13.2.1 Valuing property rights that are to be taken or extinguished

Expropriation legislation should state what tenure rights can be expropriated and which are entitled to compensation. These will include perpetual rights (e.g. freehold interests) and terminable rights (e.g. leasehold interests). For the latter, it will be necessary to determine the earliest termination date: compensation would then be assessed based on any profit rent that the tenant may enjoy during the period until termination plus the value of any improvements that have been made at the occupier's expense.

In the case of land and property where more than one party holds tenure rights, some means of allocating compensation will be needed. For example, a landowner may lease land to a tenant who then sub‐leases to another party. Each interest can be valued individually and compensation estimated accordingly. However, there may be additional value attributable to the land or property if one or more of these interests were to be merged. Some means of allocating this synergistic value will be necessary and should reflect the value of both the land and improvements to the land (the way in which synergistic value can be estimated is discussed in Chapter 14). An investor landlord whose tenure rights have been expropriated should be able to claim for the costs of reinvestment in another property.

There should be compensation for occupation agreements that are less formal than a lease, such as licences to occupy and rights to use. Compensation should cover the cost of relocation, disturbance and any loss of goodwill. These are sometimes referred to as a disturbance payment as opposed to disturbance compensation because the affected party has not had an interest compulsorily acquired but has been dispossessed.

Legislation generally does not compensate holders of informal rights for the value of expropriated land, but there may be compensation in respect of improvements made to the land. The extent of this compensation is likely to depend on the specific circumstances of the informal occupation – duration, degree of permanence, extent of acceptance for example. If occupiers are to be relocated, then compensation should also cover all relevant costs.

In addition to infrastructure and public service provision, a country's land policy may permit economic development as a legitimate ground for expropriation. In such cases, the affected party should be entitled to a share of the development value (sometimes referred to as hope value) of the land. If development land value is to form the basis for compensation, then the existing‐use value (which presumably would be lower anyway) is disregarded. Compensation for development land value is a controversial issue. Some argue that if land could be expropriated at existing‐use value, then public authorities could afford to fund infrastructure investment. Others oppose this view.

Special assumptions attached to the market value basis should prevent holders of tenure rights benefiting from value that could only be attributed to the actions of the expropriating authority, since it is not a component of value that the owner could have realised in the market. This is known as the “no‐scheme world” assumption. It can be difficult to obtain evidence of market values if the expropriation order has been around for a while because the impending project may have influenced values in the area. There should also be regard to the period for which occupied land would have likely remained available for its existing use and to the availability of other suitable land.

13.2.2 Valuing retained property rights

There may be situations where only a portion of a person's property rights is to be expropriated but the retained land becomes less valuable as a result; a new road that severs a land parcel in two for example. Compensation should be paid for the reduction in value of the retained land as well as for land taken for the road construction itself.

The value of retained land may fall because of the construction of the works, where rights of access, light and support are temporarily taken for example, or operation of works, perhaps due to noise, vibration, smell, fumes, smoke, artificial lighting or the discharge of any substance.

The value of tenure rights might be affected by easements or wayleaves that permit certain authorities the right to lay and maintain cables and pipes on, under or over land. Compensation in these circumstances is usually in the form of an annual rental payment plus, in some cases, compensation to cover land lost for crop production and extra costs associated with the presence of equipment.

13.2.3 Valuing compensation for disturbance

The owner of expropriated tenure rights has the expense of finding new accommodation and moving. More importantly, livelihoods, social networks, family connections and a sense of belonging are all likely to be affected. As noted above, compensation in respect of expropriated land is usually based on a definition of market value that assumes the seller is ‘willing’, but this is clearly not the case and loss is suffered as a result of being dispossessed and having to relocate. To address this, compensation for disturbance should be paid in respect of:

• Relocation costs if all land is expropriated, reorganisation costs if only part of land is expropriated or total extinguishment costs if a business operation is to permanently close.
• Loss incurred in relation to work‐in‐progress. In the case of agricultural land, this would be the market value of trees and perennial crops and the value of the harvest for annual crops. Similarly for industrial processes, this would be the value of any non‐replaceable stock and unfinished production materials.
• Loss of goodwill; this relates to financial value over and above market value that a person or entity may obtain as a result of owning or occupying the specific property. This usually manifests itself in the form of customer loyalty.
• Other losses or damages suffered as a result of being forced to move.

13.2.4 Valuing customary and informal land for expropriation purposes

Compensation processes must include informal and customary interests and rights and should include allowances for improving sub‐standard living conditions (Roberts 2018). When valuing customary and informal land for expropriation purposes, all holders of affected property rights should be identified. The valuer should understand the relevant customs and practices and how these might influence or even facilitate markets in land and property.

If property rights are communally held, it is essential that value be attributed to the correct individuals or groups in the correct proportions. Sometimes, apportionment of financial compensation among members of a community may not be appropriate. Instead, it may be possible to offer to relocate a community to a suitable alternative site. Although disruptive, such an approach can help to retain community linkages.

If the land can be leased from the community rather than expropriated outright, this can also help the community retain some link to their land. Compensation would be based on a temporary loss of rights and benefits. A solution of this type might be more appropriate for shorter, fixed‐term projects – expropriation of mining rights for example. An alternative solution might be a profit‐sharing arrangement. If a part of a community's land is to be expropriated, in addition to compensation for land taken, it may be possible to agree a programme of mitigation that could include additional community facilities such as education, healthcare, infrastructure and amenities on the retained land.

Informally occupied land can be especially challenging to value. Dwellings may have no addresses, so identification is problematic. Establishing the size of land holdings requires physical measurement, but some places may be difficult to access. If land holdings are occupied by extended families, it can be difficult to establish the legitimate recipient of compensation and disputes can result. Due to the lack of market price information, engagement and consultation are essential to reach a consensus on what is to be compensated and how much the compensation should be. Compensation need not be monetary, especially in informal markets.

Whatever approach or mix of approaches to estimating compensation is used, negotiations should proceed sensitively and with due regard to the non‐market interests of the holders of customary tenure rights. Consultation with affected communities should take place from an early stage and involve men and women. Affected parties should be made aware of the compensation guidelines, preliminary compensation figures and their right to object if they feel that the amounts offered are not fair. Disruption to livelihoods should be minimised and affected parties should be placed in the same position as before, or better. This requires compensation for loss of use rights, such as cropping and grazing, and for non‐transferable or permanent improvements, including buildings, wells, boreholes and fruit trees. Compensation for cropping land may be limited to the cost of preparing virgin land, including de‐bushing, clearing, stumping and surface levelling. Regarding grazing land, compensation may be limited to legally fenced‐off grazing land. Transferable improvements should be replaced on a ‘new‐for‐old’ basis whenever possible. If rights holders are to be relocated, they should be offered a plot within the new scheme or alternative land of similar size in the vicinity.

Compensation should be paid before the acquiring authority takes possession and should include an allowance for disturbance. It is also important to ensure that payments retain their value in real terms by linking them to inflation. Procedures should be put in place to allow affected parties the opportunity to appeal to an independent body against compensation arrangements they have been offered.

There is a need for fair and transparent policies and procedures for expropriation of land; expropriating authorities must ensure that livelihoods of affected persons are not negatively affected by expropriation.

13.2.5 Expropriation and non‐market value

Market value does not compensate for livelihood replacement. Also, communities place non‐monetary value on land. How can these social, cultural and environmental values be compensated? Rao et al. (2017) argue that the well‐being contribution of land extends beyond its market value and compensation for expropriation should cover these losses. Rao (2019) identifies various land ‘functionings’ (ways that land contribute to well‐being) under five headings:

1. Being able to secure necessities of life
2. Being financially secure
3. Being able to protect oneself from discrimination, exploitation, violence and assault as a human right
4. Being able to establish social associations and harness personal, familial and societal interests through these associations
5. Being able to maintain and enhance self‐respect and identity

Although difficult to quantify, compensation for non‐market value might take the form of a discretionary payment that would be dependent upon the length of time a claimant has occupied the land and inconvenience likely to be suffered when dispossessed. Issues related to cultural norms, values and beliefs, particularly in relation to customary land, should be taken into account.

Religious sites such as sacred trees, shrines and mountains have spiritual value to resident populations, but they are not traded so there is no concept of value‐in‐exchange. An alternative basis of compensation is therefore required. This might be an equivalent building in the case of a meeting place for religious worship. Alternatively, the compensation might cover the expense of identifying and acquiring a new site plus the cost of constructing a suitable building and appropriate disturbance compensation. In the case of burial grounds and other sacred places, financial compensation is unlikely to be appropriate. Instead, avoidance and/or mitigation measures should be considered.

The following general guidelines can be stated:

• Independent and impartial valuers should be appointed to value expropriated tenure rights and any reduction in the value of land affected by expropriation.
• The valuation process should be participatory and minimise conflict and stress on affected parties.
• If an affected party wishes to appoint a valuer to value affected tenure rights, the cost should be borne by the expropriating authority.
• The process should provide for resolution of disputes over value and valuation process.
• If the acquiring authority is empowered by a specific law, the valuation date should be set by law, not by the acquiring authority.
• Valuers should ensure that compensation is fairly and expediently agreed, and:
  • Provide, if possible, an early indication of the amount of compensation likely to be awarded.
  • Base estimates of market value on openly agreed transaction prices where possible. (Again noting the comment in Chapter 1 regarding the context‐specific nature of value, compensation should not be based on values set by the State for other purposes such as land and property taxation as these may not fully reflect the ‘loss’ of tenure rights.)
  • Take non‐market value into consideration.

Roberts (2018) recommends that, where possible, licenced professional valuers should conduct valuations, engaging with the community including women and vulnerable groups in a free prior informed consent (FPIC) framework. By doing so, traditional leaders and community members can explain how they use and value land, thus ensuring that any informal and non‐market values are incorporated into valuations. Questions that may be posed to community members when determining the value of resources might include: is the community willing to lease the land and, if so, for what duration? Land‐based resources to be compensated include current and future mature and growing crops, improvements and natural resources (such as firewood, fruits, fungi) as well as communal rights such as commoners' rights.

13.3.1 Legal background

The government and organisations responsible for the utility networks in England have the legal power to compulsorily acquire property for specific purposes. This might be to build a new road, a wind farm or a nuclear power station. Specific compulsory purchase powers may be contained within an Act of Parliament for a particular function, such as a new high‐speed railway. General Acts of Parliament may confer compulsory purchase powers on specific bodies. Examples include the Transport and Works Act 1992, or the Harbours Act 1964, or the Planning Act 2008 for Nationally Significant Infrastructure Projects. Public bodies with statutory compulsory purchase powers include local authorities, statutory undertakers (such as the Highways Agency, utilities, transport infrastructure providers), some executive agencies (such as Homes England) and health service bodies. Also, landowners can initiate a compulsory purchase process via Purchase Notice or Blight Notice (see below).

The legal basis of the right to claim compensation in these respects can be found in the Land Compensation Act 1961 (LCA61), the Compulsory Purchase Act 1965 (CPA65) and the Land Compensation Act 1973 (LCA73), as amended by the Planning and Compensation Act 1991 (PCA91), the Planning and Compulsory Purchase Act 2004, the Localism Act 2011, the Housing and Planning Act 2016 and the Neighbourhood Planning Act 2017 (NPA17). A substantial body of case law provides legal interpretation of these statutes. Together, this legislation and case law is referred to as the Compensation Code.

The guiding principle of the legislation in respect of property owners who have been affected by compulsory purchase is to ensure, financially at least, that they are restored to the position before acquisition took place. Known as the equivalence principle, a landowner should be paid neither more nor less than their loss. Consequently, the owner of an interest being compulsorily acquired is entitled to compensation equivalent to the value of the land being acquired. Where some land is retained and its value drops, the owner is entitled to be compensated for this diminution whether it is caused by severance of the two parts of land or by injurious affection to the retained land. An owner will also be entitled to losses that are a consequence of being compelled to vacate the land, known as disturbance. Denyer‐Green (2019) provides a detailed discourse of the statutory framework and case law that has built up around compulsory purchase and compensation; here we discuss the topic from the valuer's perspective.

Valuers are often appointed to estimate the value of compulsorily acquired property and to estimate any diminution in value of land resulting from either construction activity or use of the finished development (smell from sewage works for example). The legislation referred to above includes a statutory definition of market value so, when valuing for compulsory purchase and compensation, valuers need to depart from the Red Book definition of market value and follow statutory regulations instead. That said, the statutory definition of market value is essentially the same as the internationally recognised definition.

The following sections consider these various situations in which compensation will be payable, known as ‘heads of claim’. In many cases, owners of property interests will be entitled to more than one ‘head of claim’.

13.3.2 Compensation for land² taken (compulsorily acquired)

All interests in land may be acquired including freehold, leasehold and equitable interests (such as a mortgagee), land rights such as “compulsory works orders” (open‐cast mining), and wayleaves (electricity and water). There are limited rights to compensation for occupation agreements that are less formal than a lease, such as tenancies at will, tenancies on sufferance and licences. These rights include compensation for relocation costs and any loss of goodwill. Regard is had to amount of time the land occupied would have been likely to have remained available for the purposes of the business and to the availability of other suitable land. If a tenant is holding over under statutory security of tenure provisions, disturbance compensation under those provisions can be chosen as the basis for compensation if it is more than the compulsory purchase order (CPO) disturbance payment.

The acquiring authority sets out the nature and extent of the property interest to be acquired in a ‘notice to treat’, which may be served on owners of all property interests except holders of periodic tenancies of one year or less. There are other methods of obtaining possession too: by agreement or via a General Vesting Declaration (this is like a notice to treat but title in the property interest is conveyed to the acquiring authority as well as the right to enter and take possession).

Where a tenant has a contractual or statutory right to renew a lease, that right will form part of the value of his leasehold interest (Johnson et al. 2000) but the leasehold interest should be valued based on the earliest termination date (Denyer‐Green 2019).

The relevant valuation date is either the date of entry and taking possession if the acquiring authority has served a notice to treat and notice of entry, or the vesting date if the acquiring authority has executed a general vesting declaration. When compensation is assessed by the Lands Tribunal, the valuation date is the last day of the hearing if possession has not already been taken by then. The date of the notice to treat fixes the nature of interest to be acquired, but the extent and condition are fixed at the date of entry. Items claimed under the disturbance head of claim may pre‐date the notice to treat and post‐date entry.

The preferred basis for the assessment of compensation is Market Value. In other words, the fact that the acquisition is compulsory must be disregarded. The additional compensation heads of claim (disturbance, loss payments) are there to reflect the fact that the acquisition is compulsory (not a willing seller). The market value can reflect the existing use, or it can be development value (discussed further below). Either way, the use must be lawful. Market value can have regard to a bid from a special purchaser but must disregard any effect on value attributable to the acquiring authority's scheme (the ‘no‐scheme’ principle). Sections 6A to 6E of the LCA61 (inserted by S32 NPA17) set out how land should be valued using the ‘no‐scheme’ principle:

• S6A: any increases or decreases in value caused by the scheme or prospect of the scheme must be disregarded.
• S6B: increases in value of claimant's other land (adjacent or contiguous to land taken) must be deducted from compensation amount.
• S6C: if the claimant received compensation for injurious affection on retained land, and that land is subsequently acquired for the purposes of the scheme, compensation is reduced by the injurious affection amount.
• S6D: defines the scheme for the purposes of the ‘no‐scheme’ world. The default is the scheme underlying the acquisition. There are special provisions for new towns and development corporations.³ In these areas, the scheme is the development of any land for the purposes for which the area is or was designated. Also, where land is acquired for regeneration or redevelopment which is facilitated or made possible by a ‘relevant transport project’, the ‘scheme’ includes the relevant transport project.
• S6E: sets out qualifying conditions and safeguards

New transport projects often raise land values in the vicinity of stations or hubs, which can facilitate regeneration and redevelopment schemes. Where land is acquired for regeneration or redevelopment, which is facilitated or made possible by a relevant transport project, the effect of Section 6D is that the scheme to be disregarded includes the relevant transport project – subject to the qualifying conditions and safeguards in section 6E. The intention of this special provision is to ensure that an acquiring authority should not pay for land it is acquiring at values that are inflated by its own or others' public investment in the relevant transport project. Where it applies, the land in question will be valued as if the transport project as well as the regeneration scheme had been cancelled on the relevant valuation date.

Valuing under the no‐scheme principle is difficult because market prices are likely to be influenced by the prospect of the scheme, particularly if it has been known about for a while. The impending scheme may have influenced values in the area over some period. Blight notices can help here (see below).

In assessing market value, special suitability or adaptability of the land for any purpose must be disregarded if it is one that could be applied only in pursuance of statutory powers, or for which there is no market apart from the requirements of an authority possessing compulsory purchase powers. This element of value is not part of market value because it is not an element the owner could have realised in the open market. A scheme should be identified in narrower rather than broader terms.

If it is not possible to estimate a market value, perhaps because there is no market for the property being acquired, compensation is based on the estimated cost of equivalent reinstatement or resettlement, unless development value is higher. This approach is common in developing economies where markets in many types of property are either small or non‐existent. In such circumstances, it can be difficult to assure comparability of replacement land in terms of size, quality, access and other value‐significant attributes. Nevertheless, it is common to offer compensation that is part money and part land/premises, but it should be appreciated that the process can be expensive, time consuming and challenging to get right.

Equivalent reinstatement is difficult to justify if the interest is a short lease and is uncommon in relation to business premises. There are four general tests: land must be used for a purpose that would continue, there is no market for that use, there is a bone fide intention to reinstate, and if the reinstatement cost is disproportionate then it may not be allowed.

Compensation for land taken can be a significant proportion of the total claim value in rural areas, the rest being severance and injurious affection. In urban areas, business loss can be a big component.

Johnson et al. (2000) suggest that the methods employed to estimate the value of property that is compulsorily acquired are no different from those adopted in other market valuations, just subject to the statutory rules. In most cases the valuation is likely to be on an existing‐use basis using the comparison or investment method. Care must be exercised when selecting comparable evidence because transactions would have taken place in the ‘scheme’ world. If the valuer feels that the scheme has influenced the evidence obtained from these comparables, then they may need to be adjusted to give a value in the ‘no‐scheme’ world. After commencement of a compulsory purchase order, land values can be affected either negatively (blight) or positively (betterment).

13.3.3 Identifying the planning position

Development value may be considered alongside existing‐use value but, in many compulsory purchase cases, an impending acquisition will mean no planning permission for development will be forthcoming (Denyer‐Green 2019). Therefore, it is necessary to make certain planning assumptions so that an accurate assessment of development value can be made. The legal extent of these assumptions is set out Ss 14‐17 of the LCA61 (as amended, most recently by S232 of the Localism Act 2011):

• Existing planning permission on the relevant land or other land. Planning permission may also be assumed for the acquiring authority's scheme but disregarding any purpose that could only be possible in pursuance of statutory powers. The extent of the scheme that can be considered is that which is included in the CPO. A wider scheme can be argued in some circumstances or with the agreement of the Lands Tribunal but only if the CPO (or documents published with it) identifies a wider scheme.
• Planning permission for development specified in a Certificate of Appropriate Alternative Development (a hypothetical planning permission) as at the valuation date. A Certificate of Appropriate Alternative Development can be obtained from the relevant local planning authority to indicate any planning permissions that could have been obtained. The definition of alternative appropriate development is development for which, had the scheme been cancelled when the CPO was made, consent could ‘reasonably have been expected to be granted’ if considered at the valuation date or later. The assumptions regarding cancellation of the scheme are the same as set out in S6A LCA61 (op cit). It is necessary to identify development rather than just use of the land.
• Prospective planning permission on relevant or other land on or after the development date in the absence of the scheme and which is not included in the Certificate of Appropriate Alternative Development. The phrase ‘relevant land or other land’ means that planning permission on land not being acquired can be considered, and ‘on or after the development date’ means that the valuer must account for hope value. In other words, the prospect of development value having regard to the forward planning context to the extent that it is reflected in market transactions.

  

Although planning permission for the scheme can be assumed, the effect of the scheme itself must be disregarded when assessing development value. This is set out as four ‘cancellation’ assumptions in S14 of the LCA61 (as amended):

• The scheme underlying the compulsory acquisition was cancelled on the launch date.
• No action has been taken by the acquiring authority for the purposes of the scheme.
• There is no prospect of the same scheme, or any other project to meet the same or substantially the same need, being carried out in the exercise of a statutory function or by the exercise of compulsory purchase powers.
• If the scheme was for highway construction, then no highway will be constructed to meet the same or substantially the same need.

If additional development is permitted within 10 years of acquisition, the owner is entitled to the difference between the compensation paid and the amount that would have been paid assuming the permission was in force at the time (Denyer‐Green 2019).

Development value can include synergistic value or ransom value provided they would have existed in the ‘no‐scheme world’. For example, if the parcel of land labelled ‘access’ in Figure 13.1 is being compulsorily acquired to provide access to the development land, the owner gets a proportion of the value of the development land. This principle was laid down in the landmark case of Stokes v Cambridge Corporation (1961) in which the proportion was one third. If the development land is being acquired too but can only be developed if satisfactory access can be provided, the market value will be the full development value less the estimated cost of acquiring the necessary additional land (Denyer‐Green 2019).

13.3.4 Compensation for severance and injurious affection

Severance is where retained land loses value because it has been severed from the acquired land and injurious affection is where retained land loses value due to proposed construction on and use of acquired land for the scheme. The latter is payable where either part of an owner's land is acquired, or when no land is taken at all, although the compensation right in this latter circumstance is very limited. These two circumstances are now considered in turn.

13.3.5 Compensation for disturbance and other losses

The owner of a compulsorily acquired business property can claim either the costs of relocation (including removal costs, loss of stock, new stationery, loss of goodwill) or the cost of winding up the business, known as ‘total extinguishment’. In most cases the business occupier will only be granted relocation costs, but a sole trader aged 60 years or over in a property with a rateable value over a specified level has a statutory right to opt for total extinguishment.

Disturbance compensation is only payable if compensation is based on existing‐use value (as opposed to development value) and is usually payable in respect of any item that is not too remote and is a natural and reasonable consequence of the acquisition of the owner's interest. The amount of disturbance compensation is normally calculated by valuing existing fixtures from the perspective of an incoming tenant in the same line of business plus, if the business is to be extinguished, the loss on forced sale (the difference between value to an incoming tenant and the price achieved on sale) (Johnson et al. 2000). Typical relocation costs that can be claimed for include:

• Removal;
• Legal, surveyor's and architect's fees and Stamp Duty relating to acquisition of new premises;
• Special adaptations to replacement premises;
• Loss of profits during move;
• Diminution of goodwill following move (reflected in gross profits);
• Depreciation in value of stock;
• Notification of new address to customers and new stocks of stationery due to change of address.

Typical extinguishment costs would be value of business goodwill, loss on forced sale of stock, vehicles and plant and machinery, redundancy costs and administration costs of winding up the business.

S35 of the NPA17 inserts a new S47 into the LCA73, bringing the assessment of compensation for disturbance for minor and unprotected tenancies into line with that for licensees and protected tenancies (a tenancy with the protection of Part II of the Landlord and Tenant Act 1954).

Regard should be had to the likelihood of either continuation or renewal of the tenancy, the total period for which the tenancy might reasonably have been expected to continue, and the likely terms and conditions on which any continuation or renewal would be granted. For protected tenancies, the right of a tenant to apply for a new tenancy is also to be considered.

Investors have limited rights to compensation introduced by the PCA91 for the costs of re‐investment in another UK property for up to one year from the date of entry.

For residential occupiers, home loss payments are payable if the dwelling was occupied as a main residence for one year before the expropriation. For business occupiers, a basic loss payment is payable to all owners and an occupier's loss payment is payable to owners who have been in occupation for a year or more.

The LCA73 authorises disturbance payments to claimants in cases where disturbance compensation is not payable because the claimant has not had an interest compulsorily acquired but has been dispossessed. This situation would arise if the acquiring authority compulsorily acquired a freehold interest subject to a short lease. The authority is unlikely to renew the lease, so a disturbance payment is made to cover reasonable removal expenses and, where relevant, loss sustained by the tenant for the business having to quit the land (Johnson et al. 2000).

In the case of short tenancies, there is no requirement to serve a notice to treat but compensation arrangements are similar to those that apply to other interests. For land taken, compensation is payable in respect of market value of the leasehold interest and should reflect any renewal rights. If only part of the land is to be acquired, there is a right to compensation for the diminution in the value of retained land even if it is held under a separate lease, provided it is adjoining or adjacent. For disturbance, only losses relating to the period between date of entry and expiry of term are recoverable. If the tenant has statutory security of tenure, disturbance compensation can be claimed under Part II of the Landlord and Tenant Act 1954 if it is considered to be higher than a disturbance payment under CPO legislation.

There are limited rights to compensation for occupation agreements that are less formal than a lease, such as tenancies at will, tenancies on sufferance and licences. Compensation is for relocation costs and any loss of goodwill. Regard is had to the amount of time the land occupied would have been likely to have remained available for the purposes of the business and to the availability of other suitable land.

13.4.1 Revocation, modification and discontinuance orders

The Town and Country Planning Act, 1990 (TCPA90) provides for compensation if a planning permission that was previously granted is revoked, modified or discontinued by a local planning authority. The order must be made before building or other work is completed or before a change of use has taken effect (Johnson et al. 2000). Compensation covers abortive expenditure and for loss or damage directly attributable to the order, including a drop in property value, calculated in accordance with Section 5 of the LCA61 (i.e. a before‐and‐after valuation to reveal the difference between the market value of land with the benefit of the planning permission and with the permission revoked or modified [Johnson et al. 2000]). The Planning (Listed Buildings and Conservation Areas) Act 1990 provides for compensation on the same basis as the TCPA90 but in respect of loss caused by the refusal, revocation, modification or the grant of conditional listed building consent or by the issue of a Building Preservation Notice.

13.4.2 Purchase notices

Under the TCPA90, where planning permission is refused or granted subject to conditions or where a local planning authority serves a revocation, modification or discontinuance order or refuses, modifies or grants a conditional listed building consent, this may entitle the owner to serve a Purchase Notice as an alternative to a compensation claim as described above (Johnson et al. 2000). The property owner must serve the notice on the local authority within one year of the planning decision with proof that the property is incapable of reasonable beneficial use and requiring it to purchase the property. Once the purchase notice is confirmed, the acquiring authority is deemed to have served a notice to treat, and normal compulsory purchase rules apply (Marshall and Williamson 1996).

13.4.3 Blight compensation

Similarly, planning proposals that could eventually involve compulsory acquisition may well depreciate the value of affected property or even render it valueless. As a result, under certain circumstances, the owner‐occupier can require the acquiring authority to purchase the property by serving a Blight Notice. An owner‐occupier must be a freeholder or lessee with three or more years unexpired lease term who has occupied for the last 6 months or 6 months in the previous 12 months and the property has been unoccupied since vacated. Investor‐owners are not entitled to serve blight notices. The owner must be able to show that reasonable efforts to sell the property were unsuccessful except at a price substantially lower than might reasonably be expected in a market without the threat of compulsory acquisition. If the acquiring authority accepts the blight notice, then a notice to treat is deemed to have been served and the valuation principles and assessment of compensation are the same as those that apply to the compulsory acquisition of land. Alternatively, the acquiring authority may reject the notice or propose to acquire only part of any land.

1. A tenant of a shop (ground and upper floors) is to be compulsorily acquired. The tenant has lived in the upper part and run a bakery on the ground floor for the past five years. The rent is £70 000 per annum for the whole property on an internal repairing (IR) lease with 10 years unexpired. The market rent is £100 000 per annum, of which £60 000 per annum can be attributable to the shop part. The rateable value of the shop is £40 000. The net profit for the last financial year was £180 000 after deducting rent of £70 000, mortgage interest of £10 000, repairs of £5000 and rates of £20 000, all relating to the whole building. The previous two years unadjusted net profits have been £160 000 and £170 000, but remuneration to the tenant (who works full‐time for the business) and her husband (who works half‐time) has not been deducted. The tenant is 62 years old and does not wish to buy another business. Prepare a claim for compensation.

   

2. A local authority is carrying out a town centre retail development for which land is being compulsorily acquired. The scheme will take approximately two years to complete. Xenon Bikes is the tenant of a shop held on a 20‐year lease, with 5‐year rent reviews, which began 8 years ago. The two‐storey shop has a single‐storey rear extension and rear yard with access to a service road from which goods are delivered. The rear extension and rear yard are due to be acquired. When complete, the new scheme will allow for service access via a covered service way from nearby unloading bays. The rent passing for the shop is £50 000 per annum and the current market rent in the absence of the scheme is £60 000 per annum, of which £55 000 per annum can be attributed to the retained part of the shop. When the scheme is complete, the rent for the retained part is estimated to be £48 000 per annum. Estimate the amount of compensation payable to the tenant, Xenon Bikes, for the land taken, severance and injurious affection. Assume a leasehold yield of 10%.

1. Land taken (Rule 2, Section 5, LCA61):

   Market Rent (£ p.a.)	100 000
   Plus landlord's expenses (estimates);
   External repairs (£ p.a.)	8000
   Insurance (£ p.a.)	2000
   IRI rental value (£ p.a.)	110 000
   Less rent paid (£ p.a.)	(70 000)
   Profit rent (£ p.a.)	40 000
   YP 10 years @ 8%	6.7101
   Valuation (£)		268 404

   Disturbance (Rule 6, Section 5, LCA61):

   The claimant is over 60 years old so a claim for total extinguishment under S46 of the LCA73 stands. The average of the last three years' earnings is taken as the best evidence of profitability.

   Net profit (£ p.a.)		170 000
   Mortgage interest (£ p.a.)		10 000
   Repairs for upper part, say (£)		1000
   Less (hypothetical) part‐time assistant (£ p.a.)		(40 000)
   Less profit rent in respect of shop part, say (£ p.a.)		(30 000)
   Less interest on capital (£ p.a.):
   Fittings	(15 000)
   Stock	(5000)
   Cash	(3000)
   Total capital (£)	(23 000)
   Amortised at 8%	0.08
   		(1840)
   Adjusted net profit (£ p.a.)		109 160
   Capitalised in perpetuity at a target rate return of 20%		5.0000
   Valuation of business (£)			545 800
   Additional items (£) [a]:
   Sale of fittings to acquiring authority			10 000
   Notification to suppliers			1000
   Loss on stationery			1000
   Disconnection of services			500
   Removal costs			3000
   Finding new living accommodation			4000
   Home loss payment			5000
   Compensation estimate based on total extinguishment (£)			570 300

   [a] Business is a bakery so there is no forced sale of stock

2. 
   Compensation for land taken, severance and injurious affection

   ‘Before’ valuation
   MR of whole property (£ p.a.)	60 000
   Less rent paid (£ p.a.)	(50 000)
   Profit rent (£ p.a.)	10 000
   YP 2 years @ 10%	1.7355
   		17 355
   ‘After’ valuation
   MR of retained part (£ p.a.)	48 000
   Less rent paid (£ p.a.) [a]	(45 833)
   Profit rent (£ p.a.)	2167
   YP 2 years @ 10%	1.7355
   		3761
   Valuation of land taken, severance and injurious affection (£)		13 594

   [a] Ratio of MR for whole (£60 000) to MR of retained part (£55 000) can be used to estimate the rent passing in relation to the retained part: (£55 000/£60 000) × £50 000 = £45 833.

   To split the compensation for the land taken from the compensation for severance and injurious affection:

   MR of land taken (no scheme): £60 000 − £55 000 (£ p.a.)	5000
   Less rent passing in respect of land taken: £50 000 − £45 833 (£ p.a.)	(4167)
   Profit rent in respect of land taken (£ p.a.)	833
   YP 2 years @ 10%	1.7355
   Value of land taken (£)		1446

   So, compensation in respect of severance and injurious affection: £13 594 − £1446 = £12 148