Section 5 of the Land Compensation Act 1961 - Essay Example

Rule 5, Section 5 of the Land Compensation Act, 1961-An Analysis Under rule five of section five of the” Land Compensation Act 1961”, the concept of equal reinstatement has been explained. It is a process of evaluating price for compulsory purchase consideration, which is footed on the cost of offering of an alternate or analogues’ property or with replacement cost. This process is being employed mostly when deciding the quantum of reparation to be paid for unique purpose assets for which there may not be available a present market value, e.g. a school , church , theatre , hospital ,private railway, etc. In such instances , the compensation is payable on the basis of reinstatement cost, which is equivalent to cost of buying an analogues or alterative asset and erecting an analogues building thereon , after giving due recognition for depreciation. This process is also known as “rule 5” reparation or compensation. (Abbot 2004: 267). Under Land Compensation Act, 1961, there are no exact rules to be pursued in evaluating compensation for compulsory acquisition of land but court verdicts have prescribed some norms including the significant one that the rate for the land evolved is to be evaluated under the Act as its worth to the owner. In some past instances where income earned or likely to be received from the assets would not tantamount a fair valuation and in such cases, the price to a property owner was calculated under the Acts having regard to the principle of “equivalent reinstatement. “(Abbot 2004: 267). As per decision held in “West Midland Baptist (Trust ) Association (Inc) v Birmingham Corporation1 “,the date of valuation for Rule 5 cases should be the earliest of the date on which assessment is done , the date on which the construction work on the premises could possibly have anticipated to have started and the date of possession. One another salient feature in this verdict is that no subtraction was to be made for the age of the property, as if such deduction was made, then the entire object of rule 5 would not be served and defunctness of charities might emanate from a verdict which was aimed to facilitate them to survive. In valuation, the application of Bwllfa norm is to be applied while giving due regard to what weight, if any, may be attached to events or evidence after the period of assessment. This principle was laid down in “Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co2”. (Rees & Hayward 2001:261). In “Roman Catholic Diocese of Hexham & Newcastle v Sunderland CBC3”, the total repair expenses to the existing hall were adjusted against the compensation amount paid. (Rees & Hayward 2001:279). Under Rule 5, “where property or land if, and had the compulsory take over had not taken place, and would be employed for an objective of such a kind where there is no general market or demand for the land or property for that objective, the reparation may be, if with the satisfaction of Land Tribunal that replacement or reinstatement in some other instance s is genuinely conceived, be valued on the footing of equivalent reinstatement. “(Rees & Hayward 2001:279). For the application of Rule 5 , four significant conditions have been laid down in “Sparks v Leeds City Council4 “and the onus of proof was placed on the claimant. In this case, the land and building belonged to a social club was annexed. This case had laid down the following rules for equivalent reinstatement concept under rule 5. a) That the property is attributed to a specific objective and would prolong to be so attributed had the compulsory acquisition had not taken place. b) The main aim is one for which there exists no general market or demand. c) There is a bona fide objective to reinstate in another place. This has really based upon the receipt of rule 5 reparation which, in fact, will not essentially bar the claim under this obligation as held in “Zoar case”. Further, the objective will be corroborated by the realistic proof and the real purchase of an alternative asset is a best corroboration of such an objective. Thus, in Sparks’s case, the commencement of a feasibility study mingled with acknowledgement of financial viability of the club to reinstate had actually compelled the tribunal to employ rule 5 concept. In “ Hill Light Railway v. Secretary of State for War (1956)” , it was held that no bona fide objective to reinstate was present , as the claimants failed to establish drawls of plans for the substitute route of the railway and had failed to establish enough directions of purpose during the phase of expropriation. (Baum & Sams 1990:139). In Runcorn AFC Ltd v Warrington and Runcorn Development Corporation (1982), it was held that reinstatement can be intended on a genuine basis even by a claimant with a leasehold interest of less than twelve months period who is making a claim under s.20 of the 1965 Compulsory Purchase Act. (Baum & Sams 1990:139). And d) If these stipulations are convinced, then the tribunal’s discretion should be employed in the favour of claimants. (Rees & Hayward 2001:279). In case , even if the claimant has observed the above three principles , a tribunal can make the compensation award instead of under rule 5 but under rule 2 only if it does not recognise that the reinstatement cost is justifiable in association to any financial or even social value of the undertaking. . (Baum & Sams 1990:139). Rule 5 was awarded in “Zoar Independent Church Trustees v Rochester Corporation5” despite the congregation satisfied only just 3 out of 4 by the date of entry. In a theatre case namely Kidderminster, Nonentities Societies (Trustees) v Kidderminster Borough Council (1970) 215 EG 385, rule 5 was awarded despite the Tribunal had considered the status might have been diverse had the theater situated in London. A live stock market at Botchergate, Carlisle was considered in “Harrison & Hetherington Ltd v Cumbria County Council”6 by the House of Lords. It was held that a concealed demand could not have considered to be a general demand under the rule 5 and only apparent itself in the rare event of the market assumptions being tendered for sale and held that hence, rule 5 was applicable. (Rees & Hayward 2001:279). A building where a veterinary surgeon’s multi-principal practice was carried out was acquired and the Court of Appeal in “Wilkinson v Middleborough Borough Council” 7held that rule 5 was not applicable as the claimants had not made the onus of proof that there existed no general demand or market for property for carrying out practice of the veterinary surgeons. It is to be observed that in “Festinog Railway Co v Central Electricity Generating Board8” , the Tribunal was not required to evaluate the compensation on the rule 5 basis despite the fact that stipulations mentioned in the rule were met with. In this case, the Tribunal took into account the association between the value of the undertaking and the cost of reinstatement. (Rees & Hayward 2001:280). The tribunal did employ its discretion to the disadvantage of Claimants in the Festinog Railway case. In this case, it was viewed that the value of the railway acquired was less than the cost of reinstatement and hence, the reparation had to be restricted to the market cost of the property annexed. On the other hand, in Sparks’s case, rule 5 compensation was granted despite of the fact that the value of the club assets did not match the cost of reinstatement. (Baum & Sams 1990:139). In spark’s case, reinstatement valuation was complex in nature due to the fact that the new building that was to be erected were bigger than the old one and that on the new site, the claimant had actually planned to provide a car park for the use of public. An illustration of working of reinstatement under rule 5 is given below: Valuation under rule 5: as per decision made in Sparks v Leeds City Council; Net reinstatement cost fine tuned for items not analogues and for extras £ 1,000,000 ---------------- To be minimised for relative size 5000/9000 sq.ft = 55.5% £ 555,555 Add: Architect fees @ 15% £ 83,333 ------------ Aggregate of new costs £ 638,888 ----------------- Less: Repair to existing building to meet the standards of bye-law £ 7,500 ---------------- £631,388 Add: commitment to provide new car park £5000 Add : to add fixed seating in existing building £2000 Add : cost of adjustment for size to the alternate site £7000 Add: valuation fees ,legal fees , removal expenses , car park supervision fees, £2000 And survey fees on alternative sites ------------- Total compensation claimed £647,388 (Baum & Sams 1990:140). Thus, in Spark’s case, the surveyor’s claim value of the claimant was acknowledged in total though his valuation was slightly modified and simplified. The working of compensation under rule 5 is the “rational cost of equivalent reinstatement “thereby demanding the valuer to accomplish a contractor’s test valuation. The main footage of such a claim is the cost of reconstruction of present premises with due allowance for obsolescence and for disrepair plus the value of suitable location and expenses and fees. A due allowance of deduction for obsolesce and disrepair is needed so as to make sure that the claimant is not instituted in a major enhanced position due to the process of acquisition while the alternate site’s cost will often only be assessable by reference to actual locations, which are convenient and available for purchase. (Baum & Sams 1990:140). Thus, rule 5 or equivalent reinstatement concept is complex in nature. Tribunal has applied various yardsticks in each case as regards to “equivalent reinstatement.” In “Wilkinson v Middleborough Borough Council” 9 , it was held that rule 5 was not applicable as the claimants had not made the onus of proof that there existed no general demand or market for property for carrying out practice of the veterinary surgeons. Rule 5 was awarded in “Zoar Independent Church Trustees v Rochester Corporation10” despite the congregation satisfied only just 3 out of 4 by the date of entry. List of References Abbott, Damien. (2004). The Shorter Encyclopedia of Real Estate Terms: Based on English and North. London: Damien Abbott. Baums Andrew & Sams Gary. (1990). Statutory Valuations. London: Taylor & Francis. Rees W.h & Hayward R.e.h (2001) Valuation: Principles Into Practice. London: Elsevier. Read More