Bank of Scotland PLC v Burnley County Council

Where mortgaged land is compulsorily acquired and its value is less than the secured mortgage debt, compensation cannot be settled solely between the mortgagee and acquiring authority if the person entitled to the equity of redemption has not agreed. Under section 15 of the Compulsory Purchase Act 1965, the Upper Tribunal must determine the value or compensation payable. The sum awarded is paid to the mortgagee in satisfaction or part satisfaction of the mortgage debt.

Burnley Borough Council compulsorily acquired a leasehold property subject to a first legal charge in favour of Bank of Scotland PLC. The property had become vacant and fallen into serious disrepair. The authority and the bank agreed compensation at £35,000, but the sum was less than the outstanding mortgage debt and the mortgagor could not be contacted.

The Tribunal served the mortgagor with the reference and supporting documents. She did not respond. The central issue was whether the agreed sum should be determined and paid under section 15 of the Compulsory Purchase Act 1965.

1. The Tribunal had jurisdiction under section 15(1) of the Compulsory Purchase Act 1965. Where the value of mortgaged land is less than the principal, interest and costs secured on it, 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 must determine the amount.
2. The mortgagor’s non-participation meant that the bank and the authority could not simply settle the compensation between themselves. The Tribunal therefore had to determine the compensation payable, notwithstanding their agreement at £35,000.
3. The valuation evidence, including inspection evidence, photographs, structural information and comparable local sales, established that £35,000 properly reflected the property’s market value at the valuation date. The valuation allowed for its poor condition and structural problems.
4. Under section 15(2), £35,000 was to be paid by the authority to the bank in part satisfaction of the mortgage debt. Statutory interest from the vesting date and the bank’s reasonable costs were also payable. The amount of interest was to be agreed between the bank and the authority.

The decision records a right of appeal to the Court of Appeal on a point of law, subject to permission. No appeal was determined in this judgment.