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The Law Commission

(LAW COM No 286)

TOWARDS A COMPULSORY PURCHASE CODE: (1) COMPENSATION FINAL REPORT

Report on a reference under section 3(1)(e) of the Law

Commissions Act 1965

Presented to the Parliament of the United Kingdom by the Lord High Chancellor
by Command of Her Majesty

December 2003

Cm 6071 £xx.xx

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

The Law Commissioners are:

The Honourable Mr Justice Toulson, Chairman
Professor Hugh Beale QC
Mr Stuart Bridge
Professor Martin Partington CBE
Judge Alan Wilkie QC

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

The terms of this report were agreed on 5 November 2003.

The text of this report is available on the Internet at:

http://www.lawcom.gov.uk

CONTENTS

	Paragraph
Abbreviations	Abbreviations
Case References	Cases
Executive Summary	Summary
PART I: INTRODUCTION
Terms of reference	1.1
Background to this Report	1.2
The existing law	1.2
CPPRAG Review	1.3
Work since the CPPRAG Review	1.6
Government policy	1.13
Planning and Compulsory Purchase Bill 2002/03	1.18
The Law Commission's approach	1.26
Sorting out the law	1.29
Policy framework	1.30
Preserving the balance	1.31
No draft Bill	1.35
Outline of the Compensation Code	1.37
Acknowledgements	1.44
PART II: RIGHT TO COMPENSATION
The right to compensation	2.1
Introduction	2.1
Extent of the right	2.1
Date for identification of interests	2.2
"Qualifying interests"	2.6
Consultation	2.7
Rule 1	2.8
Basis of compensation	2.9
Introduction	2.9
Consultation	2.14
Structure of the Code	2.18
Rule 2	2.21
PART III: THE COMPENSATION CODE – HEADS A AND B
Head A: Market value	3.1
Introduction	3.1
Consultation	3.3
Willing buyer	3.4
Not less than nil	3.9
Rule 3	3.12
Head B: Injury to retained land	3.13
Introduction	3.13
Severance and injurious affection	3.13
Betterment	3.16
Other valuation rules	3.18
Consultation	3.20
Market value only?	3.20
Use of hindsight	3.25
"Before and after"	3.30
Betterment	3.31
Definition of retained land	3.32
Contractors' negligence	3.33
Other points	3.34
Rule 4	3.35
PART IV: THE COMPENSATION CODE – HEADS C AND D
Head C: Consequential loss	4.1
Introduction	4.1
Existing law	4.1
Consultation proposals	4.3
"Disturbance" or "consequential loss"	4.4
The Wrexham case	4.8
The Dublin case	4.12
Comments	4.15
Particular issues	4.18
Wording of the general rule	4.20
Personal circumstances and mitigation	4.27
Relocation versus extinguishment	4.31
Replacement of buildings	4.39
Starting date for disturbance compensation	4.40
Rule 5	4.42
Head D: Equivalent reinstatement	4.43
Introduction	4.43
Consultation	4.46
Rule 6	4.53
PART V: THE COMPENSATION CODE – GENERAL RULES
Introduction	5.1
Prospects of lease renewal	5.2
Rehousing obligations	5.9
Illegal uses	5.10
The scope of the rule	5.10
Consultation	5.13
Rule 7	5.18
New interests and enhancements	5.19
Consistency	5.20
Rule 8	5.23
Mitigation	5.24
Rule 9	5.26
PART VI: VALUATION DATE AND DISREGARDS
Fixing the valuation date	6.1
Introduction	6.1
Valuation of interests in land	6.1
Consequential loss	6.3
Equivalent reinstatement	6.5
Facts known to the tribunal	6.6
Consultation	6.7
Rule 10	6.7
Disregards	6.8
Introduction	6.8
New interests and enhancements	6.9
Rule 11	6.12
Rehousing obligations	6.13
Introduction	6.13
Discussion	6.16
Rule 12	6.18
PART VII: STATUTORY PROJECTS – PROBLEMS AND SOLUTIONS
Introduction	7.1
The no-scheme rule	7.1
Clearing the decks	7.4
The policy rationale	7.7
The new code – principles	7.9
General approach	7.9
Principal features of the new Code	7.12
Key elements retained	7.12
Main problems of the existing law	7.13
Main changes	7.14
Consultation	7.15
The statutory project rule	7.16
Preferred version of the rule	7.16
Depreciation due to planning blight	7.19
Commercial interests	7.22
Defining the project	7.26
The cancellation assumption	7.29
Ransom strips	7.34
Special statutory designations	7.38
Blight and purchase notices	7.44
Other heads of compensation	7.46
Injury to retained land	7.46
Consequential loss	7.48
Planning status	7.50
Consultation paper	7.50
Responses	7.53
Area of planning assumptions	7.55
Assumed permission for the authority's development	7.56
Appeal against certificate of alternative development	7.59
PART VIII: STATUTORY PROJECT AND PLANNING STATUS – THE NEW CODE
Introduction	8.1
The new Rules	8.3
The new Rules annotated	8.4
13 The statutory project and blight	8.4
13A Other heads of compensation	8.19
14 Planning status	8.23
14A Alternative development certificate	8.27
Provisions not replaced	8.32
Third schedule rights	8.32
Subsequent planning permissions	8.35
Rule 15	8.39
PART IX: PARTICULAR INTERESTS
Acquisition of new rights	9.1
Rule 16	9.5
Interference with rights	9.6
Introduction	9.6
Consultation	9.10
Rule 17	9.12
Compensation for minor tenancies	9.13
Introduction	9.13
Rule 18	9.17
PART X: INCIDENTAL MATTERS
Advance payments	10.1
Introduction	10.1
Consultation	10.5
Rule 19	10.9
Lands Tribunal jurisdiction	10.10
Rule 20	10.11
Interest	10.12
Existing law	10.12
Date from which interest runs	10.12
Amount of interest	10.15
Commentary in the consultation paper	10.16
Consultation	10.20
Date from which interest runs	10.20
Amount of interest	10.22
Finance costs	10.25
Professional fees	10.27
Rule 21	10.28
PART XI: COMPENSATION WHERE NO LAND IS ACQUIRED
Compensation for depreciation caused by public works	11.1
Introduction	11.1
Existing law	11.3
Section 10 of the 1965 Act: injurious affection due to the
construction of public works	11.4
Part I of the 1973 Act: injurious affection due to the use
of public works	11.8
Consultation proposals	11.11
Consultation	11.15
Conclusion	11.19
Recommendation	11.23
PART XII: COMPENSATION FOR PURCHASE – FRAMEWORK FOR A CODE
Compensation – standard provisions	1
General rules	7
Valuation date	10
Matters to be disregarded	11
Planning status	14
Particular interests	16
Incidental matters	19
Compensation where no land is acquired	22
APPENDIX A: THE IMPACT OF OUR RECOMMENDATIONS	Appendix A
APPENDIX B: REPEALS	Appendix B
APPENDIX C: THE DEVELOPMENT OF COMPULSORY PURCHASE LAW	Appendix C
Introduction	C.1
Historical context	C.2
The 1845 Act	C.2
The Scott Committee and the 1919 Act	C.5
From 1945 to 1961	C.7
From 1961 until today	C.12
Towards privatisation	C.12
Legislative change	C.15
The Human Rights Act	C.18
The law today	C.24
Sources of the current law	C.25
(1) Powers of compulsory purchase	C.26
(2) Making and authorisation	C.29
(3) Implementation	C.31
(4) Determination of compensation	C.34
(5) Compensation rules	C.35
APPENDIX D: THE NO-SCHEME RULE – HISTORY	Appendix D
Introduction	D.1
The "no-scheme rule"	D.1
Three phases of evolution	D.5
Phase (1): from 1845 to 1919	D.6
The early cases	D.6
Value to the owner	D.6
Special adaptability	D.8
Special purchaser	D.11
From Lucas to Fraser	D.13
The English cases	D.14
The Canadian cases	D.23
The Scott Committee	D.30
Phase (2): from 1919 to 1959	D.34
The Indian case (1939)	D.34
The Pointe Gourde case	D.39
The importance of Pointe Gourde	D.43
From the 1947 Act to 1959	D.48
The 1947 Act	D.48
Case law	D.50
Phase (3): Modern development	D.53
The Town and County Planning Act 1959	D.53
Government explanations	D.55
The Land Compensation Act 1961	D.57
Section 6 and the no-scheme rule	D.58
Planning assumptions	D.63
The no-scheme rule in the Courts	D.66
(1) Assimilation of the judicial and statutory versions	D.68
(2) Judicial evolution	D.73
(3) The no-scheme world	D.78
(4) Decreases in value due to the scheme	D.82
(5) A valuation tool only	D.84
(6) The Indian case	D.87
Particular issues	D.92
(1) Limits of rule (3)	D.93
(2) Planning assumptions	D.98
(3) Ransom strips	D.106
(4) Disturbance	D.110
(5) Purchase notices	D.112
International comparisons	D.113
Commonwealth	D.113
Australia	D.114
Canada	D.118
South Africa	D.120
Other jurisdictions	D.122
California	D.122
France	D.126
Conclusion on international comparisons	D.127
Conclusion – the no-scheme rule today	D.128
Postscript – the Pentrehobyn case	D.136
A textbook example	D.136
Facts	D.137
Conclusion	D.143
APPENDIX E: RESPONDENTS TO CP 165	Appendix E

ABBREVIATIONS

the 1961 Act	Land Compensation Act 1961
the 1965 Act	Compulsory Purchase Act 1965
the 1973 Act	Land Compensation Act 1973
the 1981 Act	Acquisition of Land Act 1981
the 1990 Act	Town and Country Planning Act 1990
the ALRC Report	The Australian Law Reform Commission Report No 14: Lands Acquisition and Compensation (1980)
CP 165	Towards a Compulsory Purchase Code (1): Compensation (2002) Consultation Paper No 165
CP 169	(2002) Consultation Paper No 169 Towards a Compulsory Purchase Code (2): Procedure
CPPRAG	Compulsory Purchase Policy Review Advisory Group, established by the Department of the Environment, Transport and the Regions
the CPPRAG Review	Fundamental Review of the Laws and Procedures Relating to Compulsory Purchase and Compensation: Final Report (July 2000)
DETR	Department of the Environment, Transport and the Regions
Denyer-Green Barry	Denyer-Green, Compulsory Purchase and Compensation (6th edition 2000)
DTLR	Department of Transport, Local Government and the Regions
Horn v Sunderland Corp	Horn v Sunderland Corporation (1941) 2 KB 26 the Indian case Vyricherla Narayana Gajapatiraju v Revenue Divisional Officer, Vizagapatam [1939] AC 302
the LAA (Cth)	Land Acquisition Act (Commonwealth) 1989 ODPM Office of the Deputy Prime Minister
Overview	Towards a Compulsory Purchase Code: (1) Compensation, An Overview (2002) Consultation Paper No 165
Pointe Gourde	Pointe Gourde Quarrying and Transport Co v Sub-Intendent of Crown Lands [1947] AC 565
the Policy Statement	Compulsory Purchase and Compensation: delivering a fundamental change (DTLR, December 2001)
RICS	Royal Institution of Chartered Surveyors
Rugby Water	Board Rugby Water Board v Shaw-Fox [1973] AC 202
Scott Report	Scott QC, Chairman), Cd 9229 (1918)
Shun Fung	Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111
Waters	Waters v Welsh Development Agency [2002] 2 EGLR 107
West Midland Baptist	Birmingham Corp v West Midland Baptist (Trust) Association (Inc) [1970] AC 874
Wildtree Hotels	Wildtree Hotels Ltd v Harrow LBC [2001] 2 AC 1

CASE REFERENCES

Case

Abbey Homesteads Ltd v Secretary of State for Transport [1982] 2 EGLR 198

Abbey Homesteads Ltd v Northants CC [1992] 32 RVR 110 CA

Alfred Golightly & Sons v Durham CC (1981) 260 EG 1045

Andreae v Selfridge & Co Limited [1938] Ch 1

Argyle Motors (Birkenhead) Ltd v Birkenhead Corporation [1975] AC 99

Aslam v South Bedfordshire DC [2001] RVR 65

Aston Charities Trust Ltd v The Metropolitan Borough of Stepney [1952] 2 QB 642

Bailey v Derby Corp [1965] 1 All ER 443

Banham v Hackney LBC (1970) 22 P & CR 922

Batchelor v Kent County Council (1990) 59 P & CR 357

Begum v Tower Hamlets LBC [2002] 2 All ER 668; [2003] 2 AC 430

Belfast Corp v OC Cars Ltd [1960] AC 49

J A Bibby & Sons Ltd v Merseyside County Council (1980) 39 P & CR 53

Bird & Bird v Wakefield MDC [1978] 2 EGLR 16 CA

Birmingham City DC v Morris & Jacombs (1977) 33 P & CR 27

Birmingham Corp v West Midland Baptist (Trust) Association (Inc) [1970] AC 874 ("West Midland Baptist")

Blandrent Investment Developments Ltd v British Gas Corporation [1979] 2 EGLR 18

Bolton MBC v Tudor Properties [2000] RVR 292

Bolton MBC v Waterworth (1979) 37 P & CR 104

BP Petroleum Developments Ltd v Ryder [1987] RVR 211

British Westinghouse Electric Co Ltd v Underground Electric Rys [1912] AC 673

Bromley LBC v LDDC [1997] RVR 173

Buccleuch (Duke) v Metropolitan Board of Works (1872) LR 5 HL 418

Bwllfa and Merthyr Dare Steam Collieries Ltd v Pontypridd Waterworks Co [1903] AC 426

Camrose v Basingstoke Corporation [1966] 1 WLR 1100

Cedar Rapids Manufacturing and Power Co v Lacoste [1914] AC 569

Central Methodist Church, Todmorden (Trustees of) v Todmorden Corp (1960) 11 P & CR 32

Clarke v Wareham and Purbeck RDC (1972) 25 P & CR 423

Clift v Welsh Office [1999] 1 WLR 796

CNR v Palmer [1965] 2 Ex CR 305

Colac (President, etc of) v Summerfield [1893] AC 187

Cole v Southwark London Borough Council [1979] 2 EGLR 162

Cooke v Secretary of State (1974) 27 P & CR 234

Cooper v Smallburgh RDC (1958) 9 P & CR 396

Cowper Essex v Acton Local Board (1899) 14 App Cas 153

Crompton v Commissioner of Highways (1973) 5 SASR 301

Cronin v Swansea CC [1972] RVR 428

Davy v Leeds Corporation [1964] 1 WLR 1218; [1965] 1 WLR 445; [1964] 3 All ER 390

Devotwill v Margate Corp [1969] 2 All ER 97; [1970] 3 All ER 864

Director of Buildings and Land v Shun Fung Ironworks [1995] 2 AC 111 ("Shun Fung")

Dubai Aluminium Co Ltd v Salaam [1999] 1 Lloyd's Rep 415, 465

Dublin Corporation v Underwood [1997] 1 IR 117

East End Dwellings Co Ltd v Finsbury Borough Council [1952] AC 109

Edwards v Minister of Transport [1964] 2 QB 134

Efstathiou v Greece 10 July 2003 App No 55794/00

Re Elm Avenue, New Milton [1984] 1 WLR 1398

Emslie & Simpson Ltd v Aberdeen DC [1994] 1 EGLR 33

English Property Corp v Kingston LBC (1999) 77 P & CR 1

Fletcher Estates (Harlescott) Ltd v Secretary of State for the Environment, Transport and the Regions [2000] 2 AC 307

Fraser v City of Fraserville [1917] AC 187, PC

Fraser v R (1963) 40 DLR (2d) 707

In re Gough and Aspatria, Silloth and District Joint Water Board [1904] 1 KB 417

Glover v Edmonton Corp (1953) 3 P & CR 451

Grampian Council v Secretary of State [1983] 1 WLR 1340

Green Motor Holdings v Preseli Pembrokeshire DC [1991] 1 EGLR 211

Grosvenor Hotel Co v Hamilton [1894] 1 QB 836

Guillemin v France (1997) 25 EHRR 435

Hackney LBC v MacFarlane (1970) 21 P&CR 342

Halstead v Manchester City Council [1998] 1 EGLR 1, CA

Hammersmith and City Railway Co v Brand (1869) LR 4 HL 171

Harbutt's Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447

Harris v Welsh Development Agency [1999] 3 EGLR 207

Harrison and Hetherington Ltd v Cumbria County Council (1985) 50 P & CR 396

Harvey v Crawley DC [1957] 1 QB 485

Harwich Dock Co Ltd v IRC (1978) 76 LGR 238

Ozanne v Herts CC [1991] 1 WLR 101

Holt v Gas, Light & Coke Co (1872) LR 7 QB 728

Horn v Sunderland Corporation [1941] 2 KB 26

Hoveringham Gravels Ltd v Secretary of State for the Environment [1975] QB 764

Hoveringham Gravels Ltd v Chiltern DC (1978) 35 P&CR 295

Hubertus Rifle Club v Commonwealth (1995) 130 ALR 447

Hughes v Doncaster BC [1991] AC 382

The "Indian" Case [1939] AC 302 PC

IRC v Clay & Buchanan[1914] 3 KB 466

IRC v Gray [1994] STC 360, 372

James v UK (1986) 8 EHRR 123

J A Pye (Oxford) Limited v Kingswood BC [1998] 2 EGLR 159

Jelson Ltd v Minister of Housing and Local Government [1970] 1 QB 243

Jelson Ltd v Blaby District Council [1977] 1 WLR 1020 ("second Jelson")

Katikaridis v Greece Reports 1996-V, para 49.

Kaye v Basingstoke Corp (1969) 20 P & CR 417

Lambe v Secretary of State for War [1955] 2 QB 612

Lee v Minister of Transport [1966] 1 QB 111

Lee v Sheard [1956] 1 QB 192

Lester v Secretary of State for War (1951) 2 P & CR 74

Lithgow v UK (1986) 3 EHRR 329

Livingstone v Raywards Coal Co (1880) 5 App Cas 25

London, Chatham and Dover Ry Co v South Eastern Ry Co [1893] AC 429

London Investment and Mortgage Co Ltd v Middlesex County Council (1952) 2 P & CR 331

In re Lucas and Chesterfield Gas and Water Board [1909] 1 KB 16

Lyle v Bexley LBC [1972] RVR 318

Marten v Flight Refuelling Ltd [1962] Ch 115

Mean Fiddler v Islington LBC [2003] 44 EG 170

Melwood Units Pty Ltd v Commissioner of Main Roads [1979] AC 426 PC

Mercer v Liverpool, St Helens and South Lancashire Ry Co [1903] 1 KB 652

Mercred Irrigation Dist. v Woolstenhulme (1971) 4 Cal 3d 478

Mercury Communications Ltd v London & India Dock Investments Ltd (1995) 69 P & CR 135

Mercury Taverns Ltd v Coventry City Council LT (ACQ/3/2002, 3 June 2003, unreported)

Metropolitan Board of Works v McCarthy (1874) LR 7 HL 243

Myers v Milton Keynes Development Corp [1974] 1 WLR 696

Newham LBC v Benjamin [1968] 1 WLR 694, CA

Oppenheimer v Minister of Transport [1942] 1 KB 242

Re Ossalinsky and Manchester Corporation (1883)

Penny v Penny (1868) LR 5 EQ 277

Pentrehobyn Trustees v National Assembly for Wales [2002] RVR 140

People v Andresen (1987) 193 CA 3d 1144

Phoenix Assurance Co v Spooner [1905] 2KB 753

Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143

Pine Valley Developments Ltd v Ireland (1992) 14 EHRR 319

Pointe-Gourde Quarrying and Transport Co v Sub-Intendent of Crown Lands [1947] AC 565

Provincial Properties v Caterham and Warlingham UDC [1972] 1 QB 453

Purfleet Farms v Secretary of State [2002] RVR 203

R (Alconbury Developments Ltd) v Secretary for the Environment, Transport and the Regions [2003] 2 AC 295

R v Brown ((1867) LR 2 QB 630

R Evans (Leeds) Ltd v English Electric (1978) 36 P & CR 185

Railtrack plc v Guinness Ltd [2003] 1 EGLR 124

Road Construction Authority v Tiligardis [1988] ACLD 203

Rockingham Charity v R [1922] 2 AC 315

Rugby Joint Water Board v Shaw-Fox [1973] AC 202

Service Welding Ltd v Tyne & Wear County Council (1979) 38 P & CR 352

Sidney v North Eastern Railway Company [1914] 3 KB 629

Simpson v Stoke-on-Trent City Council (1982) 1 EGLR 195

Smith v Birmingham Corp (1974) 29 P & CR 265

Sovmots Investments Ltd v Secretary of State [1979] AC 144

South Eastern Ry Co v LCC [1915] 2 Ch 252

Sporrong and Lonroth v Sweden (1983) 5 EHRR 35

Sprinz v Kingston upon Hull City Council [1975] RVR 178

Stayley Developments Ltd v Secretary of State [2001] RVR 251

Stebbing v Metropolitan Board of Works (1870) LR 6 QB 37

St John the Baptist Hospital v Canterbury City Council [1970] RVR 608

Re Stockport Ry (1864) 33 LJQB 251

Stokes v Cambridge CC (1961) 13 P & CR 77

Tamplin's Brewery Ltd v County Borough of Brighton (1971) 22 P & CR 746

Tesco v Secretary of State [1995] 1 WLR 759

Thames Water Utilities v Oxford City Council [1999] 1 EGLR 167

Trocette Property Co v GLC (1974) 28 P & CR 408

Trustees of Dennis Rye Ltd v Sheffield City Council [1998] 1 WLR 840

Trustees of the Manchester Homeopathic Clinic v Manchester Corp (1970) 22 P & CR 241

Turris Investments Ltd v CEGB (1981) 258 EG 1303

United States v Miller (1943) 317 US 369

Wadsworth v Lydall [1981] 1 WLR 598

Walton v IRC [1996] STC 68

Wards Construction Ltd v Barclays Bank (1994) 64 P & CR

Waters v Welsh Development Agency [2001] RVR 93; [2003] 4 All ER 384

Wells v Bournemouth BC [2000] RVR 335

Westminster Bank Ltd v MHLG [1971] AC 508

Wildtree Hotels Ltd v Harrow LBC [2001] 2 AC 1

Wilson v Liverpool Corp [1969] RVR 741; [1971] 1 WLR 302

Woolfson v Strathclyde Regional Council (1979) 38 P & CR 521

Wrexham Maelor Borough Council v MacDougall [1993] 2 EGLR 23

Wrotham Park Settled Estates v Hertsmere Borough Council [1993] 2 EGLR 15

Yorkshire Traction Co Ltd v South Yorkshire PTE [2003] RVR 67

Zoar Independent Church Trustees v Rochester Corp [1975] QB 246

EXECUTIVE SUMMARY

Compulsory purchase and the compensation code

The current law of compulsory purchase is a patchwork of diverse rules, derived from a variety of statutes and cases over more than 100 years, which are neither accessible to those affected, nor readily capable of interpretation save by specialists. The case for reform has been recognised for many years. In July 2000, the Compulsory Purchase Policy Review Advisory Group ("CPPRAG"), which had been established by the DETR, reported that the law was "an unwieldy and lumbering creature" and made a number of recommendations for detailed improvements to the law. In particular, it proposed that the Law Commission should be asked to prepare new legislation which would both set out standard procedures and contain a clearly defined Compensation Code. The Lord Chancellor subsequently approved terms of reference, requiring the Commission to review the law relating to compulsory purchase of land and compensation, and to make proposals for simplifying, consolidating and codifying the law.

Two Consultative Reports were published in 2002. The first (CP 165) dealt with Compensation; the second (CP 169) with Procedure. This Report carries forward the issues covered by the first Consultative Report, makes final recommendations for the reform of the law relating to compensation for compulsory purchase, and sets out the basis for a Compensation Code. We intend to publish a further Report in 2004 on compulsory purchase procedure, dealing with the issues contained in the second Consultative Report.

Although the Report does not contain a Bill, it presents a Compensation Code as an indicative framework for possible future legislation. The "Code" is designed to maintain, and build on, the main features of the existing law within a simpler and more logical structure, using more accessible labels. Its essential objective is clarification of principle. Clarity, consistency, and accessibility should reduce the time expended on legislative interpretation, facilitate and expedite negotiated settlements, and enable the Lands Tribunal to concentrate on disputes of fact and valuation, not law. In view of the policy changes already proposed by CPPRAG and DETR, we have regarded our primary task as related to form, rather than substance. However, the Code is not simply a restatement. We have proposed amendments where necessary to remove unfairness or anomalies.

The right to compensation and how it is to be assessed

The Code commences with a clear statement of entitlement confirming that any person ("the claimant"), from whom an interest is acquired (or whose interest or right in land is extinguished or overridden) by compulsory purchase, is entitled to compensation. The assessment of compensation is made in accordance with the underlying principle of "fair compensation", having regard to four heads (based on traditional principles): market value of the acquired land; injury to retained land; consequential loss; and (where the tests are fulfilled) equivalent

reinstatement.

market value

Market value, under the first head, is the amount which the land might be expected to realise if sold in the open market by a willing seller to a willing buyer. (The amount cannot be less than nil.) This rule follows the existing law, and existing case-law will continue to be relevant.

injury to retained land

The claimant is also entitled to compensation for the reduction in value of other land previously held with the acquired land ("retained land"). This encompasses two largely distinct categories of compensation, long recognised under existing law: first, for the effect of the severance of the acquired land from the retained land ("severance"); and secondly, for the effect of the works on the retained land , both during construction and subsequently ("injurious affection"). Compensation is measured by the decrease in the market value of the retained land. Any increase in value of any retained land must be off-set, as "betterment", against the decrease due to severance or injurious affection. (We have taken account of a recommendation of CPPRAG, accepted by Government, that such betterment should be off-set only against severance or injurious affection, and not against other heads.)

Consequential loss

The claimant may have suffered consequential loss which is not reflected in the sums attributable to the loss of the land acquired or to the reduction in value of any land retained. Typical examples are removal expenses, temporary loss of profits of a business, and legal or other professional costs reasonably incurred by the claimant in connection with the acquisition.

We have used the term "consequential loss", rather than the traditional term "disturbance", to make clear that compensation is not necessarily confined to loss suffered by disturbance of occupation. This reflects case law under section 5(6) of the Land Compensation Act 1961. In general, the Code permits recovery of all losses, not reflected in the value of land, which are the natural and reasonable consequence of the compulsory purchase and not too remote.

There are special rules concerning displacement of businesses. The normal rule is that compensation is paid on "the relocation basis" (including loss of profits and incidental costs of relocation), provided relocation is reasonably practicable and genuinely intended, and the cost is not unreasonable. Where a higher price is paid for the relocation premises, there is a presumption of "value for money" (as under the existing law.

Where relocation is impracticable, the claim may be on "the extinguishment basis", reflecting the value of the business as a going concern. To remove a possible doubt under existing law, it is made clear that, in determining whether compensation should be assessed on a relocation or extinguishment basis, the claimant's personal circumstances, including financial circumstances, are to be taken into account.

Equivalent reinstatement

Compensation may be exceptionally assessed on the "equivalent reinstatement" basis, where the acquired land has been adapted and used for purposes for which there is no general market, and where reinstatement in some other place is genuinely intended. (For instance, the land may be used as a church or other place of worship.) In such cases, the claimant may seek to be compensated for the reasonable cost of the reinstatement. The Tribunal has a residual discretion to refuse compensation on that basis, where the cost of reinstatement is disproportionate having regard to the likely benefit to the claimant. This rule reflects existing law. However, we include a new provision, enabling the authority to impose conditions to ensure that the compensation is used for its intended purpose.

General rules

We retain three incidental rules, recognised by existing law: first, the "illegality" principle, that any element of value or loss attributable to a use which is contrary to law is to be disregarded (subject to a new, but limited discretion for the Tribunal to disapply the rule having regard to the nature of the breach); secondly, the "consistency" principle, that where the land is valued on the basis of potential for development or change of use, compensation is not allowed for loss or damage that would necessarily have arisen in realising that potential; and, thirdly, the "mitigation" principle, that compensation is liable to be reduced where the authority shows that the claimant failed to mitigate his loss.

Date of valuation

The cases establish that land is to be valued at the date of when compensation is agreed or determined, or if earlier the date when possession is taken by the authority. The Code takes that as the basic rule for deciding all issues relevant for compensation, including physical and planning circumstances, save as otherwise provided. Again reflecting existing case-law, compensation for consequential loss is assessed by reference to the circumstances known or anticipated at the date of assessment; and compensation on the equivalent reinstatement basis is assessed by reference to the date on which reinstatement becomes reasonably practicable.

Disregard of the statutory project and planning status

Relatively straight-forward to state, but often very difficult to apply, the principle of project disregard (otherwise known as the "no-scheme" or "Pointe Gourde" rule) is one of the most complex issues in compulsory purchase law. The problem arises mainly from the lack of consistency in the many formulations of the rule, in statute and case-law. Essentially, assessment of compensation payable for the acquired land should not take account of any increases or decreases in value attributable to the statutory project or scheme for which the land is acquired. Under the existing law, this has required consideration of the state of affairs which would have existed had there never been a scheme of acquisition. The proper identification of "the scheme" may then become the source of dispute between the claimant and the acquiring authority; as may "the rewriting of history" in the "no-scheme world", sometimes over many years.

The Report notes the unanimity among respondents for the need to "clear the decks", by replacing all existing formulations, by a single set of statutory rules. In an attempt to clarify its operation, the Report seeks to redefine the purposes of the rule, which differ in relation to the effects respectively on claimants and acquiring authorities. The proposed Code contains a new set of rules, based on "the statutory project", the definition of which follows our "preferred version" of previous formulations. The room for speculation is limited by use of the "cancellation assumption" (approved by the House of Lords in relation to planning assumptions); that is, the position is considered as though the project were cancelled at the valuation date, rather than as though there never had been such project or any indication of it.

The rules for planning assumptions are treated separately. They follow the general approach of the existing law. Account is taken of any planning permissions in force at the valuation date, as well as the future prospect of any other such planning permissions. Account is also taken of the value of any appropriate alternative development (that is development of a type which, applying the cancellation assumption, might reasonably have been expected to be permitted on an application considered on the valuation date). The main difference from the existing law is that there is no automatic assumption of permission for the authority's own proposals, unless it has been granted, or would have been granted, to a private developer.

We follow the existing law, by providing for an application for an alternative development certificate from the local planning authority, and the likely conditions obligations or requirements of such permission. An important change is that the right of appeal against a certificate would be to the Lands Tribunal, rather than to the Secretary of State (or National Assembly for Wales). This is designed to ensure that the Tribunal is the ultimate arbiter of all issues relevant to compensation, and also to avoid the possibility of the appeal agency being judge in its own cause (as may happen, for example, in relation to a road scheme promoted by the NAW).

Acquisition of new rights and interference with existing rights

Where the acquiring authority obtains a new right over land of the claimant, compensation will be assessed having regard to any depreciation in the market value of the claimant's land (not only the land over which the right is acquired, but also any other land whose value is reduced) and any consequential loss.

The Code also recognises the right to compensation of those persons whose rights over the acquired land (such as easements or restrictive covenants) are overridden by carrying out the project. Compensation will be assessed by reference to the reduction in the market value of the land to which the right is attached, and any consequential loss. (The provision for consequential loss in this case is an innovation, to ensure consistency with the other rules.)

Depreciation caused by public works

Under a provision going back to 1845, adjoining owners, whose land is not acquired but is adversely affected by the construction of the statutory works, have a right to compensation for "injurious affection", but only if they would have had a claim at common law. In 1973, a new statutory right was created for compensation for depreciation to adjoining land caused by the use of statutory works, not subject to the same restriction.

We propose that the two rights should be merged in the 1973 Act, to create a right to compensation for what we call "depreciation caused by public works". We propose to deal with this subject separately from the Code, because it is not strictly part of compulsory purchase law. Entitlement to compensation for injurious affection does not require any land to have been compulsorily acquired, and the losses being compensated are due, not to compulsory purchase as such, but to the statutory works.

Compensation for construction will follow the existing law, save that the claim is not limited to decrease in the value of land, but may include consequential loss such as temporary loss of profits. (This is an innovation intended to achieve greater consistency with the rules applying where land is acquired.) Compensation for the adverse effects of use of the works, will continue to be based on the 1973 Act, subject to some detailed amendments proposed by CPPRAG.

Ancillary matters

We recommend that additional jurisdiction be vested in the Lands Tribunal to determine any claim relating to damage to land or the use of land where it arises out of substantially the same facts as a compensation claim referred to it. This is principally to avoid arguments about the correct forum for dealing with cases arising out of negligence in carrying out the statutory works.

The rules for interest on compensation are based on the existing law, but allow more flexibility to take account of the fact that different heads of loss may be suffered at different times. The general rule, as now, is that interest is payable on compensation from the date when the authority takes possession, at a rate prescribed by statute. We recommend, however, as a change to the existing law, that the Lands Tribunal should have discretion to award interest at a higher or lower rate to reflect unreasonable conduct on the part of either party.

Claimants will continue to be entitled to advance payments on account of compensation, in accordance with sections 52 and 52A of the Land Compensation Act 1973. However, we propose a new statutory procedure in the County Court, on judicial review principles, by which the obligations of the authority in this regard may be better enforced.