ABSTRACT
The owner of a leasehold interest, served with a notice to treat, is entitled to compensation for the value of his interest (essentially the value of any profit rent or, where appropriate, the value of any ‘key’ money that would be payable); compensation for severance and injurious affection; and compensation for disturbance. All the rules considered in the chapters on these three heads of claim are applicable to the assessment of compensation for the acquisition of a leasehold interest. Certain additional points can be made. The position of tenancies under the Landlord and Tenant Act 1954 is considered in 19.5 below. In the case of a lease or tenancy that is not a tenancy from year to year, and has more than a year to the term date, section 7 of the Compulsory Purchase Act 1965 entitled the tenant to the value of his interest; that value is assessed in accordance with the six rules in section 5 of the Land Compensation Act 1961, the other rules in that Act and in accordance with the
Pointe Gourde principle (disregarding the scheme). The tenant is therefore entitled to the open market value of the unexpired term. That is essentially the value of any profit rent, where the passing rent is less than the current market rental value. Whether or not there is a profit rent, there may be evidence that in the market ‘key’ money would be paid to acquire the lease: see Saglam v Docklands Light Railway Ltd [2007]. In the case of a lease where the passing rent is above the current rental value, the lease may have a negative value. That gives rise to the interesting question as to whether the negative value must be set against any disturbance compensation claim on the argument of one claim under which the claimant is entitled to no more or less than his loss: see 11.5.5 in Chapter 11. A strict application of the one-claim fairness principle would suggest that a negative value should be set off. There is support for this approach in Richard Parsons Ltd v Bristol City Council [2007] where, by reason of the scheme underlying the compulsory acquisition, which involved the demolition of the premises, the tenant was relieved of any dilapidations’ liability in the scheme world. The Tribunal decided that the benefit of being so relieved should be brought into account in assessing the compensation for the value of the claimant/tenant’s interest in the no-scheme world. However, a negative value is like negative equity in a house; it may be transient, and will disappear with time. The claimant is not choosing to get rid of the lease; he is compelled under compulsory purchase. To set off the negative value against other compensation does not recognise the compulsion and will leave the claimant with uncompensated losses caused by the acquisition. Although the claimant would appear to be fortuitous in having a burdensome lease acquired, in the case of an over-rented lease, he might well have preferred to pay a higher rent in the meantime. It should be remembered that the higher rent will be reflected in lower profits, and therefore a lower claim for loss of profits or extinguishment of goodwill. Accordingly, in the case of an over-rented lease, a claimant/tenant could be prejudiced twice if the negative value is deducted from the total compensation, and the disturbance element of the compensation is calculated by reference to profits that are diminished by reason of the higher rent. Although the latter point might be unavoidable, it is arguable that a distinction could be made between a negative value of an over-rented lease, which perhaps should not be brought into account, and a benefit from being relieved from a dilapidations’ claim, where the arguments might be stronger. If, at the date of the notice to treat, the lease had more than a year to run, then compensation will be assessed on the usual basis, and section 20 (see below) will have no application: see Runcorn Association Football Club Ltd v Warrington & Runcorn Development Corpn [1982] where notice to treat was served two and a half years before the end of a 14-year lease, but entry was taken when seven months of the lease remained. Because section 20 was said to have no application in the Runcorn case, the claimants were entitled to request that the compensation be assessed on the costs of equivalent reinstatement under rule (5), section 5 of the 1961 Act. Subject to any statutory rights of protection that remain effective, or are to be taken into account (see section 47 of the Land Compensation Act 1973), the effect of the decisions in Minister of Transport v Pettit [1968] and Rugby Joint Water Board v Shaw-Fox [1973] is that when valuing either the tenant’s or the landlord’s interest, the interest is to be valued upon the basis that the tenancy could have been terminated on the earliest date possible under the tenancy, and any prospect in the no-scheme world of the tenancy continuing is to be disregarded. This rule applies to both section 20 of the Compulsory Purchase Act 1965 and rule (2) of section 5 of the Land Compensation Act 1961; it also applies to the assessment of any compensation for disturbance or other losses under rule (6). Thus in Bishopsgate
Space Management Ltd v London Underground Ltd [2004] the Lands Tribunal assessed compensation due to a tenant, under section 20, on the assumption that the landlord would have triggered an early determination clause. The assessment of compensation for disturbance and other losses is considered in Chapter 17; there is no difference in principle in the assessment of compensation between a claimant holding a freehold interest and one holding a lease or tenancy, save in one respect. In calculating the value of lost profits, either in the case of total extinguishment, or to recover the loss of actual profits during and after a relocation, the length of the unexpired term may be relevant. The decision of the Tribunal in Bishopsgate Space Management Ltd v London Underground Ltd [2004] was to the effect that even in the assessment of any disturbance compensation, it had to be assumed that the lease would determine at the earliest date that it was capable of being brought to an end, and that it could not be assumed that a new tenancy would be granted: there were no statutory rights of renewal. That part of the decision is highly questionable. The decision is inconsistent with the decision of the Court of Appeal in Trocette Property Co Ltd v Greater London Council [1974]. It is inconsistent with the assumption of the Law Commission in its report, Towards a Compulsory Purchase Code: (1) Compensation [2003], that compensation may reflect the chance of a new tenancy. It is also inconsistent with the common law of damages, which allows the loss of a chance of some benefit: see Chapter 17. In Trocette, the Court of Appeal upheld the Tribunal’s decision that the market would have assumed that the landlord (the GLC) would have been likely to grant a new long-term lease; Megaw LJ said: ‘nothing compelled or permitted the tribunal, in assessing compensation for a leasehold interest, to ignore evidence known to the market of the likelihood of renewal’. In Transport for London v Spirerose Limited [2009] a distinction was drawn between the basis of deterministic and probabilistic compensation claims. The Tribunal had said that:
The injury, in a claim for compensation, is the taking of the land, and compensation is assessed as at the date of entry. As to what had happened or what would have happened by that date if the land had not been taken the questions are deterministic. As to the prospects of things occurring after that date the questions are probabilistic.
