Compulsory purchase order valuation under scrutiny

The case of Nofax Station Road Limited v The London Borough of Barnet concerned the method of valuation of a site acquired by the London Borough of Barnet through a compulsory purchase order (CPO), under which land was vested back in 2019.

This article discusses the three issues the court considered in making its decision.

Case facts

The London Borough of Barnet compulsorily purchased around 0.12 acre of a site in Barnet for the widening of the highway for the West Hendon estate. Novak, the claimant, sought compensation for this purchase.

But whilst the majority of the purchased land was safeguarded for the expansion of the highway, in 2017 the claimant had redeveloped the remainder of the site into mixed use residential and commercial units, known as the retained land. The commercial units have since been converted to residential under a later permission.

The parties could not agree the compensation due under the CPO compensation code, leading to a hearing to determinate quantum for the acquired land. They were some way apart at the start of the claim, the claimant putting forward heads amounting to £2,350,000, with the authority’s assessment being £15,000, both excluding professional fees.

Key issues

The extent of appropriate alternative development that would likely be permitted, absent the scheme.
The valuation of the site based on that development.
How such valuation should be applied in the working out of the sum due by way of compensation.

Relevant legislation

Section 5 of the Land Compensation Act 1961, which set out the rules for assessing compensation, and the ‘no scheme principle’.

“5. Compensation in respect of any compulsory acquisition shall be assessed in accordance with the following rules:

(1) No allowance shall be made on account of the acquisition being compulsory:

(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.

(2A) The value of land referred to in rule (2) is to be assessed in the light of the no-scheme principle set out in section 6A.”

Section 6A of the Land Compensation Act 1961 introduced by the Neighbourhood Planning Act 2017

"(1) The no-scheme principle is to be applied when assessing the value of land in order to work out how much compensation should be paid by the acquiring authority for the compulsory acquisition of the land (see rule 2A in section 5).

(2) The no-scheme principle is the principle that—
(a)any increase in the value of land caused by the scheme for which the authority acquires the land, or by the prospect of that scheme, is to be disregarded, and
(b)any decrease in the value of land caused by that scheme or the prospect of that scheme is to be disregarded.

...
(8) Rule 5 : if there was a reduction in the value of land as a result of—

(a) the prospect of the scheme (including before the scheme or the compulsory acquisition in question was authorised), or

(b) the fact that the land was blighted land as a result of the scheme

That reduction is to be disregarded”

Section 14 of the Land Compensation Act 1961 regarding taking into account actual or prospective planning permissions

"5. The assumptions referred to in subsection (2B)(a) (and in section 17(1B)(a)) are—

that the scheme of development underlying the acquisition had been cancelled on the launch date,
that no action has been taken (including acquisition of any land, and any development or works) by the acquiring authority wholly or mainly for the purposes of the scheme,
that there is no prospect of the same scheme, or any other project to meet the same or substantially the same need, being carried out in the exercise of a statutory function or by the exercise of compulsory purchase powers, and
if the scheme was for use of the relevant land for or in connection with the construction of a highway (“the scheme highway”), that no highway will be constructed to meet the same or substantially the same need as the scheme highway would have been constructed to meet.”

Issue 1 – extent of the appropriate alternative development (AAD) likely to have been permitted

For the purpose of assessing AAD, the scheme was assessed to have been cancelled on the launch date, 14 June 2014.

The parties agreed that the retained land and at least part of the retained land were capable of accommodating AAD. The dispute centred around the form which the AAD might take as at the valuation date, applying the principles established in the Transport v Curzon Park Ltd and others case .

The claimant’s alternative scheme in its entirety largely followed the form of the building on the land comprising of 53 units, but extended around 3m towards the highway. The tribunal held that:

Whilst a reasonable planning authority would not expect detail in line with a full planning application, the claimant’s proposal could not be an AAD as fundamental elements of it were not compliant with policy.
Conditions that can be dealt with at reserved matters stage are the only details that should be left. Whilst it's accepted that elements can be adjusted to become policy compliant, in this case the claimant’s proposed scheme was too far removed from that.
The planning witness for the claimant failed to appreciate the task facing the tribunal, in that fundamental tweaks need to have already been made for the tribunal to make its assessment.

As such the tribunal concluded that it could “place very little weight on [this] evidence, and [was] unpersuaded that there is a reasonable expectation of planning consent being granted for the claimant’s scheme. It is not AAD”. Indeed, the tribunal described the claimant’s scheme as being “systematically dismantled … in cross examination”.

The authority’s AAD scheme comprised of 29 residential units, with 35% being affordable housing, and 125sqm of commercial area. The tribunal accepted the authority’s scheme envelope as being AAD but with two changes:

Firstly, it noted that the Housing and Viability Guidance for affordable housing calls for 35% of each development to be affordable. However this must be assessed in line, and balanced with, a viability assessment. The tribunal looked across the local area for similar schemes and the level of affordable housing required. Similar schemes of scale and kind attracted 0% affordable housing due to viability, so the tribunal were agreeable to having a 100% market dwelling development.
Secondly, the commercial units were ‘removed’ from the AAD, as outline consent was granted for a change of use to residential space instead, and a contribution could be paid to justify this in planning terms.

As such, the AAD compensation was assessed against a scheme of 37 open market residential units essentially as put forward by the authority but with no affordable housing or commercial floorspace.

Issue 2 - the valuation of the site based on that development

The authority initially calculated the land at £15,000, as a stand-alone grass strip which is not immediately developable. However, it's clear from the tribunal’s decision that much work was done by both parties individually, but also through their valuers working in co-operation to agree the basis of valuation and the figures thereby produced.

Whilst various approaches were adopted and/or explored, the parties eventually agreed the value of the reference land as grass verge (as above, £15,000), the capital value of the existing building (£7.11m), and the residual value of the retained land (£590,000). They also agreed a valuation of the tribunal’s preferred AAD scheme of £2.1m, after the tribunal deducted the further section 106 payment for loss of the commercial space, thus giving the residual market value of the whole site, i.e. the reference land and the retained land, at the valuation date.

No discount was allowed by the tribunal for the lack of actual planning permission. To allow that, the tribunal noted, would 'fly in the face of what AAD is premised upon'.

Issue 3 - how such valuation should be applied for the compensation sum

The authority argued that the land should be valued based on rule 2 and 2A of the Land Compensation Act (above). This then called for the no scheme restrictions in section 6A.

The authority’s position was that the reference land should be valued under rule 2, and relied on the Ramac Holdings Limited v Kent County Council case assertion that:

“The Reference Land must be valued as if it alone was being sold on the open market by a willing seller… insofar as the claimant suffers a loss because of a diminution in the value of the Retained and then this will form a claim for compensation for severance and/or injurious affection. It does not justify adopting an artificial approach to valuing the Reference Land as if it still formed part of a larger whole.”

However, the tribunal differentiated this case on its fact to the one at present as the acquired land was only a small percentage of the overall land and was merely a grass verge, already excluded from the fenced off area. This is vastly different to acquiring 37% of a site, as was the case here.

The claimant’s submissions were based on the principle of equivalence, guided by the decision in the Castlefield Property Limited v National Highways case, and that fair and full compensation should be paid for the loss suffered to allow the claimant to, as far as possible, be put in the position they would have been in but for the scheme. But for the scheme, the claimant would have developed the whole site. Losing 37% of the site significantly reduced that developable area.

The tribunal found for the claimant on this ground, preferring an approach more aligned to the principle of equivalence than that put forward by the authority. This was despite it acknowledging the 'slightly artificial' nature of the exercise. It concluded that:

“The basic law of the authority’s approach is that it doesn’t compare apples with apples, in that the costs of construction, finance, marketing, etc of the AAD is allowed for, but the capital value of the Existing Building is included without also deducting on a similar basis the costs etc of constructing it”.

The final award was therefore based on the residual value of the site minus the agreed value of the retained land.

David Richardson is a Partner and Hannah Lewthwaite is a Solicitor at Ashfords.