Loss of Hope Value in assessing compulsory purchase compensation

The Government’s first King’s Speech included the Planning and Infrastructure Bill, which included reforms for compensation under compulsory purchase orders without the direct agreement of the landowner. The Bill aims to unlock more sites for development and ensure that compensation paid to landowners through the compulsory purchase order process is ‘fair but not excessive’. Claire Barritt in Ashtons’ planning team looks at what this might mean for landowners and farmers.

The ability to buy land using compulsory powers is regarded as a back-up toolkit for projects, particularly where there are multiple land ownerships or uncooperative landowners or land in unknown ownership, and for regeneration projects, plus for new affordable homes and associated infrastructure. The number and scale of other projects may also increase in coming decades, particularly in the light of the UK’s net zero climate targets.

Historically, the basis of compensation for the landowner for compulsory purchase has been assessed under a longstanding statutory framework whereby any increase or decrease in the market value of the land, which is solely due to the scheme underlying the acquisition, must be disregarded (the “no-scheme” rule). However, this principle also allowed the likelihood of planning permission being secured for a more valuable alternative use of the land (the “hope value”) or appropriate alternative development, to be taken into consideration.

The Levelling-up and Regeneration Act 2023 under the previous Government gave certain public authorities new powers to ignore both ‘appropriate alternative development’ and ‘hope value’ in assessing compensation for compulsory purchase by issuing a direction to this effect, meaning that the amount of compensation received by landowners could be significantly lower.

The ability to disregard hope value currently only applies to compulsory purchase orders relating to the development of housing, education, or NHS health facilities, and the use of the power requires approval by a government minister, who must be satisfied that it is in the public interest for compensation to be limited. However, the consultation exercise undertaken recently suggests that these changes could be widened to secure increased numbers of ‘no hope’ valuation compensation cases than at present.

The consultation closed at the end of March this year and the Law Commission is currently reviewing the outcomes and further reforms will come at some point in the future.

Commentary: Nothing has been made particularly clear during consultation in terms of proposals for ‘fairness’ principles in regard to compensation, if fairness is intended to mean something between existing use value, for example, agricultural use, and the hope value associated with prospective residential use of the land. There could be potential for resultant unfairness, which comes with its own perils. For example, if a landowner has taken out a mortgage secured on their landholdings, based on the current valuation including hope value, a compulsory acquisition of all or part of that landholding at a value that excludes hope value may leave the lender and/or the landowner with insufficient security for the remaining land, or in the case of the landowner, without enough compensation to replace what has been taken on the open market. It is also unclear to what extent councils would be able to sell all or part of compulsorily acquired land on to development ‘partners’ at higher prices, or how any ‘discounted’ price would pass down the chain without someone taking a larger share of the potential ‘profits’ along the way. Hopefully a means of delivering ‘fairness’ can be found to compensate landowners deprived of their asset, but for the moment, it is difficult to see how this is emerging out of the process, if hope value is simply removed from the compensation calculations.

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