reflect this injurious affection too. Value where part of an owners land is taken Statutory basis: Value of land taken + severance and injurious affection (which must be consistent with basis of claim for land taken) to retained land - set-off for betterment of retained land (cant be > total compensation amount, i.e. least amount of compensation payable is nil) + disturbance (if land is acquired at value that assumes EUV) see later

So compensation is for o Loss of Land (already discussed); and o Reduction in value of the retained land (due to severance and injurious affection) Value where part of an owners land is taken How to Calculate Combine assessment of claim for land taken, severance, injurious affection and betterment together using a BEFORE & AFTER valuation approach Agree value of whole property in a no scheme world e.g. MV before scheme = 250,000 Value remaining part in scheme world E.g. MV after scheme = 200,000 Difference (if any) is compensation i.e. 50,000 NB. If the MV of land taken was 30,000, loss in value of retained land (due to severance and injurious affection) is 20,000 Injurious affection: when no land is taken

Two options Execution of works; and/or Use of works Injurious affection: when no land is taken Execution of works s.10 Compulsory Purchase Act 1965 Four rules must be satisfied (McCarthy Rules), injury done must: be authorised by statutory power arise from that which would, if done without the statutory authority, have been actionable at law, for example, as a nuisance arise from a physical interference with some right, public or private, which attaches to the land arise solely from the execution of the works and not as a result of their subsequent use Valuation date = date of loss Basis of compensation = diminution in value of interest Injurious affection:

when no land is taken Use of works Part I Land Compensation Act 1973 (Part I claims) Enables an owner of a qualifying interest to claim compensation where no land is taken but a property is depreciated in value by the use of public works due to physical factors only Public Works (highway, airport, etc.) Physical Factors (noise, vibration, smell, fumes, smoke, artificial lighting, etc. not loss of view or privacy!) First date of claim = 12 months after the use of the public works first commenced Last day of claim = 6 years from the first claim day Valuation date = same as the date you can first make a claim (see above) Basis of value = Diminution in Value of Interest, based on Existing Use Value only Qualifying interest = FH or LH business premises with at least 3 years unexpired and RV <= 29,200 (2005 List) Disturbance Compensation Rule 6 Only if compensation is based on EUV

You cant have your cake and eat it! The occupier can claim either: Costs of Relocating the Business; or Cost of Total Extinguishment in most cases the occupier will only be granted relocation costs. BUT a sole trader aged 60 or over in a property with RV <= 29,200 (2005 List) has a statutory right (s.46 LCA 1973) to opt for total extinguishment Certain interests in land may also be entitles to a loss payment in addition to other compensation due Investors have limited rights to compensation introduced by the PCA 1991 for the costs of re-investment in another UK property for up to one year from the date of entry. Disturbance Compensation Typical relocation costs that can be claimed for: Removal Legal, surveyors and architects fees and Stamp Duty relating to acquisition of new premises Special adaptations to replacement premises

Loss of profits during move Diminution of goodwill following move (reflected in gross profits) Depreciation in value of stock Notification of new address to customers and new stocks of stationery due to change of address Typical extinguishment costs Value of business goodwill Loss on forced sale of stock, vehicles and P&M Redundancy costs Admin costs of winding up the business Acquiring short tenancies No requirement to serve a NTT but compensation arrangements similar to other interests: Land taken: compensation payable in respect of MV of LH interest and

should reflect any renewal rights Severance and injurious affection: right to compensation for diminution in value of retained land, even if retained land is held under a separate lease, provided it is adjoining or adjacent Disturbance: only losses relating to period between date of entry and expiry of term are recoverable If tenant has security of tenure under LTA54, disturbance compensation can be claimed under CPO legislation or LTA54 Occupiers with no compensateable interest in land Limited rights to compensation for occupation agreements that are less formal than a lease, such as tenancies at will, tenancies on sufferance and licences Compensation is for relocation costs and any loss of goodwill Regard is had to amount of time the land occupied would have been likely to have remained available for the purposes of the business and to the availability of other suitable land If tenant is holding over under LTA54 security of tenure provisions, disturbance compensation under the LTA54 provisions can be chosen if > CPO disturbance payment

Mr B is the owner-occupier of a bakery that is subject to a CPO and he has come to you for advice. He has lived in the upper part and run the bakery on the ground floor for the last five years. The rent is currently 70,000 p.a. for the whole property on an IRI lease with 10 years unexpired. The MR is 100,000 p.a. (60,000 p.a. for the shop part). The RV of the shop is 40,000. Net profit from the bakery for last three years was 160,000, 170,000 & 180,000. Costs include rent, mortgage interest (10,000), repairs (5,000), rates (20,000) all relating to the whole building. Remuneration for Mr B (who works full-time) and Mrs B (who works half-time) has not been deducted. Mr B is 62 and does not wish to buy another business. Land taken (Rule 2, S5 LCA61) Market Rent (IRI) ()

100,000 Plus landlords expenses; External repairs () 5,000 Insurance () 5,000 Market Rent (FRI) () 110,000 Less rent paid ()

-70,000 Profit rent () 40,000 YP 10 years @ 8% 6.7101 Valuation () 268,404 Disturbance (Rule 6, S5 LCA61) Claim for total extinguishment under S46 LCA73 Take ave of last 3 years earnings as best evidence of profitability Net profit () 170,000

Mortgage interest () 10,000 Repairs for upper part, say () 1,000 Less (hypothetical) part-time assistant () -40,000 Less profit rent in respect of shop part, say () -30,000 Less interest on capital: fittings ()

15,000 stock () 5,000 cash () 3,000 Total capital Amortised at 8% 23,000 x 0.08 -1,840 Adjusted net profit () 109,160

Adjusted net profit () Capitalised in perpetuity at a target rate return of 20% 109,16 0 5 Value of goodwill () 545,800 Additional items [a]: Sale of fittings to acquiring authority () Notification to suppliers ()

1,000 Loss on stationery () 1,000 Disconnection of services () Removal costs () 3,000 Finding new living accommodation ()

4,000 Home loss () 5,000 [a] Business is a bakery so there is no forced sale of stock Disturbance compensation (based on total extinguishment) () 10,000 500 570,300

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