Bank of Scotland PLC (Birmingham Midshires Division) v Burnley Borough Council

Where mortgaged land is worth less than the secured mortgage debt, compensation must be agreed by the mortgagee, the person entitled to the equity of redemption and the acquiring authority. If the mortgagor does not participate or agree, the Upper Tribunal must determine the compensation under section 15 of the Compulsory Purchase Act 1965. The Tribunal may determine the property’s value on the evidence, direct payment to the mortgagee in satisfaction or part satisfaction of the mortgage debt, and leave statutory interest and reasonable settlement costs to agreement.

Burnley Borough Council compulsorily acquired a leasehold property subject to a mortgage held by Bank of Scotland PLC. The property was vacant and in substantial disrepair. Its agreed market value at the vesting date was £45,000, while the outstanding mortgage debt was £76,164.80.

The borrowers, who were the persons entitled to the equity of redemption, did not respond to correspondence, the reference or the Tribunal’s directions. The authority agreed the proposed compensation and the written representations procedure. The central issue was whether the Tribunal should determine the compensation payable where the mortgagee and acquiring authority had agreed a sum but the mortgagors had not participated.

1. The Tribunal determined the property’s value at the vesting date, 23 July 2024, as £45,000. The agreed figure was supported by expert valuation evidence and comparable sales.
2. Section 15(1) of the Compulsory Purchase Act 1965 applies where the value of mortgaged land is less than the principal, interest and costs secured on it. The provision requires agreement between the mortgagee, the person entitled to the equity of redemption and the acquiring authority, or determination by the Tribunal if agreement is absent.
3. The borrowers’ failure to participate meant that the bank and the authority could not settle the compensation without a Tribunal determination. The bank therefore made a valid claim under section 15(1).
4. Under section 15(2), £45,000 was to be paid by the authority to the bank in part satisfaction of the secured mortgage debt. The authority was also liable for statutory interest from the vesting date. The amount of interest and the bank’s reasonable costs of negotiating and settling the claim were to be agreed between the parties.