As part of the Budget 2015 the Treasury and Communities and Local Government (CLG) have published a technical consultation document for improving the compulsory purchase system. It principally relates to process and not the assessment of compensation.
GLG have also issued a consultation draft of the Guidance to replace the now somewhat out of date Circular 06/04, the practitioners' "bible" when promoting CPOs.
Perhaps most noteworthy is the publication of the technical consultation document is by both CLG and the Treasury. It indicates that compulsory purchase is seen by Government as a key tool in the economic recovery of the UK, in delivering both regeneration and major infrastructure.
Compulsory purchase has been for many years low on the priorities list for law reform. This is despite a major report at the end of the 1990's, then the Law Commission's reports in 2003 and 2004 recommending wholesale codification. Subsequently Acts have played at the edges of a few topics, whilst the Planning Act 2008 led to a fundamental and successful change in how land assembly for nationally significant infrastructure projects is taken forward. Much of the successes of the 2008 Act are reflected in the consultation paper.
Many will see the consultation paper as an unsatisfactory "halfway house" lying somewhere between the recent practice of minor incremental change, but falling far short of the fundamental codification that many practitioners believe is required.
The consultation is sure to attract a lot of attention and contain several items of controversy.
Overall, the fact that compulsory purchase is receiving significant attention is to be welcomed. However, many of the issues highlighted by, amongst others, the Compulsory Purchase Association, remain to be dealt with, whilst some of the suggestions in the documentation, whilst well intentioned, may not assist in making the compulsory purchase regime clearer, fairer and faster as the Government anticipates.
It is important that those utilising, and being subject to compulsory purchase, provide their views to Government to truly make the process one of improvement. Those views need to be submitted before 9 June 2015.
The consultation applies to reforms in England. It is less ambitious than the consultation proposals put forward by the Scottish Law Commission in December 2014.
The new consultation paper states that it represents a "package of proposals for technical process and improvement and guidance to make the process clearer, faster and fairer".
The detailed content is analysed further below, utilising the headings in the consultation document.
Circular 06/2004 on compulsory purchase is proposed to be updated and, in line with other Government Circulars, become a web based resource. A consultation draft is published in parallel with the technical consultation. The Circular has long been an invaluable tool for CPO practitioners, but equally has been in need of refreshing for some time. The new format will not be popular with many practitioners who will miss the comprehensive and clear nature of the previous Circular.
Encouraging public authorities to offer good levels of compensation
This is likely to be one of the most controversial proposals in the consultation. CLG make a distinction between "developers" who secure land by private agreement and those acquiring authorities pursuing compulsory purchase powers. Reference is made to the current Circular 06/04 statement that authorities "should acquire land by negotiation wherever practicable".
The consultation document suggests that early settlements can be reached if acquiring authorities are sensitive to claimants' expectations and if compensation reflects the saving from not having to pursue compulsory purchase.
The proposal is that better value for money from earlier settlement will speed up delivery by avoiding the need for compulsory purchase. To promote this objective it is suggested that the public sector should be more flexible in providing compensation with suitable cover for accounting officers to enable "more reasonable initial offers". There is a clear governance issue for acquiring authorities, particularly public authorities to have to address.
This suggestion appears to largely reflect that the loss payment mechanism in the Planning Compulsory Purchase Act 2004 (basically a 10% uplift on the price of land acquired compulsorily subject to a cap of £100,000) has failed in its intended purpose. Whilst there is no suggestion that the loss payment regime will be ended, it appears that a further allowance can be included by public sector acquiring authorities to reflect the need for compensation. A proposed format for revised guidance is indicated at pages 9-10 of the consultation document.
The suggestion seems sensible in principle but is potentially fraught with difficulty in practice. Whilst the objective of Government is understood, there must be a risk that agreement will not be reached at an early stage because landowners will hold out for higher compensation, knowing that an offer above market value could be received if they do so. In particular, for a "last man standing" situation the saving both in time and cost of avoiding a compulsory purchase process could be a substantial six figure sum. The proposed guidance must therefore be very clear that what is proposed is not converted into a mechanism by which landowners refuse to treat because they know the acquiring authority will go above market value. As ever with compulsory purchase, what appears to be a very simple concept in principle becomes very difficult to control in practice.
Pre- acquisition survey power
A proposal long campaigned for by the Compulsory Purchase Association amongst others is a broader power for pre-compulsory purchase surveys being made available. At the moment survey powers are available at an early stage for some acquiring authorities, available post-confirmation/making of compulsory powers for others are not available at all in some circumstances. Having standard survey powers, similar to the enactment in the 2004 Act of the standard requisition for information power, makes sense. This is particularly the case because powers of survey for EIA and Habitats Regulations purposes were simply not thought of when the existing powers of survey were enacted. The power needs to be broad enough to include land that may be affected by a scheme and not just the land that may be affected by compulsory acquisition, to enable all required habitats surveys to be carried out.
Aligned to this proposed reform (which will need primary legislation) is the principle that a warrant may be used to allow acquiring authorities to apply to Magistrates where access land has been unreasonably refused or apprehended or where the case is urgent. It remains to be seen in practice how often this power would need to be used, whilst bringing Magistrates into the compulsory purchase and land assembly process harks back to the Land Clauses Consolidation Act of 1845. Justices of the Peace have been long abandoned as a suitable Tribunal for determining compulsory purchase related issues.
Statutory targets for the confirmation stage of compulsory purchase
It has long been the case that compulsory purchase is often delayed at the stage between inquiry and the Secretary of State decision. At the moment the practice is variable, with some decision available in a short time and others taking over 12 months. Clearer timetables for decisions by the Secretary of State and delegated decisions must be welcomed.
Delegating decisions on Orders to an Inspector
This is also one of the more controversial topics in the consultation. The suggestion in the consultation is that a Secretary of State could delegate decisions to an Inspector in certain instances. It is perhaps somewhat surprising that, at the end of a Government that was so opposed to the Infrastructure Planning Commission on the basis of its democratic deficit in that the 2008 Act originally enabled the Commission to make decisions, that such a power is being proposed to be made available to the Planning Inspectorate. Many will feel that the draconian nature of compulsory purchase must mean that the Secretary of State is the decision maker. The power to recall that delegation will be included. It is interesting that one test of whether it can be delegated is whether it does not raise issues of more than local importance – a subjective assessment and such assessment would be made before evidence has been submitted, merely after statement of reasons and objections.
Reform of High Court Challenge processes
At the moment the position regarding High Court challenges to compulsory purchase decisions is complex.
To challenge a decision by the Secretary of State to not confirm the CPO, a party (almost certainly the promoting authority) must challenge the decision by way of judicial review.
To challenge a confirmed CPO an aggrieved person must apply to the High Court within six weeks of the published press notice of confirmation.
Further, if a challenge to a confirmed CPO is made, it is quashed in its entirety and the whole process starts again. There is not a process to refer the decision back to the Secretary of State.
This means that if an error in law is made by the Secretary of State, an acquiring authority may find that it has to promote the whole CPO from the start, with the ensuing impacts on time, even though it has done nothing wrong at all in the process.
The proposals for change therefore are to allow the Court to have a power to remit the CPO to be re determined by the Secretary of State, in appropriate circumstances which must be welcomed.
There is a further suggestion that, if a CPO is challenged, because of the time that it may take to resolve whether or not the CPO should have been confirmed there is a standstill position extending the time that the CPO can be implemented if the challenge is unsuccessful, to reflect the time taken in resolving that challenge.
Improving the implementation stage
The Compulsory Purchase Association, amongst others, has been championing a review of how land is taken following confirmation of CPOs so that the current difference in time periods between the notice to treat and the notice of entry process (allowing for minimum of 14 days between service of notices and taking possession) and vesting declarations (which have a 28 day minimum notice period, preceded by a minimum of at least 2 months prior notice of an intention to make a vesting declaration) means that there is an unnecessary dichotomy in the processes. Further, because of the very short notice periods of notice to treat/notice of entry there is a real risk that a business landowner or occupier will not have sufficient time to successfully relocate. The proposal is for consistency, with all compulsory acquisitions being subject to a three month notice period, although views are sought on the appropriateness of that time period.
The topic again is one where its apparent simplicity is deceptive. Developers and acquiring authorities will be concerned about the extra time constraint and loss of flexibility. That said, a well-managed and carefully thought through compulsory acquisition process should operate so as to permit this time period to be easily accommodated, whilst giving landowners greater clarity and certainty in terms of their proposed relocation. If there is greater certainty on when a decision on the CPO will be made this will help ease the possession strategy conundrum. That being so there can be seasonal constraints either for habitat reasons or even to meet target openings for commercial operations which could be significantly affected by this period.
Enabling owners to force the Acquiring Authority to take possession
The concept that is sometimes known as a reverse notice of entry is also proposed in the consultation document. The Government wishes to understand whether it should be open to a landowner to require that possession is taken by a certain date, so as to avoid uncertainty for the landowner. Effectively this extends the blight notice provisions to all landowners following confirmation of a CPO. It will not be popular with developers and acquiring authorities but could provide a useful protection for those landowners who have been kept in suspense by an acquiring authority for many years and require certainty that they will actually be acquired compulsorily.
Additional protection for Acquiring Authorities where a new interest is discovered before entry is taken
The consultation document proposes an extension of the fairly limited provisions in s22 of the Compulsory Purchase Act 1965 to allow an Acquiring Authority who has complied with all necessary requirements including making diligent inquiry that it is protected if a new interest is discovered.
Confirming the date of exercise of powers under a General Vesting Declaration
Whilst the issue has been settled in the minds of most practitioners for many years now, there remains conflicting case law on whether a Vesting Declaration must be made within three years of confirmation of compulsory purchase powers or whether only the first stage notice of intention to make a GVD must be served in that time. To remove the uncertainty the Government is proposing that legislation makes it clear that the vesting declaration must be exercised within the three year period. This seems sensible. However this would not require the land to have vested in that authority by then.
Advance payments of compensation
The current regime for advance payments of compensation is often unsatisfactory. Landowners may not provide sufficient information to acquiring authorities whilst there is no compulsion on acquiring authorities to make advance payments in the time specified in the Land Compensation Act 1973. When the 1973 Act came into force interest rates were a significant penalty on a dilatory acquiring authority but this is clearly no longer the case, as no interest at all is currently payable on delayed compensation.
The Government therefore propose to remedy the situation by:
- Requiring claimants to submit an advance payment claim in a prescribed form
- Bringing forward the date at which an advance payment can be requested, so as to minimise the requirement for relocating claimants to fund by way of bridging loan any pre-acquisition costs, albeit only by a month from the current three month period
- A process for regularising dealing with advance payments by having a limited period in which acquiring authorities can request further information and also having a fast track process for resolving compensation. The identity of the arbiter of these disputes is not yet identified.
All of these reforms appear to be welcome and may well have the effect of assisting the funding of some relocations. Further, by largely dealing with many issues on compensation in a fast track and relatively informal method may cut down on the current log jam of references in the Upper Tribunal as the final difference between the parties in terms of valuation and relocation costs may be easier to bridge in some circumstances that might currently end up in the Upper Tribunal.
Improved interest rates on outstanding compensation
In a reform that is almost universally acknowledged as being long overdue, steps are proposed to remedy the situation that since April 2009 there has been no interest payable on outstanding claims for compensation. The proposal is that the pegging at half a percent below is no longer applied and potentially that the prescribed rate should be set at 1% above base rate. It is also asked whether compound interest should apply and whether an interest rate flaw of 1% is appropriate.
Transferring mortgages to avoid negative equity
At certain times in the lifecycle of compulsory purchase negative equity becomes a significant issue. The proposal from the Government is that mortgages can be transferred to relocation properties to avoid negative equity. The Government is seeking agreement with industry that such proposals can be brought forward but indicate that legislation may be pursued if the financial services industry cannot agree. In practice this seems sensible but the devil is always in the detail and small print of the mortgage terms and conditions which determine if this is possible.
Overriding easements and restrictive covenants
The current law on the overriding and extinguishment of restrictive covenants and third party rights is very much affected by the enabling legislation for the compulsory purchase being taken forward. Whilst land is being used for its current statutory purpose the issue is largely irrelevant, but when the land is transferred onto a third party, those covenants may revive. The Government suggest that the power be extended to other acquiring authorities so that existing covenants can be removed. There is also a suggestion that where overriding by the authorities to suggest facilitating commercial development on land for public works the basis of compensation should be open market value and not the current basis of diminution in value.
These proposals in combination may well prove to be controversial. The question of whether a defeated right is subject to a higher level of compensation as a result of the reforms will be controversial for Acquiring Authorities whilst landowners may believe that the power to override the covenants should be restricted to regeneration powers. There is a lack of clarity of thought as to what rights these should relate to – those currently vested in statutory undertakers are excluded from the current process but the consultation refers to overriding such interests. It is also important that the Government clarifies whether they are just referring to overriding interests as opposed to being able to extinguish them.
Overall the consultation is a mix of obvious and necessary changes, as well as more controversial and even some quite surprising suggestions. Many practitioners will wish for more change than is on offer and if one thing is certain in the world of CPO, it is that there will be a large number of conflicting views for CLG to sift through. Some changes will need legislation whilst others, will be relatively simple, requiring just a new statutory instrument or revised Guidance.
Any genuine attempt by Government to look at CPO law must be welcomed in principle, even if not all of the detailed of the proposals will be seen as beneficial to making the process clearer faster and fairer. Almost as important as the current proposals is the need for those involve in CPOS to keep the pressure on Government acquiring authorities, and their fellow professionals, to make sure the system is one that is genuinely as clear, as fair and as fast as it can be for those who are affected by compulsory purchase.