HS2 and Valuations.
What valuers need to consider
The HS2 rail link has been described as one of the most ambitious infrastructure projects this century, not just because of the huge expenditure, but because of the impact up on those who live along the route and the number of contractors that will be involved in its development. This is regardless of the ultimate benefits that are claimed (or rejected depending on your political persuasion) once the line is complete.
This article considers those who live along the route, with the consequences for those who have lent money on the property affected and what Valuers need to consider in the short term should they be posed with the requirement to give advice to a lender or a home buyer. Details of the scheme can be found on the HS2 website www.hs2.org.uk.
It is important to check the website if a valuer is required to review a case as there are new developments occurring on a regular basis. This article does not consider commercial owners who would be governed by similar principles, but other considerations apply.
Basic Facts
There are two Phases:
- Phase 1 – London to Birmingham anticipated completion in 2026
- Phase 2 – Birmingham to Manchester and Leeds anticipated completion in 2033
Phase 1 is more advanced in that the proposed route and an area adjacent to it has now been “safeguarded”. This effectively protects the route of HS2 from any planning applications or developments that could adversely affect its construction. This does not mean that no development can take place it merely allows for HS2 Ltd to assess whether the development would affect the scheme. The importance of this is that from July 9th 2013 owners of property within or partly within the safeguarding zone could serve the Government with a Blight Notice. However, the project has not yet gone through the complete parliamentary process and there are still some other areas of consultation required. That said, it is now at the third stage so it is my understanding that parliamentary approval should not be that far away.
Phase 2 is still subject to consultation (and therefore to speculation) as to where the precise route will run. However there is an “Exceptional Hardship scheme” (EHS) for those who have been affected by the announcement and have an urgent need to sell their homes. This is a discretionary scheme that operates in the same way as it did for Phase 1, it follows similar principles to Statutory Blight.
Anyone can determine whether a property is situated within the safeguarding zone by using the HS2 website and a valuer should establish this before undertaking an inspection on a property known to be near this scheme.
Compensation
The scheme will allow for formal compulsory acquisition powers to be in place, but this will not happen until the Bill has been given the Royal Assent, in the meantime there are two options, one which is the Discretionary purchase scheme and rent back and the other is Statutory Blight which is the core means of claiming statutory compensation.
The Discretionary purchase scheme includes:
- Express Purchase – this is like the blight scheme but appears to be more generous
- Rural Support zone – for properties in areas up to 120m from the line and outside the safeguarded area
- Voluntary Purchase scheme (VPS) – Purchase at full un-blighted market value subject to certain criteria – which include freeholder or leaseholder with more than 3 years, owner occupier and 25% of the property must be in the rural support zone
- Cash offer – for people who do not want to sell their home and want to stay in the community – this must assume that the property is not directly affected and they have to meet the same criteria as the VPS
- Need to sell scheme – a discretionary scheme with no defined boundaries where there is a compelling reason to sell such as job relocation. Each case would need to be looked at on its merits
- Rent back scheme – if the owner occupier has had to sell the property to the government then they may be able to rent it back
As these schemes are discretionary, they would need to be fully investigated by a solicitor and agreement reached. An overriding principle of any compensation scheme though is that if compensation is paid then any subsequent purchaser is deemed to be buying with knowledge and no further compensation is likely to be paid so the valuation must reflect the situation for which compensation was paid.
Statutory Blight will apply to the following who are within or partly within the Safeguarding Zone:
- Owner occupiers of residential property (an interest defined as a freehold interest or leasehold with at least 3 years remaining on the lease)
- Owner occupiers of commercial property with an annual rateable value not exceeding £34,800
- Owner occupiers of agricultural property within or partly within the Safeguarding Zone
- Mortgagees (e.g. banks and building societies) who, at the time of sale:
o have the right to exercise their powers of sale in relation to a property; and
o can give immediate vacant possession.
- Personal representatives of a deceased person who had one of the above qualifying interests in a property within the safeguarded area at the time of death.
However, there are provisions that apply, some of the more significant ones are as follows:
There are occupational criteria that apply for all the above including the need for it to be the main residence.
In addition the Blight Notice must be served on the whole property, although the government can serve a counter notice advising that it may only acquire part of the property, probably most significant in respect of agricultural land.
Probably of most importance is that an owner has to prove that reasonable endeavours have been made to sell the property. However, this is one area that is currently subject to further review. The government has proposed that one of the additional measures is that the owner does not have to show reasonable endeavours. However, it was anticipated that this would be decided in 2014, but that document has not been updated so it is assumed nothing has changed, but this will be for the conveyancer to check. The current heads of claim for compensation are essentially as they have been for many years:
- The value of land taken – meaning the un-blighted open-market value of the owner’s interest in the land taken;
- Severance and injurious affection – meaning compensation for the reduction in value of any land retained by the property owner if only part of the property needs to be purchased;
- Disturbance – usually only available to the occupiers of the properties, it means compensation for reasonable additional costs and losses incurred as a result of being required to move (e.g. removal expenses) as well as statutory loss payments. This head of claim should include tenants, but they may not apply until CPO procedures are in place given the continued level of uncertainty; and
- Fees – meaning compensation for reasonable valuers’ and/or solicitors’ fees that may be incurred as a result of the property being acquired.
There is one month to appeal to the Upper Tribunal if the Blight Notice is rejected.
Exceptions to acquisition and/or compensation
Even if a property is in the safeguarding area then it does not necessarily mean it will be acquired
The safeguarded area is a development control mechanism for planning applications, not a land acquisition boundary for HS2. If the property is in the safeguarded area, this means that HS2 Ltd wishes to be informed about any development proposals affecting the safeguarded area. In some cases it may be that only an occupation for a limited period is needed, during construction, and this may be possible by lease or tenancy rather than outright acquisition.
Note that if your property is subject to subsoil safeguarding only, then the Government would not normally expect to acquire that part of the property which is above ground and the Secretary of State may not accept a Blight Notice in these cases.
For those outside the safeguarding area, but who consider that their property has been blighted then they will have to await the completion of the Bill through parliament before being able to claim in a formal way, although it’s possible the EHS scheme may assist in the intervening period, but this is discretionary and no specific guidelines exist as to what would be acceptable outside the Safeguarding area.
Land Compensation Act 1973
Part 1 Land Compensation Act 1973 refers to compensation for the reduction in value of the property due to physical factors (noise, vibration, smell, fumes, smoke, artificial light, discharges of substances) caused by the use of public works, and applies to owners of a qualifying interest in the property on the date the scheme is opened. It cannot be claimed earlier than 12 months from the commencement of the use of the public works (in the case of phase 1 then the opening in 2026 if on target).
Commentary
As with any scheme of this size one solution is unlikely to meet all requirements so in the following table we have tried to identify some of the core areas which benchmark certain situations and these will hopefully give a steer to those that fall outside.
We will look at the period between now and when the scheme should get the Royal Assent. There will be further considerations during construction up until completion and the 12 months after that for Land Compensation claims where further thoughts may be required. In addition we will only look at Phase 1 with the assumption that the same criteria will apply to Phase 2 once the initial consultations are completed.
NOTE: A current standard requirement in establishing whether a property is affected and therefore subject to any compensation is that the owner has to make “reasonable endeavours” to sell. This will equally apply to a mortgagee in possession. It is also assumed that all ownership and occupancy criteria apply as specified above.
| Situation | Valuer Considerations | Lender Considerations |
| Property located fully or partly in the Safeguarding Zone | The property is eligible for the service of a Blight Notice. Future saleability will be affected and new cases should be rejected where a loan is anticipated. Although some property may actually be demolished there will be some that ends up having a rail line very close to them. Nothing can be done until the company determine whether they will accept the Blight Notice. | 1. Existing lenders should identify current outstanding mortgages and advise their customers of what will be required within their mortgage conditions including the employment of a suitably qualified valuer to act on behalf of the borrower and the lender. 2. New cases should be rejected as unsuitable securities pending the outcome of the Blight Review. |
| Property located in the Safeguarding Zone, but subject only to subsoil safeguarding e.g. property above where the rail line will pass through a tunnel | It is unlikely such a property will be required and therefore the Blight Notice could be rejected, but until the notice is served and the review is known then there will be uncertainty. There will also be uncertainty during the construction period and this may influence the value significantly, so much so that an Exceptional hardship claim needs to be submitted. | 1. As (1) above 2. New cases – A valuer should be consulted to advise on whether the property could be affected during the construction phase in which case it may be appropriate to withhold funds until the construction is completed 3. Take advice on whether the property could be eligible for a Land Compensation Act 1973 claim once the construction has taken place |
| Property outside the Safeguarding Zone but within close proximity of the zone and/or a route for construction vehicles | Such a property could be affected by noise and dust. It could also be considered that the increased volume and type of vehicles could be an additional safety hazard and adversely affect the value of property in such a location | Lender should be made aware of the likely impact upon saleability, although there will need to be an acceptance of a degree of uncertainty until precise plans are known. This in itself may trigger an Exceptional hardship claim. This property may be the subject of a Part 1 Land Compensation Act claim 12 moths after the completion of the line |
Table showing core situations from the current date and Royal Assent where a property is being considered for a mortgage valuation
The impact of the HS2 is critical to the valuation of the property and therefore should be reported in all forms of valuation, whether for mortgage, dispute, probate or as a HomeBuyer report. The positioning of the property relative to the proposed route will be critical for the conveyancer who will then determine the legal criteria that will apply precisely. So although a valuer will have a broad understanding of what impact there is from the current status of the legislation, it will be for the conveyancer to advise whether the interpretation is correct and therefore the valuer should always state that “this is his/her understanding of the situation, but the conveyancer needs to confirm” or words to that effect.
The second point the valuer needs to consider is whether s/he has sufficient experience to then undertake the compensation negotiations, which are a specialist area. In most cases it will merely require identification of where the property lies relative to the line and then referral for more information on what form of compensation is available based on the criteria mentioned above. It would be unwise to provide a valuation until those investigations have taken place.
If a surveyor is asked to do a condition report on a property (that does not involve a valuation) that falls within proximity of the proposed line then the surveyor needs to establish the purpose of the report. It is very possible that an owner may want to benchmark the condition of the property at a point in time so that any impact of the works can be recorded and possible compensations claimed. If the Surveyor is carrying out a survey for a purchaser, then the Surveyor should record the fact that the property is within the proximity of the proposed line and refer the client to his solicitor/conveyancer.