Practice Note 2/6: Ransom strips
The Valuation Office Agency`s technical manual covering all aspects of compulsory purchase and compensation.
A reasonable starting point for the calculation of a ‘ransom payment’ for the grant of access (for example to a potential development site) would be that the parties would be willing to share any increase in value resulting from the grant of access equally.
In Stokes v Cambridge Corporation (1961) 13 P&CR 77 the Lands Tribunal determined that the ‘ransom holder’ would accept one-third of the increase in value of the site to be benefited by the access because other land of the ‘ransom holder’ would benefit from the development of the landlocked site and the ‘ransom holder’ would not have to bear the cost of constructing the access road. Other cases where a ransom payment of one-third has been determined are Challinor v Stone RDC (1972) 27 P&CR 244 and Haron Development Co Ltd v West Sussex CC (1974).
Following the Stokes case there arose a misconception among valuers that the appropriate proportion to be paid for access in ‘ransom’ cases was one-third although Stokes was decided purely on its own facts. The correct starting point would be 50% but this would ultimately depend on the bargaining power of the parties. Guidance on the appropriate proportion of the net development value attributable to the ransom strip can be derived from case law.
There have been instances where claims have been made, particularly in acquisitions for highway purposes, that the land acquired from the claimant represents a ‘ransom strip’. For example, a frontage strip to a property (eg a petrol filling station) may be taken and a replacement or alternative access created to replace that taken as part of the acquiring authority’s scheme.
The argument adopted by some claimants is that the value of the frontage strip, if sold by a willing seller in the open market, would be very high, because it would comprise a ‘ransom strip’ giving access from the highway to the claimant’s retained land. The value of the ‘ransom strip’ to a speculator or the owner of the retained land must therefore represent a significant proportion of the former value of the now land-locked property.
This argument is fallacious and is at variance with the statutory compensation code.
In “Hughes v Doncaster MBC [1991] 1 EGLR 31” the House of Lords confirmed the legal concept that there exist only two heads of claim, ‘the value of the land to be purchased by the acquiring authority’ and ‘the damage…to be sustained by …reason of the severing of the…other land of the owner, or otherwise injuriously affecting that other land…’. This is because those are the only two heads recognised by statute in what is now section 7 of the Compulsory Purchase Act 1965. In practice valuers assess compensation under a variety of heads of claim to ensure that the claimant is compensated in full and that no element of loss is excluded, but the statutory basis for the various heads of claim remains the value of the land taken and severance and injurious affection.
Statute therefore directs that the compensation must be assessed under those two heads. If the compensation for injurious affection were included under the head of ‘the value of the land to be purchased’ it would leave nothing to be compensated under the head of severance and injurious affection and would be contrary to the basis required by statute.
In the assessment of compensation regard must be had to the unity of ownership of the land acquired from, and any other land owned by, the claimant in the vicinity of the compulsory purchase. Regard must also be had to the pattern of ownership of any lands in other ownerships. For example, in “Stokes v Cambridge Corporation (1961) 13 P&CR 77”, which concerned the assessment of compensation for the acquisition of a landlocked site with development potential, Cambridge Corporation, who were co-incidentally also the acquiring authority, owned the ransom strip that would release the development potential of the land to be acquired and also owned other land in the area that would benefit from the development of the land to be acquired. The Lands Tribunal held that whilst the identity of the acquiring authority should be ignored, regard should be had to the common ownership of both the ransom strip and other land in the area. That was one of the reasons why the ransom payment was assessed at one-third rather than one-half of the increase in value of the land locked site.
Thus when acquiring a frontage strip from a property the compensation needs to be assessed under the two heads (1) land taken and (2) severance and injurious affection. To attribute all the compensation to the land taken would be inconsistent with the statutory basis of assessment. It would also lead to duplicate compensation if the severance and injurious affection to the retained land were assessed separately. The value of the frontage strip should be assessed having regard to its intrinsic value eg grass verge or surfaced parking or circulation land ignoring the effects of the scheme. Any injurious affection to the retained land should have regard to the ‘scheme world’ and should reflect the construction of any alternative or replacement access.
It is doubtful whether there exist any instances in the open market where owners have sold ‘ransom strips’ from their own land and left their retained land with no access. Such a sale would defy logic and common sense. Whilst such a sale by a hypothetical vendor must be assumed for the assessment of ‘open market value’ under the compensation code, the market for the interest is actual not hypothetical. It is doubtful whether any buyer would come forward to pay ‘ransom value’ for such an interest where the vendor appeared to be harming his own interest so significantly by the sale. The claimant would be unable to identify any market for such an interest due to the lack of comparable sales and would not be able to demonstrate that there would be a purchaser for it.
Also section 261 Highways Act 1980 would appear to negate the argument that the land taken comprises a ‘ransom strip’ in that the section directs that in assessing the compensation payable in respect of the compulsory acquisition of land for highway schemes, regard should be had ‘to the extent to which the remaining contiguous lands belonging to the same person may be benefited by the purpose for which the land is authorised to be acquired’ (which refers to the provision of a new or improved access). Thus, if regard is had to the provision of a replacement access for the retained land within the scheme, any ‘ransom value’ that the land acquired might arguably have would be destroyed.
Any such arguments for compensation based on spurious ‘ransom value’ should be robustly rejected. If the claimant pursued the arguments the matter should be referred to the PS Professional Guidance Team.
In B & H Oberman v Arun DC (1976) REF/3/1976 (unreported) the Lands Tribunal determined that 50% of the uplift in value should be attributed to the access land although there was a possibility that an inferior access might be available (subject to planning) although the alternative access would have resulted in a smaller development.
In Rathgar Property Co Ltd v Haringey LBC [1978] 2 EGLR 200 there were three possible accesses to a development site. The most convenient access was to be acquired compulsorily. The claimant sought 50% of the uplift in value of the site from the grant of the access (£54,850). The cost of creating each of the other two possible accesses would have been the same (£19,000) and the Tribunal adopted that figure as the value of the land with the most convenient access. The Tribunal also determined that Rule (3) (special suitability of the land for the scheme to be ignored) did not apply because the ransom value of the land would have existed in the absence of the acquiring authority’s scheme.
In Ozanne v Hertfordshire County Council [1988] 2 EGLR 213 and [1992] 2 EGLR 201 the Lands Tribunal awarded 50% of the increase in value of the development land on the basis that there was only one practicable access. The case was litigated (principally on whether Rule (3) would prevent the award of any ransom value) through the Court of Appeal up to the House of Lords. It was finally referred back to the Lands Tribunal which upheld its original award of 50% of the uplift in value.
In Batchelor v Kent County Council [1992] 1 EGLR 217 the Lands Tribunal determined that only 15% of the uplift in value should be attributed to the access land due to the availability of alternative accesses. The case had been litigated up to the Court of Appeal (again on whether Rule (3) would prevent the award of any ransom value) and referred back to the Tribunal.
In Crown House Developments Ltd v Chester City Council [1997] 1 EGLR 169 the Lands Tribunal determined that the access land was worth 30% of the uplift in value of the development land on the basis that there were three other possible but less suitable accesses that the developer would have investigated.
In Railtrack PLC v Guinness Limited CON/153/2000 (2003) the Lands Tribunal determined the ransom payment as 50% of the net development value. A residual basis of valuation was adopted. The case was appealed to the Court of Appeal (Railtrack plc v Guinness Ltd [2003] 1 EGLR 124) but the appeal was dismissed.
In Thomas’s Executors v Merthyr Tydfil CBC [2003] RVR 246 the Lands Tribunal deducted 50% from the potential development value of a plot of land on the basis that there was only one available access and the owner of the access land would not derive any material benefit from the development of the subject land.
In Persimmon Homes (Wales) Ltd v Rhondda Cynon Taff CBC (2004) ACQ/40/2002 the Lands Tribunal awarded 45% of the uplift in the value of the development land on the basis that there was a remote possibility of an alternative access at the valuation date.
In Snook v Somerset County Council [2005] 1 EGLR 147 the Tribunal awarded 50% of the net uplift in value of the development land where there was no alternative access. The Tribunal determined that where the ransom strip was in multiple ownerships the developer could not necessarily expect to pay less in total for the ransom land than if he had only one party with which to negotiate. This was because whilst a developer might pay varying percentages to the individual owners depending, for example, upon the order in which negotiations took place, there would always be one final ransomer to be dealt with.