Compulsory purchase order (CPO) – Compensation claim – Defendants acquiring claimant’s underlease – Whether compensation to be reduced to take account of dilapidations liability from which claimant relieved as result of CPO – Whether appropriate to set off value of dilapidations liabilities against claimed compensation figure
The defendant authority made a compulsory purchase order (CPO) to acquire land in Bristol for the purpose of a redevelopment scheme. The acquired property included shop premises that the claimant held on an underlease for a term of 20 years from April 1986. At the date upon which the property vested in the defendants, the lease had only six months remaining. However, it was subject to the provisions of the Landlord and Tenant Act 1954, and the claimant would, in the absence of the CPO, have been able to apply for a new tenancy under section 24.
The claimant made a compensation claim for £263,303, including lost profits to May 2006, with further lost profits to be assessed. The defendants asserted that the underlease had a negative value owing to substantial disrepair as at the relevant valuation date, which would have rendered the claimant liable to the landlord for breaches of covenant. They submitted that the CPO effectively relieved the claimant of its dilapidations liability and that the cost of remedying the dilapidations should accordingly be deducted from the compensation otherwise payable. The claimant submitted that the breaches of covenant could not be taken into account or, in the alternative, that setting off the dilapidations liability against the compensation claim was inappropriate since the land was to be valued in the no-scheme world, and it could not be assumed that the claimant would have incurred the costs of repair in that world. A preliminary issue was tried as to whether the defendants could set off the value of the claimant’s dilapidations liabilities against the claimed compensation figure as a whole.
Held: The preliminary issue was determined.
If the effect of the acquisition had been to relieve the claimant of a liability that, in the no-scheme world, it would have been under, that fell to be taken into account in assessing compensation. In the instant case, although the defendants had obtained the benefit of the covenants in the underlease and the right to bring a claim for past breaches of covenant, they would be unable to recover damages for the dilapidations since they had acquired the premises in order to demolish them; that was the effect of section 18(1) of the Landlord and Tenant Act 1927: Re King[1963] Ch 459 applied. Accordingly, if the defendants were correct in their contention that, as at the valuation date, the lease had a negative value because of breaches of the repairing covenants, and that the effect of the acquisition would be to relieve the claimant of liability for such breaches, it would be wrong to leave those matters out of account when assessing compensation.
It was not appropriate to deduct the cost of remedying the dilapidations from the amount of compensation that would otherwise be payable. The effect on the market value of the interest would be a matter of valuation, and would not necessarily be reflected by the cost of such works. Accordingly, it would be wrong to determine the preliminary issue in the defendant’s favour in the terms in which it was expressed. The appropriate determination was that any liability of the claimant under its underlease for breaches of the repairing covenants was properly to be taken into account in the assessment of compensation, including compensation for disturbance, and that the effect of such liability was a matter of valuation.
Jonathan Karas QC (instructed by TLT Solicitors, of Bristol) appeared for the claimant; Rupert Warren (instructed by Ashurst) appeared for the defendant.
Sally Dobson, barrister