Compulsory purchase orders Resolving disputes
Compulsory purchase of property is an essential tool in a modern democratic society. It facilitates planned and orderly development Hand in hand with the power to acquire land without the owner s consent, is an obligation to pay full and fair compensation. Lord Nicholls of Birkenhead 1 Compulsory purchase orders Resolving disputes
Whilst HS2 is attracting much media attention, the use of Compulsory Purchase Order (CPO) powers is not limited to major National Infrastructure projects. For example, the use of CPOs has always been, and will continue to be, central to urban regeneration and is likely to play a central role in shaping the UK. We have advised on numerous claims following compulsory purchase of business premises, including relocation, extinguishment and hybrid cases, acting on behalf of acquiring bodies and affected businesses. The CPO process and considerations For land owners, and acquiring bodies, the process surrounding compulsory acquisition can be a burden for many years. Where this is not possible the CPO process will begin and is likely to follow the steps set out below. Public Inquiry held Value of land and buildings Secretary of State decision Injurious affection reduction in the value of remaining land when only part or no land is taken Notice of Execution given to affected businesses Relocation given due consideration General Vesting Declaration Ownership taken Quantification of: Pre and post acquisition Pre-acquisition Compensation considerations Affected businesses notified of CPO Compensation negotiations take place in respect of land/property value and business losses Post acquisition Ongoing discussions aimed at reaching a satisfactory settlement In some situations it is possible for the parties to reach an agreement for the land transfer without the need to exert compulsory purchase powers. Ability to continue to use property/land through leases once possession has passed to be considered Flux state business unable to develop as originally planned Wasted management time incurred Additional labour costs, overtime and redundancy costs Relocation or extinguishment of business Disruption through blight Additional costs incurred Move/build costs incurred Risks of delays in relocating Compensation settled The opportunity to resolve compensation without the need for litigation remains, and is often preferred by all parties, even when a CPO is used to acquire land. Taking professional advice at an early stage can facilitate meaningful discussions, and provide realistic assessments, Compulsory purchase orders Resolving disputes Lost profits through business interruption Lost profits through business relocation or extinguishment to enable compensation to be agreed through negotiation or mediation. We have extensive experience of advising clients in a range of complex civil matters, providing expert accounting advice and oral evidence in connection with court proceedings and other forms of dispute resolution. 2
What are the risks? There are considerable risks for both parties in a CPO; the acquiring body implementing the CPO and the business which is subject to it Some common examples are set out below. Claimant risks Not devoting sufficient management time early enough in the process Not planning for relocation or being unable to demonstrate why relocation has not been possible Failing to maintain sufficient documentation to support consequential cost and loss of profit claims and hence inability to recover, in full, costs incurred and profits lost Leaving it too late to plan the transition to new business premises when relocation or partial extinguishment occurs Acquiring bodies risks Not taking professional advice early enough in the process to ensure there is sufficient budget to cover future compensation claims Affected businesses over compensated due to insufficient professional advice Bad publicity and negativity around future development Likely to be liable for the majority of costs incurred by the Claimant No reflection of the time value of money. Interest on compensation is currently set at 0.5% below base rate Common risks Currently no pre action protocol to assist resolution of disputes, therefore, may be reliant on expertise and experience of professional advisors to promote alternative dispute resolution Significant costs incurred by both parties if the matter is disputed Protracted process which drains cash resources and staff investment Not seeking professional advice at crucial times Early assessment We apply a pioneering approach and expert financial knowledge to help assess a fair level of compensation. In the Lands Tribunal case of Optical Express (Southern) Limited vs. Birmingham City Council (2004), the evidence presented by EY partner Sara Fowler set a precedent in relation to the basis on which compensation for post-possession loss of profits are calculated. We can work as part of a wider team alongside other professional advisors to supplement their work, providing support and ensuring a consistent approach. In more complex cases we can assist with project management of the claim. Our commercial experience of valuing businesses for sale is highly useful in negotiating compensation, following the extinguishment of a business, and in calculating lost profits whether the business has been extinguished, relocated or treated as a hybrid of the two. We have worked on claims ranging from 1 million to 30 million and our experience includes giving expert oral evidence to the Lands Tribunal on several occasions. We will work with you to deal with the claim and will use our extensive experience of this type of work to: Provide robust and objective advice Offer practical and commercial ideas Consider the profile and sensitivities of the claim Tailor our approach to the nature and size of each situation Our aims are to support a timely resolution to quantum disputes and to provide value for money to encourage future investment and development in public interest projects. 3 Compulsory purchase orders Resolving disputes
Minor detour? EY s credentials Acting on behalf of The Claimant End of the road? Find out how EY can support your business if it is affected by a compulsory purchase order. Relocation or extinguishment? A claimant should take appropriate action to mitigate losses in the period prior to the closure of the business. Such actions will include seeking alternative premises to which the business at the premises to be acquired could be relocated. Where businesses are unable to find suitable alternative premises, the end result is often the extinguishment of all or part of the business. However, often it is not immediately apparent whether the business in question was extinguished or whether it was in fact relocated. In one instance, we were asked to investigate whether a new business started by the owner was, in reality, a continuation of the old business which, it was claimed, had been extinguished. Our work included examining the customer base and the business operations of the historical and new businesses. Assessing lost profits through extinguishment Parties involved in CPO cases where extinguishment has occurred should seek expert valuation advice. An average of the profits over the last three years (the traditional approach) does not usually give a realistic assessment. For each situation, the accounting evidence has to be examined and an assessment made of how the business would have performed, but for the CPO. In the Lands Tribunal case of Optical Express (Southern) Limited vs. Birmingham City Council (2004), Sara Fowler of EY acted as expert witness for the claimants. The decision made by the Lands Tribunal in this case set a precedent in relation to the basis on which compensation claims for post-possession loss of profits of a business as a result of CPOs are calculated. Compulsory purchase orders Resolving disputes 4
Full speed ahead? Red signal? Find out how EY can keep you on the right track if you are implementing compulsory purchase orders or development consent orders. EY s credentials (contd.) Acting on behalf of The Acquiring Authority Costs vs. long term benefits The Acquiring Authority had received a business extinguishment claim in the region of 2mn. We undertook a limited review of the claim and identified a number of areas where the claim was unlikely to stand up to challenge. Following a meeting between the parties and their professional teams an all settlement was reached for 875,000. In this case our fees amounted to approximately 1% of the initial claim amount. Whilst it will always be possible to obtain cheaper quotations we believe our expertise, experience and approach enables our clients to achieve a high return on their investment. Our experience of acting on behalf of acquiring bodies and affected businesses is very useful in assisting clients during negotiations and reaching a commercially sensible outcome. Acting on behalf of The Developer Regeneration, regeneration, regeneration The regeneration of towns and cities can often result in developers being subject to claims for loss of profits, as the development works undertaken can have a temporary, or permanent, impact on local businesses. In such situations developers should seek expert advice to assess the legitimacy of the claim received. We were appointed by the development company behind a major regeneration project in one of the UK s largest cities to provide an assessment of a claim received from a retail business. The claim related to both temporary and permanent loss of profits resulting from the impact on one of its local stores of a newly developed retail complex. We worked collaboratively with the developer, and its other advisors, to understand the likely impact of the development on the claimant s store and to assess the claim received. We prepared a rebuttal of the claimant s claim and represented our client in negotiations which resulted in a successful settlement, substantially below the value of the initial claim. 5 Compulsory purchase orders Resolving disputes
What our clients say EY grasped the issues quickly, the team demonstrated commerciality and practicality as well as responsiveness. The team s knowledge of CPO law and expertise was clear and instrumental in helping us arrive at a settlement in our favour. Contact us Fraud Investigation & Dispute Services Sara Fowler Birmingham T: + 44 121 535 2311 E: sfowler@uk.ey.com David Bell Glasgow T: + 44 141 226 7333 E: dbell1@uk.ey.com The ability of the team to articulate the case and to explain, in simple terms, the complexities of business valuations exceeded my expectations in every respect. Thank you for your efforts your understanding of the financial issues surrounding the Company was first class combined with both the confidence that you express, your expertise and the sensitivity you showed in handling the difficult moments. As I have said before, the quality of your written output is quite superb and I am looking forward to working with you again following my recent recommendation. Hannah Griffin Birmingham T: + 44 121 535 2948 E: hgriffin@uk.ey.com Andrew Johnson Birmingham T: + 44 121 535 2833 E: ajohnson2@uk.ey.com Lauren Jones Birmingham T: + 44 121 535 2712 E: ljones3@uk.ey.com Ruth Lawson Leeds T: + 44 113 236 4367 E: rlawson@uk.ey.com Max Mitchell London T: + 44 20 7951 0185 E: mmitchell@uk.ey.com Jack Clitheroe Manchester T: + 44 20 7951 8417 E: jclitheroe@uk.ey.com Compulsory purchase orders Resolving disputes 6
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