Compulsory Purchase Reform in Scotland

Part of the assessment of market value involves considering what other purposes the land could be used for, that might be of interest to a buyer. This is done by looking at what planning permission might be granted for the land, if the CPO scheme did not exist. Some land may be suitable for a range of more valuable uses, other land may only be suitable for its existing use. In the latter case, the market value will be the same as the existing use value.

In recent years some people have called for compensation to take no account of the value the land might have for alternative uses. The suggestion is that this would enable public bodies to acquire land more cheaply. This in turn would support the provision of affordable housing and other public policy objectives. However, this approach would result in those subject to compulsory purchase receiving less than the market value for their property. This would depart from the principle of equivalence and may be unfair. It could also be in breach of ECHR, which requires property owners to be given appropriate compensation. Paying less than market value in compensation could also make people more likely to object to CPOs, making it harder to deliver projects.

At present it is not clear whether paying less than market value for compensation would help to deliver public benefits, and whether it would be a necessary and proportionate way of doing so. We would welcome any evidence on these points.

New legislation in England and Wales allows acquiring authorities to make a direction that, for the purposes of that specific CPO, the assessment of compensation will ignore the prospect of planning permission for alternative development. When considering whether or not to authorise the CPO, it is for the Secretary of State to decide whether the direction is justified in the public interest.

We are interested in views on whether similar provision should be made in Scotland.

The value of land is likely to be changed - either increased or reduced - by it being included in a CPO, and by the development (i.e. "scheme") for which the CPO is needed. Taking account of that change in value would not be in line with the principle of equivalence, and it is therefore ignored in assessing compensation. This is known as the "no-scheme principle". The legislation setting out the no-scheme principle is old and complex, and there is also a lot of case law. Sometimes these cases contradict each other, or the legislation. We think the best way to resolve this is to set out ("codify") the principle in new legislation.

If the no-scheme principle is codified, it would need to set out:

• what the no-scheme principle is
• the definition of ‘the scheme’ for these purposes
• matters that are to be disregarded when assessing the value of land in a compulsory purchase context
• rules to be followed when applying the no-scheme principle, including assumptions about when the scheme is deemed to have been cancelled.

The 1963 Act contains a series of statutory assumptions about which planning permissions can be taken into account when assessing the value of land subject to a CPO. These are referred to as "the planning assumptions". In very broad terms they provide that currently:

1. account is to be taken of any existing planning permission 
2. planning permission is to be assumed for:

• the acquiring authority’s proposals
• development specified in a CAAD
• development which accords with the relevant development plan and can reasonably have been expected to have been granted were it not for the CPO

Even where there is existing planning permission – or planning permission can be assumed – for an alternative development, the assessment of compensation will take into account the costs, risks and uncertainties of implementing the development. For example, remediation costs, infrastructure requirements and/or restrictions imposed by planning conditions/obligations.

The provisions in the 1963 Act are complex and reflect the system of development plans in place at that time. Significant changes have been made since then, including by the 2019 Act. We therefore propose that the assumptions should be repealed and replaced by new legislation.

We want the reformed planning assumptions to reflect the principle of equivalence. The assessment of compensation would consider what (if any) alternative development would have been granted planning permission had it not been for the compulsory acquisition. The risks, uncertainties and costs of implementing any such alternative development should also be reflected in the compensation paid.

We propose that the reformed planning assumptions would provide that when compensation is assessed, account may be taken of:

• any planning permission which is extant at the valuation date
• any development (specified in a CAAD or otherwise) which would have been granted on the valuation date, if not for the CPO
• the prospects of planning permission being granted for other development on or after the valuation date

It would also be necessary to specify various assumptions that are to be made when determining the prospects of planning permission being granted for other development. In particular, assumptions would need to be made regarding the cancellation of ‘the scheme’ to ensure the reformed planning assumptions are consistent with the no-scheme principle. Unlike with the current planning assumptions, we do not consider that permission should be assumed for the acquiring authority’s proposals.

A Certificate of Appropriate Alternative Development (CAAD) is a tool for establishing what development(s) would have been granted planning permission in the absence of the scheme underlying the CPO. Either the acquiring authority or a claimant can make an application to the relevant planning authority, setting out the classes of development that the applicant considers would be appropriate for the land in question. 

The planning authority may issue either a:

• positive certificate – indicating planning permission would have been granted for one or more classes of development specified in the certificate
• negative certificate – indicating that planning permission would not have been granted for any development other than the scheme underlying the CPO

Both the claimant and acquiring authority can appeal against a CAAD to the Scottish Ministers.

The procedures for applying for and determining CAADs are complex and can be expensive. It can be challenging for planning authorities to determine CAAD applications, which involve making judgements about developments in an imaginary "no-scheme" world. Where the planning authority is also the acquiring authority, there may also be a perception of a conflict of interest.

We are interested in views on whether CAADs are needed. We intend to keep claimants' general right to market value. The development and planning prospects of land would still be taken into account when compensation is assessed. The planning authority's views could be sought, and if there is a dispute which affects the value of compensation it would be settled by the LTS. But we are not sure that a statutory certification process is needed.

Part V of the 1963 Act deals with a situation where planning permission is granted for additional development on the land, within a period of 10 years after the compulsory acquisition. If this increases the value of the land above the amount paid to the original owner, further compensation may be payable to them. This is sometimes referred to as ‘second-bite’ compensation.

This rule is rarely used, but it creates additional uncertainty and budgeting challenges for acquiring authorities. Also, the planning prospects of the land are taken into account when compensation is originally assessed, via the statutory planning assumptions. We therefore propose to repeal Part V of the 1963 Act.