If someone's land is compulsorily acquired to deliver a public benefit, it is accepted that they should receive fair compensation. But what that “fair compensation” equates to, is far from straight forward.
How is compensation calculated?
The principle of equivalence is key to determining compensation – a landowner should be left in no worse, and no better, position. They should not end up out of pocket because of the land they have lost, or costs they have incurred (for example in relocating), but equally cannot expect to be left in a better position. This principle permeates the different types of compensation, or heads of claim, available.
The rules used to calculate the compensation are collectively known as the Compensation Code. However, this is extremely misleading – there is no single place where this "Code " is set out; indeed the rules are spread throughout various Acts, supplemented by case law, with further input from Government guidance. Consequently, it is widely acknowledged as a complex area, requiring specialist advice.
Value of the land
The starting point is usually the value of the land (or rights) acquired. This is calculated as the market value of the land, but calculated in the "no scheme world" – i.e. assuming that the CPO is not proceeding. What exactly this hypothetical scenario looks like can be a cause of dispute between the acquiring authority and the claimant and has its own plethora of rules. It can also lead to perceived injustice. It is not uncommon for a landowner compensated at values ignoring the CPO to find itself unable to afford a replacement property in the same area, as market value for those properties climbs to reflect the benefits delivered by the CPO.
There also needs to be agreement on the basis of valuation. In addition to the value of the land in its current use, compensation should reflect value attributable to any other planning permissions in place, and in cases where "hope value" can be claimed, to reflect the expectation that planning permission would be granted for a more valuable use. There are procedures available to confirm what hypothetical planning permissions would have been granted in the hypothetical “no scheme world“, so that valuations can also cover this.
Costs and losses
Phrases like "injurious affection" and "disturbance costs" are used to describe other heads of compensation that can be claimed. In short, these are the other losses a landowner suffers as a result of a CPO, such as loss of rents, relocation costs, and the professional costs incurred as a result of the CPO (although not those incurred objecting to the CPO).
It isn't simply a case of handing over receipts and being reimbursed. A claimant must demonstrate that all costs are reasonable, and that they appropriately mitigated their losses. If it can be shown that a reasonable claimant would have acted differently, and consequently incurred lower costs, a landowner could end up out of pocket. If, for example, an occupier has to pay over the odds in relocation costs because it left everything to the last minute, the onus will be on it to demonstrate why that was reasonable in the circumstances.
There are also statutory payments such as interest (albeit at a very low rate), and certain fixed payments, based on the use and rateable value of the property, payable.
When will I receive my compensation?
There is no entitlement to compensation before the acquiring authority takes the land (although a claim can be made earlier). In reality, though, it is often many years after possession is taken before the final compensation figure is fixed. This can cause significant difficulties for landowners who have had to fund their own relocation, or other costs in the interim.
There is, though, a right to claim an Advance Payment. This is 90% of the acquiring authority's estimate of compensation, but it is difficult to challenge the estimate at this stage, so Advance Payments are often based on seemingly low starting estimates. This payment should be made within two or three months of request, depending on when the CPO was made (provided possession has been taken), but there's no way to enforce it, and payments are often late. New rules to curb this are yet to take effect.
If the parties cannot agree the compensation figure, they are encouraged to explore alternative dispute resolution and the (non-binding) Compulsory Purchase Association Protocol contains best practice on how the parties should engage to try to reach agreement.
Ultimately, if all else fails, either side can refer the matter to the Lands Chamber (Upper Tribunal) who will determine the compensation payable based on expert evidence. This, though, is a potentially lengthy and expensive procedure and although the starting point is that an acquiring authority is responsible for these costs too, where they make a sealed offer for compensation the situation can become more complicated. This is not, therefore, an option which should be embarked upon lightly.
Whilst compulsory purchase orders are a valuable tool to deliver much needed regeneration and infrastructure, they can place a significant burden on those whose land is taken, and anyone embarking on the lengthy, complex and potentially expensive journey, must ensure that they have the appropriate expert guides to help them secure the best possible outcome.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.