W & S (Long Eaton) Ltd v Derbyshire County Council

Compensation–Method of assessment is same whether procedure originates in a CPO or a purchase notice–Date by reference to which property is to be valued is, as a practical matter, the last day of the hearing before the Lands Tribunal–Possibly Parliament did not envisage such rapid fluctuations in land values as have lately occurred This was an appeal by W & S (Long Eaton) Ltd from a decision of the Lands Tribunal dated November 22 1974 (reported at 233 EG 403, [1975] 1 EGLR 160) determining the amount of compensation payable by the respondents, Derbyshire County Council, on the compulsory acquisition of about 1 1/2 acres of land near Mickleover, Derbyshire. Mr M B Burke-Gaffney (instructed by S J B Thomas & Co, of Nottingham) appeared for the appellants, and Mr M H Spence (instructed by the solicitor to the council) represented the respondents. Giving the judgment of the court, BUCKLEY LJ said: This is an appeal from a decision of the Lands Tribunal dated November 22 1974. It relates to approximately 1 1/2 acres of land near Mickleover in Derbyshire of which the appellants, W & S (Long Eaton) Ltd, are or were the freeholders. We will call them ‘the claimants.’  The land forms part of a larger area of about 23 acres which in the latter part of 1972 was ripe for development: but, when a planning application was made in respect of the remainder of the larger area, the 1 1/2 acres were excluded because the local authority had indicated that they would be needed in the future for the site of a school. Planning permission was granted on September 26 1972 in respect of the 21 1/2 acres for residential development. A separate planning application for residential development was made in respect of the 1 1/2 acres in March 1973 and was refused on May 24 1973. On July 17 1973 the claimants served a purchase notice on the respondent council under the Town and Country Planning Act 1971, section 180, which was accepted on August 14 1973. Negotiations to agree the compensation were abortive, and on March 22 1974 the claimants lodged a reference with the Lands Tribunal to determine the amount. Owing to the rapid change in land values which occurred at this time, the Lands Tribunal found that the market value of the land in August 1973 was £58,500 but that in October 1974, when the hearing took place, it was £46,800, showing a loss of value in this period of £11,700. The question on this appeal is as at what date the value of the land should be ascertained for the purpose of assessing the compensation payable to the claimants. The Lands Tribunal held themselves to be bound by the decision of the House of Lords in Birmingham Corporation v West Midland Baptist (Trust) Association (Inc) [1970] AC 874 to make the valuation as at the date of the hearing before the tribunal. The tribunal accordingly awarded compensation in the sum of £46,800 plus appropriate surveyors’ fees and legal costs. The claimants appeal from this award. The Town and Country Planning Act 1971, section 180, subsection (1) provides as follows: Where, on an application for planning permission to develop any land, permission is refused or is granted subject to conditions, then if any owner of land claims (a) that the land has become incapable of reasonably beneficial use in its existing state; and (b) in a case where planning permission was granted subject to conditions, that the land cannot be rendered capable of reasonably beneficial use by the carrying-out of the permitted development in accordance with those conditions; and (c) in any case, that the land cannot be rendered capable of reasonably beneficial use by the carrying-out of any other development for which planning permission has been granted or for which the local planning authority or the Secretary of State has undertaken to grant planning permission, he may, within the time and in the manner prescribed by regulations under this Act, serve on the council of the county borough. London borough or county district in which the land is situated a notice requiring that council to purchase his interest in the land in accordance with the following provisions of this Part of this Act. We ought to say that such notice under section 180, subsection (1) is described in the Act as a ‘purchase notice.’  Section 181, subsection (1) provides: The council on whom a purchase notice is served under section 180 of this Act shall, before the end of the period of three months beginning with the date of service of that notice, serve on the owner by whom the purchase notice was served a notice stating either (a) that the council are willing to comply with the purchase notice; or (b) that another local authority . . . specified . . . have agreed to comply with it in their place; or (c) that for reasons specified . . . the council are not willing to comply with the purchase notice. . . . In fact, notice under paragraph (a) of section 181 (1) was served in the present case, and this brought into play section 181 (2). That subsection provides: Where the council on whom a purchase notice is served by an owner have served on him a notice in accordance with subsection (1) (a) or (b) of this section, the council, or the other local authority . . . specified in the notice, as the case may be, shall be deemed to be authorised to acquire the interest of the owner compulsorily in accordance with the relevant provisions, and to have served a notice to treat in respect thereof on the date of service of the notice under that subsection. Subsection (4) provides that: ‘In this section ‘the relevant provisions’ means the provisions of Part VI of this Act.’  If the authority does not accept the purchase notice the matter may be referred under section 181 (1) (c) to the Secretary of State, who may confirm the notice, in which event again a notice to treat is to be deemed to have been served. It will be observed that these provisions have the effect, when a purchase notice is accepted or confirmed, of making the machinery of compulsory purchase applicable to the case, although the initiative has been taken not by the acquiring authority but by the owner. Where an acquiring authority wishes to buy land in the exercise of compulsory powers it serves a notice to treat upon the owner under the Compulsory20 Purchase Act 1965, section 5. Such a notice is not an offer: it is a notice requiring the owner to come in and negotiate a price for the property. In this legislation that price is referred to as ‘compensation.’  Rules for assessing the compensation payable in any case are contained in the Land Compensation Act 1961, section 5. In the present case the relevant rule is rule (2), which provides: The value of the land shall, subject as hereinafter provided, be taken to be the amount which the land, if sold in the open market by a willing seller, might be expected to realise. It will be observed that this does not specify as at what date the valuation is to be made. Until the decision of the House of Lords in the Birmingham Corporation case, already mentioned, the practice had long been to make the valuation as at the date of the notice to treat. Indeed, the practice had been followed for so long that this had come to be accepted as a rule of law. While property values were stable it was unlikely to cause injustice; but as soon as property values became subject to rapid and violent changes it was realised that such a rule might operate very unfairly. In the Birmingham Corporation case the compensation fell to be assessed not under rule (2) but under rule (5) of the rules embodied in section 5 of the 1961 Act, that is to say, by reference to the cost of equivalent reinstatement instead of by reference to the market value of the land. Rule (5) applies where the land in question ‘is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that purpose.’  In such a case the measure of the compensation is to be ‘assessed on the reasonable cost of reinstatement.’  This measure can only be sensibly applied at the time when it becomes reasonable for the owner to set about re-establishing his activity elsewhere, for that is the time when he must incur the expense which is to serve as the measure of his compensation. It was however argued in the Birmingham Corporation case that, by analogy to the supposed rule that in cases to which rule (2) applied the date for valuation was the date of the notice to treat, so also in cases to which rule (5) applied the cost of equivalent reinstatement should be ascertained as at the date of the notice to treat. The House of Lords did not treat the argument on rule (2) as irrelevant to cases falling within rule (5). The learned Lords entertained the argument in relation to rule (2) and disposed of it by holding that there was no such rule as had been supposed. They pointed out that on a compulsory purchase, what the owner was to be compensated for was being expelled from his property, that is to say, being compulsorily deprived of his proprietary rights and interest in the land. This event would not take place until either the acquiring authority took possession, thus ousting the owner, or the amount of the compensation was agreed or determined, whereupon (and not before) the acquiring authority would have a specifically-enforceable right to completion of the transaction, with the consequence that from that time (and not before) the title to the land would in equity be vested in the acquiring authority. The House of Lords indicated that in a rule (2) case the appropriate date at which to make the valuation would be the date of the earliest of these events. Down to that time the owner would retain possession and remain the legal and equitable owner of the property, which would not yet have been in any sense taken from him. The House went on to decide that in a rule (5) case the appropriate date at which to evaluate the cost of equivalent reinstatement would be the time when it would have first become reasonable to expect the owner to take appropriate steps to achieve equivalent reinstatement. This is the machinery which by the device of a deemed notice to treat is made applicable to a case in which, as in the present case, a purchase notice is accepted by an acquiring authority. The claimants contend that in such a case the date at which the valuation should be made is the date on which the authority accepts the purchase notice. They point out that thereafter neither the purchase notice nor the deemed notice to treat under section 181 (2) of the 1971 Act can be withdrawn (see section 208 of the Act of 1971). The acquiring authority cannot dispute that the land is incapable of reasonably beneficial use and incapable of being made so. The owner cannot dispute that the acquiring authority is to be treated as having compulsory powers of acquisition and as having served a notice to treat. Consequently a compulsory acquisition situation must be treated as existing. The claimants contend that the House of Lords in the Birmingham Corporation case recognised that there could be a notional taking of the claimants’ land, for example, as soon as the amount of the compensation was agreed, whereupon the owner would become a trustee of the property for the acquiring authority. They say that in a purchase-notice case such a situation arises as soon as the acquiring authority obtains an irrevocable right to acquire the land and the owner acquires an irrevocable right to compensation, that is to say, as soon as the authority has accepted the purchase notice. This, they point out, is a desirably certain and precise date. Alternatively they say that the valuation date should be the earliest date at which the amount of the compensation ought to have been agreed or ought to have been assessed. This seems to us to be a date which is almost impossible of ascertainment, at any rate with any degree of certainty. As a further alternative, the claimants say that the date should be when the influence over the risk of loss or the chance of gain in respect of the land passed from the owner to the acquiring authority. This, we think, is only a different way of identifying the date when the equitable title to the property passed from one to the other. As a yet further alternative, they say that the date should be when such a serious interference has taken place with the owner’s interest in the land as to deprive him of the reasonably beneficial use of it. This, as it seems to us, takes the date back to the refusal of planning permission for a change of use. We feel unable to accept this, which, we think, ignores the adoption of the compulsory purchase machinery and the fiction of a notice to treat deemed to have been served at a date which must be later than the refusal of planning permission. It is true that it was the refusal of planning permission which in the present case rendered the land incapable of reasonably beneficial use, and that this was a prerequisite of the purchase notice the acceptance of which gave rise to the deemed notice to treat, so that the refusal of planning permission was the source of the whole sequence. It may also be said that the loss of beneficial use must have rendered the land virtually unsaleable and virtually valueless and that it is for this that the claimants truly require compensation. But the method of awarding compensation employed by the legislature is the adoption of the fiction that the acquiring authority is buying the land in the exercise of compulsory powers of acquisition. The compensation which the claimants are to receive is to be ascertained by working out that fiction. It is also true that, when the acquiring authority accepts the purchase notice, a consensual situation arises. The Lands Tribunal expressed the opinion that this, coupled with the statutory procedures for determining the price, constitutes a contract for sale, but not, at that stage, an enforceable one. We do not think that it is necessary for us to decide that question. We are inclined to doubt whether the consensual situation amounts to more than an agreement that the case is a proper one for a purchase notice. At any rate it is clear that ownership of land and the title to it remain at that stage both at law and in equity in the party serving the purchase notice. The claimants have submitted that the observations in the House of Lords in the Birmingham Corporation case relating to rule (2) cases were obiter, since their Lordships were concerned with a rule (5) case. We cannot accept this contention.21 It is implicit in all the speeches in that case, and explicit in the speech of Lord Reid (p 897D-E) and that of Lord Donovan (p 912B-E), that they were deciding the effect of the statute in rule (2) cases. Lord Donovan said: It is common ground that in the present case compensation is assessable under this rule: and the argument could have been confined to its effect, as indeed it appears to have been before the Lands Tribunal. The rule there referred to is rule (5). But in the Court of Appeal the appellant corporation submitted that, since the established date at which value had to be ascertained for cases falling under rule (2) was the date of the notice to treat, logic and consistency required that the same date should apply to cases falling under rule (5). In other words, the ‘cost of equivalent reinstatement’ must be ascertained according to prices ruling as at the date of the notice to treat. The respondents’ answer to this contention was to challenge the major premise on which it rested; and thus both the Court of Appeal and your Lordships have had to consider the validity of the present practice in rule (2) cases; whereas otherwise the true effect of rule (5) alone might have had to be determined. This is not said by way of criticism. The wider question would at some time, no doubt, have had to be considered in another case; and the contention based on the practice under rule (2) was perfectly legitimate (although, as I think, mistaken) from the appellants’ point of view. Accordingly in our judgment the Lands Tribunal rightly regarded the Birmingham Corporation case as binding them. It also binds us. If this were a case in which a notice to treat had been actually served, that is, a true compulsory purchase, the effect of the Birmingham Corporation case would undoubtedly be that the valuation should be made as at the date when the compensation is actually assessed. Lord Reid referred to ‘the date of assessment’ (p 899C), Lord Morris to ‘the date when the value is being agreed or is being assessed by the appropriate tribunal’ (p 907G), and Lord Donovan to ‘the date when the promoter becomes the owner of the property, whether in law or in equity’ (p 911G). These expressions all point to the date when the parties agree on a figure or, if they do not agree, to the date of the actual award. The claimants point out that the valuation evidence can never relate precisely to the date of the award, since the tribunal’s rules require that its decision shall be given in writing and the award is consequently and necessarily in the nature of a reserved judgment. We think there is nothing in this. The award must be based on evidence: the evidence must be given at the hearing and so must to some extent antedate the award, but normally the interval would be relatively short and of no significance. If in a particular case the tribunal were to think it likely that values had changed materially since the hearing and before the award was promulgated, further evidence could be heard and, if thought desirable, arrangements could be made for the award to follow almost immediately after the further hearing. Although logically the date of the award is the relevant date, in actual practice the last day of the hearing, or of any adjourned hearing, must be the date. What difference, if any, does it make that this is not a true compulsory purchase but a purchase notice case?  Notwithstanding Mr Burke-Gaffney’s able argument, we think that it makes none. Section 181 (2) provides that the respondent council is to be deemed to be authorised to acquire the property compulsorily ‘in accordance with the relevant provisions’–that is, in accordance with the provisions of Part VI of the Act (see section 181 (4))–and to have served a notice to treat. This indicates, in our judgment, that the transaction is to be carried out precisely as though it were in fact a compulsory purchase initiated by a notice to treat served under the Compulsory Purchase Act 1965, section 5, by a local authority authorised under section 112 of the 1971 Act to acquire the land compulsorily. There is undoubtedly an attractive quality about the argument that the date of the valuation should be as near as possible to the event giving rise to the right to compensation. If one asks what that event was in the present case, two answers suggest themselves: first, the refusal of planning permission, and secondly, the claimants’ election to claim compensation by serving a purchase notice. As already indicated, a third possibility might be the date on which the respondents accepted that notice. It may arguably be unfair to either party that the amount of compensation payable should be affected by changes in market values after any of these dates. If an acquiring authority were to make a ‘sealed offer’ which was reasonable at the date when it was made but became inadequate before the hearing because of a rise in value, it is suggested that it would be unfair that the authority should obtain no protection against costs from having made what was at its date an adequate offer. An answer to this particular point is, we think, that it is always open to an acquiring authority to make a further sealed offer of an increased amount. Nevertheless there could, we think, be circumstances in which a change in market values could produce an anomalous result in respect of either a sealed offer by an acquiring authority or an unconditional offer by a claimant to accept a particular sum, but this could equally well happen in a compulsory purchase case as in a purchase notice case. In a recent decision in Corporation of Hull Trinity House v Humberside County Council (reported in the ESTATES GAZETTE of June 21 1975, 234 EG 915, [1975] 1 EGLR 192) the Lands Tribunal, without having heard full argument, put forward a suggestion (which was not in the event pursued in that case) that commonsense and convenience required that the date of the reference to the Lands Tribunal should be taken as the date for valuation. We can well understand the convenience of adopting a known date earlier than the hearing by reference to which valuation evidence can be prepared, but we find it difficult to think that the date of reference can in principle be a proper date as at which to assess the compensation. The Lands Tribunal said in that case that they did not find, at least in rule (2) cases, that there was anything in the Birmingham Corporation case to the contrary of their suggestion. With deference to the Lands Tribunal, we feel unable to agree with this. As we understand the decision in the Birmingham Corporation case, it is that the time for measuring the compensation does not arrive until the owner is physically dispossessed of his property or the title to it passes in law or equity to the acquiring authority. A reference to the Lands Tribunal does not produce either of these results. One is, in our opinion, inescapably faced by the fact that the legislature has in section 181 (2) clearly indicated how the compensation which a claimant under a purchase notice is to receive shall be ascertained. He only becomes entitled to compensation because he is to be treated as if he were an owner upon whom a notice to treat has been served by a body authorised to acquire his property compulsorily. The compensation to which he is entitled must be such as he would receive if he were such an owner. If this is liable to give rise to anomalies or to any degree of apparent unfairness, this is the consequence of the machinery adopted in the section. When it was enacted it is possible that Parliament did not envisage such violent fluctuations in land values as have occurred in and since 1972. It is for these reasons that we consider that it makes no difference that this present case is a purchase notice case and not a true compulsory purchase. We are, in our judgment, bound by the Birmingham Corporation case to hold that the date at which the property is to be valued in the present case is the date of the award, which as a practical matter, as we have indicated, means the last day of the hearing before the Lands Tribunal. We accordingly dismiss this appeal. The appeal was dismissed with costs.