The Law Commission

PART IX

PARTICULAR INTERESTS

Acquisition of new rights

9.1      Apart from special statutory provision, a power to acquire land compulsorily authorises the acquisition of existing interests in land, not the creation and acquisition of new interests.^[1] However, in some cases the authority may require no more than a right over the land, for example a right to lay a pipeline or sewer. Since the right required is unlikely to be identical to any existing interest, this will involve the creation of a new interest over the land. Many statutes confer powers to create and acquire such rights (either as easements or wayleaves), particularly in relation to the needs of utilities.
9.2      As we explained in CP 165, the nature of the powers conferred may vary considerably, as do the associated rights to compensation.^[2] (For example, we noted that the Telecommunications Act 1984, which confers rights to lay cables in private land, provides for "consideration" to be such as "it appears to the court would be fair and reasonable if the agreement had been given willingly".)^[3] We did not seek to address these issues in detail in the Consultation Paper, which was concerned with establishing a basic Code. We noted that the CPPRAG Review had recommended further work to standardise as far as possible the arrangements for acquisition of rights and assessment of compensation, and that the ODPM was undertaking such a review.
1. .3 However, we considered it appropriate that the Code should include specific provision for compensation for acquisition of new rights, where the power is conferred by statute, while recognising that different provision may be made by statutes dealing with particular subjects.^[4] For this purpose, we took as a model the Local Government (Miscellaneous Provisions) Act 1976, which applies only to local authorities.^[5] It extends existing powers of compulsory purchase to include power to acquire for the same purpose "such new rights as are specified in the order."^[6] For this purpose, the Act also makes modifications to the 1965 Act, and other enactments dealing with compensation.^[7] The effect of these modifications is that the measure of compensation is the depreciation in value of the land over which the right is acquired, and any reduction in value of other land of the owner "by reason of injurious affection… by the exercise of the right."^[8] It seems that the Act also gives a right to claim for disturbance or other consequential loss (under rule (6) of the 1961 Act).^[9]
2. .4 On consultation there was a large measure of agreement with this approach. Some favoured a more generous test, based for example on "willingly given agreement to fair and reasonable terms". However, for the reasons stated in CP 165, we think that a decision to widen the scope of compensation for new rights involves political choices going beyond the scope of this project. For the purposes of establishing a standard compensation code, we propose to follow the existing model of the 1976 Act.
3. .5 Accordingly, we recommend:

Rule 16 Acquisition of new rights

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).

Interference with rights

Introduction

9.6      The land which is compulsorily acquired may be subject to easements, covenants or similar rights, attached to other land.^[10] Depending on the nature of the project, it may entail a temporary or permanent interference with such rights. However, under the present law, the authority is not obliged to take specific action to acquire or extinguish the rights.^[11] Instead, it may rely on its statutory powers to carry out the project, subject to payment of compensation for any decrease in the value of the land served by the rights.^[12]

Example The conveyance of part of Wrotham Park Estate contained a covenant by the purchaser that the land could not be developed for building purposes except in compliance with an approved layout plan. The authority compulsorily acquired the land burdened by the restrictive covenant, and proceeded to develop it without such compliance. The claimant sought compensation under section 10, and claimed a proportion of the difference in value of the land developed by the council and its value if it had been developed in accordance with the layout plan, where the maximum density would have been less. The Court of Appeal upheld the decision of the Lands Tribunal that the measure of compensation payable was the diminution in value of the claimant's land, not the price which the claimant could have exacted for allowing the development. 1 Wrotham Park Settled Estates v Hertsmere Borough Council [1993] 2 EGLR 15.

9.7      The right to compensation under the present law is treated as the same as the right to compensation for injurious affection where no land is taken (1965 Act section 10). As we observed in CP 165, this is anomalous:

Although the right is not acquired or extinguished as such, the effect from the owner's point of view is very similar. He is deprived of the potential value of an interest in the subject land, which, in the absence of statutory intervention, he would have been able to turn to account in negotiations with anyone wanting to develop that land. It seems somewhat anomalous, therefore, to equate him with a person from whom no land is acquired.^[13]

9.8      In CP 169, we discussed some associated procedural problems.^[14] In particular, we considered the potential problems arising from the fact that, in theory at least, the right is not acquired or extinguished, but may continue to bind the land in the hands of successors.^[15] We proposed a new statutory procedure whereby either party could elect to proceed on the basis of "extinguishment" of the rights, rather than simply "overriding" them to the extent required by the project.^[16] In our later report on procedural issues, we will be commenting further on that proposal, in the light of the responses to consultation.
9.9      In this report, as in CP 165, we have proceeded on the basis of the existing law, but we use the term "overriding" as a convenient shorthand to describe interference, which would be unlawful apart from statutory authority. We are concerned solely with the principles governing compensation. It is settled law that compensation is measured by the diminution in value of the land to which the rights are attached.^[17] We noted a possible argument that the compensation should be based on the price which the owner could have negotiated for its release in private negotiations with a developer, as better representing the "market value" of the right.^[18] However, we proposed that the new code should reproduce the existing law, but in the form of a separate right to compensation for interference with rights (not linked to compensation for "injurious affection").

Consultation

9.10      We raised two specific questions on consultation: first, whether there should be a separate right to compensation for interference with rights; secondly, whether it should be based (as now) solely on the diminution in the market value of the land to which the right is attached. There was general support for our proposal for a separate right. Opinion was more divided on the basis of compensation, but the majority of consultees agreed that the new code should reflect the existing position.
9.11      We did not in terms raise the issue of consequential loss. For example, the damage caused by interference with a right of way to business premises may not be adequately measured by the diminution in market value, particularly where the interference is temporary.^[19] Where there is a loss of profits, or other expense (for example, in temporary relocation) which is not adequately reflected in the loss of market value, we see no reason in principle why it should be excluded. It is difficult to see any valid distinction between such a case, and the ordinary case of consequential loss following the compulsory acquisition of land.^[20] In both, the loss is the direct consequence of statutory interference with legal rights.
9.12      Accordingly, we recommend:

Rule 17 Interference with easements etc.

(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 minor tenancies

Introduction

9.13      Under the notice to treat procedure, there are special rules for dealing with an occupant of the land "having no greater interest than as tenant for a year or from year to year".^[21] Such a person is not entitled to notice to treat, and the authority may simply await the expiry of the contractual term, or serve notice to quit under the contract.^[22] Section 20 of the 1965 Act enables possession to be required in advance of the contractual date, by means of a specific demand by the authority and the payment or tender of compensation. The 1965 Act defines the heads of compensation to which a tenant is entitled in such cases –

(1) the value of the unexpired term or interest in the land;

(2) "any just allowance which ought to be made to him by an incoming tenant";

(3) "any loss or injury he may sustain";^[23] and

(4) if part only of the holding is taken, compensation for severance or injurious affection.^[24]

9.14      The vesting declaration procedure also has special rules for land subject to a "minor tenancy"^[25] or "a long tenancy which is about to expire".^[26] In respect of such interests, the vesting declaration does not give the authority a right to immediate possession, but requires service of a specific notice to treat in respect of the tenancy, followed by a notice of entry.^[27] There are no special rules for compensation.
9.15      In CP 169, we made proposals for modernising and rationalising the two procedures. These attracted a considerable number of comments. Many doubted the need for a separate procedure for minor interests. These procedural issues will be considered in a later report.
9.16      We made no specific proposals in respect of the rules for compensation. We commented that the rules stated in section 20(2) of the 1965 Act,^[28] which dated from the 1845 Act, did not appear to differ substantially from the ordinary principles for compensation, and could usefully be updated.^[29] On further consideration, we see no need to have a separate set of compensation rules, governing minor tenancies. Whether or not the current procedure for dealing with such interests is retained, the ordinary rules for compensation should be capable (subject to appropriate drafting) of application to any case in which the compulsory acquisition results in the premature termination of an existing interest.
9.17      We accordingly recommend:^[30]

Rule 18 Minor tenancies

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.)

Note 1    Sovmots Investments Ltd v Secretary of State [1979] AC 144.    [Back]

Note 2    See CP 165, paras 8.15ff, referring to Utility wayleaves: a compensation lottery, by Norman Hutchison and Jeremy Rowan-Robinson [2002] JPIF 159 (reproduced as Appx 7 to CP 165).     [Back]

Note 3    Telecommunications Act 1984, Sched 2, paras 5, 7. This was discussed in Mercury Communications Ltd v London & India Dock Investments Ltd (1995) 69 P&CR 135, 144, 156 (Judge Nigel Hague QC); the facts and the conclusions were summarised in CP 165, Appx 6.    [Back]

Note 4    CP 165, para 8.11.    [Back]

Note 5    CP 165, paras 8.12 – 8.14. “Local authorities” for this purpose are defined in s 44 of the Act.    [Back]

Note 6    Ibid, s 13(1).    [Back]

Note 7    Ibid, s 13(3)(c); Sched 1.    [Back]

Note 8    CP 165, para 8.13, referring to 1965 Act, s 7, as modified by 1976 Act, Sched 1. See also Denyer-Green, pp 238–9, giving as an illustration Turris Investments Ltd v CEGB (1981) 258 EG 1303, LT (similar powers under the electricity Acts). Although the 1976 Act omits any specific reference to “severance”, we agree with those respondents who suggested that this was simply because the creation of new rights over land does not cause “severance” in the strict sense.     [Back]

Note 9    As one of the “enactments relating to compensation for compulsory purchase”, applied by 1976 Act, s 13(3)(c).    [Back]

Note 10    In theory, there may also be rights over land not attached to a dominant tenement, for example “profits in gross” (seeHalsbury’s Laws Vol 4). We are not aware of any case in which the issue of compensation for such rights has arisen. However, they are covered by the formulation suggested below.     [Back]

Note 11    Although there is no obligation to do so, there seems to be no reason in principle why such rights cannot be compulsorily “acquired” as interests in land, where (as is normal) the relevant statutory definition of “land” includes any interest in land. Some consultees (notably English Partnerships) favoured this course in the interests of certainty.     [Back]

Note 12    See CP 165 para 8.3ff. For a modern discussion of the case law, see Re Elm Avenue, New Milton [1984] 1 WLR 1398. The same rules apply whether the servient tenement is acquired compulsorily, or by agreement: ibid.     [Back]

Note 13    CP 165, para 8.7.    [Back]

Note 14    CP 169, para 6.11ff.    [Back]

Note 15    Ibid. paras 6.15 – 6.16, referring, inter alia, to Marten v Flight Refuelling Ltd [1962] Ch 115, and Denyer-Green, p 115.     [Back]

Note 16    CP 169, paras 6.22 – 6.25; Proposal 10. We also drew attention to the uncertainty created by the decision in Thames Water Utilities v Oxford City Council [1999] 1 EGLR 167, where it was held that an express power to erect buildings in breach of a private right (under the 1990 Act, s 237) did not necessarily confer power to use the building once erected. There was a strong view among respondents that amending legislation was urgently required.     [Back]

Note 17    Wrotham Park Settled Estates v Hertsmere Borough Council [1993] 2 EGLR 15 CA. Arguments that the compensation should reflect a share of any development value released on the servient tenement, were rejected.    [Back]

Note 18    For example, a percentage of development value as would apply to acquisition of a “ransom strip” under the practice approved in Stokes v Cambridge CC (1961) 13 P&CR 77 (see CP 165, Appx 5, para A.106 and para 6.80).    [Back]

Note 19    There may be a temporary reduction of profits, and expense may be incurred in temporary relocation.     [Back]

Note 20    See Part IV above.    [Back]

Note 21    1965 Act, s 20. See CP 165, para 8.83ff. The procedure was authoritatively explained in Newham LBC v Benjamin [1968] 1 WLR 694, CA.    [Back]

Note 22    In that case, there may be a right to a “disturbance payment”: 1973 Act, ss 37–8.    [Back]

Note 23    1965 Act, s 20(1).    [Back]

Note 24    Ibid, s 20(2).    [Back]

Note 25    Defined as “a tenancy from year to year or any lesser interest”: Vesting Declarations Act 1981, s 2(1).    [Back]

Note 26    In summary, a tenancy having at the vesting date such period (longer than a year) as specified in the General Vesting Declaration:ibid, s 2(2).    [Back]

Note 27    Vesting Declarations Act 1981, s 9.    [Back]

Note 28    Para 9.13 above.    [Back]

Note 29    CP 165, para 8.89.    [Back]

Note 30    The precise scope of the current rules relating to short/minor tenancies may need amendment if the Commission’s proposals for the reform of housing law are accepted by the Government.    [Back]