A few thoughts on Government's proposal to limit compulsory purchase compensation to less than market value. Yep, really!

Could you imagine a Government passing legislation that enables the compulsory purchase of land in a manner that limits the compensation that landowners receive to less than market value?

Not in North Korea or Saudi Arabia, but in the UK? Surely not, you might think?!

However, on Monday, whilst Conservative MPs were busily deciding on whether they still have faith in the country’s chief cheese and wine connoisseur, DLUHC slipped a consultation out on exactly that.

The full document can be reviewed here.

The consultation is split into two parts.?The first part relates to proposed amendments to the process of obtaining Certificates of Appropriate Alternative Development.?I won’t dwell on those proposals, in part because they are too niche to be of interest to most people, but also because the consultation isn’t actually asking for a response about those proposals (in which case, is it really a consultation?).?For compulsory purchase practitioners however, these proposals are well worth reviewing, and I’d point you to Raj Gupta's excellent ‘Compulsory Reading’ blog for further info.

The second part of the consultation is the part that seeks views on the plan to enable compulsory purchase of land at less than market value.?It’s this section that could potentially unfairly effect a wide range of landowners and developers, and it’s these proposals that I would urge everybody to take notice of, and to respond to DLUHC with your views.?I summarise the proposals below:

Firstly, the consultation explains:

We are proposing a further measure to allow acquiring authorities to request a direction from the Secretary of State that, for a specific scheme, payments in respect of hope value may be capped at existing use value or an amount above existing use value where it can be shown that the public interest in doing so would be justified.

And then goes on to say:

Landowners would remain entitled to a fair price for their land. No-one would be paid less than existing use value and, where a cap above existing use value was directed, they would remain entitled to hope value up to the cap where hope value was evidenced.

I’m sure I’m not alone in identifying the fact that landowners would absolutely not remain entitled to a fair price for their land, if the price they are able to receive is capped at something less than the market would pay for it.?

The intention behind the proposals is, apparently, to enable more land value to be captured and then invested for the public benefit, for example ensuring the viability of a scheme that may otherwise not be able to come forward.?However, on the basis that a fundamental principle of the Compensation Code is to ignore any effect on value of the scheme, the reality is that the proposal will not capture value that is created by the scheme, but it will simply deprive landowners of value that existed in the absence of the scheme.

In my opinion the proposals are a very misguided way of trying to fix a problem that in reality does not exist.?That perceived problem is that the current legislation governing compensation enables landowners to receive compensation for more than their interest is worth.?However, speaking as somebody who has worked on both sides of the compulsory purchase fence for nearly 20 years, that perception is completely false – in my career I can only think or perhaps one or two cases where a landowner has received an amount that one might think is slightly higher than would have been achieved in the ‘no scheme world’. On the flip side I can think of plenty more where a landowner has received less, not least because an acquiring authority has played hard-ball and forced the landowner to either accept their offer or take on litigation risk by referring their case to the Tribunal.?The balance of power is already weighted in favour of acquiring authorities and there is absolutely no reason to add further to that.

Compulsory purchase is an excellent tool for facilitating positive change in the public interest – be that regeneration, housing or infrastructure projects.?However, it is already the case that many Local Authorities lack either the expertise or confidence to use the powers that are available to them, and if Government introduce legislation that will make the process even more controversial than it already is, that will only serve to have the opposite effect of what is intended.?

Protecting the overriding principle of financial equivalence is absolutely critical to ensuring compulsory purchase is perceived as a fair process by affected parties.?These proposals, if they came to fruition, would strike a major blow to the heart of that concept.

I would urge everybody involved in the property sector – not just compulsory purchase geeks like me – to take note of this consultation and respond to it, to ensure DLUHC receive a loud and clear message and, hopefully, reconsider their plans.?