Crossrail compulsory purchase compensation

The transcript of the long awaited decision of the Upper Tribunal (Lands Chamber) in GPE (Hanover Square) Ltd and others v Transport for London [2012] UKUT 417 (LC) has finally become available.

The decision is important in a number of respects. It may very well be the most high-profile compensation claim to affect the Crossrail project (at least so far) and, in addition to compensation claims arising out of Crossrail, may have a wider relevance in calculating compulsory purchase order statutory compensation in other circumstances under the already complex rules in Part II of the Land Compensation Act 1961 (the Act).

These are designed to ensure that the landowner who is to be compensated for the loss of his or her land receives neither a thoroughly depressed value (due to the "blight" created by the scheme) nor an unwarranted windfall (because the land is a crucial component of the scheme and therefore attracts a premium, or to reflect the improvements to surrounding land due to implementation of the scheme).

The decision, in short, examines the basis of compulsory purchase compensation under section 9 of the Act and dismisses the argument that compulsory purchase compensation (for a freehold interest subject to occupation leases) should be calculated on the basis of the better occupation lease terms that might have been secured if the scheme (Crossrail) had not been announced.

Section 5 of the Act, in essence, requires the assessment of the open market value of the interest that is being acquired compulsorily but with no allowance for the fact that the acquisition is compulsory providing as follows:

“Compensation in respect of any compulsory acquisition shall be assessed in accordance with the following rules:

 (1) No allowance shall be made on account of the acquisition being compulsory:

 (2) The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise:

 (3) The special suitability or adaptability of the land for any purpose shall not be taken into account if that purpose is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from  the requirements of any authority possessing compulsory purchase powers:

 (4) Where the value of the land is increased by reason of the use thereof or of any premises thereon in a manner which could be restrained by any court, or is contrary to law, or is detrimental to the health of the occupants of the premises or to the public health, the amount of that increase shall not be taken into account:

 (5) Where land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that purpose, the compensation may, if the Upper Tribunal is satisfied that reinstatement in some other place is bona fide intended, be assessed on the basis of the reasonable cost of equivalent reinstatement:

 (6) The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land:

and the following provisions of this Part of this Act shall have effect with respect to the assessment.”

 

 Section 9 of the Act goes further stating that in that valuation:

“No account shall be taken of any depreciation of the value of the relevant interest which is attributable to the fact that (whether by way of allocation of other particulars contained in the current development plan, or by any other means) an indication had been given that the relevant land is, or is likely, to be acquired by an authority possessing compulsory purchase powers.”

 

The House of Lords in Transport for London (London Underground Limited) v Spirerose Limited (in Administration) [2009] UKHL 44 has previously held that when valuing a piece of land which was acquired compulsorily, it was not legitimate to assume that a particular planning permission would have been granted before the valuation date (if there had been no indication of the proposed compulsory purchase). Instead, it was held that the valuation may only take into account the "hope" that such planning permission would have been granted. This is a percentage of the full value discounted for the chance that permission would not be granted.

In that case the House of Lords overturned the Court of Appeal's decision and reduced the level of compensation payable because, at the valuation date, planning permission for the redevelopment of Spirerose's land would only have been granted on the balance of probabilities. It was not a certainty and therefore the Lands Tribunal was not entitled to value the land on the basis that permission would actually have been granted and it had, therefore, been wrong of the Court of Appeal to uphold the Lands Tribunal's decision.

In the present case two properties, subject to three occupation lettings, had been included in the list of those likely to be compulsorily acquired to allow construction of Crossrail. Following Royal Assent to the Crossrail Act 2008 a notice of the compulsory purchase was served.

The freeholder and long leaseholder argued that the occupation leases had been on "softer terms" than would have been the case if the tenants had not been aware that the property was to be compulsorily acquired. It was suggested that they would either have taken a longer lease, or not been offered an early right to break, or paid more rent, or the lease would have been granted to a tenant of better reputation and covenant strength.

All of these differences, they argued, would have improved the value of the reversionary interests (both freehold and long leasehold) and that accordingly the compensation should be calculated on the basis that the occupation leases were granted on the terms which would have been achieved if there had been no advance notification of the Crossrail compulsory acquisition, rather than the terms of the leases as actually granted.

While the arguments may at first glance appear attractive they were, not unsurprisingly, rejected with the Tribunal concluding that:

• Section 9 requires valuation of the actual interest that is being acquired compulsorily, not of a hypothetical interest which might have existed if the circumstances had been different;
• It deals with decreases in value of the relevant interest and does not deal with potential increases in value;
• There was, if the Claimants’ argument were correct, potentially no limit to the extent to which past events could be re-constructed which would cause great uncertainty;
• It would be anomalous for reversionary interests to receive compensation based on hypothetical occupation lease terms, while compensation to actual occupation tenants would be based on leases as actually granted; and
• Spirerose provided no useful assistance or authority for the application of section 9 in the manner suggested.