Vertex Law

Valuation rules anomaly costs Wandsworth LBC £1.6m in Land Compensation

by Lee May

A landowner has been awarded compensation by the Court of Appeal amounting to over 100 times the open market value of its land. In the case of Greenweb Ltd v London Borough of Wandsworth an anomaly in the Compensation rules means that the 'familiar principle of equivalence' has been set aside in favour of a strict interpretation of the Land Compensation Act 1961.

CPO practitioners in acquiring authorities and private practice have long been familiar with the principal of equivalence when it comes to calculating compensation claims arising from the exercise of compulsory purchase powers. In particular, the “Pointe Gourde” rule (whereby no allowance is given for any increase in the value of land attributable to the scheme which gives rise to the CPO) and the “market value” rule are designed to ensure that the dispossessed owner is put in no better and no worse position than he would have been if the land had not been taken.

However, as Wandsworth found out to their cost these principles of compensation are not sufficient to overcome the clear words of the legislation when assessing compensation, even where it leads to a result which the Court of Appeal judges in the case described as “deplorable” and “highly regrettable”.

In 2001 the landowner (Greenweb) purchased a parcel of open space land for £30,000, speculating that a pending application for residential development of the site would be granted on appeal.  However, the appeal was dismissed and Greenweb served a Purchase Notice on the Council requiring it to acquire the land.  The notice was accepted by the Council and as such a deemed claim for compensation arose pursuant to the Land Compensation Act 1961.  The question before the Court was; what is the correct measure for assessing the level of compensation?

The Council argued that the compensation should be assessed at £15,000 representing the open market value of the land as open space.  No planning permission for development of the land existed and there were no permitted development rights capable of adding value to the land.

Greenweb pointed out that Section 14 of the 1961 Act requires certain assumptions to be made when carry a valuation for the purposes of assessing compensation including that set out in section 15(3)(a); thus

“. . it shall be assumed that, in respect of the relevant land or any part of it, planning permission would be granted [. . .] for any development of a class specified in paragraph 1 of Schedule 3 to [The Town and Country Planning Act 1990]”

The relevant development specified in paragraph 1 was for the rebuilding “of any building which was in existence on July 1, 1948, or for any building which was in existence before that date but was destroyed or demolished after January, 1937, including the making good of war damage sustained by any such building”.

In this case there had been a block of Victorian buildings on the land comprising 9 three storey dwellings and a commercial building all of which had been demolished some time before 1 July 1948 because they had sustained bomb damage during the Second World War.  Four prefabricated houses were subsequently built on the land but these too had been demolished in approximately 1978.

Greenweb argued that the effect of the legislation was that for the purposes of valuing the land, and therefore setting the level of compensation, it had to be assumed that planning permission would be granted for the construction of equivalent replacement buildings.  This was so notwithstanding the fact that due to the lack of both planning permission and permitted development rights there was no prospect of such development ever actually occurring.

Once the assumptions required by the legislation were taken into account the assumed value of the land was £1.6 million.  Over 100 times the open market value.

The Court of Appeal felt reluctantly compelled to agree with Greenweb.  The words of the statute were clear and unambiguous in what was required, it was irrelevant that the landowner was massively over compensated for its loss.

Ironically, the Law Commission had been calling for the repeal of Section 15 of the 1961 Act for come considerable time.  As Lord Justice Thomas observed in this case in calling for a change in the legislation:

“ . . any business case or cost benefit analysis would demonstrate that a very small amount of Parliamentary time and a very small cost in civil service time in the Department (which should have acted long ago) was all that was needed to avoid the risk that the tax payers of other municipalities would have to fund windfall gains to developers which cannot, on any rational basis, be justified.”

Until the government acts Local Authorities and landowners will be checking for land in their area which may be similarly affected by these anomalies in the compensation rules.