Compulsory purchase reform in Scotland: consultation

9. Compensation procedures

Overview

9.1 This chapter deals with the procedures for claiming and paying compensation, including the process of making a claim, time limits and advance payments.

Making a claim

9.2 Despite all the detailed legislation about how to calculate the amount of compensation due, there is very little about how to make a claim.

9.3 When a Notice to Treat (NTT) is served, the 1845 Act says acquiring authorities:

“…by such notice shall demand from such parties the particulars of their interest in such lands, and of the claims made by them in respect thereof; and every such notice shall state the particulars of the lands so required, and that the promoters of the undertaking are willing to treat for the purchase thereof…”

9.4 For a General Vesting Declaration (GVD), the notice of intention to make the declaration must invite those entitled to compensation “to give information to the authority making the declaration in the prescribed form with respect to his name and address and the land in question”. The prescribed form is Form 9 of the Compulsory Purchase of Land (Scotland) Regulations 2003. It asks for the claimant’s name and address and details of the land and their interest in it, but not for any details of the compensation sought. Some acquiring authorities have created their own forms in order to collect the information they need to estimate the amount of compensation due, and to understand the basis of the claimant’s figures.

Options and proposals

9.5 It has been suggested that legislation should clearly require authorities to advise those on whom notices are served of their rights to compensation and the process for claiming it. Updated wording for notices and improved forms to obtain better information could potentially be prescribed in secondary legislation or set out in guidance.

9.6 During our engagement with stakeholders we have heard concerns over a lack of transparency from acquiring authorities about the assumptions underlying their own estimates. Acquiring authorities will typically have made an assessment of the likely compensation for properties they are purchasing, for budgeting purposes. Greater openness on both sides might enable a more collaborative approach to negotiation.

9.7 Another suggestion is that the system could be changed to require the acquiring authority to offer compensation as the first step, rather than requiring the owner to claim it. This would represent a more fundamental change.

Question 93: Should acquiring authorities be required to advise owners of their rights to compensation and how to claim it?

Question 94: Should a statutory claim form be provided to collect more information about the amount of compensation sought?

Question 95: Should acquiring authorities be required to provide information on their assumptions relating to compensation, if this is requested by a claimant?

Question 96: Should acquiring authorities be required to offer compensation, rather than requiring owners to claim it?

Question 97: Please provide any comments about the procedure for claiming compensation, if you wish to expand on your responses to questions 93 to 96.

Time limits

9.8 This section deals with the minimum and maximum time limits for claiming compensation, and for making an application to the LTS if the amount of compensation is disputed. In most cases compensation will be settled (with or without recourse to the LTS) without troubling those time limits. However, it is important that the relevant deadlines are both clear and reasonable, on the occasions when they are needed.

Current provisions

9.9 Under current procedures the timings vary between use of NTT and GVD, and some are clearer for one approach than the other. As set out in chapter 7, with NTT compensation has to be settled before title can be taken, whereas with GVD title is taken first and compensation settled afterwards.

9.10 A claim for compensation can be made from the date when the NTT or GVD is made. For a GVD, compensation provisions apply “as if, on the date on which the declaration was made, a NTT had been served” (the “deemed NTT”). In the context of early engagement and seeking to purchase land by agreement, there are likely to have been earlier discussions around compensation, but this is when a formal claim can be made. There appears to be no end limit on when a claim can be made.

9.11 An application in relation to a disputed claim for compensation can be made to the LTS after 30 days from the date on which a NTT is served, or deemed to be served. For a NTT, title is not taken until after compensation has been settled. For a GVD, the vesting date must be no less than 28 days from when the declaration is made. This sits slightly uncomfortably with the 30 days for reference to the LTS.

9.12 Under schedule 15 to the 1997 Act, the latest date on which an application can be made to the LTS, following a GVD, is “6 years from the date at which the person claiming compensation, or a person from whom he derives title, first knew, or could reasonably be expected to have known, of the vesting of the interest”, but “no account shall be taken of any period during which the person claiming compensation or the person from whom he derives title was under legal disability by reason of nonage^[38] or otherwise”. This makes it unclear whether the six years runs from the date of vesting, or the date of notice of making of the GVD, or some other date.

9.13 There appears to be no provision for a time limit for application to the LTS where a NTT is used.

Options and proposals

9.14 We see no reason to change the first date on which a claim for compensation can be made, which would be the date on which the proposed new Compulsory Purchase Vesting Declaration (CPVD) is made.

9.15 The earliest date on which a claim can be referred to the LTS, under the current system, is almost the same as the earliest date on which a GVD can take effect. To avoid such discrepancies we suggest that in the new system, the earliest date for application to the LTS should be the date of vesting.

9.16 In chapter 7 we have suggested that the new CPVD procedure should allow a minimum of six weeks between making the declaration and the vesting date.

9.17 In terms of the time limit for bringing cases to the LTS, we see no particular reasons to change the six year limit which currently applies to a GVD. We therefore consider that the limit should continue to be six years, but it should have a clear starting point at the date of vesting.

9.18 Some respondents to the Scottish Law Commission Discussion Paper were concerned that it can be difficult to determine the extent of a claim until the development scheme is completed. However, a case before the LTS can be sisted to allow more time for evidence to be gathered. In our view, the LTS should also have discretion to allow cases to be brought beyond the six year limit, but only if the applicant can show that they were not previously aware of the CPVD.

9.19 The lack of an end date for claiming compensation could cause difficulties for both parties, although late claims or owners who cannot be identified are very rare. For the acquiring authority, it leaves them with a potential liability for payment which they cannot close off. For the claimant, it means they could end up with a claim too late for any dispute to be referred to the LTS, and therefore remaining unresolved indefinitely. On the other hand, where an individual’s property has been taken through compulsory purchase, it may not be appropriate to set a time limit on their right to compensation.

9.20 In summary we propose that:

• a claim for compensation can be made from the date on which the CPVD is made
• there should be no final time limit on when claims can be made
• an application can be made to the LTS from the date of vesting
• the last date on which an application can be made to the LTS is six years from the date of vesting
• the LTS should have discretion to allow late applications if the applicant can show that they were not previously aware of the CPVD

Question 98: Do you agree that an application to the LTS should be able to be made from the date of vesting? If not, when should the earliest date for application be?

Question 99: Should there be a final time limit for making a claim for compensation? If yes, what should the limit be?

Question 100: Are any other changes needed in relation to the timing of compensation claims?

Advance payments

9.21 When using a GVD, an acquiring authority can take title first and compensation is agreed later. To avoid claimants being out of pocket and allow them to relocate, acquiring authorities are required to make an advance payment of compensation where one is requested. Advance payments can therefore be helpful in avoiding affected parties experiencing hardship.

9.22 This section considers issues around:

• information required to claim
• timing of payments
• heritable securities
• sanctions for non-payment

Statutory basis

9.23 An acquiring authority is obliged to make an advance payment to any person entitled to compensation who makes a claim for such payment (section 48 of the 1973 Act). This applies to subordinate rights as well as ownership. The amount of such an advance payment is 90 percent of the level of compensation as either agreed by the parties or estimated by the acquiring authority.

9.24 Requests are required to be in writing and give particulars of the claimant’s interest in the land. The acquiring authority can also ask for additional information to allow them to estimate the amount of compensation due.

9.25 Any advance payment must be made within three months of the date of request, or, if later, on the date on which the acquiring authority take possession. If the payment is made before the acquiring authority obtain title to the land, the acquiring authority must arrange for notice of the advance payment to be registered in the Land Register or recorded in the Register of Sasines.

9.26 Where an advance payment is based on the acquiring authority’s estimate and at any time it appears that was too low, the acquiring authority must pay the balance to the claimant upon request. If the final amount of compensation as agreed or decided is less than any advance payment based on an estimate, any overpayment must be repaid to the acquiring authority. Payments made to someone who was not entitled are also recoverable by the acquiring authority.

9.27 If the land is subject to a heritable security, the advance payment is reduced by the amount the authority consider they would need to pay off the security. If the principal of the security exceeds the amount that would be due, ie, 90% of the agreed or estimated compensation, no advance payment will be made. Advance payments cannot be made to security holders, their share is simply held back until agreement on compensation is reached.

Information required to claim

9.28 Acquiring authorities need adequate information to be able to estimate the overall amount of compensation, before they can calculate the amount of an advance payment. If a more detailed form is provided for the compensation claim as a whole, or the acquiring authority is required to offer compensation as the first step, (see paragraphs 9.2 to 9.7), then advance payments could simply be claimed by a letter. Notices should provide information about the right to advance payments as well as about compensation as a whole.

Timing of payments

9.29 The entitlement to an advance payment arises from the acquiring authority taking possession of the land. Payment is to be made on the date of possession, or within three months of the request being made, whichever is later. Claimants may, however, incur significant expenditure some time before this, for example if they choose to relocate before the acquiring authority takes possession. Under the GVD procedure, claims for compensation are invited when the notice of intention to make the GVD is issued, and a request for advance payment could be made at the same time. If the acquiring authority provides for more than the minimum time before vesting, it might be helpful for them to be able to make payments before taking possession.

Heritable securities

9.30 As set out in paragraph 9.27, advance payments cannot currently be made to security holders, and where the principal of the security exceeds the amount of payment due, no advance payment is made. This could clearly make it difficult for a claimant to relocate if their property is subject to a heritable security which they cannot pay off.

9.31 We understand that it can be difficult for acquiring authorities to engage with lenders, who may be unfamiliar with CPO procedures. However, with the involvement of the claimant it may be possible to reach agreement for an advance payment to be made to enable the security to be discharged.

Late payment

9.32 The key concern that has been raised over advance payments is that acquiring authorities may fail to make them within the required 3-month timescale. There is currently no mechanism for the claimant to enforce payment, short of judicial review or taking a case to the Scottish Public Services Ombudsman, since making advance payments is a statutory duty.

9.33 The Scottish Law Commission recommended that the courts should have a limited statutory power of enforcement where the acquiring authority have failed to make a proper estimate of the advance payment within the required time or has made one which is manifestly too low. It also suggested it may be appropriate to allow the LTS to provide an enforceable valuation figure for an advance payment.

9.34 However, both of these could be considered too slow and cumbersome to act as an effective sanction. The Scottish Compulsory Purchase Association have previously called for penalty interest payments (e.g. 10%) to be made to claimants where a legitimate application for an advance payment is not paid within the required timescale.

Options and proposals

9.35 Advance payments can play an important role in helping claimants to put their affairs in order. However, as noted, an acquiring authority’s duty to pay an advance payment only arises after it takes possession. We are interested in views on whether it would be helpful for acquiring authorities to be able to make advance payments where a request is made before taking possession, on a discretionary basis. It is not currently clear whether all acquiring authorities can do so.

9.36 We consider it would be helpful to provide that where the landowner and heritable creditor both agree, an advance payment can be made to the creditor, and the landowner receives any balance after the amount needed to release the creditor’s interest. Where the principal of the mortgage is over 90% of the compensation, the landowner does not receive any payment.

9.37 We are interested in views on how to ensure advance payments are paid promptly, without adding more onerous procedures.

Question 101: Are any new powers needed to enable acquiring authorities to make discretionary advance payments, if one is sought before they take possession?

Question 102: Would it be helpful to enable advance payments to be made to heritable creditors, with the landowner’s agreement?

Question 103: What mechanisms do you think would help to ensure advance payments are made promptly?

• enforcement through the courts
• LTS enforceable valuation
• penalty interest
• other (please explain).

9.38 As explained above, an acquiring authority’s duty to pay an advance payment only arises where one is requested by a claimant. Interest is payable on the amount of compensation outstanding from the date of vesting – less the value of any advance payment (see following section). This provides an additional incentive for authorities to make prompt advance payments and to settle disputes timeously.

9.39 In that context, we would welcome views on whether acquiring authorities should be given a power to proactively offer an advance payment after taking possession, even where one has not been requested. If such a payment were offered in writing but not taken up, the interest payable on the outstanding balance could be capped. In such a scenario, interest would be payable on the 10% that would be outstanding if the advance payment had been taken up. This could potentially help to avoid financially penalising acquiring authorities who are willing to make advance payments.

Question 104: Should acquiring authorities have the power to offer advance payments even where one is not requested? If so, should interest on the amount of outstanding compensation be capped?

Interest rates

9.40 Interest is payable on compensation between the date of taking possession, or the date of vesting in the case of a GVD, and the date on which compensation is paid. The method for determining the rate of interest is set out in the Acquisition of Land (Rate of Interest After Entry) (Scotland) Regulations 1995 and the Acquisition of Land (Rate of Interest After Entry) (Scotland) Amendment Regulations 2016. The current rate is 0.5% below the standard rate, which is the median of the base rates set by the seven largest UK banks (as defined in the 1995 regulations). The 2016 regulations provide that the rate of interest cannot be negative, since at the time base rates had been close to zero for some time.

9.41 Under section 48A of the 1973 Act, where an advance payment is made, the acquiring authority must at the same time pay the accrued interest on the total figure by which the advance payment was calculated, and annually thereafter must pay the yearly interest due on the outstanding balance (10% of the estimated compensation), until the final compensation is paid.

9.42 We are interested in views on whether the general interest rate for compensation should be increased, so that it is at or above the standard rate. Some stakeholders have made reference to the amounts charged on overdrafts and even higher rates charged on loans taken out in the absence of advance payments, or the rate payable under the Late Payment of Commercial Debts (Interest) Act 1998 (“statutory interest”) – currently base rate plus 8%. There has also been support for charging compound interest where payments are late.

Question 105: What should be the basis for the interest rate payable on outstanding compensation?

• current rate (0.5% below standard rate)
• average rate for overdrafts
• average rate for loans
• statutory interest
• other (please give details)