Compensation
From GPG
Contents |
Introduction
Authorities looking to create public rights of way under s 26 of the Highways Act 1980 need to consider the issue of compensation that may be payable as a result of the Order coming into effect. Compensation may also be payable in relation to some Diversion Orders under the Highways Act 1980, and compensation can be paid under creation agreements. (Compensation is not payable for Public Path Orders made under the Town and Country Planning Act 1990, or for Definitive Map Modification Orders made under the Wildlife and Countryside Act 1981.) This page summarises comprises an extract from a study study, Creation of new public rights of way prepared for the Countryside Agency in 2005 by Reading Agricultural Practice (with minor edits).
Agents' Fees
Many landowners will want to use agents when discussing compensation. If not handled carefully, agents' fees can easily become disproportionate and may even outstrip any compensation payable. Requests will invariably be made for reimbursement of fees as part of the compensation or payment package.
Under most Compulsory Purchase Schemes, agents' (surveyors') fees have been settled under a well-established scale fee arrangement called Ryde’s Scale (1996). The surveyor’s fee payable is linked to the scale of compensation as laid down in a series of tables.
Right of way officers should avoid being put under pressure by surveyors about their costs while a number of options are still being investigated. Only once the route of the new right of way has been chosen is it time to agree to reimburse surveyors’ reasonable fees. This will be either under Ryde’s Scale of 1996 (which is the safest way for the LHA) or, if on a time basis (‘quantum meruit’), the rate per hour for the surveyor should be agreed and the LHA should insist on accurate time sheet logs at every threshold of, say £300, as appropriate. There must be a maximum fee agreed at the outset and the surveyor should be asked to provide an estimate beforehand, otherwise costs could easily over-run.
Right of way officers are advised to take early valuation advice to determine appropriate compensation, and hence the expected fee under Ryde’s Scale, in order to provide a benchmark for reasonable fees.
Surveyors may be unhappy about the use of Ryde’s Scale, which has no statutory authority. However, the Valuation Office Agency reports that in most cases heard by the Lands Tribunal where the amount of a surveyor’s fees has been an issue, fees have been awarded on the basis of Ryde’s Scale. For more information about Ryde’s Scale see Valuation Office Agency.
There may well be two surveyors involved on one property; one acting for the landowners and a second for the occupier, eg where there is an agricultural tenant. It is quite reasonable to incur two sets of fees in these circumstances. Both interests will be affected by a right of way creation and lead to two distinct and separate claims.
Care should be taken where the occupier may not be a different entity to the owner. An example might be where a farm is run by a limited company with the occupier as a director. Here a single fee would be appropriate to combine both compensation claims.
Where there is multiple ownership of land, again expect to pay only one surveyor’s fee for acting collectively for the multiple owners.
The creating authority will usually draw up the necessary legal agreements and so it should not always be necessary to involve the landowner’s or occupier’s solicitors. If they are needed, fees should be relatively modest.
Compensation
The findings of a report published in July 2000 by the Office of the Deputy Prime Minister(Fundamental Review of the laws and Procedures Relating to Compulsory Purchase and Compensation, Final Report), looking particularly at compensation following compulsory purchase, provide valuable advice when considering compensation for the creation of a right of way. The report found that, “Where potential claimants can be given a reliable forecast of their compensation entitlement, rather than simply an offer from an acquiring authority, it is possible to reduce, or even eliminate, objections to the principle of the scheme”.
Principle 23: Provide landowners with a detailed, reliable forecast of their compensation entitlement
This section provides guidance on the issues that should be taken into account when estimating compensation. Compensation claims generally have three elements:
- compensation for land used;
- disturbance; and
- injurious affection and severance.
Detail of the Government’s statutory compensation code on the rights of owners to compensation for land taken, as opposed to the creation of a right of way, is available in Chapter 5 of the Land Compensation Manual of the Valuation Office Agency. The summary below addresses those sections of the code that apply to right of way creation.
Compensation for land used
The compensation for land used for a right of way should be limited to the value that the land would make on the open market when sold to a willing buyer. Even though the freehold will not change, the surface of the new path will become the responsibility of the creating authority. Examining the prices achieved by similar land types in the area of the right of way creation and applying a cost per unit area can provide an estimate of this maximum value.
Principle 24: Compensation for land used is at open-market value
Under voluntary Agreements, the land value for compensation is often assumed to be greater than the open market value. In such situations, negotiations should take place on a “without prejudice” basis and evidence of the offer would be put before any Lands Tribunal hearing, bearing in mind that the Tribunal cannot take the magnitude of any “without prejudice” offer into account in any settlement.
Compensation for disturbance
Compensation for disturbance is more complex and need not necessarily be related to the value of the land. Whilst there is no statutory definition of ‘disturbance’, disturbance compensation should be assessed under the existing statutory compensation code. The principle of compensation for disturbance is that both the landowner and/or occupier (with a legal interest) should, financially, be in the same position as if the right of way did not exist. In other words they have the right to receive payment not less than, nor more than, the loss imposed in the public interest.
A tenant farmer may be entitled to claim for several years’ loss of crops and subsidies as though he were being dispossessed. Additionally, he would be able to claim for the loss of his unexpired interest in the value of the land taken, normally assessed at about 30% of the vacant value of the land. Compensation for such losses may be made to the landlord and passed on to the tenant by adjustment of rent, or direct to the tenant.
The level of disturbance compensation paid for a right of way crossing a field used for high value vegetable cropping may be similar to that for crossing rough grazing or heathland, compensation should take into account disturbance relating to sporting uses such as shooting or loss of a growing crop due to right of way establishment.
Disturbance compensation may also be payable for disturbance of stock during the creation of a path whilst accommodation works are under construction.
Professional fees normally fall into the ‘disturbance’ category, but they should be shown separately, under a sub-heading.
It is normally very difficult for the parties to a compensation claim to arrive at an agreed level of compensation for disturbance, but it should always be borne in mind that a Lands Tribunal is likely to give most weight to cases that are supported by good comparative evidence.
Principle 25: Compensation for Disturbance simply places the claimant in the position he was in before the right of way creation
Compensation for Severance and Injurious Affection
The concept of severance and injurious affection has been defined within the Compulsory Purchase Act 1965 and the levels of compensation payable are covered by the Valuation Office Agency’s statutory compensation code. It is normally the freeholder that can claim. The purpose of this fraction of any compensation is to account for any damage or depreciation of an interest in affected land.
It is unlikely that this compensation will be proportionate to the length of path or the land value. Injurious affection relates to the realistic level of devaluation caused by the presence of the right of way, for instance through the potential for damage arising from any subsequent access to adjacent hay meadows or vegetable crops.
Compensation for necessary additional work arising from the creation, such as the management of undergrowth adjacent to the right of way, is normally payable as Injurious Affection. Where a tenant farmer is involved it should be ensured that he is adequately compensated, by agreement with the landlord, by sharing the relevant part of the compensation for Injurious Affection.
While the level of depreciation in the value of land and residential property caused by the introduction of a road scheme can be as high as 30%, even where no land is taken, it is very unlikely that such a level of depreciation would arise from the creation of a right of way. Generally, the non-intrusive nature of a right of way and ease of taking access across them means that severance payments will be inappropriate.
Principle 26: Injurious Affection can constitute a large proportion of any claim but can be minimised by the sensitive choice of the route
Other compensation issues
Loss of profit
Compensation for permanent loss of profit is not normally payable, since the market value of the land should include all the potential for making profit. Temporary loss of profit is often included within compensation for injurious affection, in which case duplication should be avoided.
Principle 27: Loss of profit is not normally payable
Arbitration and Dispute Resolution (ADR)
Under the law, disputes relating to land valuation are referred to the Lands Tribunal. In most agricultural contexts the cost of this recourse is disproportionate to the sums of compensation involved. In order to avoid such excessive costs, the access authority could offer to settle the compensation dispute by Arbitration as long as it could be made binding on both parties before an order for a new path was made.
Principle 28: It will probably be cheaper to settle a dispute by ADR than by taking a case for determination by the Lands Tribunal
An arbitrator/valuer should be appointed either by agreement between the parties or by the president of the Royal Institution of Chartered Surveyors (RICS). Such a professional would be bound by procedures and protocols under the Arbitration Act but otherwise be free to set a timetable for exchange of submissions and arrange for a hearing if necessary. All of the evidence is taken, an inspection made and an award issued, including the arbitrator’s costs, which are normally borne by the unsuccessful party. This procedure has advantages over the more formal and public procedure of the Lands Tribunal.
Lands Tribunal
Where no agreement can be reached, the Lands Tribunal is the ultimate arbiter. The Tribunal is a court of law, and an appeal against its decisions is to the Court of Appeal. There are a variety of mechanisms by which cases can be resolved, including written submissions or full hearings with one to three judges depending upon the complexity of the case.
Determinations by the Lands Tribunal are a judicial process and so are rigorous and demanding. However, it is to be noted that there are simplified procedures that can significantly ease the burden of applications. Details of these ‘section 28’ procedures can be found on the Lands Tribunal web pages (see Annex 7.
Specific rules apply to the awarding of costs by the Lands Tribunal strongly favour an early neutral valuation and corresponding offer of compensation.
