Article jointly written with Stuart Mitchell (Retired Member of ACES) and first published in the ACES ‘The Terrier’ in Spring 2010

Paying the Price Revisited

In the September 1999 edition of the Terrier, Alan Pickles of Rochdale MBC published an article entitled ‘Paying the Price’ on the guidance, or rather, lack of guidance, for Local Authority acquisitions.  Alan’s particular concern was in respect of the possibility of paying a premium over and above market value where this seemed justified in arms length transactions where CPO was not being used. He referred to an extract from Cross’s “Principles of Local Government Law” that where the authority acquires land for a purpose for which it has no power of compulsory purchase, and this is unusual, there is nothing to compel the owner to sell so that the Authority will have to pay him the price he wants if it is to have the land.

By extension he then went on to state that from discussion with colleagues in other Authorities it is apparent that, in certain isolated very special cases, prices well above market value have been paid. These have been termed ‘premium payments’.  Alan admitted that what guidance was available was only in respect of acquisitions by CPO where the compensation code applied. He postulated that this may not fit the bill where …

  • such powers are not available,
  • there is not time to wait for confirmation or
  • if the chances of obtaining confirmation of the order are small,

…particularly where large amounts of capital spending are released, say for a regeneration scheme, where timescales are tight.

If such a Premium Payment could be made, Alan suggested that it could only be justified on the following principles:

  1. The justification for the premium payment should be thoroughly explained/understood.
  2. Any premium payment, however generous it may seem to the landowner, must be small in relation to the cost of the development scheme.
  3. The justification must show that the development scheme would fail or be seriously prejudiced without the offending property.
  4. All officers (and the outside developer) involved in the scheme should agree the premium payment is warranted and present a common front to the Council.
  5. The precedent that the premium payment might set should be examined and any consequences weighed.
  6. It must be decided if the Committee report is discrete or explicit. This must depend upon the circumstances but may be the most difficult of dilemmas.

But was this advice correct?

The view of the Valuation Office is set out in Section 1 of its Land Compensation Manual ;

————————————————————————–

Purchase by Agreement

1.13 Sch6 of CPA 1965

Many acts that authorise compulsory acquisition also contain separate provisions that empower the purchase of land by agreement. It is usual for such provisions to import PT1 CPA 1965 so that compensation will be assessed in accordance with the statutory code (see Sch6 CPA 1965). In some cases, however, S10 is specifically excluded (e.g. by S227 Town & Country Planning Act 1990) and reference should be made to the empowering Act to find out which provisions of CPA 1965 or what other provisions are incorporated.

1.14 With compulsory powers in the background

In cases where an authority is purchasing land by agreement under provisions which authorise compulsory acquisition e.g. where negotiations are proceeding at the initiative of the authority in advance of the making of the CPO, the purchase price should be assessed having regard to the statutory code of compensation.

1.15 Other purchases by agreement

In cases where there are no compulsory powers in the background or the statutory code is not written in to the provisions that empower purchase by agreement there are no statutory rules for the assessment of compensation. Unless otherwise indicated by instructions in a particular case or type of case the consideration for the purchase will be open market value but not exceeding the amount that would be paid in compensation under the compulsory purchase code. …….

————————————————————————–

In summary the guidance notes question whether a premium payment as described by Alan Pickles could be paid if this was to exceed the amount that might be paid under the compensation code, but of course this guidance does not in itself carry any statutory authority.

It is interesting, and somewhat confusing to look at some of the local authority powers of acquisition to see whether those powers embrace the compulsory purchase code.

The “backup” powers of acquisition as set out in the Local Government Act 1972.Section 120 state:

————————————————————————–

(2) A principal council may acquire by agreement any land for any purpose for which they are authorised by this or any other enactment to acquire land, notwithstanding that the land is not immediately required for that purpose; and until it is required for the purpose for which it was acquired, any land acquired under this subsection may be used for the purpose of any of the council’s functions.

(3) Where under this section a council are authorised to acquire land by agreement, the provisions of Part I of the Compulsory Purchase Act 1965 (so far as applicable) other than section 31 shall apply, and in the said Part I as so applied the word “land” shall have the meaning assigned to it by this Act.

————————————————————————–

Section 7 of Part 1 of the CPA 1965 replaces the compensation provisions of the Lands Clauses Consolidation Act 1845 from which the whole compensation code is derived and this sets out the basis of compensation for land taken.  The Land Compensation Act 1961 makes important modifications but does not replace the general principles.  This might, at first glance, appear to give the complete answer, but the provisions of the CPA 1965 (except Sec 31) only apply to acquisitions by agreement under the LGA 1972.

Sections 4 to 8 of the CPA are specifically excluded from acquisitions under Section 227 of the Town and Country Planning Act 1990 and the acquisition by agreement provisions of the Housing Act 1985 are totally silent on the application of the CPA.

So, on the face of it we have a position where the compulsory purchase compensation provisions would apply to an acquisition by agreement under the LGA 1972 but not to similar acquisitions under the T&CPA 1990 or the Housing Act 1985. This seems completely illogical and is surely not what Parliament intended.

So what does the Legal Profession think? It is worth looking at a couple of case studies.

————————————————————————–

Case Study 1

Allen Jones of the London Borough of Waltham Forest published his response to the September article in the December 1999 Terrier.  Part of that response is summarised below.

In 1997 the LBWF urgently needed to acquire a site for a new secondary school.  The options were few and complicated.  The best solution was found to be two adjoining privately owned sites occupied by large, outmoded industrial buildings.  A national house builder had acquired one after obtaining planning consent for residential development.  Whilst the Council had resolved to make a CPO in respect of both parts, the timetable for the provision of the new school was such that a contested CPO would take too long.  Discussions with the house builder produced a price for the site somewhat ‘over the top’ plus an additional £1 million for anticipated loss of profits on the development yet to be carried out.

Counsel’s opinion was taken as to whether or not the Council could pay a premium over and above the compensation that would be payable under a CPO in order to avoid the difficulties that would arise if the school was not ready in time.  Counsel’s opinion was clear.  He said that, whilst as an Education Authority the Council had the power to acquire land needed for school purposes and to pay the market value for such land, he did not consider that it had any power to pay money for items that would not be awarded as compensation. He went on to say that the Council would be acting unlawfully if it met the demand for the £1 million (loss of profits).

————————————————————————–

In that case the provisions that empower purchase seemingly derive from sections 530 (compulsory purchase) and section 531 (by agreement) of the Education Act 1996 (c56).  The ‘by agreement’ section states that “making land available for the purposes of a school …is a function of section 120 of the [1972 c. 70] Local Government Act 1972 (which relates to the acquisition by a local authority by agreement of land for the purpose of any of their functions)”

————————————————————————–

Case Study 2

South Lakeland District Council had obtained a CPO to acquire land to create a Flood Relief Scheme in Kendal and had purchased the main site.  In 2005 the need for additional pipeworks leading into the site were identified and the Council was reluctant to seek a second CPO to acquire the necessary easements. Design works and tendering were well advanced and waiting for a second CPO to be confirmed would have delayed the main scheme.

Pipeworks had to cross the rear gardens of a residential street with consequent disturbance and disruption to the residents. Most settlements were reached by agreement with the most expensive being £17,400 where the works affected existing garage structures and pipes and manholes would be permanent features.  Mrs C’s rear garden, being the end one, would only be affected by the temporary removal of her garden fence to create a working width and with no permanent works remaining either under or on the surface after completion. Compensation of £3000 for the sterilisation and disturbance was offered in line with settlements to other residents similarly affected.  Mrs C was the last transaction outstanding and she wanted £19000.

Counsel’s opinion was sought on the merits of making a premium payment to enable the contract for the works to be let and to avoid additional engineering works of £100,000 to avoid her land. Counsel advised that entering into an agreement with Mrs C on the terms proposed would cause considerable public and political disquiet and could lead to the possibility of an application for permission to apply for judicial review. He would not feel comfortable defending such an application given the clear advice of the Valuer that the payment was not in line with other settlements. He noted the LBWF counsel’s opinion (quoted above) and confirmed his advice that the Council should not pay the sum demanded by Mrs C.

————————————————————————–

Both of those seem clear cut.  Notwithstanding the lack of a confirmed CPO in each case both Counsel’s have ruled out premium payments for acquisition by agreement.

However, the provisions that empower purchase in the South Lakeland case derive from S62 of the Land Drainage Act 1991.  That states specifically that land can be bought either by agreement or compulsorily but, whilst being very precise about the application of the Acquisition of Land Act 1981 and the Compulsory Purchase Act 1965 for assessing compensation for compulsory purchase, it makes no mention of the basis for assessing the price to be paid by agreement except for land acquired from the Duchy of Lancaster (who has his own Act).

So we have two lawyers giving what appears to be identical advice in circumstances where the legislation differs.  If we accept that advice, despite those legislative differences, then Alan Pickles’ suggestion probably cannot be put into practice even where there may be very good practical and financial reasons to consider it.

So what should the Local Authority Valuer do?

Perhaps the Valuer can go a little way towards negotiating a solution.  If you consider:

  1. All valuations are an opinion and so have a bit of leeway – say 5% – as accepted by the Courts
  2. In any acquisition the top bidder will win so the ‘one bid more’ approach should be acknowledged.
  3. The Local Authority must come into the category of ‘special purchaser’ to some extent, especially if it is assembling land for a development to add to its other land
  4. Marriage value may sometimes apply.

However, points 3 &4 above may be ruled out because of the special suitability rule Sec 5(3) & the disregards (Sec 6) of the Land Compensation Act 1961) in cases where the legislation is specific about the basis for assessing the price to be paid by agreement. Even where the legislation is silent, if you accept the advice of Counsel that the compensation code is still relevant, then the disregards must still apply. So there would appear to be very little leeway for the Valuer to pay more than the conventional valuation to secure a result. Alan Pickles was making a good point but is his suggestion only acceptable where it can be hidden within the tolerances of the valuation? Where exactly does a valuation end and a premium payment begin?

Members of ACES are invited to debate this matter and contribute with cases from their own experience, particularly if they have obtained legal advice. A thread entitled ‘L.A. Acquisitions and Premiums’ has been set up in the ACES website Forum to accept any such contributions.

©David Lewis Pogson and Stuart Mitchell 2010

Advertisements