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NM32 Finance and Business Law

Published : 05-Oct,2021  |  Views : 10

Question:

You have been asked to advise on the possible compulsory purchase of property required by a local authority to assist with the support and development of a town centre within it’s administrative area. The local authority wishes to provide a site to a property company that is it’s joint owner of a small local shopping centre in response to upgrades by other centres in neighbouring boroughs. The site will be for a shopping centre extension as part of a general modernisation programme. The proposed acquisitions could also include a separate small site for highway improvements and accommodation works. The accommodation works are mainly aesthetic, but could be adapted to mitigate potential compensation claims and deal with possible objections to a Compulsory Purchase Order, should one be pursued. The works would also allow access for larger delivery vehicles via a service road and wider turning for family vehicles to the car park.

The possible scheme has been included in a plan discussed at the authority’s recent Cabinet meeting. There has already been a letter to the local newspaper from a community group who claim that “homes will be taken and businesses destroyed”.

The property not already owned by the Local Authority comprises;

  • A freehold pair of semi detached Victorian houses.
  • An owner occupied freehold shop with upper parts, in a terrace the remainder of which is already owned by the local authority.
  • A vacant freehold yard of 2,000 sq. ft.
  • A narrow parcel of freehold land of 500 sq. ft, half of which will not be needed long term.

The CEO of the Local Authority has asked you to advise on the following.

  1. Whether a CPO is the best way to proceed and whether the scheme could be delivered by acquiring the properties by agreement, or a combination of both.
  2. A single figure representing the likely total cost of acquisitions within the CPO area. (Assume the properties are within an area you are familiar with for the valuation element of the total costs).
  3. For financial planning purposes, the most likely phasing of the funding required, based on the advice outlined by you in 2, above.
  4. An estimate of when the land will be available for the scheme.

Answer:

Disturbance Compensation

The Rule [6] of section 5 Land Compensation Act 1961 it highlights the right to disturbance compensation it lays down that, in “the provisions of rule (2) it shall not affect the assessment of the compensation for the disturbance or any other matter that is not directly referred on the basis of the value of the land”. It has been observed that in relation to the compensation the incident costs and the loss that is in relation with being displaced and relocated by using the method or the procedure of equivalence mentioned in the case of Horn v Sunderland.

The intention of the Disturbance Compensation is to cover all the costs that include the stamp duty, the solicitors’ fees in relation to purchasing of the new property. The stamp duty in relation to the freehold properties is estimated at £53,000. The disturbance compensation is mostly believed to be £56,000.

The Council can pay the disturbance compensation directly. With the help of such options there price or cost can be controlled and it can be claimed back when there is proof within the six years of the displacement that has been highlighted in section 10 of the Limitation Act 1980.

Disturbance Compensation

The acquisition of a property is made under the terms and conditions of the CPO in that case the occupier will claim over the disturbance of the trade mentioned in the Section 5 (6) of the Land Acquisition Act 1961, also known as the Rule 6. It is also assumed that these occupiers are the freeholders of the small printing workshops. The object of trade disturbance is that it can either cover all the costs or not. This depends on the situation of acquiring, its disturbance compensation is based on the cost of the relocating or the dissolution of the industry.

The regulating body that acquire them mostly seek to give compensation for the relocating than on its dissolution. Only exceptions are in the rare cases in which the costs of relocating becomes more than the costs of the dissolution. In schemes where there are provisions made for new premises, the AA finds it relatable in relocating the acquired property. Prices incurred for relocation are the valid prices and its expense which come up in a natural form and reasonable consequences are made for relocating its business because of acquiring the premise. The items that are usually claimed in relation to compensation are removing of expenses, as well as there is a temporary loss of profits during the moving but this has to be proved. [DCLG Guide on Compensation to Business Owners and Occupiers, Page 17, Paragraph 2.54].

Under such situations, it is believed that the relocating price is very less than the price in relation to the dissolution of the company and the items ot the products that are to be claimed ars displayed in the table below.

Professional fees- Legal & Surveyor Fees

In this code of Compensation the authority that is acquiring the cost that covers the legal fees as well as the surveyors fees has to be made in accordance to the selling of the properties that has to be taken as well as these prices should be reasonable [DCLG Guide Compulsory Purchase and Compensation: Compensation to Residential Owners and Occupiers, Page 29, paragraph 5.1, 5.2].

The fees of the surveyor in relation to the agreement that has been adopted from the industries for the sales that are around 1.5% of the purchase that has been agreed price of the property. The fees of the solicitor in relation to the selling of the property is about £900. If an average is taken into account the fees of the surveyor that is about 1.25% of the price that is used for purchasing and the fees of the solicitor will be about £750. The total fees of the professional in relation to the sale of freehold shop will  be about £31,900.

Freehold Yard

When there is the ability that is assumed for the development of the residential on the freehold site and the permission to plan will be granted in the absence of the scheme that is the residual valuation that would be needed to undertake the be sure about the price of the land the outcome of this can be seen in the case, Transport for London v Spirerose. It will be assumed that there will be planning to take permission for granting for the development of the cottage with three bedrooms.

Parcels of the Land

It is believed that the two freehold parcels of the land is not perfect for benefiting it for its own use rather it is used to detract the value of the severed land. Under Section 7 of the Compulsory Purchase Act 1965 it is mentioned that the owner is liable to compensate for the damages arising that have to be sustained by giving reasons for serving of the land purchased from the other owner of the land otherwise it will injuriously affect the powers it exercises.

Professional Fees for Parcels of Land

Part 1 Claims 1973 Act

In relation to the workings of the highway it is regarded that the work consists of repairing the highway by making the roads broader. In case when there are no lands taken it may still have injurious affects that can be claimed under Part 1 of the Land Compensation Act 1973. In the case of Williamson v Cumberia Country Council 1994 there was noise, vibrations, smell fumes that were caused due to the public works for constructing a new highway. The claims could be made after one year [DCLG Guide Compulsory Purchase and Compensation: Compensation to Residential Owners and Occupiers, Page 27, paragraph 3.13].

It is observed that there are five properties in which the land’s value had reduced by £5,000 because of the increase in the noise that was caused due to the construction of the highway resulting the cost to £24,000. The fees of the surveyor in relation to the claimant and the council were £450 per property and the total was £2250. Therefore, the total cost in relation to the Part 1 of the claims were estimated to be £27,250.

Phasing

The assumption is that the property acquisition will occur in the same time. For the implementation of CPO route, consultation and appointment of ITLAs and referencing of the land should done in the initial stage, so that the continuous attempt of land acquisition as per the agreement can be ensured.

Political Hardships

It is assumed that, that political risks are very less because the number of properties that are required to be acquired and public support for the  extension of the shopping centre are very less.

It is very important for AA to appoint Independent Residents and Lease Holders, like, PEP, PPCR and Newman Francis, wherever they think there are chances of negative publicity. To solve the issue of negative publicity proper communication with the Council’s Public Relations team is very important, negative Publicity often creates political problems. It is very important for the Acquiring authorities to be clear, transparent and sincere towards the communities living in the locality concerning any redevelopments or decisions that are proposed, which influences their lives. The negative publicity is therefore avoided by the developers because it is harmful for the reputation. Protection from non-reputable damages is also important to the councils, because it can put them at risk politically.

The projects can be delayed if there is less engagement, consultation and certainty with the residents of the locality. West Hendon is one such scheme in London that got public attention, because of the harm it has caused to the reputation of AA and Developer Partner.   There was less engagement with local residents, they were not clear to local residents, also they offered less amount to the owners, this brought them negative publicity as it was very much highlighted in the media,all this affected the project in a way that was not expected. Protests were carried out because of the agitation of the local residents, many television personalities like Russell Brand came forward with an appeal on the behalf of the local communities, there was objections on the Compulsory Purchase Order that contributed a lot to the delay of the Project. The owners lost trust on the AA residents also lost faith on the council.

Such situations make the AA to pay a large amount of compensation to the residents, in order to avoid more negative publicity which might create disputes between AA and the development partner.

When will Land be Available?

It takes 6 to 12 months for property acquisition by agreement in case of schemes that are of such sizes.

If the CPO route is chosen by the Council, it takes one and 18 to 24 months, only when the order is made quick. After the confirmation of the CPO, decision in regard to the choice made for implementation of CPO has to be taken. Through General vesting Declaration route, they can move further in the process, which can take minimum 2 months and 28 days from the time the CPO came into effect- Section 3,4,5 Compulsory Purchase (Vesting Declarations) Act 1981.  Through deed poll, the General vesting declarations can vest title into AA. Even if it might take l a long time compared to NTT, the council will be benefited. The claimants also gets time to search other places, and hence the amount invested to reduce the negative publicity is also reduced.

Bed Cottages

The similarity to the subject property has caused an adjustments on the comparables 1 and 6.  Time adjustments are made for property 1 by using the Land Registry’s House Index figures for the month of sale and the present house price index that shows market growth. The latest month shown is March 2016 because the indexes of the month of April are yet to be published.

Similar method was used for Property 6 and the House Price figures, it sshown below.

Property 1, an increase in the value by 2.49 % is observed and 4.51 % increase for property 6, which was sold in the Month of November 2015 was observed.

Increase in the percentages will be applied accordingly to the respective properties. Hence the Present prices of the properties are.

Between the two comparables, comparable 6 has more similarity to the subject properties, it has same size, subject property is 2000 square feet and the comparable is 1098 square feet. A detached garage is also present similar to the subject properties,

The acquired properties are conditions that are reasonable, comparable 6 is very reasonable, £10,000/acquired property is deducted. The purchase now is £1,100,00.

Accordingly the two Victorian cottages would have a purchase price of £2,200,000.

Home Loss Payment

As per the assumption, the freehold properties are now with the owners, and they have been owning it for at least one year, they will get an additional compensation for Home Loss. It would be 10% of the purchse price under Section 30(1) of the Land Compensation Act 1973. The Act reduces the Home Compensation to £15,000, but in the Section 2 of the Home Loss Payments (Prescribed Amounts)(England) Regulations 2015 changed the amount to £53,000.

30 Amount of home loss payment in England and Wales. (1) If a person on the date of displacement is owning or is treated for purpose of section 29 above as owning, the dwelling by  having interest in it, which can be referred as owner’s interest, the home loss payment will be 10% of the market price of his interest in the dwelling..

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