Land Compensation Manual - Section 4 : Disturbance

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Land Compensation Manual: Section 4 - Disturbance

Scope of Section

4.1 General

This section provides an outline of the general principles of law and procedure relating to disturbance.

It also provides guidance on certain aspects of policy where a particular approach is to be adopted in relation to specific heads of claim.

For more detailed advice on how to assess compensation for disturbance see Practice Notes 4/1 and 4/2. Reference should also be made to Section 8 in respect of agricultural land.

Entitlement to compensation for disturbance

4.2 Definition

There is no statutory definition of ‘disturbance’ and the right to compensation for disturbance is founded upon case law, which establishes the claimant’s right to receive compensation on the basis of ‘value to owner’. Rule (6) of section 5 Land Compensation Act 1961 does not give a right to disturbance compensation but merely leaves its assessment unaffected by the open market value provision of Rule (2).

Although the Court of Appeal in the case of Harvey v Crawley Development Corporation [1957] 1 QB 485 was not concerned with defining ‘disturbance’ precisely, the case laid down that ‘disturbance’ is any loss sustained by a dispossessed owner (who had occupied the land) provided that:

  • it is a natural and reasonable consequence of the compulsory acquisition and
  • it is not too remote.

A further rule firmly established by case law is that

  • the claimant must act reasonably in order to try to mitigate his loss.

These principles have been more recently reiterated by the Privy Council in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 19 EG 147.

4.3 General

The entitlement to the payment of compensation for disturbance depends on the claimant’s dispossession from land owned by the claimant.

Since disturbance is regarded in law as one element of the compensation to be paid for the land taken, occupiers who had no interest in the property from which they were dispossessed (eg licensees) used to have no right to disturbance compensation. However, the Land Compensation Act 1973 introduced a new entitlement to disturbance compensation for such occupiers.

4.4 Short tenancies

Section 20 Compulsory Purchase Act 1965 provides for compensation for ‘any loss’ to tenants whose occupations are founded upon a short tenancy. The authority does not acquire such interests and the occupiers are not, therefore, displaced by compulsory acquisition but simply by the taking of possession of the land by the acquiring authority. Apart from the provisions of s.20 CPA 1965 compensation for disturbance would not otherwise be available to these tenants.

4.5 Persons with no interest in land

Sections 37-38 LCA 1973 provide for disturbance payments to persons who are in lawful possession but nevertheless have no interest in the land from which they are displaced. These provisions apart, such occupiers would not otherwise receive disturbance compensation.

The entitlement to a disturbance payment extends to the displaced occupier of an unfit house who fails to qualify for an owner-occupier's supplement. Further, s.37(5) LCA 1973 enables a discretionary payment to be made to a displaced occupier who does not qualify under s.37.

A person displaced from agricultural land is not entitled to a disturbance payment under s.37 LCA 1973. With regard to discretionary payments to occupiers of agricultural land under the provisions of s.22 of the Agriculture (Miscellaneous Provisions) Act 1963 see Section 8.

4.6 Claim for loss of goodwill where trading not yet commenced

In general a claim for loss of future profits for a business that had not yet started would not be admissible as being too remote eg Halford v Oxfordshire County Council (1952) 2 P&CR 358 and Evans v Cheshire (1952) 3 P&CR 50.

In the case of Welford v EDF Energy Networks [2007] EWCA Civ 293 the Court of Appeal upheld the principle that profits from a business that had not been commenced anywhere would generally be regarded as being too remote for the purpose of providing fair compensation. That is because where a party has land upon which it is contemplating starting a new business, but the business is not in existence at the time the land is compulsorily acquired, then ordinarily, the market value of the land will reflect the business opportunity that is being contemplated. Compensation measured by the open market value of the land will be treated as fair compensation because it will enable the claimant to buy other land as part of the investment required to start the business it is contemplating.

Nevertheless, the Court of Appeal, whilst calling into question the Tribunal’s finding of fact (which it was not empowered to overturn) that the business was already in existence at the valuation date, upheld the Lands Tribunal’s decision that compensation for future loss of profits was not too remote and should be paid in respect of a business that

was in existence at the valuation date

on which time and money had been spent

but where the use of the premises had not yet started.

Any similar claims received by DVs should be referred to CEO.

Relevant Circumstances

4.7 Valuation date

Compensation for disturbance is deemed to form part of the price to be paid for the land acquired because, under section 7 of the Compulsory Purchase Act 1965, 'the value of the land to be purchased by the acquiring authority' is the only head of compensation under which compensation for disturbance is capable of being accommodated. Thus the valuation date in respect of the compulsory acquisition of an interest in land including compensation for disturbance will usually be the date of entry or the date of agreement, whichever is the earlier.

However, disturbance losses may have been suffered prior to that date (eg loss of profits caused by the threat of the scheme) or may occur after that date (eg cost of adaptation of replacement premises).

4.8 Losses incurred before and after the valuation date

It was held in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 19 EG 147 that all losses flowing from the scheme were compensatable, if they qualified under the tests established in Harvey v Crawley. The case laid down that ‘in consequence of the acquisition’ meant ‘because of’ not ‘subsequent to’. In more formal language the losses should be considered in a ‘causative’ not ‘temporal’ sense.

Earlier decisions in so far as they relate to the date from which losses were compensatable, such as Prasad v Wolverhampton BC (1983) 265 EG 1073, have now been superseded.

Under the principle set out in Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Water Works Company [1903] AC 426 hindsight may be used to confirm matters that were foreseeable at the valuation date, and in this way compensation will be based upon fact rather than conjecture. An extraneous event occurring after the valuation date would not necessarily be taken into account if it had not been reasonably foreseeable at that date (Bolton MBC v Waterworth (1981) 259 EG 625). A claimant should not however be denied compensation merely because the loss was not foreseeable at the valuation date.

Since any loss must be a consequence of the acquisition it follows that no loss can be reimbursed if the acquisition does not proceed.

4.9 Withdrawal of Notice to Treat

A claimant may, however, claim for any loss or expenses occasioned to him by the giving of a Notice to Treat that is withdrawn or that lapses by effluxion of time under s.31 LCA 1961. A disagreement as to the amount of the compensation can be referred to the Lands Tribunal. The compensation attracts statutory interest from the date of expiry of the Notice to Treat.

Any cases where an owner or occupier claims for a loss or expense incurred in anticipation of an acquisition where the authority neither served a Notice to Treat nor proceeded with the acquisition by agreement, should be referred to CEO.

Amount of Compensation

4.10 General

The displaced occupier has the right ‘to be put so far as money can do it, in the same position as if his land has not been taken from him; in other words, he gains the right to receive money payment not less than the loss imposed on him in the public interest, but on the other hand no greater’ (Horn v Sunderland Corporation [1941] 2 KB 26).

This is referred to as the ‘principle of equivalence’.

4.11 Mitigation

It is a principle of compulsory purchase compensation that claimants must mitigate their loss. Avoidable loss cannot be recovered because losses or expenditure incurred unreasonably cannot be said to be the consequence of the compulsory acquisition.

The duty to mitigate is however not absolute and will depend upon what is reasonable in the circumstances.

The case of Lindon Print Ltd v West Midlands CC (1987) 283 EG 70 laid down four principles regarding mitigation:

  • a claimant must take all reasonable steps to mitigate his loss and cannot recover compensation for any loss he has suffered due to unreasonable action or inaction;
  • the onus is on the acquiring authority to prove that the claimant has failed reasonably to mitigate his loss;
  • a claimant is only required to act reasonably and the standard of reasonableness is not high;
  • a claimant will not be prejudiced by his financial inability to take steps in mitigation.

However, in Bailey v Derby Corporation (1964) 192 EG 817 it was held that the inability of the claimant to re-establish his business elsewhere due to ill health did not entitle him to claim compensation for total extinguishment rather than relocation expenses.

The duty to mitigate will arise at the same time that the claimant’s losses caused by the scheme can be reflected in the compensation ie normally the date of publication of the CPO.

4.12 Compensation ceiling

The principle, established by case law, that compensation for relocation can never exceed that which would have been payable for total extinguishment of a business was revisited in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 19 EG 147. The Privy Council stated that it was unable to accept that principle in every case, and that there might be instances where application of the rule could lead to injustice. An example was given of where a businessman had spent large sums of money in setting up a business, which was compulsorily acquired before trading could start. Since the business had no trading record, compensation for total extinguishment might be significantly less than the money the businessman had invested. In that case it would be equitable to reimburse the claimant the start up costs of the business on the basis that a reasonable man would be prepared to spend such a sum of his own money to restart the business elsewhere. However, the Privy Council stated that the greater the excess of relocation cost over total extinguishment cost, the more closely should the claim be scrutinised.

Any case where it is proposed to recommend payment of compensation for relocation that exceeds the cost of total extinguishment should be referred to CEO.

Costs Incurred in Securing Alternative Accommodation

4.13 General

Subject to the general principles set out in Practice Note 4/1 the DV should proceed as in the following paragraphs.

4.14 Costs that may be reimbursed

The following costs incurred in securing the replacement accommodation may be reimbursed provided the DV is satisfied that they are reasonable in amount, have been reasonably incurred, and to the extent that the replacement accommodation is accepted as a reasonable substitute:

  • legal costs and stamp duty;
  • the cost of a structural survey;
  • a valuation or negotiation fee;
  • travelling expenses.

The decision of what would be reasonable substitute accommodation must be judged in all the circumstances. The property should normally be of a similar value to, with similar accommodation to, and in the general location of the property acquired. If the claimant chose a replacement property that was much more expensive than that acquired, the costs should be reimbursed only up to a level representing the value of the property acquired. Similarly, travelling expenses in relation to a replacement property a long distance from that acquired would be restricted to the expenses that would have been incurred if the claimant had acquired a replacement property in the general location of that acquired.

The DV must use discretion in judging what is reasonable. For example, a claimant might not be able to find a replacement for a large manor house in the immediate location of the property acquired and might have to look further afield eg in the next county, in order to find a reasonable replacement. In such a case the DV might decide to reimburse travelling expenses relating to a greater distance than normal. Similarly, a claimant living in an area of urban regeneration might have difficulty in finding a directly comparable property and might have no alternative but to acquire a higher value replacement property in a neighbouring area. In such a case the DV might decide to reimburse in full the mortgage/survey/legal costs etc relating to the higher value replacement property.

4.15 Costs incurred by Owners not in Occupation

Section 10A Land Compensation Act 1961 (inserted by Schedule 15 Paragraph 2 of the Planning and Compensation Act of 1991) provides a right to compensation, for owners not in occupation of land, for the incidental charges or expenses in acquiring, within the period of one year beginning with the date of entry, an interest in other land in the United Kingdom. Reimbursement of such costs had previously been denied claimants not in occupation following Denning LJ’s decision in Harvey v Crawley Development Corporation [1957] 1 QB 485 that they would be too remote a subject for compensation.

In the case of Tabarak Sadiq v Stoke-on-Trent City Council (2008) LCA/316/2008 concerning the assessment of compensation in respect of an investment property the President of the Lands Tribunal determined that

  • the mortgage arrangement fee on the purchase of the replacement property (if the mortgage on the replacement property were commensurate with such mortgage as the claimant had on the property acquired)
  • the survey fees incurred on the purchase of the replacement property and
  • the legal fees incurred on the purchase of the replacement property

fell within section 10A and were reimbursable. However, the Tribunal stipulated that such items were recoverable only to the extent that the replacement property was comparable in value to the property acquired.

The Tribunal determined that

  • removal expenses incurred in moving items of furniture
  • the reconnection of various appliances at the replacement property and
  • the provision of gas and electrical certificates for the replacement property

were not admissible expenses, being expenses incidental not to the acquisition of the replacement property but to its fitting out.

However, the Tribunal held that

  • the early redemption penalty on the mortgage of the property acquired and
  • the loss in situ on the value of the fitted carpets and curtains and
  • the disconnection of various appliances at the property acquired

whilst not falling within section 10A, were a direct and unavoidable consequence of the compulsory acquisition and not too remote and should be reimbursed under section 5(6) LCA 1961 on the basis of the principle of equivalence.

In relation to these last three items the Tribunal effectively awarded disturbance compensation to an owner not in occupation and justified its decision on the principle of equivalence. The principle of equivalence has been used to shape the compensation code over the years but is not usually used to override established principles of compensation. However, the Tribunal’s decision should be followed in the absence of any higher authority.

4.16 Properties found unacceptable

Claims for the cost of finding and surveying properties rejected by the claimant as unsuitable may be admitted where the DV is satisfied that the expenses are reasonable in amount and the claimant acted reasonably in considering and rejecting such alternative properties, thereby incurring the expenditure claimed.

4.17 Claimant’s own time

A claimant may spend time on the following:

  • Considering the scheme and its effects upon the claimant’s property and business;
  • The preparation, negotiation and settlement of a claim;
  • In trade disturbance cases, additional work to maintain the former level of profit.

DVs will require proof that a claimant has expended time and to this end sight of a claimant’s log or diary sheet would be useful. Before admitting compensation for a claimant’s own time DVs must be satisfied that the claim flows directly from the exercise of the authority's powers. DVs should have regard to whether the expenditure of this time were necessary, whether the time spent mitigated the total loss and whether the claim were reasonable in all the circumstances. Such a claim may be too remote and in all cases care must be taken to avoid duplication of compensation, particularly where claimants carry out the same work as their professional adviser.

In Arrowsmith v SoS for Transport (1995) REF/200/1992 (unreported) the Tribunal rejected a claim for £7,092 representing time spent in reading trade magazines and property particulars in the search for alternative properties as this was likely to have taken place during times when the claimant was not actively involved in his business. However, it allowed the claimant £1,000 for the inspection of alternative premises as representing time spent away from the business.

4.18 Mortgage costs

Mortgage costs may be reimbursed in the following circumstances:

  • where the owner has an outstanding mortgage on the property the subject of the compulsory acquisition and the outstanding amount of this mortgage is transferred to the new property or the owner raises a new mortgage for a similar amount;
  • where the owner unavoidably incurs mortgage redemption costs;
  • where the owner purchases a more expensive property and raises a mortgage to cover the additional price but the new property is regarded as a reasonable substitute for the old and the DV is not aware that the owner has funds available which could have been used for the purpose;
  • where the more expensive property is not regarded as a reasonable substitute, but the case would have fallen to be dealt with under (a) if a property had been purchased at a similar price to that obtained for the old property, mortgage costs not exceeding what would have been payable under (a) may be reimbursed.

In any case not falling within the above, reimbursement of mortgage costs would probably be rejected on the grounds of remoteness.

Where the owner/occupier of a dwelling house has to surrender a mortgage and obtain a new one for the purchase of another house at a higher rate of interest, the extra cost involved is admissible in principle for compensation. The DV is authorised to negotiate the compensation in cases where it can be based on an amount equal to the outstanding debt on the house acquired and either the new house is similar in price to the old or, if more expensive, is a reasonable substitute. In quantifying the loss every effort should be made to ascertain the true net loss (eg to estimate for how long the old mortgage would have been available at the lower rate or the time for which a higher rate necessarily had to be paid for the new one. All other cases should be referred to CEO with full details before any offer of compensation were made.

4.19 Bridging loss

The presumption of value for money (see Practice Note 4/1) extends to interest on capital utilised in the erection of alternative premises. Interest so incurred does not therefore qualify for compensation. Where, however, an owner occupier incurs loss or expenditure by way of interest on invested or borrowed funds used in connection with the purchase, adaptation or preparation of alternative accommodation which is required as a direct consequence of the taking of the land for the scheme, such loss or expenditure may be reimbursed within the limits indicated below.

4.20 Period of reimbursement

The period in respect of which interest should be reimbursed commences as a general rule on the date the capital reasonably needs to be available, for example, in relation to a deposit (on the exchange of contracts) and in relation to the balance of the purchase money (when completion of the purchase takes place). When funds are reasonably used in connection with the preparation of replacement property for occupation, for example in the removal and installation of plant and machinery that will mitigate the losses, the same general rule should be applied with advance payments of compensation being made as the claimant incurs expenses.

The reimbursement of interest should be terminated as from the date and to the extent that:

  • an advance payment on account of compensation covering the expenditure is made, or
  • in cases where claimants know that they could, but did not, obtain an advance payment on account of compensation covering the expenditure, the earliest date that such payment could have been received;
  • interest on the compensation becomes payable under s.32 LCA 1961 (ie entry);
  • the compensation is paid.

If the object for which the funds have been used, for example reinstating plant and machinery or providing a new building, has been achieved before the earlier of the events mentioned, the allowance for interest should cease at that time unless it can properly be justified on the grounds that there is a continuing loss of overlapping expense analogous for example to double rent.

Interest should not, as a general rule, be allowed on an amount greater than the value of the property being acquired and/or the capital sum expended on disturbance items that will rank for compensation. Exceptionally, where the alternative property, although more expensive, is accepted as a reasonable substitute, interest charges incurred on an amount up to the cost of the alternative property may be reimbursed.

4.21 Adjustment for tax on bridging loan interest

Tax relief on mortgage interest payments in relation to residential properties ceased in April 2000 so there would be no need to make an adjustment in the reimbursement of such interest on a bridging loan.

No adjustment should be made for tax relief in respect of business properties, since although the interest would normally be charged in the accounts of the business as an expense, or claimed as a deduction against the total profits, the Inspector of Taxes will disallow it on the grounds that the interest has not been effectively borne by the taxpayer.

The term ‘business’ should be taken to include any trade, manufacture, profession or vocation.

4.22 Commission

A claim for reimbursement of a commission charge made by a bank for arranging a bridging loan may be admitted provided the DV is satisfied that the amount is reasonable. The DV may ask the claimant to obtain written confirmation from the bank manager that notwithstanding the purpose for which the loan is needed the manager would require a commission charge at the level indicated.

4.23 Substitute property purchased by persons other than claimant

Where the person from whom the property was compulsorily acquired is not the person in whose name the substitute property is purchased (eg a spouse or some other member of the family with whom the claimant resides) and a claim is made for reimbursement of the expenses incurred in connection with the purchase of the substitute property, the case should be submitted to CEO for instructions.

4.24 Costs of reinvestment

Costs of reinvestment of the purchase money, either in property outside the scope of ‘Harvey expenses’, stocks and shares or any other form of investment, or the expense of residing in a hotel or guest-house instead of buying another house, are matters of personal choice and are not subjects for compensation. This would be subject to the provisions of section 10A LCA 1961 which deals with reinvestment costs incurred by owners not in occupation (see para 4.15.)

Compensation for business disturbance

4.25 Business premises: total extinguishment

If the trade claim for a business were assessed on the basis of total extinguishment because the DV were satisfied that no suitable alternative premises were available to the claimants to carry on the business the Harvey case would normally have no application. Where, however, in such a case the premises acquired comprised combined dwelling and business accommodation the principles in the foregoing paragraphs should be applied to the purchase of substitute dwelling accommodation only.

An acquiring authority would not purchase a business as it has statutory authority to acquire only land. It would simply compensate the claimant for the reduction in the value of the goodwill as a consequence of the acquisition of the claimant’s interest in the land. For details of the principles involved see Practice Note 4/1.

4.26 Business premises: temporary loss of profits

Regard should be had to the advice contained in Practice Note 4/1.

4.27 Production of accounts

Claimants are not under a statutory obligation to produce accounts and occasions will arise when they are not produced. The onus is, however, upon claimants to prove their loss and in the case of trade disturbance this cannot be done without the disclosure of certified records or accounts. Without this important evidence the LT is unlikely to support a claim as in W Andrews & Sons Ltd and Others v Hertfordshire CC (1987)REF/157/1985 (unreported).

If accounts for the relevant years could not be obtained direct from the claimant it might be possible to obtain copies from Companies House. Requests should be submitted to CEO.

Where a claim has been referred to the Lands Tribunal, assistance may be gained from the provisions of ss.34 and 38 LT Rules 1996, which allow the Tribunal to require the disclosure of documents although this procedure should be instigated only by the acquiring authority’s lawyers.

4.28 Redundancy Payments

If a claimant could show that redundancy payments were a direct consequence of the taking of the claimant's land the amount disbursed would be an admissible item of disturbance compensation.

4.29 Trade disturbance: Claimant Aged 60 or Over

S.46 of the LCA 1973 applies where the claimant is carrying on a trade or business (which excludes farming) and, having attained the age of 60 on the date on which possession is given up, the whole of the goodwill has not been sold and it is not proposed to continue the business elsewhere notwithstanding that there are premises available that would be suitable for that purpose. It only applies where, on that date, the annual value of the hereditament does not exceed the limit prescribed in the Town and Country Planning (Blight Provisions)(England) Order SI 2005 No 406, effective from 1 April 2005 of £29,200 (the same limit applies to Wales). Such smaller businesses are not infrequently carried on under the name of a private limited company and, providing that all the shareholders are aged 60 and over on the date of giving up possession the provisions will apply. The only exception to this age rule is that if there were a younger minority shareholder (ie one owning less than 50% of the shares) the section would still apply if that person were the spouse of a shareholder who had reached the age of 60.

The claimant must give an undertaking not to sell the goodwill of the business and not to engage in a business of substantially the same kind within such time or area as the acquiring authority stipulate. The DV should ascertain the nature of such requirements in consultation with the authority. There are recovery provisions if the undertakings were broken.

The section does not apply where part only of the land used for the business is being acquired.

Subject to all the requirements being met, the effect of the section is that disturbance compensation and payments under section 37 LCA 1973 are to be assessed on the assumption that it is not reasonably practicable for the business to be carried on elsewhere, in so far as it relates to any part of the goodwill that has not been disposed of.

Liability to Tax

4.30 General

It was held in Commissioners of Inland Revenue v Glasgow and South Western Railway Co (1887) App Cas 315 that compensation for disturbance forms part of the ‘consideration for sale’ of the land taken.

4.31 Business disturbance

In Stoke-on-Trent City Council v Wood Mitchell & Co (1978) 248 EG 871 the Court of Appeal decided that because compensation for temporary loss of profits fell to be treated as a trading receipt for tax purposes it followed that the acquiring authority should pay the full sum of compensation to the claimants, and not pay an amount ‘net of tax’ which had been the practice of some acquiring authorities. Accordingly the claimants should be left to account to HMRC for any such sum as may subsequently be shown to be due from them by way of tax.

Following the decision in the Stoke case above, the Inland Revenue (now HMRC) issued a ‘Statement of Practice’ as detailed at Appendix 4/1. It confirmed that in assessing compensation for the acquisition of an interest in land no adjustment should be made to the amount included in respect of temporary loss of profits, loss on trading stock or removal expenses for the incidence of tax. The same practice should be followed in compensation cases where no interest is to be acquired.

Although the Statement did not deal with CGT, the same approach should be adopted for capital receipts.

This approach avoids the risk of double taxation. The claimant will have more time to settle payment of tax with the Inspector and better opportunity to appeal or set off gains against losses.

4.32 Apportionment of compensation

Section 245 of the Taxation of Chargeable Gains Act 1992 provides that where land or an interest in or right over land is acquired and the acquisition is, or could have been, made under compulsory powers, then in considering whether the consideration for the acquisition should be apportioned and treated in part as a capital sum, whether as compensation for loss of goodwill or for disturbance or otherwise, or should be apportioned in any other way, the compulsory nature of the acquisition and any statutory provision treating the purchase price or compensation or other consideration as exclusively paid in respect of the land itself, shall be disregarded.

HMRC will thus apportion the compensation received so as to distinguish the 'income' and 'capital' elements. Compensation for temporary loss of profits is regarded as income and therefore falls to be treated as a trading receipt for tax purposes. Compensation of a capital nature on the other hand will, subject to any relevant exemptions or reliefs, be subject to Capital Gains Tax.

Section 52(4) of the Taxation of Chargeable Gains Act 1992 provides that the method of apportionment adopted shall be such method as appears to the Inspector of Taxes, or on appeal the Commissioners concerned, to be just and reasonable. In practice the component parts of the compensation should be agreed with the claimant, if possible, in order to assist the DV in the event of a request for advice on the matter from the Inspector of Taxes.

4.33 Claims for reimbursement of tax liability on compensation

Claims may be received from claimants for the reimbursement of Capital Gains Tax paid on the compensation on the principle of equivalence in that the compensation net of CGT would not enable them to acquire a similar replacement property.

In Harris v Welsh Development Agency [1999] 3 EGLR 207 the Lands Tribunal held that compensation to reflect the incidence of taxation on the compensation did not fall under the head of ‘disturbance’ and that compensation could be awarded, if at all, only under the second limb of Rule (6). This states that ‘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’. However, the Lands Tribunal held that the liability for tax was a matter directly based on the value of land and therefore did not fall under the second limb of Rule (6). There was therefore no provision in the compensation code for the payment of such compensation.

Notwithstanding that, the Tribunal also held that the incidence of taxation on the compensation was:

  • not a natural, direct or reasonable consequence of the acquisition but of the claimant’s own position in relation to the property and
  • too remote to form a subject for compensation.

The effect of the compulsory acquisition was to bring forward a contingent liability that would have been incurred by the claimant at some future indeterminate date, not to impose a fresh liability. It could be argued that the reimbursement of the claimant’s tax liability on the compensation would place him in a better position than he would otherwise have been by relieving him of a future tax liability on income or capital gains. This would thus breach the principle of equivalence.

For the same considerations of consequence and remoteness, an accountant’s fee in dealing with the claimant’s tax affairs relating to the compulsory purchase should not be reimbursed by the acquiring authority.

4.34 Additional tax liability

Although a claimant may not seek reimbursement of the whole of the tax liability on the compensation it is sometimes contended that the claimant has suffered a loss because he has been obliged to pay a greater amount of tax than would have been payable if the acquisition had not taken place at that particular time.

Such claims usually relate to the loss of a taxation relief (eg stock relief) or changes in the basis of tax. Hobbs (Quarries) Ltd v Somerset CC (1974) 234 EG 174 and Golightly and Sons Ltd v Durham CC (1981) 260 EG 1045 are examples of the latter.

It is considered that any loss suffered by a claimant in the circumstances described above would be likely to be too remote and not compensatable.

4.35 Reference to CEO

Where claimants maintain that they will be liable to pay a greater amount of tax by reason of the timing or nature of the acquisition, planning revocation etc the case will need careful consideration both on the grounds of the true taxation position and the remoteness or otherwise of the item of claim. Such cases should be referred to CEO without the DV’s making enquiries of the claimant’s tax affairs or approaching the tax authorities.

Similarly, should an acquiring authority seek to persuade a DV to agree compensation net of tax in conflict with para 4.31 above (the effect of which would be to reduce the authority’s liability for compensation) the DV should seek advice from CEO before responding to the authority.

4.36 VAT

Disturbance costs would normally be reimbursed net of VAT to a VAT registered claimant. Reference should be made to Section 18 for guidance on this subject and advice may be obtained from CEO in specific cases.

Special Cases

4.37 Purchase Notices

Any claim for disturbance compensation in purchase notice cases under section 137 et seq TCPA 1990 (where the property has become incapable of reasonably beneficial use in its existing state due to a planning decision) should be submitted for instructions to CEO.

4.38 Acquisitions by agreement

Sections 26(2)(a) and 26(2)(b) and 26(2A) LCA 1973 give public authorities the power to acquire by agreement land which is seriously affected by the construction or alteration of any public works, the use of any public works or which will be seriously affected by the construction or alteration or use of any public works. The purpose is to mitigate any adverse effect that the existence or use of any public works has or will have on the surroundings of the works.

In each case the claimant’s interest must be that of a residential owner-occupier or an owner-occupier of a hereditament with an annual value not exceeding £29,200. Where the land is seriously affected by the construction or alteration of any public works the acquisition must be begun before the date works are first used. Where the land is seriously affected by the use of any public works the acquisition must be begun before a date one year after the works are first used. These dates correspond to the ‘relevant date’ and the ‘first claim day’ respectively under Part I of the LCA 1973. (After the works have been in use for a year claims may be made under Part I of the 1973 Act for compensation for depreciation in the value of land caused by ‘physical factors’ emanating from the use of the works.)

Where the land will be seriously affected by the construction or alteration or use of any public works (section 26(2A) LCA 1973) the land must be statutorily blighted before the acquisition can take place.

These powers are mirrored for Highway Authorities in section 246(2)(a) and 246(2)(b) and 246(2A) of the Highways Act 1980.

Whether disturbance should be offered to the claimant would depend upon the circumstances of the case. If the claimant had a pressing need to sell (eg the need to move to take up a job in another part of the country) the price would neither include disturbance nor surveyor’s nor legal costs and a Home Loss Payment would not be offered. This would be on the basis that the cause of the claimant’s displacement was the need to move for reasons unrelated to the scheme. Where for example, the claimant wished to sell because the works seriously aggravated or would seriously aggravate a medical condition, the price to be offered should normally include a sum for disturbance and surveyor’s and legal costs and a Home Loss Payment because the ultimate cause of the removal would be the public works.

In a case where the property is not to be demolished and consists of both residential and business accommodation and the DV considers that the business part is capable of continued use by the vendor for the former purpose without the residential accommodation the acquiring authority concerned should be asked whether or not the premises would be available to rent and the terms upon which they could be offered to the vendor. If the premises were available there would normally be, subject to the terms, no cause for payment of business disturbance for relocation or extinguishment.

In acquisitions by agreement where business disturbance is admissible it should be assessed with regard to s.46 LCA 1973 where the occupier is aged 60 or over and meets the qualifying conditions (see para 4.29).

In all cases of acquisition by agreement the DV should check that the acquiring authority is in agreement with the position to be adopted with regard to the payment of disturbance compensation, surveyor’s and legal costs, Home Loss Payments etc. The DV should also advise the claimant (or the claimant's agent) of the acquiring authority's position, so that neither the claimant nor his agent is in any doubt about the basis on which the authority is prepared to exercise its discretion to purchase.

4.39 Blight and other cases
  • Disturbance in blight cases

Where a claimant incurs disturbance losses following a compulsory acquisition, compensation for disturbance is payable notwithstanding that the deemed notice to treat arose as a result of the service of a blight notice by the claimant.

Exceptionally the claimant’s disturbance claim might be challenged where it could be proved that the reason for the service of the blight notice was unconnected with the scheme. In Campbell Douglas and Co Ltd v Hamilton DC [1983] 2 EGLR 183, the acquiring authority resisted the payment of compensation for disturbance on the grounds that the claimant had planned to relocate notwithstanding the acquiring authority’s proposals. The Lands Tribunal held that an examination of circumstances anterior to the service of the blight notice was appropriate in order to determine the cause of the relocation but determined on the facts of the case that the cause of the service of the blight notice was the authority’s proposals and not a pre-existing intention of the claimant.

The DV should not pursue detailed enquiries of the claimant as to the motives for the service of the blight notice but should nevertheless take account of any information provided.

  • Disturbance under section 37 LCA 1973

Under s.37 LCA 1973 persons who are

  • in lawful possession of land and
  • are displaced under statutory powers (other than land used for the purposes of agriculture) but
  • who do not have a compensatable interest and would not otherwise receive any compensation for disturbance

are entitled to a disturbance payment in certain circumstances.

‘Lawful possession’ is not defined in the Act but in Wrexham Maelor BC v MacDougall [1993] 49 EG 115 the Court of Appeal held that the phrase should be given its ordinary meaning. Thus licensees having possession of the land, and not necessarily exclusive possession, would be entitled to a statutory disturbance payment.

The amount of such a disturbance payment is assessed in accordance with the provisions of s.38 LCA 1973.

The circumstances under which such payments are made, the persons entitled thereto and the assessment of the amounts of such payment are set out in Practice Note 4/2.

It would be for the acquiring authority to determine the eligibility of a claimant to a statutory disturbance payment under section 37 LCA 1973.

4.40 Consideration of claims

DVs should be prepared to investigate any item of claim that, although not apparently qualifying may indicate another, possibly valid item and should not hesitate to offer to assist claimants in identifying appropriate items of claim.

4.41 Interest

Compensation for disturbance, including statutory disturbance payments under s.37 LCA 1973, ranks for interest at the statutory rate from the date of displacement until payment.

4.42 Dispute

Any dispute as to the amount of a disturbance payment is to be referred to and determined by the LT.

4.43 Specialist advice

Specialist advice is available from CEO concerning valuations of plant and machinery or problems associated with town centre redevelopment.

4.44 Reports

Reports of completed negotiations should be made on VO 2015.

Discretionary Payments

4.45 General

Ss.37(5) LCA 1973 provides for the making of discretionary payments to cover removal expenses, business and trade losses and also the cost of structural alterations to accommodate disabled persons. It should be noted that the sub-section makes it clear that an authority's powers to make discretionary payments are not available when a claimant has a statutory right to a disturbance payment or to disturbance compensation, so that there can be no question of using such powers to ‘top up’ statutory compensation.

It replaces previous discretionary powers eg s.30 LCA 1961, ss.32, 63(1) and 100 Housing Act 1957 and s.130(4) Town and Country Planning Act 1971.

4.46 Circumstances of displacement

The power to make a discretionary payment under s.37(5) LCA 1973 arises when a person is displaced from land in the circumstances set out in sub-section (1) being those same events that give rise to a statutory disturbance payment (see para 4.39(b) and Practice Note 4/2).

4.47 Qualifying persons

The displaced occupiers for whom these discretionary powers are designed are those who, having no other statutory entitlement to compensation, also fail to qualify for a disturbance payment on the grounds that they are only permitted to occupy the land in a less capacity than being in lawful possession of it, such as certain classes of licensee, lodgers and the like.

4.48 Amount of discretionary payment

The payment that may be made is governed by the same provisions as relate to statutory disturbance payments under the section. These are described in Practice Note 4/2. Although the matter is not free from doubt, s.37(5) may be interpreted to mean that the discretionary powers therein extend not only to the making of a payment but also to the amount of such payment. The DV should therefore, when complying with the instructions in para 4.49 below seek information from the authority concerned as to whether they propose to pay such amount as would have been payable had the claimant qualified for a disturbance payment as of right. The DV should subsequently assess and/or negotiate the claim on the basis indicated by the authority. No payment should however exceed the amount that would have been payable as of right if sub-sections (1) to (3) of s.37 had applied. There being no provision for referring disputes to arbitration, the DV should explain in any discussion with the claimant or the agent acting that the decision as to the amount of any payment to be made is entirely a matter for the authority.

4.49 Procedure

DVs should first satisfy themselves that the claim is for a discretionary payment under s.37(5) and then proceed as follows:

  • In all Government Department cases DVs should forward to the Department concerned a copy of any claim that they receive, enquiring whether they wish the DV to negotiate the claim and, if so, on what basis and also whether they would be prepared to pay interest on the amount agreed as from the date of entry at the same rate as for a statutory disturbance payment.
  • In other cases, the approval of the appropriate authority must be obtained before any indication is given that a claim will be entertained. This may be either by means of an overall authority for the DV to assess any claim received in all their schemes or in a particular scheme or in each separate instance, and is a matter for local arrangement. The question of payment of interest in these cases is for the authority to determine.
  • The payment of surveyors' and other fees should be considered in Government Department cases as for a statutory disturbance payment and the prior concurrence of the authority should be obtained in other cases.
  • All recommendations concerning discretionary payments should be reported to the authority concerned on Form VO 2015.
4.50 Expenses incurred in the purchase of replacement dwellings

S.43 of the 1973 Act also provides a discretionary power for the authority concerned to defray any reasonable expenses (except the purchase price) that are incurred by a displaced residential occupier who has either no interest in the property from which they have been displaced, or no greater interest in it than as tenant for a year or from year to year, and who wishes to acquire another dwelling in substitution for that from which he is displaced.

The displacement must be in consequence of

  • the acquisition of the land by an authority possessing compulsory powers or
  • the making of a housing order in respect of a house or building on the land

and the replacement house must be ‘acquired’ not more than one year after the displacement occurs. ‘Acquired’ means the making of the contract where appropriate. The claimant must have been in occupation at the relevant time (as is set out in Practice Note 4/2), but trespassers are excluded as are persons who have been permitted to reside in property pending its demolition.

Expenses may be defrayed only if the two dwellings are reasonably comparable. It is not considered that to be reasonably comparable a dwelling must necessarily be of the same type, but the general accommodation and overall circumstances should be similar.

It may be assumed that Government Departments will exercise their discretion in appropriate cases, but not when the claimant has first been rehoused by the housing authority and the Department concerned has made a payment to the housing authority in respect of the accommodation provided. Other authorities should be asked whether they wish the DV to settle any claim that the DV receives direct.

There is no express provision against duplication, but the powers are discretionary and it should be assumed in all cases that no payment would be made under s.43 for any item that has already been, or falls to be, paid under any other provision. It is intended to allow authorities to overcome the normal disturbance rule in limited circumstances and replacement by a comparable dwelling is the test rather than replacement by a comparable interest.

These payments are outside the scope of statutory compensation under s.20 of the 1965 Act, and any additional sum to be paid under s.43 should be shown separately when reporting a disturbance payment under s.37 of the 1973 Act.

4.51 Expenses of persons moving temporarily during construction works

DVs may be asked to deal with claims in respect of the expenses of persons moving temporarily during highway construction works because the occupation of their homes is likely to become intolerable by virtue of noise, dust, etc. Similar situations may also result from other public works.

These powers derive from S.28 of the Land Compensation Act 1973.

The authority in such circumstances has discretion to pay the reasonable expenses of the occupiers in providing suitable alternative accommodation for the household, normally in an hotel or similar accommodation, during part or all of the construction period. Such payments must flow from specific agreements between the occupier and the authority prior to the expenses being incurred and are restricted to the amount by which they exceed those that would have been incurred had the dwelling continued to be occupied.

These arrangements do not relieve contractors of their contractual liability to take every precaution to minimise construction nuisance. Failure to comply could result in claims from occupiers of affected dwellings.

Responsible authorities may alternatively install insulation against construction noise or where appropriate purchase 'seriously affected' property under ss.26(2)(a), 26(2)(b) and 26(2A) LCA 1973 (or ss.246(2)(a), 246(2)(b) and 246(2A) HA 1980).

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