Compensation for the acquisition of land — Mortgage — Failure to redeem — Whether Lands Tribunal has jurisdiction to determine date of redemption
The first
claimants held the freehold interest in a house which was subject to a legal
charge in favour of the second claimant authority; that authority had the
benefit of the charge as successors to the Greater London Council and the
London Residuary Body. Following the making and confirmation of a compulsory
purchase order, the acquiring authority served notice to treat in February 1987
and took possession of the property in November 1996. The first claimants had
meanwhile vacated the property in 1987. At the date of the hearing there were
substantial arrears on the legal charge. The parties agreed the market value of
the property in November 1996 at £85,000. The
the acquiring authority should have redeemed the mortgage; that date should be
earlier than the date when the agreed compensation became payable. It was
agreed that the Lands Tribunal should decide whether it has jurisdiction to
determine this question as a preliminary issue.
an acquiring authority should have exercised their powers under section 14 of
the Compulsory Purchase Act 1965 to purchase or redeem the interest of the
mortgagee in the land. The effect of section 1 of the Land Compensation Act
1961, and sections 6 and 14 to 17 of the 1965 Act, is that the tribunal has a
three-fold jurisdiction in the assessment of compensation for mortgaged land.
First, to determine the compensation payable by the acquiring authority for the
claimant’s interest in the land taken: section 1 of the 1961 Act and section 6
of the 1965 Act. Second, to determine the value of the land taken or the
compensation to be paid by the acquiring authority in respect of the land where
the value of the mortgaged land is less than the mortgage debt: section 15 of
the 1965 Act. Third, to determine the compensation payable to the mortgagee
where the mortgage is paid off before the stipulated time and there can
reasonably be expected to be a shortfall in the interest rate on reinvestment:
section 17(1)(b) and (2) of the 1965 Act. Disputes under section 14 of
the 1965 Act are for the courts.
No cases were
referred to in the decision.
J Peter
Scrafton, solicitor, appeared for the first claimants, Mr and Mrs AO Shewu;
George Chesman, solicitor, appeared for the second claimants, Richmond upon
Thames London Borough Council; Meyric Lewis (instructed by the solicitor to
Hackney London Borough Council) represented the acquiring authority.
Giving his
decision, MR PH CLARKE said: This is a reference to determine the
compensation payable for the compulsory acquisition of a house in Stoke
Newington.
Mr J Peter
Scrafton, solicitor, appeared for the first claimants, Mr and Mrs AO Shewu; Mr
George Chesman, solicitor, appeared for the second claimants, Richmond upon
Thames London Borough Council; Mr Meyric Lewis, of counsel, appeared for the
compensating authority, Hackney London Borough Council.
There are
three parties in this reference, two of them local authorities. To avoid
confusion I will refer to Mr and Mrs Shewu, the owners of the subject property
and mortgagors, as ‘the claimants’; Richmond upon Thames London Borough
Council, the mortgagees, as ‘Richmond’; and the acquiring authority, Hackney
London Borough Council, as ‘Hackney’.
Facts
The facts in
so far as they are relevant to this decision are not in dispute and are as
follows:
(1) 21 Foulden
Road, London N16 (the subject property) is a mid-terrace Victorian house with
accommodation on basement, ground and two upper floors, situated close to Stoke
Newington High Street in the London Borough of Hackney.
(2) The
claimants hold the freehold interest in the subject property.
(3) The
subject property is subject to a legal charge dated November 29 1974, which is
now between: (i) the claimants (as mortgagors); and (ii) Richmond, as
successors to the Greater London Council and the London Residuary Body (as
mortgagees). This charge secures by way of legal mortgage an initial advance on
a monthly annuity repayment basis for 25 years. This mortgage had not been
redeemed at the date of hearing. The claimants vacated the subject property in
or about 1987. There are now substantial arrears of principal and interest
outstanding on the mortgage.
(4) On August
30 1985 the Secretary of State for the Environment confirmed the London Borough
of Hackney (Rectory Road Housing Action Area) No 6 Compulsory Purchase Order
1984. The subject property is parcel no 1 in that order. Notice to treat was
served on February 17 1987. Notice of entry was served on April 21 1994 and
Hackney took possession of the subject property on November 22 1996.
(5) Hackney
referred the determination of compensation to this tribunal on June 30 1994.
(6) The
parties have agreed that the market value of the freehold interest in the
subject property as at November 22 1996 was £85,000.
Issues
The market
value of the subject property having now been agreed, the outstanding issues
are whether the Lands Tribunal has jurisdiction to determine the date when the
mortgage on the subject property should have been redeemed by Hackney in
pursuance of the compulsory purchase of the land and, if so, what was that
date? By the date of the hearing the mortgage had not been redeemed and the
arrears of principal and interest outstanding stood at a certain figure (not
given at the hearing). On payment by Hackney of the agreed compensation for the
acquisition of the freehold interest, the mortgage will be redeemed and the
mortgage debt outstanding (which is less than the agreed compensation) will be
deducted from the agreed sum and paid to Richmond, leaving a net sum payable to
the claimants. It is the contention of the claimants that, due to delay by
Hackney in redeeming the mortgage, a date should be determined by the Lands
Tribunal as the date when the mortgage should have been redeemed by Hackney.
The lower sum of principal and interest outstanding on the mortgage at that
time would then be deducted from the agreed (or perhaps a greater) market value
(due to higher house prices at the earlier date), leaving a larger net balance
payable to the claimants, but with an outstanding mortgage debt still owing to
Richmond for which the claimants would still be contractually liable; although
as they now live in Nigeria enforcement would be more difficult.
At the start
of the hearing I expressed doubt as to whether the Lands Tribunal has
jurisdiction to make the determination sought by the claimants and it was
agreed that I would decide this question as a preliminary issue.
Submissions
Mr Scrafton,
on behalf of the claimants, prepared a written skeleton of his submissions, but
they appeared to be in support of a claim for compensation under r (6) of
section 5 of the Land Compensation Act 1961 (the 1961 Act), ie compensation for
‘any other matter not directly based on the value of land’. Numerous well known
authorities were cited, but I had some difficulty in relating them to the
question of the determination of a date when the mortgage should have been
redeemed and, in particular, to the tribunal’s jurisdiction to deal with this
issue. If a claim for compensation under r (6) had been made, then these
authorities might well have been relevant, but I did not find them relevant to
the narrower issue of jurisdiction. I sought clarification, and Mr Scrafton
confirmed that he is seeking a determination as to the correct date for the
redemption of the mortgage and is not making a claim for compensation under r
(6). He said that the authorities show that the claimants have suffered loss
and that this should be assessed in a similar way to damages and disturbance.
Local authorities have a duty to act fairly.
I have
considered these submissions, but I am persuaded that they are not relevant to
the issue of jurisdiction. They essentially relate to the different question of
quantum if a claim were to be made for compensation under r (6). On the
particular issue before me I do not find them helpful. I will not refer further
to the many authorities referred to in these submissions. With respect to Mr
Scrafton, I think that he has confused the assessment of compensation under r
(6) with the prior question of jurisdiction, ie whether the Lands Tribunal has
jurisdiction at all to determine a notional date for the redemption of the
mortgage.
Mr Scrafton
also referred to sections 14 and 15 of the Compulsory Purchase Act 1965 (the
1965 Act). He said that section 15 provides that ‘the value of the land, or the
compensation to be paid by the acquiring authority in respect of the land’
shall be determined, in
payable for the acquisition of the subject property is a net amount comprising
the agreed value of the land less the amount due under the mortgage. This
latter amount is dependant on the date of redemption and it is therefore open
to the Lands Tribunal to fix a notional date for redemption, ie when the
claimants’ mortgage should have been redeemed by Hackney. Although the value of
the land has been agreed, the amount of compensation payable to the claimants,
that is to say the net amount after deduction of the mortgage debt, has not
been agreed and is within the jurisdiction of the Lands Tribunal.
In reply to Mr
Lewis’ submission that sections 14 and 15 of the 1965 Act are mutually exclusive
and that section 14 applies to this preliminary issue, Mr Scrafton referred to
para 2-1588 in the Encyclopaedia of Compulsory Purchase and Compensation.
This states that, if the acquiring authority do not redeem the mortgage or pay
the money into court, they should serve notice to treat on the mortgagees and
have the compensation determined by the Lands Tribunal under section 15.
Hackney have not redeemed the mortgage under section 14, and therefore the net
compensation payable to the claimants can be determined by the tribunal under
section 15 of the 1965 Act. In his reply, Mr Scrafton also returned to the
question of compensation under r (6) and said that there is no reason why loss
arising out of a mortgage should not be compensatable under this rule.
Mr Lewis, on
behalf of Hackney, said that section 1 of the 1961 Act gives the Lands Tribunal
jurisdiction to determine ‘any question of disputed compensation’. The value of
the subject property has now been agreed, and the issue raised by the claimants
is a challenge to Hackney regarding their failure to redeem the mortgage under
section 14 of the 1965 Act. This is not a question of disputed compensation:
the Lands Tribunal has no jurisdiction to deal with it. It is not within the
power of the Lands Tribunal to fix the date when an acquiring authority should
redeem a mortgage on land compulsorily acquired. Furthermore, losses incurred
due to a failure to redeem a mortgage are not losses incurred as a consequence
of the compulsory acquisition or dispossession of land. They are too remote to
be compensatable. Sections 14 and 15 of the 1965 Act are mutually exclusive and
provide different procedures for dealing with mortgaged land. Section 14 gives
the acquiring authority power to redeem a mortgage; section 15 provides a
procedure for the determination of value or compensation for land taken when
the mortgage debt exceeds the value of the land acquired. Section 15 does not
apply to this reference where the value of the land exceeds the mortgage debt.
Mr Chesman, on
behalf of Richmond, associated himself with Mr Lewis’ submissions and made two
further points. First, he said that section 14 confers a power on an acquiring
authority to redeem a mortgage on land acquired, but it was not under a duty to
do so. The claimants are essentially attacking the exercise of that power.
Second, the claimants’ case should be an action in negligence or a mortgage
action, both outside the jurisdiction of the Lands Tribunal.
Decision
The first
issue in this reference is whether the Lands Tribunal has jurisdiction to
determine a date when the mortgage on the subject property should have been
redeemed by Hackney in pursuance of the compulsory acquisition of the property.
The Lands
Tribunal was created by statute and has a wholly statutory jurisdiction. In
compulsory purchase this is set out in general terms in section 1 of the 1961
Act and section 6 of the 1965 Act.
Section l of
the 1961 Act (in so far as it is relevant to this reference) provides as
follows:
Where … land
is authorised to be acquired compulsorily, any question of disputed
compensation … shall be referred to the Lands Tribunal and shall be determined
by the Tribunal in accordance with the following provisions of this Act.
Section 6 of
the 1965 Act, being derived from more elaborate provisions in section 21 of the
Lands Clauses Consolidation Act 1845, sets out the tribunal’s jurisdiction in
greater detail:
If a person
served with a notice to treat does not within twenty-one days from the service
of the notice state the particulars of his claim or treat with the acquiring
authority in respect of his claim, or if he and the acquiring authority do not
agree as to the amount of compensation to be paid by the acquiring authority
for the interest belonging to him, or which he has power to sell, or for any
damage which may be sustained by him by reason of the execution of the works,
the question of disputed compensation shall be referred to the Lands Tribunal.
It is
important to note that what is to be determined by the tribunal is the
compensation ‘to be paid by the acquiring authority for the interest belonging
to him, or which he has power to sell’. In this reference this means the
freehold interest in the subject property held by the claimants.
The Compulsory
Purchase Act 1965 follows the scheme of the Lands Clauses Consolidation Act
1845 and contains provisions dealing with the acquisition of special interests,
including mortgaged land. Section 14 is particularly relevant to this
reference. It contains detailed provisions enabling an acquiring authority to
purchase or redeem the interest of a mortgagee of land subject to compulsory
purchase. The relevant parts of this section are as follows:
(1) The
acquiring authority may purchase or redeem the interest of the mortgagee of any
of the land subject to compulsory purchase in accordance with either of the two
following subsections.
(2) The
acquiring authority may pay or tender to the mortgagee the principal and
interest due on the mortgage, together with his costs and charges, if any, and
also six months additional interest and thereupon the mortgagee shall
immediately convey or release his interest in the land comprised in the
mortgage to the acquiring authority, or as they may direct.
(3)
Alternatively, the acquiring authority may give notice in writing to the
mortgagee that they will pay all the principal and interest due on the mortgage
at the end of six months computed from the day of giving the notice; and if
they have given any such notice, or if the person entitled to the equity of
redemption has given six months notice of his intention to redeem, then at the
expiration of either of the notices, or at any intermediate period, on payment
or tender by the acquiring authority to the mortgagee of the principal money
due on the mortgage, and the interest which would become due at the end of six
months from the time of giving either of the notices, together with his costs
and expenses, if any, the mortgagee shall convey or release his interest in the
land comprised in the mortgage to the acquiring authority or as they may
direct.
(4) …
(5) …
(6) …
(7) This
section shall apply —
(a)
whether or not the acquiring authority have previously purchased the equity of
redemption,
(b) …
(c)
whether or not the mortgagee is in possession of the land, and
(d) …
Nowhere in this
section is there mention of the Lands Tribunal.
Section 15 of
the 1965 Act has the sidenote: ‘Mortgage debt exceeding value of mortgaged
land’. The relevant parts of this section are as follows:
(1) If the
value of any such mortgaged land is less than the principal interest and costs
secured on the land, the value of the land, or the compensation to be paid by
the acquiring authority in respect of the land, shall be settled by agreement
between the mortgagee and the person entitled to the equity of redemption on
the one part, and the acquiring authority on the other part, or, if they fail
to agree, shall be determined by the Lands Tribunal.
(2) The
amount so agreed or awarded shall be paid by the acquiring authority to the
mortgagee in satisfaction or part satisfaction of his mortgage debt.
(3) On
payment or tender of the amount so agreed or awarded the mortgagee shall convey
or release all his interest in the mortgaged land to the acquiring authority or
as they direct, and if he fails to do so, or fails to adduce a good title to
that interest to the satisfaction of the acquiring authority, it shall be
lawful for the acquiring authority to pay into court the amount agreed or
awarded.
(4) …
(5) …
(6) The
making of payment to the mortgagee or into court of the amount agreed or
awarded shall be accepted by the mortgagee in satisfaction, or part
satisfaction, of his mortgage debt, and shall be a full discharge of the
mortgaged land from all money due thereon.
(7) All
rights and remedies possessed by the mortgagee against the mortgagor by virtue
of any bond or covenant or other obligation, other than the right to the land,
shall remain in force in respect of so much of the mortgage debt as has not
been satisfied by payment to the mortgagee or into court.
The Lands
Tribunal has jurisdiction under this section to determine ‘the value of the
land, or the compensation to be paid by the acquiring authority in respect of
the land’. In this reference it is common ground that the mortgage debt does
not exceed the agreed value of the subject property, but there is still
disagreement as to whether this section still applies. Mr Scrafton said that it
does and that it gives the tribunal jurisdiction to determine the net amount of
compensation payable to the claimants by reference to a notional redemption
date for the mortgage. Mr Lewis said that sections 14 and 15 are mutually
exclusive. Section 14 applies in this case and contains no reference to the
jurisdiction of the Lands Tribunal with regard to the redemption of the
mortgage by Hackney. Section 15 does not apply, because the mortgage debt does
not exceed the value of the subject property.
Section 16 of
the 1965 Act deals with the acquisition of part of land subject to a mortgage
and is not relevant to this decision. Section 17 contains provisions to
compensate a mortgagee where the mortgage is paid off before the stipulated
time. Where this occurs, as is likely to be the case in this reference, the
mortgagee is entitled to receive the costs and expenses of reinvestment and
compensation for any reasonably expected shortfall in the rate of interest on
reinvestment. This latter compensation ‘shall, in case of difference, be
referred to and determined by the Lands Tribunal’: see section 17(2).
In my view,
the effect of section l of the 1961 Act and sections 6 and 14 to 17 of the 1965
Act is that the tribunal has a three-fold jurisdiction in the assessment of
compensation for mortgaged land. First, to determine the compensation payable
by the acquiring authority for the claimant’s interest in the land taken:
section 1 of the 1961 Act and section 6 of the 1965 Act. Second, to determine
the value of the land taken or the compensation to be paid by the acquiring
authority in respect of the land where the value of the mortgaged land is less
than the mortgage debt: section 15 of the 1965 Act. Third, to determine
compensation payable to the mortgagee where the mortgage is paid off before the
stipulated time and there can reasonably be expected to be a shortfall in the
interest rate on reinvestment: section 17(1)(b) and (2) of the 1965 Act.
I can find
nothing in these provisions giving the Lands Tribunal jurisdiction to fix the
date when an acquiring authority should have exercised their powers under
section 14 of the 1965 Act to purchase or redeem the interest of the mortgagee
in the land. If the Lands Tribunal has jurisdiction in this respect it would be
found in section 14, but this section is silent on this matter. I am satisfied that
the Lands Tribunal has no jurisdiction under section 14. Disputes under this
section are matters for the courts or perhaps for the Local Government
Ombudsman where there is an allegation of maladministration. These are not
matters for the Lands Tribunal. As put to me, the claimants’ case rests not on
a claim for compensation for value or loss, but on a determination as to when
Hackney’s powers under section 14 should have been exercised. Even if Mr
Scrafton is correct in his submission that section 15 of the 1965 Act applies
to this reference (and I make no decision on this point), the jurisdiction of
the Lands Tribunal under this section relates only to the value or compensation
for the land taken and does not extend to the repayment of, or amount of, the
mortgage debt.
For the
reasons set out above, I hold that I have no jurisdiction to determine the date
when Hackney should have redeemed the mortgage on the subject property under
the legal charge dated November 29 1974. It is therefore unnecessary for me to
proceed further and hear evidence and determine this date.
The parties
have agreed the value of the subject property, which I now include in this
decision. I determine the market value of the freehold interest in 21 Foulden
Road, London N16, as at November 22 1996, to be the sum of £85,000. To this
amount will be added surveyor’s fees under Ryde’s Scale. Legal costs relating
to the transfer of the claimants’ freehold interest to Hackney and interest on
the compensation are the subject of specific statutory provisions.
I heard
submissions on costs. Hackney made sealed offers dated January 31 1997 and
February 17 1998. The latter is the same as my award and is the amount agreed
by the parties a few days earlier in the sum of £85,000. I accept Mr Lewis’ submissions
on costs, namely that Hackney should receive their costs from the date of the
second offer and will pay the claimants’ costs before that date. I also accept
Mr Chesman’s submission that the claimants should bear Richmond’s costs.
Accordingly, I order Hackney to pay the claimants’ costs of the reference up to
February 17 1998 and I order the claimants to bear their own costs and to pay
Hackney’s costs of the reference from that date. I order the claimants to pay
Richmond’s costs of the reference. All costs, if not agreed, to be taxed by the
registrar of the Lands Tribunal on the High Court standard basis.
