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Greater land capture for public good may put landowners at a disadvantage

View profile for David Baybut
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Suspension on possession proceedings extended

The Department for Levelling Up Housing and Communities have recently closed a consultation on compulsory purchase compensation reforms.

This follows on from the Levelling-up and Regeneration Bill that was recently published in May 2022. This bill sought to empower local leaders to regenerate towns and cities so that local pride is restored in places. The bill is seeking to level up the disparities between different part of England to ensure opportunities are equal. It aimed it to give greater powers to authorities and had specific planning reforms within it. Whilst the ill touched on compulsory purchase orders, the recent consultation that closed on July 19th 2022, examined compensation in relation to compulsory purchase of land, in specific detail. It could have far reaching ramifications for landowners, authorities and scheme promoters.

What is a compulsory purchase order?

A compulsory purchase order (CPO) allows a public authority to acquire land without the consent of the owner. In the context of compulsory purchase, land may include houses or any other buildings as well as the land itself. Currently, if this land is acquired for public interest the basis of the calculation that the landowner will receive in compensation is ‘equivalence’. This means that the landowner should be left in no worse, and no better, position. They should not end up out of pocket because of the land they have lost, or costs they have incurred), but equally cannot expect to be left in a better position. The calculation has two main elements: the market value, which is overlaid with 'hope value', which  is to factor in the value if planning permission would be granted for a different use.

It is apparent from the consultation that proposed amendments to the compensation/’hope value' element of  CPOs, would  allow for greater land value capture, in the public interest. It is seeking to ensure regeneration can be expedited, affordable housing is more easily achieved by one of these methods:

  • Capping payments for ‘hope value’ at existing use value or at a percentage above. This gives acquiring authorities a higher degree of certainty regarding costs. It may also make some projects therefore viable where they may have had to have been discounted previously.
  • The other approach outlined is to limit the payment of ‘hope value’ maybe overall or just for some types of schemes.

These approaches may put landowners at a significant disadvantage but the full implications are not known without guidance on the percentage cap. On the one hand, in simple terms, it would make it more straightforward to arrive at the CPO valuation, speeding up the process and making more projects viable from the authorities perspective. This would lead to housing replenishment and infrastructure delivery. However, it may also give rise to legal challenge by landlords if it is not applied fairly.