The Law Commission

This Code confers a right to compensation, assessed in accordance with the following provisions, on an owner of:

(1) any interest in land which is acquired by, or ceases to exist by reason of, compulsory purchase;

(2) any right over land subject to compulsory purchase, which is overridden in the exercise of statutory powers.

Compensation shall be assessed in accordance with the principle of fair compensation, having regard to the following heads (so far as applicable in the particular case):

A Market value of the land subject to compulsory acquisition ("the subject land");

B Injury to, or betterment of, any other land held with the subject land ("the retained land");

C Consequential loss;

D Equivalent reinstatement.

(1) "Market value" of land means the amount which the land might be expected to realise if sold in the open market by a willing seller to a willing buyer.

Provided that the market value of the subject land for the purposes of head A shall not be less than nil.

(2) Except as otherwise provided, for the purpose of any provisions of the Code which depend on the value of land (including any reduction or increase in the value of land), value means "market value" as so defined.

(1) Subject to Rules 4(2) and 13A(1), compensation for injury to retained land shall be assessed having regard to the following (so far as applicable), as at the valuation date –

(a) any decrease in the value of any interest of the claimant in any part of the retained land attributable to its severance from the subject land ("severance");

(b) any decrease in the value of any interest of the claimant in any part of the retained land attributable to the nature, carrying out, or expected use of the works for which the land is acquired ("injurious affection");

but off-setting -

(c) any increase in the value of any part of the retained land attributable to the nature of, carrying out, or expected use of, those works ("betterment").

(2) If, in either case, the parties agree or the Tribunal determines:

(a) account shall be taken of changes of circumstances (other than changes in land values) known at the date of assessment;

(b) compensation due under this Rule and Rule 3 may be assessed together, that is, by calculating the difference at the valuation date between:

(i) the value of the subject land and the retained land, taken together, as they were immediately before the acquisition; and

(ii) the value of the retained land, on its own, as it was immediately thereafter.

(1) "Consequential loss" means loss suffered or expense reasonably incurred, so far as it is

(a) the natural and reasonable consequence of the compulsory acquisition;

(b) not too remote;

(c) not reflected in compensation based on the value of land, under Rule 3 or 4;

(d) incurred after the first notice date, save that compensation for earlier losses may be granted:

(i) by agreement;

(ii) if the Tribunal determines that, having regard to the special circumstances of the case, it would be unfair to refuse compensation.

(2) Where compensation is claimed for the displacement of a business:

(a) compensation shall be assessed by reference to either:

(i) the reasonable costs of relocating the business (wholly or partially), loss of profits and any loss or expense incidental to relocation (the "relocation" basis); or

(ii) the value of the business (or part of the business) as a going concern at the valuation date, and any loss or expense incidental to closure (the "total extinguishment" basis); or

(iii) a combination of the two methods.

(b) the claimant will be entitled to claim on the relocation basis, if

(i) it is reasonably practicable to relocate the business (wholly or partially);

(ii) it has been relocated, or the claimant intends to relocate it (or complete its relocation); and

(iii) it is not shown to be unreasonable in all the circumstances for compensation to be paid on that basis.

(c) the claimant will not be entitled to claim on the extinguishment basis, except:

(i) in the circumstances defined by section 46 of the 1973 Act (rights of traders over 60 years of age to claim compensation on the total extinguishment basis);

(ii) if he has not relocated, and does not intend to relocate, the business; and he shows either

(A) that relocation was or is not reasonably practicable; or

(B) that it is reasonable in all the circumstances for him not to relocate.

(d) For the avoidance of doubt, in deciding what is reasonable under (b) or (c):

(i) the personal circumstances of the claimant (including age, illness, disability or financial circumstances) shall be taken into account;

(ii) the fact that higher compensation is payable on the relocation basis than on the extinguishment basis does not of itself make it unreasonable for compensation to be assessed on the relocation basis.

(e) Unless the contrary is shown, where premises acquired for relocation have a greater market value than the premises acquired from the claimant, it shall be presumed that the difference in value reflects advantages for which compensation is not payable.

(3) Without prejudice to the above rules:–

(a) Consequential loss includes the amount of any legal or other professional costs reasonably incurred by the claimant in connection with the acquisition;

(b) Where land on which a business is carried on is severed by the acquisition, compensation shall include costs reasonably incurred in replacing buildings, plant or other installations (whether or not they were on the subject land) if or to the extent that

(i) they are required to enable the business to be continued on the retained land, or other adjacent land acquired for the purpose;

(ii) the need for replacement is caused by the acquisition;

(iii) the cost is not adequately reflected in any other head of compensation; and

(iv) it is not shown to be unreasonable in all the circumstances for compensation to include such costs.

Provided that the compensation may be reduced to such extent (if any) as the Tribunal may determine to reflect any improvement in the facilities so obtained over those replaced.

(c) Where a claimant who was not in occupation of the subject land incurs incidental charges or expenses in acquiring, within one year of the date of entry, an interest in other land in the United Kingdom, those charges and expenses may be claimed as consequential loss.

(1) Compensation may be claimed on the basis of the reasonable cost of equivalent reinstatement –

(a) in the circumstances, and subject to the rules, defined by section 45 of the 1973 Act (dwellings adapted for the disabled);

(b) if it is shown that –

(i) the subject land is, and but for the compulsory acquisition would continue to be, adapted and normally used for a purpose of such a nature that there is no market or general demand for land or premises for that purpose; and

(ii) reinstatement in some other place is genuinely intended.

(2) Where a claim is made under (1)(b) –

(a) The cost of reinstatement shall be assessed by reference to the date at which reinstatement becomes reasonably practicable.

(b) Compensation on the basis of equivalent reinstatement may be refused, if it is shown that the cost is disproportionate having regard to the likely benefit to the claimant.

(3) Where reinstatement has not been carried out before compensation is determined, the award of compensation under this Rule may be made subject to conditions (including provision for staged payments) to ensure that any payment is used for the intended purpose, or (if not) that any excess over the compensation otherwise due is repaid.

General rules

(1) Subject to (3), in assessing compensation under any head, there shall be disregarded any element of value or loss, which is attributable to a use which is contrary to law.

(2) For this purpose a use is "contrary to law" in so far as it involves a criminal offence, or is otherwise prohibited by statute.

(3) The Tribunal may disapply this rule (wholly or partially) if satisfied that it would not be contrary to the public interest to do so, having regard in particular to the nature of the breach and its ease of remedy.

Where the market value of an interest in the subject land is assessed on the basis that the land had potential to be developed or used for a purpose other than the purpose for which it was occupied at the valuation date, compensation shall not be allowed under other heads (consequential loss or injury to retained land) in respect of loss or damage that would necessarily have arisen in realising that potential.

(1) If it is shown by the authority that the claimant has (since the first notice date) unreasonably failed to take steps that were open to him to mitigate his loss, the compensation otherwise payable shall be reduced by the amount of such loss as could have been avoided by taking such steps when it was reasonable to do so.

(2) For the avoidance of doubt, in deciding what is reasonable under (1) the personal circumstances of the claimant (including age, illness, disability or financial circumstances) shall be taken into account.

Valuation date

(1) "The valuation date" means the date when compensation is agreed or determined or, if earlier, the date when possession is taken by the authority.

(2) Save as otherwise provided in this Code, compensation shall be assessed by reference to the following dates and circumstances:

(a) Under heads A (value of subject land) and B (injury to retained land), and in any other case where the amount depends on the value of land, interests will be valued as they stand at the "valuation date", at values prevailing at that date, and in the circumstances prevailing or reasonably anticipated at that date.

Provided that, where a right to compensation arises in relation to an interest which has ceased to exist, or may be brought to an end, by reason of the compulsory acquisition that, and any other interest in the same land, will be valued as though at the valuation date, there had been and would be no compulsory acquisition.

(b) Under head C (consequential loss), compensation shall be assessed by reference to circumstances prevailing or reasonably anticipated at the date of assessment.

(c) Under head D (equivalent reinstatement), compensation will be assessed by reference to the costs, or estimated costs, at the date when commencement of reinstatement work became, or is expected to become, reasonably practicable.

Matters to be disregarded

In valuing the subject land or the retained land, there shall be disregarded

(1) any new interests created over the subject land, or the retained land, between the date of notice to treat and the valuation date, in so far as they would increase the amount of compensation otherwise payable by the authority;

(2) without prejudice to (1), any enhancements (by creation of interests, or works on the land or otherwise) where the Tribunal is satisfied that the enhancement was undertaken solely with a view to obtaining compensation or increased compensation.

Where the subject land comprises a dwelling-house, there shall be left out of account any increase or reduction in the compensation otherwise payable, which is attributable to the fact that the acquiring authority (or any other authority acting in the exercise of a statutory function) have provided or undertaken to provide alternative residential accommodation for the claimant or a residential tenant (under the 1973 Act, s 39 or otherwise).

A new Code

(1) All previous rules, statutory or judge-made, relating to disregard of "the scheme" will cease to have effect.

Defining the project

(2) In this Code, "the statutory project" means the project, for a purpose to be carried out in the exercise of a statutory function, for which the authority has been authorised to acquire the subject land.

(3) In cases of dispute, the area of the statutory project shall be determined by the Tribunal as a question of fact, subject to the following:

(a) The statutory project shall be taken to be the implementation of the authorised purpose within the area of the compulsory purchase order, save to the extent that it is shown (by either party) that it is part of a larger project;

(b) Save by agreement or in special circumstances, the Tribunal shall not permit the authority to advance evidence of a larger project, other than one defined in the compulsory purchase order or the documents published with it.

Disregarding the project

(4) In valuing the subject land at the valuation date:

(a) it shall be assumed that the statutory project has been cancelled on that date; and

(b) the following matters shall be disregarded:

(i) the effects of any action previously taken (including acquisition of any land, and any development or works) by a public authority, wholly or mainly for the purpose of the statutory project;

(ii) the prospect of the same, 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 powers.

(5) Sub-rule (4) does not require or authorise (save to the extent specified in (b)) consideration of whether events or circumstances at any time (before or after the valuation date) would have been different in the absence of the statutory project.

Depreciation due to blight

(6) Without prejudice to sub-rule (4), no account shall be taken of any depreciation (not attributable to diminished planning prospects) in the value of the relevant interest which is attributable to the land being blighted land, or to any indication (whether by way of particulars in a development plan, or otherwise) that the subject land, or any land in the vicinity, is likely to be acquired by a public authority.

"Blighted land" means land within any category defined by Schedule 13 to the Town and Country Planning Act 1990.

"Planning prospects" means the prospects of planning permission for valuable development.

Reverse compulsory purchase

(7) For the avoidance of doubt, where land is treated as acquired compulsorily by an authority following a notice served by the claimant compensation will be assessed:

(a) in any case, in accordance with sub-rule (6); and

(b) where it is blighted land, on the basis that it was acquired for a statutory project corresponding to the public proposal which resulted in it being blighted land.

Rule 13A Other heads of compensation

Injury to retained land

(1) In assessing injury to retained land (head B), reference to the "works" in Rule 4 includes a reference to all the works comprised in the statutory project;

Consequential loss

(2) In assessing compensation for consequential loss (head C):

(a) references in Rule 5 to any consequence of the compulsory acquisition includes reference to any consequence of the statutory project;

(b) without prejudice to (a) consequential loss includes any loss of profits of a business (wholly or partly on the subject land) attributable to the matters referred to in sub-rule (6) (depreciation due to blight)

Provided that no claim may be made for consequential loss before the first notice date (save as permitted under Rule 5(1)(d)).

Planning status

Planning permissions and hope value

(1) For the avoidance of doubt, in valuing the land, the circumstances to be taken into account at the valuation date include:

(a) any planning permission for development which is in force at the valuation date (on the subject land or any other land); and

(b) the prospect, in the circumstances known to the market at that date, of any other such planning permission being granted in the future.

Appropriate alternative development

(2) Account shall also be taken of value attributable to appropriate alternative development of the subject land, in accordance with the following rules:

(a) "Appropriate alternative development" means development for which planning permission could reasonably have been expected to be granted on the assumptions set out in paragraph (b) (on the subject land, by itself or together with other land), on an application considered on the valuation date ("appropriate alternative development");

(b) The assumptions in (a) are that the circumstances are those prevailing at the valuation date, save that:

(i) The statutory project had been cancelled on that date;

(ii) No action has been taken (including acquisition of any land, and any development or works) by a public authority, wholly or mainly for the purpose of the statutory project;

(iii) There is no prospect of the same, 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 powers.

(c) Account shall also be taken of the prospect, on the same assumptions, but otherwise in the circumstances known to the market at the valuation date, of any other such planning permission being granted in the future.

Application for certificate

(1) For the purpose of determining the permission or permissions to be assumed under Rule 14(2)(a) above, either the claimant or the authority may, at any time after the first notice date, apply to the local planning authority for an "alternative development certificate", in accordance with the following rules (and "procedural regulations" to be made by statutory instrument):

(2) An alternative development certificate is a certificate stating:

(a) the opinion of the local planning authority as to the classes of appropriate alternative development (if any) for which permission is to be assumed on the basis set out in Rule 14(2)(a) (on the subject land by itself or with other land);

(b) a general indication of any conditions, obligations or requirements, to which the permission would reasonably have been expected to be subject.

Appeal to Lands Tribunal

(3) There shall be a right of appeal against the certificate to the Tribunal, by either the claimant or the authority, subject to procedural regulations, which shall include:

(a) Power for the Tribunal to determine the timing and scope of the hearing of the appeal, having regard to any related compensation reference;

(b) In particular, power for the Tribunal to direct

(i) that the appeal be determined on its own, or at the same time as a reference relating to the determination of compensation for which the certificate is required;

(ii) that the hearing of the appeal should take the form of a local inquiry before a planning inspector (appointed for the purpose by the Chief Planning Inspector), and that the inspector be given delegated power to determine the appeal on behalf of the Tribunal.

Conclusive effect

(4) Subject to any such appeal, or any direction of the Tribunal, an alternative development certificate shall be conclusive of the matters stated in it for the purposes of assessing compensation.

Special cases

(5) Regulations may provide for the application of the certificate procedure to special cases, including:

(a) the circumstances specified in 1961 Act section 19 (valuation by a surveyor where claimant absent from the United Kingdom or untraceable);

(b) where the authority is seeking to acquire land by agreement.

The following should be repealed without replacement:

(1) 1961 Act, section 15(3) and (4) ("Third Schedule rights")

(2) 1961 Act, section 23 (compensation where permission for additional development is granted after acquisition).

Particular interests

Where the interest acquired is a new right over land, compensation shall be assessed having regard to:

(1) Any depreciation in the market value of the land over which the right is acquired;

(2) Any depreciation in the market value of other land held with that land, caused by the acquisition of the right;

(3) Any consequential loss (applying the principles of Rule 5, with appropriate modifications).

(1) Where, in the carrying out of the purpose for which the subject land is acquired any easement, restrictive covenant or other right affecting the subject land is overridden, compensation shall be payable under this rule.

(2) Such a right is overridden where any action takes place which, in the absence of statutory authority, would involve unlawful interference with, or breach of, that right.

(3) Compensation shall be assessed by reference to the reduction (if any) in the market value of any land to which the right was attached, so far as attributable to the overriding of the right, and any consequential loss (applying the principles of Rule 5, with appropriate modifications).

Compensation for the compulsory acquisition, or the extinguishment by compulsory purchase, of "minor tenancies" (as defined in section 2(1) of the Vesting Declarations Act 1981) will be assessed according to the rules applying to the compulsory acquisition of other interests.

(The special compensation rules in 1965 Act s 20(2) will be repealed.)

Incidental matters

(1) Where the authority takes possession of the land before compensation has been paid, the claimant shall be entitled to an advance payment, in accordance with sections 52 and 52A of the 1973 Act.

(2) Where it is shown that the authority has delayed unreasonably in making such a payment, or that the estimate on which the payment was based was unreasonably low, the County Court may, on the application of the claimant, make such interim or final orders (including orders for disclosure of information, and for imposing time-limits), as are necessary to enforce the authority's obligations under this Rule.

The Lands Tribunal shall have jurisdiction (subject to procedural rules) to determine any claim (common law or statutory) relating to damage to land or to the use of land, where it arises out of substantially the same facts as a compensation claim which has been referred to the Tribunal.

The following rules shall apply in relation to interest on compensation:

(1) Subject to (2) and (3), interest shall be paid from the date when the subject land vested in the authority, or if earlier, the date when the authority took possession of the land, at such rate as may be prescribed from time to time by the Secretary of State;

(2) Save in respect of compensation heads A and B, the Tribunal may, if it thinks appropriate having regard to the nature and amount of the award, determine that interest on different items of loss or expense shall run from some other date or dates, having regard to the time when the relevant loss or expense has been or is expected to be incurred;

(3) The Tribunal may increase or decrease the rate of interest, where it considers it appropriate to do so, having regard to any unreasonable conduct of either party in relation to the compensation claim (including unreasonable delay by the authority in making an advance payment).

Compensation where no land is acquired

(1) Compensation will be payable for depreciation caused by the construction or use of public works where no land is taken, in accordance with Part I of the Land Compensation Act 1973 (expanded and amended to provide a complete code for compensation for such depreciation).

(2) The following rules should apply in relation to loss caused by construction:

(a) The claim may be made by any person with a qualifying interest (as defined in section 2 of the 1973 Act) at the date of commencement of the works;

(b) Compensation shall be payable for any depreciation in the market value of the qualifying interest, and any consequential loss (not reflected in the value of land),

(i) which was caused by the construction of the works under statutory authority; and

(ii) for which the statutory authority would have been liable to pay damages if the construction had not been authorised by statute.

(3) The following provisions of the 1973 Act, Part I should be repealed:

(a) sections 2(3) and (6) (rateable value limit of £24,600, currently applicable to interests other than dwellings or agricultural units);

(b) section 4(5) (existing use only);

(c) section 5 (requirement to assume that no permission would be granted for new development).

(Signed) ROGER TOULSON, Chairman
HUGH BEALE
STUART BRIDGE
MARTIN PARTINGTON
ALAN WILKIE
ROBERT CARNWATH
(Consultant and former Chairman)

MICHAEL SAYERS, Chief Executive

5 November 2003