High Speed Rail (Preparation) Bill

Written evidence from the Country Land and Business Association (HSR 09)

The need to amend the Bill to deliver fair compulsory purchase system for properties and business

Introduction

The Preparation Bill enables preparatory expenditure for all three sections of the HS2 proposals. Section 1(3) allows finance to be committed in preparation for the construction HS2. Section 1(4) allows expenditure on preconstruction activity, acquiring property and the provision for the payment of compensation.

The Preparation Bill is the first opportunity to address the impacts on those who will be directly affected by HS2, who are already suffering considerable loss and uncertainty. Addressing Blight, introducing a Duty of Care and making HS2 mitigate its impact on affected businesses would send out a strong signal to property and business owners along the route who could be told, for the first time, that they will not have to suffer crippling long term losses and business disruption in a such a difficult economic climate.

CLA

The CLA represents 34,000 members who own or manage about half the rural land in England and Wales. Our members are landowners, farmers, rural business operators and those with conservation interests. The CLA have campaigned for over 20 years for compulsory purchase reform. 15 years ago we set up the Property Industry Group with other partner organisations. This lead to the establishment of Compulsory Purchase Policy Advisory Reform Group (CPPRAG). Finally the Law Commission undertook a full review of the compulsory purchase system which was published in 2003 – this accepted the need for real change. It is iniquitous that a decade later not one of their recommendations have been taken forward.

The CLA was very active in HS1 and achieved the establishment of a hardship scheme, a reduction in land take, early agreement on mitigation works and a small appeals claims process. HS1 has now been operational for a number of years now, but there are still landowners who feel the process wasn’t fair and that they have not received full compensation.

In November 2012 the CLA published its report "Fair Play - CLA a vision for reform of the compulsory purchase system."

The need for compulsory Purchase reform for HS2

HS2 is a long tern national infrastructure project that will take at least 20 years to complete. HS2 will provide fast train travel between Birmingham and the North to London, and we are told, free up capacity on the existing rail network.

It is cited that there will be economic benefit to the urban areas close to the new stations and enlarged stations. However the route through the rural areas, after construction, will derive no economic benefit and in the planning and construction phases will potentially stagnate many businesses for decades whilst throwing the property market into turmoil making the sale and purchase of all property within the locality of the railway very difficult.

Currently the Compensation Code provides for compensation to be paid for "not a penny more" than the proved loss suffered by the landowner. This can lead to unrealistically low valuations being negotiated by overzealous agents working for the acquirer. Whilst the code provides for a 90% advance payment of compensation, there is nothing in law to make this happen. Often negotiating this 90% can be as difficult as negotiating the final figure, in reality the advance payment figure is seldom 90% of the final claim which tends to be higher because of the additional losses arising out of the construction of the scheme.

The acquiring authority currently has a duty to compensate landowners and rural businesses for their proved direct losses.

· For landowners losing land to the scheme a payment for 90% of the acquirers compensation estimate can be paid on entry, often these payments are not made immediately and sometimes the acquirer’s estimates are unrealistically low. A final claim at the end of the scheme is then submitted for the balance of any further loss – this often takes many years to negotiate with some claims still outstanding after 10 years.

· Property owners who are not losing land, but nevertheless suffering the impact of the scheme, are able to submit a claim for compensation but only on limited grounds. This claim can only be submitted a year after the scheme has been operation.

· Interest is payable by the acquiring authority on outstanding claims for compensation but only at the prescribed statutory rate which is currently 0%.

The Exceptional Hardship Scheme tries to address some of the blight issues, but with a success rate of under 30% and reported inconsistencies this is wholly inadequate. The voluntary provisions detailed within the Property and Compensation consultation are not available and are to be consulted on again, but as originally proposed they would only compensate a proportion of residential properties affected and offer no help to owners of businesses, farms or other property – the criteria were drawn far too tightly.

The reality is that people are already suffering loss as a direct result of the HS2 proposals. This may be a capital loss as a result of not being able to sell a property a loss of income as businesses stagnate as they cannot invest and grow because of the uncertainties of HS2, its future disruption and the vagaries of the compensation code.

CLA Proposal

Under this Bill the CLA propose that

· s1(3) be amended to introduce a Duty of Care. This would compel HS2 ltd to consider the impact on property owners, farmers and rural businesses and mitigate the scheme’s impact on those properties and businesses, not just rely on an inadequate and outdated compensation code.

· s1(4) be amended to provide for duty to pay fair compensation. This would remove the overzealous need to pay as little as the acquirer "can get away with" but impose a legal duty to ensure that the final settlement is fair to the property owner.

· s1(4) be amended to introduce a Property Bond Scheme. This would guarantee that an owner of a property would not suffer financial loss as a result of the scheme. If there is a need to sell a compensatory scheme would be available to underwrite any loss of value resultant from HS2. Such a scheme would need to overcome the issues of both statutory and generalised blight which are currently suffered for many years. The Property Bond Scheme would also be used as an advance guarantee of the level of compensation that would be paid to business property affected by the scheme. This would provide certainty for the business and allow re-investment at an appropriate point in time to ensure the continued growth of the business.

· s1(4) be amended to ensure that mitigation measures are put in place as early as possible to enable businesses who remain in situ to continue to operate efficiently.

Section 1 (3) should include a Duty of Care

The impact of HS2 on landownership of rural business should have been assessed at the outset, this was not the case. HS2 Ltd communications with individual landowners has been poor, with route plans being unveiled to Community Forums before the landowner has been made aware of the impact on his land.

The Draft Environmental Statement was, for many, the first indication of the extent of the scheme. However there is disappointment, that whilst the document attempts to quantify the impacts on agriculture and business, it offers no mitigation. Some businesses are also disappointed that their business information is inaccurate. Unfortunately the Environmental Statement is only a partial picture with the full extent being unveiled when the Draft Bill is put before the Houses of Parliament. It is understood that engineering considerations may change the scheme even after that.

Throughout the last two years landowners have allowed survey work to be carried out. But no decisions have been taken as to how to mitigate the long impact on these businesses - HS2 have concentrated their energy on community impacts. Landowners require bridges and underpasses so that severed land can be efficiently managed, noise barriers and bunds to reduce impacts on their individual properties, but none of this seems to have been forthcoming. The Draft Environmental Statement shows little of this detail, but shows an ever greater land take and larger construction areas.

From the outset the impact on the landowner and business operator should have been considered. Mitigation should have been planned to reduce the impact on the property and business – the same way as the environment has been dealt with. A real commitment to supporting rural business would deliver this, but it must be backed up by a statutory Duty of Care to ensure that those impacted by the scheme are properly dealt with – they are not just another interest group.

Section 1 (4) provides for compensation but reform is necessary to ensure fairness

The High Speed Rail (Preparation) Bill covers both phase 1 (London to Birmingham) and phase 2 (Birmingham to Leeds and Manchester) and its clauses provide for compensation to be paid, but fails to specify how any compensation should be paid.

The Compulsory Purchase Code has grown out of legislation and case law much of it over 40 years old and some over 100 years old; it is out of step with the 21st century. The Land Compensation Act imposes a duty on the acquirer to pay not a penny more than the proved loss and can encourage an overzealous attitude to reducing compensation claim.

Section 1 (4) should provide for a Property Bond Scheme to overcome inadequacies of Blight Notice regime

The delivery of HS2 is a long term proposal that will be cover many Parliaments. It is already more than 3 years old. Land, businesses and properties are already being affected, losses are being suffered, yet the only compensation available is through a discretionary scheme, the Exceptional Hardship Scheme, to which three quarters of the applications are rejected.

A Property Bond Scheme needs to be set up that underwrites property values where the scheme has an adverse impact. This will protect business owners from a drop in equity value and owners of residential property will have the value of their most precious asset secured. It will also stabilise volatile property markets and enable people to stay in their houses and operating their businesses for as long as they wish. The greatest impact on the property market is fear of the unknown; a property bond scheme would create stability in the market.

Property bond schemes have been proposed by British Airports Authority (BAA) to alleviate concerns over a possible third runway at Heathrow Airport and also by Central Railways.

Section 1 (4) acquirers should be compelled to agree early mitigation to reduce interference with properties and businesses, and thus reduce compensation payable

HS2 Ltd needs to consider mitigating the impacts on farming and other businesses and property now. It is inaccurate to say that it is possible to compensate for all losses. Even when the route is safeguarded compensation will not be delivered for many years and indirect or personal impacts will never be compensated for. If no property is taken then an individual may have to wait 20 years until he can even make a modest claim for the impact of the scheme. Where no land is taken by the scheme, but impacts are suffered a property owner may submit a claim, under limited criteria, but only a year after the scheme has been in operation

HS2 Ltd needs to speak to all landowners and businesses and quantify the impacts and what they can do to mitigate those impacts. The default position should be the delivery of mitigation to reduce the impact, rather than the current assumption that mitigation is not required. Under the current regime it is acceptable to cut a farm in half and for the farmer to have to travel 10 miles, or more, by road to reach the other half, providing he is compensated. Provision of a bridge would prevent this travel and be more sustainable in the long run.

Delivering a fair and expedient compensation system would make the scheme less controversial for those on the route.

INTRODUCTION

The CLA recognise the complexity of "blight" in all its forms. The interrelationship between the current compensation system and market confidence is extremely clear. Once a scheme is announced market confidence is lost because property owners have no idea what affect the scheme will have and how they will be compensated as the scheme goes ahead. The existing compulsory purchase code is fiendishly complicated with rules and procedures which many property professionals find difficult to understand, let alone lay property owners.

Blight is exacerbated by the opaque nature of compulsory purchase compensation. The CLA has argued for many years that the system needs reform. We have published our ideas in our policy document "Fair Play" which was launched in November 2012. Clear compulsory purchase rules and procedure which put fairness and a duty of care at the heart of them would go some way to reduce burden of blight.

However, regardless of any compulsory purchase reforms there is also the need for a Property Bond Scheme for large infrastructure projects such as HS2, this will ensure market confidence and allow normal business transactions to continue to take place during the inception, construction and completion of a scheme.

BACKGROUND TO THE PROPERTY BOND SCHEME

The Property Bond Scheme would apply to all property owners affected by HS2. Its primary aim would be to deliver certainty to the property and business owners who face a prolonged period of uncertainty and disruption resultant from the delivery of infrastructure projects.

All large infrastructure projects take decades to deliver. Many businesses are affected by such proposals, but the most damaging aspects are the uncertainty and business stagnation that these schemes bring. In many cases important management decisions are put off for decades and the business is unable to progress. The current law only recognises a tightly drawn definition of blight which excludes the majority of those affected.

Most property and business owners do not want to move, but are driven to do so to either avoid uncertainty or to protect their most valuable investment (their home or business). The Property Bond Scheme allows them to remain in situ, but having the option to move when they desire without fear that their property and investment will reduce.

HOW WILL THE PROPERTY BOND SCHEME WORK

The Property Bond Scheme would apply to all property owners affected by HS2. It would apply from the time that a single preferred route is published and finish one year after the scheme has been completed. This timeframe acknowledges that for many the impacts of the scheme are most greatly feared after it is first announced, and there is need at the end of the scheme for any impacts resultant from the operation to be recognised.

HS2 ltd need to produce an amalgamated map showing all the impacts of the scheme – noise, dust, lights, landscape visibility, and well as transport routes for construction and any other pertinent matters. HS2 ltd will need to produce reasoned evidence to quantify the impact of all these matters – this would be based on real evidence not artificial thresholds. Individuals who own property within any of the areas identified on the amalgamated maps are automatically invited to join the Property Bond Scheme. Those outside the boundaries of the amalgamated maps can apply to be included, if they can offer justification.

Landowners will have to register to join the Property Bond Scheme and this will be registered on their Land Registry Title and will remain until the Bond is redeemed.

HOMEOWNERS

The Property Bond Scheme will work if it confirms and guarantees that the house is due a compensation payment in the future, be it through compulsory purchase of land or compensation under Part 1 of the LCA 1973. Its effect is to underwrite the open market value of the property concerned to its unblighted value until such time as formal compensation is payable.

If the property needs to be sold before the scheme is built or comes into operation the property would be formally marketed with the benefit of the bond. The advantage to both buyer and seller is the implicit guarantee that any buyer will be compensated in the future. If the property is to be sold then the vendor has a choice at the time to redeem the bond and sell the property for its blighted value (the redemption of the Bond making up the shortfall) or selling it for its unblighted value leaving the Bond in place for the benefit of the next owner. The value of the Bond can only be realised once.

The affect of the Property Bond scheme would be to guarantee timely compensation to those who suffer most as a result of the HS2, whilst restoring confidence and bringing stability to what otherwise will have grown into a volatile market.

Houses with land-take

Under the current compensation code where residential property suffers land-take then compensation is paid following negotiation. Whilst there is provision for an advance payment this is seldom sufficient and often not paid on entry. The Property Bond Scheme would deliver a guaranteed sum negotiated in advance of the scheme, and the bond could be redeemed at any time once the scheme is confirmed (Royal Assent). The Bonds value would be calculated at the time of redemption and would be the value of the land taken and the injurious affection and severance claims.

Houses without land-take

Under the current compensation code where residential property suffers no land-take, the earliest time when a claim can be made is a year after the scheme is in use – which could be more than 20 years away and the heads of claim are very limited. The Bond would allow the value of a property to be underwritten so if it was sold then either the vendor redeem the Bond and thus be compensated for his loss or the sell the property with the benefit of the Bond.

The Value of the Bond

This is the value by which a property, at a specific point in time, has reduced in value as a result of the scheme. The exact value will depend on when the Bond is redeemed and will vary depending on the impact of the scheme on the property and the impact of HS2 on the property market at that time.

It is proposed that if there is an intention to market a property that benefits from a Bond, a notice of "intention to sell" should be served on HS2 ltd. If the intention is to redeem your bond HS2 ltd will require the necessary valuation evidence to justify the claim at least a month before the sale. The agreed Bond value would be released at the time of completion.

If the Bond is not redeemed then its final value will be the same as the amount of compensation that would be payable under the compensation code.

NON RESIDENTIAL PROPERTY

The blight of a major infrastructure scheme for agricultural and other businesses takes a different form to the residential owner. For individuals in this category be they landlords (whether urban or rural) of tenanted properties, owner occupiers or tenants the blight is one of uncertainty and the difficulty of predicting the timing of the loss of land, buildings or access, as well as the difficulty of predicted the quantum of the eventual compensation.

In the case of agriculture and business the Property Bond Scheme would therefore be quite distinct. It allows for early negotiation of the estimated final compensation package at the outset of the scheme which would be secured as a Bond.

It will allow compensation to be negotiated and the principles to be agreed way before the parliamentary process is completed thus giving some certainty as to the compensation that will be paid to allow the business to consider future reinvestment flexibly. This would also mean that the acquirer would have to consider the impact and potential mitigation measures at the outset rather than as a last resort.

This Bond can be redeemed at any time and there is no preclusions on renegotiation should the compensation agreed as part of the Bond prove to be inadequate as a result of the construction and operation having a greater adverse impact.

We foresee the value of the Bond will assist businesses in the early stages of a scheme make ongoing business decisions e.g. to invest in replacement land/buildings or secure finance against the value of the Bond.

RIGHT OF APPEAL

There must be a full right of appeal to an Independent Body before final resort to the Upper Tribunal.

ADVANTAGES OF THE PROPERTY BOND SCHEME

Advantages to Acquirer

· Reduce impact of currently uncompensated blight

· Compensation is paid without HS2 unnecessarily having to property it does not require

· Land purchased earlier in scheme, so greater flexibility

· Compensation is only paid when there is a proved loss

Advantages to Property Owners

· Value of property underwritten against the effects of the scheme

· There will be certainty as to compensation provision

· By offering a Bond there will be a reduce need for property owners to sell

· Allow the vendor/purchaser the choice to claim the value or retain the Bond

July 2013