Compulsory purchase – Compensation – Land Compensation Act 1961 – Derelict property being acquired as part of wider regeneration programme – Market value – Cost of repairs – Residual value – Loss of rental income – Whether basic loss payment being calculated by reference to market value or whole claim – Compensation determined
The claimant owned a property at Tarring Street, Stockton-on-Tees (the reference property) which was compulsorily purchased by the acquiring authority. The authority made a general vesting declaration, under which the freehold interest in the reference property was vested in the acquiring authority on 5 December 2014, the valuation date. Tarring Street was located in a wider scheme of regeneration in the Parkfield/Mill Lane area, south-west of Stockton-on-Tees town centre. The reference property was a two-storey inner-terraced dwelling house, with a single-storey rear element, built in around 1900 of traditional solid brick construction under a slate roof. On the ground floor there were two reception rooms, a kitchen and rear w.c. On the first floor there were two bedrooms. The gross internal floor area was approximately 66 sq m. The property had been vacant since around 1994. The last tenant had caused internal damage. By December 2009, the roof was damaged to the extent that pigeons could enter through missing slates. In March 2010, the property suffered an arson attack, after which it was boarded up and the missing slates replaced. At the valuation date, nearly four years later, the property was in an exceptionally dilapidated condition.
The claimant’s agent calculated a total claim of £85,535.60. The acquiring authority valued its claim at £5,663. The issues between the parties were the market value of the property assuming good condition, the costs of putting the property into that condition, loss of rent and whether the basic loss payment of 7.5% should be calculated by reference to the market value of the property or the total claim. The tribunal was asked, on written representations, to determine the compensation payable. Both valuers arrived at their respective market values by way of a short residual method, deducting from the market value in reasonable condition the cost of works required to achieve that condition to arrive at a market value at the valuation date in a dilapidated state, but ignoring the cost of works associated with the fire and subsequent vandalism. The tribunal followed that method.
Held: The compensation was determined.
(1) As regards the property’s market value in reasonable condition, the claimant’s value was £65,000 compared with the acquiring authority’s valuation of £50,000. The tribunal preferred the acquiring authority’s approach which was more rigorous than the claimant’s relatively broad-brush method. It did not place much weight on the transactions during 2007 and 2008, more than six years before the valuation date, during which time there were large fluctuations in value. The purchase of the next door property was historic, but pointed to a ceiling value of £58,000 for a larger property acquired in better market conditions. As regards a nearby property, sold one month before the valuation date, the acquiring authority’s differential between the two locations was reasonable. The tribunal would adopt the acquiring authority’s market value in refurbished condition of £50,000.
(2) The acquiring authority had submitted that the refurbishment costs should be calculated on those which an average purchaser would expect to pay for the work, relying on Morrissey v Wigan Council [2011] UKUT 192 (LC). Their estimate of the refurbishment costs, based on an itemised contractor’s quote, was £53,535 excluding VAT. The weakness of that short residual technique, particularly for properties of modest capital value, was that it could artificially distort what should be considered, i.e. the property in the relevant condition at the valuation date. The property was exceptionally dilapidated at the valuation date and a significant amount of work was required to refurbish it. The tribunal was not persuaded that an average purchaser, based on the likely value of the property when refurbished, would spend the amount which the acquiring authority’s evidence suggested. The tribunal valued the property at the valuation date as £15,000.
(3) The claim for loss of rent failed one of the conditions set down by Nichols LJ in Director of Building and Lands v Shun Fung Ironworks Ltd [1995] 1 All ER 846 – no direct causal link had been proved between the acquisition and the loss in question. No such link had been proved. There was no evidence that, after a long period of the property lying empty, the claimant had decided to refurbish it and would have done so had it not been for the scheme. Secondly, the details of the claim were entirely speculative. There was no evidence in support of the rental income level or choice of deduction for management costs and voids. No award for loss of rent would be made.
(4) In normal circumstances, costs were not awarded under the written representations procedure but the tribunal’s discretion was qualified by section 4 of the Land Compensation Act 1961. The general rule was that the successful party ought to receive their costs. On a claim for compensation for compulsory acquisition of land, the costs incurred by a claimant in establishing the amount of disputed compensation were properly to be seen as part of the expense imposed on the claimant by the acquisition. An order for costs would normally be made in favour of a claimant who received an award of compensation unless there were special reasons for not doing so. However, under section 4 of the 1961 Act, where an acquiring authority had made an unconditional offer in writing of compensation and the sum awarded did not exceed the sum offered, in the absence of special reasons, the tribunal would order the claimant to bear their own costs thereafter and pay the post offer costs of the acquiring authority. Moreover, claimants would not be entitled to their costs if they failed to deliver to the authority, in time to enable it to make a proper offer, a notice of claim containing the particulars set out in section 4(2). Where a claimant had delivered a claim containing the required details and made an unconditional offer in writing to accept a particular sum, if the tribunal’s award was equal to or exceeded that sum the tribunal, in the absence of special reasons, had to order the authority to bear their costs and pay the claimant’s post-offer costs. Accordingly, the tribunal would determine costs following further submissions from the parties.
(5) Section 33A of the Land Compensation Act 1973 provided that the claimant was entitled to payment of the lower of 7.5% of the value of his interest and £75,000 if he had a qualifying interest in land, the interest was acquired compulsorily and to the extent that he was not entitled to a home loss payment in respect of any part of the interest. A payment under that section had to be made by the acquiring authority. Putting aside the £75,000 ceiling, in respect of a qualifying interest, the basic loss payment was calculated at 7.5% of the value of the interest “for the purpose of deciding the amount of compensation payable in respect of the acquisition”, subject to qualifications if the claimant was entitled to a home loss payment for part of the property, or the value was calculated on the basis of equivalent reinstatement. Since the basic loss payment was calculated at 7.5% of the value of that interest, rule (2) applied so that the value of the land being acquired should be the amount which the land, if sold in the open market by a willing seller, might be expected to realise. That could only mean the market value in the conventional sense, which would be realised by a notional sale. Accordingly, the claimant was entitled to a basic loss payment of 7.5% of £15,000, viz: £1,125. The compensation payable to the claimant would be: market value: £15,000, basic loss payment: £1,125, boarding up costs: £288, totalling: £16,413.
Eileen O’Grady, barrister
Click here to read transcript of Khan v Stockton-on-Tees Borough Council
