[2023] UKUT 153 (LC)

Section 5 of the Land Compensation Act 1961 (“the 1961 Act”) sets out the six rules for assessing compensation. The claim in this case is for compensation arising from disturbance and is made under rule 6. Rule 2 is also provided to aid understanding:

“ …

(2)

The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise:

…

(6)

The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land.”

Section 47(3) of the Land Compensation Act 1973 provides that when assessing compensation in respect of land subject to a business tenancy:

“(3)

Regard must be had to—

(a)

the likelihood of the continuation or renewal of the tenancy,

(b)

in the case of a tenancy to which Part 2 of the Landlord and Tenant Act 1954 (security of tenure for business tenants) applies, the right of the tenant to apply for the grant of a new tenancy,

(c)

the total period for which the tenancy may reasonably have been expected to continue, including after any renewal, and

(d)

the terms and conditions on which a tenancy may reasonably have been expected to be renewed or continued.

The principle of equivalence, which requires a claimant to be fully and fairly compensated for their loss following compulsory acquisition, was reviewed in detail by Lord Nicholls in Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 11. He confirmed that compensation should cover disturbance loss as well as the market value of the land itself, provided that three conditions are satisfied. Firstly, there must be a causal connection between the acquisition and the loss in question. Secondly, the loss must not be too remote from the acquisition. Thirdly, the claimant must have complied with their duty to mitigate their loss. To quote Lord Nicholls (at page 6):

“The law expects those who claim compensation to behave reasonably. If a reasonable person in the position of the claimant would have taken steps to reduce the loss, and the claimant failed to do so, he cannot fairly expect to be compensated for the loss or the unreasonable part of it. Likewise if a reasonable person in the position of the claimant would not have incurred, or would not incur, the expenditure being claimed, fairness does not require that the authority should be responsible for such expenditure.”

We were referred to two further cases of particular relevance to this case where loss is claimed to have arisen from increased overheads in a relocation property.

In Service Welding Ltd v Tyne and Wear County Council (1979) 38 P&CR 352 (CA) the acquiring authority successfully appealed, by case stated, a decision of the Lands Tribunal (V G Wellings QC) that the claimants were entitled to compensation for disturbance in respect of interest charges incurred in financing construction of a new factory into which they relocated. Bridge LJ (with whom Megaw and Templeman LJJ agreed) stated at [357]:

“What the authorities (to which I need not refer in detail) very clearly establish, however, is that when an occupier, whether residential or business, does, in consequence of disturbance, rehouse himself in alternative accommodation, prima facie he is not entitled to recover, by way of compensation for disturbance or otherwise, any part of the purchase price that he pays for the alternative accommodation to which he removes, whether that accommodation is better or worse than, or equivalent to, the property from which he is being evicted. The reason for that is that there is a presumption in law—albeit a rebuttable presumption—that the purchase price paid for the new premises is something for which the claimant has received value for money. If he has made a good bargain and acquired premises that have a value in excess of what he has paid for them, that is not something for which the acquiring authority is entitled to any credit. If the claimant has made a bad bargain and has paid a great deal more for the new premises to which he is moving than they are really worth, that is not something for which the acquiring authority can properly be charged.”

In J Bibby & Sons Ltd v Merseyside County Council [1980] 39 P&CR 53 the Court of Appeal dismissed the appeal of the claimants against the decision of the Lands Tribunal (W H Rees FRICS) that they were not entitled to compensation for increased operating costs resulting from relocating to an office building of five floors, when only two were required for occupation. However, Brandon LJ (with whom Megaw and Eveleigh LJJ agreed) considered at page 60 instances when it would, in principle, be right to award compensation in respect of extra operating costs, the presumption of value for money having been rebutted:

“It seems to me that it would be right to award compensation in respect of such items if it were shown, first, that the claimant, as a result of the compulsory purchase, had no alternative but to incur the increased operating costs concerned and, secondly, that he had no benefit as a result of the extra operating costs that would have made incurring them worthwhile.”