A few thoughts about the Government's response to the LVC Select Committee report

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Gateley Hamer

The Government's response to the MHCLG's Land Value Capture Committee's Report has been published today.

Overall, its contents are to be welcomed from a compulsory purchase perspective. here are a few of the highlights....

In response to the calls for changes to the 1961 Act to achieve greater land value capture by limiting compensaiton to existing use value, the Government's report states:

'The Government recognises that there is considerable interest in reforming the basis of compulsory purchase compensation under the Land Compensation Act 1961. We share the Committee’s view that compulsory purchase compensation should be fair, reflecting the requirements of planning policy. This is what the current legal framework seeks to provide for.

Through the Housing and Planning Act 2016 and Neighbourhood Planning Act 2017, the Government has recently taken forward wide-ranging reforms to make the compulsory purchase process clearer, fairer and faster for all. These reforms include extensive changes to the Land Compensation Act 1961.

We are keen to let these recent reforms bed in but will continue to monitor their practical application and remain open to considering practical improvements to the framework.

The Committee will be aware that the Rt Hon Sir Oliver Letwin has published his independent review of build out alongside Autumn Budget 2018. The review has set out recommendations to increase the market absorption rate of new homes – which Sir Oliver identified as the binding constraint on build out rates on large sites – including on compulsory purchase. The government will respond to Sir Oliver’s report in February 2019.

Compulsory purchase compensation is currently based on the overriding principle of ‘equivalence’. This is the principle that people whose interests are acquired compulsorily, or under the threat of compulsion, should be put – at least in monetary terms – in the same position as if the land had not been taken, being entitled to compensation which is neither less nor more than the value of their loss. Reflecting this, they are entitled to the market value of the land to be acquired, disregarding any increase or decrease in value caused by the ‘scheme’ (e.g. regeneration project, new settlement, trunk road etc) underlying the acquiring authority’s Compulsory Purchase Order – or the prospect of that scheme. This is known as the ‘no scheme principle’, which was codified through changes in the Neighbourhood Planning Act 2017 which came into force in September 2017. The basic premise is that compensation should reflect what the land or property would be worth on the open market if the scheme to which the Compulsory Purchase Order relates did not exist (i.e. in the ‘no-scheme world’)'.

Specifically in relation to the propsoal to disapply hope value within the assessment of market value compensaiton, the report states: 

'Compensation includes ‘hope value’ (i.e. value based on the land’s development potential) only insofar as it can be demonstrated to exist in that no-scheme world. The extent of this hope value will reflect the prospects of obtaining planning permission for an alternative development in the absence of the scheme, taking into account the risks, uncertainties and costs associated with implementing such a development. This includes the costs of providing the affordable housing, infrastructure and supporting facilities required to make the development acceptable in planning terms, as well as any Community Infrastructure Levy liability'.

In reality, and as has been repeatedly stated by me and many others who are involved in the field of compulsory purchase, development value or even hope value is only rarely paid, because in most cases claimant's cannot demonstrated that it geninely exists in the no scheme world.

In relation to the fact that compulsory purchase is a complex field and in line with the Government's commitment to ensure the process becomes 'clearer, fairer and faster', the report states:

'The Government recognises that compulsory purchase is a complex area and there is limited awareness of how compensation is assessed in practice. In 2004 the Government published a series of booklets that sought to provide a plain English guide to compulsory purchase compensation. Given that significant reforms have been implemented in the intervening period, we propose to review and update these guides'.

This is very welcome news, and will help both acquiring authorities and displaced parties immensely.

In relation to the Committee's proposal that compensation should be paid to reflect the cost incurred by a displaced property owner to acquire an equivalent replacement property, the report is non-committal:

'The Government shares the Committee’s concerns and accepts the need to explore this matter further. As noted in paragraph 30, compulsory purchase compensation is based on financial equivalence – with three principal heads of claim: the market value of the interest acquired, disturbance and loss payments. We are aware that in certain circumstances, the value of compensation paid may not enable claimants to purchase a replacement property in the immediate area. In practice, acquiring authorities can address these situations through bespoke support packages for affected residents, including shared equity or shared ownership arrangements.

This can be, for instance, a particular issue for Compulsory Purchase Orders supporting estate regeneration, and the Government’s Estate Regeneration National Strategy already provides guidance on appropriate resident engagement and protection. It sets an expectation that leaseholders should be offered a package that enables them to stay on the estate or nearby.

We will give consideration to whether our compulsory purchase guidance could be more explicit about the Government’s expectations as to resident protection in a compulsory purchase context'.

Finally, for now at least, and until I have time later..... the report includes a helpful commitment, and something that the CPA has long called for, to ensure CPO applicaitons and decisions are more easily accessible:

'To increase transparency around how Compulsory Purchase Order decisions are taken, and how long it takes to reach those decisions, MHCLG will prepare an online register of Compulsory Purchase Order cases. Such a register will increase the amount of publicly accessible information about current and past cases, and support monitoring of the timescales and targets introduced on 6 April 2018'.

Overall, it makes for quite a pleasing read! (If you're into that sort of thing!).

Gateley Hamer is regulated by RICS (Royal Institution of Chartered Surveyors)

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