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The Law Commission

(Consultation Paper No 165)

TOWARDS A COMPULSORY PURCHASE CODE: (1) COMPENSATION


A Consultative Report

London: TSO

The Law Commission was set up by section 1 of the Law Commissions Act 1965 for the purpose of promoting the reform of the law.

The Law Commissioners are:

The Right Honourable Lord Justice Carnwath CVO, Chairman
Professor Hugh Beale, QC
Mr Stuart Bridge
Professor Martin Partington, CBE
Judge Alan Wilkie, QC

The Secretary of the Law Commission is Mr Michael Sayers and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London WC1N 2BQ.

This Consultative Report, completed on 24 June 2002, is circulated for comment and criticism only. It does not represent the final views of the Law Commission.

The Law Commission would be grateful for comments on this Consultative Report before 24 October 2002. Comments may be sent either –

By post to:

Jonathan Teasdale
Law Commission
Conquest House
37-38 John Street
Theobalds Road
London
WC1N 2BQ

Tel: 020-7453-1214
Fax: 020-7453-1297

By e-mail to:

[email protected]

It would be helpful if, where possible, comments sent by post could also be sent on disk, or by e-mail to the above address, in any commonly used format.

It may be helpful, either in discussion with others concerned or in any subsequent recommendations, for the Law Commission to be able to refer to and attribute comments submitted in response to this Consultative Report. Any request to treat all, or part, of a response in confidence will, of course, be respected, but if no such request is made the Law Commission will assume that the response is not intended to be confidential.

The text of this Consultative Report is available on the Internet at:

http://www.lawcom.gov.uk

CONTENTS

PART I: INTRODUCTION	Part I
Terms of reference	1.1
Background	1.2
CPPRAG Review	1.2
Law Commission – preliminary work	1.5
The DTLR Policy Statement	1.7
The Law Commission's approach	1.9
Preserving the balance	1.13
Comparative sources	1.18
Scope of the project	1.21
Two stages	1.21
Making and authorisation	1.24
The Compensation Code	1.26
PART II: THE EXISTING LAW	Part II
Introduction	2.1
Historical context	2.2
The 1845 Act	2.2
The Scott Committee and the 1919 Act	2.5
From 1945 to 1961	2.7
From 1961 until today	2.12
Towards privatisation	2.12
Legislative change	2.15
The Human Rights Act	2.18
The law today	2.24
Sources of current law	2.25
(1) Powers of compulsory purchase	2.26
(2) Making and authorisation	2.29
(3) Implementation	2.31
(4) Determination of compenstion	2.34
(5) Compensation rules	2.35
PART III: THE COMPENSATION CODE – INTRODUCTION	Part III
Introduction	3.1
The existing law	3.2
General principles	3.2
Equivalence and fairness	3.2
Outline of existing rules	3.3
Standard heads of compensation	3.3
Other rules	3.6
Government policy	3.7
The new Code – overview	3.12
The new Code – core principles	3.18
PART IV: THE COMPENSATION CODE – CORE PRINCIPLES (1)	Part IV
Introduction	4.1
(1) Statement of right to compensation	4.2
Proposal 1: Right to compensation	4.4
(2) Preliminary issues	4.5
(i) General objective	4.6
(ii) Traditinal terms	4.12
(iii) Single global figure	4.13
Proposal 2: Heads of compenation	4.14
Consultation issues	4.14
(3) Market value	4.15
Existing law	4.15
Policy Statement	4.18
Proposal 3: Market value	4.19
Consultation issues	4.19
(4) Disturbance	4.20
Existing law	4.20
Sources of law	4.20
General principles	4.22
The traditional test	4.22
Typical heads of claim	4.25
Relocation or extinguishment	4.26
The "reasonable businessman" test	4.29
Other disturbance issues	4.34
Failure to mitigate	4.34
Personal circumstances	4.36
Pre-acquisition losses	4.39
Presumption of value for money	4.41
Consistency	4.43
"Disturbance" in other jurisdictions	4.44
Policy Statement	4.49
Discussion	4.54
(1) Causation	4.55
(2) Failure to mitigate	4.58
(3) Personal circumstances	4.59
(4) Reasonableness and relocation	4.60
(5) Partial relocation	4.63
(6) Starting date	4.65
(7) Other points of detail	4.66
Proposal 4: Disturbance	4.68
Consultation issues	4.68
PART V: THECOMPENSATION CODE - CORE PRINCIPLES (2)	Part V
Introduction	5.1
(1) Effects on retained land	5.2
(a) Severance and injurious affection	5.3
Existing law	5.3
Statute	5.3
A single holding	5.7
Accommodation and mitigation works	5.8
Measure of compensation	5.9
Loss of land value	5.9
Market value	5.11
Other valuation rules	5.14
"Before and after" valuation	5.15
Subsequent events	5.16
Comparisons	5.17
Policy Statement	5.21
Discussion	5.23
(b) Betterment	5.27
Introduction	5.27
Existing law	5.28
Comparisons	5.31
Policy Statement	5.33
Discussion	5.34
Proposal 5: Injury to retained land	5.35
Consultation issues	5.35
(2) Equivalent reinstatement	5.36
Existing law	5.36
Comparisons	5.43
Policy Statement	5.46
Discussion	5.49
Proposal 6: Equivalent reinstament	5.54
Consultation issues	5.54
(3) Incidental rules	5.55
(a) Prospects of lease renewal and effect of rehousing tenants	5.56
(b) Illegal uses	5.59
Existing law	5.59
Comparisons	5.60
Policy Statement	5.62
(c) Enhancements with a view to increased compensation	5.63
Existing law	5.63
Comparisons	5.65
Policy Statement	5.67
Discussion	5.68
(d) Consistency and mitigation	5.69
Proposal 7: Incidental rules	5.70
Consultation issues	5.70
(4) Date for assessment	5.71
Background	5.71
Procedures	5.71
Valuation date	5.73
Fixing of interests	5.75
The present law	5.75
Changes between notice to treat and entry	5.79
Different heads of compensation	5.81
Disturbance	5.82
Other heads	5.84
A practical approach	5.86
Equivalent reinstatment	5.89
Proposal 8: Date of assessment	5.91
Consultation issues	5.91
PART VI: THE NO-SCHEME RULE – HISTORY	Part VI
Introduction	6.1
The "no-scheme rule"	6.1
The concept	6.4
The policy issues – overview	6.6
The development of the rule	6.14
Historical review	6.14
Consultation issues	6.16
(1) The preferred version of the rule	6.19
Variety of formulations	6.19
Three competing views	6.20
Competing approaches	6.22
Problems of the "underlying scheme"	6.22
Two contrasting cases	6.23
Staged schemes	6.25
The immediate project approach	6.26
The preferred version	6.29
(2) Should the rule (in any form) be reproduced in the new Code?	6.30
General considerations	6.30
Precedent	6.30
A planned event	6.31
Justification in the cases	6.35
Decreases in value	6.37
Increases in value	6.39
Case law or statute	6.41
(3) Should the acquiring body's purpose be entirely disregarded	6.42
The case for "equivalence"	6.42
Privatised utilities	6.44
Commercial interests	6.47
A wider issue	6.52
(4) What is the scope of the scheme?	6.54
The pre-1947 cases	6.55
Wilson and after	6.56
Variety of projects	6.60
The planning framework	6.62
The 1959 Act	6.62
Certifying the planning project	6.64
The new planning system	6.67
Linking the compensation rules to the planning system	6.71
Defining the scheme in the new Code	6.73
(5) Ransom strips	6.77
The problem	6.77
Other examples	6.79
A policy issue	6.81
PART VII: THE NEW CODE-DISREGARDS AND ASSUMPTIONS	Part VII
Introduction	7.1
The existing rules	7.2
Clearing the decks	7.2
The CPPRAG Review	7.5
The content of the new Code	7.7
General approach	7.7
Provisional Proposals	7.9
Defining the "scheme" or "project"	7.10
Should the project be defined in the order documents?	7.13
Cancellation assumption	7.18
No other statutory project for the same purpose	7.20
Increases in value	7.22
Decreases in value	7.23
Blight and purchase notices	7.28
Proposal 9: Disregarding the project	7.29
Consultation issues	7.29
Planning status	7.30
General approach	7.30
"Planning status" defined	7.30
The 1961 Act	7.31
Planning status as a fixed factor	7.33
Planning status in the new Code	7.37
Date of assessment	7.39
Appeals	7.40
Efficiency	7.41
Human Rights	7.43
Proposal 10: Planning status	7.46
Consultation issues	7.46
Third Schedule rights	7.47
PART VIII: COMPENSATION – RELATED ISSUES	Part VIII
Introduction	8.1
(1) Compensation for interference with rights	8.3
Easements and covenants	8.3
Discussion	8.7
Proposal 11: Interference with easements etc.	8.9
Consultation issues	8.9
(2) Compensation for acquisition of rights	8.10
Introduction	8.10
Right to compensation under the 1976 Act	8.13
"A compensation lottery"	8.15
Proposal 12: Acquisition of rights	8.20
Consultation issues	8.20
(3) Advance payments	8.21
Existing law	8.21
Policy Statement	8.23
The new Code	8.26
Proposal 13: Advance payments	8.29
Consultation issue	8.29
(4) Extended Lands Tribunal jurisdiction	8.30
Overlapping claims	8.30
Extended jurisdiction	8.31
Proposal 14: Lands Tribunal jurisdiction	8.32
Consultation issue	8.32
(5) Interest on compensation	8.33
Existing law	8.33
Compensation for compulsory purchase	8.33
Injurious affection where no land has been taken	8.35
Other rights to compensation	8.36
Prescribed rate	8.37
Power of the Lands Tribunal to award interest	8.38
Proposals for change	8.40
CPPRAG	8.40
Policy Statement	8.42
Comment	8.46
Proposal 15: Interest	8.48
Consultation issues	8.48
Incidental issues not in the Code	8.49
(6) Tax	8.49
Introduction	8.49
Existing law	8.51
Tax rules	8.51
Income and capital taxes	8.51
Stamp duty	8.53
Compensation rules	8.56
Policy Statement	8.62
Policy issues	8.62
Consultation issues	8.64
(7) Subsequent planning permission	8.65
Existing law	8.65
The CPPRAG Review	8.68
Policy Statement	8.70
Discussion	8.71
Proposal 16: Subsequent planning permissions	8.75
Consultation issues	8.75
(8) Additional loss payments	8.76
Existing law	8.76
Policy Statement	8.78
(9) Disturbance payments	8.81
(10) Minor tenancies	8.83
Existing law	8.83
Notice to treat	8.83
Vesting declaration	8.86
Discussion	8.88
PART IX: INJURIOUS AFFECTION WHERE NO LAND IS TAKEN	Part IX
Introduction	9.1
Background	9.1
Sources of the law	9.7
Layout of this Part	9.9
Existing law – outline	9.10
(1) Damage caused by the works	9.10
(1) Lawful exercise of statutory powers	9.14
(2) Actionable apart from the statute	9.17
(3) Damage to land	9.22
(4) Damage from execution, not use	9.23
(2) Damage caused by use	9.25
Background to the 1973 Act	9.25
Land Compensation Act 1973, Part I	9.30
The basis of claim	9.31
Persons qualifying for compensation	9.34
Dwellings	9.35
Land other than dwellings	9.36
Special interests	9.37
The claim	9.39
Assessment of compensation	9.41
Other rules	9.47
Proposals for change	9.50
The CPPRAG Review	9.50
The Policy Statement	9.56
Comparative material	9.57
Australia	9.60
Canada	9.64
Discussion	9.65
(1) General approach	9.66
Conflicting policies	9.66
The 1973 reforms	9.67
Human rights	9.69
Change must be justified	9.72
(2) The common law analogy	9.73
(3) Loss of profits	9.78
(4) Other CPPRAG proposals	9.80
(5) A "merged" Code	9.82
Proposal 17: Compensation for effects of public works	9.84
Consultation issues	9.84
PART X: REPEALS	Part X
Proposal 18
Land Compensation Act 1961
Compulsory Purchase Act 1965
Land Compensation Act 1973
Acquisition of Land Act 1981
Land Compensation Act 1961
Consultation issue
PART XI: THE COMPENSATION CODE-THE PROPOSALS	Part XI
Introduction	11.1
(A) General definitions
(B) Core principles
Proposal 1: Right to compensation
Proposal 2: Heads of compensation
Proposal 3: Market value
Proposal 4: Disturbance
Proposal 5: Injury to retained land
Proposal 6: Equivalent reinstatement
Proposal 7: Incidental rules
Proposal 8: Date of assessment
(C) Project disregard and planning status
Proposal 9: Diregarding the project
Proposal 10: Planning status
(D) Miscellaneous rules
Proposal 11: Interference with easements etc.
Proposal 12: Acquisition of rights
Proposal 13: Advance payments
Proposal 14: Lands Tribunal jurisdictions
Proposal 15: Interest
Proposal 16: Subsequent planning permissions
(E) Injurious affection where no land is taken
Proposal 17: Compensation for effects of public works
(F) Repeals
Proposal 18: Repeals
PART XII: CONSULTATION QUESTIONS	Part XII
Generally
Proposal 2: Heads of compensation
Proposal 3: Market value
Proposal 4: Disturbance
Proposal 5: Injury to retained land
Proposal 6: Equivalent reinstatement
Proposal 7: Incidental rules
Proposal 8: Date of assessment
Proposal 9: Disregarding the project
Proposal 10: Planning status
Proposal 11: Interfernece with easements etc.
Proposal 12: Acquisition of rights
Proposal 13: Advance payments
Proposal 14: Lands Tribunal jurisdictions
Proposal 15: Interest
Tax
Proposal 16: Subsequent planning permissions
Proposal 17: Compensation for effects of public works
Proposal 18: Repeals
Impact of Proposals
Part XIII: Conclusion	Part XIII
Impact of our Proposals	13.1
Policy Statement	13.2
The Law Commission's Proposals	13.5
Consultation	13.8
APPENDIX 1: GLOSSARY – ABBREVIATIONS OF STATUTES	Appendix 1
English statutes
Australian statutes
Canadian statutes
Appendix 2: List of conferring compulsory purchase powers	Appendix 2
Appendix 3: Selected extracts from ENGLISH Statutes relating to compensation	Appendix 3
Land Compensation Act 1961
5 Rules for assessing compensation
6 Disregard of actual or prospective development in certain cases
7 Effect of certain actual or prospective development of adjacent land in same ownership
9 Disregard of depreciation due to prospect of acquisition by authority possessing compulsory purhase powers
14 Assumptions as to planning permission
15 Assumptions not directly derived from development plans
16 Special assumptions in respect of certain land comprised in development plans
Part III Certification by planning authorities of appropriate alternative development
17 Certification of appropriate alternative develoment
18 Appeals against certificates under s17
21 Proceedings for challenging validity of decision on appeal under s 18
22 Interpretation of Part III
First Schedule
Compulsory Purchase Act 1965
7 Measure of compensation in case of severance
10 Further provision as to compesnation for injurious affection
20 Tenants at will etc
Land Compensation Act 1973, Part I: Compensation for depreciation caused by use of public works
1 Right to compensation
2 Interests qualifying for compensation
3 Claims
4 Assessment of compensation: general provisions
5 Assessment of compensation: assumptions as to planning permission
6 Reduction of compensation where land is benefitted
7 Exclusion of minimal compensation
8 Other restrictions on compensation
9 Alterations to public works and changes of use
10 Mortgages, trusts of land and settlement
11 Interests acquired by inheritance
15 Information of ascertaining relevant date
16 Disputes
17 Action for nuisance following unsuccessful claims where responsible authority have disclaimed statutory immunity
18 Interest on compensation
19 Interpretation of Part I
Land Compensation Act 1973, Part IV: Compulsory purchase.Assessment of compensation
45 Compensation for acquisition of dwelling specially adapted for disabled person
46 Compensation for disturbance where business carried on by person over sixty
50 Compensation where occupier is rehoused
52 Right to adverse payment of compensation
54 Effect of counter-notice under section 53
Acquisition of Land Act 1981, section 4
Appendix 4: Comparative material	Appendix 4
Part A: An Australian legislative Code
Land Acquisition Act 1989 (Cth)
Section 52: Entitlement to compensation
Section 55: Amount of compensation – general principles
Section 56: Meaning of "market value"
Section 57: Special provision where market value determined upon basis
of potential of land
Special 58: No general market for interest acquired
Section 60: Matters to be disregarded in assessing compensation
Part B: Australian and Canadian material on injurious affection where no land is taken
(i) Extracts from ALRC Report
(ii) ALRC draft legislation: Draft Lands (Acquisition and Compensation) Bill, Part XIII
(iii) A Canadian example: The Ontario Expropriations Act R.S.O 1990, c.E-26, s 1(1)
Section 1(1): Definitions
APPENDIX 5: THE NO-SCHEME RULE – HISTORY	Appendix 5
Introduction	A.1
The "no-scheme rule"	A.1
Three phases of evolution	A.5
Phase (1): From 1845 to 1919	A.6
The early cases	A.6
Value to the owner	A.6
Special adaptability	A.8
Special purchaser	A.11
From Lucas to Fraser	A.13
The English cases	A.14
The Canadian cases	A.23
The Scott Committee	A.30
Phase (2): From 1919 to 1959	A.34
The Indian case (1939)	A.34
The Pointe Gourde case	A.39
The importance of Pointe Gourde	A.43
From 1947 to 1959	A.48
The 1947 Act	A.48
Case law	A.50
Phase (3): Modern development	A.53
The Town and Country Planning Act 1959	A.53
Government explanations	A.55
The Land Compensation Act 1961	A.57
Section 6 and the no-scheme rule	A.58
Planning assumptions	A.63
The no-scheme rule in the Courts	A.66
(1) Assimilation of the judicial and statutory versions	A.68
(2) Judicial evolution	A.73
Wilson v Liverpool City Corporation	A.73
(3) The no-scheme world	A.78
(4) Decreases in value due to the scheme	A.82
(5) A valuation tool only	A.84
(6) The Indian case	A.87
Particular issues	A.92
(1) Limits of the rule (3)	A.93
(2) Planning assumptions	A.98
(3) Ransom strips	A.106
(4) Disturbance	A.110
(5) Purchase notices	A.112
International comparisons	A.113
Commonwealth	A.113
Australia	A.114
Canada	A.118
South Africa	A.120
Other jurisdictions	A.122
California	A.122
France	A.126
Conclusion on international comparisons	A.127
Conclusion – the no-scheme rule today	A.128
APPENDIX 6: THE NO-SCHEME RULE – ILLUSTRATIVE CASES	Appendix 6
Introduction	A.1
(A) Compulsory purchase principles under the 1961 Act	A.2
Wilson v Liverpool City Council (1971)	A.2
(B) "Willing parties" outside the 1961 Act	A.6
Mercury Communications Ltd v London and India Dock Investments Ltd (1995)	A.6
APPENDIX 7: COMPENSATION FOR ACQUISITION OF RIGHTS: ARTICLE BY N E HUTCHISON AND J ROWAN-ROBINSON	Appendix 7
Appendix 8: Acknowledgements	Appendix 8
Compulsory Purchase Policy Review Advisory Group
Law Commission Working Group
Law Commission Local Government Lawyers' Working Group
Law Commission Valuers' Working Group
Organisations and individuals who have responded to the
Law Commission's Discussion Paper (October 2001)
Other consultees
APPENDIX 9: BIBLIOGRAPHY	Appendix 9
English law
Books
Articles
Reports/Papers
Australian law
Books
Reports/Papers
Canadian law
Books
Reports/Papers
French law