Compulsory purchase – Compensation – Claimant owning land with planning permission for mixed-use development – Respondent local authority acquiring land by compulsory purchase as part of redevelopment scheme – Claimant seeking compensation for compulsory acquisition – Claim being referred to tribunal – Whether profitable development of reference land by implementing planning permission possible in “no-scheme” world – Compensation determined accordingly
The municipal boundary dividing Salford from Manchester ran down the centre of the River Irwell. On the Salford side, the claimant owned a plot of land known as City Wharf, 30 New Bailey Street. In 2012, it obtained planning permission for a mixed-use development. On 2 February 2015, the respondent local authority acquired the land pursuant to the Salford City Council (Salford Central) Compulsory Purchase Order 2010 (CPO) as part of the Salford Centre regeneration scheme.
An issue arose as to the amount of compensation payable to the claimant for the compulsory acquisition. The claim was referred to the tribunal for determination. The land was valued by the claimant at the date of acquisition (the vesting date) at £11,180,000. The respondent valued it at £3,000,000.
The claimant sought compensation under rule 2 of section 5 of the Land Compensation Act 1961 in respect of the value of the freehold interest in the reference land on the vesting date. A claim for pre-reference costs was compromised at £22,500. The claimant was also entitled to the maximum £75,000 basic loss payment under section 33A of the Land Compensation Act 1973.
The CPO was made on 24 December 2010, and the valuation of the claimant’s interest was required to be conducted in light of the compensation provisions in section 6 of the 1961 Act as they existed before amendments introduced by the Localism Act 2011 and the Neighbourhood Planning Act 2017.
Under the “no-scheme” principle, any increase or decrease in the value of land caused by the scheme for which the authority acquired it, or by the prospect of that scheme, was to be disregarded: section 6A(2) of the 1961 Act.
Held: The compensation was determined accordingly.
(1) The value of the claimant’s land for the purpose of compensation was taken to be the amount which the land would be expected to realise on 2 February 2015 if sold in the open market by a willing seller. No account was to be taken of any diminution in the value of the claimant’s interest which was attributable to the scheme underlying the acquisition. It was necessary, therefore, to identify development which was in prospect or had already been undertaken by the valuation date as part of that scheme and to consider whether it would have been likely to have been carried out if the respondent had not acquired any of the scheme land. If not, for the purpose of the rule 2 valuation, any change in the value of the claimant’s interest which was attributable to that development had to be disregarded. The scheme, the effects of which were to be disregarded in the assessment of compensation, was agreed to comprise the whole of the regeneration of Salford Central envisaged by the 2010 Order.
(2) The parties agreed that in the no-scheme world the condition of the reference land and its immediate locality would not have changed between December 2010 when the CPO was made and the valuation date of 2 February 2015. The condition of the land at the date of the CPO was therefore significant.
(3) The main issue was whether a profitable development of the reference land by implementing the planning permission would have been possible in the no-scheme world. The tribunal would approach that question as parties negotiating a sale of the reference land on the valuation date would have done.
Because of its location in what at that time was a fringe office location, the first thing in the mind of a potential purchaser would have been the capital value of the land itself. It had to be assumed that the building was vacant (as it was in reality on the valuation date) and a purchaser would have taken account of the opportunity to refurbish and relet. An assessment of the value of the refurbished building, and of the cost of its refurbishment, would have underpinned the value of the reference land on the valuation date (the City Wharf value).
The parties would then have compared, possibly with a broad brush, the value of a refurbished and re-let City Wharf with the value of the site if the building were demolished and the planning permission, or something like it, built out. The alternative value would be assessed on the same broad-brush basis as a prospective developer would have done on the valuation date (the Timec value). The much larger project necessary to achieve the Timec value would obviously have come at a higher cost and would have involved additional risks compared with the refurbishment which would produce the City Wharf value.
If there was no significant margin between the two values, the Timec value would have been irrelevant to the open-market value of the land on the valuation date. No potential purchaser would take the additional risk for a marginal reward, and instead would base any bid for the reference land first and foremost on their assessment of the City Wharf value. Any expectation that something more comprehensive might be possible in the future might justify an allowance for hope value.
(4) The most likely purchaser would have been a speculator which would have envisaged undertaking a light-touch refurbishment before letting the building to less demanding tenants than those across the river. The question was whether such a purchaser would have been prepared to pay anything more than the figure of around £5m which represented the value of the building before light-touch refurbishment had taken place.
In all the circumstances, the likely successful purchaser would have paid a modest element of hope value, say 10%, above that figure to secure the opportunity. The compensation payable to the claimant would be £5,597,500 (including pre-reference costs and the basic loss payment), plus interest to be calculated, if any.
Vincent Fraser QC (instructed by Travers Smith LLP) appeared for the claimant; Richard Glover QC (instructed by Eversheds Sutherland LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Timec 1209 LLP v Salford City Council
