Cheshire Lounge and ‘Injurious Affection’ – Where’s the Affection?
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by Mark Warnett, Director of Compensation
Photo Credit: Stott Hall Farm cc-by-sa/2.0 – © Peter McDermott – geograph.org.uk/p/4111151
Injurious affection is an enigmatic head of claim, providing compensation for diminution in the value of a claimant’s retained property following compulsory purchase. The statutory provisions derive originally from the Lands Clauses Consolidation Act of 1845, and have been described as ‘notoriously difficult and obscure’.
The recent Lands Chamber case ‘Castlefield Property Ltd v National Highways Ltd (2023) UKUT 217 (LC): The Cheshire Lounge Public House’ dealt with injurious affection under S.7 of the Compulsory Purchase Act 1965. The decision is an interesting one, and gives some important clarifications to professionals working in infrastructure.
‘Cheshire Lounge’ considered the effect of uncertainty around a right of way over a new and replacement access to a pub / restaurant created for the A556 highways scheme (where the original access had been stopped up). The Member concluded diminution in value at 20% due to this uncertainty. As is usual, it is not the decision itself, but the principles behind it which are most relevant.
Valuation Date and subsequent events
Large transport schemes can cause nuisance, uncertainty and disruption. Noise, visual impacts, dust and vibration are commonly experienced during construction and operation, along with changes to Title (as in Cheshire Lounge). The real-life impacts of a scheme can be similar, better or sometimes very much worse than those predicted.
Cheshire Lounge confirms the valuation date for S.7 is the date of entry (or vesting) of the land compulsorily acquired. More interestingly, it confirms that regard cannot be had to actual events after the Valuation Date. The position was summarised as follows:
“the correct way to undertake the valuation was to have regard to all matters that were known or anticipated at the valuation date, or which would have been known or anticipated by a reasonably prudent and properly advised purchaser…. As a general rule, without an express contractual or statutory instruction to do so (and there is none in section 7) it would always be wrong to value land as if with knowledge of matters which were not known, and could not have been known, at the valuation date.”
This reinforces the previous decision in Elitestone v National Grid Gas Plc [2015] UKUT 0452 (LC), where the Member concluded “it is the extent of the injury that would be anticipated to be the consequences of the works that has to be considered” (para 87). The principle has also been forcibly argued by Michael Barnes in ‘The Law of Compulsory Purchase and Compensation.’ The valuation logic is clear; a buyer and seller can only know what they know at the Valuation Date and can’t be assumed to have a crystal ball.
This principle does raise issues. What if the effect of a scheme on a retained property is very much better or worse, or latterly introduces elements relevant to value that were (in the words of Donald Rumsfeld), ‘unknown unknowns’, at the Valuation Date? Moreover, following the logic, nuisance and loss arising from a scheme which occurs before the Valuation Date also cannot be relevant. Is it consistent with the principle of ‘equivalence’ that these should be disregarded? A claimant should receive compensation which fully and fairly reflects the loss actually suffered. The valuation now turns on the circumstances existing at the Valuation Date (the timing of which is in the control of the authority). This has the potential to be problematic in some cases.
Mitigation, not compensation
The essential practical lesson from Cheshire Lounge for authorities and claimants is to ensure that legally formalised rights of way are in place before the Valuation Date. This principle also applies to any mitigation works i.e. other scheme works which mitigate loss. Mitigating loss is almost always preferable to compensating loss, and and Cheshire Lounge has confirmed uncertainty is compensatable under injurious affection.
For a DCO, proper engagement through the consultation and Examination stages should normally provide sufficient opportunity for accommodation works to be agreed and legally formalised. In particular the consultation stage is the critical time to get the principles of accommodation works in place; by Examination it may be too late for scheme designs to be changed. For Cheshire Lounge, significant amounts of time and cost have been incurred dealing with compensation because matters were not formalised by the date injurious affection was assessed. Perhaps the issue would have been too complicated to resolve before then regardless, but ‘Cheshire Lounge’ should have the effect of focussing parties’ minds on the importance of agreeing, and legally documenting mitigation agreements.
Expert evidence and previous involvement
The Member found it unsatisfactory that both parties compensation experts witnesses had also been negotiating the claim for some time prior to the reference, concluding:
“both parties looked to specialists in the assessment of compensation to assist the Tribunal in quantifying the claim. We question why this is thought to be a helpful approach. It almost invariably means that those who have been involved in negotiating on behalf of one side or the other (often for many years) are asked at the eleventh hour to clear their minds of the interests of their client and acquire qualities of objectivity and impartiality which, in practice, are beyond them.”
It feels like this sort of criticism has been coming for some time, but it has not previously been so clearly expressed in a compulsory purchase case. It has been common practice for valuers instructed to negotiate compensation claims, to later act as expert witness if those cases became disputed. This has been regarded as a legitimate approach, as long as the respective professional and court standards are understood and followed. This may change and it will likely become more common for experts without any previous involvement to be introduced later in the process specifically for the reference.
There should be legitimate and justifiable exceptions. For example, if a reference property has been demolished by the time a reference is made, an incoming valuer acting as an expert will not have the opportunity to inspect, risking unsatisfactory valuation uncertainty. The same may apply in severance and injurious affection cases, where (as in Cheshire Lounge) ‘Before’ and ‘After’ valuations are usually adopted. In some cases a valuer instructed as an expert several years after the valuation date, when the scheme is in construction or operation, may struggle to properly assess what the retained property was like before in the ‘no scheme world’. For example, where a linear transport scheme running through the countryside has created considerable noise or visual impact, it is difficult to disassociate that observed environment with the property being valued, even if it was previously very tranquil and rural, risking inherent bias in the ‘before valuation’. In such circumstances a valuer involved from the start might more reasonably also act as an expert to avoid valuation uncertainty.
Valuation evidence
The central problem for almost all severance and injurious affection valuations is the lack of comparable evidence. Property valuations depend on transactional evidence, but nobody goes to an estate agent to ask ‘please can you market the diminution in the value of my property due to noise from the new road / railway’.
In Cheshire Lounge, the retained property had actually sold in the ‘scheme’ world, which gave much better evidence than is often available. It is nevertheless surprising that ‘Stokes vs Cambridge’ and the other well know ransom value cases were not invoked in the case at all, given that the subject of the valuation was a property lacking an easement providing a formal right of way. In most circumstances for non-trade properties, I would expect such a title defect to raise major red flags for buyers, convenyancing solicitors and mortgage companies, all speaking to value.
Frequently in injurious affection, the only evidence available is from settlements for other claims. Such evidence is subject to the ‘Delaforce’ effect; the tendency of claimants to accept compensation offered rather than incur the risk and burden of litigation. Settlement evidence is also frequently dismissed in tribunal cases. Interestingly in Cheshire Lounge the Member was assisted by the evidence presented by the authority’s expert (10% diminution) as a ‘baseline’ to arriving at his value of 20% diminution, even though it was for very different properties and different schemes. This approach may at least give practitioners some basis on which to base negotiations and settlements.
Final thoughts
This case has helpfully clarified some uncertainties associated with claims for severance and injurious affection, but by no means all. The over-riding lesson from the ruling on factors relevant at the Valuation Date is to legally document mitigation works (including access rights) before the valuation date; uncertainty is compensatable.
The Member’s comments on the ‘objectivity and impartiality’ of the compensation experts (previously negotiators) will cause reflection by valuers and legal advisors about who should act as an expert. Nevertheless, due to the peculiarities of compulsory purchase, in some cases at least it will be unsatisfactory for a new valuer to be introduced as an expert where significant time has passed and / or there has been substantial change to the property since the valuation date.
Ardent’s Consent Management Consultancy (CMC) and Compensation Directorate can advise on engagement and negotiations for accommodation works and compensation for acquiring authorities and claimants. Please get in touch for more details:
