THE HEADLINES

Much has been said about the proposed high speed rail project that will link London to the West Midlands and North England. Known by the acronym “HS2” (HS1 being the channel tunnel rail link), the project has been described as a “vanity project” by the director of the (now defunct) Sustainable Development Commission1 whilst environmental groups are torn between the desire to promote rail over air and road travel and the fear that HS2 will encourage “hypermobility for the rich.”2

Concern has also been expressed over the escalating cost of the project (an estimated £32 billion in total) and whether the alleged benefits are realistic. Opponents claim that there are better alternatives which would provide extra capacity more quickly and at less cost.3 In response, The House of Commons Transport Committee has launched an inquiry into the strategic case for High Speed Rail. Despite this, the government’s commitment to the project seems resolute.

THE PROPOSED ROUTE

The ultimate proposal is to create a “Y” shaped network linking London to Birmingham, Manchester and Leeds including stops in the East Midlands and South Yorkshire and direct links to HS1 and Heathrow airport. The first phase is the link between London Euston and a new terminus to be constructed in Birmingham city centre. In December 2010, the preferred route for the London to Birmingham link was published and in February 2011, the Secretary of State for Transport launched a public consultation on the scheme which will run until the end of July 2011.

The Department of Transport’s website now features detailed maps of the proposed London to Birmingham link and a helpful “postcode checker” which can pinpoint postcodes on the route map.4

COMPENSATION FOR EXISITNG OWNERS

Blights

Compulsory purchase orders are a long way off. In the meantime, the adverse effect of the proposals on land along the route is known as “blight.”

A generalised blight was triggered as soon as the proposed route was published as it is not possible to say precisely what land will be affected by the proposals. This will remain the case until the route is finalised and the government takes steps to safeguard the route, whereupon a statutory blight will be triggered. Safeguarding is not currently expected until March 2012.

The distinction between generalised and statutory blights is important because the government is not under any legal obligation to compensate landowners affected by a generalised blight. However, there is a statutory framework in place in relation to land affected by a statutory blight (see below).  

The Exceptional Hardship Scheme

Notwithstanding its legal obligations, the government has recognised that in the wake of its announcement, there has potentially been a significant effect on the property market in the immediate vicinity of the proposed HS2 route. It has established an Exceptional Hardship Scheme (EHS) for owners who have an urgent need to sell their properties before the government announces the final route at which time the EHS will close. Property owners who meet the criteria can apply to the EHS to have their properties purchased by the government at the unaffected, realistic open market value.

However, the EHS is a voluntary purchase scheme and the five criteria which must be met to qualify for the EHS are narrow and apply a subjective assessment of whether they have been met. By 10 May 2011, only 38 applications had been successful. Significantly, commercial property will not qualify for the EHS if the annual rateable value exceeds £34,800 so availability is likely to be limited to small business premises.  

Statutory blights

Once the HS2 route has been determined, the Government will safeguard it. Safeguarding is a statutory process which allows the Secretary of State to protect corridors of land which have been indentified for transport projects such as HS2. The effect is to prevent new development on the safeguarded land which would hinder the project.

Once an area has been safeguarded, those who have a “qualifying interest” in properties within the safeguarded land (or the limits of deviation) can serve a “blight notice” on the Secretary of State if they are unable to sell their property as a result of the government proposals or would only be able to do so at a significantly reduced value. In common with the Exceptional Hardship Scheme, commercial property will not qualify under the statutory blight regime if the annual rateable value exceeds £34,800.5

If a blight notice is served, the Secretary of State will either buy the property for the unaffected value or serve a counter-notice objecting to the blight notice on certain specified grounds in which case the matter may be referred to the Upper Tribunal (Lands Chamber) for determination. Broadly, if the property is purchased, the compensation paid will be the open market value of the property disregarding the affect of HS2 on value.  

The statutory blight provisions should be distinguished from the EHS. Although the criteria for statutory blight is not as stringent or as subjective as for the EHS, there is still widespread dissatisfaction with the statutory blight regime as it will not cover many landowners in circumstances where there has been a clear impact on the value of their land.  

Other compensation

The government has said that once the EHS closes it may introduce a further discretionary scheme for properties which would not be covered by the statutory blight regime, but which would nevertheless be adversely affected by the HS2 route. Details are likely to be announced after the current consultation has closed.

A significant swathe of land will need to be compulsorily purchased if HS2 proceeds. The compensation process under the compulsory purchase system can drag on for years (although the claimant may request that 90% of the acquiring authority’s estimated value is paid in advance) and there are many nuances of the compulsory purchase legislation which can impact on the compensation.  

However, even where property is not itself subject to a compulsory purchase order, there is still legislative scope for compensation where land is adversely affected by works.

This will include compensation for physical interference to a property right where the right adds value to the land. Further, after work has completed, the Land Compensation Act 1973 confers a right to compensation for the depreciation of the value of land caused by the use of the railway. Given the complexity of the law on compulsory purchase and compensation provisions, professional advice from specialist advisors is a necessity in most cases.  

POTENTIAL PURCHASERS

Prior to purchase, the standard enquiry of the local authority will reveal whether a property is within 200 metres of the proposed HS2 route and, once legislation is in place for the compulsory purchase of required properties, a further standard enquiry of the local authority will disclose if a property will be needed.

However, buyers of properties in the vicinity of the proposed route should not be complacent about HS2:  

  • HS2 will almost certainly have implications for properties further away from the proposed route than 200 metres
  • compulsory purchase orders are not flagged unless and until they are made  
  • property owners will not qualify for the EHS if they purchased their properties after 11 March 2010 as they will be deemed to have known about HS2. Any further discretionary scheme introduced by the government is likely to adopt a similar approach.

Buyers are advised to familiarise themselves with the proposed route and make use of the postcode checker (referred to above) to clarify whether a property is affected.

POTENTIAL OPPORTUNITIES

Landowners should also be aware of the less obvious implications of HS2 so that they can maximise their position.

Ownership structuring

James Prewett of Knight Frank’s HS2 team suggests that landowners should look at current ownership structures:  

“For example, once the HS2 route has been determined, landowners may find that they are able to take advantage of amended planning designations for mineral extraction and residential or commercial development. However, any enhanced value that this might add to part of their land will be offset against the compensation paid for the compulsory purchase of any other part. So land transfers now may result in increased compensation later.”

In other cases, where property might otherwise be subdivided as part of routine tax planning, it may be prudent to defer division as this will have a fundamental impact on the calculation of value and therefore compensation.

Maximising value before safeguarding

Landowners should also think about how to enhance the value of their property before it is safeguarded as this will increase the compensation payable later. Prewett suggests that landowners consider applying now for any planning permissions even if there is no intention to implement them in the immediate future.

Development opportunities

Prewett also suggests that landowners could benefit from renting land to the companies building the HS2 line and from development opportunities along the route, particularly in the vicinity of stations.  

PRACTICAL TIPS

Landowners and potential buyers need to check carefully any revisions to plans for the HS2 route. Prewett recalls a temporary construction road which cut across one of his client’s properties that became a permanent road in the next revision of the plans.

Any representations about the proposed HS2 route must be made before the consultation closes on 29 July 2011. Prewett advises that responses should be as specific as possible to ensure that they are considered individually rather than on a generic basis.  

There is also scope to take practical steps to mitigate the noise and visual impact. Increased bunding should be incorporated into new construction and new woodland planted along boundaries will be relatively mature by the time HS2 is operational in 2026. Earthbanks could also be considered. However, as Prewett points out, it is hard to anticipate what noise will need to be deflected since no one knows what kind of trains will operate on the new lines.  

CONCLUSION

The trend for landowners affected by the HS2 route is to take one of two approaches: either they join the campaign effort against the scheme or they adopt a “wait and see” stance. However, landowners should also work on the assumption that HS2 will proceed and ensure that they maximise their position both in terms of ownership structuring and compensation entitlement.

In the meantime, buyers of land which may be affected need to tailor their plans accordingly and ensure that their professional advisors are alive to the potential issues of HS2.

THE ANTICIPATED TIMETABLE

Click here to see table.