Introduction
The state's power to compulsorily acquire private land for public purposes, such as building new infrastructure or facilitating urban regeneration, is a significant feature of the legal landscape in England and Wales. This power, while necessary for societal development, represents a substantial interference with an individual's property rights. The Human Rights Act 1998, incorporating Article 1 of the First Protocol of the European Convention on Human Rights, protects the peaceful enjoyment of possessions but permits the state to deprive a person of their property in the public interest and subject to conditions provided for by law. A key condition is the provision of fair compensation.
The legal framework for compensation is complex, consisting of various statutes and case law collectively known as the "compensation code". The core principle underpinning this code is the principle of equivalence, which aims to ensure that the owner is left in the same financial position after the acquisition as they were before (Scott, 1914). This essay will outline and explain the primary heads of compensation available to a claimant whose land is compulsorily purchased. It will cover the main claims for the value of the land, losses to retained land, consequential losses, and additional statutory payments designed to mitigate the impact of the process.
The Principle of Equivalence
The foundational principle of compulsory purchase compensation is that of equivalence. As established in the landmark case of Horn v Sunderland Corporation [1941] 2 KB 26, the intention of compensation is not to punish the acquiring authority or to provide a windfall to the claimant. Instead, it is to provide fair financial recompense so that the owner is "in no worse position, in so far as money can do it, than if his land had not been taken from him" (Scott, 1914, p. 742). This common law principle guides the interpretation and application of the statutory rules.
While the principle is simple in theory, applying it in practice can be difficult. The various heads of claim that have developed are an attempt by Parliament and the courts to give practical effect to this goal of financial neutrality. The main components of a compensation claim are therefore structured to cover the different types of loss a claimant may suffer. These are typically the market value of the land itself, losses relating to any land the claimant retains, and personal or business losses caused by having to move.
The Market Value of the Acquired Land
The primary component of any compensation claim is the value of the land being taken. This is governed by a set of valuation rules found in section 5 of the Land Compensation Act 1961. The most important of these is Rule (2), which states that the value of the land shall be taken to be the amount which the land, if sold in the open market by a willing seller, might be expected to realise. This establishes an objective "open market value" test.
A crucial aspect of this valuation is the "no-scheme world" principle. This principle requires the valuer to disregard any increase or decrease in the land's value that is entirely attributable to the compulsory purchase scheme itself. For example, if land is being acquired for a new railway station, its value must be assessed without considering the positive effect the future station would have on local property prices. This prevents the acquiring authority from having to pay an inflated value that its own scheme has created. Similarly, a claimant is protected from receiving a lower value caused by the blighting effect of the scheme. This is set out in sections 6A to 6E of the 1961 Act.
Furthermore, the valuation must consider the development potential of the land. Sections 14 to 17 of the 1961 Act allow valuers to make certain "planning assumptions" about what planning permission might have been granted for the land in the no-scheme world. This ensures that the claimant is compensated for the potential use of their land, not just its current use.
Severance and Injurious Affection
When an acquiring authority takes only part of a person's land, the claimant may be entitled to compensation for the negative impact on the land they retain. These claims fall under two heads: severance and injurious affection.
Severance compensation is provided for under section 7 of the Compulsory Purchase Act 1965. It covers the depreciation in the market value of the retained land that occurs simply because it has been "severed" from the land taken. For example, if half a field is acquired for a road, leaving a small, awkwardly shaped and less useful parcel of land behind, the owner can claim for the reduction in value of that remaining parcel.
Injurious affection is a related but distinct concept. It also applies to the retained land but compensates for its depreciation in value caused by the construction and, importantly, the use of the works on the land that was taken. A classic authority is Duke of Buccleuch v Metropolitan Board of Works (1872) LR 5 HL 418, where compensation was awarded for loss of privacy and amenity to a house due to the construction of a new embankment on land that was formerly part of its garden. Therefore, if a new motorway is built on the acquired land, a claim for injurious affection could be made for the loss in value to the retained property caused by the noise, fumes, and visual intrusion of traffic on the motorway.
Where no land is taken from a claimant, but their property is negatively affected by the use of public works nearby, a claim for injurious affection is sometimes possible under section 10 of the Compulsory Purchase Act 1965. However, the rules for this type of claim are much stricter and are generally limited to losses that would have been actionable as a private nuisance had the works not been authorised by statute.
Disturbance Compensation
The principle of equivalence requires that a claimant is compensated not only for the value of their property but also for other costs and losses incurred as a direct consequence of being forced to relocate. This is known as disturbance compensation and is provided for under Rule (6) of section 5 of the Land Compensation Act 1961. The purpose is to cover reasonable expenses and financial losses.
In Harvey v Crawley Development Corp [1957] 1 QB 485, it was held that any loss sustained by a dispossessed owner which flows from the compulsory acquisition can be claimed, provided it is not too remote. For a residential owner, this can include the costs of removal, as well as legal and surveyor's fees incurred in buying a new property.
For a business, disturbance claims can be more substantial and may include the costs of relocating the business, losses on forced sales of stock, and temporary loss of profits while the business is re-established. In cases where the business cannot be relocated (for example, due to the personal goodwill of the owner being tied to that specific location), a claim can be made for the total extinguishment of the business, which would be based on its value as a going concern.
Statutory Loss Payments
In addition to the main heads of claim based on the principle of equivalence, Parliament has created several statutory payments which provide an additional element of compensation. These payments acknowledge the element of compulsion and the personal distress and inconvenience of being displaced.
The Land Compensation Act 1973 introduced the Home Loss Payment. This is payable to a person who has been displaced from a dwelling which has been their only or main residence for at least one year prior to the displacement. It is calculated as 10% of the market value of the property, subject to minimum and maximum prescribed amounts (HM Government, 2017). This payment is specifically designed to compensate for the personal distress of losing one's home and is paid on top of the market value.
More recently, the Planning and Compulsory Purchase Act 2004 introduced the Basic Loss Payment and the Occupier's Loss Payment. The Basic Loss Payment is payable to most claimants with an interest in the land and amounts to 7.5% of its value, capped at £75,000. For claimants who are also in occupation of the property (as a home or a business), an additional Occupier's Loss Payment may be available, which can be a further supplement to reflect the inconvenience of being dispossessed.
Conclusion
The options for compensation following a compulsory purchase order are varied and are designed, in theory, to ensure that the displaced owner suffers no financial loss. The principle of equivalence is the guiding light, leading to claims based on the market value of the land, severance and injurious affection to retained land, and the costs of disturbance. The statutory "no-scheme world" rule is a key tool in achieving a fair market value. However, the system also recognises that purely financial equivalence may not be sufficient. The introduction of statutory additions like the Home Loss Payment and the Basic Loss Payment demonstrates an understanding that the compulsive nature of the acquisition itself justifies an extra degree of compensation. While the compensation code can be complex to navigate, its different components work together to provide a comprehensive framework intended to deliver justice to those whose property is taken for the public good.
References
Cases
- Duke of Buccleuch v Metropolitan Board of Works (1872) LR 5 HL 418
- Harvey v Crawley Development Corp [1957] 1 QB 485
- Horn v Sunderland Corporation [1941] 2 KB 26
Legislation
- Compulsory Purchase Act 1965
- Human Rights Act 1998
- Land Compensation Act 1961
- Land Compensation Act 1973
- Planning and Compulsory Purchase Act 2004
Other Sources
- HM Government (2017) Compulsory purchase and compensation: guide 4: compensation to residential owners and occupiers. Ministry of Housing, Communities & Local Government.
- Scott, L. (Chairman) (1914) Second Report of the Committee dealing with the Law and Practice relating to the Acquisition and Valuation of Land for Public Purposes, Cd 9229.
- Thompson, M.P. (2018) Modern Land Law. 6th edn. Oxford University Press.
