Where a mortgaged property is compulsorily purchased it is open to the mortgagee to seek a determination from the Upper Tribunal (Lands Chamber) as to the compensation payable by the acquiring authority under the Compulsory Purchase Act 1965, if the mortgagor fails to do so.
The tribunal has considered such an application in Lloyds Banking Group plc v Burnley Borough Council [2024] UKUT 20 (LC); [2024] PLSCS 21.
The case concerned a three-bedroomed mid-terrace long leasehold house in Spenser Street, Padiham, Burnley. The property was acquired by the mortgagor David Geoghegan for £67,500 in May 2006 and mortgaged to the bank in March 2008. It was then damaged by tenants and fell into disrepair.
The authority, which takes a proactive approach to bringing dilapidated housing back into use, concluded that only full refurbishment could bring it back into habitable condition. Geoghegan acknowledged the property’s poor condition but had no funds to repair it. Negotiations for the authority to acquire the property at a price which was less than the bank’s outstanding mortgage came to nothing. A compulsory purchase order was made in April 2022 and the property was vested in the authority in September 2022. The bank – which was owed £80,363.24 at March 2023 – made a reference to the tribunal to determine the compensation payable.
Section 15 of the 1965 Act provides that where a mortgage debt exceeds the value of the mortgaged land the compensation to be paid by the acquiring authority is to be agreed between the mortgagee and the person entitled to the equity of redemption and the acquiring authority or, failing that, determined by the tribunal with the amount agreed/awarded being paid to the mortgagee.
There were four comparable transactions, all in Spenser Street, sold between October 2021 and January 2023 with two-bedroom properties in good condition ranging between £87,000 and £90,000. In the tribunal’s judgment the market was more nuanced than simply deducting the cost of refurbishment work – which the authority put at £35,000 – from a refurbished value to arrive at a value in poor condition.
Developers were prepared to spend time and effort refurbishing a property with a view to letting it, without the need to immediately cover their costs. Properties in poor condition were sought after and sold quickly.
The value of the property at the valuation date was assessed at £70,000 and this sum, plus statutory interest, was awarded to the bank in part satisfaction of the mortgage debt.
Louise Clark is a property law consultant and mediator
