Compulsory purchase – Compensation – Land Compensation Act 1961 – Assessment of compensation for acquisition of respondent’s land by appellant for residential development as part of business park – Whether compensation to be assessed on assumption that planning permission would otherwise have been granted for independent residential development to be carried out by respondent – Appropriate planning assumptions to be made when applying section 6 of and Schedule 1 to 1961 Act – Appeal allowed
In 2003, the respondent purchased two plots of greenfield land in Rochdale (the reference land) for £1.3m along with a smaller area connecting them to the highway. Although the land was poor quality grazing land, it fell within an area designated in relevant planning policies for residential development as part of a new business park, which was to be facilitated by a compulsory purchase order (CPO). The previous owners had objected to the CPO and had applied unsuccessfully for planning permission to carry out their own residential development scheme on the site. The CPO was confirmed in 2004. In 2006, the reference land vested in a regional development agency, which later transferred it to the appellant.
An issue arose as to the compensation payable by the appellant to the respondent for the acquisition of the reference land. The respondent claimed £2.593m, based not on the existing use value of the land but on the prospect that, in the absence of the CPO scheme, planning permission would have been obtained for a residential development.
On a reference to the Upper Tribunal (UT), compensation of £746,000 was awarded, based on a 50% chance of planning permission being granted for a 74-unit development on 4.88 acres of the reference land, with highway access provided on that land, subject to a deferred period of 5 years. The UT took the view that, in the “no business park universe”, development plan policies that required a comprehensive and unified development of the CPO land were more likely to be relaxed in favour of an independent development. It considered that the value attributable to a potential development on the reference land, with highway access on that land and no use of the business park infrastructure, did not fall to be disregarded under section 6 of the 1961 Act since it was not attributable to the development of the other land under the business park scheme.
The appellant appealed. It contended that the UT had misapplied the statutory disregards in section 6 of and Schedule 1 to the 1961 Act when assessing the prospect of planning permission being granted for a residential development in accordance with section 14(3). In particular, it contended that the UT had erred in treating the planning policies applicable to the reference land, and the planning history based on those policies, as being in any way modified by the notional cancellation of the CPO in respect of the reference land.
Held: The appeal was allowed.
(1) Under the 1961 Act, compensation for any compulsory acquisition had to be assessed by reference to the amount which the land, if sold in the open market by a willing seller, might be expected to realise, subject to certain disregards in section 6 and Part I of Schedule 1 to the Act. Those provisions required that the valuation of the land acquired for development under the CPO should ignore any increase or diminution in the value of that land which was attributable to the development of the other land which was also acquired for development under the CPO which was not likely to have been carried out but for the CPO. The purpose of those provisions was therefore to exclude compensation for increases or reductions in value attributable to the scheme involving the compulsory acquisition: Pointe Gourde Quarrying & Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565, Transport for London v Spirerose Ltd [2009] 1 WLR 1797 and Waters v Welsh Development Agency [2004] UKHL 19; [2004] 1 WLR 1304; [2004] 2 EGLR 103 applied.
(2) In order to apply those rules of valuation, it was necessary first to determine the planning status of the reference land. Any assumptions to be made about the grant of planning permission for valuation purposes, pursuant to sections 14 to 16 of the 1961 Act, were subject to the “cancellation assumption” in section 16(7), by which the only planning permissions that could be assumed in respect of the reference land were limited to those which might reasonably have been expected to be granted if no part of the relevant land were proposed to be acquired by any authority possessing compulsory purchase powers. Although there would be cases where the notional exclusion of the reference land might require an assumption that the CPO scheme would not go ahead, no such assumption was mandated in the instant case; instead, it had to be assumed that the business park scheme had been cancelled only in respect of the reference land. There was no requirement to assume that the CPO would not have gone ahead in respect of the remainder of the land or that the development of the business park would not have proceeded. Nor did the cancellation assumption lead to an assumed abandonment by the local planning authority of the criteria laid down in their planning policies for individual developments within the area of the business park, including the requirement that such development should not constrain a comprehensive and overall development of the entire site or the provision of a satisfactory highway link. The planning permissions, if not already granted, were assumed on the basis of the actual development plan and policies then in existence. Even taking into account the cancellation assumption under section 16(7), the planning status of the reference land, and the prospect of some other permission being granted, should conform as far as possible to reality. The task of the UT under section 16(7) was to decide what planning permissions should be treated as granted in respect of the reference land and what other planning permissions had some prospect of being granted in the circumstances prescribed by section 16(7): Thomas Newall Ltd v Lancaster City Council [2010] UKUT 2 (LC) applied.
(3) Once the relevant planning assumptions were established, the second stage was to apply the statutory disregards to in order to eliminate the positive or negative impact of the development scheme on the value of the reference land, whether under section 6 or the Pointe Gourde principle. The second stage was more complicated than the first because section 6 was designed to neutralise the effects of the CPO scheme on the value of the site, so as to produce a fair valuation of the reference land which recognised what would otherwise be its inherent development value, while at the same time neither over-compensating the landowner by reference to development value which was entirely the product of the CPO or the development proposals of which it formed part, nor under-compensating the landowner by reason of diminution in development value attributable to those proposals. In order to exclude the effect on value of the CPO and its attributable development, it might be necessary for the valuers to exclude some of the planning assumptions, as the only way of providing a valuation of the land unaffected by the business park scheme. If an assumed or possible planning permission for the reference land depended on the business park and the planning status of that land, then its effect on the value of the reference land was excluded by ignoring that planning permission in the valuation process. The hypothetical planning status of the reference land was modified for the purpose of the valuation by positing what was commonly referred to as the “no scheme world”.
(4) Before the UT, it was common ground that any value due to a possible development with highway access on the reference land itself was not attributable to the scheme of the adjoining business park land and therefore did not have to be disregarded under section 6. However, planning policies made to facilitate the business park continued to apply to the reference land at the valuation date. Once it was accepted that, in the planning environment determined in accordance with sections 14 to 16, the business park scheme would severely diminish the planning prospects for an independent development on the reference land, the task for the valuers and the UT was to devise a way of excluding or disregarding its impact on value. It was difficult to see how that could be done except by some further modification to the actual planning situation, whereby the valuers assumed that the business park scheme and its supporting policies were no longer in place. That did not amount to an elision of the first and second stages in the assessment of compensation; instead, it amounted to the use of a different construct as a necessary tool of valuation, in order to isolate the elements of development value in the reference land which survived the application of section 6(1) and the Pointe Gourde principle.
(5) Accordingly, the UT had been entitled to adopt the “no business park universe” as a means of valuing the reference land free from the planning restrictions which the business park scheme had produced, but it had struck the wrong balance between the “no business park universe” and the planning reality. It had erred in considering that the value from a development with highway access on the reference land would not fall to be disregarded under section 6 because it did not use any other part of the business park land. What had to be disregarded for the purpose of section 6 was not simply the physical development of the business park but the scheme of development itself, together with the development plan strategy, the policies that it contained and the implementation of those policies in the form of the grant of planning permission and the making of the CPO. That reading of section 6(1) was consistent with the Pointe Gourde principle of construction. Although the application of that principle to supplement the 1961 Act should not be pressed too far, it would be unrealistic to regard the scheme as not including the planning policies and objections which underpinned it and dictated its form and scope.
(6) It followed that the UT was right to hold that the planning status of the reference land had to be modified for the purposes of valuation in accordance with the “no business park universe” methodology but was wrong to do so by simply downgrading the strict application of the existing and emerging development plan and otherwise leaving the allocation of the land for development in place. The UT should have considered the planning potential of the reference land without regard to the development scheme and its underlying policies and therefore its effect on value. In that no-scheme world, it should have examined what wider no-scheme specific policies, including the sequential approach to development mandated by PPG3, would have applied to a planning application at the valuation date had there been no business park, thereby striking a fair balance between the public interest and the interests of the respondent in relation to the valuation of the reference land. The UT’s valuation should be set aside accordingly.
Michael Humphries QC and Alexander Booth (instructed by Eversheds LLP, of Manchester) appeared for the appellant; Martin Kingston QC and Richard Kimblin (instructed by DWF LLP, of Manchester) appeared for the respondent.
Sally Dobson, barrister
