by Donald Troup
There will be a general welcome throughout the profession for Mr Ridley’s confirmation that the market value of land should remain the basis of the compensation code. Although he did not say so, I would like to think that he also agrees with Lord Justice Pearson, who in 1965 in the Hull & Humber Investment Co[1] case, said that the compensation “must be the equivalent of what the claimants have lost by reason of the compulsory acquisition — no more and no less”.
Working totally separately, Mr Ridley’s department and the RICS have produced several important suggestions for change which would, I would like to think, almost achieve the concept of equivalence as soon as the legislation is enacted.
Mr Ridley’s suggestions were announced in Parliament on March 7 and became public as a consultation paper on March 8, the day on which BR announced their preferred corridor for the high-speed rail link through Kent to the Channel tunnel. This coincidence of timing cannot have pleased British Rail, since in some respects their present version of voluntary purchase scheme differs from Mr Ridley’s proposals, and may indeed be more generous. BR cannot be blamed for the timing, and although few people in Kent are prepared to be fair to BR in any respect at the moment, it has to be said that BR’s second voluntary scheme goes beyond the statutory blight provisions in that they have offered to acquire land which they may not necessarily require when they receive compulsory powers.
There has already been some analysis of the points made in both the DOE’s consultation paper and the RICS document, Compensation for Compulsory Purchase, published in March. It is now absolutely essential that the DOE should be persuaded to adopt the remaining RICS suggestions, particularly the idea of an additional tax-free allowance to compensate for the fact of compulsion, which is not only equitably justified but which would ease the passage of major schemes through their approval period.
I must single out for particular welcome the Government’s recognition of the need to avoid expropriation of land at low values by statutory undertakings (particularly after privatisation) when that land is then used for purely commercial purposes with high development value. This was a matter for much NFU/CLA-sponsored debate during the passage of the Channel Tunnel Bill, but at that time Government was not prepared to yield on the point: its change of heart is accordingly particularly welcome. Much detailed discussion is needed to ensure that the wording of the new legislation achieves the desired change.
Also most welcome is the DOE suggestions to alleviate the problems of blight. I am already on record as making an alternative suggestion which is, in effect, an advanced payment of the Part I 1973 Act claim with suitable caveats to avoid double compensation being paid. It seems to me that it is all a question of whether the promoter of a major scheme should be expected to indulge in property investment “up front” or not.
I believe, however, that there are a wide range of other suggestions that must be explored if the ambition of equivalence is to be achieved. My suggestions fall under two heads — residential occupiers (be they owners or tenants) and, second, farmland.
Residential properties
The first point to be made flows from the abolition of rateable values for houses in April 1990 and the introduction of the community charge. The significant fact that has not been picked up by either the DOE or the RICS is that a useful form of “negative compensation” arises in the ability to apply for a reduction of rates. Most often this occurs during the construction period of a major scheme, but the effects of the scheme may well entitle the ratepayer in a residential property to a permanent reduction in rates. Serious consideration must be given to the plight of ratepayers through the loss of this minor — but nevertheless important — right. The DOE and RICS recognise, of course, that rateable values also act as a threshold for various other compensation matters such as blight and home-loss payments, and there is no point in repeating the details.
The second point concerns compensation for tenants of residential properties. Here I am concerned for those tenants who lose no land from the tenancy but who, if they had a qualifying interest for the purposes of section 1 of the Land Compensation Act 1973, would be entitled to claim compensation. Sensibly this will have to be by way of a rent reduction which will have to be agreed in most cases with the district valuer, since a reduction of rent will automatically entitle the landlord to some form of compensation as well. I am, however, more concerned with the occupier of the house achieving compensation for an undoubted loss.
My third point concerns the whole question of noise. There is much debate as to the scale which is most appropriately used to convert actual noise, for instance that generated by a high-speed train, so that the increase over the existing background level can be assessed. It is this increase in noise level which produces the “annoyance factor” for those living near a major scheme. There are two separate elements to be considered:
(a) The establishment of a threshold for the automatic provision of double glazing to residential properties, and in this respect there is a fairly well-established pattern. It was some years ago that the DOE fixed 68 dB(A) as the threshold in respect of motorways, but this noise scale differs from that adopted for railway noise. There is debate as to whether British Rail have adopted the right railway scale, but it is a fact that on their chosen scale they have taken 70 dB(A) as the threshold for double glazing. It is said that the difference between the two scales is about 3 dB(A), so that in a sense BR have adopted a marginally better threshold than the DOE did for motorways. The time is probably ripe for a re-examination of the whole question, particularly an agreement as to the correct scale to use for railways.
(b) The other strand of the noise problem is the conversion from the dB(A) level adopted by the experts to the way in which that noise disperses with distance into loss of value. There have been a number of relevant cases: the Lands Tribunal have awarded compensation for loss of value for houses close to the M40 where the dB(A) figure was as low as 61. I suspect that the profession has not fully recognised — and I for one admit guilt in the matter — the fact (as it was put to me at a recent public meeting concerning BR) that “you cannot double glaze your garden”. I do not underestimate the difficulties, but I believe that all sides of the profession, be they in private practice or revenue or county valuers, must address this particular aspect — it is unlikely that there can be any generally applied formula, and each case will surely have to be dealt with on its merits.
Finally, on the question of the 1973 Act claims, I must of course raise the anomaly that intrusion on privacy (or perhaps, more understandably, loss of amenity) together with visual intrusion, are not subject-matters for establishing a claim. Clearly this is an anomaly which should be corrected, particularly as the provision of artificial lighting (which must surely be a visual intrusion anyway) does create the possibility of a claim. Clearly, property owners do lose value under the existing wording of section 1, and I do not believe that it is right, as a matter of principle, that they should not be compensated.
Farmland
I first want to make the distinction between the ownership of land and running a business on that land, and the farming industry. If I express the difference in terms of compensation, it will be readily understood that the owner of a shop is separately compensated for the freehold value of that shop and for his loss of business. Furthermore, I do not need to stress the point that the Lands Tribunal have adopted a “robust” attitude to owners of businesses who have suffered loss through compulsory purchase, and there is clear precedent for saying that the Lands Tribunal have recognised this fact, and have compensated owners of businesses by a greater sum than could have been achieved for that business on the open market. (See W Clibbett v Avon CC (1976) 237 EG 271 and Afzal v Rochdale MB (1980) 254 EG 512.)
Owners of farming businesses are not similarly treated and, as I see it, this is because there is a major misconception which has afflicted the legal view, including recent tax cases in the High Court which concerned the sale of part of a farm and the relationship with retirement relief from capital gains tax. It has been said (apocryphally) that there are no less than 27 factors which go into the hotch-potch to establish the sale value of agricultural land. The distinction that has apparently never been made is that a non-agricultural business can be carried out from buildings on the land, and that the land itself is merely an area upon which you have a legal right to put the buildings. With farmland, however, the land itself is an essential “raw material” for the production of crops: I see a clear distinction here, and I believe it is an important one.
This fundamental misunderstanding has, in my opinion, led to farming businesses not achieving a proper level of compensation, and certainly one not equivalent to that enjoyed by non-agricultural businesses.
The Lands Tribunal considered the problem as long ago as 1965 in Valentine v Skelmersdale[2] , and since that case there has been a feeling that, if a farmer accepts an “agricultural only” price for the land taken then he should be entitled to some form of compensation for loss of profits. What concerns me is that an understanding has grown up — without being tested by the Lands Tribunal — that that agricultural value should be no more than investment value. It is, of course, understandable that no question of future loss of profits can arise where, for instance, after the obtaining of a section 17 certificate, the farmer receives more than agricultural value for the land, and it follows that he would have had to give up all or part of his business to achieve that development value. The opportunity must now be taken to clarify the situation for the normal case, and to achieve equivalence for farmers. They are surely entitled to have the clarification by way of statute rather than a test case before the Lands Tribunal.
My second point, evolved from a similar base, concerns the way in which increased annual costs incurred solely as the result of the scheme are dealt with. The matter was canvassed in considerable detail by the Lands Tribunal in 1979 in the case of Cuthbert v Secretary of State for the Environment[+]. This concerned an annual repair liability for a stone wall bordering a new road across the middle of the farm. The claimants produced a well-reasoned actuarial claim and the logic was not faulted. However, the district valuer’s assertion was that he was bound only to look at the effect on the market value of the land and its loss of value, so that he was precluded from considering a claim on the tenant’s basis. The Lands Tribunal supported the district valuer, and this is why a change in statute is required, since this is clearly a case where, yet again, a strict application of the market value principle destroys the ambition to achieve the goal of equivalence.
My third point concerns farm tenants. Their lot was considerably improved by the extension of the payments based on five or perhaps six times the farm rent passing in 1968, and while not everyone may agree with me it does seem that their position is relatively well covered and that they achieve equivalence, particularly since the Wakerley case[++] clarified the assessment of loss of profits.
It must, however, be said that tenants have no chance at all of replacing tenanted land with other tenanted land, and this fact of life precludes equitable compensation.
Legislation needed now
The coincidence of the DOE and RICS papers and two particularly sensitive and emotive schemes, such as the north London motorway and BR’s high-speed rail link through Kent, create pressure for the introduction of immediate legislation to improve all these known deficiences in the present compensation code. This pressure is further heightened by national publicity for a Dover-Southampton motorway to relieve the M25 and Alastair Morton’s recent call for two additional Channel tunnel rail links. Government has made it clear that it would like to introduce such legislation, but only “as soon as Parliamentary time permits”.
To those who understand the Parliamentary process this is shorthand for government straying to the idea that it will get round to it when it thinks it will.
This attitude must be changed and changed quickly, if only because of the implications flowing from the abolition of rates: this legislation must be in place before April 1990.
There is still time to achieve a full review in proper form following adequate and productive consultation, and there must also be a groundswell of public demand which is understood by Parliament — the Kent and north London MPs represent a substantial segment of the House of Commons and they have a vital role to play in formulating this legislation. Let them go into action tomorrow, because without such pressure parliamentary time will not be found.
[1] Hull & Humber Investment Co v Hull Corporation [1965] 2 QB 145
[2] (1965) 195 EG 489
[+] (1979) 252 EG 921
[++] Wakerley v St Edmundsbury BC (1978) 249 EG 639
Donald Troup FRICS CAAV is a past-president of the RICS and an executive consultant with GA Property Services in Maidstone.
