Where a mortgagor has not agreed the level of compensation or taken part in proceedings to determine compensation under the Compulsory Purchase Act 1965, it is not open to the mortgagee and the acquiring authority to agree the level of compensation. The tribunal must settle it.
The Upper Tribunal (Lands Chamber) has considered this provision in Bank of Scotland plc v Burnley Borough Council [2024] UKUT 328 (LC).
The case concerned a property in Padiham, Burnley, a two-bedroom, two-storey, end-of-terrace dwelling. In July 2005, Patricia Plummer acquired the leasehold of the property for £59,950 and granted the Bank of Scotland a first legal charge over it. In January 2016, the property became vacant and subsequently fell into disrepair.
In November 2022, the authority served notice on the bank of their intention to make a compulsory purchase order to bring the property back into residential use by renovating it so it could be sold on the open market. A CPO was confirmed in January 2023 and a general vesting declaration made later the same month whereby the property would vest in the authority on 2 May 2023, the valuation date for the assessment of compensation.
The authority’s surveyor assessed the market value of the property for compensation at £35,000. The value in good repair was around £80,000 with a £45,000 deduction for repairs required owing to water ingress and structural cracking with ongoing movement. The bank obtained its own valuation, which assessed the market value at £78,000 through an external inspection only. This was later revised to £35,000 following an inspection.
The bank was willing to accept the sum of £35,000 but, because the amount was less than the mortgage debt, Plummer’s consent was required. Attempts to contact and trace her were unsuccessful. The bank referred the matter to the tribunal.
Section 15 of the 1965 Act provides that where a mortgage debt exceeds the value of the mortgaged land, the compensation to be paid by the acquiring authority shall be settled between the mortgagee and the person entitled to the equity of redemption or, failing such agreement, by the tribunal.
The tribunal was satisfied that the value of the property at the valuation date was £35,000 and that Plummer had chosen not to participate in negotiations or respond to the reference. The compensation payable by the authority was £35,000. This sum, plus statutory interest, to be agreed between the parties, was to be paid to the bank in part satisfaction of the mortgage debt secured against the property.
Louise Clark is a property law consultant and mediator
