Compulsory purchase orders and acquiring authorities: guidance on next steps for confirmed orders

3. Agreeing and Paying Compensation

3.1. Assessing compensation in CPO cases is governed by extensive legislation and continually evolving case law known as the compensation code. Accordingly, specialist valuation and legal advice should be sought when determining compensation values. The reasonable expenses incurred by the claimant obtaining professional advice forms part of their compensation claim. It is usual for both the Acquiring Authority and the claimant to use the services of a suitably qualified chartered surveyor to assess appropriate compensation and regard should be given to the 2017 RICS Professional Statement " Surveyors advising in respect of compulsory purchase and statutory compensation" ^[2] which RICS members must act in accordance with.

3.2. Scottish Ministers expect Acquiring Authorities to adopt a facilitative approach to the process of negotiating compensation, to ensure that claims are dealt with speedily and that advance payments (where requested) are paid timeously.

Basic principles

3.3. Whether a person is entitled to compensation, and how much compensation they are entitled to, will depend on the circumstances. The basic principle is one of equivalence whereby the dispossessed owner has the right to be put, so far as money can do so, in the same position after the acquisition as if their land had not been taken from them.

3.4. The date on which the land is valued for compensation purposes can affect the valuation and depends on the method the Acquiring Authority has used to acquire title. Under the GVD procedure, the date of valuation is the actual vesting date. However, under the notice to treat procedure, the date of valuation can be:

- Either the date of entry by the authority or the date that compensation is agreed between the authority and the landowner (whichever is earlier); or

- Where compensation is being assessed on the basis of 'equivalent reinstatement', the date when reinstatement might reasonably have begun.

3.5. The amount of compensation payable will take account of the following:

• The open market value of the land being purchased ^[3] ;
• Any compensation payable for severance and/or injurious affection;
• Any compensation payable for disturbance and other losses not directly based on the value of the property interest but incurred because of the compulsory purchase; and
• Additionally, a home loss payment ^[4] or farm loss payment ^[5] may be made, where applicable.

3.6. In circumstances where, but for the compulsory purchase, land would be expected to continue to be used for purposes where there is no general demand or market ( e.g. a church or private school) and the existing land owner intends to continue the use elsewhere, they may be awarded compensation, by agreement or via the Lands Tribunal for Scotland, on the basis of the reasonable cost of equivalent reinstatement ^[6] . These cases are rare and they typically carry high costs.

Assessing open market value

3.7. Compensation for the compulsory purchase of land is normally based on an assessment of the open market value.

3.8. Open market value is based on the best price that a person could expect to get if they willingly sold their interest in the land on the open market, without the threat of the compulsory purchase. This means that any reduction or increase in value because of the CPO (and the proposal behind the compulsory purchase) is wholly disregarded.

3.9. The market value of the land can take into account any pre-existing potential development value.

3.10. When determining the open market value, an Acquiring Authority should take account of existing planning permissions, and any prospective permission that the planning authority might have granted, but for the compulsory acquisition of the land. Market value may also reflect "marriage value" and "ransom value" provided that it can be demonstrated that these would have existed in the absence of the scheme underlying the compulsory purchase.

Certificates of Appropriate Alternative Development

3.11. However, in some cases existing planning permissions and assumptions may not adequately reflect the development value of the land were it not for the scheme for which the land is to be compulsory purchased. In these cases a Certificate of Appropriate Alternative Development ( CAAD) provides a mechanism setting out what development or class(es) of development (if any) for which the prospect of planning permission should be assumed when assessing compensation.

3.12. A CAAD is not a planning permission but a tool to assist property valuer's arrive at an accurate opinion of the open market value of land in relation to a claim for compensation.

3.13. A CAAD can, in certain circumstances, be a useful way to help establish whether the land being acquired has potential development value. Either a claimant or the Acquiring Authority may apply for a CAAD to establish what types of development (if any) would have been permitted on the land if it was not for the scheme behind the compulsory purchase.

3.14. A CAAD can be either positive ( i.e. concluding that specified types of development would have been permitted) or negative ( i.e. concluding that no other types of development would have been permitted). CAAD decisions are also open to appeal.

Direction for Minimum Compensation for Listed Buildings

3.15. In the case of a CPO of a listed building, section 45 of the Planning (Listed Buildings and Conservation Areas) (Scotland) Act 1997 allows the Acquiring Authority to make a Direction for Minimum Compensation if they are satisfied that the building has been deliberately allowed to fall into disrepair for the purpose of justifying its demolition and the development or redevelopment of the site or an adjoining site. Such a Direction must be included within the CPO when it is submitted to Ministers for determination. Where such a Direction is confirmed the development value of the property/site is excluded from the consideration of open market value and compensation.

Disturbance

3.16. Owner occupiers and tenants are entitled to claim compensation for disturbance for losses caused as a result of being disturbed from possession of the property and other losses caused by the compulsory purchase. This may include removal and relocation costs, temporary/ permanent loss of profits, reconnection of services, loss of fittings and certain reasonable professional fees, such as legal fees and the costs of employing a surveyor to assess and negotiate compensation claims. There is a more limited right to compensation for disturbance for owners of investment properties who are not in occupation. In all cases the claimant is under a duty to mitigate their losses.

Acquiring only part of a person's land

3.17. The way compensation is assessed varies considerably depending on whether the authority is acquiring the whole or only part of a person's land. The Acquiring Authority should therefore pay particular attention to assessing compensation when acquiring only part of a person's land. This should include considering the possibility that the owner might serve a Notice of Objection to Severance ^[7] or advance a claim for material detriment ^[8] . Conversely, Acquiring Authorities should also consider whether 'betterment' may apply ^[9] .

3.18. A Notice of Objection to Severance applies where a landowner's interests are either severed by the purchase, or there is a detrimental impact on the value of the remaining land by the purchase of part of it (injurious affection).

3.19. Severance occurs when the land acquired contributes to the value of the land which is retained so that, when severed from it, the retained land loses value. For example, where part of a garden of a house is taken it may make the house less desirable and, consequently, less valuable. Or, where part of a field is taken, it may make the remaining part of the field less cultivatable and, hence, less profitable.

3.20. Injurious affection is the depreciation in value of the retained land as a result of the proposed construction and use of the project or public purpose underling the CPO. For example, if part of a garden is taken for a road project, there may be a loss of amenity for the householder due to noise, fumes or a loss of view which, in turn, reduces the market value of the retained property.

3.21. Where such a Notice is served a 'before and after' approach will be adopted whereby the value of the whole property in the absence of the CPO scheme prior to acquisition (the "no-scheme world) is compared to the value of the whole property that remains taking into account the development underlying the CPO (the "scheme world"). In such cases the Acquiring Authority may pay compensation or abandon the purchase altogether. If the Acquiring Authority persist with the intention to take part only but do not agree the value of compensation to be paid, the dispute will be determined by the Land Tribunal for Scotland.

3.22. Serving a notice of intention to claim material detriment, in effect, acts as a CPO in reverse and seeks to force the Acquiring Authority to purchase all of the remaining interest(s) in the land on the same terms.

3.23. It should also be noted that there are precise timescales and qualifying criteria involved in the service of such Notices and responses thereto from the Acquiring Authority and that, if Notices are deemed valid, this can substantially increase the amount of financial compensation due to the landowner.

Compensation where no land is taken

3.24. Acquiring Authorities should also be aware of the potential for property owners to claim compensation where none of their property has been taken. This may be on the basis that the value of their interest has been reduced as a result of the execution of the CPO project ^[10] or because the value of their property has been depreciated as a result of certain physical factors ( e.g. noise, vibration) resulting from the use of the CPO project. ^[11]

Advance payments of compensation

3.25. If the Acquiring Authority has acquired title using a GVD it can take legal title and possession before it has agreed the amount of compensation to be paid. In this situation, if the claimant formally requests it, the Acquiring Authority should make an advance payment of 90% of the compensation agreed to date or, failing agreement, of its own estimate of the likely compensation due, together with all professional fees and statutory interest.

3.26. Scottish Ministers expect all compensation payments to be paid timeously. As a minimum the Acquiring Authority is expected to make an advance payment within three months of receiving the request from the claimant, or within three months of taking possession of the land (if later). Further advance payment requests can be made at any time.

3.27. The Acquiring Authority might later realise (particularly as a result of negotiations over compensation) that its initial estimate of the compensation due was too low. In this situation the Acquiring Authority should tell the claimant that its initial estimate was too low and that it will pay the balance of the amount of the revised advance payment valuation on request. Similarly any excess advance payment of compensation has to be repaid by the claimant.

3.28. The Acquiring Authority should make advance payments as quickly as possible to relieve financial hardship and help claimants to relocate. Quick and adequate payments can also reduce the amount of statutory interest that may be payable.

Statutory Interest on Compensation Due

3.29. Interest on compensation due is payable at the prescribed rate from the date that the Acquiring Authority enters and takes possession of the land until the compensation is paid. The Acquiring Authority should therefore ensure it properly records the date of entry.

3.30. The method for determining the rate of interest is set out in the Acquisition of Land (Rate of Interest After Entry) (Scotland) Regulations 1995 and the Acquisition of Land (Rate of Interest After Entry) (Scotland) Amendment Regulations 2016 See http://www.legislation.gov.uk/uksi/1995/2791/made and http://www.legislation.gov.uk/ssi/2016/258/made also circular 36/1997 http://www.gov.scot/Publications/1997/10/circular-36-1997

Negative Equity

3.31. There may be occasions when, as a result of compulsory purchase, owners whose property is subject to a mortgage are left in a negative equity situation whereby the assessed market value of the property is less than the outstanding loan. In such circumstances the lender will have first call on compensation due for the market value of the property, no compensation will be payable to the borrower and the lender will retain the right to recover the outstanding sum and any interest due thereon from the borrower.

3.32. Such circumstances will need to be considered on a case by case basis but Acquiring Authorities are encouraged to adopt a sympathetic approach, and to seek to work with the relevant lender(s) and property owner(s) to find a solution that is mutually acceptable and which minimises hardship.

Abandonment of the CPO scheme

3.33. In all cases where the Acquiring Authority abandons a CPO scheme for whatever reason it should inform all those served with a notice of its decision as soon as possible and consider claims for compensation and/or abortive costs and expenses on their merits, on a case by case basis. Scottish Ministers would encourage Acquiring Authorities to compensate affected parties for expenses that they may have incurred in preparing to represent their legitimate interests whenever possible.

Blight

3.34. The Acquiring Authority should consider the possibility of being served with a Blight Notice where a person with an interest in land qualifying for such protection has made reasonable endeavours to sell that interest but has been unable to do so (except at a much reduced price) because the land has been identified as likely to be affected by public works.

3.35. The owner occupier of a blighted property may seek to negotiate the voluntary advance acquisition of the land by the Acquiring Authority at its un-blighted price, on compulsory purchase terms.

3.36. Should the Acquiring Authority refuse, the owner occupier can in certain statutorily defined circumstances serve a Blight Notice on it. If accepted by the Acquiring Authority or confirmed by the Lands Tribunal for Scotland a blight notice operates in effect as compulsory purchase in reverse so that the authority is treated as being authorised to compulsory purchase the land and to have served a Notice to Treat.

3.37. There are limits on the ability to serve such a notice. These are:

• The person must have a statutorily defined 'qualifying interest';
• The land in question must be defined 'qualifying land'; and
• The owner must show that a reasonable attempt has been made to sell the land and that no offers have been received after a reasonable marketing period, or any offers are significantly below the un-blighted open market value.

3.38. The Acquiring Authority may accept a Blight Notice or, alternatively, serve a counter-notice rejecting the notice and stating the grounds for such an objection. If no counter-notice is served by the Acquiring Authority within three months then the Acquiring Authority is deemed to have accepted the Blight Notice. All disputes go to the Lands Tribunal for Scotland (see http://www.lands-tribunal-scotland.org.uk/) for resolution.

Compensation Disputes

3.39. In the event that an owner disputes any aspect of the level of compensation due, and if no agreement can be reached, then it is open to the landowner to refer the matter to the Lands Tribunal for Scotland for independent determination. This must be done within six-years from the date of the service of the GVD or Notice to Treat or the application is time-barred.

3.40. Where there is no prospect for resolving a dispute, the Acquiring Authority should therefore clearly signal any final offer to the Land Owner(s), to avoid delaying the process unduly.

3.41. It is then for the Land Owner to submit an application to the Land Tribunal for consideration. Further information can be found on the Tribunal Website see http://www.lands-tribunal-scotland.org.uk/