High Speed Rail (London - West Midlands) Bill Contents

5The Need to Sell scheme and compensation

Background

Principles of compensation

258.Property owners41 affected by public works projects such as HS2 are entitled to compensation available under the compensation code—a combination of statute and case law. 42 There are additional discretionary schemes applying to HS2, outlined below.

259.The compensation code principles applicable to homeowners, businesses and other property owners affected by HS2 may be very broadly summarised as follows.

Displaced owners

Non-displaced owners

Compulsory purchase and safeguarding

260.Property to be compulsorily acquired under the Bill powers is subject to the compensation code. Land needed for the route is also safeguarded to protect against conflicting development.44 Safeguarding may end up extending beyond compulsory purchase powers (where the extent of the land required for the works is reduced in the design process).

261.Safeguarding of land for HS2 triggers statutory blight provisions by which affected owner occupiers can serve blight notices to require purchase of their property. (Owner occupiers of business property can serve a blight notice if the rateable value of their property is less than £34,800. This is significant, because the £34,800 cap carries over to another important scheme discussed below.)

Discretionary compensation schemes

Express purchase scheme

262.In April 2014, the Government announced an ‘express purchase scheme’ to assist property owner occupiers by smoothing the operation of the statutory blight regime to HS2. The scheme smooths the application of the normal rules by including simplifying assumptions on the physical extent of property that must be within safeguarding to trigger the automatic acceptance of a blight notice. Under the express purchase scheme, those with property in—or which was in—the surface safeguarded zone can require purchase of their property at full, unblighted market value, plus 10% home-loss compensation up to a maximum of £49,000, together with reasonable moving costs including stamp duty, legal and surveyors’ fees and removal costs. (There is an assumption of material detriment if more than 25% of land is safeguarded.) The Government also announced a rent-back scheme to allow owner-occupiers to continue living in the property.

Rural support zone

263.The Government has sought to recognise the perceived greater relative impact of the railway in rural areas. A rural support zone beginning at Ickenham in west London extends up the line as far as Handsacre in Staffordshire and into Birmingham to just west of Water Orton. Two further compensation schemes operate in the rural support zone.

Voluntary purchase scheme

264.The Government will offer to buy properties at full, unblighted market for owner-occupiers in the rural support zone who are outside the safeguarding zone, up to 120 metres from the line. Unlike express purchase, legal fees, removal costs and stamp duty are not included in this offer. Our March 2015 interim report commented on that distinction.45 A rent-back option applies.

Alternative cash offer

265.Alternatively, owners of such properties can elect to receive a cash sum of 10% of the unblighted value of their property, with a minimum payment of £30,000 and a cap of £100,000.

Homeowner payment zone and payments

266.Owner-occupiers immediately beyond line of the rural support zone and between 120m and 300m from the line are eligible for a cash payment as follows:

Need to sell scheme

267.The Need to Sell scheme extends to urban areas and operates with no defined boundary. There are five criteria for a successful application:

268.Applications are reviewed for completeness by the scheme secretariat. The decision on applications is made by a Panel, and is reviewed by a Department for Transport official. There is no appeal mechanism, but there is a complaints procedure, and further applications can be submitted.

269.A rent-back option applies to Need to Sell scheme purchases. ‘Need to Sell’ replaced the previous Exceptional Hardship Scheme for Phase One. An Exceptional Hardship Scheme remains in place for Phase Two.

Special circumstances

270.In addition to these schemes, the decision document on the property consultation said, “there will inevitably be some instances where it is appropriate for Government to go further … HS2 Ltd will therefore work directly with property owners of atypical properties or those who are experiencing special circumstances in order to consider how their needs can best be met while protecting the interests of the taxpayer.”46

Our previous recommendations on the Need to Sell scheme

271.Our May 2015 interim report expressed several areas of dissatisfaction with the Need to Sell scheme arising from what petitioners had told us about its procedures and scope. We recommended procedural improvements. For instance, practices among local estate agents of refusing to market properties (or not doing so without upfront fees) should, we said, be clearly stated in the application materials as equivalent in demonstrating inability to sell. We wanted consistency on criteria acceptance between successive applications. We asked the Promoter to consider the retrospective compensation cases of property owners who had not applied under any scheme but who had already sold at substantial discount owing to blight, perhaps through an urgent need to move. On the substance of the scheme, we said we wanted a more considerate, generous approach, including a recognition that people’s ‘age and stage’ in life might be good reason to want to move.

272.In several respects the Government responded positively. Our recommendation on the treatment of refusal to market policies and upfront fees was accepted. It was agreed that the schemes should be better promoted and advertised, and that feedback should be given on unsuccessful applications so that applicants might be better equipped in future attempts. The Government said it believed there would be issues of equity with any broad policy of retrospective compensation, but that some exceptional cases might exist. Those cases would be considered on their merits.

273.In October 2015, we asked parliamentary colleagues to tell us whether these policy changes were translating into more acceptances and better treatment. In December 2015, we produced further recommendations. We said that while we were pleased with the increased acceptance rates, the overall number of successful applications needed considerable improvement. We wanted more use of valuers with local knowledge. We recommended automatic review of all applications pending for longer than eight weeks.

The most recent Government response and our views on it

274.The Government published its response in early February 2016.47 Several recommendations on process and on areas of substance were accepted, which we welcome.

275.The acceptance rate is now hovering at around 60%, which is better than for the Exceptional Hardship Scheme. We understand that acceptances are up to nearly 100—25 more than in November. Completed sales have more than doubled since November. 48 These developments are welcome. In February 2016, the Residents Commissioner made recommendations on how to target potential applicants with better information, including wider communication and regular, six-monthly review.49

276.We understand that HS2 Ltd has communicated with all residents within 1km of the line to alert them to the Need to Sell scheme. HS2 Ltd should continue to communicate the scheme widely. Nevertheless, overall take-up is still only at low levels compared with the numbers that might ultimately be expected to apply under the scheme.

277.On our wish for more appropriate treatment of applications based on ‘age and stage’, the Government has said that work is under way to understand what options may be available to help address the Select Committee’s concerns. The Government has said that the issues are complex and that it intends to respond substantively later in the year together with its views on Phase 2A compensation, the consultation on which closes on 25 February 2016.

278.The Government has cited what it says is the relatively high acceptance rate already being achieved under ‘Need to Sell’ for those approaching retirement or already retired: 24 accepted applications out of 37 (65%). We are not so convinced. The rate is barely 5% higher than the overall acceptance rate.

279.Although we acknowledge that not everyone in or approaching retirement will need to sell their property because of HS2, older people have restricted freedom to adapt their financial plans in response to changed circumstances. Putting it plainly, they cannot build into their plans an additional 10 or 20 years of income to address new situations. Many also face a challenge not shared by the younger: that their home becomes itself a physical burden. We believe these realities should more significantly inform the starting assumptions of those assessing scheme applications. There should be a bigger margin in the acceptance rates to reflect that. It is difficult to imagine justification of less than 90% acceptance on applications by those over 70 or who will be over 70 when the project commences.

280.In its review, which we believe should have started earlier, the Government should examine how policy changes might be developed to reflect these points. The Government should provide an update to the House before Third Reading. We would expect to see substantial progress by the time our colleagues in the Lords are considering the Bill.

Applications from the same area

281.Responding to our recommendation about applications from neighbours within blighted communities, the Government said that when the panel and decision makers consider applications against criterion 3 (effort to sell), HS2 Ltd will ensure they are aware of successful applications in close proximity to or neighbouring the applicant’s property. Applications from the same area as those of successful applicants will not receive automatic acceptance, but decision makers will need to provide clear reasons for rejecting them. We are satisfied with this.

282.Our interim report of 2015–16 wanted more recognition of areas that will suffer especially egregious effects from construction. The Government response explained that there had been special treatment of a number of hardship cases arising from construction impacts, for instance at Kingsbury. We welcome the statement that the Need to Sell Panel would treat further such applications with sympathy.

Businesses

283.We said that the £34,800 rateable value cap for ‘Need to Sell’ business applications was not appropriate in the case of London businesses; too many would exceed the cap. The Government said it would prefer to maintain the cap’s “tried and tested” approach, applying a discretion in the case of hardship cases, but conceded that 33% would exceed the cap in the case of Drummond Street. That is too high. It would not be unfair if, illustratively, all the businesses in Drummond Street had the same scope for obtaining compensation.

284.We heard that the figure of £34,000 was set some time ago and would be reviewed in 2017. We want a re-evaluation such that the proportion of London businesses falling within the cap is broadly the same as elsewhere. We would like Department of Transport to liaise with other Departments to carry through a review as soon as possible, before the most potentially damaging aspects of construction work begin to affect businesses in London.

Valuations and offers

285.On the need for greater local input to valuations, the Government said that it would work to implement a revised process for the valuation of properties for ‘Need to Sell’ that will allow more local valuers to be used (although a review was previously promised for autumn 2015). We welcome that review. We have heard from a number of people who feel very disadvantaged by the current rules. We believe it is right for the ‘Need to Sell’ process to be fair, and seen to be fair. We are also particularly pleased that the requirement not to have received an offer within 15% of the realistic asking price is to be reviewed across the country. We heard a lot about the perceived unfairness of assuming that all property vendors start out asking substantially more than they think they should get. There was a perception, perhaps justified, that this operated as a tax on the affected population.

286.We previously said that acceptances under the scheme should stand as acceptances, unless there are unusual circumstances. In stating that it might be in everyone’s interests for applicants to keep their property on the market, the Government response says the emergence of a “suitable offer” might allow a normal purchase to proceed without Government intervention. We agree, but once an applicant has been accepted such a suitable offer should be defined as one matching or better than the scheme offer. Once accepted under the scheme, owners should have certainty of their financial position rather than face the risk that a third party can undercut and unpick their security of position.

Lending

287.We had been expecting the members of Council of Mortgage Lenders and its members to recognise that no valuer should declare an affected property either valueless or unmortgageable if blight reduces the present open market value by normal amounts. We heard of cases where valuers had put a ‘nil’ value on properties or had recommended against any loan provision, which is clearly nonsense. We also wanted the Council to take the lead in developing information guides for borrowers affected by HS2, to reassure them that lenders are aware of the significance of the project and have considered how to address lending in the light of it. An industry position on this need not be anti-competitive; the point here is to have a set of responses based on recognition of an issue, not the same response from everyone. The Council could act to limit itself to being collator of a wish list to which its members provide individual answers.

288.Although some conversations have taken place between the Council and its members, and the CML Valuation Panel has confirmed that there is no blanket policy of refusing lending in cases of blight, we were disappointed not to have had more open and effective cooperation on this. We welcome the discussions that have taken place between the Council and HS2 to share information. We welcome too the Council’s recommendation to its members to review their policies. We hope that more will be forthcoming. It will reflect badly on the sector if it fails to grasp what is needed. Action is required.

Suggestions of a property bond

289.A property bond would be a form of underwriting of property value that would run with the property and would take the form of a binding agreement to purchase it (where the Government would act as purchaser of last resort), or an agreement to compensate for blight. We heard arguments, notably from HS2 Action Alliance, that a property bond scheme should be preferred over the Government schemes.50

290.Proponents of the property bond concept argued that it would better support the market in areas of blight and that to that extent its cost could to some extent be self-limiting. They said it would be fairer to property owners than schemes which operate only where there is a need to sell. The Government argued that property bonds could inhibit recovery from blight by discouraging efforts to maximise sale value, and in some forms could expose the taxpayer to potential collusion in depressing sale prices. We said that we were open to the idea of a property bond if there was insufficient improvement in the Need to Sell scheme. At our request, the Government provided a note on the difference between its figures for operating a bond scheme and those presented by HS2 Action Alliance. HS2 Action Alliance responded with their own note.51 We have reflected and concluded that the case that a property bond scheme should be preferred over other options was not sufficiently established.

291.Those interested in how the French have dealt with the wish to sell and the cases where an owner can require purchase may read the House of Commons Library materials on the subject.

Specific cases

292.We kept a watch list of petition cases where we felt that there should probably be a successful outcome if an application under Need to Sell were made. Among those, not every petitioner has yet applied. Some applications are pending. Of those that have been decided in principle, we are content that the outcome in a high proportion of instances was as we would have wished. That sufficiently satisfied us on the quality of process that we do not comment on the small number of outcomes. We have made general observations on valuation, but we do not believe it appropriate to remark in this report on the valuation process in individual cases.

Other points

293.Our interim report suggested that some medical matters could be inexpensively cleared up through straightforward communication with the applicants’ general practitioner. The Government response said that there might be confidentiality and data protection issues with that approach but that missed the point: if the applicants agree there should not be a problem.

294.In its response, the Government agreed to our recommendation on automatic review of cases pending for more than eight weeks. The response stated that a “larger pool of decision makers had been identified and trained.” We welcome the recruitment of greater staff numbers which will help expedite consideration of applications. We note that decision making should primarily be for the NTS panel. Final sign off by Department officials should be sign-off for the purposes of monitoring budgets and checking on any outlying decisions.

295.We are glad that the cumulative effect of Phases One and Two has been recognised. The acknowledgment of that effect on local people and businesses could still be better stated.

Conclusions

296. The Need to Sell scheme is a better scheme than its predecessor. It is still improving. We ask and expect that it continue to do so. Many of our suggested improvements have been adopted. Work remains to be done in addressing the greater needs of a higher proportion of older applicants. Valuation should work better. The lending sector should establish a proper set of responses to HS2. The business rate value cap for Need to Sell applications needs reviewing for London. All these things need to happen quickly to take account of those who are already being affected by Phase Two and 2A. If the scheme works sufficiently well, many people will feel more comfortable staying in their homes, and effects on communities will be alleviated. Beyond ‘Need to Sell’ there is still little recognition of the effects of others who are blighted including tenants and licenced occupiers.



41 Freehold or leasehold owner of land

42 HS2 Ltd, Information Papers, C4, C5, C7, C8 and C9

43 Broadly speaking, basic loss payments and occupier loss payments apply where home loss payments do not. There are different, more complex, provisions for agricultural occupiers.

44 The most recent safeguarding directions for the route are those from 26 June 2014

45 HC (2014–15) 338, paras 109–111

46 Secretary of State for Transport, Decision Document Property Compensation Consultation 2013 for the London-West Midlands HS2 route, CM 8833, April 2014 chapter 9

47 This was published on the Committee website

48 During the main evidence session on compensation issues, HS2 Action Alliance told us that they estimated there was scope for some 700 applications along the route. We heard from officials that they expected some 150 applications per year over the lifetime of the scheme: perhaps 2,000 in total.

49 HS2 Ltd, Residents’ Commissioner, Report 3, February 2016

50 Oral evidence taken on 20 November 2014, HC (2014–15) 338

51 See Committee publications




© Parliamentary copyright 2015

Prepared 29 February 2016