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Hope value caps could be subject to legal challenges after CPO changes, say experts
Proposals to scrap ‘hope value’ as part of reforms to the compulsory purchase order (CPO) process could lead to protracted legal disputes and delayed development plans, sector figures have warned.
Inside Housing has spoken to people from across the sector who are concerned that proposals to cap hope value risk undermining the CPO system and could further delay development plans already affected by capacity issues.
The comments come after the government recently closed a six-week consultation that sought views on amending the compensation provisions related to prospective planning permission where land is acquired by compulsion.
Hope value is the term used to describe landowner’s entitlement to compensation based on the expectation of getting planning permission to build a development on it.
An example of this would be a farmer having their agricultural land compulsorily purchased, then claiming compensation as if the land had residential planning permission – even though this planning permission has not been sought or granted.
As part of the plans, authorities seeking to acquire land would be able to request a direction from the secretary of state to remove hope value from compensation awards where this can be shown to be in the public interest.
Some in the sector have warned that a cap on hope value could result in further delays.
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Colette McCormack, partner and head of planning at Winckworth Sherwood, said the CPO process can be complex, lengthy and costly, particularly in terms of delivering social housing.
She stated the changes to hope value were controversial and would ultimately alter property rights.
She added that the direction of the secretary of state to cap payments for hope value may not streamline the system and that there was still a lack of detail of exactly how it would work in the consultation paper.
“At the moment, the directions will only be available to acquiring authorities that are public sector bodies and where the scheme is unviable, but most major regeneration schemes usually involve developers either as joint venture partners/partnering with some form of CPO indemnity to deliver land,” she said.
“The consultation paper does not appear to address these issues in terms of capping values. In real terms, that raises the prospect of value being taken from a landowner and subsidising developer profit to shift an unviable scheme to a viable one.”
Ms McCormack warned that the proposals could be subject to legal challenge as affected parties will no doubt seek to prevent directions from being made and directions will be subject to judicial review which could ultimately undermine the CPO process.
Ian Fletcher, director of policy, British Property Federation, said the CPO process should be used sparingly.
He likened the proposals that enabled land to be acquired at or close to existing values placed homeowners, businesses and farmers with a statutory equivalent of a potluck.
He said: “It essentially means that through a secretary of state, directive landowners could lose the hope value they would receive if selling land on the open market.
“The development process generates significant value and income to the surrounding area, we would much rather see a collaborative process that encourages landowners to invest in their land in return for long-term sharing of value.
He added that proposals to scrap hope value within the CPO process were likely to lead to protracted challenges and increase the risk of regeneration schemes being delayed or not progressing.
Some have welcomed the plans and said that the current system can artificially inflate values and make schemes unviable.
A submission to the consultation by Highbury Group highlighted why many in the sector considered the cost of land as the biggest constraint in building new homes as landowners can hold out for schemes dominated by market sale homes, instead of those made up of social rent and affordable tenures.
Highbury Group highlighted an example of a local authority that tried for years to negotiate with a landowner who argued for a sum well beyond what the council was willing to pay.
Eventually, the council went down the CPO route because it had no other options, which led to lengthy delays in delivering a much-needed 6,000-home development.
As a result, expected affordable housing levels on the scheme were slashed from 30% to 10%.
Highbury Group said in its submission that greater CPO powers for local authorities would put them in a stronger position to negotiate an agreeable level of compensation for all involved.
Hannah Keilloh, policy and practice officer at the Chartered Institute of Housing and a member of the Royal Town Planning Institute, said the current system contributes to the housing crisis by artificially inflating land values, affecting viability and causing significant land assembly delays, making it very challenging for councils to buy land for much-needed genuinely affordable housing.
She added: “We are encouraged that these proposals present an opportunity for the complex CPO process to be made simpler, clearer and fairer. To ensure new risks don’t arise from changes intended to simplify the process, it is vital that the government also engages with those who work regularly within the CPO system. Capacity must also be considered. Reform will not be successful if local authorities are not sufficiently resourced.”
Simon Cox, managing director at Walter Cooper, agreed that local authorities struggle with capacity and the problem is getting planning permission in the first place. This was the real “hope” in the CPO process which he said should be used only “as a last resort”.
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