Examination of Witnesses (Questions 260
- 279)
260. MR MOULD: I am told it is a second
tier tribunal. Those arrangements remain incomplete. There is
no doubt at all that the Lands Tribunal will continue to perform
the function.
261. BARONESS FOOKES: What is the status
of the National Compensation Code?
262. MR MOULD: The National Compensation
Code is a convenient way of describing a series of Acts of Parliament
which establish the rules for land compensation. Formally there
is not such a thing as the Land Compensation Code which one can
see enshrined in a single document. Indeed the next slide is a
way of illustrating that.[3]
There one sees the main statutes which make up what we call the
National Compensation Code and they are the Land Compensation
Acts 1961 and 1973, the Compulsory Purchase Act 1965, the Planning
and Compensation Act 1991 and, most recently, the Planning and
Compulsory Purchase Act 2004.
263. We have also drawn attention to the fact
that as recently as December 2005, so during the passage of the
current Crossrail Bill through its parliamentary process, the
Government responded to a suite of reports by the Law Commission
in relation to the compulsory purchase legislation and, in a nutshell,
indicated that it was not minded at the present time to make any
alterations to the existing statutory provisions. If I can just
elaborate a little on that for the assistance of the Committee.
The Law Commission had recommended that whilst the existing substance
of land compensation provisions should remain essentially unaltered
there was a case for the creation of a single statute—in
updated language—in order to facilitate easy understanding
of the complex provisions of the Code. The Government's response
was, firstly, to acknowledge that in principle that was a desirable
objective, but then to say that it was not minded to follow that
course at the present time. It emphasised that it saw great advantage
in maintaining the current stable legislative framework for land
compensation on the basis that that provides certainty both for
acquiring authorities and for those whose properties may need
to be acquired for the purposes of statutory undertakings. That
is the position as regards the Code and the most recent consideration
of the case for change under the auspices of the report of the
Law Commission. We thought it would be useful to the Committee
to know that that work had been carried out.
264. We just mention briefly in the final part
of that slide that clearly in relation to disputes on points of
law, as you would expect, those matters are generally dealt with,
where they need to be arbitrated, by the courts, whereas as I
pointed out already, the assessment of land compensation in cases
of dispute is a matter that remains the task of the Lands Tribunal.
All of those matters remain the case under the terms of the Crossrail
Bill.
265. Can we have the next slide please.[4]
Mr Smith, I have done my bit and now I am going to hand over to
you. Perhaps you can help the Committee with the points made on
this particular slide.
(Mr Smith) Thank you. Good morning, my Lords.
Let us start with some of the basic rules. I think it is worth
dwelling on these just a little bit. Firstly, what is an owner
entitled to? Firstly, if an owner's property is being acquired
compulsorily he is entitled to the open market value of that land
interest and that is broadly defined as the amount that the owner
may be expected to realise in the open market assuming a willing
seller. I think that is the most important point to realise, that
this may be discussed and agreed between expert surveyors, but
they will have regard to what that property was worth in the open
market when it is acquired, so the owner gets the fair open market
value. In addition, an owner will get, if he is an occupier, disturbance
or other losses paid.[5]
I will come on in more detail to disturbance, merely to say here
it is not based upon the value of land. They are losses that are
in addition to land value. I think it is important to realise
right at stage one that the Compensation Code does allow for owners
affected to be professionally represented. So losses do include
their costs of having qualified surveyors and qualified lawyers
to help them deal with their claim and that is paid for by the
acquiring authority. There should not be a "big brother"
impact where you have somebody who is out of their depth; they
are entitled to free professional advice.
266. CHAIRMAN: Mr Smith, I think I know
what disturbance means. In the case of a private owner of a house,
does the open market value on the basis of a notional willing
seller include the costs of removal and all that sort of thing?
(Mr Smith) I will come on to that. No, it does not. It is
in addition to the value of the land. I have a couple of slides
where, if you will bear with me, I will lay that out in more detail,
my Lord Chairman.
267. The next one is a simple point, that in
assessing value surveyors have to be consistent. A property is
valued for either its existing use or, if it is worth more, its
value for development, but one cannot add both together or play
around with it. It is basically what one would get in the open
market and I think everybody would appreciate that. In addition
to the market value of the land is disturbance and having their
legal and surveying costs and other costs paid. Owners are also
entitled to a statutory loss payment which I will describe in
more detail later on, but it is another payment which I think
the Government has introduced in order to compensate for the fact
that their property has been taken from them under compulsory
purchase rather than by that owner selling naturally in the market
by agreement. If you like, it goes back to the history of compensation
which was based upon loss to the owner. Even in the original days
there was some additional `sweetener' that was paid. This statutory
loss payment is a sweetener to cover the pill of being compelled
to sell.
268. MR MOULD: This is a new provision
that was introduced under the last of those statutes I mentioned,
under the Planning and Compulsory Purchase Act 2004.
(Mr Smith) Yes, it is.
269. MR MOULD: And the Government explained
this by indicating that it was part of a suite of minor changes
to the existing law with a view to oiling the wheels of the compulsory
purchase process so as to facilitate its current policy of encouraging
regeneration proposals where they are justified and so forth.
(Mr Smith) Correct, yes. Moving forward, when surveyors are
to establish the open market value of a property that is affected
by a public work, a road scheme or, in this case, Crossrail obviously
that property may be decreased in value in the market because
of the existence of the scheme itself and the fact it is going
to be acquired. The rules in compulsory purchase are that one
must ignore that in assessing value. Surveyors have to value the
property in a no-scheme world, as if the scheme did not exist
and the person was willing and able to sell that property in the
open market. It is a very important principle.
270. MR MOULD: This is an important facet
of the principle of equivalence that we discussed earlier, that
any blighting effect of the scheme should not influence the market
value of the property but, equally, the market value of the property
should not be enhanced only by any increase in value that results
simply from the scheme itself, the so-called `Pointe Gourde principle'.
(Mr Smith) When is the land assessed for valuation purposes
under compulsory powers? The valuation date is broadly when, in
this case, Crossrail or a public entity enters upon the land to
construct the works. Generally speaking that is the valuation
date. In specific circumstances there are differences and I will
come on to those later on, but generally that will be the valuation
date for Crossrail. So it will be the open market value of the
land at the date Crossrail enters upon the site to build the works.
It is possible, of course, that when Crossrail enters upon the
site some compensation claims will not be settled; compensation
will still be due to the owner even though Crossrail has entered
upon the site and, therefore, the compensation provisions allow
for interest to be paid on compensation due from that date until
they are paid and that will be at a prescribed rate laid down
by Government. It moves up and down with the base rate and is
generally more than the base rate, but again owners do not lose
out in that way. When a property is assessed in terms of value
it is as if we are selling our homes, we have to come to a decision
as to whether we want to sell it at a particular price. The price
in property is not always exact, there can be differences of opinion,
but what one cannot do is say, "I've sold my house a year
ago. The market has gone up and I would like that extra increase".
You sell your house at the time taking into account all foreseeable
facts. The same goes for compensation, that at the time, at the
valuation date you assess the property, as you do there, in full
and final settlement, but you cannot claim additions that happen
following that, they are normal market movements. This is a point
that is very often raised. The last point is that a person affected,
an owner or a claimant, as we call it here, must continue to manage
his affairs in a reasonable manner despite the compulsory purchase.
It is tough for some of these owners that are affected because
they do not want to leave, they are being compelled to sell. A
light touch is applied here because one has to have regard to
their sometimes difficult circumstances. What one cannot do is
just simply give up the ghost and claim for losses that occur
frankly because the business or the enterprise is not continuing
to be run properly. This is a point that is enshrined in the basic
rules. If I can move to the next slide. We will speed up from
now on.
271. MR MOULD: Just before you start
on what is a series of slides relating to particular categories
of properties acquired, can we just give the Committee a very
brief flavour of the degree of compulsory acquisition that is
proposed under the Crossrail Bill?
(Mr Smith) Yes. Broadly speaking the Bill provides for compulsory
powers for Crossrail to acquire some 120 properties by addresses.
One can split these in many different ways. Thirteen of those
120 addresses are residential and the remainder are commercial
or plots of land. There are 13 residential properties and over
100 commercial. Of those residential, some of those are in blocks
of flats and therefore they comprise 42 residential units. That
gives a flavour of what we are acquiring. The first example here
is where it describes a whole land interest acquired, a commercial
owner non-occupier. We are really looking here at compensation
paid to a property investor for a commercial property. He will
receive compensation for the open market value of his interest
in the property. Very often that is a freeholder or long leasehold
interest. That value would be assessed by expert surveyors having
regard to transactions of similar properties and similar sorts
in the market. He would receive the open market value. In addition,
and this is a new point that has been recently introduced, he
will receive compensation for reinvestment costs of his money.
It is the point of equivalence again. By compelling him to sell
he has to reinvest that money to keep his investment alive and
those costs of reinvestment are a fair equivalent in a payment
to that owner. He will also be paid his reasonable fees and legal
costs and what is called a basic loss payment which is based at
7.5 per cent of the market value up to a maximum of £75,000.
That is the basic loss payment which Mr Mould and myself were
referring to just before.
272. CHAIRMAN: Before you leave that
slide, if it is not a freehold interest that is being bought but
a tenancy the same principles apply, do they not?
(Mr Smith) Yes. If it is a leasehold interest but not an
occupier exactly the same principles apply, that is right. The
next slide. This is just meant to give a flavour. There are quite
a lot of different commercial premises that may be affected. You
will have things like sandwich bars, offices and shops that could
be affected.
273. The next slide.[6]
Moving on, we are now looking at where a commercial occupier is
acquired rather than an investor. He will receive the open market
value of the freehold and leasehold interest as described. In
addition he will be able to claim disturbance or other losses
from occupation. Before we get into the detail, the principles
are laid out there which were happily laid down by the courts
quite recently in a case called Shung Fung from Hong Kong
and that is that if there is going to be some disturbance payments
to an occupier, which there is, there has to be in principle a
causal connection between the loss and the acquisition, so the
loss claimed must be linked to the acquisition. That link must
be a direct and reasonable consequence of the acquisition and
the dispossession of this person from the premises and it should
not be too remote in its assessments. These are the broad principles
which we surveyors can then use in looking at the details which
I shall come on to in another slide.
274. MR MOULD: This is one of these rules
where you can recognise the beast when you see it, is it not?
It all sounds a little dry in the principles, but I think when
we come on to the next slide we will get some pretty good examples
of the sort of things in principles which would fall under the
embrace of this approach.
(Mr Smith) Yes. In addition an occupier could receive a basic
loss payment for his interest in land. An occupier's loss payment,
which is an additional payment, is up to the maximum figure of
£25,000.
275. The next slide, please.[7]
Moving on, we are now still on the commercial occupier who is
going to be affected and this deals with the commercial occupier
who is affected and relocates to new premises. The aim for acquiring
authorities and certainly for Crossrail is, wherever possible,
we want to see these businesses relocated. The sort of heads of
claim that an owner can come forward with that are generally valid
heads of claim and are accepted generically are the costs of searching
for new premises. Searching would be agents' costs. You could
have also, in addition to that, directors of staff costs involved
with the move. That could either be a direct payment or it could
affect the profitability of the firm which is compensatable. There
is adaptation and fit out of new premises found. There could be
a temporary loss of profits to a business if it moves. Sometimes
businesses cannot give guarantees to clients that they can fulfil
a contract and where that is clearly shown it is a compensatable
item. We have loss of goodwill or permanent loss of profits where
a business permanently loses its customer base. This could happen
if, for example, a business could not find anything within its
normal customer base and had to move a good distance away. It
could lose a permanent sector of its profit and that again is
compensatable. There will be other things, such as advertising,
relocation, reprinting of stationery, removal costs, stamp duty
land tax payable on a similar property and the normal fees and
other costs. Those are some generic types of claims that are allowable
depending on a case-by-case basis and on the facts provided. I
hope that gives an indication of the sorts of things that come
up. In all of this there is a test applied by the Lands Tribunal
which is a value for money test. Broadly speaking, if one is acquiring
a new property, and let us imagine it is rather tumbled-down,
the owner would buy it for a lower price and he may refurbish
that property to bring it up and improve it. Where those costs
are improving the value of a property, it is deemed that the owner
has value for money in his hands, so that is not a compensatable
item. Also, the cost of the new property is not on this list because
again it is assumed that that is value for money in the claimant's
hands, if you like, and he will purchase that new property. Essentially,
compensation is all about compensating the owner for his existing
premises and his existing business, not the new premises, but
the cost of adapting and fitting those out is fine, but improving
their value is a value for money test which is not allowable,
but that is just a small point. A bigger point I want to emphasise
is that, given that there are sometimes problems in finding suitable
alternative premises, Crossrail has agreed to set up an agency
service and this is to assist businesses in relocating and, to
summarise this, it will set up this service to give lists of premises
that may be suitable to an owner's particular requirements, so
they have to find out what his requirements are and where he is
searching for premises, and to try and help give lists of premises
to owners affected of premises that are available in the market.
I would add though that it is in compensation law the decision
of the owner as to where he relocates and what premises he accepts.
The acquiring authority is not like big brother, saying, "You
will move there". It is his choice and he has to make that
choice, not Crossrail.
276. BARONESS FOOKES: My Lord Chairman,
could I just ask, is there any precedent for the agency service
with other big schemes or is this something entirely new?
(Mr Smith)
I believe it was introduced in CTRL.
277. MR MOULD: Yes, that is right.
278. BARONESS FOOKES: And it worked?
(Mr Smith)
I think it did, but I was not involved in that.
279. MR MOULD: So far as we are aware,
it was considered to be a reasonable success, yes.
(Mr Smith) The next slide assumes a commercial occupier is
affected, but his business cannot relocate and, as I have said,
this is the downside.[8]
If it is just simply not practically possible, and I would emphasise
that I think relocation is something we look to wherever possible,
again the occupier receives the open market value of his interest,
so that could be freehold or leasehold. Now, the disturbance here
will be the value of the business to the owner, so this is laid
down in case law and by the Lands Tribunal. They have given advice
and guidance on how surveyors approach this and they have applied
different, if you like, multipliers to profits which one can refer
to, but I think the sorts of things that would affect the value
of a business are, firstly, what would an owner receive for that
business if he was selling it on the open market, and that is
the minimum he receives in compensation. He may receive more because
it is not exactly a land value, this is a loss to the owner. The
sort of compensation will depend on the type of business that
is there, the period it has been established, the level of profits
and the trend of profits and obviously all these factors will
come into play in assessing the value of that business. In addition
to that, an owner who is forced to close down a business can receive
the loss on the forced sale of stock, he can receive the value
of fixtures and fittings in situ, not a second-hand value, but
the value to the business in situ, redundancy or close-down costs
that may occur and his normal fees and costs in the normal course
of events, plus of course the statutory loss payment is already
covered.
3 Crossrail Ref: P6, Introduction -The National Compensation
Code (LINEWD-XR3-004) Back
4
Crossrail Ref: P6, Compensation-Land Acquired Basic Rules (LINEWD-XR3-005) Back
5
Crossrail Ref: P6, Disturbancec-typical commercial premises (LINEWD-XR3-006) Back
6
Crossrail Ref: P6, Whole land interest acquired Commercial Occupier-relocation
(LINEWD-XR3-008) Back
7
Crossrail Ref: P6, Whole land interest acquired Commercial Occupier-relocation
(LINEWD-XR3-009) Back
8
Crossrail Ref: P6, Whole land interest acquired Commercial Occupier-close
down (LINEWD-XR3-010) Back
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