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Sunday 21 April 2019

How land value is assessed for Compulsory Purchase Orders

A view of the M4/ M6 Kilcock to Kinnegad Motorway which opened in 2006 PHOTO: Tom Burke
A view of the M4/ M6 Kilcock to Kinnegad Motorway which opened in 2006 PHOTO: Tom Burke

Richard Collins

The valuation of land for a CPO should be a simple process, but this is not usually the case.

For a start, there are a number of different interpretations of land value which have to be considered:

* Open Market Value

* Value to Owner

* Existing Use Value

* Development Value (immediate)

* Hope Value

* Comparable Value

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* Marriage or Ransom Value

The assessment of compensation is also governed by the Acquisition of Land (Assessment of Compensation) Act 1919 which sets out six rules and the Local Government (Planning & Development) Act 1963 which sets out a further 10 rules.

Agronomist/valuers must have due regard to these rules from the outset; otherwise the landowner could be seriously misled and realise it when it is too late.

I will look at some of these rules in more detail in later articles, but for the assessment of land value, per se, Rule 2 & Rule 6 are the most relevant.

Rule 2 states that the value of land shall be taken to be the amount which the land if sold on the open market by a willing seller might be expected to realise.

Rule 6 states that the provisions of Rule 2 shall not affect the assessment of compensation for disturbance or any other matter directly based on land value.

The claim for value of land has to be prepared based on the above interpretations of value and rules.

In the vast majority of cases the focus has to be particularly on:

* Open Market Value

* Value to Owner

* Existing Use Value

* Open Market Value

This is the price the land would achieve if it was openly advertised, marketed properly, and sold openly without conditions. The majority of land holdings have a value reflecting their use for the production of livestock, crops, milk or bloodstock. This is what is referred to as "existing use value".

In a minority of cases land will have "immediate development" value reflecting its potential for building. If this potential is not immediate its value is described as having "hope value".

The landowner losing land to a CPO is entitled to compensation for its full value as defined by one, or a combination of the above definitions of value.

Value to Owner

This is a particularly difficult aspect of a claim for compensation, mainly because some valuers, regularly employed by acquiring authorities, insist on denying that it is relevant even though Rule 6, together with all expert authorities, clearly emphasise its relevance stating: "Compensation for this special value is not directly related to open market land prices".

A brief reference back to the history of CPO compensation, highlights this point. Prior to the 1919 Act, there was generally an allowance of about 10pc extra to compensate land owners for having to part with their land against their wishes.

This was done away with in the 1919 Act and replaced by the concept of "Value to Owner" which in effect preserved the entitlement to compensation for Permanent Disturbance for being forced to part with the CPO land.

This will be dealt with in more details in a later article. For, now, it is sufficient to note that it is not an integral part of the Open Market Value of the CPO land.

How is Open Market Value established?

This is normally done by reference to recent open sales of similar land in the same locality, commonly referred to as "comparable sales". But what should be a simple exercise regularly turns out to be far from that.

The critical words are "similar land".

Acquiring authority valuers will regularly produce "comparable sales" which could in no way be described as "similar land".

A land sale of poor quality rocky or boggy land in a remote area should not be used as a comparable for top quality land, in close proximity to a city or town, with at least some development potential.

Less frequently, landowners may wish to have their relatively poorer quality land compared with sales of top quality land.

These practises should be avoided by all agronomist valuers on both sides as they neither serve the acquiring authority or land owners.

It frequently happens that details of relevant comparable land sales cannot be found.

In this situation some dissimilarities could be professionally adjusted for by experienced agronomists/ valuers who have the skills for the task.

In assessment/arbitration situations the assessor/arbitrator will inspect both the subject land and the comparable sales lands.

Valuing Land with Development Potential

The same general valuation principles apply to valuing land with potential for development. However, there are several nuances to the definition of development potential which should be watched out for.

Just because land is in close proximity to a city, town or village does not automatically mean it has development potential. The key tests are:

* Is it zoned for development?

* Has it got (or is it likely to get) planning permission?

* Has it good access to the public road network?

Is there a possibility of getting Planning Permission for Cluster Development even if the land is not zoned for development?

While these are good indicators, other factors also come into play such as environmental and archaeological sensitivity, flooding risk etc.

Land may not have immediate development potential but may have potential for development in the years ahead for which the landowner would be entitled to compensation.

An expert planning consultant will be in the best position to advise on this.

Richard Collins is a consultant with FBA Consultants, based in Fermoy, Co Cork. He is the co-author with Noel O'Brien of A Practical Guide to Compulsory Purchase in Ireland. racollins@fba.ie or 025 31244

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