Is it time for a radical rethink of compulsory purchase order rules? Antony Barnett reports.
When a new road or rail link is built and property is compulsorily acquired it is the homeowner who gets most of the sympathetic attention. But, as all owners of commercial real estate know, compulsory purchase orders can have a devastating effect on them as well.
Last week the Country Landowners Association published a policy document calling for a complete overhaul of the compensation procedure surrounding compulsory acquisition. While the CLA is regarded as a lobbying group for the rural community, its sentiments hit a nerve within the commercial property industry.
The document criticised the current process for weighting the power and tactical advantage far too heavily in the acquirer’s favour. The association particularly attacked the privatised utilities for using CPOs too frequently and not as a last resort, maximising the benefit to their shareholders and not the public.
The CLA called on the government to set up an acquisition agency which would vet any proposals for compulsory purchase. Applicants would have to demonstrate that negotiations had failed and explain how the public benefit would outweigh the negative effect on the landowners.
Roger Carey, managing director of Slough Estates and president of the British Property Federation, welcomes the CLA’s view and called for a review of the current procedures which he described as “inherently unfair”. He says: “The whole matter of CPOs needs to be revisited. There seems to be a solid line in place which compensation cannot go beyond.”
At the heart of the BPF’s concern is blighting of properties caused by proposed developments, such as infrastructure. Carey cites CrossRail as an example. “Here was a case where vast amounts of prime West End real estate were blighted and virtually unsaleable for quite a long period. Although CrossRail was later abandoned none of the landlords or businesses, which faced disruption and costs, will get compensation.”
While the details of a forthcoming RICS policy document on CPOs have not been finalised, it is known that it will be examining the issue of blight. Currently only owner-occupiers of commercial properties with a rateable value of under £18,000 can serve blight notices.
According to Tony Chase, chairman of the RICS compensation group and partner with Gerald Eve, this does not makes sense. “Why can a small business serve a blight notice but not a large one? We would like to see the rateable-value ceiling removed or, at the very least, significantly raised.”
The RICS will also ask the government to ensure that acquiring organisations pay commercial property owners an additional sum to reflect that, in most cases, they are unwilling sellers.
Homeowners are already entitled to an extra 10% of the market value of their property as compensation for the stress in losing their home. Chase believes that businesses should be entitled to a similar sum in compensation.
He explains: “Many businesses are forced to sell at a time not of their choosing and have to relocate at a time not of their choosing. This can create many problems as well as considerable anxiety.”
Some in the surveying profession are calling for a total rethink in the way compensation is calculated. Richard Delasalle, a director at Chesterton, is critical of the way in which district valuers use historic evidence in calculating compensation. He says: “They tend to take a very backward view when it comes to valuation and look at the deals done and not the deals that could be done in the future. In a changing market this can have quite a big impact on the compensation payable.”
Also of concern is the fact that compensation will not reflect the cost of replacing existing premises. Richard Owen, head of CPO compensation at Drivers Jonas, believes that much of the current system is “outdated and iniquitous”. He explains: “You sometimes find that a factory owner will get compensation only for his old secondhand property based on a low rent and capitalised at a poor yield. But he will be forced to buy a new shed, paying a much higher rent, capitalised at a much keener yield.”
It is clear that there are many issues to be sorted out. The problem for the RICS is that it must stay neutral, as its members act both for acquiring authorities and claimants.
