The Law Commission

PART VI

VALUATION DATE AND DISREGARDS

Fixing the valuation date

Introduction

Valuation of interests in land

6.1      As we explained in CP 165,^[1] the West Midland Baptist case^[2] in 1969 established the general principle that interests are valued as at the date when possession is taken by the authority, or, if earlier, the date when compensation is determined. This displaced the previous understanding that the date of notice to treat was the critical date for valuation purposes. We proposed that the "valuation date" should be defined in the draft Code so as to give effect to that ruling.
6.2      We noted that, following the West Midland Baptist case, there had been some uncertainty as to whether the same rule would apply in determining the nature and extent of the interests to be valued.^[3] We adopted the following summary of the effect of the cases:

… the decided cases suggest that a result which accords with the principle of equivalence will normally result from a rule that interests subsisting at the date of the notice to treat should be valued on the basis of their nature or extent at the valuation date… [However] the rule should not be rigidly adhered to if to do so in any particular case would produce a result at odds with that principle…^[4]

We proposed accordingly that, subject to the rules relating to new interests and enhancement,^[5] and those relating to project disregard and planning assumptions^[6], the general principle should be that

interests will be valued as they stand at the "valuation date", at values prevailing at that date, and in the context of the planning and other circumstances prevailing at that date.^[7]

Consequential loss

6.3      In CP 165, we noted that the same rules could not be readily applied to compensation for disturbance. For example, a claim for loss of profits may extend from the first threat of compulsory purchase until the date of effective re-establishment on a new site.^[8] Similarly, removal expenses, and other allowable heads of the disturbance claim, may be incurred at different times. We noted that there was no clear guidance or practice as to how such items might be adjusted (upwards or downwards) to represent the equivalent sums at the common valuation date.^[9] In the West Midland Baptist case, Lord Reid commented that in relation to such items:

The actual costs or losses following on actual dispossession^[10] have been taken, and that appears to be the accepted practice today with regard to claims under rule 6.^[11]

6.4      We concluded, however, that there was no need for detailed provision. Under the general principle of "fair compensation", it would be a matter for valuation expertise as to how best to achieve that on the facts of any individual case.^[12]

Equivalent reinstatement

6.5      We also followed the West Midland Baptist case in proposing that, where compensation is assessed on the basis of equivalent reinstatement, it should be assessed by reference to the date at which reinstatement became reasonably practicable.^[13]

Facts known to the tribunal

6.6      In Part III above, we discussed the extent to which, in relation to head (b) (injury to retained land), the Tribunal should be able to take into account its knowledge of changes in circumstances since the valuation date.^[14] We do not repeat that discussion, save to note that the definition of the valuation date is intended to be subject to the special rule there proposed. In relation to consequential loss, there is no reason why the Tribunal should not be able to take account of any information up to the date of assessment.^[15]

Consultation

6.7      We do not find it necessary to repeat or add to the detailed discussion in CP 165. Our proposals proved generally uncontroversial in consultation. There were some alternative suggestions in relation to equivalent reinstatement. However, the majority of respondents agreed with us in following the existing law. There was more concern about the implication of this proposal for fixing the date or dates from which interest is to run. However, we think they are better addressed in the discussion of our separate proposals relating to interest.^[16] Accordingly, we recommend:

Rule 10 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.^[17]

(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.

Disregards

Introduction

6.8      The general principle will be that, save as specifically provided, the assessment of compensation will be made on the basis of the circumstances prevailing at the valuation date. The most important exceptions to this principle are considered in the next two Parts ("the statutory project" and "planning status"). In this Part we mention two more limited (and uncontroversial) exceptions derived from the existing law.

New interests and enhancements

6.9      In this proposal, we sought to give effect to two existing rules, the first derived from case-law, and the other from statute:

(1) The rule that the burden of compensation cannot be increased after the date of notice to treat, by the creation of new interests on the subject land, or any retained land.^[18]

(2) The rule that the Lands Tribunal may not take account of any enhancements of value (whether by creation of interests or by works) if satisfied that they (i) were "not reasonably necessary" and (ii) "were undertaken with a view to obtaining compensation or increased compensation".^[19]

6.10      This proposal proved generally uncontroversial on consultation. We think the wording of rule (2) could be simplified. It is not clear what purpose is served by a two-part test. If the works were "reasonably necessary" for other reasons, it is unlikely that they would be held to be "with a view" to improved compensation; and, even if improved compensation were part of the motivation, it would not seem fair to exclude compensation. The purpose of the provision could be better achieved by a single question: were the works undertaken "solely with a view to" improved compensation?
6.11      It was suggested by one respondent that the second rule should have a start-date, for example the first notice date, to tie in with the rules on mitigation.^[20] However, the test is already a stringent one; and we think it unnecessary to add a further limitation. In the unlikely event that works before the first notice date satisfy the test, we think it fair to relieve the authority of the extra burden so created.
6.12      Accordingly, we recommend:

Rule 11 New interests and enhancements

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.

Rehousing obligations

Introduction

6.13      Where the compulsory acquisition results in the displacement of residential occupiers, the authority may have obligations to rehouse.^[21] If tenants are rehoused before the valuation date, the property would, in the absence of any rule to the contrary, be valued with vacant possession rather than subject to the tenancies. This could affect the valuation either way.^[22]
6.14      Section 50 of the 1973 Act contains a provision designed to ensure that compensation is neither increased nor decreased by the rehousing obligations of the authorities concerned:

(1) The amount of compensation payable in respect of the compulsory acquisition of an interest in land shall not be subject to any reduction on account of the fact that the acquiring authority have provided, or undertake to provide or arrange for the provision of, or another authority will provide, residential accommodation under any enactment for the person entitled to the compensation.

(2) In assessing compensation payable in respect of the compulsory acquisition of an interest in land which on the date of service of the notice^[23] to treat is subject to a tenancy, there shall be left out of account any part of the value of that interest which is attributable to, or to the prospect of, the tenant giving up possession after that date in consequence of being provided with other accommodation by virtue of section 39(1) above; and for the purposes of determining the date of reference to which that compensation is to be assessed the acquiring authority shall be deemed, where the tenant gives up possession as aforesaid, to have taken possession on the date on which it is given up by the tenant.

6.15      We proposed that there should be similar provision, in simplified form, in the new Code, to the effect that any increase or reduction in compensation attributable to the fact that an authority has provided or undertaken to provide alternative residential accommodation for the claimant or a residential tenant.

Discussion

6.16      There was no disagreement with this proposal. We have considered whether this is a matter which would be adequately covered by other rules, including the project disregard rule. However, we think that it is useful for there to be a specific rule dealing with the treatment of housing obligations.^[24]
6.17      This simplified wording of our Proposal^[25] was not intended to alter the effect of the present law, but merely to allow for redrafting in accordance with the style of the new Code. However, we note that the term "another authority" (in section 50(1)) is not at present defined. We propose the term "authority acting in the exercise of a statutory function", to be consistent with our proposed rule in relation to "the statutory project".^[26]
1. .18 Accordingly, we recommend:

Rule 12 Rehousing obligations

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).

Note 1    CP 165, paras 5.73ff.    [Back]

Note 2    Birmingham Corp v West Midland Baptist (Trust) Association (Inc) [1970] AC 874.    [Back]

Note 3    The West Midland Baptist case made clear that the physical state of the land should be taken as it stood at the valuation date; thus, if a building on the land is destroyed by fire between the date of notice to treat and the date of entry, it will not be taken into account in assessing compensation: West Midland Baptist case at p 899, disapproving Phoenix Assurance Co v Spooner [1905] 2 KB 753. However, the application of the same principle to the identification of interests in land was subject to conflicting decisions in the Lands Tribunal: see Banham v Hackney LBC (1970) 22 P&CR 922; Lyle v Bexley LBC [1972] RVR 318.    [Back]

Note 4    Young and Rowan-Robinson, “Compensation for compulsory purchase: equivalence and the date for fixing interests” [1986] JPL 727, 743.    [Back]

Note 5    Proposal 7(2) in CP 165; now Rule 11.    [Back]

Note 6    Proposals 9 and 10 in CP 165; now see Rules 13, 14 and 15 .    [Back]

Note 7    CP 165 Proposal 8(1).    [Back]

Note 8    An extreme example was Shun Fung where the Privy Council upheld a claim for loss of profits was allowed, dating from five years before the valuation date; the relocation claim, as upheld by the Hong Kong Court of Appeal, assumed effective relocation 13 years after the valuation date.     [Back]

Note 9    CP 165, para 5.82.    [Back]

Note 10    This was before the Shun Fung case had established that losses before the dispossession could be claimed, if caused by the threat of acquisition: see CP 165, para 4.39.     [Back]

Note 11    [1970] AC 874, 896 H – 897A.    [Back]

Note 12    CP 165, para 5.88.    [Back]

Note 13    This involved a departure from the Policy Statement: see CP 165, paras 5.89 – 5.91.    [Back]

Note 14    Paras 3.25 – 3.29 above.    [Back]

Note 15    This corresponds to the approach to continuing loss under the common law: see eg Cookson v Knowles [1979] AC 556 (damages for loss of earnings).    [Back]

Note 16    See paras 10.20 – 10.21 below.    [Back]

Note 17    See paras 2.3 – 2.5 above as to the circumstances in which such a right may arise.    [Back]

Note 18    Mercer v Liverpool, St Helens and South Lancashire Ry Co [1903] 1 KB 652; see Butterworths Compulsory Purchase and Compensation Service, para D [369].    [Back]

Note 19    1981 Act, s 4.    [Back]

Note 20    See paras 5.24 – 5.26 above.    [Back]

Note 21    For example, s 39(1) of the 1973 Act provides: Where a person is displaced from residential accommodation on any land in consequence of: a) the acquisition of the land by the authority possessing compulsory purchase powers; b) making or acceptance of a housing order or undertaking in respect of a house or building on the land; c) where the land has been previously acquired by an authority possessing compulsory purchase powers or appropriated by a local authority and is for the time being held by the authority and is for the time being held by the authority for the purposes for which it was acquired or appropriated, the carrying out of any improvement to a house or building on the land or of redevelopment on the land; and suitable alternative residential accommodation on reasonable terms is not otherwise available to that person, then, subject to the provisions of this section, it shall be the duty of the relevant authority to secure that he will be provided with such other accommodation.    [Back]

Note 22    Where the tenancies are rent protected, vacant possession will normally increase the value of the property. In other cases, for example where there is a fixed-term tenancy in a falling market, the existence of the tenancy may add value.     [Back]

Note 23    This includes “deemed notice to treat” under the vesting declaration procedure: 1973 Act s 50(4).     [Back]

Note 24    1973 Act s 50 is also relevant for the purpose of assessing compensation for closing or demolition orders: Housing Act s 584A, and see Wells v Bournemouth BC [2000] RVR 335.    [Back]

Note 25    CP 165, Proposal 7(2).    [Back]

Note 26    See para 8.6 below. It is to be noted that this definition would probably not include an housing association (see the discussion in our Consultation Paper on Renting Homes (2002) CP 162, para 5.45 – 5.52). This should not cause any problem. Although local authorities frequently perform their rehousing duties through housing associations, the obligations remain those of the authority.    [Back]