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TOWARDS a COMPULSORY PURCHASE CODE: (1) COMPENSATION FINAL REPORT Report on a Reference Under Section 3(1)(E) of the Law Commissions Act 1965

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[Coat of Arms] 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 ii THE LAW COMMISSION TOWARDS A COMPULSORY PURCHASE CODE – (1) COMPENSATION FINAL REPORT CONTENTS Paragraph Page ABBREVIATIONS xi EXECUTIVE SUMMARY xiii PART I: INTRODUCTION 1 Terms of reference 1.1 1 Background to this Report 1.2 2 The existing law 1.2 2 CPPRAG Review 1.3 2 Work since the CPPRAG Review 1.6 3 Government policy 1.13 4 Planning and Compulsory Purchase Bill 2002/03 1.18 6 The Law Commission’s approach 1.26 7 Sorting out the law 1.29 8 Policy framework 1.30 8 Preserving the balance 1.31 8 No draft Bill 1.35 10 Outline of the Compensation Code 1.37 10 Acknowledgements 1.44 11 PART II: RIGHT TO COMPENSATION 12 The right to compensation 2.1 12 Introduction 2.1 12 Extent of the right 2.1 12 Date for identification of interests 2.2 12 “Qualifying interests” 2.6 13 Consultation 2.7 14 Rule 1 2.8 14 Basis of compensation 2.9 14 Introduction 2.9 14 Consultation 2.14 16 iii Paragraph Page Structure of the Code 2.18 17 Rule 2 2.21 18 PART III: THE COMPENSATION CODE – HEADS A AND B 19 Head A: Market value 3.1 19 Introduction 3.1 19 Consultation 3.3 19 Willing buyer 3.4 19 Not less than nil 3.9 21 Rule 3 3.12 21 Head B: Injury to retained land 3.13 22 Introduction 3.13 22 Severance and injurious affection 3.13 22 Betterment 3.16 24 Other valuation rules 3.18 24 Consultation 3.20 25 Market value only? 3.20 25 Use of hindsight 3.25 26 “Before and after” 3.30 28 Betterment 3.31 28 Definition of retained land 3.32 28 Contractors’ negligence 3.33 28 Other points 3.34 29 Rule 4 3.35 29 PART IV: THE COMPENSATION CODE – HEADS C AND D 31 Head C: Consequential loss 4.1 31 Introduction 4.1 31 Existing law 4.1 31 Consultation proposals 4.3 32 “Disturbance” or “consequential loss” 4.4 32 The Wrexham case 4.8 33 The Dublin case 4.12 35 Comments 4.15 36 Particular issues 4.18 38 Wording of the general rule 4.20 38 Personal circumstances and mitigation 4.27 40 Relocation versus extinguishment 4.31 40 Replacement of buildings 4.39 43 iv Paragraph Page Starting date for disturbance compensation 4.40 44 Rule 5 4.42 45 Head D: Equivalent reinstatement 4.43 48 Introduction 4.43 48 Consultation 4.46 49 Rule 6 4.53 52 PART V: THE COMPENSATION CODE – GENERAL RULES 54 Introduction 5.1 54 Prospects of lease renewal 5.2 54 Rehousing obligations 5.9 56 Illegal uses 5.10 56 The scope of the rule 5.10 56 Consultation 5.13 57 Rule 7 5.18 58 New interests and enhancements 5.19 59 Consistency 5.20 59 Rule 8 5.23 60 Mitigation 5.24 60 Rule 9 5.26 60 PART VI: VALUATION DATE AND DISREGARDS 61 Fixing the valuation date 6.1 61 Introduction 6.1 61 Valuation of interests in land 6.1 61 Consequential loss 6.3 62 Equivalent reinstatement 6.5 62 Facts known to the tribunal 6.6 62 Consultation 6.7 63 Rule 10 6.7 63 Disregards 6.8 64 Introduction 6.8 64 New interests and enhancements 6.9 64 Rule 11 6.12 64 Rehousing obligations 6.13 65 Introduction 6.13 65 Discussion 6.16 65 Rule 12 6.18 65 v Paragraph Page PART VII: STATUTORY PROJECTS – PROBLEMS AND SOLUTIONS 67 Introduction 7.1 67 The no-scheme rule 7.1 67 Clearing the decks 7.4 68 The policy rationale 7.7 69 The new code – principles 7.9 71 General approach 7.9 71 Principal features of the new Code 7.12 72 Key elements retained 7.12 72 Main problems of the existing law 7.13 72 Main changes 7.14 73 Consultation 7.15 74 The statutory project rule 7.16 75 Preferred version of the rule 7.16 75 Depreciation due to planning blight 7.19 76 Commercial interests 7.22 76 Defining the project 7.26 77 The cancellation assumption 7.29 78 Ransom strips 7.34 80 Special statutory designations 7.38 82 Blight and purchase notices 7.44 84 Other heads of compensation 7.46 85 Injury to retained land 7.46 85 Consequential loss 7.48 86 Planning status 7.50 87 Consultation paper 7.50 87 Responses 7.53 88 Area of planning assumptions 7.55 89 Assumed permission for the authority’s development 7.56 89 Appeal against certificate of alternative development 7.59 90 PART VIII: STATUTORY PROJECT AND PLANNING STATUS – THE NEW CODE 92 Introduction 8.1 92 The new Rules 8.3 92 The new Rules annotated 8.4 96 13 The statutory project and blight 8.4 96 13A Other heads of compensation 8.19 104 14 Planning status 8.23 106 14A Alternative development certificate 8.27 108 vi Paragraph Page Provisions not replaced 8.32 110 Third schedule rights 8.32 110 Subsequent planning permissions 8.35 111 Rule 15 8.39 112 PART IX: PARTICULAR INTERESTS 113 Acquisition of new rights 9.1 113 Rule 16 9.5 114 Interference with rights 9.6 114 Introduction 9.6 114 Consultation 9.10 116 Rule 17 9.12 116 Compensation for minor tenancies 9.13 117 Introduction 9.13 117 Rule 18 9.17 118 PART X: INCIDENTAL MATTERS 119 Advance payments 10.1 119 Introduction 10.1 119 Consultation 10.5 119 Rule 19 10.9 121 Lands Tribunal jurisdiction 10.10 122 Rule 20 10.11 122 Interest 10.12 122 Existing law 10.12 122 Date from which interest runs 10.12 122 Amount of interest 10.15 123 Commentary in the consultation paper 10.16 124 Consultation 10.20 125 Date from which interest runs 10.20 125 Amount of interest 10.22 126 Finance costs 10.25 127 Professional fees 10.27 127 Rule 21 10.28 127 PART XI: COMPENSATION WHERE NO LAND IS ACQUIRED 129 Compensation for depreciation caused by public works 11.1 129 Introduction 11.1 129 Existing law 11.3 129 Section 10 of the 1965 Act: injurious affection due to the vii Paragraph Page construction of public works 11.4 130 Part I of the 1973 Act: injurious affection due to the use of public works 11.8 133 Consultation proposals 11.11 134 Consultation 11.15 136 Conclusion 11.19 137 Recommendation 11.23 139 PART XII: COMPENSATION FOR COMPULSORY PURCHASE – FRAMEWORK FOR A CODE 140 Compensation – standard provisions 140 General rules 144 Valuation date 145 Matters to be disregarded 145 Planning status 148 Particular interests 150 Incidental matters 150 Compensation where no land is acquired 151 APPENDIX A: THE IMPACT OF OUR RECOMMENDATIONS 153 APPENDIX B: REPEALS 156 APPENDIX C: THE DEVELOPMENT OF COMPULSORY PURCHASE LAW 159 Introduction C.1 159 Historical context C.2 159 The 1845 Act C.2 159 The Scott Committee and the 1919 Act C.5 160 From 1945 to 1961 C.7 161 From 1961 until today C.12 163 Towards privatisation C.12 163 Legislative change C.15 163 The Human Rights Act C.18 165 The law today C.24 166 Sources of the current law C.25 166 (1) Powers of compulsory purchase C.26 167 (2) Making and authorisation C.29 168 (3) Implementation C.31 169 viii Paragraph Page (4) Determination of compensation C.34 169 (5) Compensation rules C.35 170 APPENDIX D: THE NO-SCHEME RULE – HISTORY 171 Introduction D.1 171 The “no-scheme rule” D.1 171 Three phases of evolution D.5 172 Phase (1): from 1845 to 1919 D.6 172 The early cases D.6 172 Value to the owner D.6 172 Special adaptability D.8 172 Special purchaser D.11 174 From Lucas to Fraser D.13 174 The English cases D.14 174 The Canadian cases D.23 178 The Scott Committee D.30 180 Phase (2): from 1919 to 1959 D.34 182 The Indian case (1939) D.34 182 The Pointe Gourde case D.39 184 The importance of Pointe Gourde D.43 185 From the 1947 Act to 1959 D.48 186 The 1947 Act D.48 186 Case law D.50 187 Phase (3): Modern development D.53 188 The Town and County Planning Act 1959 D.53 188 Government explanations D.55 188 The Land Compensation Act 1961 D.57 189 Section 6 and the no-scheme rule D.58 189 Planning assumptions D.63 189 The no-scheme rule in the Courts D.66 192 (1) Assimilation of the judicial and statutory versions D.68 193 (2) Judicial evolution D.73 195 (3) The no-scheme world D.78 198 (4) Decreases in value due to the scheme D.82 199 (5) A valuation tool only D.84 200 (6) The Indian case D.87 201 Particular issues D.92 202 (1) Limits of rule (3) D.93 203 (2) Planning assumptions D.98 204 (3) Ransom strips D.106 208 (4) Disturbance D.110 209 (5) Purchase notices D.112 210 ix Paragraph Page International comparisons D.113 210 Commonwealth D.113 210 Australia D.114 211 Canada D.118 212 South Africa D.120 213 Other jurisdictions D.122 214 California D.122 214 France D.126 215 Conclusion on international comparisons D.127 215 Conclusion – the no-scheme rule today D.128 215 Postscript – the Pentrehobyn case D.136 218 A textbook example D.136 218 Facts D.137 218 Conclusion D.143 220 APPENDIX E: RESPONDENTS TO CP 165 221 x 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
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