‘No-scheme World’ Valuation: what is the Pointe?

Introduction

Readers will be familiar with the rule that: for the purposes of the valuation of an interest in land following compulsory purchase, the compensation payable should not include any element of value which is attributable to (and only to) the scheme itself. This provision or principle has proved to be something of a bête noire for professionals and the Tribunal in seeking to calculate and agree compensation. Successive governments have been entreated to do something about the problem not least by the Law Commission and the House of Lords or Supreme Court. A recent consultation by the Department for Communities and Local Government and HM Treasury indicates that the current government has some enthusiasm for the idea. This article briefly sets out what the rule is, and its provenance, outlines three relevant cases and then goes on to consider the changes to the law currently being consulted upon. In conclusion the usual remarks are made upon the fact that this is yet another piecemeal adjustment to an incoherent statutory code which is spread over 100 years of legislation and case law.

The Rules of Market Value

The Land Compensation Act 1961 at Section 5 sets out the rules for calculating market value for the purposes of compensation for compulsory purchase. In summary and for convenience, they are as follows:

1. No allowance is made on account of the acquisition being compulsory.
2. Subject to these rules the calculation of market value should be based upon the price that a willing buyer would pay to a willing seller.
3. Any special suitability of the land taken for the purpose of the acquiring authority is not to be taken into account.
4. Any existing use which is contrary to law (and would have the effect of uplifting value) is ignored.
5. No account is to be taken of any increase in value attributable to the scheme underlying the acquisition.
6. Actual planning permissions benefitting the land and where a certificate of appropriate alternative development has been granted may be taken into account in valuing the land.

Rule 3 above is generally known as the ‘Pointe Gourde Principle’ following the case of Pointe Gourde Quarrying Co Limited v Sub Intendant of Crown Lands [1947] PC. In that case a quarry was acquired for the purposes of building a naval base, but that quarry included stone which would be particularly of value or useful to the acquiring authority in building said naval base. Thus, if the naval base were being constructed elsewhere on the Isle of Trinidad the quarry owners might have exploited their strategic market position in selling the stone to the acquiring authority for the construction. However, where the acquiring authority were acquiring the whole quarry the owners of that quarry were unable to benefit from that windfall. In that case it was found as fact that only the acquiring authority, or a similar undertaker would be in a position to avail itself of this benefit, and as such any potential uplift in value as a result did not fall within the definition of market value.

The Pointe Gourde case was decided under the ‘Land Acquisition Ordnance of the Trinidad and Tobago jurisdiction’ which mirrored the similar ‘Acquisition of Land (Assessment of Compensation) Act 1919’. That Act is now substantially reproduced in the Land Compensation Act 1961 at Section 5. Thus the rule or principle has become known as the Pointe Gourde principle, although for reasons which will become apparent shortly, that is probably not the most accurate label (although it is used below for convenience).

The Pointe Gourde principle

A more comprehensive summary of the rule is provided in The Law of Compulsory Purchase second edition at [428] which states:

The purpose of this rule is to eliminate from the compensation any increase in value attributable to the special characteristics of land where:

(a) the land has special suitability or adaptability for a particular purpose; and

(b) that purpose is either of the following:

(i) a purpose which could not be carried out without statutory powers, or

(ii) a purpose for which there is no market apart from the special needs of a body having power to purchase land compulsorily.

In the Law Commission’s report: ‘Towards a Compulsory Purchase Code’: the authors sought to draw out the nuances of the rule, providing the following helpful remarks at D.94:

1. The ‘adaptability’ must be a quality of the subject land itself not a quality of its product or the nature of the interest.
2. That ‘special’ implies something exceptional in character, quality or degree rather than qualities shared with other possible sites.
3. That the purchase requiring new statutory powers must relate to the subject land not to the other land.
4. That the need for general forms of consent, such as planning permission or stopping up orders, is not sufficient to bring the rule into play.
5. That the market may include a mere speculator with no direct interest in the use of the land.

Waters v Welsh Development Agency

The law in this area was explored in detail by the Appellate Committee of the House of Lords in Waters v Welsh Development Agency [2004] UKHL19.

It follows from the above that it is then necessary to work out what the ‘scheme’ is which that ‘special purpose’ relates to. That was the issue in the case of Waters decided in April 2004.

In that case the acquiring authority wished to exercise its rights to compulsorily purchase an area of low lying land adjacent to the Severn Estuary to provide environmental mitigation for the Cardiff Bay barrage project. In brief summary the affected land owner sought their compensation based upon the value of the land consequent upon its indispensable status viz a viz the Cardiff development scheme. This was referred to in the Lands Tribunal by the President as ‘ransom value’. At that time the agricultural value of the predominantly agricultural land was said to be £4,500 per acre whilst the ransom value was said to be £28,000 per acre.

Whilst the subject land had no special suitability or adaptability for the purposes of providing a nature reserve to compensate for the barrage project, the President of the Lands Tribunal took the view that any effect on value of the adoption or implementation of the proposal to provide mitigation land could not be taken into account in assessing market value.

The matter was considered in detail in the Court of Appeal by Lord Justice Carnwath, who is highly experienced and knowledgeable in this area of practice. The Court of Appeal upheld the decision of the Lands Tribunal. The Appellate Committee of the House of Lords considered in some detail the heritage of the particular rule, and came to the conclusion that whilst Pointe Gourde might be of assistance in the interpretation of the relevant statutory provisions, that case and the principles expanded within it are not to be considered as replacing in its entirety the statutory code on special value.

Lord Nicholls accepted the difficulty of deciding the width of the scheme and the potential for inequality between those inside the area covered by the acquisition or scheme and outside, but in his opinion it was necessary to make sure that an acquiring authority did not pay both for the investment in the wider area which may uplift values, and for the interest being acquired. Thus the Appellate Committee were of the view that the extent of the scheme is a question of fact which the Lands Tribunal need to decide before going on to consider whether or not there is a special value. Lord Nicholls set out the following general principles at paragraph 63 of his Opinion:

1. The Pointe Gourde principle should not be pressed too far. The principle is soundly based but it should be applied in a manner which achieves a fair and reasonable result. Otherwise the principle would thwart, rather than advance, the intention of Parliament.
2. The result is not fair and reasonable where it requires a valuation exercise which is unreal or virtually impossible.
3. A valuation result should be viewed with caution when it would lead to a gross disparity between the amount of compensation payable and the market values of comparable adjoining properties which are not being acquired.
4. When applied as a supplement to the Section 6 code, which will usually be the position, the Pointe Gourde principle should be applied by analogy with the provisions of the statutory code. Thus in the Class 1 type of case the area of the scheme should be interpreted narrowly, for instance, so as to embrace the property acquired under the compulsory purchase order and property which would probably have been so acquired had it not been bought by agreement.

Point three above does indicate that the Court is likely to be willing to scrutinise carefully comparables relied upon by acquiring authorities which produce a starkly different result for ‘scheme’ and ‘no scheme’ properties.

The result for the Waters was that the provision of wildlife mitigation measures upon their land was considered to be part and parcel of the Cardiff Bay barrage scheme as a whole, and as such the special suitability of the Waters’ land for that purpose could not be used to uplift market value for the purposes of calculating compensation.

Transport for London (formerly London Underground Limited) v Spirerose Limited (in administration)

Sections 14 to 16 of the Land Compensation Act 1961 provide for certain assumptions about planning permission to be made, for the purposes of the calculation of compensation.

Section 17 of that Act provides that a certificate can be obtained such that the relevant planning authority confirm whether planning permission would have been granted for some alternative development, but for the scheme, thus inflating the potential market value of the acquired interest.

Section 16 of the Act provides rules for specific circumstances or cases in which the overall improving effect of a scheme upon a locality is to be deducted from the market value of an acquired interest. For instance where a residential area is improved because it is part of a Housing Action Trust area, and is considered to be up and coming, and then an area of that same land is subject to a compulsory purchase order in the course of development or redevelopment of the housing action trust area, the Claimant is not entitled to any uplift in the value of that acquired interest which relates purely to the scheme of general improvement of the area.

Thus section 16 might be seen as akin to betterment offsetting which it in theory available under sections 7-8 of the Land Compensation Act 1961. Another disadvantage to those subject to the exercise of statutory powers, in contrast to those who are nearby, but not subject to such powers.

In the case of Transport for London (formerly London Underground Limited) v Spirerose Limited (in administration) [2009] UKHL44 decided by the Appellate Committee of the House of Lords, the Lands Tribunal found that, because the chances of obtaining planning permission for the development of the acquired area were, on the balance of probability, likely; the Claimant’s interest would be valued on the basis that it had planning permission.

This approach was more or less supported by the Court of Appeal. The Appellate Committee of the House of Lords however found that hope value for development should be valued on the basis of a sliding scale, rather than a dichotomous basis. This meant that the more probable it were that planning permission would have been granted, the more hope value was ascribed in the market value. In that case Lord Collins stated that it was plain, that:

1. The value of the land is the open market value;
2. Any depression in the price which the land might be expected to fetch which is caused by the scheme is to be disregarded;
3. The valuation must take into account the potential of the land, including its potential for development; and
4. The development potential must be valued in the normal way, by discounting for future uncertainties.

and if that is right, it provides a clear answer to the question on this appeal, namely that the valuation on the ‘hope value’ basis is the appropriate one.

It is worth noting that in this case, due to some technical difficulties, the Claimant was unable to avail itself of a certificate pursuant to Section 17.

The new proposal

The proposals which are currently being consulted upon are summarised at page 7 of the consultation:

In order to achieve a clearer way to identify a market value of land we propose to establish the principle of the ‘no scheme world’ fairly and effectively in the valuation process by codifying it in statute and introducing a:

• Clearer definition of the project of scheme that should be disregarded in assessing value;
• Clearer basis for assessing whether the project forms part of a larger ‘underlying’ scheme that should also be disregarded;
• More consistent approach to the date on which the project is assumed to be cancelled;
• Broadening of the definition of the ‘scheme’ to allow the identification of specified transport infrastructure projects that are to be disregarded within a defined area, over a defined period of time.

In summary the proposals are that all the previous rules, whether statutory or judge made, relating to disregarding the scheme cease to have an effect.

The statutory project is then defined with more clarity, and potentially at the outset of the compulsory purchase, within the order as a presumption. However, although that presumption may be rebutted in general, the acquiring authority will be stuck with the project as defined in the compulsory purchase order or the documents published with it.

The date for the valuation of the land shall be the launch of the statutory project and something which may be seen as a pound of flesh in return for the reform is the proposal to allow an extension of the definition of ‘the scheme’ in order to prevent land owners availing themselves of any uplift in that market which is attributable to items such as transport infrastructure. For instance a new branch line might facilitate the development of a new town. In that instance the branch line might be added to become part of ‘the scheme’ and thus any market value which is attributable to the branch line and payable by the acquirer of the new town land would be disregarded.

It is probably obvious to the reader that the inherent unfairness of this innovation is that those with interests in land which are not to be compulsorily purchased but nonetheless benefit from the additional transport infrastructure will be able to sell their land or interests with the benefit of any uplift in value, whereas the unfortunate subject of the compulsory purchase order will be stuck with market value in a no (extended) scheme world.

Consultation responses

Generally it would appear fair to state that the proposed simplification of the special value rule has been welcomed, with some reservations expressed as to the technicalities.

On the other hand it might come as no surprise that those representing those with interests in land are less enthusiastic about the inclusion of additional items within the definition of ‘scheme’ which will then water down the magnitude of market value for the purposes of payment of compensation.

Conclusions

Waters and Spirerose are littered with comments of the law lords and those in the Courts below bemoaning the lack of a complete overhaul of the compulsory purchase code. Likewise the consultation responses of the CAAV and the Law Society in particular express disappointment that the legislature are effectively tinkering around the edges, rather than grasping the nettle and reforming a complex area of law wholesale.

It is interesting to note that it would not appear the proposed changes would have had any effect upon the decisions in Waters and Spirerose. One would have expected the acquiring authority in Waters to have been savvy enough to have included the environmental mitigation area within the order and/or documentation; and the Claimant in Spirerose would not have been assisted by a valuation date which was earlier than 1993 (as the problem was that the Section 17 application had been granted erroneously for 2001). Moreover the findings of the Appellate Committee in Spirerose were really focussed upon the quantification of hope value attached to the possibility of planning permission, the principles for which appear undisturbed by the proposals of the Law Commission.

In the next edition of AgricLore we will be looking at the proposals to allow authorities to bring forward compulsory purchase orders for joint purposes.