Reforming Compulsory Purchase Process and Compensation: A Push for Efficiency, Fairness and Faster Delivery

The Government has recently concluded a consultation on reforms to the compulsory purchase process and compensation practices, aimed at streamlining the system, reducing costs, and improving fairness, all while facilitating the progression of essential infrastructure projects.

Compulsory Purchase Orders (CPOs) enable public authorities to acquire private property or land for projects deemed to benefit the public, including large-scale developments such as roads, railways, hospitals, and urban regeneration schemes. However, the CPO process is often seen as an overly time-consumting tool which requires streamlining to deliver development in a more timely manner. The latest reforms aim to address these concerns, ensuring that the needs of public sector projects are met while safeguarding the rights of property owners.

Key Reforms
Several key changes are being proposed to modernize and expedite the compulsory purchase process:

1. Removal of ‘Hope Value’ Compensation
A significant reform introduced by the Levelling-up and Regeneration Act 2023 seeks to eliminate compensation for ‘hope value,’ which is the value attributed to the potential of obtaining planning permission for land. This now applies to CPOs being used for:

(i) delivery of affordable/social housing
(ii) purposes of the NHS
(iii) education purposes

This latest proposal relates to the expansion of the above list to include CPO powers under section 125 of the Local Government Act 1972, a power allowing CPOs to be made on behalf of town and community councils by local authorities. This will remove hope value where the underlying scheme is facilitating affordable or social housing.

Whilst we consider the circumstances under which town and community councils will push to deliver affordable/social housing through a CPO is likely to be limited, this represents the further expansion to an already contentious pience of legislation.

Critics of this reform argue that it unfairly penalises landowners by removing potential compensation for speculative development opportunities that would otherwise be an inherent component in the enjoyment of their land, creating an inequitable situation for those affected.

From a practical perspective, stripping out hope value from Market Value may be easier said than done. Hope value is entwinned within Market Value and it is not simply a case of subtracting a definitive value. Hope value by it’s very nature is highly subjective and contentious as it relies on someone’s opinion as to the extent of the development opportunity at some point in the future.

The exclusion of Hope Value from the compensation payable by public sector acquiring authorities could be seen to represent a partial nationalisation of development value where private developers are required to subsidise a public sector led scheme.

2. Technical and Administrative Improvements
The government has proposed several technical adjustments designed to modernize the process, reduce administrative burden, and speed up CPO procedures:

• Serving notices electronically rather than hard copy
• Simplifying newspaper notices publicising CPOs
• Allowing confirmation decision to be taken by Acquiring Authorities
• Allowing the delegation of decisions
• Amendments to allow temporary possession
• Expedited notice process for vesting of interests
• Reversing loss payments so occupiers receive more
• Excluding home loss payments in certain circumstances

These technical changes are intended to make the CPO process more efficient, minimising delays and reducing costs.

The Government’s Rationale

The Government’s reform proposals align with its pledge in the 2024 General Election manifesto to streamline land assembly, speed up site delivery, and address the housing crisis. The aim is to make the compulsory purchase process more efficient, ensuring the timely delivery of vital infrastructure, housing, and public services while supporting economic growth.

The reforms are designed to accelerate the delivery of public projects that are essential for improving housing, transport, and public amenities. By modernizing the CPO process, the intention is to make them faster and fairer, benefiting both the public and property owners.

Response from CPO Professionals

While most professionals involved in CPOs welcome the proposed changes in terms of the need to make the compulsory purchase process more efficient, some have expressed concerns about the balance between public and private interests. The removal of compensation for ‘hope value’ has sparked particular debate, with critics warning that this could harm landowners and developers who stand to lose out on potential returns from future development opportunities.

This in turn could dissuade such parties from making speculative investments in land in the future, in circumstances where the planning status of the land reflects ‘hope’ but where proposals are not sufficiently advanced.

One of the primary roles of private sector developers in the economy is to speculatively acquire such sites and invest the time and resources required to bring them forward for development.

Obtaining planning permission as part of this process can take several years and it could be argued that dissuading this type of speculative activity by the private sector is not conducive to the overall growth in the economy desired by the Government as part of its ‘Growth Agenda’.

In our experience, the payment of compensation for ‘Hope Value’ in the past, has generally not been a major impediment to the delivery of affordable/social housing through a CPO.

Property owners, businesses, and advocacy groups have called for greater transparency and fairness throughout the process. Effective communication with affected individuals and communities is seen as crucial to ensuring that the reforms are successful and equitable.

Looking Ahead

The Government will take the views expressed during the consultation into account before finalizing any changes. While some reforms are expected to face continued debate, the broader consensus is that the compulsory purchase system is in need of modernization.

As discussions move forward, the question remains: how will these proposed changes impact future development and compensation practices? One thing is certain: the compulsory purchase system is poised for significant transformation, and both government bodies and property owners will be closely watching the impact of these reforms.