Compulsory Purchase Reform in Scotland

Injurious affection applies where only part of the claimant’s land is acquired compulsorily, and they retain part of it. There are two aspects:

• the reduction in the market value of the retained land as a result of the development activity or intended use of the development
• severance, which is the impact on the market value of the retained land of the removal of the acquired land.

Severance may occur, for example, where a new road cuts through agricultural land, causing difficulties with access between the two parts, or where a reduction in the amount of land held by the claimant has an impact on how it can be used.

The no-scheme principle does not apply to the assessment of injurious affection, since this element of compensation specifically relates to the impact of the development scheme.

There are two possible approaches to the assessment of compensation for injurious affection. “Concurrent” valuation involves valuing the acquired land, and separately valuing the depreciation caused to the retained land. The “before and after” approach is carried out by determining the value of the whole of the land before the acquisition, and deducting the value of the remaining land after the acquisition.

It has been suggested that legislation should set out the "before and after" approach as the required option. However, it appears there are a small number of cases where the current approach is more appropriate. We therefore propose to leave this as a matter for guidance.

Betterment is the increase in the value of retained land as a result of the development scheme. The 1963 Act requires that the compensation for CPO is reduced by the amount of any betterment - this is called "set-off" of betterment. The result may be that the claimant receives little or no compensation for the land taken.

Set of of betterment is part of the principle of equivalence, aiming to leave the claimant no worse off nor better off than before the compulsory acquisition. However, it can be seen as unfair in comparison to the owners of neighbouring land, who have not been subject to CPO and are able to keep any increase in value of their land.

On the other hand, it can be argued that betterment is created (in most cases) by public expenditure on the development project. Setting it off against compensation can reduce the amount the acquiring authority has to pay, effectively recouping some of that expenditure. This is therefore a question of fairness from another angle.

Accommodation works are works the acquiring authority may carry out on the retained land to mitigate the impact of the development on the value of the retained land. Examples include putting up a fence or installing sound-proofing measures. These actions will reduce the amount of financial compensation for injurious affection. 

Accommodation works are carried out on a voluntary basis, in agreement with the landowner. We do not think it is practical to require authorities to carry out such works. As far as we are aware, there is also no need to make new provision to allow them to do so on a discretionary basis, but we would welcome details of any bodies which may need such powers.

Disturbance compensation covers the additional costs caused to the claimant as a result of the compulsory purchase. This includes, for example, professional fees for advice, removal costs and loss of business because of the move.

There is no statutory basis for disturbance compensation. It is based in case law, which has found that it is necessary to uphold the principle of equivalence. As a result, it is treated as part of the value of the acquired land, which causes some difficulties. 

We propose that new legislation should include clear provision for disturbance compensation, separate from market value. It should be simply based on the actual costs the seller has incurred, as long as they are reasonable. And it should be calculated when enough time has passed to be able to tell what the impact has been.

Case law sets out three conditions to make sure that the costs claimed can reasonably be considered to be caused by the compulsory acquisition:

• there must be a causal connection between the acquisition and the loss in question (causation)
• the loss must not be too remote (remoteness)
• the loss or expenditure must not have been incurred unreasonably (mitigation)

Questions 78 to 84 deal with aspects of these conditions.

Case law has made clear that disturbance compensation can be claimed for costs which occur before ownership of the property is actually transferred. The process of compulsory purchase takes several months, at least. It is reasonable that people take action in advance, for example to get legal advice, and to find new premises. This may also help to mitigate (reduce) the costs, rather than waiting until the last minute. 

Costs such as legal advice and loss of profits may start as soon as it is known that compulsory purchase is possible, before any formal action is taken. We propose that compensation for disturbance should be payable for costs incurred from the date of publication of the notice of making the CPO. This is the first formal notice of the extent of the land that may be acquired. The claimant also has a duty to mitigate costs, which would run from the same date.

The land that is included in a CPO when it is made may not all be acquired in the end, or the project may be cancelled. People who have been told their land will be included may have incurred costs in the meantime. If the right to compensation starts from the CPO being made, it will be limited to those who have been formally told their land will be acquired, excluding land in the wider area which may have been considered at earlier stages. 

An “investment owner” who does not occupy the property (residential or commercial) can claim disturbance compensation, if they buy a replacement property within a year. However, this does not cover all potential losses for such owners. It is suggested that a wider range of compensation could be available, which could cover, for example, a longer time-frame to acquire a new property, loss of rental income, borrowing costs if there is a delay in receiving compensation, etc. It may also be appropriate to allow compensation for a non-occupying owner who incurs costs where only part of the land is acquired.

In some cases, corporate structures and leasing arrangements may mean that the companies within a group which incur costs are not the ones which are entitled to compensation. In some cases courts have found it appropriate to investigate those structures to determine what costs can be included in compensation (“piercing the corporate veil”). It is likely to be difficult to legislate clearly on the issue of corporate structures, but guidance might be helpful.

"Impecuniosity" is a rule that compensation is not due to cover costs which are higher because of the claimant's financial circumstances - for example higher costs for borrowing because of a poor credit score, or hire costs because they can't pay for something up-front. This comes from case law on damages, and has in the past been applied to CPO cases. In more recent damages cases the impecuniosity rule has not been applied. 

It seems clear that some people affected by compulsory purchase will need to incur higher costs than others to reach a state of equivalence, and therefore such losses should be recoverable. We propose that new guidance or legislation should make clear that compensation should cover costs which are reasonable in the claimant’s individual circumstances, without reference to impecuniosity.

Claimants are expected to take steps to mitigate their loss, in other words to make sure their costs are reasonable. Examples might be taking early action to look for a new house or premises, or getting multiple quotes for removals. At present this does not take the claimant's personal circumstances into account, for example if age, disability or family circumstances limit the steps they can take. We think this should be considered in determining what costs are reasonable.

When a business property is being compulsorily acquired, in most cases it will be possible for the business to relocate to other premises. In some cases that will not be possible, and the business will be extinguished.

Compensation for extinguishment (the value of the business as a going concern) will normally be higher than relocation costs. However, in line with case law, we propose that relocation compensation may be paid even if it exceeds the total value of the business, if it can be shown to be reasonable.

Current law states that disturbance compensation may be based on extinguishment rather than relocation, if the claimant is over 60. On the other hand, some cases have found that a person is required to relocate their business, even if they are in poor health. As with other claims, we think this should take account of personal circumstances.

In summary we propose that:

• disturbance compensation for a business should be based on the costs of relocation unless the claimant can show that it should be on the basis of extinguishment
• all reasonable costs of relocation may be compensated, even if they exceed the total value of the business
• the claimant’s personal circumstances may be taken into account in considering what disturbance costs are reasonable

LTS = Lands Tribunal for Scotland

In addition to disturbance compensation, statutory "disturbance payments" are available to occupiers who do not have a compensable interest in the acquired land. Some occupiers have a right to a disturbance payment; acquiring authorities can make discretionary payments to others who are displaced.

The method of calculating the amount of a disturbance payment is the same for both mandatory and discretionary payments. However, only those with a right to a mandatory payment can take a dispute to the LTS. We propose that this should be extended to discretionary disturbance payments as well.