Important Information for Property Investors: Proposed extension of the 'no-scheme' principle for compulsory purchase compensation, to include relevant transport projects from 8 September 2016

Authors: Alexandra Rhodes, Senior Associate, Planning and Matthew White, Partner and Head of Planning, London

In September the Department for Communities and Local Government ('DCLG') and HM Treasury issued the Government's response to its consultation carried out earlier this year on further reform of the compulsory purchase system.

A core principle of compulsory purchase compensation is that land should be acquired at market value in the absence of the scheme underlying the compulsory purchase. Since the principle was first established in the Pointe Gourde decision, over a century of case law has sought to clarify the basis upon which the land valuation in these circumstances is calculated, based around the 'no-scheme' world.

The proposed reforms include:

(a) clarification of the 'no-scheme' land valuation principle for compulsory purchase compensation; and

(b) extension of what constitutes the 'scheme' to include 'relevant transport projects', subject to safeguards to ensure a direct link to the scheme.

The extension of the 'scheme' to transport infrastructure projects only is proposed because these projects are seen to have the most discernible impact on land values.

This blog entry looks at the proposed changes relating to the 'no scheme world' definition, and the potential impact on landowners. Importantly, the new rules (if passed) would apply to land acquired on or after 8 September 2016.

The proposed changes are codified in the Neighbourhood Planning Bill 2016 (the 'Bill'), which was published by Parliament on 7 September 2016 and is progressing through the House of Commons.   Clause 22 of the Bill proposes to insert new sections 6A to 6D into the Land Compensation Act 1961 to the effect that the land being acquired compulsorily will be valued as if the transport project, as well as the regeneration scheme, had been cancelled on the relevant valuation date.

Also on 7 September, DCLG issued a letter to various bodies highlighting this proposed reform, and providing more guidance on which transport projects and regeneration or redevelopment schemes will be relevant for valuation purposes:

A “relevant transport project” is one where:

·         regeneration or redevelopment was part of the published justification for the relevant transport project; and

·         the relevant transport project first opened for use more than five years after clause 22 is commenced (commencement expected by mid-2017, so five years later would be mid-2022).

The "regeneration or redevelopment scheme" is one where:

·         the instrument authorising the compulsory acquisition of the land for the regeneration or redevelopment scheme was made or prepared in draft on or after commencement of clause 22 (expected mid-2017);

·         the compulsory acquisition of the land is authorised within five years of the relevant transport project opening; and

·         the land is in the vicinity of the relevant transport project.

The Government's view is that if passed, this amendment would prevent the public sector paying for land at values inflated by previous public investment, thereby assisting the delivery of regeneration schemes. However, the full impact of this proposed reform remains to be seen.  It is foreseeable that this reform may result in unfairness to the land owner, as well as causing confusion and delay due to unrealistic assumptions and additional objections to the compulsory purchase.

There is a safeguard for investors who have bought land between a relevant transport project being announced and 8 September 2016, which will ensure that those who had invested in land in good faith are not under-compensated because the Government subsequently has changed the rules. However, please note that if passed, the new rules will apply to any land acquired on or after 8 September 2016.

We will keep track of the Bill as it moves through Parliament.

For more information please contact: