Advance payment requests in claimant compensation

For individuals or entities who are affected by compulsory purchase, the process is typically drawn out and uncertain.  

When providing advice and guidance to claimants, one of the most common themes that we face is a lack of available funds which are required to provide the claimant with the opportunity to mitigate their position. Whether this be an SME who requires upfront monies that are essential to the relocation of their business, or an investment owner who would like to protect his position by having the available funds to complete on a suitable replacement property.    

A claimant is not helpless however, and proactive measures can be taken to protect your position. The Compensation Code is based around the “principle of equivalence,” and acknowledges that costs will often be incurred before a claim is concluded. To assist with this, there is a statutory mechanism which, when served correctly, allows an acquiring authority to provide funds before compensation is negotiated and agreed. This is called an Advance Payment Request (APR). 

How can compulsory purchase compensation claimants benefit from an advance payment request?

A compensation claimant needs to understand at what point they can submit a valid APR. Under the most recent statute, confirmation of a compulsory purchase order (CPO) is the first opportunity in the CPO process that a claimant can do so.  

Practically, this means that from the point of confirmation of any compulsory purchase powers, a scheme promoter could receive and, depending on the circumstances, may decide to pay an APR ahead of serving a possession notice.  

It is important to note that, until the acquiring authority serves notice to take possession via a notice of entry or a general vesting declaration, the payment of any received APR is at their discretion. 

If you decide to submit an APR, there are certain statutory requirements. The APR must:   

• Be in writing, 
• Give particulars of your interest in the land, and  
• Include any such other details as the acquiring authority may reasonably require to enable them to estimate the amount of compensation.
  
   

• A statement of the amount claimed ascribed to recognised heads of compensation in line with the compensation code, 
• An explanation of how this is calculated, and  
• A summary of reasons why entitlement to compensation arises.

From a practical perspective, you should also be thinking about clearly stating:  

• Claimant details – contact details, address, and confirmation of interest in land together with any involved professional representation,  
• Details of the claimants’ interest, together with the inclusions of a fully evidenced title / occupational agreements and any mortgagee information / consent to the APR, and
• Confirmation of VAT status

Scheme promoters are often heavily regulated, and this additional information assists their internal procedure of obtaining authority to draw down funds and is likely to result in a quicker process of the submitted APR.   

Once an advance payment is submitted, an acquiring authority has a statutory obligation to determine whether they have enough information to estimate the amount of compensation and, where needed, require the claimant to provide additional information within 28 days of receiving an advance payment request. The actual payment should then be made by whichever is the later of: 

• An amount equal to the compensation as estimated by the acquiring authority, or 
• If the acquiring authority and the claimant have agreed on the amount of the compensation, the agreed amount.

The only way to challenge an acquiring authority’s recommendation is by way of judicial review, but, if unsuccessful, the claimant could be liable for substantial costs. To avoid this situation, it is important to provide as much evidence as possible to justify your claim, and to understand that a claimant is not agreeing to the acquiring authority’s estimate by accepting an advance payment.

What consequences are there for an acquiring authority who make a delayed advance payment to a compulsory purchase compensation claimant?

Subject to providing a valid request, there are provisions in statute which obligate the authority to pay interest on the amount which is paid late (“the unpaid amount”). Legislation provides for the treasury to specify this rate of interest. There have been different rates proposed by multiple governments, but no set rate has been taken further.   

The latest position, given on 28 February 2018, is that the Ministry of Housing, Communities and Local Government required ‘additional time for consideration of potential gaming risks before finalising the approach.’ Since this point, they have been focusing their attention on other national issues such as Brexit and, more recently, a global pandemic. This required clarification is likely to be delayed as a result.  

Therefore, the current penalty charged to acquiring authorities for late payments is 0.5% below the Bank of England base rate. From our perspective, this does not provide adequate repercussions for late payment.  

When you receive an advance payment, the request, together with details of the interest in the land to which it relates, is entered as a local land charge. The registering of this land charge is to ensure that if the owners dispose of their interest, the purchaser will have notice within the acquisition documents that an advance payment has already been made, and any further compensation will take account of this advance payment.  

Ahead of making any APR, it is worth noting that there is a risk that you will be liable for repayment in the event that the final compensation agreed (or determined by the Upper Tribunal) is less than the advance payment(s) received. Therefore, careful consideration of the benefits and risks of receiving an advance payment is required ahead of making any request.   

The process of submitting, assessing, paying and registering an advance payment is inherently complicated and will often require the involvement of multiple professionals. It is important that you are represented by an individual who fully understands this process. 

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