Compulsory purchase — Compensation — Disturbance — Premises included bed-sitting rooms let on residential furnished tenancies — Delay in payment and underestimate of advance payment of purchase price — Inability of claimant to acquire substitute premises — Whether claimant entitled to compensation for loss of income by reason of delay in receiving full value of premises
The claimant owned premises, part of which he
occupied and the remainder of which he let on 15 residential tenancies. These
yielded a gross income of £18,284 pa. He relied on this rent to pay his
mortgage commitments. On 30 January 1989 the respondent acquiring authority
made a general vesting declaration whereby the property was vested in
themselves. In March 1989 the claimant requested an advance payment under
section 52 of the Land Compensation Act 1973. On 8 February 1990 the authority
paid £27,900. In October 1993 the Lands Tribunal, in an interim decision,
determined the value of the property at £80,000. The claimant then advanced a
disturbance claim seeking compensation for the loss resulting from the
non-receipt of rent between the date of possession (30 January 1989) and the
payment of the full value of the property (19 October 1993). He contended that
because of the lack of funds he was unable to invest in a similar property. The
Lands Tribunal rejected this additional claim. The claimant appealed.
dismissed. Under r 2 of section 5 of the Land Compensation Act 1961, the Lands
Tribunal had determined the value of the property by capitalising the value of
the rental income from the property. It has been shown that where it is not
practicable for a business to relocate, compensation should be paid for its
total extinguishment. By claiming and receiving the capitalised value of the
full rental income from the property, the claimant had been compensated on the
total extinguishment basis. It was implicit in the determination of the r 2
valuation that the business was treated as extinguished, and its full value as
a going concern, with the land, calculated and paid. The claimant was not
entitled to the additional claim, and any delay in the payment of compensation
could only be compensated for by the payment of interest at the prescribed
rates.
The following cases are
referred to in the report.
Barlow v Hackney
Corporation (1954) 5 P&CR 129
Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111; [1995] 2 WLR 404;
[1995] 1 All ER 846; [1995] 1 EGLR 19; [1995] 19 EG 147; [1995] RVR 124, PC
Emslie & Simpson Ltd v Aberdeen City District Council [1994] 1 EGLR 33; [1994] 18
EG 136; 1995 SLT 355; 1994 SCLR 69
Knott Mill Carpets v Stretford Borough Council (1973) 26 P&CR 129; 227 EG
336, LT
Lindon Print Ltd v
West Midlands County Council [1987] 2 EGLR 200; (1986) 283 EG 70
Service Welding Ltd v Tyne & Wear County Council (1979) 38 P&CR 352; 77
LGR 646; [1979] 1 EGLR 36; [1979] EGD 664; 250 EG 1291; [1979] JPL 612, CA
Venables v Department
of Agriculture for Scotland [1932] SC 573
This was an appeal by way
of case stated from a decision of the Lands Tribunal, which had rejected part
of a claim by the claimant, Kashif Mallick, against the acquiring authority,
Liverpool City Council, arising out of the compulsory acquisition by them of a
property owned by the claimant.
Robin Green (instructed by Jacobs & Co, of
Ellesmere Port) appeared for the claimant; Graham Sellers (instructed by the
solicitor to Liverpool City Council) represented the acquiring authority.
Giving judgment, HENRY LJ said: Mr Mallick was the freehold owner and
occupier of 12 Devonshire Road in Liverpool. He lived in part of the premises
and let out the remainder (essentially bed-sitting rooms) on some 15
residential furnished tenancies. For this, he received a gross rental income of
£18,284 pa. He relied on this rent to pay his mortgage commitments on the
property.
Liverpool City Council exercised their compulsory
purchase power to acquire the property by general vesting declaration. The
vesting date (and so the date for determination of the market value of the land
acquired) was 30 January 1989. On 13 March 1989 Mr Mallick submitted his claim
for compensation, and requested an advance payment on account under section 52
of the Land Compensation Act 1973, and payment of that sum due on 13 June. As
the parties had not agreed on the amount of compensation, section 52(3)(b)
provides that that sum should be 90% of the compensation as estimated by the
acquiring authority and should be paid within three months of demand:
subsection 4. Eleven months later, on 8 February 1990, £27,900 was paid. On the
face of it, this looks like a considerable underestimate, and, so, an
underpayment as well as a late payment, as the land was ultimately valued at
£80,000. But the land was mortgaged (although we are not given the figures)
and, so, the 90% figure fell to be reduced by subsection 6. We do not have the
information to calculate what the payment on the Lands Tribunal’s actual
assessment of the market value of the land at £80,000 (subject to an
anticipated further claim for disturbance) should have been. The balance of
that part of the award was finally paid on 14 October 1993, roughly 4.75 years
after the vesting date. We do not know the cause of that delay. There is and
was no challenge to the Lands Tribunal assessment of the market value of the
land at £80,000. The basis of that valuation is important and must be examined
in detail. At that time, the parties were not in a position to deal with any
possible claim for disturbance, and the Lands Tribunal gave leave to the parties
to make a further reference if they were unable to reach agreement.
We are now concerned with that disturbance claim.
It is a novel form of claim, based on the late payment for compensation. Mr
Mallick’s case is that on the acquisition by the council of his property, he
would have reinvested in a similar property and let that out as before. He
claims that he was unable to do so because he could not afford to purchase a
replacement property until he received his compensation, 4.75 years after his
original property was acquired: see para 9 of the
before the Lands Tribunal as to whether Mr
property when he finally received his compensation nor any application to call
further evidence. We do not know whether he tried to get a bridging loan to buy
such a property earlier nor whether he put pressure on the council to increase
their interim payment under section 52(3)(b).
We do not know because, as the parties could not
agree on all matters, they decided, instead of mounting such a claim and
getting the Lands Tribunal to find the facts, to put joint written submissions
before the Lands Tribunal. These submissions sought ‘to establish the
principles to be applied to certain of the remaining issues’ and to make an
interim decision on them. The Lands Tribunal (Mr JC Hill) recognised the risks
in that course, but acceded to the request:
Although I am concerned that this may lead to
further delay before the final amount of compensation is settled, having read
the submissions it seems to me that if I settle the principles involved the
parties may now be able to reach final agreement without further recourse to
this tribunal.
Although often a convenient and economic course
with the wisdom of hindsight, it might not have been the right course here, as
findings of fact would have been useful.
Mr Hill’s award was dated 30 September 1997 and
based on joint written submissions. In relation to his interim award of £80,000
the agreed facts were:
The submissions from both parties to the Lands
Tribunal and the tribunal’s determination of compensation took into account the
net rental income which was received as being a significant fact in the
assessment of the market value of the property.
Under the agreed facts, the acquiring authority
accepted that the contemplated further compensation for disturbance should
include compensation for the additional costs charged to Mr Mallick’s existing
mortgage account as a result of his land being acquired: the early redemption
of the two mortgages and associated costs. The second mortgage was taken out
prior to the compulsory purchase order to fund improvements on the property.
This was considered as a loan in relation to that property, because the
acquiring authority accepted that Mr
income he received from the land to be able to pay the mortgages, and that:
because Mr Mallick had no alternative but to
continue to pay interest on his loan until such time as he could pay it off, he
should be compensated for all the additional interest which he has been charged
against the loan since the date when the council took possession of his property
which has arisen due to his reduced ability to pay the instalments. The main
factors taken into account in reaching this conclusion were that Mr Mallick’s
rental income was cut off when the council took possession of his property, and
the amount later determined by the Lands Tribunal for the value of the property
was greatly in excess of the amount of the advance payment.
That was common ground. What was in issue between
the parties was defined in the written submissions as follows:
Matter of principle to be determined by the
Lands Tribunal
The matter which the Lands Tribunal is now asked
to determine is whether or not Mr Mallick should receive extra compensation for
the loss of his income from the property. If Mr Mallick, on the date the
council took possession of the property or soon thereafter, had received
compensation of £80,000 he would have been able to reinvest that money in
purchasing a similar property, taking on similar risks and received a similar
income in return for his investment. However, in the present case Mr Mallick
was prevented from doing that and is claiming additional financial compensation
to redress the lost opportunity and financial return.
The sum he claims is compensation for the loss
resulting from the non-receipt of rent between the date of possession [30.1.89]
and the payment of the full value of the premises [19.10.93].
His claim is based on ‘…an intention to reinvest
in a similar property’ and an inability to do so because:
(i) ‘he was not in funds sufficient to purchase
such premises’; and
(ii) ‘because of the acquisition of the premises
and the inadequacy of the compensation first offered to him as compared with
the final award’.
The council’s response was that the market value
of the property reflected the level of income that might be achieved from it,
and the question was whether that was sufficient compensation:
where the income has been reflected in the
capital value of the investment, there are no grounds for claims that there is
additional loss to the claimant… [it] would be quite unacceptable in the law of
compensation to make a general rule that anyone wishing to invest in a certain
type of property should be made an additional payment if his compensation for
the property is not immediately paid.
Mr Mallick’s claim for such additional
compensation was rejected by the Lands Tribunal in a decision based on written
submissions dated 30 September 1997. By this time nearly nine years had passed
since the vesting date, and roughly four years had passed since the claimant had
received the whole of his compensation payment. There was no evidence that the
claimant had purchased a property for relocating his business of providing
student accommodation, either immediately or on receipt, in 1993, of the
balance of the compensation payment. It would also seem to follow that as Mr
Mallick did not use his compensation money in that way, he used it in some
other investment. But, again, we have no information. What is clear is that the
claim is novel, and that there does not appear to be any reported case on the
point.
The Lands Tribunal decision is now appealed to us
by way of case stated, the form of the case inviting answers to two questions:
The question upon which the decision of the
honourable court is desired is whether in my decision dated 30 September 1997 I
was wrong in law in deciding:
(a) that any delay in the payment of the
compensation awarded in the earlier decision by this tribunal can only be
compensated for by the payment of interest at the prescribed rates; and
(b) that the basis on which compensation was
claimed and awarded for the loss of the claimant’s freehold property precluded
a further claim for loss of profits since the rents on which the capital value
was calculated constitute the whole of the profit derived from the ownership of
this property.
It is convenient to deal with the second question
first, namely whether the Lands Tribunal was wrong in deciding:
that the basis on which compensation was claimed
and awarded for the loss of the claimant’s freehold property precluded a
further claim for loss of profits since the rents on which the capital value
was calculated constitute the whole of the profit derived from the ownership of
this property.
This question involves an outline of the law of
compensation. The starting point is section 7 of the Compulsory Purchase Act
1965, which replaces but substantially repeats section 63 of the Land Clauses
Consolidation Act 1845:
In assessing the compensation to be paid by the
acquiring authority… regard shall be had… to the value of the land to be
purchased by the acquiring authority…
Section 5 of the Land Compensation Act 1961
provides that:
Compensation in respect of any compulsory
acquisition shall be assessed in accordance with the following rules:…
(2) The value of land shall, subject as
hereinafter provided, be taken to be the amount which the land if sold in the
open market by a willing seller might be expected to realise:…
This rule and r 6 (below) are the crucial ones.
The local authority will be acquiring the land but not the business. But, as
the assessment of compensation is based on an open-market sale by a willing
seller, it will reflect the value of the land to him, which will include the
value to him of his being able to conduct his business without interruption. In
the important case of Director of Buildings and Lands v Shun Fung
Ironworks Ltd [1995] 2
Land may, of course, have a special value to a
claimant over and above the price it would fetch if sold in the open market.
Fair compensation requires that he should be paid for the value of the land to
him, not its value generally or its value to the acquiring authority. As
already noted, this is well established. If he is using the land to carry on a
business, the value of the land to him will include the value of his being able
to conduct his business there without disturbance. Compensation should cover
this disturbance loss as well as the market value of the land itself. The
authority which takes the land on resumption or compulsory acquisition does not
acquire the business, but the resumption or acquisition prevents the claimant
from continuing his business on the land. So the claimant loses the land and,
with it, the special value it had for him as the site of his business. The
expenses and any losses he incurs in moving his business to a new site will
ordinarily be the measure of the special loss he sustains by being deprived of
the land and disturbed in his enjoyment of it. If, exceptionally, the
business cannot be moved elsewhere, so it simply has to close down, prima facie
his loss will be measured by the value of the business as a going concern.
In practice it is customary and convenient to assess the value of the land and
the disturbance loss separately, but strictly in law these are no more than two
inseparable elements of a single whole in that together they make up the value
of the land to the owner: see Hughes v Doncaster Metropolitan Borough
Council [1991] 1 AC 382, 392, per Lord Bridge of Harwich. [Emphasis
added]
*Editor’s note: Also reported at [1995] 1 EGLR 19
As that passage indicates, in the normal case the
business will be relocated and will not have to close down. Then, Lord Bridge
(as he then was) described the situation in Service Welding Ltd v Tyne
& Wear County Council (1979) 38 P&CR 352* at p357:
It is clear, however, that where, as here, a business
occupier is in a position to find alternative accommodation in which to carry
on his business and prevent its extinction, he is under a duty to mitigate his
disturbance compensation by removing his business to the alternative
accommodation. What the authorities (to which I need not refer in detail) very
clearly establish, however, is that when an occupier, whether residential or
business, does, in consequence of disturbance, rehouse himself in alternative
accommodation, prima facie he is not entitled to recover, by way of
compensation for disturbance or otherwise, any part of the purchase price that
he pays for the alternative accommodation to which he removes, whether that
accommodation is better or worse than, or equivalent to, the property from which
he is being evicted. The reason for that is that there is a presumption in law
— albeit a rebuttable presumption — that the purchase price paid for the new
premises is something for which the claimant has received value for money. If
he has made a good bargain and acquired premises that have a value in excess of
what he has paid for them, that is not something for which the acquiring
authority is entitled to any credit. If the claimant has made a bad bargain and
has paid a great deal more for the new premises to which he is moving than they
are really worth, that is not something for which the acquiring authority can
properly be charged.
*Editor’s note: Also reported at [1979] 1 EGLR 36
Under that rebuttable presumption, Mr Mallick
would on his case first have been in a position (had he kept the business
alive) to purchase a replacement property with £80,000 plus interest in October
1993. But it is envisaged under the scheme set out in section 52 of the Land
Compensation Act 1973 that 90% of that sum should be paid within months of
vesting: see below.
Rule 2 deals with the basic market value
calculation. But that r 2 calculation will differ depending on whether it is
anticipated that the business will be moved to a new site or whether it cannot
be relocated: see the emphasised words in the Shun Fung reference above.
In the former case, it is assumed that with the compensation paid he has
acquired an equivalent property suitable for the business, and under r 6
(considered below) the claimant will recover the disturbance costs of the move,
which may well include a temporary loss of profit, if caused by the move. But
where the business cannot be relocated, the r 2 calculation will be for the
value of the business as a going concern, ie the value of the land and the
profits that go with it. If the business has not moved, because it has ceased,
the willing seller will recover what he would have got for the business and
land as a going concern, but, obviously, not removal costs, because as the
business has not moved so he has not incurred those costs.
Rule 6, inter alia, provides for the
calculation of compensation for disturbance in cases where the business is
relocated. This is not immediately clear from the words used:
The provisions of rule (2) shall not affect the
assessment of compensation for disturbance or any other matter not directly
based on the value of land…
But r 6 puts into statutory form the common law as
to compensation for disturbance as developed by judges. This was established in
Venables v Department of Agriculture for Scotland [1932] SC 573,
where it was held that those rules in no way altered the common law principle
recognised by the 1845 Act, that the person dispossessed should get
compensation for all his loss in addition to the value of the lands taken.
Clerk Alness LJ said at p581:
The sound principle would seem to be that the
person dispossessed shall get compensation for all loss occasioned to him by
reason of his dispossession. The Act of 1845 recognises that: the text-books
recognise it; judicial authority recognises it; and the Act of 1919 continues
to the evicted owner all claims formerly open to him, including that claim.
But the nature of that loss is of disturbance to
the business consequent upon the dispossession. Boynton’s Guide to
Compulsory Purchase and Compensation 1990 6th ed p214 lists by way of
illustration ‘some of the items usually claimed’ under the heading disturbance:
(a) Costs of moving stock and machinery to new
premises;
(b) Depreciation in value of stock or machinery
due to removal;
(c) Costs of notifying removal to clients or
customers; new notepaper, bill heads, etc;
(d) Telephone removals;
(e) Architect’s fees on survey of new premises,
or preparation of plans for a new building;
(f) Legal costs and stamp duty on purchase of a
comparable property; also the surveyor’s fees and the travelling expenses in
finding a suitable property. But only an owner-occupier may claim under this
heading. An investment owner is not disturbed from the land, and does not
qualify: Harvey v Crawley Development Corporation [1957] 1 QB
485;
(g) Costs of maintaining two sets of premises
temporarily during removal including a double payment of rates and other
expenses…;
(h) Loss of goodwill;
(i) Temporary loss of profit eg resulting from
dislocation of business during removal;
(j) Statutory redundancy payments.
It will be seen that in all of those cases the
business formerly carried on on the land acquired has been relocated, and this
includes all the examples I have seen where ‘loss of profit’ is claimed. It is
also true that the list is not closed — as Lord Hope said in Emslie &
Simpson Ltd v Aberdeen City District Council [1994] 1 EGLR 33 at
p38C:
the categories of what may be recovered under a
claim for disturbance cannot be treated as a closed list. It may be that under
certain circumstances a loss of business profits may be regarded as a valid
head of disturbance. This may be because the loss is due to steps taken by the
claimant to anticipate the effects of the dispossession, such as closing the
business for a while in order to make arrangements for its relocation. An
appropriate test is whether the action or the expense incurred to anticipate the
effects of dispossession could reasonably have been done or incurred by the
claimant after receipt of the notice to treat.
It will be noticed that all those examples in
Boynton identify actual expenses or losses incurred in the relocation of the
same business. If the claimant had relocated his business and had suffered such
disturbance he would have recovered such losses. But, on the facts of this
case, we are dealing with a notional relocation that never took place.
Obviously, you cannot recover removal costs if you have not incurred them.
What happens when the business cannot be
relocated? The answer is found in para 298 of Halsbury’s Laws of England,
Compulsory Acquisition of Land 4th ed 1996 reissue:
There may be cases where it is not practicable to
re-establish a business after disturbance, in which case compensation will be
payable for the total extinguishment of the business. The extinguishment must,
however, be caused by the acquisition…
Then we revert to the citation from Lord Nichols
in Shun Fung already quoted:
If… the business cannot be moved elsewhere, so it
simply has to close down, prima facie his loss will be measured by the
value of the business as a going concern.
And that is what the tribunal here did. In his
decision, Mr Hill rightly stressed the importance attached to the basis on
which he had assessed the compensation. He first emphasised the basis of the
valuation used, which was common ground between the valuers and was not
appealed, namely ‘investment basis’; that is to say by capitalising the gross
actual and estimated rental income receivable from the property, namely £18,824
pa, to which a years’ purchase of 4.25 was applied, resulting in an award of
£80,000 for the value of the land, being ‘the amount which the land if sold in
the open market by a willing seller might be expected to realise’. I have no
quarrel with this method, believing as I do that, in the absence of any
development value in the land, it is what is required by r 2 of section 5 of
the Land Compensation Act 1961 where the business is extinguished. By claiming
and receiving ‘the capitalised value of the full rental income from the
property’ (see the decision of the Lands Tribunal — JC Hill Esq — at pp3-4), ie
the value of the land recognising the income stream it would produce, the Lands
Tribunal concluded that ‘the claimant was not entitled to any further element
of profit for what is usually referred to as ‘goodwill”. Before us, there was
no challenge to the figure of £80,000 or to its calculation. To go back to r 2
of the Land Compensation Act 1961, this was ‘the amount which the land if sold
[as a going concern] in the open market by a willing seller’ might be expected
to realise.
The cases show that where it is not practicable to
relocate the business, compensation is payable for the total extinguishment of
the business in a number of situations:
where the alternative
premises were too expensive to be profitable: Knott Mill Carpets v Stretford
Borough Council (1973) 26 P&CR 129;
where the claimants had made
genuine efforts to find premises but had found nothing they could afford: Lindon
Print Ltd v West Midlands County Council (1986) 283 EG 70*;
where no alternatives were
available: Barlow v Hackney Corporation (1954) 5 P&CR 129.
*Editor’s note: Also reported at [1987] 2 EGLR
200
I see no reason why that rule should not apply in
this situation.
In my judgment, not only was Mr Mallick
compensated on the extinguishment basis — the loss to him of his business as a
going concern — but that was the only realistic basis on which to compensate
him. In October 1993, nearly five years after the vesting date, it must have
been quite clear that the 1989 business was not going to be relocated, but was
over: see Director of Buildings v Shun Fung (supra) at
p128E-G. The old business was then compensated on an extinguishment basis. On
the facts as we know them, it would have been clear that the business was not
going to be revived — it still has not been. It is now, and was then, too late.
If my analysis of the situation is right, it was
implicit in the 1993 r 2 finding that the business was treated as being
extinguished, and its full value as a going concern, with the land, calculated
and paid. Such a finding of fact is incompatible with the claim that, despite
the termination of the business and the payment of compensation on an
extinguishment basis, a loss of profits claim in relation to a venture never
risked could be entertained.
Accordingly, I would answer this question: the
Lands Tribunal was right to find that the basis on which compensation was
claimed and awarded for the loss of the claimant’s freehold property precluded
a further claim for loss of profits, since the rents on which the capital value
was calculated constituted the whole of the profit derived from the ownership
of this property.
I deal with (a) next. For convenience I repeat it:
was the tribunal wrong to decide:
(a) that any delay in the payment of the
compensation awarded in the earlier decision by this tribunal can only be
compensated for by the payment of interest at the prescribed rates
Delay is an unavoidable part of the compulsory
purchase process and the often complex valuations and negotiations involved in
it. The key to the system working is a combination of compensation payable
under section 52 of the Land Compensation Act 1973 and the statutory provisions
for interest. The White Paper (Development and Compensation 1972: Cmnd 5124),
which introduced this reform to, in the words of long title to the Act (the
Land Compensation Act 1973), ‘make new provision for the benefit of persons
displaced from land by public authorities’ described the problem:
33. One of the problems in the valuation and
negotiation of public acquisitions is that the process may take many months.
Even taking possession is not necessarily dependent upon settlement of the
amount or payment of compensation. Although interest is payable from the date
when possession is taken, this does little to help a claimant who needs ready
money to acquire a similar interest in an alternative property or to meet
expenses incurred before dispossession.
34. The government consider that there should be a
right to advance payments of compensation. Where the acquiring authority
have taken possession there is no justification for not making an advance
payment if the claimant wants one. It will therefore be provided that on or
after entry there should be an obligation on the acquiring authority, on
request from the claimant, to pay up to 90% of the amount of compensation
agreed or estimated by the authority, subject to satisfactory evidence of title
and adequate information on which to base an estimate. The acceptance of such a
payment will not prejudice the claimant if he wishes to dispute the amount of
compensation ultimately payable.
35. The government have decided that it would not
be reasonable to make it obligatory upon authorities to pay any compensation
before entry to the property. But hardship may arise even before the owner is
dispossessed. A recommendation will therefore be made to all acquiring
authorities to make advances of up to 90% before entry if the claimant needs
the money to reinstate himself before he can reasonably be expected to give up
possession.
Section 52 reads:
Advance payment of compensation
(1) Where an acquiring authority have taken
possession of any land the authority shall, if a request in that behalf is made
in accordance with subsection (2) below, make an advance payment on account of
any compensation payable by them for the compulsory acquisition of any interest
in that land.
(2) Any request under this section shall be made
by the person entitled to the compensation (hereafter referred to as ‘the
claimant’), shall be in writing, shall give particulars of the claimant’s
interest in the land (so far as not already given pursuant to a notice to
treat) and shall be accompanied or supplemented by such other particulars as
the acquiring authority may reasonably require to enable them to estimate the
amount of the compensation in respect of which the advance payment is to be
made.
(3) Subject to subsection (6) below, the amount
of any advance payment under this section shall be equal to 90 per cent of the
following amount, that is to say —
(a) if the acquiring authority and the
claimant have agreed on the amount of the compensation, the agreed amount;
(b) in any other case, an amount equal to
the compensation as estimated by the acquiring authority.
(4) Any advance payment under this section shall
be made not later than three months after the date on which a request for the
payment is made in accordance with subsection (2) above or, if those three
months end before the date on which the acquiring authority take possession of
the land to which the compensation relates, on the date on which they take
possession as aforesaid…
(6) No advance payment shall be made on account
of compensation payable in respect of any land which is subject to a mortgage
the principal of which exceeds 90 per cent of the amount mentioned in
subsection (3) above; and where the land is subject to a mortgage the principal
of which does not exceed 90 per cent of that amount, the advance payment shall
be reduced by such sum as the acquiring authority consider will be required by
them for securing the release of the interest of the mortgagee.
Interest on such compensation is payable by the
statutory route to be found in section 10(1) of the Compulsory Purchase
(Vesting Declarations) Act 1981:
Where any of the land specified in a general
vesting declaration has become vested in an acquiring authority… the acquiring
authority shall be liable to pay the like compensation, and the like interest
on the compensation agreed or awarded, as they would have been required to pay
if they had taken possession of the land under section 11(1) of the Compulsory
Purchase Act 1965.
That latter section provides:
If the acquiring authority… take possession of
that land… then any compensation agreed or awarded for the land… shall carry
interest at the rate prescribed under section 32 of the Land Compensation Act,
1961 from the time of entry until the compensation is paid…
The rate of interest prescribed is the Treasury
rate, which, over the years in question, was appreciably lower than both the
Judgment Act rate and the High Court special account rate. They were high
interest years, with the Treasury rate at 13% at its highest and 9% at its
lowest. What is relevant for present purposes is that the rate was not as high
as the net income previously received from the property — but that is not
surprising. As the statute makes clear, this is interest payable on
compensation — it is not compensation itself, although there may be situations
when it is necessary to take its payment into account to avoid double counting.
Again, we do not know when that interest was paid. If paid as it accrued on a
realistic estimate under section 52(3)(b), it could reduce the size of,
or any need for, a bridging loan.
Additionally, and we heard no submissions on this,
the right to interest when advance payments are made are dealt with in section
52A of the 1973 Act, introduced by section 63(2) of the Planning and
Compensation Act 1991. Section 52A is a complex section, and it is futile to analyse
it without knowing the actual factual background.
Mr JC Hill, who decided the case sitting as the
Lands Tribunal, which was the tribunal that had valued the land (a ‘residential
investment property’) in 1993, said:
In the event there was a delay between the
valuation date and the date on which the claimant received the balance of the
value of the property and it is not in issue that the delay had unfortunate
consequences for the claimant. It is a feature of compulsory purchase
proceedings however that delays in the settlement of compensation are not
uncommon and statutory provision is made for the payment of interest on
compensation finally agreed or awarded, the rate of interest being settled from
time to time by regulations. It might well be, particularly in the case of high
yielding properties such as the subject property, that the prescribed rate of
interest is not as high as the next income previously received from the
property. The quantum of interest is not however a matter over which this tribunal
has any jurisdiction and although I have considerable sympathy with the
claimant it is not in my power to award compensation where the statutory rate
of interest proves to be inadequate.
I see nothing to criticise in the points made in
that passage, but I would put the emphasis on section 52 of the Land
Compensation Act 1973. This is an imaginative requirement, which, together with
the statutory obligation to pay interest, is designed to take most of the
inevitable cost of delay out of the compulsory purchase process. It is also
designed to reduce the occasion for objections of impecuniosity as made here —
namely that the claimant could not raise the cost of acquiring suitable
premises in which to relocate the disturbed business until he was paid his compensation
under section 5 r 2 of the Land Compensation Act 1981.
It seems to me that the provisions for advance
payment of compensation and interest on that compensation provide a statutory
scheme intended to deal with delay in all cases, to apply in all cases. I
accept that the success of the scheme in any individual case depends on the
section 52(2) estimate being realistic and on both parties proceeding with the
valuation process with proper despatch. But I do not accept that parliament
intended that in all cases the possibility of claiming compensation (and,
consequently, interest) for allegedly underestimating the value of the property
or for delay in reaching a proper value would remain.
Although we do not know the facts behind this
delay nor what led to the apparently low section 52(2) estimate, the general
question asked invites a worst case scenario. If the local authority,
recognising their statutory obligation to pay advance compensation and to pay
interest on that compensation, decided not to agree the figure for an
illegitimate reason (eg that they were earning more with the money than they
would eventually have to pay in interest), then I suppose that such a default
might arguably entitle the claimant to compensation with interest at the prescribed
rate. But that is not this case. There is nothing in the papers before us to
suggest that the local authority were at fault in either their initial (low)
estimate of the compensation payable under section 52(3) or in the long period
of delay before payment was made. In any event, the fact that the claimant has
been compensated on an extinguishment basis is incompatible with his seeking to
apply for further compensation on a loss of profit basis. If the statutory
scheme works as it should, and estimates are accurate and payments prompt, the
cost of delay will be considerably reduced; as will the gap to be bridged by
any bridging loan, and the occasions when claimants complain of being unable to
mitigate their damage through impecuniosity. In compulsory purchase it is
particularly important that there be like justice in like cases. So, I would
answer the first question:
The Lands Tribunal was right here to find that
any delay in the payment of compensation awarded in the 1993 decision of this
tribunal can only be compensated for by the payment of interest at the
prescribed rates.
I would dismiss this appeal.
WARD and SCHIEMANN LJJ
agreed and did not add anything.
Appeal dismissed.
