Determining compensation for land

Land Matters

For centuries, the purchase of a land has been essential for the economic and social development of a region.

Whether by private agreement or through the powers of compulsory purchase orders, the purchase and development of land owned by others can have a significant impact on the individuals, communities and businesses in situ on a personal and/or commercial level.

The expropriation of land comes with a cost. Payment to be made to provide financial equivalence for the loss suffered by the landowner.
A business owner is entitled to claim compensation for what is called ‘disturbance’, a somewhat understated legalese.

Depending on the circumstances (and every claim has its own particular nuances) compensation may include elements such as:

  • Loss of profit
  • The value of the business as whole or in part
  • Plant and equipment
  • Relocation costs
  • Double overheads
  • Acquisition and fit-out costs of alternative premises

Location, location, location

As to the level of compensation due, this flows from the decisions the business makes. A business under the order of compulsory purchase will generally want to find a way to continue trading, whatever its size. It will strive to find an alternative trading location at the earliest available opportunity to reduce potential losses. Indeed, a business will be under a duty to take all reasonable steps to mitigate such losses.

If the business can relocate, then the losses may prove to be only temporary. However, that is not to say its trading levels might not fall on a longer term and more permanent basis if the alternative premises are not as suitable.

Comparison of a business where location is critical (a retailer with footfall demands or a distributor dependent on easy access to transport networks) with that where it is typically not (a professional services company in a generic office building) shows how important this relocation can be.

Property Case Study

Power Station Construction Delay

A delayed start up claim in excess of £20 million occurred at a power station construction project. Evaluation of the claim required a detailed
understanding of the power market and market considerations during the loss and at final completion.

Compensation

Overall, in considering what compensation is due, the overriding principle is that of ‘equivalence’. A business should be in the same position after being acquired as it was before in monetary terms.

Property and infrastructure development remain high on the UK government’s agenda – they are here to stay. For a landowner or business that finds its land or premises being compulsorily acquired, it is undoubtedly an unsettling time.

With that in mind, it is good to know that the root of the process values fairness and compensates for what is lost to get that business back on the right track.

Read more on this topic in Issue 16 of our newsletter Real Estate Matters.

Read Real Estate Matters Issue 16

Contact a member of our Construction and Real Estate team for further advice.