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Cutting your losses: a guide to compulsory purchase for claimants

Anyone who is faced with the prospect of having a land interest or rights interfered with through compulsory purchase due to an infrastructure or regeneration scheme affecting their property (e.g. HS2) will be all too familiar with the uncertainty and the risk this poses to their home life or livelihood.

If you find yourself in this unfortunate situation then what should you do? For a business, compulsory purchase can represent either an inconvenience or a threat to its very existence. Whilst there may be many more pressing issues to tend to than a suggestion that you might be ‘CPO’d’ in the future it is advisable not to bury your head in the sand. Furthermore, an acquiring authority should make meaningful attempts at negotiation during the preparation and making of the order so use this to try and reach an early agreement where possible.

The service of statutory notices to acquire land or interfere with rights brings with it an entitlement to claim compensation for losses suffered under what is termed the ‘Compensation Code’. This is the body of statute and case law that determines how losses are to be assessed. You won’t find a copy online or at your local library, but it exists and can be interpreted. Underlying it all is the principle of equivalence and that you should be financially ‘no worse off’ or indeed ‘no better off’.

Losses flow from the exercise of compulsory purchase powers, with the market value of land acquired and the ‘damage’ to the value to any retained land (if relevant) taken as at the date of possession or vesting (i.e. the transfer of title to the acquiring authority).

If you are ‘disturbed’ from your occupation, you may be entitled to compensation for disturbance losses which occur thereafter; at the one extreme this may consist of the value of the business if it is extinguished or – at the other end of the spectrum – the cost of redirecting the post or switching over utilities to a new address. Compensation is assessed as at the same date as the land value, but it is permissible to wait and see what the actual losses and costs incurred are before finalising the claim. Claimants need to be alive to the principles of ‘causation’, ‘remoteness’ and the ‘duty to mitigate’ when identifying disturbance losses. In summary:

  1. There needs to be a causal connection between the loss and the acquisition/possession – or the threat of it – due to the scheme;
  2. Whilst the losses due to the acquisition can have far reaching consequences, they cannot be too remote. Furthermore, they need to be a ‘natural and reasonable consequence’ of the dispossession;
  3. The claimant is under a duty to mitigate its losses. The test is that the claimant should do what a ‘reasonable businessman’ would do if using his own money – compulsory purchase compensation is not a blank cheque.

There are a number of ways in which claimants can reduce the risks associated with the process and ensure that compensation is maximised. Some ‘top tips’ are as follows:

  1. Stay engaged in the process. You have a minimum of 21 days to submit an objection to the CPO to the Planning Inspectorate once the CPO has been made (or longer if provided for by the acquiring authority). Use this opportunity to have your say on any matter other than the level of any financial settlement that you have been offered.
  2. Keep a clear audit trail including records of decision making for the purpose of the claim being made. Retaining invoices for the costs incurred is essential and will allow the claim to be compiled and submitted as soon as possible.
  3. Obtaining quotes for any expenditure when relocating is very useful and provides comfort to the acquiring authority – indeed some authorities may seek to argue that the claimant has failed to ‘mitigate’ if competitive quotes have not been sought.
  4. Be careful with any expenditure – ‘value for money’ will be a consideration if you’re moving from chrome to gold plated fixtures in your new property or replacing ‘old’ with ‘new’ as any improvement over the existing property will not be compensatable – remember the principle of equivalence? Similarly, think carefully about the cost of repairs needed to the new property as any disrepair will usually be taken to be reflected in the purchase price or rent.
  5. The costs of specialist adaptations to a relocation property are recoverable as a disturbance item; these are essentially works needed to make the property usable by the particular occupier, but which would not add value to the property if it were sold in the open market.
  6. Losses incurred in the ‘shadow’ of the scheme – i.e. caused by the threat or prospect of compulsory purchase –may be claimable once statutory notices are served.

There are other financial payments available depending on your reason for holding the property. Statutory loss payments are payable (if you qualify) and these go some way to acknowledging the hidden ‘losses’ due to upheaval and the impact of the process on to the claimant.

Don’t forget that a key tool in your armoury will be a written request for an advance payment of compensation to obtain money ‘on account’. Upon receipt the acquiring authority is to pay 90% of its assessment of the compensation entitlement either on the day that possession of the land is taken or within two months of the request being made following the service of statutory notices assuming that no additional supporting information is requested from the claimant.

Businesses and individuals are facing more uncertainty at this time than ever before. Our recent experience of acting for claimants tells us that the lens is focused very firmly on the ‘bottom line’ at the moment; arguably there is no better time to pursue your entitlement to compensation for losses suffered due to compulsory acquisition.

If you think you’re out of time, then you may want to think again! You have up to six years following possession or vesting of the land by the acquiring authority for your claim to be referred to the Upper Tribunal (Lands Chamber) for determination. This is worth remembering if you have yet to submit a claim.

Appointing a compulsory purchase surveyor to assist you either before (preferably) or after possession is taking a positive step. Gerald Eve’s specialist Compulsory Purchase and Compensation team acts on behalf of a range of clients and has a wealth of experience in advising those facing compulsory purchase for the first time, as well as those who have been through the process before. As RICS members we adhere to the mandatory requirements of the RICS Professional Statement ‘Surveyors advising in respect of compulsory purchase and statutory compensation, 1st edition’ which imposes strict standards of conduct and honesty in those representing both claimants and acquiring authorities We look forward to speaking to you.

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Adam Rhead