Ryde International Plc v London Regional Transport

For compensation under rule (2) of the Land Compensation Act 1961, land is valued by a statutory hypothetical sale in the open market at the valuation date. The property is taken as it exists, while the assumed vendor adopts the marketing strategy yielding the best price without undue expenditure. A residual valuation may deduct a purchaser’s required return for development risk and separate finance or time costs. Anticipated development profit is not separately compensable where the acquisition removes the corresponding risk and the profit potential is reflected in market value. Rule (6) does not permit a second claim for loss directly based on land value. Compensation for a separate business carried on land is distinct from ordinary residential letting, where rental potential is included in market value.

Ryde’s freehold interest in a development of flats and bungalows was compulsorily acquired by London Regional Transport for the Croydon Tramlink Scheme. The Lands Tribunal valued the property under rule (2) by reference to an assumed sale to a developer and deducted a developer’s profit. It assessed market value at £2,060,000. The Tribunal initially held that holding costs were in principle compensatable under rule (6), in a decision reported at [2001] RVR 59, but those costs were not part of this appeal. In its final decision, it rejected a separate claim for lost development profits. The central issue was whether the anticipated profit was already reflected in market value or could be recovered additionally as disturbance loss.

Lord Justice Carnwath gave the substantive judgment. Lord Justice Mance and the Vice-Chancellor agreed.

1. Valuation under rule (2). Rule (2) of the Land Compensation Act 1961 requires a hypothetical sale in the open market at the valuation date. The property must be valued in its existing state. The assumed vendor may divide or group the property and adopt the marketing method calculated to obtain the best price, but substantial or undue expenditure, time or effort cannot be assumed. The actual way in which the owner would have sold the units in the real world was therefore only indirect evidence of the hypothetical purchaser’s approach. The principles stated in IRC v Gray [1994] STC 360 and Duke of Buccleuch v IRC [1967] 1 AC 506 supported this approach.
2. Development profit and risk. The deduction for developer’s profit represented the hypothetical purchaser’s required return for undertaking the project and bearing its risks. The time or finance factor was separately allowed for. Applying Director of Buildings v Shun Fung Ltd [1995] 2 AC 111, the acquisition deprived Ryde of expected profit but also relieved it of the corresponding risk. Its land interest was replaced by a statutory debt, with statutory interest under section 11(1) of the Compulsory Purchase Act 1965 compensating delay. There was consequently no separate loss of profit to compensate under rule (6).
3. Scope of rule (6). The Court added that rule (6) preserves compensation for personal loss caused by compulsory acquisition, but excludes matters directly based on land value. Any additional value arising from separate marketing of the units was directly based on the value of the land. This provided an alternative reason why it could not be claimed separately. The Court treated Pastoral Finance Association v The Minister [1914] AC 1083 as an unsafe guide because it concerned different legislation, while regarding D M’Ewing & Sons v Renfrewshire CC [1960] SC 53 as consistent with its conclusion.
4. Residential letting. The Court distinguished compensation principles applicable to a separate business carried on on acquired land from a business consisting simply of letting residential property. In the latter case, rental potential is reflected in the rule (2) market value. The decision in Mallick v Liverpool City Council [1999] 2 EGLR 7 was correct in result, although parts of its reasoning were queried.

The appeal was dismissed, the Tribunal’s award was confirmed, and permission to appeal was refused.

• Court of Appeal (Civil Division): On 5 March 2004, the Court dismissed Ryde’s appeal, confirmed the Lands Tribunal’s award and refused permission to appeal.
• Lands Tribunal: The final decision dated 28 March 2003 assessed market value under rule (2) and rejected a separate claim for lost development profits. A preliminary decision by HH Judge Rich QC, reported at [2001] RVR 59, held holding costs compensatable in principle, but that issue was not part of the appeal.