Compensation

Market Value is the Norm

The Housing Act (whose procedure is used most widely, and not just in respect of housing) provides that the compensation payable is the value of the land at the time the relevant Notice to Treat is served. The broad principles derived from numerous decided cases include;

• the value to be ascertained is the value to the Transferor not its value to the Acquirer.
• in fixing the value to the Transferor all restrictions as to user etc are to be taken into account, but the possibility of such restrictions being modified for his benefit are not to be overlooked.
• market price is not a conclusive test of real value.
• increase in value on the execution of the undertaking for or in connection with which the purchase is made must be disregarded.
• the value to be ascertained is the price to be paid for the land with all its potentials.

Principles of Compensation I

No allowance is to be made on account of the acquisition being compulsory. The value of the land shall, subject as later set out is taken to be the amount which the land, if sold in the open market by a willing seller, might be expected to realise. This is subject to the principle that the arbitrator is entitled to consider all returns and assessments of capital value for taxation made or acquiesced in by the claimant.

Factors influencing market value include;

• title and tenure;
• location area and quality of the land;
• market conditions and trends;
• type, size and condition of buildings;
• development potential;
• availability of services;
• planning history and status.

Evidence of market value may be deduced from sales of comparable properties. The potential for ‘marriage value’ will also be taken into account if it really exists.

The special suitability of the land for any purpose shall not be taken into account if that purpose is one to which it could be applied only in pursuance of statutory powers or for which there is no market apart from the special needs of a particular Acquirer or the requirements of a Government Department or Local Authority.

Principles of Compensation II

Where the value of the land is increased by reason of the use of it or of any premises on it in a manner which could be restrained by a court, or is contrary to law or is detrimental to the health of the inmates of the premises the amount of that increase shall not be taken into account.  This rule applies not just to the market value of the land but also to compensation for disturbance.

Where the 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 compulsory purchase  may, if the Arbitrator is satisfied that the reinstatement in some other place is bona fide intended, be assessed on the basis of the reasonable cost of equivalent reinstatement.

The provisions of the second rule above shall not affect the assessment of compensation for disturbance on any matter not directly based on the value of the land.

In the case of compulsory acquisition of buildings the reference in rule 5 above to the reasonable cost of equivalent reinstatement shall be taken as a reference to that cost not exceeding the estimated cost of the buildings such as would be capable of serving an equivalent purpose over the same period of time as the buildings compulsorily acquired would have done, having regard to any structural depreciation in those buildings.

Principles of Compensation III

The value of the land shall be calculated with due regard to any restrictive covenant entered into by the acquirer when the land is compulsorily acquired.

Regard is had to any restriction on the use of the land in respect of which compensation has been paid under the planning acts. Regard is had to any restriction on the development of the land which could, without conferring a right to compensation, be imposed by law.

Regard shall not be had to any depreciation or increase in value attributable to;

• the land being reserved for any particular purpose in the development plan
• the inclusion of the land in a special amenity area Order.

No account shall be taken of the value attributable to any unauthorised structure or unauthorised use.

No account shall be taken of;

• the existence of proposals for the development of the land or any other land by a Local Authority, or
• the possibility of the land becomes subject to a scheme of development undertaken by a Local Authority.

Regard shall be had to any contribution which a Planning Authority would have required as a condition precedent to the development of the land.

In rules 9,10,11, 12, 13 and14 words such as ‘development’, ‘authorised use’ etc have the same meaning as in the Planning Acts.

Relates just to planning compensation.

Distrurbance

Disturbance is the loss suffered by the owner as a result of the compulsory acquisition of his land, apart from the value of the land taken. There is no statutory right to compensation for disturbance.  However, the courts interprete the value of land as meaning its value to the owner, which included personal loss suffered over and above the market value of the land taken.

There are four principal tests for a valid disturbance claim:-

• the loss must have been sustained or must reasonably be expected to be sustained in the future;
• the loss must flow from the compulsory acquisition;
• the loss must not be too remote;
• the loss must be the reasonable consequence of the dispossession of the owner;

Costs incurred prior to Notice to Treat

Losses or expenses incurred before the date of service of the Notice to Treat are generally not recoverable. However, the courts have said that t is desirable in the public interest that owners should be encouraged to mitigate compensation for disturbance by reasonable and prudent steps taken in advance of service of the Notice to Treat.

he court set down four tests which must be satisfied before the Arbitrator may properly award compensation for pre Notice to Treat expenditure and loss. See above.

Duty to Mitigate

An owner must take all reasonable steps to mitigate the loss to him consequent on the compulsory acquisition. However, there is no duty to mitigate before the Notice to Treat is served.  The duty to mitigate only arises once the Notice to Treat is served.

All expenditure reasonably incurred in mitigation after that date is recoverable for disturbance.  On the other hand, an owner cannot recover for loss which is reasonably avoidable, but which, through unreasonable action or lack of action he has failed to avoid.

Where the steps reasonably taken in mitigation lead to losses greater than the losses that would have been incurred had no such steps been taken, then it would appear that the claimant is entitled to recover the full amount of the losses incurred.

Costs of Reinvestment

It is generally accepted that an owner is entitled to disturbance compensation when he occupies the property acquired. Such compensation will include the costs of acquiring alternative premises to replace those acquired.

Thus, a dispossessed owner occupier is entitled to reinvestment costs when he can show that:-

• he has acquired alternative premises or that he proposes to do so, and
• the necessity to relocate is the direct consequence of the compulsory acquisition.

Value for money

When an Owner whose land is taken acquires alternative accommodation, he is not generally entitled to recover by way of compensation for disturbance or otherwise any part of the Purchase Price of the alternative accommodation – because it is presumed that the Purchase Price which he pays for the new property is value for money.

However, circumstances may arise where the expenditure in respect of alternative accommodation is not reflected in the value of that accommodation and thus, may be compensatable. For example, if the cost of adapting the new property for a specialist trade is not reflected in the value of the new premises, such cost is allowable.

Regard will also be had to any benefit or saving that accrues to the Owner in the move, for example, increased life of newly installed plant.

Compensatable losses

There is no definitive list of disturbance items.  However, examples of the categories of compensatable losses are as follows:-

• cost of seeking and acquiring alternative premises;
• cost of adapting new premises;
• removal expenses;
• double overheads;
• increased overheads;
• loss of goodwill.