Lloyds Banking Group Plc v Burnley Borough Council

Where mortgaged land is compulsorily acquired and its value is less than the secured debt, compensation must be agreed by the mortgagee, the person entitled to the equity of redemption and the acquiring authority. If they fail to agree, the Upper Tribunal determines the amount under section 15 of the Compulsory Purchase Act 1965. In assessing value, the Tribunal should consider market evidence, including genuinely comparable transactions, and should not simply deduct refurbishment costs from the value of a property in good condition. The amount awarded is paid to the mortgagee in satisfaction or part satisfaction of the mortgage debt.

The acquiring authority compulsorily acquired a long leasehold house subject to a first legal charge in favour of the claimant bank. The property was in substantial disrepair and required full refurbishment. The mortgagor did not participate in negotiations or in the reference.

The mortgage debt exceeded the property’s value. The bank referred the compensation question to the Upper Tribunal under section 15 of the Compulsory Purchase Act 1965. The central issues were whether the Tribunal had to determine compensation and what the property was worth at the valuation date.

1. Jurisdiction and procedure. Because the mortgagor had not agreed the compensation or participated in the proceedings, the mortgagee and acquiring authority could not settle the amount between themselves. The Tribunal therefore had to determine the compensation under section 15(1) of the Compulsory Purchase Act 1965.
2. Valuation evidence. The relevant comparable transactions were in the same terrace, so no location adjustment was required. The sale of number 34 Spenser Street was the best comparable because it was in a similar condition, was marketed shortly after the valuation date and sold shortly afterwards. Its sale price was £72,500.
3. It was misleading simply to deduct estimated refurbishment costs from the value of a refurbished property. The market for properties requiring refurbishment was more nuanced. Evidence that such properties were sought by developers and landlords supported a value in the range identified by the bank’s valuer.
4. The Tribunal accepted the bank’s valuation of £70,000 at the valuation date. Under section 15(2), that sum, together with any statutory interest, was to be paid by the acquiring authority to the bank in part satisfaction of the secured mortgage debt. No order for costs was made.

This was a notice of reference determined by the Upper Tribunal (Lands Chamber) under its written representations procedure. The decision records a right of appeal to the Court of Appeal on a point of law, subject to permission.